For five years a Long Beach company called Pacific Care Medical Supply billed the government's Medicare program for power wheelchairs, hospital beds and other medical supplies for elderly patients.
But there was a problem: Most of the time physicians never ordered the equipment, and patients never received it, according to government prosecutors.
The alleged $2.4 million scam qualifies as garden variety for Southern California, which federal officials have labeled as one of the top two regions for health care fraud in the nation.
Now the U.S. Attorney's Office in Los Angeles has established a unit that will focus on prosecuting health care fraud, joining in a crackdown already under way by other agencies.
"We could double or triple the number of prosecutors on this, and we would still be understaffed," said Assistant U.S. Attorney Consuelo Woodhead, who is heading the three-attorney unit. "We talk to people who say they have been in the health care fraud business for a decade."
Atim Okorn, a 49-year-old Chino resident who owns Pacific Care, is the first to be prosecuted under the crackdown. He was arrested earlier this month on Medicare fraud and is being held without bail. His attorney declined comment.
His arrest follows a number of high-profile health care fraud investigations conducted in Southern California by the FBI, the Office of the Inspector General of the Health and Human Services Agency and other state and federal investigators.
They include the October indictment of the owners and employees of a Santa Ana surgery center who are accused of inducing patients from around the country to have unnecessary surgeries in exchange for cash and vouchers for plastic surgery. More indictments are expected.
Over the last four years, around 400 people have been arrested statewide as part of operation Durascam, which targeted durable medical suppliers and laboratories believed to be submitting bogus Medicare claims.
"The more resources we devote to fighting health care fraud, the more we find," said Don White, a spokesman for the Inspector General, which investigates fraud in the government Medicare and Medicaid programs. "It's like a bottomless pit."
Prior to the formation of the unit which will focus on criminal violations prosecutions of health care fraud was conducted by different attorneys in the Public Corruption and Government Fraud section of the office.
But it was hard for any of the two-dozen or so prosecutors to develop any significant experience in the complicated arena, said Pamela Johnston, a supervising prosecutor in the Los Angeles office.
"The idea is to focus the time of these people so they develop some momentum," she said. "With in-depth knowledge really comes the ability to advance an area. You learn from the cases. You develop expertise with the agents."
The unit will be located within the government fraud section, and initially it will have three prosecutors, a number largely determined by those who expressed interest in joining it, including Whitehead.
The unit's establishment this month follows a decision by the Centers for Medicare & Medicaid Services to step up its investigation and prosecution of local Medicare fraud. It established a Los Angeles office of its program integrity division.
The division works with law enforcement agencies such as the FBI and the U.S. Attorney's Office, as well as the private contractors that actually process the Medicare claims, to facilitate the discovery and prosecution of fraud.
"It's really important that CMS play a role here," said Ted Boyle, chief of the five-person L.A. office. "The Los Angeles area is definitely a hot spot."
The Medicare system is so large that the government has hired more than two dozen contractors to process and pay the more than one billion claims that are submitted to it annually nationwide.
The integrity division works with contractors who use sophisticated software that can ferret out bogus claims noting, for example, when there is an unexpected cluster of claims for a particular service.
After an on-site visit if fraud is suspected, the cases can be turned over to the FBI and eventually federal prosecutors. "It's very proactive. Reactive does not address the problem," Boyle said.
Health care fraud in Southern California has evolved over the past decade, according to law enforcement officials.
In the '90s there were staged car accidents and fraudulent claims by laboratories. That was followed by a surge in fraud by medical equipment providers and clinics. Most recently there has been fraud by home health agencies and outpatient surgery clinics.
Southern California is only rivaled by South Florida for these frauds, officials say, likely because both areas have large elderly populations, as well as large populations of poorer immigrants.
In the case of Pacific Care, Johnston said the company had some legitimate business, but also submitted claims for phony patients or supplied products to patients at costs lower than billed to the government.
The alleged fraud was discovered when a contractor conducted an audit and discovered that the durable goods claims often could not be matched with claims for a doctor's visit. This was a problem, since a doctor would have to prescribe the services, she said.
Federal officials acknowledge there are no hard numbers that quantify how much fraud is costing taxpayers, but estimates range from 3 percent to 10 percent of Medicare spending, which is projected to hit $345 billion this year (not including premiums paid by beneficiaries).
They also fear the problem could get worse as the program grows to accommodate aging and the Bush Administration's new prescription drug benefit.
"Criminals realize when you have a large sum of money that is where you go," said Dan Martino, who heads the Los Angeles health care fraud unit of the FBI.
Not everyone is convinced that the problem is as bad as law enforcement officials make it out to be.
Patric Hooper, a principal at Hooper Lundy & Bookman, a Los Angeles law firm that specializes in representing physicians, hospitals and other providers, believes that fraud estimates of even 3 percent are wildly off.
"I believe there is some fraud, some abuse in the system, but I think it has been grossly overstated for political reasons," he said. "Health care costs continue to spiral out of control. A convenient way for politicians to respond to problems is to blame it on fraud."
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