Director of California Cosmetic Surgery Center Who Fled Pending Trial Is Returned to U.S. to Face Federal Charges in Health Care Fraud Case For Billing Cosmetic Procedures to Insurance as "Medically Necessary"

Extraditions for health care fraud cases are more common now especially where the loss amounts are high. In a recent case, Linda Morrow, a Rancho Mirage woman married to a plastic surgeon, David Morrow, who had fled the United States after being named in a 31-count federal grand jury indictment in 2016, arrived in Southern California on July 1 after being deported by Israel, which had determined that she had entered that nation on a fraudulent Mexican passport. Ms. Morrow faces federal charges related to allegations that she fraudulently billed insurance companies $50 million for “medically necessary” cosmetic surgeries has been returned the United States after fleeing to Israel two years ago.

          

Ms. Morrow appeared in U.S. District Court in Santa Ana on July 2, 2019 and entered a not guilty plea to a separate grand jury indictment that charges her with contempt of court for fleeing while free on bond. During that hearing, she was ordered detained and a trial date in the contempt case was scheduled for August 27. She will make another court appearance later this month to discuss the status of the pending health care fraud case.

Ms. Morrow and her husband, David Morrow, were arrested in Israel on June 16. David Morrow, who pleaded guilty in 2016 in the health care fraud case and was sentenced in absentia to 20 years in federal prison, is pending extradition proceedings in Israel. David Morrow also faces contempt of court charges for fleeing while he was pending sentencing.

California Psychologist and Doctor Charged with Fraudulent Workers’ Compensation Evaluations Where Psychologist Was Not Certified as a Qualified Medical Examiner and Doctor's Certification Had Lapsed

In billing for evaluations of workers' compensation patients, health care providers should be very careful to ensure that they do not misrepresent themselves as a certified  Qualified Medical Examiner (QME) on a medical legal evaluation or billing statement. 

In addition, it is important to ensure that the bills for medical legal expenses have been reviewed so that the criteria for medical-legal billing has been met. A recent case shows how a report by two provider who were not properly certified QMEs led to criminal insurance fraud charges. 

On May 7, 2019, psychologist Danita Stewart and Dr. Catalino Dureza were charged for allegedly submitting fraudulent insurance claims for Medical Legal Evaluations. They are presumed innocent and charges are not evidence.

Dr. Stewart, a licensed psychologist, allegedly submitted 36 fraudulent insurance claims between April 2015 and June 2015 to five different insurers for Medical Legal Evaluations for a total of $90,714. A Medical Legal Evaluation is conducted to evaluate an employee’s work-related injury and is governed by the California Labor Code. 

Even though Dr. Stewart was a licensed psychologist she was not certified as a Qualified Medical Examiner as required to conduct and bill for Medical Legal Evaluations. Dr. Stewart allegedly conducted these fraudulent evaluations at clinics in Fresno, Tulare, and Kern Counties. Dr. Stewart was charged with 36 felony counts of Penal Code Section 550(a)(1) [one for each report], and 1 felony count of Penal Code Section 550(a)(7).

Dr. Dureza, a licensed medical doctor, had obtained the proper certification to conduct and bill for Medical Legal Evaluations, but his certification lapsed. Dr. Dureza allegedly continued to conduct and bill for Medical Legal Evaluations, and once he was recertified he conducted and billed for unauthorized Medical Legal Evaluations. Between January 2014 and May 2015, Dr. Dureza allegedly submitted 17 fraudulent insurance claims for Medical Legal Evaluations conducted in Fresno County to five different insurers for a total of $16,292. This is not a large loss amount but shows that they will prosecute for amounts under $25,000. Dr. Dureza was charged with 17 felony counts of Insurance Code 1871.4(a)(1).

Whether or not someone is a QME is a public record so it appears the insurance carriers must claim that they paid these bills understanding that the providers were CMEs. I have seen cases where a biller has placed a QME, IME and AME near the providers' name, not realizing that there could be confusion on what type of report is being billed. The carriers have been aggressive about billings for these reports even though the providers could have billed for treatment without a QME certification.

Posted by Tracy Green, Esq.

