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By Sean Pendergast
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Michael Flemons was like a lot of tough bosses. As president of MDF Enterprises, a Dallas company that provided "trauma" therapy to Medicaid patients there and in Houston, Flemons always kept one eye fixed on the company's bottom line and the other open for opportunities that could help him reach new heights.
Flemons was also strict with his employees, never allowing the smallest details to escape him. His favorite management tool was the memo. When Flemons suspected employees of drawing out the noon hour, he sent them a memo regarding the company's 60-minute lunch break. In another memo, he reminded employees to sign out whenever they left the office.
When he caught wind of some unprofessional conduct in April 2000, he penned a memo in which he listed the most frequent types of "counterproductive" behavior in the workplace. The failure to offer proper telephone greetings topped the list.
"Remember that our clients or costumers [sic] are the primary reason we are in business," Flemons wrote. "Without the clients this is no business."
Flemons's memos are now known as government exhibits 247 through 266. And as a resident of the Dallas County Jail, confined there as a result of crack cocaine addiction, he had lots of time to draft them.
"To me, what was incredible was they saw no patients. Yet you have to look at what they were billing for," says Shane Read, an assistant U.S. attorney who recently prosecuted the couple. "The amount of Medicaid bills is mind-boggling."
Last month, Read's prosecution of the couple wrapped up a three-year investigation by the Texas Attorney General's Office and the FBI. On May 24, U.S. District Judge Barbara Lynn sentenced Flemons to ten years and three months in prison after a jury convicted him on 13 counts of health care fraud and conspiracy to commit health care fraud. Last summer, Coates pleaded guilty to similar charges and is serving a five-year, eight-month prison term.
Unlike most Medicaid scams, which involve overbilling practices, this bizarre scheme had no patients. More remarkable was Flemons's computer skills, which were so efficient that he and Coates raked in millions without having to show up at the office. That was a good thing for them, because neither one of them could make it into the office: Flemons, 49, was usually in jail, while Coates, a 50-year-old kidney transplant patient, spent most of her days in bed.
If it weren't for taxpayers, Coates wouldn't even be alive. In 1988, Coates, a licensed social worker and Dallas County employee, was diagnosed with renal failure, meaning both her kidneys gave out. She almost died in 1990, when doctors transplanted a kidney from a man killed in a car crash. While she recovered, Coates watched television and discovered that the city's crack cocaine epidemic had exploded into daily incidents of homicide.
There in her county bed, Coates got the idea to start a counseling center where she would help people whose relatives had died in homicides and other traumatic incidents. She launched her Trauma Resolution Center two years later.
As a licensed social worker, Coates was qualified to do business under the federal Medicaid program for the poor. She would provide counseling sessions to Medicaid patients and afterward would bill Medicaid for reimbursement. The process requires the patients' Medicaid numbers to be included with every bill, along with a description of their illness and the services they received.
Initially, Coates says, she really did help people. That changed in 1995 when she married Flemons and asked him to take over the center's operations. At the time, Coates was aware that her new husband, whom she called "snuggle bunny," had a taste for cocaine.
"I didn't know how severe it was. I thought, 'Oh, I'll just send him to rehab, and he'll be just fine,' " Coates says. "That shows how much I knew about drug addiction."
That habit led to multiple trips through the Dallas County courts, where Flemons was given chance after chance in court-ordered rehabilitation programs. While his co-addicts searched for a higher power, Flemons found ways to expand the Trauma Resolution Center.
As the center's new CEO, Flemons determined he could increase the company's earnings by building up the number of "patients" he could bill for. He dispatched a team of recruiters into low-income neighborhoods, offering to help Medicaid participants by paying their rent or utility bills in exchange for their Medicaid numbers.
Back at the office, Flemons installed new software to modernize the center's billing operations. Flemons and Coates then used the numbers the recruiters had rustled up to bill Medicaid. Soon the couple began submitting computerized bills for patients they never saw, including entire families. At one point, they even submitted bills for a three-month-old infant Coates had diagnosed as suffering from "anxiety."
"When it came down to the billing the state would only pay for one-on-one sessions. So I'm saying, 'Well, okay, we'll stretch the imagination a little bit, you know, I'll see the whole family one-on-one. So I billed for the whole family," Coates says. "What can I say?"