Fraud and abuse among practitioners participating in the medicaid program

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Fraud and abuse among practitioners participating in the medicaid program
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United States -- Congress. -- Senate. -- Special Committee on Aging. -- Subcommittee on Long-Term Care
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Table of Contents
    Front Cover
        Page i
        Page ii
    Letter of transmittal
        Page iii
        Page iv
    Table of Contents
        Page v
        Page vi
        Page vii
        Page viii
    Introduction
        Page 1
        Page 2
        Page 3
        Page 4
    Part 1. The numbers
        Page 5
        Page 6
        Page 7
        Page 8
        Page 9
        Page 10
        Page 11
    Part 2. Practitioner abuse of the Medicaid program
        Page 12
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    Part 3. The chronology: 10 years of reports
        Page 87
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    Part 4. New York's fiscal crisis and Medicaid
        Page 108
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    Part 5. Jurisdiction and responsibility
        Page 120
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    Part 6. Summary and staff conclusions
        Page 209
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    Part 7. Recommendations
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    Appendix 1. List of physicians in individual practice who received more than $100,000 from Medicaid during calendar year 1974
        Page 227
        Page 228
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    Appendix 2. Letters to present and past New York public officials, from Senator Frank E. Moss, chairman of the Subcommittee on Long-term Care, and replies received
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    Back Cover
        Page 288
Full Text




94th Congress P
2d Session COMMITTEE PRINT


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FRAITI) ANI) ABISE AM()N(; I T (,TITIIN,,

PARIrI(IATIN(i IN TIiI' IMEI)1(CAII) II \m)(HA\I





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SPECIAL COMMITTEE ON AGING
FRANK CHURCH, Idaho, Chairman


HARRISON A. WILLIAMS, JR., New Jersey
JENNINGS RANDOLPH, West Virginia
EDMUND S. MUSKIE, Maine
FRANK E. MOSS. Utah
EDWARD M. KENNEDY, Massachusetts
WALTER F. MONDALE, Minnesota
VANCE IIARTKE, Indiana
CLAIBORNE PELL, Rhode Island
THOMAS F. EAGLETON, Missouri
JOtIN V. TUNNEY, California
LAWTON CIIILES, Florida
DICK CLARK, Iowa
JOHN A. DURKIN, New Hampshire


HIRAM L. FONG, Hawaii
CLIFFORD P. HANSEN, Wyoming
EDWARD W. BROOKE, Massachusetts
CHARLES Ht PERCY, Illinois
ROBERT T. STAFFORD, Vermont
J. GLENN BEALL, JR., Maryland
PETE V. DOMENICI, New Mexico
BILL BROCK, Tennessee
DEWEY F. BARTLETT, Oklahoma


WILLIAM E. ORIOL, Staff Director
DAVID A. AFFELDT, Chief Counsel
VAL J. HALAMANDARIS, Associate Counsel
JOHN Guy MILLER, Minority Staff Director
PATRICIA G. ORIOL, Chief Clerk



SUBCOMMITTEE ON LONG-TERM CARE

FRANK E. MOSS, Utah, Chairman


HARRISON A. WILLIAMS, JR., New Jersey
FRANK CHURCH, Idaho
EDMUND S. MUSKIE, Maine
EDWARD M. KENNEDY, Massachusetts
CLAIBORNE PELL, Rhode Island
THOMAS F. EAGLETON, Missouri
JOHN V. TUNNEY, California
WALTER F. MONDALE, Minnesota
LAWTON CHILES, Florida
DICK CLARK, Iowa


CHARLES H. PERCY, Illinois
HIRAM L. FONG, Hawaii
EDWARD WV. BROOKE, Massachusetts
J. GLENN BEALL, JR.. Maryland
PETE V. DOMENICI, New Mexico
BILL BROCK, Tennessee
DEWEY F. BARTLETT, Oklahoma


(II)









LETTER OF TRANSMITTAL

A\ (; sT 8(). 197G;.
li. Ih il. onP.Css.
(1/l, ir,u 'itl)()flm /lt C' a/i .L o/(/-! ~ ( 'al ,u. (''n;/#