Green and Associates, Attorneys at Law

Sutter Health LLC, a Medicare Advantage Provider, Pays $30 Million To Settle Alleged Overpayment Based on Beneficiaries' Health Status Risk Scores

It is not just fee-for-service providers that have audits and civil qui tam cases. Managed healthcare is facing review as well. Even providers who are paid capitation fees should be mindful of the codes submitted to managed care. A recent case illustrates why. 

On April 12, 2019, Sutter Health LLC, a California-based healthcare services provider, and affiliated entities (Sutter East Bay Medical Foundation, Sutter Pacific Medical Foundation, Sutter Gould Medical Foundation, and Sutter Medical Foundation) agreed to pay $30 million to resolve allegations that these affiliated entities submitted inaccurate information about the health status of beneficiaries enrolled in Medicare Advantage Plans known as "risk scores," which allegedly resulted in the plans and providers being overpaid. Sutter Health is headquartered in Sacramento, California.  

   

Under Medicare Advantage, also known as the Medicare Part C program, Medicare beneficiaries have the option of enrolling in managed healthcare insurance plans called Medicare Advantage Plans (“MA Plans”) that are owned and operated by private Medicare Advantage Organizations (“MAOs”).  MA Plans are paid a capitated, or per-person, amount to provide Medicare-covered benefits to beneficiaries who enroll in one of their plans. 

Owner of Drug Rehab Facility Who Paid For Some Patients' Initial Health Insurance Payments and Waived CoPays and Deductibles Charged With Insurance Fraud by Riverside County District Attorney

There are times when health care facilities may contribute to paying a patients' insurance. For example, a patient who is hospitalized for some time where it is documented properly and financial need exists and it is disclosed.

However, can a health care facility pay for the initial premium that allows the patient to get treatment? Not usually. There are also some situations where copay and deductibles can be waived, but there are times when doing so is not allowed. These are two of the issues in a recent criminal case against the owner of a drug rehabilitation facility.

On March 25, 2018, David Leo Johnson, the owner of Southern California Detox Treatment and Recovery (SCDTR) in Temecula, was charged with 30 counts of insurance fraud and an aggravated white collar crime enhancement by the Riverside County District Attorney. The case is set for a felony settlement conference on August 29, 2018. The bail was set at $270,000 which is usually indicative of the alleged loss.

According to court pleadings, from February 2015 to May 2016, Mr. Johnson is accused of billing more than 90 Health Net policies for treatment SCDTR provided to its clients. This was a joint investigation by the DA’s Bureau of Investigation and the Federal Bureau of Investigation.

One issue is the payment of health insurance. It is alleged that an examination of the Health Net policies billed by SCDTR showed some policy applications used the SCDTR address as the policyholder’s residence and that Mr. Johnson's credit card was used to make the initial premium payments on 62 percent of the policies. 

Interviews with clients allegedly showed that they did not submit the applications for their health insurance policies and were not aware of how the coverage was obtained. When interviewed, the clients also allegedly advised that Mr. Johnson did not charge them any of the required patient costs, including deductibles and copayments.

California Physician Charged in Self-Referral Case With Felony Insurance Fraud and Perjury for Allegedly Referring Workers Comp Patients to a Laboratory and Surgery Center In Which He Allegedly Had Ownership Interest

Referring patients to other business entities that a physician has an ownership interest in can be a violation of the law depending on the type of patient (Medicare, workers' compensation) and it is important to ensure that the rules are being followed. California workers' compensation rules can be as more complex as those governing Medicare patients.

A recent case shows what can happen if the government contends that self-referral rules under the California Labor Code are violated for workers' compensation patients. There may be very good defenses here where the surgery center was part of the same practice and there was an in-office laboratory that is CLIA certified. 

A Corona physician (anesthesiologist who specializes in pain management), Dr. Sanjoy Banerjee, is charged with felony workers’ compensation insurance fraud (two counts Ins. Code Section 550(a)(1)) and perjury (five counts Penal Code 118(a)) by the Riverside County District Attorney’s Office after investigators claimed he referred patients to a clinical laboratory and surgical center he allegedly owned or had some ownership interest. Dr. Banerjee is presumed innocent.

