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California and the West

Medi-Cal Fraud Battle Wears On

Crime: State and federal officials are beefing up resources and laws, but criminals come up with new schemes.


SACRAMENTO — Despite months of high-profile prosecutions and more than 200 arrests, state and federal officials have been unable to halt the tide of fraud in California's health care program for the poor, Medi-Cal.

Law enforcement authorities acknowledge that crafty criminals have concocted new ways to defraud the $18.5-billion program, which serves 5 million Californians.

"I don't see it slowing down yet," said James Wedick, head of the FBI's corruption squad in Sacramento. "The fraudsters are out there continually retooling and designing new schemes to try and thwart our efforts."

The FBI launched an investigation in 1998 that resulted in charges against 108 people and produced 63 convictions. Bureau agents estimate that fraud against the system could total $1 billion.

Gov. Gray Davis has been expanding the state's investigative forces and is now working to strengthen state laws used to fight Medi-Cal fraud. Atty. Gen. Bill Lockyer's office, meanwhile, reports that its Bureau of Medi-Cal Fraud and Elder Abuse has filed 125 criminal cases since July.

But even as state and federal officials place new emphasis on eliminating Medi-Cal fraud, they acknowledge that criminals are adding new twists to their schemes to make them more difficult to detect and prosecute.

"I've just been out in the field and I'm kind of depressed," said J. Alan Cates, head of Davis' Medi-Cal Fraud Prevention Bureau.

Cates said that on a recent trip to Los Angeles he uncovered a disturbing new trend: Neighborhoods that once were home to an abundance of medical equipment supply shops--many of them fraudulent operations--now appear to be inundated with equally suspect pharmacies.

The state placed a moratorium on new Medi-Cal provider numbers for medical equipment such as crutches, adult diapers and wheelchairs. FBI agents had discovered that dozens of pharmacies and medical supply businesses were using the numbers to submit phony invoices to the state.

But while the moratorium has slowed the proliferation of medical supply shops, it may have triggered the new wave of pharmacies, Cates said.

"My concern is they're opening a store they call a pharmacy," he said. "If you're a pharmacy, you can still sell medical supplies."

And fraud may be more pervasive in other areas of the Medi-Cal program than originally suspected, authorities say.

When Wedick's office recently had state officials run a computer check of doctors who were referring patients to a particular laboratory, at least 13 of 15 surveyed reported that they had not made any of the referrals.

"They were all bogus," Wedick said of the referrals, which numbered in the hundreds.

State Controller Kathleen Connell's office, which originally uncovered fraud in the Medi-Cal program, is conducting audits on 50 claims that have been deemed "suspicious" by the Department of Health Services.

"We're still finding a lot of problems with unsubstantiated claims," said Connell spokesman Tom Marshall.

That is not to say that no progress has been made in the war against Medi-Cal fraud, authorities say.

The governor's revised budget says the state has saved $29.7 million as a result of Medi-Cal anti-fraud efforts. Medical supply expenditures have decreased by $22.5 million, possibly because of a reduction in fraud.

The 63 Medi-Cal providers who have been convicted as part of the FBI investigation have been ordered to pay restitution in excess of $17 million.

Cates' prevention bureau has also conducted reviews of 13,000 of an estimated 120,000 providers. So far, the Department of Health Services has temporarily suspended or is withholding payments to at least 500 providers. A Medi-Cal Fraud Hotline ([800] 822-6222) for reporting suspicious activities has received 1,000 calls to date.

Authorities say they are confident their efforts are raising awareness of the problem. And at long last, they say, a system is in place to better detect and eliminate illegal schemes and has forced the criminals to change their ways.

Davis has proposed that the state increase the number of auditors and investigators assigned to the Department of Health Services to 436, at a cost of $34.7 million in the 2000-01 budget year.

If successful, Davis will have tripled the investigative force's staffing since he took office. He has proposed adding $4 million to the state attorney general's budget to hire more investigators and lawyers, according to Sandra Michioku, a spokeswoman for Lockyer.

Seeking to equip investigators and prosecutors who fight Medi-Cal fraud with an arsenal of stronger weapons, Davis has thrown his weight behind a measure introduced by Assemblywoman Gloria Romero (D-Los Angeles). The bill establishes stricter guidelines for Medi-Cal billing procedures and expands state laws aimed at eliminating health care crimes to closely mirror federal statutes.

The proposal would empower Lockyer, who has not taken a position on the bill, to impanel a state grand jury to investigate and issue indictments for health care fraud and abuse--a technique regularly employed by federal prosecutors to force reluctant witnesses to testify. It also seeks to establish asset forfeiture laws similar to the federal Racketeer Influenced and Corrupt Organizations Act.

"We need to improve our authority," Romero said. "We shouldn't be telling our folks, 'If there's fraud, go talk to the Feds.' "

The measure would increase state prison sentences to as long as 10 years for fraud convictions and 20 years for causing serious bodily injury to a minor.

The latter violation is born of an illegal practice in which criminals pay healthy adults and teenagers $10 to $40 to donate blood that undergoes testing at a laboratory; fraudulent claims yielding as much as $300 are then filed with the state.

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