Anti-Fraud Partnership Initiatives: Investing to Stop Organized Crime Rings

Health care costs rose dramatically in 2011 after two years of smaller increases. Greater incidence of organized crime involvement has contributed to the staggering losses. To combat fraud, public and private enforcement agencies are aligning their efforts, with the help of coordinating agencies like the Coalition Against Insurance Fraud.

Armen Kazarian’s crime syndicate heisted the identities of thousands of doctors and patients. Their stolen data turned into a bonanza for the criminal underworld outfit.

The gang erected 118 phantom clinics in 24 states, then billed Medicare more than $100 million for vaporous treatment that medical providers didn’t give and most patients didn’t receive.

It was the largest Medicare fraud operation ever foisted by a single group that resulted in criminal charges, the Federal Bureau of Investigation says.

The Armenian-American operation, known as the Mirozoyan-Terdjanian Organization, carefully scrubbed away clues and messy entanglements. For the most part, the gang had no clinic workers who might turn informant, inconvenient patients who might complain, and few patient recruiters to confess all if questioned by investigators.

The Armenian ring’s fraud franchises were busted in New York; Los Angeles; Cleveland; Albuquerque, N.M.; and Savannah, Ga. The nimble franchises shut down the moment the owner felt heat from law enforcement and then resurfaced elsewhere.

At least 44 suspects have been arrested on federal racketeering charges. The carefully planned operation also caused a rarity—the arrest of an Armenian ringleader. Kazarian was a Vor, an Armenian chieftain, and the first Vor ever busted (see BNA’s Health Care Fraud Report, “44 Charged in Organized Crime Case Alleging $100 Million Medicare Fraud,” Oct. 20, 2010, Vol. 14, No. 20, Page 828; 14 HFRA 828, 10/20/10).

Kazarian’s gang was yet another ominous raising of the ante in the battle against medical fraud. Organized rings increasingly have infiltrated Medicare, private health care, staged-accident rings, and workers compensation programs.

Organized crime is becoming the new norm in medical fraud. Virulent ethnic fraud rings and other outfits have worked insurers for decades. What’s new is the spread of alpha kleptocracies that view medical fraud as a profitable and easy target (see related article in the Court Proceedings section).

There appears to be more and larger fraud rings, which possess the skill sets to steal higher volumes of health-insurance money than ever. Even criminals with violent records have obtained Medicare supplier licenses.

“The emergence of international organized crime in domestic health care fraud schemes signals a dangerous expansion that poses a serious threat to consumers as these syndicates are willing to exploit almost any program, business, or individual to earn an illegal profit,” then acting Deputy Attorney General Gary Grinder said in helping announce Kazarian’s 2010 indictment.

Violent drug dealers also are entering insurance fraud. Simply clicking a mouse to make six-digit claims is easier, more lucrative, and safer than working the streets with a loaded gun at your back.

The stolen insurance money can be staggering. Medicare and Medicaid have been favored targets for decades.

Nine-figure busts are increasingly common. One suspected ring recently foisted a suspected $500 million con. Members allegedly bought HIV medications and other prescription drugs from Medicaid recipients and sold them to unsuspecting buyers. Medicaid beneficiaries in New York, including AIDS patients and others suffering from illnesses needed expensive drugs, sold their prescriptions to cronies for cash instead of taking them for treatment.

Once on the black market, the adulterated drugs were sold to pharmacies and other outlets in New York, New Jersey, Louisiana, Pennsylvania, Florida, Texas, Massachusetts, and other states, officials charge. Federal agents have seized at least 33,000 bottles, often stored in unsafe conditions that compromised the medicines and patient health.

Medical treatment also can be a health-threatening afterthought. Under Kazarian’s criminal regime, a pregnant woman received an ultrasound from an ear, nose, and throat doctor; a skin doctor tested heart patients; and fake limbs were prescribed for people with two legs.

Equally telling, Kazarian’s gang forded the River Styx into new lines of insurance. His cohorts staged fender benders that generated millions of dollars of false injury claims against New York auto insurers. Much of the money went back to mobsters in Armenia and disappeared into a thicket of shell corporations, according to news reports.

In another large operation, a nationwide sweep this year scooped up 73 suspects who allegedly helped steal $48 million from Medicare. The alleged ring feasted on stolen identities of doctors and hundreds of Medicare recipients whose profiles the gang used to lodge false claims. Medical identity theft, this case reveals, is a core money-stealing tactic today.

“This is the new face of organized crime,” Steven Dettlebach, U.S. attorney for the Northern District of Ohio, said. “It used to be what you saw in ‘The Godfather,” but now it’s someone with Internet access stealing hundreds of millions of dollars.”

“The Medicare program is increasingly infiltrated by violent and organized crime networks,” Department of Health and Human Services Inspector General Daniel R. Levinson told the Senate Finance Committee in May 2011.

No Clear Definition

Nor is there clear definition of organized crime. In general, it refers to complex rings with a relatively high degree of organization, and an effective business model well-equipped to steal tens of millions of medical-insurance dollars quickly and stealthily.