Dr. Banerjee works as a pain management doctor who saw workers’ compensation patients  (probably among other types of patients) at a medical clinic he owned called Pacific Pain Care. The prosecution contends that Dr. Banerjee signed under penalty of perjury five workers' compensation doctor’s reports stating that he had not referred workers’ compensation patients to companies he owned. I doubt that is what the doctor's reports stated but it was probably just a form statement that there was no violation of Labor Code Section 139.3.

Investigators alleged that Dr. Banerjee had referred some of his patients to a "different business" he owned, Rochester Imperial Surgical Center, also located in the Pacific Pain Care office suite.  The prosecution alleges that Dr. Banerjee billed for more than $180,000 worth of urine toxicology testing and epidural injections through the laboratory and surgical center. One of the key issues will be whether this was a "different" business if it was owned by the same physician in the same office suite and met the exceptions of the in-office ancillary exception. If it met the exception, there is NO criminal case.

California Orthopedic Doctor Charged With State Insurance Fraud for Allegedly Providing Unnecessary and Excessive Medical Treatment for Ortho Patients

California county district attorney offices continue to prosecute health care providers for insurance fraud and workers' compensation insurance fraud. They are also using Indictments more often to put more pressure on the defense as a recent case demonstrates.

On May 30, 2018, a San Joaquin County criminal grand jury indicted Dr. Gary Royce Wisner on 11 felony counts of insurance fraud for allegedly defrauding insurers of more than $700,000 for providing unnecessary and excessive medical treatment including x-rays for orthopedic patients.  Dr. Wisner will be arraigned on June 26, 2018 in San Joaquin County Superior Court.  

The case may have overlapped with a Medi-Cal complaint or allegation since in May 2017 the Bureau of Medi-Cal Fraud and Elder Abuse executed a search warrant and seized documents. The investigation was multi-agency and also included the California Department of Insurance and the U.S. Department of Health and Human Services.

California Radiologist Sentenced to 10 Years in Federal Custody for Alleged Workers’ Comp Fraud

Federal prosecutors are much more likely to prosecute health care fraud involving private insurance companies than they were years ago. A recent case involved workers' compensation insurance and no Medicare or Medicaid or Medi-Cal. This case also shows the perils of a doctor defendant testifying at trial where the Judge decides that the doctor is not being truthful and imposes a sentencing enhancement for "obstruction." 

On June 18, 2018, radiologist Ronald Grusd and two of his corporations, California Imaging Network Medical Group and Willows Consulting Company, were sentenced in federal court  after a jury trial in December where Dr. Grusd was represented by attorney Tom Mesereau resulted in convictions on 39 felony fraud counts. Dr. Grusd hired a different attorney for the sentencing phase of his case.

U.S. District Judge Cynthia A. Bashant imposed a sentenced of 10 years in custody and a fine of $250,000, and remanded Dr. Grusd into custody. His companies, California Imaging Network and Willows Consulting Company, were each required to pay a $500,000 fine, and an additional $15,600 in special assessments.

According to evidence presented at trial, the government claimed that Dr. Grusd and his companies paid kickbacks for patient referrals from multiple clinics in San Diego and Imperial counties in order to fraudulently bill insurance companies over $22 million for medical services.

Los Angeles Clinic Owner, Physician, Office Manager, Insurance Biller and Former Insurance Investigator Indicted for Health Care Fraud. Charged With Billing for Services Not Provided and Giving Patients Free Cosmetic Procedures for Insurance Information.

On May 22, 2018, five people linked to two Los Angeles (San Fernando Valley) clinics were arrested on federal health care fraud charges for allegedly inducing patients to visit the clinics with promises of "free" cosmetic procedures, using the patients' insurance information to submit fraudulent claims to at least eight health insurance companies and then using some of the fraud proceeds to provide patients with the free cosmetic procedures.

An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed innocent until and unless proven guilty.

