The Midnight Mission on L.A.'s skid row
(© Jim Wayne)

When they searched through Dr. Howard Pfujena's medical clinic, undercover investigators found Troy MacFarland hiding in the waiting room of the dentist's office next door.

While rifling through his belongings, they asked him about the blue Ford Windstar in which he rode shotgun as it drove from clinic to clinic toting new passengers in its backseat with each trip.

They questioned the presence of torn Oxycontin prescriptions they'd found stuffed in his pockets.

Snarling, he answered "everyone is doing this stuff."

"If [you're] going to arrest people for this," the detectives described him saying in search warrant documents, "you better be ready to 'arrest all of L.A.'"

The police arrested MacFarland, one of several people arrested this year suspected of running a thriving Medi-Cal fraud enterprise in Los Angeles. Local law enforcement agencies have been trying to mitigate the problem through a series of undercover sting operations.

Using such methods, investigators with the Department of Health Care Services have infiltrated a long-running scheme involving physicians and agents called "cappers," who round up Medi-Cal beneficiaries and deliver them to the doctors' offices.

Several search warrants have demonstrated how these doctors then fraudulently bill the Medi-Cal program for services not performed or for durable medical equipment (DMEs) like wheelchairs, paying the cappers up to $350 per patient brought to the offices or clinics.

The cappers then pay the Medi-Cal patients $30 cash for their time, while pocketing the rest.

In some cases, these cappers also buy prescriptions for drugs like Oxycontin from the patients, later selling them on the street for up to $80 a pill.

"Scams like these are causing the Medi-Cal program to bleed money left and right," said Doreen Sanchez, a special agent with the National Insurance Crime Bureau (NICB). "It's been progressively hitting the whole United States, especially in large cities like Los Angeles."

Los Angeles has the highest instances of Medi-Cal fraud in California, and state officials have reported it is only getting worse.

True, the city is the most populous in the state, but its fraud rate is increasing relative to the one it sustained just five years ago.

National Insurance Crime Bureau Special Agent Mike McKee explained that from 2002 to 2007, the number of Medi-Cal fraud cases increased by 150 percent.

Steve Opferman, a detective with Health Authority Law enforcement Task force (HALT), a Medi-Cal fraud task force, outlined how much more marked he feels the dupery has become.

"To categorize it as fraud isn't even accurate anymore because these people steal the system blind," he said. If fraud used to be "high school football," he added, then "this is the NFL."

Earlier this year, a Medi-Cal beneficiary arrested for an outstanding warrant tipped DHCS investigators Alex Solorio and Mike Oxley off to one such scheme. The detectives then embarked on what amounted to a five-month investigation into that plan.

"People on skid row with Medi-Cal know where you can go to make extra money by using your benefits card," said Solorio. "If you want to find out how to stop this stuff, just go to downtown L.A."

The Los Angeles Mission at Sixth and San Pedro streets lends cappers a prime corner for fraudulent activity of the Medi-Cal strain. Groups of homeless people wander these blocks, and cappers park their vans nearby to round up as many of them as possible.

Going undercover as one such Medi-Cal beneficiary, Oxley was capped along with six other people the first time, 15 others the second.

"I walked into the doctor's office, and he asked me what was wrong. I told him, 'Oh nothing, it's just old age,' said Oxley. "He then wrote me a prescription for Oxycontin."

Receiving a per-patient payment has emboldened cappers to flood offices filled with Medi-Cal beneficiaries. "We've been to doctor's offices where there were 28 people sitting in the waiting room," Solorio said. "There were some people downstairs because they couldn't fit them in the lobby."

A surveillance video given to the reporters by the Department of Justice shows a man and a woman department officials explained is the man's young wife driving a blue van and pulling up to the same squalid corner over a period of days. He beckons to clusters of people who come over, speak to him, then hand over their insurance cards.

His wife calls in the numbers to make sure they are valid and can be accepted by the doctor they are working with. When the van has been filled with people, the couple drives them over to the doctor's office and collects their "delivery" fees once all these patients have been seen.