Organized crime could easily range from a purely entrepreneurial operation of some size to a highly insular ethnic-American gang to a franchise set up by the ruling mob back in the home country. Even the Mafia has been linked to health care fraud, although apparently only tangentially.

Ethnic groups hold a strong chokehold on organized insurance fraud. Russians, Armenians, Latvians, Estonians, Nigerians, Cubans, Central American cabals, and others siphon taxpayer and private insurer money with industrial efficiency. The large volumes of bogus treatment or durable medical equipment claims also seem more plausible coming from, say, Miami than from a small town in Idaho.

Urban areas also attract a ready supply of lower-level operatives—often recent immigrants struggling to make a living or raise a family. A few hundred non-tax-reportable dollars in cold cash for two hours of useless MRIs or chiro treatments at sham clinic can be a nice little windfall.

Many ethnic gangs also are complex but more loosely structured and less hierarchical than pyramid-shaped Mafia families, some officials say.

“Modern organized criminals often prefer cellular or networked structural models for their flexibility and avoid the hierarchies that previously governed more traditional organized crime groups such as the Cosa Nostra,” the Congressional Research Center said in a 2012 report.

“Fluid network structures make it harder for law enforcement to infiltrate, disrupt, and dismantle conspiracies. Many 21^st century organized crime groups opportunistically form around specific, short-term schemes and may outsource portions of their operations rather than keeping it all ‘in-house,’” CRS said.

“Ten years ago, the image of organized crime was of hierarchical organizations, or families, that exerted influence over criminal activities in neighborhoods, cities, or states,” FBI Director Robert Mueller added in 2012 testimony before a Senate appropriations subcommittee.

“That image of organized crime has changed dramatically,” he said. “Today, international criminal enterprises run multi-national, multi-billion-dollar schemes from start to finish. These criminal enterprises are flat, fluid networks and have global reach.”

Medical ID Theft

Many health care crimes revolve around two basic forms: stealing identities of doctors (who bill for phantom or worthless services) and of patients (fake treatment patients using their beneficiary IDs). Medicare and Medicaid are among the largest targets.

Los Angeles ranks among America’s hot spots for stolen IDs. Russian, Armenian, and Nigerian gangs have been nabbed there by federal agents. Crime boss Konstantyn Gregorian, a former Soviet army colonel, pleaded guilty to a $20 million Medicare con.

Eurasian crime boss Karapet “Doc” Khacheryan was convicted of stealing five doctor identities. Nigerians Christopher Iruke and wife Connie Ikpoh billed Medicare $6 million for unneeded electric wheelchairs and other medial equipment.

Psychiatrist Bianfranco Burdi’s identity was stolen when he was recruited to join a seemingly legitimate practice near Koreatown in Los Angeles. He backed out after growing suspicious of the operation. His identity was heisted to bill $800,000 worth of electric wheelchairs.

Patients also are easy to recruit in cities such as Los Angeles. Recruiters go to Skid Row and offer impoverished Medicare and Medicaid beneficiaries $100 to give up their medical insurance information at a clinic visit, but give minimal medical treatment. Seniors are lured from nursing homes or homeless shelters for staged health fairs promising checkups, nutritional drinks, massages and other goods in exchange for their Medicare identifiers.

Even the traditional Mafia has, to some extent, burrowed into health fraud. Eleven members of New York’s Bonanno family pleaded guilty to health care fraud in South Florida in 2009. They stole seniors’ Medicare ID numbers and used them to submit false claims.

The Russian mafia, or Organizatsiya as many Russians call it, has set up criminal networks in Boston, Chicago, Cleveland, Dallas, Detroit, Miami, Philadelphia and San Francisco, according to news reports. Staged crashes and health insurance fraud are on their menu of complex crimes.

Lawrence Duran crafted a network of thieving medical outfits throughout Florida. Among other things, recruiters trolled halfway houses for addicts and alcoholics. They were bribed to receive bogus mental health and sleep-disorder treatment billed to Medicare.

Ruthless Gangs

Violence is another growing aspect of medical fraud. The threat of bloodshed helps enforce discipline, imposes revenge, defends turf and simply intimidates gang members to obey the leaders’ will.

One of Kazarian’s Armenian gang members pulled a knife at a restaurant in Brighton Beach, N.Y., and threatened to disembowel another member.

The bullet-riddled body of Ernesto Valdes was found in the back seat of his car in Miami. He had information that could have linked cohorts to a $148-million Medicare scheme back in 2004.

Kelechi Chukwueke staged car crashes for bogus medical injury claims and other crimes in California. His gang members threatened girlfriends, acquaintances, relatives, and neighbors into participating.

Medicare investigators also found high-power sniper rifles, machine pistols, and other weapons stored at clinics. Dozens of guns were found at another medical clinic connected to a gun runner from a Mexican cartel, according to a national TV network investigation.

Juana Gonzalez’s pharmacy in Miami was being investigated for Medicare fraud. She was found lying in a pool of blood on the floor. Her cousin was charged with slitting her throat with a piece of broken seat. Authorities believed the killing may have been related to the drug charges.