The government’s unsealed Indictment claims that Roshanak (“Roxanne” or “Roxy”) Khadem operated two clinics – R and R Med Spa, which was located in Valley Village until early 2016, and its successor company, Nu-Me Aesthetic and Anti-Aging Center, which operated in Woodland Hills. Ms. Khadem was arrested and charged along with four others:

Dr. Roberto Mariano, 59, of Rancho Cucamonga, a physician who helped operate the clinics; 

Marina Sarkisyan, 49, of Panorama City, who was the office manager at the clinics;

Lucine Ilangezyan, 38, of North Hills, an employee and insurance biller for the clinics; and

Gary Jizmejian, 44, of Santa Clarita, a former senior investigator at the Anthem Special Investigations Unit, the anti-fraud unit within Anthem that is responsible for investigating health care fraud committed against the insurance company. 

Pharmacy Owner And Pharmacist Sentenced To 160 Months In Prison For $4.3 Million Pain And Scar Compounding Creams Where Referral Payments Received When TRICARE Insurance Billed

The compounding cream cases where pharmacies engaged in marketing to obtain patients and where there were billings to TRICARE insurance continue. 

In a recent case, after a five-day trial of one count of conspiracy to pay health care kickbacks and paying and receiving kickbacks, a long sentence was handed out by a federal district court judge to a pharmacy owner and pharmacist.  

On March 30, 2018, the owner of a Florida pharmacy, Larry B. Howard, also a licensed pharmacist, was sentenced by U.S. District Judge Paul G. Byron to serve 160 months in prison and ordered to pay $4.3 million in restitution for his role in this case.

Los Angeles Dentist Charged With Fraud for Allegedly Billing Insurance Carriers for Services Not Provided Over 7 Year Period

We have seen an increase in audits of dentists by private insurers. Big data and updated computer systems have made it easier for insurance carriers to flag suspicious billings. 

If intentional billing for services not provided is found, it can be referred for criminal prosecution and/or to the Dental Board. This is one reason to handle audits very carefully and to address any billing errors or other issues in a way that does not create additional problems.

A Los Angeles dentist, Carlos Maria Vallarta Fausto, self-surrendered on a case filed by Los Angeles District Attorney's Office after he was charged with two felony counts of insurance fraud for allegedly charging insurers more than $31,000 in billings for services not performed on patients in his Los Angeles area dental practice between January 1, 2007 and December 31, 2014. Dr. Fausto is presumed innocent and a felony complaint is not evidence. The bail on this case was set at $25,000 and he was released immediately.

After an audit, an insurer filed a complaint against him with the California Department of Insurance which launched its own investigation, which allegedly revealed Dr. Fausto billed multiple insurance companies for dental treatment he did not render to his patients over this seven-year period. The case has also been referred  to the Dental Board of California, which is responsible for licensing dentists in California.

Attorney Commentary: There are several things to note from this case. First, even with a loss amount of $31,000 over a seven-year period, the case was referred criminally. Years ago, low loss amounts were not filed. Prosecutors are getting more aggressive about smaller cases especially where they believe there is "ghost" billing or billing for services not provided.

Second, these allegations are from years ago but the statute of limitation continues to run where the alleged fraud is not discovered.  Thus, even though some of the services were 10 years old (2007), charges were just filed. It takes years for these cases to be investigated and the alleged misconduct stopped in 2014.  The state statute of limitation is 4 years from date of discovery.  

Third, it should be remembered that even if the criminal case is dismissed or won, the dentist will still need to address the Dental Board which has a lower burden of proof and usually waits until the criminal case is concluded. The Dental Board can be very aggressive and the dental license is the tail that wags the dog in this type of case.

Finally, periodic self-audits, compliance and making sure that insurance billing is accurate is good business. When you bill insurance companies or the government, you need to be extra careful. The old saying of it's better to ask forgiveness than permission doesn't work in government or insurance billing.  

Even a $30,000 billing issue over seven years does not always just go away by paying the funds back in today's world.  I have seen cases where repayment upon discovery of erroneous billing helped avoid criminal and Dental Board referrals but these cases need to be handled carefully and with a view of the big picture at 40,000 feet.

Posted by Tracy Green, Esq.