Investigators have said that cappers are often Medi-Cal beneficiaries themselves, joining the fray when other cappers recruit them through word of mouth. The attractive payouts entice even those with otherwise clean criminal records to commit the fraud.

Capping has long been a problem in several kinds of insurance fraud. Called "running" in staged automobile accidents or workers compensation fraud, the reasons behind calling it "capping" are unclear. But whatever its name, it's a crucial element behind fraud.

Cappers and doctors are key players in Medi-Cal fraud as they are the ones to profit off the insurance theft.

The Tax Man

While detectives have been riding in vans, L.A. County Deputy District Attorney Albert MacKenzie has been working out another way to counteract that racket.

Five years ago, he came up with "The Fraud Interdiction Program," a plan meant to catch this scamming on counts of tax evasion.

"Investigators going undercover," he said, "that's a traditional method. The problem is that it's very time consuming. When I look at a doctor [using this program], the advantage is speed."

Inspired by the manner in which the legal system finally caught up with legendary Chicago mobster "Scarface" Al Capone in the late 1920s, MacKenzie became passionate about using tax law to combat conning.

"Think about Al Capone," he began enthusiastically. "They never convicted him of murder or bootlegging or any of the stuff he was allegedly involved in, [but] they used tax fraud to prosecute organized crime and sent him to Alcatraz."

MacKenzie said he figured an efficient way to deal with the problem was to be in constant communication with health care companies, regularly consulting their records to see if the fees they had sent doctors and their clinics matched up with the ones the physicians had submitted in their tax returns.

"The key to the program is participation by as many members of the health care industry as possible," he wrote in the Fraud Interdiction Program proposal.

He set up an elaborate e-mail network that included "insurance companies, self-insured businesses, self-insured governmental agencies, Medi-Cal and Medicare."

When one of those members first identifies a possible fraud suspect, he or she sends a mass e-mail to the rest of the network.

MacKenzie said the advantages of the system lie in that quick e-mail turnaround, one that would allow criminal investigators to open a case as soon as they'd see claims mismatching tax returns.

Where the other method of investigation uses the beneficiaries as sources, MacKenzie explained the two reasons he shies away from relying on them for any relevant information.

"Many Medicare and Medi-Cal fraud cases involve elderly patients who have memory problems," he wrote in the proposal. "It may be impossible to interview the patient [to verify whether or not the provider conducted the service for which he or she billed] due to the patient's mental infirmity."

His second reason for nixing patient interviews from his investigations concerns the possibility that the beneficiary could be "an accomplice in the fraud," and thus someone not contextually to be trusted.

"Every major city in the U.S. has this problem," he said. "So I've been running around on my Don Quixote donkey trying to pitch various medical agencies on [the merits of] this program."

Prescribing Stiffer Penalties

Law enforcement officials generally go after the fraudulent doctors and their cappers but are relatively easy on the beneficiaries. The lax treatment stems from the fact that many beneficiaries live on Skid Row or are elderly people who have been tricked into taking part in the scam.

"Unless someone is out there marketing their card, our policy is to not go after the beneficiaries," said Dep. Attorney General Susan Melton, a prosecutor of several health care fraud cases.

Depending on the severity of the fraud, the medical board may suspend physicians convicted of Medicare and Medi-Cal fraud from the program for a minimum of 10 years.

"The cases are also referred to the medical board," Oxley said. "So there's a possibility they might have to pay fines or take classes.

"Or they might lose their licenses altogether," he concluded.

The cappers, on the other hand, may face jail time, which can vary in length depending on whether or not they've had any prior convictions.

Cappers found to be in the country illegally do not end up serving jail time, though. Of that ilk, Melton said, there are many.

"Nine times out of 10, they're either illegal or they're here on some type of an immigration status," said Melton. "If we prosecute them, they're automatically getting sent back to their country."

