Thieves' Bazaar: Medicare Fraud

Hospitals, doctors and dealers have made Medicare the nation's sweetest crime. The feds are now trying to shutter the door.

Hank Walther was a federal prosecutor at the time, soon to lead the feds' Medicare Fraud Task Force. He feels they were allowing their adversaries to run scot-free.

"My four-year-old kid could prosecute these cases," he says of the equipment rackets. "They're really easy, and there are plenty of them. A lot of this other stuff — home health, the ambulatory cases, even the mental-health cases — each time we got into those new areas, there was a constant refrain from law enforcement and the U.S. Attorney's Office saying, 'This is too complicated.'"

The feds started teaming prosecutors with detectives in the same approach used to break down organized crime. They began to hunt providers, whose fraud ran to the tens of millions compared with the $1 million to $2 million paydays from equipment scams.

Sheila Jackson Lee: Texas U.S. Rep. Sheila Jackson Lee carried water for Medicare swindler Houston Riverside General Hospital.
photo by David Ortez
Sheila Jackson Lee: Texas U.S. Rep. Sheila Jackson Lee carried water for Medicare swindler Houston Riverside General Hospital.
David Feinwachs found that HMOs in Minnesota had turned Medicaid into a cash cow, making it several times more profitable than their private insurance. When he asked for more data, the state blocked him.
courtesy David Feinwachs
David Feinwachs found that HMOs in Minnesota had turned Medicaid into a cash cow, making it several times more profitable than their private insurance. When he asked for more data, the state blocked him.

Their discovery: Miami was the MIT of health-care schemes, the nation's unofficial laboratory for ripping off the government.

"When you look per capita, Miami has more people in community mental-health centers than New York and Los Angeles combined," says Walther. "Then you look at the profile of people going in there, and they don't really fit people that need these services."

In 2010, Walther helped take down American Therapeutic, the highest-billing mental-health center in the country. The company was cycling addicts, alcoholics and Alzheimer patients through its six clinics. Patients' diagnoses were changed so they would qualify for expensive group therapy. In the end, owner Lawrence Duran received an unheard-of fifty years, a sign that judges were finally acknowledging the magnitude of these swindles.

"It's like Whac-A-Mole, says Walther. "You knock one down, but now there's a bigger one somewhere else, and it's different. But once you figure it out, it rains on the back end with bad guys and money."

When the Check Arrives, Minnesota Gets Alligator Arms

For 29 years, David Feinwachs was general counsel to the Minnesota Health Association, a trade group for the state's hospitals.

Like many states, Minnesota pays HMOs to administer its Medicaid programs. But Feinwachs noticed something odd. While actual providers had seen their reimbursement rates frozen for more than a decade, the HMOs were hiking their management fees 10 percent a year just for playing middleman.

So Feinwachs started examining the HMOs' finances. "Because they're nonprofits, nobody ever looks at them," he says. "It's the perfect cover because everybody goes, 'They're nonprofits. What's the problem?'"

He soon found that they'd turned Medicaid into a cash cow, making it several times more profitable than their private insurance. But when Feinwachs asked for more data on their costs, the state blocked him, claiming it was proprietary information.

He was outraged. "You can't take tax-funded programs, turn them over to vendors and claim that what happened to the money is a trade secret."

Still, the HMOs were rattled. Their trade organization reached out to Feinwachs's boss in an attempt to silence him.

To soothe his concerns, Feinwachs was invited to sit in on a conference call in 2010 between the hospital association and Karen Peed, who oversaw the state's Medicaid contracts. "If you can't keep a secret, you have to leave the room," he claims Peed announced during the call. Then she proceeded to explain how Minnesota was rigging Medicaid reimbursement rates.

Think of Medicaid programs as akin to a restaurant bill, where states are supposed to split the tab with the federal government. But through creative accounting, Minnesota had figured out a way to pay only for the garlic bread, sticking the feds with the rest. (Peed's boss, Minnesota Department of Human Services Commissioner Lucinda Jesson, declined our interview request.)

While it may be unseemly for one agency to fleece another, it's not illegal. When the state outsources its deceit to private insurers, however, it quickly tilts from bureaucracy to fraud.

Feinwachs warned his boss, who confronted Peed. She reportedly claimed it was no different than the cost-shifting used by hospitals, where people with insurance are charged more to compensate for patients on public assistance. The big difference, of course, is that you only pay hospitals when you use them. Every taxpayer in America was getting snipped by Minnesota's duplicity.

"It's like comparing panhandling to bank robbery — one's annoying, the other's a crime," Feinwachs says he told his boss. "After that, things got increasingly tense."

Feinwachs refused to back down. "My dad was in a place called Auschwitz," he says. "He used to always tell me, 'If you see something is wrong and you don't speak against it because you're worried you're going to lose something, eventually you're going to lose everything anyway. So you might as well fight.'"

Two months later, Feinwachs was fired for insubordination.

But he'd already raised too much hell for the HMOs to feel safe. In 2011, UCare, one of the HMOs, chose to make amends. It dropped $30 million on the state's doorstep like an orphaned baby — with little explanation.

Minnesota claimed it was a donation. But the feds smelled a rat, believing it to be from Medicaid overpayments.

The move was so mysterious that Congress summoned UCare CEO Nancy Feldman to explain. She admitted that Minnesota was pumping up its Medicaid reimbursements to cover losses in a state program that Medicaid doesn't reach.

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Rick Perry and Sheila Jackson Lee working togetha mayne.


great article. govt never ceases to amaze me.


Find the blog "Dentist the Menace" and you'll find stuff about Medicaid fraud from corporate dentists. There are dentists who are told by the companies to perform operations on healthy teeth on Medicaid children, as found when a Washington DC TV firm investigated Small Smiles - it probably still happens today right here in Houston


Sonja Schoenwald and her cronies are well-experienced in these kinds of matters. Check up wherever she has worked and is working now, in both North and South Carolina. Check court records for her around 1993 on in Durham, NC. 

Sincerely, CatherineTodd

Thomas9 1 Like

This shows how our government is so lacked on major multi-million dollar business crimes.  As long as you are a white collar criminal and whatever you are doing does not get major media exposure, you are good. You will not be held accountable for your actions, fines will be minor a best and jail time? forget it, you keep all the money you stole and are allowed to continue to the same time of crime or indulge in others. That is what the US government 'encourages'.  They only go after the blue collar criminal because they are easier and obvious to prosecute. No one in this country, especially the US government will hold themselves accountable for their actions. That includes the lack of action. By the govt. basically slapping people on the wrist to these types of billion dollar crimes, they are encouraging it. Nothing will change until the people take action and 'force' their state and national reps to act. Problem is most of the people across the country don't care, are too lazy and will not do anything about it (i.e. holding themselves accountable for what they should do, act!).

saffie6813 1 Like

There is a couple of BILLION in fraud mentioned in just this one article.  Multiply that out everywhere.  If Medicare would just put a billion dollars into the budget for fraud investigation and put these people in jail the plan would be solvent forever.  But even arrest does not deter these crooks because they never see a day in jail and they get to keep most of the money they have stolen.  

One a personal note, I once saw someone at the nursing home measuring everyone for "diabetic shoes"  for which I found they were charging Medicare $420 for each pair.   They looked like sneakers from Walmart to me.  

Unfortunately, we have seen these type of articles before and nothing is ever done.


Iffen The Press wants a comment from the loquacious Sistuh Stealing, all they needs is to roll up wid a camera.  She glad to shoot her mouth offen then.

Thieving_n_Thuggin 1 Like

It don't be thieving in Sister Stealah Jackson Flea's eyes, it be reparations.

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