Email: tgreen@greenassoc.com

Office: 213-233-2260

Orange County Workers' Compensation Fraud Cases Plead Out. Aspen Durable Medical Equipment Owners Get Minimal Jail Time, Pay Over $8 Million in Restitution and Dismiss $139 Million in Liens at WCAB

In criminal fraud cases, restitution is usually key to obtaining favorable plea terms. In workers' compensation fraud cases, releasing the right to collect on liens or receivables at the Workers' Compensation Board is also an important part of plea deals especially in light of Labor Code 139.31. 

This is evidenced in two complex workers' compensation fraud cases, known as the Aspen Medical DME cases, which plead out on May 5, 2017 in Orange County Superior Court. 

The three individual owners -- Jeffrey Edward Campau, Landen Alan Mirallegro and Abraham Khorshad -- agreed to pay jointly $8,621,845.96 in restitution, dismiss liens (charged and uncharged) worth over $139 million and pay other penalties in exchange for county jail terms (with state prison suspended) and where they will be eligible for house arrest with electronic monitoring. 

When Is Physician Billing for In Office Prescriptions, Compounded Medications and Urine Toxicology Screening for Workers’ Compensation Patients Illegal? Orange County DA Charges Doctors, Pharmacists and Business Owners Alleging Insurance Fraud and Illegal Referral Fees

For years, there have been companies who approach physicians and offer ways they can add to their revenue stream.  This has been more common with physicians who treat workers’ compensation patients.  

Some of the common revenue enhancements are:  

(1) dispensing oral prescription medications in-office to patients;

(2) dispensing a 3-day supply of compound medications in-office to patients; and

(3) performing point of care urine toxicology testing on patients in-office.

Under California workers’ compensation law, there are ways for these medically necessary services and goods to be legally provided and billed. However, if the laws and regulations are not followed, the claims can be denied or the basis for insurance fraud charges.

A recent criminal prosecution in Orange County Superior Court shows what happens when workers' compensation insurance fraud and illegal referral fees are alleged in providing these types of goods and services (prescription medications, compounded medications and toxicology laboratory testing) to patients.

The Orange County District Attorney’s (OCDA) Office filed 26 felony criminal complaints in April 2017 against 25 physicians, a physician assistant, two pharmacists and the two owners of the billing and medical management companies King Medical King Medical Management, Inc., Monarch Medical Group, Inc. and/or One Source Laboratories, Inc. for services and goods provided and/or billed from 2011 to 2015.

Links to the Orange County DA criminal complaints are on the Department of Insurance press release issued on this investigation.  All physician defendants are presumed innocent and a felony complaint is not evidence.

It appears the OCDA decided to file a criminal case against each provider separately in order to not have a single multi-defendant case that would progress slowly and for other tactical reasons. However, there is a conspiracy count in each criminal complaint filed against the physicians or pharmacists in which the owner(s) of the medical management and billing companies are named as uncharged co-conspirators. The OCDA views the management billing companies as the hub in these cases.

Two Florida Owners of Sober Homes and Alcohol and Drug Treatment Centers Plead Guilty for Filing Fraudulent Insurance Claims and Paying Kickbacks for Referrals

Audits of alcohol and drug addiction treatment centers have been on the rise. We have also seen an increase in criminal filings relating to billing for medically unnecessary services and payment of kickbacks for the referral of rehab patients. However, the facts when cases go criminal tend to be ones where there is outrageous conduct.  A recent Florida case fits that profile. 

Although the facts in this case are on one end of the spectrum, alcohol and drug treatment centers need to be very careful about paying marketing fees for the referral of patients, offering patients free or reduced rent at sober homes, paying for patients' insurance, ordering excessive lab tests for patients and any financial arrangements with laboratories.  

On March 15, 2017, Kenneth Chatman and Laura Chatman, owners of sober homes and alcohol and drug addiction treatment centers, pled guilty to one count of conspiracy to commit health care fraud in violation of 18 USC Section 1349 for the filing of fraudulent insurance claim forms and defrauding health care benefit programs. Their plea also included money laundering and sex trafficking conspiracy (the outrageous facts) counts.  

  

According to the plea agreements, Mr. Chatman established a series of sober homes, including Stay’n Alive, Inc., Total Recovery Sober Living LLC, and several other multi-bed residences operating as sober homes in Palm Beach and Broward Counties under his wife's name. These sober home facilities were in the business of providing safe and drug-free residences for individuals suffering from drug and alcohol addiction. 

