Monday, November 14, 2016

California Owner and CFO of Chain of Outpatient Drug Rehab and Sober Living Facilities Charged With Insurance Fraud and Identity Theft In State Case in LA County Superior Court

There have been investigations into the drug rehabilitation business the past two years with insurance investigators leading the way. The investigations have covered the marketing to patients, payment of patients' insurance policies, use of drug toxicology laboratories, excessive billing allegations and other insurance issues.

In the largest Los Angeles case to date, on November 10, 2016, Community Recovery of Los Angeles (CRLA)'s CEO Chris Bathum and CFO Kirsten Wallace were charged in a state case in Los Angeles County Superior Court with multiple felony counts of grand theft and identity theft for allegedly conspiring to defraud patients and insurers out of more than $176 million through an elaborate conspiracy. Simultaneously, search warrants were also executed at 15 locations throughout Los Angeles and Orange County. Mr. Bathum and Ms. Wallace are presumed innocent and a criminal complaint is not evidence. 

The felony complaint alleges that Mr. Bathum and Mr. Wallace conspired to steal patient identities and buy health insurance policies for patients without their knowledge. After completing treatment, it is alleged that Mr. Bathum continued to have CRLA bill insurance companies for treatment services. It is alleged that CRLA 
billed health insurance companies more than $176 million in fraudulent claims. The insurers, including Anthem Blue Cross, Blue Shield, Cigna, Health Net and Humana paid approximately $44 million in total before stopping claim payments to CRLA.

Mr. Bathum and Ms. Wallace are charged with multiple counts on the following felonies:
(1) Identity theft for allegedly submitting fraudulent health insurance applications without patients' knowledge:
(2) Five counts of billing fraud for allegedly submitting claims for services not provided and duplicate billings;  
(3) Five counts of grand theft by false representation for allegedly representing CRLA as a residential treatment facility, which it is not licensed to provide;
(4) Five counts of grand theft by false representation to insurers for allegedly filing fraudulent health insurance policy applications;  and 
(5) Enhancements for losses greater than $500,000 and for losses greater than $3.2 million.

The Department of Insurance has indicated that this is the first wave of indictments and charges "in an ongoing investigation into one of the largest health insurance fraud cases in California." Bail was requested at $2 million and that should be heavily litigated if the Prosecution requests what is known as a 1275 hold that precludes them from using earnings from the business for bail premium.  Arraignment will be today or later this week according to the DOI.  

The marketing allegations are the most inflammatory in that CRLA is alleged to have kept
hundreds of people addicted to drugs and alcohol by keeping them in a never-ending cycle of treatment and addiction. In some cases, we have seen the marketers do this in order to get medical necessity for another round of treatment but it is not known if CRLA knew about such alleged conduct.  There are also allegations of billing for services not provided. 

This case was investigated by the Department of Insurance and is being prosecuted by Los Angeles District Attorney. The Department of Insurance was assisted in the arrests and search warrants by the Los Angeles County District Attorney's Bureau of Investigations and other agencies.

During the arrests and search warrants, the Department of Health Care Services accompanied detectives to ensure any patients in CRLA facilities are transferred to licensed treatment locations. We will keep an eye on this case and for additional cases to be filed. This industry will be under attack for the next couple of years. 

Posted by Tracy Green, Esq.
Green and Associates, Attorneys at Law
Office: 213-233-2261


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