I)FXH MZ. ( 'IIAIHM\N IIIni a rd(aiceN witIi vmiir i t1 1t iolls. thlie
comiiliittee staff aiil teliI)orary iII vest itat0 hrslave, ci(mplet e(d a t iexnti-
nation into fraittl 811(1 ;al1b se 8 '1 l)riactiti() rIs 1 lP t i 1(')at 1) Z it i t ( I e
Aledicaid (l 1. l Ir] a 1w ft e r-
M&'(IiC~ I)Io~Ta i lisi V)port is l)riiaril V look at lie irrowin
ihenliolienion ()f "'Aledli('aidoil "-s(r-lprofit. t slfoafili ic'L
vhiih p)roliferate the ( rhtt(s (f ()Ill-.ities.
The (roodv work apparent in Ithis report coul not lhave been lslhl,
without th(, helpad1) anh sl5 ) oftSoo of so( yllY1)e(I)le. Most (f all. ,Im. ( :'air-
man. we appreciate yoirl)erso(-al itivlevellieuut Inl the illve-tiigati()1.
'Vo) have )rovi(led all iilporlait (tiici sio fofeouue.,1 a.d conviel iol
that today 's wrongs must lbe overc,) ue. \Villiail ()(riol -t a 1 o li r(( .
Committee on Aing )rovi de1 gi(lae ad mcci eatio. 1 at11idia (i,.
Oriol playeda most inlIortant role. posilg as a Mstedicaidb teuiefiiia rV
in addition to herd duties as the committees clhif clerk. Teui)ponalmv
invest igators William J. It alaiandaris. I)aVid L. II()lt yn. ( at lmeriuie
1awves, au' r"lmonas (I. (1i n deserve utch credit. as do volutiteers
StuzannIe 1aufian, I)eb)bie (alant. and Theolore 1 'Iurphy. Sumnine'
interns Arcola IPerry and Stephanie Fidel also p~lay{, a yeaslifica~lt
part in this effort.
We would also like to express our al)1"rCation to)(a grvat mai V ot twioi's
who have aided our work, including: Georgre Wilson. assistant 1 .S.
attorney. southern district of \ew York, Elliot Gray. ( noiimissloncr.
Internal Revenue Service Region II, and his assant, Tony (a rI)IiI-
ell(): Gerald Turetsky, Regional Mana ger. General SerVices A\(ndiIIs-
tration ; Charles J. Hynes, special prosecutor for nursing hionmes: Stan-
ley Lulpkin. Commi ssu n of Investigations, City of New York; John C.
Fine, former assistant district attorney, Countv of New York: and
Bill Cabin in the office of ew XYorks Secretarv of State. who aided in
the preparation of this rel)ort.
I would like to add a special word of commendation for Pivates
James A. Roberts Jr., and Darrell R. MDew of the U.S. Capitol Io-
lice Force who performed their role as "Medica id shol)pers in alninir-
able fashion. Their assistance was invalual)le. We are 'ratefil t(lief
James C. Powell and Senate Sergeant at Arms Nordy F. Hofflnann, for
allowing them to be temporarily assigned to our committee.
Publication of this report in time for the August 31 hearing was
possible only because of round-the-clock efforts by PrintingAssistant
Eugene Cunlinings and other representatives of the Govern ment 1Print-
ing Office.
We believe this report is important because it l)reselits to the ('()T-
gre.-ss first-hand evidence of the massive fraud and abuse in the Medlic-
aid1 program. We believe this rel)ort is si.niificalnt ill that it will result
in legislation to improve the quality of health (,are for all A nericans.
With best wishes,
Sincerely,
VAL J. ItIAL.A \A ND .RIS. ;l.0f( ( oiii.q'1,
(iI)



















