Possible $1 Billion Loss In Big Medi-Cal Scam

(11-29) 04:00 PDT Los Angeles -- A giant rip-off of the California Medi-Cal system, centered in Armenian immigrant neighborhoods of Los Angeles, may total more than $1 billion when it is finally unraveled, making it one of the largest frauds against a state in American history, federal investigators report.



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FBI and California officials, in a task force set up by Gov. Gray Davis a year and a half ago, are now alleging extensive criminal activity by storefront businesses that sent millions of dollars in phony claims to the state medical program for crutches, adult diapers, prescriptions and other supplies and services. Medi-Cal is California's name for Medicaid, the federal-state effort to provide health care for the poor.

Investigators believe the hub of the criminal activity is the San Fernando Valley area of Los Angeles, where medical supply stores catering almost exclusively to Medi-Cal have become as numerous as hamburger joints.

Charges for false billings have been lodged against 64 businesses and their owners; 35 have pleaded guilty and the rest are pending.

Penalties have included fines and prison terms ranging from 10 months to three years. The government's cases have been so strong that no one has yet contested the charges in a trial. An additional 300 businesses are under investigation. Most of those charged have Armenian surnames.

The probe has shaken Armenian American communities, prompting charges of ``witch hunt'' and ``state terrorism'' from lawyers representing some of those accused.

``There is great fear in the Armenian community,'' said attorney Pat Hooper. ``They don't know how to react to this. What we are troubled by is the tactics that are being used and the presumption that everyone who is an Armenian must be doing something illegal.''

Federal prosecutors in the U.S. attorney's office in Sacramento dismiss Hooper's accusations, saying that fraud, not ethnicity, is driving the investigation. ``We are taking down any fraud we find regardless of race, creed, color or nationality,'' said Dan Linhardt, chief of the white-collar fraud unit.

In fiscal year 1996, the state spent $173.4 million for Medi-Cal supplies. By 1998, expenditures had soared to $258.4 million, nearly a 50 percent jump.

Auditors in Controller Kathleen Connell's office alerted state officials to an abrupt increase in its fraud findings, which prompted the FBI to open its investigation.

An FBI informant told the Los Angeles Times that loose government regulation makes it easy for unscrupulous operators to steal.

To establish a business, scam artists first apply for a Medi-Cal provider number, which entitles them to receive state payments and which, until a very recent crackdown, could be easily obtained.

Then, from black marketeers known as ``cappers,'' they purchase lists containing hundreds of recipient numbers, the informant said. Cappers steal the numbers from doctors' offices or buy them on the street, sometimes from the homeless.

Once in business, fraud operators begin billing Medi-Cal electronically, asking reimbursement for thousands of dollars in supplies they claimed to have provided poor patients. Some operators, the informant said, pulled in as much as $500,000 a month in illegal payments. The informant said death threats have been made against him and asked not to be identified.

Under FBI scrutiny are the parts of Medi-Cal that provide medical supplies, laboratory work, pharmaceuticals and nonemergency medical transportation to recipients who are not part of a managed care system.