Mr. Chatman admitted he paid kickbacks and bribes to sober home owners for referring their residents to Reflections Treatment Center LLC in Margate, Florida and Journey to Recovery LLC in Lake Worth, Florida for treatment. Mr. Chatman called these referral payments “case management fees,” “consulting fees,” “marketing fees” and “commissions” but the government viewed them as kickbacks. The referring sober home owners met with Kenneth Chatman on a weekly basis to collect the referral payments, which were based on the number of insured patients that received treatment each week.

Minnesota Chiropractors Who Paid Referral Fees to Marketers Charged in Federal Criminal Case for Personal Injury Auto Insurance Accident Cases

For years, health care providers in personal injury or workers' compensation cases were rarely prosecuted federally unless they billed Medicare or Medi-Cal (Medicaid). That is changing rapidly as recent federal criminal cases in Minnesota show which target personal injury fraud. It is clear that federal prosecution will increasingly include all types of health care fraud even where Medicare is not involved.

Across the country, including in California, we are expecting a large increase in prosecuting health care cases where there are allegedly illegal referral fees and alleged unnecessary medical services in private insurance, workers compensation and personal injury cases.  

On December 21, 2016, federal charges were brought against 21 defendants, including 6 chiropractors alleging that between 2010 and 2015 chiropractors engaged in activities with others to defraud automobile insurance companies by submitting fraudulent no-fault insurance claims. Chiropractors Angela A. Schulz, Preston E. Forthun, Huy Ngoc Nguyen and Adam J. Burke were indicted and arrested. Chiropractors Marlyn Comes and Darryl Hummeny were charged in an Information which likely means that a plea deal has been or will be made. All defendants are presumed innocent and Indictments are not evidence.

It is alleged that the chiropractors cumulatively charged billed “no-fault” insurance policies for more than $20 million dollars. The defendants were charged with conspiracy to commit health care fraud and conspiracy to commit mail fraud.  These 21 defendants were charged in 6 separate cases: 4 indictments and 2 felony informations. In cases like this, the government usually relies on cooperating witnesses to record or obtain evidence recorded on video or in texts or emails to show the knowledge of fraud and lack of medical necessity. More charges are expected according to the government. 

Two Apparel Executives and Their Accountant Plead No Contest to Workers' Compensation Premium Fraud for Underreporting Payroll to Insurance Carriers

On December 1, 2016, two clothing manufacturing executives and their accountant pleaded no contest for their roles in underreporting workers' compensation premiums in a Case No. BA435018 prosecuted by the Healthcare Fraud Division of the Los Angeles County District Attorney’s Office. The loss amount was alleged to be $3.8 million in lost workers' compensation premiums.

The case was originally filed in 2015 with 18 counts. Sung Hyun Kim and Jae Young Kim each pleaded no contest to two counts of workers’ compensation fraud. Caroline Sung Choi entered her plea to two counts of failure to pay state payroll taxes. Ms. Choi and her sister, Sung Hyun Kim, were corporate officers for Meriko, Inc., and its successor, SF Apparel, both garment manufacturing companies that make brand jeans for other jeans companies. 

The DA's Office alleged that beginning as early as 2006, Sung Hyun Kim and Jae Young Kim, an accountant, underreported millions of dollars in payroll to insurance carriers. Losses were estimated to be roughly $3.8 million. The original allegations were that $7.8 million was underreported. Sentencing for all three individuals is set for January 24.

Attorney Commentary: In a workers' compensation premium cases, by not reporting accurate payroll figures, companies pay reduced workers’ compensation premiums when they underreport the number of employees, adjust their work categories or underreport the amounts actually paid. Sometimes this includes paying employees cash. 

We see these cases in industries where workers' compensation premiums are significant. In some industries, the premiums can be as high as 25%. The local county District Attorneys' Offices are funded by a special fund to prosecute these cases. Generally, the key to resolving these types of cases is reaching a restitution agreement with the insurance carriers. Often the goal is not to put the companies out of business. There can also be civil cases that run parallel to the criminal cases which need to be resolved. 

