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Battling the Medicare fraud 'epidemic'

Editor's Note: Watch the related NBC Nightly News report below.

By Mark Potter, Correspondent, NBC News

MIAMI—In an out-of-the way warehouse district in southwest Miami-Dade county, FBI agent Brian Waterman and Julie Rivera, an agent with the Health and Human Services Office of Inspector General, approached a tiny medical supply company that they suspected was nothing more than a front for Medicare fraud.

After knocking on the door, calling the office number and peering through the mail slot, they found no one inside the 250-square-foot facility, which had only a desk and a few medical supplies on shelves along the wall.  "The equipment on the wall certainly wouldn't justify one percent of what's billed to Medicare," said Waterman.
According to the agents, the office space was used by two separate owners to justify fraudulent claims to Medicare for equipment never delivered to actual patients. The last owner, Waterman said, was the most aggressive.  "This company billed for $1.4 million. We have no indication whatsoever that any of those claims were legitimate claims."

The agents said it's a scenario they see all the time and insisted the Medicare theft problem isn't getting any better.  "It's huge, it's huge, it's like an epidemic," said Rivera.  "They're just bleeding the system and as long as Medicare keeps paying out the money they're just going to keep committing the fraud."

Julie Rivera of the HHS Office of Inspector General and FBI agent Brian Waterman investigate fraud in the Miami area.


Officials said Medicare pilferage is so widespread, with so much of it never detected, that no one can accurately say how much it costs American taxpayers. But a figure widely used by law enforcement officials suggests a staggering $60 billion a year is stolen from the national entitlement program, which funds medical treatment, equipment and prescriptions for 45 million seniors and the disabled.

"Every taxpayer funds the Medicare system," said Waterman.  "We all pay taxes, we all pay for this. The people that are stealing from Medicare are stealing from us." 

The amount of money stolen in any given scheme is on the rise, as criminals find new ways to tap into Medicare's automated computer system, a trust-based operation designed to quickly pay claims from legitimate doctors and medical suppliers.  A veteran Justice Department prosecutor tells NBC News that if a person stole a million dollars from Medicare through false-billing schemes a decade ago, it was considered a major case. These days, he said, it's not uncommon for individual fraud cases to involve $30 million to $50 million or more. 

VIDEO: Battling the Medicare fraud 'epidemic'

Recently, in Miami, Ihosvany Marquez and several alleged conspirators were indicted on charges of having filed $55 million in phony Medicare claims for HIV, AIDS, cancer, pain and varicose vein treatments.  Authorities said Marquez used some of the approximately $21.6 million Medicare paid out for those claims to buy diamond jewelry, horses and a fleet of luxury cars, including Lamborghinis, Bentleys, a Ferrari and eight Mercedes-Benz automobiles. Marquez has pleaded not guilty and is currently in jail without bond.

Prosecutors say this Lamborghini was part of a fleet of cars purchased with stolen Medicare money.


President Barack Obama has gone as record saying that Medicare fraud is a major concern of his administration and has argued that reductions in fraud costs could help pay for his national health care program. 

On May 20, 2009, the Secretary of Health and Human Services, Kathleen Sebelius, and Attorney General Eric Holder established a Cabinet-level task force known as HEAT, which stands for The Health Care Fraud Prevention and Enforcement Action Team.  "We are going to be aggressively pursuing this criminal activity, cracking down on people and getting ahead of it. And we are going to be watching billing operations very carefully," said Sebelius.  "The president takes this very seriously.  He wants Medicare to be solvent and secure."

In addition, HHS and the Justice Department now have seven Medicare fraud prosecution strike forces in place — in Miami, Houston, Los Angeles, Detroit, Brooklyn, Tampa and Baton Rouge.  Since the first strike force office opened in Miami in March, 2007, the strike forces have indicted more than 460 individuals and organizations for allegedly billing the Medicare program falsely for more than $1 billion.

"If you're trying to steal from the Medicare program, we're going to go after you aggressively.  And if we prove our case, which I hope and expect we will, you're going to go to jail," Assistant Attorney General Lanny Breuer said. "We want taxpayers knowing that the money is going to the elderly and it's not going to fraudsters."


Professor Malcolm Sparrow, a fraud expert who teaches at Harvard's John F. Kennedy School of  Government, praised the Obama administration for addressing the Medicare fraud problem.  "There  has been more attention paid to this issue," he said.  "There seems to be a genuinely increased commitment to confront it, and to begin at least to admit the potential scope of the problem.  All that is good news."

Sparrow has long been critical of Medicare's system for licensing health care providers and paying claims, arguing the procedures are easily exploited by criminals who have learned how to overwhelm the Centers for Medicare and Medicaid Services (CMS), which pay the claims, by flooding them with bogus bills for services never rendered.

"They know there are not a lot of resources at the other end to ask questions and test the validity of those claims," he said.  "If they hit these systems with tens of thousands of claims, they can steal millions of dollars at the speed of light."

In testimony last spring before a U.S. Senate subcommittee on crime, Sparrow told of the particularly embarrassing discovery that Medicare had made lots payments to doctors who were actually deceased and whose names had been submitted by criminals.  "From 2000 to 2007, between $60 million to $92 million was paid for medical services or equipment that had been ordered or prescribed by dead doctors.  In many cases, the doctors had been dead for more than ten years," Sparrow said.


Prosecutors and agents specializing in Medicare fraud have criticized CMS for making payments to fraud artists too quickly, without proper investigation.  Numerous law enforcement sources complained to  NBC News that law enforcement investigators often aren't told by Medicare that a potential fraud is brewing until it's already long under way, has reached a massive scale and the criminals have closed the illicit clinic and moved away to open a new one.

"These (schemes) take a while to build, a while to set up, and they are able to operate for years under the radar without any threat of detection," said Sparrow.  And disappearing before the authorities arrive isn't hard, either, he said.  "The government acts as if it's surprised that nobody is home.  Well it's no surprise they're not home, they're out on their luxury yachts."

To keep even further ahead of regulators, criminals regularly shift their billing schemes. Years ago, agents said, they saw lots of phony bills for milk supplements.  After that, crooked company owners concentrated on durable medical equipment such as wheelchairs and breathing machines.  

Next came phony AIDS infusion treatments and home nursing care.  The latest false billing schemes, authorities say, involve bogus home therapy services.
HHS Secretary Sebelius told NBC News that fraud detection and the sharing of information need to be improved and said her department is addressing those issues.  "We are trying to really improve the systems, upgrade the data systems, sharing real-time data with law enforcement, which has never happened before.  It was always way after the fact," she said. 

Complicating the enforcement efforts, Sebelius said, is CMS's mandate to effectively serve the millions of Americans who depend on Medicare and to quickly pay the doctors and healthcare professionals who care for them.  "Medicare pays about $430 billion worth of claims a year.  Four million claims a day go out the door."  Striking the balance between proper service and criminal detection is a big challenge facing regulators, she said.  "I think the balance is making sure at the front end that (health care providers) are properly licensed, making sure that we verify who it is that we're paying."

Meanwhile, federal agents continue to work their fraud cases on the streets and find no let-up in the criminal activity.  "The fraud is easy.  It's not difficult to steal from Medicare," said Brian Waterman, the FBI agent.  "We could arrest, you know, hundreds of people every month, but there's a line of people to take their place.  The money you can make doing something like this is just too good."