On a Sunday afternoon two years ago, five homeless people being dropped off on Los Angeles' skid row by an ambulance caught the attention of police officers.
The officers videotaped what they thought was a case of hospitals dumping patients in a section of the city where few would notice or care.
But as investigators began to unravel the incident, they say they found something far different: a massive scheme to defraud taxpayer-funded healthcare programs of millions of dollars by recruiting homeless patients for unnecessary medical services.
The elaborate enterprise churned thousands of indigents through hospitals over the last four years and billed Medicare and Medi-Cal for costly and unjustified medical procedures, federal, state and local investigators said Wednesday.
Those involved in the alleged conspiracy "ranged from street-level operatives to the chief executive of a hospital," U.S. Atty. Thomas P. O'Brien said.
After raids on three hospitals in Los Angeles and Orange counties Wednesday, one hospital chief executive faces criminal charges and executives at two other facilities were accused of fraudulent business practices in a related civil lawsuit filed by Los Angeles City Atty. Rocky Delgadillo.
Some of the homeless patients involved received tests or treatments that were potentially harmful, authorities said.
The "depravity" of the alleged scheme startled authorities, said Salvador Hernandez, assistant director in charge of the FBI's Los Angeles office.
"The defendants are accused of preying on the homeless and exploiting their desperate conditions for personal gain," he said.
Arrested on federal charges were Dr. Rudra Sabaratnam, an owner and chief executive of City of Angels Medical Center, and Estill Mitts, an alleged patient recruiter who operated a storefront facility called the Assessment Center in the heart of skid row. A 21-count grand jury indictment accuses the pair of healthcare fraud and receiving illegal kickbacks.
Mitts, who was released Wednesday afternoon on $25,000 bail and confined to his home, is also charged with money laundering and income tax evasion. His attorney declined to comment. Late Wednesday, Sabaratnam's attorney, John Vandevelde, argued at a court hearing that the charges against his client were "not that significant." But the doctor was being held in custody until another hearing today.
In addition to City of Angels, agents earlier Wednesday swarmed Los Angeles Metropolitan Medical Center and Tustin Hospital and Medical Center in Orange County. Pacific Health Corp., which owns both hospitals, said in a statement that it had cooperated with authorities and believed it would be cleared of any illegal conduct.
Officials said the investigation was continuing and additional defendants were expected to be charged. The total amount of the fraud was still being tallied, but prosecutors said Mitts' operation could have cost the government $11 million in improper payments and that City of Angels collected $5 million in federal healthcare reimbursements. City of Angels did not respond to requests for comment.
Delgadillo sued the three hospitals, their operators and several others. The hospitals used unfair business practices to fill empty beds in a bid to boost their finances, the suit claims.
The privately owned medical centers allegedly worked with patient recruiting operations on skid row that plucked homeless people from the streets and delivered them, with fake medical diagnoses, to the hospitals.
According to court filings, "runners" or "stringers" on skid row looked for homeless recruits. Prospects were offered small sums of money, typically $20 or $30, to be paid upon completion of a hospital stay of one to three days. The street recruiter typically received $40 for each homeless recruit with Medicare eligibility and $20 for each recruit with Medi-Cal benefits, according to the city attorney's lawsuit.
Some solicitations were direct, but others were coded, according to the city attorney's lawsuit. One alleged street pitch referred to the color scheme of the Medi-Cal eligibility card: "Red, white and blue, just make it do what it do, for me and you."
A person familiar with the workings of the alleged scheme told The Times last year that employees at the Assessment Center would recruit people on skid row to reach out to potential patients, who may or may not have needed medical treatment. The source, who spoke on the condition that he not be named, said some patients were reimbursed for their time with money, food or a pack of cigarettes -- what was called an "incentive."
In other instances, the source said, patients walked into the center on their own.
Recruiters "were looking for someone who was sick or immobile," the source said. "Someone who was in need of money, who was down and out, sleeping on the street, with nowhere to go."
The source said it didn't matter whether the patients were currently using drugs or not, or whether they had underlying psychiatric issues.