Workers' compensation carriers are now able to obtain the EDD reports and see what employers report to the government on payroll to see if there are any differences in what was reported to the insurance carriers. Workers' compensation carriers are also increasing the number of audits. If there are audits, it is important to obtain representation early in order to assess any issues and determine an overall strategy for the company and key officers or employees.

Posted by Tracy Green, Esq.
Green and Associates, Attorneys at Law
Phone: 213-233-2260
Email: tgreen@greenassoc.com

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.

Los Angeles Area Insurance Company Owner Pleads Guilty to Misdemeanor for Allowing Unlicensed Employee to Advise Clients About and Sell Insurance

Insurance agents are required to be licensed. In an unusual case for criminal prosecution, an owner of an insurance agency and two of his employees were prosecuted for allegations arising from the alleged the unlicensed selling of insurance. 

This is a case where some of the charges alleged arose out of the response to the investigation (providing false information and hiding unlicensed activity). Another teachable moment in this case.

The case began in response to a complaint to the Department of Insurance (DOI). DOI investigators investigted whether Lindhl Lucas, owner of Lucas Insurance Services, allowed and encouraged employees to advise clients about insurance and sell insurance products without proper licenses. At this point, it appears that Mr. Lucas and Kelly Ann Lucas were interviewed and provided information to the DOI agents.

One employee Elaine Edey was previously licensed, but her licensed expired in 2008. DOI alleged that Ms. Edey continued to sell insurance despite her expired license status, which is unprofessional conduct and a misdemeanor (technically illegal). This was not an insurance fraud case, just a licensing issue that blew up.

DOI further alleged that during the investigation Mr. Lucas and Kelly Lucas knowingly provided false information and concealing material facts, in attempts to hide Ms. Edey's unlicensed agent activity. 

DOI referred the case to the Los Angeles District Attorney's for prosecution. Lindhl and Kelly Lucas were each charged with knowingly providing false information and concealing material facts, in attempts to hide the unlicensed agent activity. Ms. Edey was charged with transacting without an insurance license. 

In order to resolve the case, a plea agreement was reached. On April 5, 2016, Mr. Lucas, Kelly Ann Lucas, and Elaine Edey pleaded guilty in Los Angeles Superior Court to various misdemeanor charges and were sentenced to serve three years probation and ordered to pay $500 in fines. The charges here are small but they have consequences on the insurance licenses that are more severe than the criminal charges.

Attorney Commentary: Mistakes happen in running businesses. When investigations occur, it is important to not panic and to seek independent advice before undertaking a strategy that can backfire. With the Boards as well as prosecuting criminal agencies, any misrepresentation or falsification can create evidence of scienter (intent) and demonstrate a lack of credibility and honesty. 

Posted by Tracy Green, Esq.

Sacramento Dentist Pleads Guilty to Billing for Unnecessary or Unperformed Dental Work Billed to Delta Dental From 2008 to 2010

We have seen an increasing number of audits by Delta Dental where billing for services not provided is suspected. In some cases, the issue is that non-covered services (such as implants) are being performed and there is false documentation and billing for "covered" services. Or we have seen that one patient has dental coverage and work is performed on another family member who does not have coverge.

What triggers audits? It can be discrepancies in records, significant increases in billing, or complaints by former employees or patients. Or it can be a routine audit. In a recent case, a former employee went to the Dental Board to set forth allegations against her former dental office. That disclosure triggered action by the Dental Board (interim suspension), an Accusation and then a federal criminal case. It took five years for this to play out. In the meantime, the dentist surrendered his license in August 2013.

This recent case demonstrates what can happen in these cases. Dentist David M. Lewis of Sacramento pleaded guilty on January 11, 2016 to health care fraud for his role in defrauding the health care benefit program used by United Parcel Service (UPS) employees. Undoubtedly, this has been a long hard road for the now former dentist.

A former employee at Lewis’s dental practice for 9 years, Nichol Ramirez aka Nichol Lomack, who worked as an insurance claims manager, cooperated with the Dental Board and government. She ultimately pleaded guilty to one count of health care fraud for her part. She was interviewed by the Dental Board in December 2010 and the case went from there.