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CONTENT S

~a ge

Letter of transm ittal --.-.-.-.----------------- ------......... -
Introduction -----.-.-.-.-- ---------------------------------------1
Part 1. The nlmuhers --------------.-.-.-.---------------------------- 5
A. Medicaid payments lby type of service .-------- ---------------
B. Medicaid in New York ------------------------_------------------- 8
('. New York physicians receiving over $100,()00) from Medicare or
Medicaid -.-.-.----- --------------------------------------- 10
Part 2. Practitioner abuse of the Medicaid program ----------------------- 12
A. Medicaid mills Background and defillitiol ----------------------- 12
Medicaid income concentrated in the hands of a- few i.roviders ...-- 14
Factoring firms ------------------------------------------ 15
"The key is volume ---------------------------------------- 18
Most common abuses in Medicaid mills --------------------- 18
Medicaid mills and the entrepreneur --------------------------- 19
B. "Shopping" ------------------------------------------------------20
The procedure ----------------------------------------------- 26
Treatment --------------------------------------------------- 26
The billings -----------------------------------------------31
Concerns about quality of care ----------------------------------32
Testimony concerning inadequate care --------------------------33
Shortcomings: Other providers --------------------------------- 34
Senator Frank E. Moss poses as a Medicaid patient -------------34
Moss visits the 164th Street clinic --------------------------39
Moss visits 209 East 14th Street -----------------------------39
Afterthoughts -------------------------------------------- 42
Medicaid mills: A box score -----------------------------------43
C. Opening a medicaid mill: Interviewing physicians in Illinois. 45
Physician interviews: New insights ----------------------------- 46
D. The executive level --------------------------------------------- 48
1. Medicaid mills: A look at the inside operation ---------------48
Rationalizations -----------------------------------------. 0
2. What it is like to work in a -Medicaid mill --------------- 50
3. "Getting the job" -------------------------------------
4. How to get away with it -----------------------------------58
5. Buying a Medicaid mill: The executive level ------------------0
In the shadow of Yankee Stadium ----------------------- 60
The father of the storefront clinic (3
E. Fee splitting and percentages leases-common practices in Medicaid
mills -------------------------------------------------------- 66
Case examples: Mermaid. Parsons. and Medical Facilities Inc._ T
Mermaid -----------------------------------------------70
Parsons Group, Inc --------------------------------------71
Medical Facilities, Inc. and the Association of Health Care
Facilities, Inc ----------------------------------------- 2
Dental Fquities, Inc ----------------------------------2
F. Methadone maintenance ---------------------------------------73
The Mary Scranton Clinic ------------------------------------74
The Narco Freedom Case -------------------------------------74
(v)






VI

Part 2. Practitioners abuse of the Medicaid program-Continued
G. Fraud and abuse by Medicaid practitioners other than those work- Page
ing in Medicaid mills ------------------------------------------ 76
1. Chiropractors --------------------------------------------76
2. Dentists -------------------------------------------------76
3. Physicians -----------------------------------------------77
4. Podiatrists -----------------------------------------------78
5. Optometrists and opticians --------------------------------- 78
6. Pharmacies ----------------------------------------------80
H. Summary: An in-depth look at an ongoing Medicaid mill ----------80
A Pulitzer Prize winning series in the New York Daily News --- 83
Relationships -------------------------------------------84
Leasing arrangement: Where the money goes --------------------85
The track record continues -----------------------------------86
Shopping at 80 Delaney --------------------------------------86
Part 3. The chronology: 10 years of reports ----------------------------87
Distribution of the grand jury presentation -------------------- 92
Analysis of the replies -------------------------------------------92
Impact of the grand jury report ---------------------------------- 93
The catalog of losses ----------------------------------106
Part 4. New York's fiscal crisis and Medicaid ---------------------------108
A. Overview --------------------------------------------------108
B. Fiscal crisis and welfare and Medicaid programs ----------------109
Fiscal recovery and Medicaid --------------------------------111
1. State created roadblocks to austerity ------------------111
2. Failure to allocate money for Medicaid enforcement -.- 115
3. Underestimating Medicaid cost-Impact on fiscal re-
covery -------------------------------------------116
Conclusions ----------------------------------------------- 119
Part 5. Jurisdiction and responsibility --------------------------------120
A. State government -------------------------------------------121
1. Overview ----------------------------------------------- 121
2. Department of social services ------------------------------122
a. Organization -----------------------------------------122
Audits of medical assistance --------------------------123
b. Powers and duties ------------------------------------124
c. Social services' "cooperative agreements" with mental hy-
giene (DMH) and the office of drug abuse services
(ODAS) -------------------------------------------130
d. Response to the committee -----------------------------132
3. Department of health ------------------------------------- 133
a. Organization -----------------------------------------133
b. Powers and duties ------------------------------------134
c. Response to the committee -----------------------------140
d. Enforcement failures by New York State Departments of
Health and Social Services ---------------------------144
4. Department of education ----------------------------------149
a. Organization, powers, and duties ----------------------- 149
b. Fee-splitting, percentage leasing policy ------------------151
c. Response to the committee -----------------------------153
5. Board of social welfare -----------------------------------156
6. Division of the budget ------------------------------------156
7. Department of law ---------------------------------------158
a. Organization, powers and duties ------------------------158
b. Response to the committee -----------------------------160
8. Department of audit and control ----------------------------161
a. Organization, powers, and duties ----------------------- 161
b. Response to the committee -----------------------------162
9. Office of welfare inspector general --------------------------166
a. Organization, powers, and duties -----------------------166