Despite the existing punishments for committing Medicare and Medi-Cal fraud, the problem is not going away. Sanchez believes that all too often, the court focuses more on violent crimes, ignoring "victimless crimes" like fraud.

"I have sat in court venues where they say 'my courtroom has no time for this; I need to focus on heinous crimes,'" said Sanchez. "I think there have to be harsher penalties for those involved."

A Victimless Crime?

But enforcing penalties has proven challenging, as health care fraud, often considered a "victimless crime," is difficult to expose. Law enforcement tends to respond to complaints, but when no voice pipes up to makes that complaint, the crime is, Dept. of Justice Special Agent Gary Zerbey explained, likely to remain unnoticed until someone talks.

"You can measure things like purse snatching because somebody complained," he said. "[But] the victim in this is the government, and it doesn't know how often it's getting ripped off because there's nobody to complain."

And even if and when it has an inkling, H.A.L.T'S Det. Steve Opferman added, "the government doesn't like any of this information available because it makes it look ridiculous."

Often, investigators will receive tips about health care fraud from informants, or those wanting to plea down a sentence. But without those snippets, the only way they may discover that fraud is through the audits of a clinic's patient records and/or taxes.

But these methods take time, and with the morass of cases investigators monthly face, many crimes can't but be overlooked. "Nobody has the resources to investigate these things," Opferman said. "If you don't hit these quickly, you'll never catch them. You'll never get anybody."

In addition to being time consuming, these cases may be difficult to prosecute.

The Department of Health Care Services may be involved in an investigation for months, a delay that could cost that prosecution its victory. In these cases, Opferman explained, if "too much time" has elapsed between the crime and the trial, it could also be too late to convict the defendant of those crimes actually committed.

"Unfortunately, our cases take a very long time to prosecute because there are so many different government aspects to them," Melton said. "A lot of times we don't even learn about the cases until they're older anyway, so because of the statute of limitations, all we'll have is a tax charge."

Convincing an entire jury to give a doctor a maximum sentence for committing fraud is rife with its own set of obstacles.

"We have to convince a jury of 12 that a person they have been taught their whole lives to revere and respect like a priest is guilty of fraud," said Zerbey. "The other side only has to convince one of the 12 that there is some doubt in this complicated system--that there was some kind of mistake."

It May Just Be Too Simple

So how is it possible that such an important social service can be so easily abused?

"It's a catch-22, and it's absolutely too easy," said Melton "The problem is, if you make it too hard [to commit fraud], you're going to lose all of the legitimate doctors and only keep the bad doctors."

The federal government manages Medicare, a program that provides health insurance for citizens and legal residents of five years who are older than 65 or under that age but have kidney disease, Lou Gehrig's disease or are otherwise disabled.

The government and each state split the funds that run Medicaid. Medi-Cal is California's variant of Medicaid.

Though it provides insurance to those with limited means, Medi-Cal actually grants its beneficiaries access to a bevy of drugs more complete than the ones available to those using private insurance.

While private insurance might cover only the generic version of a drug, Medi-Cal pays for both its generic and name brand forms.

When combined with the absence of a co-pay, that blanket accessibility makes Medi-Cal a desirable insurance.

Though Medi-Cal serves those who can ill afford food, let alone coverage, Melton said adding even a $1 monthly co-pay could reduce the degree to which doctors and cappers could use beneficiaries to scam the system.

That increase, she clarified, would help Medi-Cal and health service investigators track the goings on of these clinics, forcing them to be that much more accountable for their billing.

Because Medi-Cal has described its mission as one that would grant lower income people proper health coverage, doctors who accept the insurance generally make less than those only taking private insurance. Coupling those lower salaries with a lack of restrictions on beneficiary numbers leaves the door wide open for unscrupulous people to trick the system.

"The Medicare system requires quick payment, so there's less time to find fraudulent activity," said Don Kennedy, director of program integrity at the Center for Medicare and Medicaid services in Los Angeles.

He explains the system tends to operate by a "pay then chase" method. Medicare will pay out for services, even for something that would look suspicious in retrospect, if only to make sure it's not cheating people out of benefits as a result of paranoia.

