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How Medicare Fraud Became the Nation's Most Lucrative Crime 

It costs taxpayers hundreds of billions of dollars. But the feds say they're finally trying to crack down

Thursday, Apr 25 2013
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Houston Riverside General Hospital specialized in the kind of medicine its better-heeled brethren did their best to avoid: treating the poor, the mentally ill, the drug-addled.

So it's no surprise that the 95-year-old nonprofit — formerly known as Houston Negro Hospital — shared the same broken finances as the people it served. Most patients couldn't pay their own way, leaving Riverside to survive off the rock-bottom reimbursement rates of Medicare and Medicaid.

At one point, it was losing $10,000 a day. That's when executives decided to cauterize the wound with the hot poker of fraud.

click to flip through (2) PHOTO BY LILIANA MORA - Christopher Dennis and Reginald France of the Miami HEAT task force
  • PHOTO BY LILIANA MORA
  • Christopher Dennis and Reginald France of the Miami HEAT task force
 
 

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In 1996, the state of Texas accused Riverside of padding fees and billing for drug-rehabilitation services it never provided. Texas canceled $1 million in contracts and demanded that the hospital repay another $763,000. It also urged the feds to audit Riverside's Medicare and Medicaid payments.

Yet charges of fraud weren't enough for bureaucrats to close the spigot fully. The money continued to flow. It would take another eight years before the state had finally had enough. In 2004, it moved most of its drug-treatment contracts to more trusted providers, slashing Riverside's funding by 75 percent.

Unfortunately for the taxpayers, Riverside CEO Earnest Gibson III had friends in influential places. Congresswoman Sheila Jackson Lee, D-Texas, demanded an investigation of the cuts, calling on Gov. Rick Perry to restore the money. Perry, who had appointed Gibson to the Board of Regents at Texas Southern University, was happy to oblige. By the time it was over, Riverside emerged with another $3 million.

It wasn't until 2011 — 15 years after the initial accusations — that law enforcement got serious. That's when the feds nailed administrator Mohammad Khan, who confessed to enriching the hospital via a kickback scheme.

He'd been paying "recruiters" $300 a head to bring Medicare patients to Riverside's six psychiatric clinics. They arrived by the van load for daily therapy sessions they rarely qualified for, or received. Medicare picked up the $116 million tab.

When the scheme was discovered, the Center for Medicaid and Medicare Services (CMS) finally halted the hospital's payments. But in the eyes of Jackson Lee, a meager $116 million theft was hardly cause to rush to judgment. Her husband, Elwyn Lee, once served on Riverside's board. So the congresswoman again rode to the hospital's rescue.

"Even if more harmful acts prove to be true," she wrote to CMS, "an entire institution should not be penalized by the acts of one person."

In Riverside's case, that "one person" would abruptly multiply. Investigators discovered that, since 2005, the hospital had been swindling the feds to the tune of $22 million a year. Kahn ratted out CEO Gibson as his co-conspirator, and the feds also nabbed Gibson's 35-year-old son, Earnest IV, who ran one of the psychiatric clinics and was charged with billing nearly $700,000 for care that "was not medically necessary and, in some cases, not provided," according to prosecutors.

Kahn has pleaded guilty. The Gibsons and five others await trial on charges of fraud, conspiracy and money laundering. And by this time, Jackson Lee had no choice but to dial down her patron sainthood. She refused to comment for this story.

Another member of Congress is happy to talk. Kevin Brady, R-Texas, has been trying to draw attention to health care fraud in Houston since entering office in 2009. It seems that CMS, the agency charged with protecting Medicare dollars, had failed to notice that the city's private ambulance services were robbing the agency blind.

That year, companies in Harris County, Texas, billed Medicare $62 million for emergency shuttles. By comparison, New York City received $7 million for the same services. Brady's concerns went ignored until 2011, when a Houston Chronicle series dragged the scam into the light.

Think of the Medicare program as a bank that never bothered to buy a safe. Everyone from HMOs to drug dealers has been caught robbing it time and time again, stealing the kind of money that makes the sequester look like pocket change.

While the credit card industry uses data-mining techniques to flag fraud within minutes, CMS has allowed the most obvious schemes to run for years, rarely the wiser.

"Washington has long bragged that Medicare only has a 2 percent administrative overhead," Brady says. "But with that, we've paid a steep price in far too much fraud."

Given how often such blatant thievery goes undetected, no one's sure how much fraud there really is. Conservative estimates place the bill at $100 billion annually. The more adventurous peg the figure closer to $300 billion — three times what the feds spend on education.

It has left federal health care little more than an unlocked home, where street punks and gangsters, doctors and even states walk right in and help themselves to whatever's inside.

All you need is the government and your imagination

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