SACRAMENTO — Ignoring clear warnings that California's Medi-Cal system was rife with fraud, state officials allowed the situation to go unchecked for years until the FBI swept in with massive arrests.
The state's failure to act in the face of alarming audits came less than a decade after an almost identical scam--the $100-million "Diapergate" scandal in 1988-92--rocked the medical program for the poor.
Records and interviews show that the agencies responsible for combating Medi-Cal fraud took little action to stop the criminal activity or to punish the operators who were stealing hundreds of millions of dollars. Not until the FBI launched an investigation in 1998 was the fraud attacked. FBI agents estimate that the total fraud, which is concentrated in the Los Angeles area, may reach $1 billion.
"Was someone asleep at the wheel or what?" said current state Senate Health Services Committee Chairwoman Martha Escutia (D-Whittier).
The "Diapergate" scandal, in which dozens of businesses submitted millions of dollars in false claims for incontinence supplies, prompted a series of reforms that were supposed to be stopgaps for such Medi-Cal abuses. But it turned out the new requirements were rife with unchecked loopholes.
The recent fraud mushroomed at a time when the attention of then-Gov. Pete Wilson and then-state Atty. Gen. Dan Lungren was locked on the hot-button issues of the day: violent crime and welfare cheaters. State resources were poured into programs to combat crime and investigate welfare recipients, but no effort was made to beef up the forces fighting Medi-Cal fraud.
"The department [of health services] under the previous administration was not focused on provider fraud," Gov. Gray Davis said in an interview. "They were focused on individual fraud. The money is in provider fraud and that's where we're going."
A spokesman for Wilson said no evidence of widespread fraud by businesses serving Medi-Cal ever reached the former governor's office.
"The governor finds fraud in any form to be unconscionable," said former press secretary Sean Walsh. "Any time fraud was brought to his attention, Gov. Wilson would make it a priority to end that shameful practice. He thinks it's inexcusable."
Kimberly Belshe, director of the Department of Health Services when the recent fraud took place, declined to be interviewed.