Since they are privy to what Medi-Cal system calls "presumptive eligibility," pregnant women become prime capper prey.

A woman who knows or thinks she is pregnant can walk into a Medi-Cal clinic and receive full prenatal care, whether or not she is indeed pregnant, has identification or any proof of insurance.

In other words, even non-resident and undocumented immigrants may benefit from the system by using that rule.

The incentive behind that Medi-Cal generosity lies in a preference for precaution.

"They'd rather allow it to be that easy knowing it was going to be rampant with fraud than have babies born prematurely and with lots of disabilities," Melton said.

Felony Stupid

In order to work, Medi-Cal fraud needs usually to employ the co-joint efforts of three parties: the doctor, the capper and the beneficiary from whose ID card the former two may funnel insurance money.

But not all such swindlers commit fraud knowingly.

Sometimes, Melton and Zerbey explained, older doctors not willing to work long hours anymore could be duped into lending services to fraudulent clinics, which easily end what had been an otherwise honest professional life.

"This is the side of Medi-Cal fraud that I think is the most tragic," Melton said. "We call it felony stupid."

"A lot of these clinics will be set up by Mr. Crook," she continued. "And Mr. Crook will put an ad in a newspaper or medical journal saying: 'Needed, medical doctor to work part-time.' So you get these 70-, 75-, 80-year-old doctors who have had stellar careers their whole lives...when we take down the clinic, we end up taking them down too."

Zerbey detailed a case he had seen regarding a Stanford-educated neurologist well into his 80s who had blindly stepped into a bilking scheme.

"He gets hired to read neurology charts for four hours a week, but that's all he think he's doing," he said, sighing. "But they're using his name for everything throughout the week, for thousands and thousands of dollars."

Melton later convicted him of perjury because as a provider, he signed an oath saying that his claims were "true and correct." The court viewed his failure to do so--either intentionally or through negligence--as a lie under that oath.

Zerbey said that in addition to using older doctors as marks, these cappers would target "doctors right out of medical school" unacquainted with this style of fraud.

Dr. Stanford Furer, a former Cedars-Sinai cardiologist, erstwhile USC Keck School of Medicine professor and current Medi-Cal provider, has said he's "blown the whistle" on people he's seen "conducting unnecessary procedures" in order to charge them to insurance.

But he also admitted that some of these people really have, if rarely, become embroiled in something they didn't understand was taking place.

"I think there should be classes...on fraud [in medical school]," he said, explaining he saw evidence of no such thing either when he was a student or when he joined the faculty.

"When I went out, I was naive and innocent," he said, laughing. "I would ask my patients, 'what do I charge for a house call?' So yes, this should be taught."

The Victim Is You

Though the state has set up a system attempting to make it as easy as possible for low-income families, the elderly and those with disabilities to receive healthcare, every taxpayer ends up shouldering the estimated $100 billion losses.

"You look at your paycheck and see all those taxes taken out, this is one reason they're taken out," said Solorio. "That's what drives me to go out there."

A souring economy, he continued, with its corresponding widespread loss of coverage, could make the possibility of cheating the health care structure seductive even to those who would never otherwise have considered it.

So the fraud is likely to worsen, he said.

When the program has to make up for lost funds, it must cut benefits that would have gone to child care, vision services or the individual beneficiary.

So not only would that fraud hike yield a corresponding tax hike, the needy families most depending on Medi-Cal would feel the loss on a visceral, personal level.

Investigators emphasized that for now, the two most important things they and the others addressing parasitic behavior could do is to inform as many people as possible about Medicare and Medi-Cal fraud while devoting more means to combating the fraud that does exist.

"A direct solution would have to be more training and more resources," said Allan E. Irish, a detective with the State Medical Board. "The pros are overwhelmed with sexier crimes like stabbings and shootings," he added. "Fraud is called a 'victimless crime' by some people, but I'm sorry, at the end of the day, you are the victim."