VII

Part 5. Jurisdiction and reslponsibility- (ontimued I ,
B T he hIcal govern n-e-ts .. . ... . .. . . . ..... 1
1. Social services (listricts ------------- l(;
2. Local health districts and regional health oflices -.... .... 171
Methadone maintenance - -,,178
C. General critique of governmental responsibility in New York-,---,.. 171
1. linltrod uction ------------------. - -----------------.- -- 1 14
2. Critique ---------------------------------- 175
a. Computerization -------------------------------------- 175
b. Enforcement 177
('. R eiI ursemnent --------------------------------------- 1 s4
d. B li, ability ----------------------5
e. Quality of care --------------------------------------. 191
I). Professional societies--------------------------------------- 14
1. ()rganization, powers, and dilties -----------------------------14
42. Responses to the committee ----------------------------------195
a. New York State Dental Society ------------------------- 195
b. First )istrict I)ental Societ ----------------------------195
c. Eleventh )istrict Dental Society ------------------------ 1.i
d. Medical So(iety of the County of New York------------ 196
E. Federal responsibility ------------------------------------------197
Federal standards --------------------------------------------198
Assistance to the States ---------------------------------------199
performancee by the States ------------------------------------199
The GAO report: April 1975 -----------------------------------199
The Fountain Report -----------------------------------------200
Report by the Subcommittee on Health and Long-Term Care,
Select Committee on Aging, House of Representatives,
January 1976 ----------------------------------------------203
Pending Medicaid fraud cases: Most recent statistics ------------207
HEW's reaction ----------------------------------------------208
Part 6. Summary and staff conclusions ---------------------------------209
Overview --------------------------------------------------------209
Practitioner fraud and abuse --------------------------------- 209
Government administration -----------------------------------21'2
State legislature ------------------------------------------212
State and local agencies health and social services -----------214
Education ------------------------------------------------217
Law -----------------------------------------------------218
Audit and control ---------------------------------------- 219
Welfare inspector general ---------------------------------220
Federal responsibility -------------------------------------220
Fiscal crisis ------------------------------------------------- 221
Part 7. Recommendations------------------------------------------ 99
To the Congress ------------------------------------------------ 99
To the I)epartment of Justice------------------------------------- '22
To the Internal Revenue Service -----------------------------------222
To the Treasury I)epartment -------------------------------------- '222
To the Department of Health, Education, and Welfare -------------- 222
New York State -------------------------------------------------- 223
Legislature --------------------------------------------------223
Agencies ---------------------------------------------------- -24