Other Insurance Lines

Organized crime is infiltrating property-casualty insurance, as well, via phantom treatment of injury claims from setup car crashes.

A notable example recently is the takedown of Russian crime boss Mikhail Zemlyansky in Brighton Beach, N.Y. His gang allegedly billed auto insurers about $400 million in fake injury claims. It’s the largest single no-fault bust in history, federal prosecutors said in early 2012.

Zemlyansky had set up a network of medical mills. Corrupt doctors sold their medical licenses to the gang members, illegally acting as clinic owners. Nearly every so-called patient received exactly the same unneeded treatment regimen in factory-line style, prosecutors allege.

Thousands of so-called patients fleeced auto insurers. They received worthless physical therapy five days a week. Acupuncture, pain management, X-rays and other treatments added to the take, federal law enforcement officials say. The gang had to hire three billing firms just to handle the volume of insurance paperwork. At least 105 corporations were created to hold the large operation together.

False injury-treatment claims by medical mills in New York and Florida—two of America’s epicenters of fake crash injuries—point to thriving fake-injury empires in those states and other with densely packed urban areas that provide plausible cover for high-volume injury claims.

Case referrals to the New York fraud bureau involving suspected automobile no-fault fraud have accounted for more than 50 percent of all fraud referrals since 2007. The fraud bureau received nearly 12,000 reports of suspected fraud in 2011—mostly dealing with medical fraud.

In Florida, no-fault fraud cost consumers and insurers an estimated $658 million in 2011, according to the Insurance Information Institute. The typical two-car family in Florida paid a “fraud tax” of nearly $100 a year in higher auto premiums due to fraud.

Counter Measures

Data is sorely lacking on how much insurance money organized crime steals every year. Fraud of all forms steals a conservative minimum of $80 billion a year, according to the Coalition Against Insurance Fraud. Some estimates place Medicare fraud alone at $60 billion annually.

Other data show the level of criminal activity increasing in recent years. The FBI logged about 2,700 active health fraud cases under investigation in 2011—up 7 percent since 2009. Federal agents recovered nearly $4.1 billion in FY 2011. That’s the highest ever recovered and is up 58 percent since 2009, the Department of Justice said.

Other fraud fighters are vigorously adapting to the mounting challenges of organized crime.

Impatient courts are handing down stiffer sentences. Duran, for instance, received the longest sentence ever imposed for Medicare thievery. The Miami man received 50 years in federal prison for masterminding an attempted $205 million ransacking of the health care safety net for seniors (see “Mental Health Company Owners Plead Guilty in $200 Million Medicare Kickback Scheme,” BNA’s Health Care Fraud Report, April 20, 2011, Vol. 15, No. 8, Page 358 (15 HFRA 358, 4/20/11).

Highly concentrated force through the HEAT strike forces launched by DOJ and HHS has scuttled Medicare and Medicaid rings in designated urban hotspots such as Detroit, New York and South Florida in the last several years.

HHS also is imposing new rules that will make it easier to kick cheaters out of Medicare and screen out shady operators before they enter the system.

Medicare also is gradually dumping its antiquated pay-and-chase strategy. Advanced technology such as predictive-analysis is being installed. It has potential to detect large volumes of billing anomalies in nearly real time—before the suspicious bills are paid, the taxpayer money disappears and the evidentiary trail grows cold.

Among the other promising new initiatives is the formation of partnership among public and private payers who are expansively addressing the harsh realities of organized insurance rings today. The Healthcare Fraud Prevention Partnership (HFPP) brings together the heavy hitters of the anti-fraud community—HHS, DOJ, the HHS inspector general, along with major health plans and top anti-fraud associations.

The Mirozoyan-Terdjanian Organization typifies many modern-day fraud rings the new partnership seeks to address—the equal-opportunity crooks who will ply their trade anywhere they seek the potential for financial gain.

Thus, many organized rings multi-task. The same outfit that unspools false Medicare injury claims may also defraud private health plans and even stage car crashes for fake injury claims.

In this roiling environment, the public-private partnership is an ambitious effort to break through the silos, then identify and confront fraud on its many overlapping beachheads.

Specifically, the heightened threat of organized crime has impelled fraud fighters to recalibrate their strategies. Key is a much greater operational coordination among public and private fraud fighters.

HFPP members already have started sharing strategies, best practices, and intelligence to gain an advantage over fraudulent providers.

Over time, partners will begin to share data on suspected scammers, and that’s when the real payoffs will be realized. Hope is that frauds will be identified much quicker and that the flow of fraudulent dollars pouring out of our insurance systems will ease to more manageable levels.

The ultimate goal here is to help keep health insurance available and affordable. Health care costs surged in 2011 after much smaller increases the previous two years, according to a report just released by the Health Care Cost Institute.

Investing in anti-fraud initiatives now will help both public and private payers do their part to stop organized fraud perpetrators and other crooked providers from piling on to an already overburdened insurance system.