The integrity of Medi-Cal hinges largely on identification numbers issued to health-care providers and patients. But the state has struggled to keep the numbers from being misused. A few years ago, some streets in Los Angeles County were packed with phony medical equipment suppliers. They operated out of storefronts with virtually no inventory or clientele, or simply used mail drops.
Medi-Cal's weaknesses have been obvious for some time. A U.S. General Accounting Office report in 2001 noted that the program was admitting doctors, labs and others who had questionable billing histories and allowing some to have multiple numbers.
A state audit this year found that controls need further tightening to avoid enrolling or re-enrolling people intent on fraud. Health officials say they have improved procedures and are reviewing new applications more carefully.
As part of a crackdown, the state forced all 1,400 medical equipment suppliers to re-enroll in the Medi-Cal system; when the state did that, more than half dropped out.
"They did not want to come back because [many] were Mail Boxes Etc.-type places," said Diana Ducay, who oversees the health department's 200-member anti-fraud force.
To improve the screening, the state now visits all applicants. However, with nearly 150,000 providers, officials say the state lacks the resources to regularly inspect them all.
When medical labs became fertile ground for fraud, the state imposed a moratorium on new applicants in 2001.
Officials say that step, however, came too late to stop Surinder Singh Panshi, whose case illustrates many of the weaknesses in the system.
Panshi had been convicted twice of health-care fraud in New York and served five years. Using blood purchased from addicts and poor people, his labs billed that state's Medicaid program $3.6 million for unnecessary tests in the late 1980s. Some donors were almost literally bled to death, leading the prosecutor to call it "perhaps the largest and most nefarious [health] fraud ever perpetrated."
After being released from prison, Panshi came to California, where officials say he and his confederates used a dozen blood labs to bilk Medi-Cal out of $11 million.
Panshi never was listed as a person being reimbursed by Medi-Cal. But investigators heard that a mysterious "Dr. Khan" was a hidden owner of two labs.
A lab accountant had shipped a Federal Express package to New Jersey where Panshi maintained a home not far from a variety store where millions of dollars in Medi-Cal checks were cashed. Confronted by investigators, the accountant said Kahn was Panshi. "This is an organized crime group operating the laboratories, like the Mafia," he said.
When Atty. Gen. Bill Lockyer's office filed charges in June, investigators had linked 13 labs to Panshi's group and found that the labs submitted phony bills for thousands of tests authorized by two dozen doctors whose identities were stolen. Two of the doctors were dead when bills were submitted in their names.
Several labs were run by Linda Dizon, who reached a plea deal and was described in court records as Panshi's girlfriend. Some, she told state investigators, were "wang bang" labs, meaning they ran no tests. Others tested old and useless "bad blood." Either way, Medi-Cal got billed.
Dizon also said money from the scheme was used to buy her $75,000 Porsche and a home in Diamond Bar that she and Panshi bought for $350,000 at a Los Angeles County auction.
Supervising Deputy Atty. Gen. Hardy Gold said four defendants in the case are fugitives, and all but two of the others have pleaded guilty and are awaiting sentencing.
Gold said Panshi, who is being held on $2-million bail in Orange County, is scheduled to appear Jan. 3 and respond to a plea bargain offer that would include lengthy prison terms in California and New Jersey.
"It is our belief that [Panshi] has to be sent to prison for a number of years," Gold said. "His prior convictions have not deterred him from stealing from the public."
Panshi's attorney, Sean Singh, declined to discuss the case but said, "He is a very nice guy, very personable. He is a family man."
As with most health-care frauds, little money has been recovered.
State officials have found that as soon as they close one avenue to fraud in the program, another opens.
It costs almost $7,000 for a one-month prescription of Serostim, a human growth hormone used as an AIDS anti-wasting drug. But there's also a black market among body builders.
Health investigators uncovered a statewide ring led by a former radiologist who purchased beneficiary numbers, stole physician identities and created phony Serostim prescriptions. The ring got away with filling them repeatedly, at multiple pharmacies. Then the suspects allegedly peddled the drug at gyms and spas.
The cost to Medi-Cal was $3.5 million, according to a San Diego County grand jury indictment a year ago.
After reimbursement levels for dental work were increased in the early 1990s, officials saw Denti-Cal fraud climb.