In October 2011 the Dental Board executed a search warrant at the dentist's office. The search warrant was used so that the dentist would not have advance notice and have any ability to alter or destroy the charts. After the charts and xrays were submitted for expert review, the Dental Board filed an Interim Suspension Order in February 2012 and filed an Accusation. In August 2013, Dr. Lewis surrendered his license. In February 2014, Lewis was indicted on health care fraud and conspiracy to commit health care fraud and mail fraud.

According to court documents, beginning in late 2008 or early 2009 (after the economic recession), Dr. Lewis, a dentist practicing in Sacramento, began targeting UPS employees for dental treatment because their health care plan under the Northern California General Teamsters Security Fund provided 100 percent coverage without any annual limits. Dr. Lewis' office allegedly offered cash and other incentives (Sonicare toothbrushes for example) to UPS patients for receiving dental treatment or for recruiting other UPS employees to receive such treatment.

In some instances, Dr. Lewis' office submitted claims to Delta Health Systems, which administered the UPS health care plan, that billed the plan for work that was never performed. In other instances, it was alleged that Dr. Lewis performed unnecessary dental work on UPS employees, including root canals, and claims were submitted to Delta for payment for these unnecessary services.

Los Angeles Nightclub Owner and Sacramento Construction Company Owner Arrested for Workers' Compensation Insurance Fraud, EDD Payroll Tax Fraud. Get Compliant and Seek Professional Advice When Faced With Audits.

On January 8, 2016, two criminal cases were filed against individual company owners for workers' compensation insurance fraud and payroll tax evasion in Los Angeles and Sacramento. 

These are not related cases but show the the Department of Insurance’s effort to pursue more workers’ compensation premium fraud and tax evasion cases for misclassifying employees as independent contractors or paying employees cash under the table. The State views this as its efforts to combat the underground economy.

In the Sacramento case, William Huffman (owner of Capitol City Contractors) was charged with  nine felony counts of workers' compensation insurance fraud and tax evasion. The Sacramento County District Attorney's Office is prosecuting this case and contends that losses total $187,707. The State contends that Mr. Huffman allegedly underreported $755,899 in payroll to avoid paying workers' compensation premiums for dozens of employees.

How did this case arise? An insurer notified the Department of Insurance of suspected fraud. A forensic audit of the company's bank records was conducted and it is contended that detectives discovered evidence that Mr. Huffman was paying employees under the table and classifying some payroll checks as expenses for supplies and materials.

Attorney Commentary: We have helped numerous companies during the audit stages of workers’ compensation or EDD audits given the potential for criminal charges. During these audits, there are things that can be done to prevent the cases from being perceived as criminal intent to defraud cases. Compliance and immediate business changes can also help avoiding criminal charges. False documentation, false statements and other facts can cause problems. Companies often handle these audits on their own without detached counsel to advise them on how to proceed when there are sensitive issues and potential past non-compliance.

CALIFORNIA INSURANCE AGENT SENTENCED TO STATE PRISON FOR "ADVANCE COMMISSION FRAUD" IN ORANGE COUNTY SUPERIOR COURT

We are used to insurance fraud cases brought against those who file fraudulent claims. There has been an increased number of cases against those who work for the insurance industry. 

When they are charged, our experience is that an example is sought to be made of them. A recent case involving “advance commission fraud” illustrates how long sentences and large fines can be imposed against those who work in the insurance industry.  

On December 1, 2015, an insurance agent Eric Lee was sentenced under a plea agreement to 10 years in state prison for defrauding over $1.4 million through an advance commission scheme. In state court, this means that with good time, Mr. Lee should only serve five years. 

Mr. Lee pleaded guilty to 10 felony counts of grand theft and 10 felony counts of insurance fraud with sentencing enhancements for damage exceeding $100,000, aggravated white collar crime over $500,000 and property damage over $1.3 million. Mr. Lee was also ordered to pay $1.4 million in restitution and a $2.8 million fine.

These sentencing enhancements show how the amount of loss in a fraud case in California state court, like federal court, has a significant impact on the total sentence that can be imposed.