VIII


APPENDIXES
Appendix 1. List of physicians in individual practice who received more Page
than $100,000 from Medicaid during calendar year 1974 -------------- 227
Appendix 2. Letters to present and past New York public officials, from
Senator Frank E. Moss, chairman of the Subcommittee on Long-Term
Care, and replies received:
Item 1. Letter to Arthur Levitt, comptroller, State of New York,
and replies -------------------------------------------------234
Item 2. Letter to Louis Lefkowitz, attorney general, 'State of New
York, and reply ---------------------------------------------239
Item 3. Letter to Robert Whalen, commissioner of health, State of
New York, and reply -----------------------------------------244
Item 4, June 17, 1976, letter to Philip Tola, commissioner, New York
Department of Social Services --------------------------------249
Item 5. Letters to Robert Asher, director, and Robert Stone, counsel,
New York State Department of Education, and replies ------------251
Item 6. Letters to Dr. Ralph Weil, president, 'Second District Dental
Society; Dr. Seymour Nash, executive director, New York State
Dental Society; and Dr. Emil Lentchner, executive director,
Queens County Dental Society, and replies -----------------------263
Item 7. Letter to Jule Sugarman, chief administrative officer, city of
Atlanta, Ga., and reply ---------------------------------------278
Item 8. Letter to Michael Whiteman. Esq., former counsel to former
Governor Nelson Rockefeller, and reply ------------------------279
Item 9. Letter to Vice President Nelson Rockefeller; interim response
received as of time of printing ---------------------------------280
Item 10. Letter to John C. Mitchell, former Attorney General of the
United States ----------------------------------------------- 281
Item 11. Letter to Perry Duryea, minority leader, New York State
Assembly, and reply -----------------------------------------282
Item 12. Letter to John V. Lindsay, former mayor, city of New York,
and reply ---------------------------------------------------283
Item 13. Letter to Hon. Abraham Beame, mayor, city of New York,
and reply --------------------------------------------------284
Item 14. Letter to Mary C. McLaughlin, Commissioner, Suffolk County,
N.Y., Department of Health Services, and reply -------------------285
Item 15. Letters to Robert Morgenthau, district attorney, county of
New York --------------------------------------------------286












FRAUD AN) AI USE AMON( PRACTITIrp OWNERS
PARTICIPATING IN THE MEDICAII) IRO((RAM
I NTR( ))i rpTON,

In 196.), President Id1(lon Johnson tol( the (CoIrress (, )ir first
concern lutist be to assure that the advance of medical1 knIowl(II,_
leaves no one behind. A\e cani-and we ust-strive now\, to asu re tile
availability of 'ndl acce>Sil)ilitv to tile best liealt I care for all A ii ,ri -
cans rerarlless of ace. georraI)hv. or e('omic stat u1.
In response to the lPresident's call, tile (11 gres ellacted tile iIe(li-
care program, a federally tinanced I)r(gram of meuicd I iilsulra(e (,()A-
erage for all Americ(ans over b}. At the same tinc. ( Conre>- eIa('teI
Medicaid. whIch consolidated the medical assista.e rI)oga Ii iriri-
nallv established by the Kerr- Mills Act of 1!( The enactiment of t le
Mie(lcad program
(a) Required States to cover all persons etigil le for (ash1 asist-
ance.
(b) Increased the rate of Federal financial participation in the
costs of medical care.
(o) Permitted States to include the melically needy under 6-5
in their medical assistance plans.
(d) Required that all partiipating States include in t!eir
plans inpatient and outpatient hospital services. other laI)oratorv
and X-ray services, skilled nursing home services. and "lvysl(1al'
services. iIlany other services were permitted at the optionI of the
States.
The Medicaid program has now been in existence for over 1i0 yea vs.
In those 10 years it has serve(l many people. without a doubt brin(riw_
medical care to the poor. disadvantaged. and elderly.
The Medicaid program has expanded rapidly, front a $1.5 billion
I)'rogram in fiscal year 19(6 to a S,15 billion program this year ( 197)-
a tenfold increase in jiust 10 years. There are an e tniated ;1, ilh0ion
Americans who are eligible for the Medicaid l)rorani.
The ever-increasing cost of administering to their needs has been
the source of much concern to policvmakers. More than 20 States tave
cut back on their Medicaid programs in the past 2 years.
To add to these already significant worries concernig the escal at-
in price of this program is the new and mounting evidence tfhat the
program is not only inefficient. but riddled with fraud and abnse.
In the past. this subcommittee has examined the allegations of
fraud and abuse as they relate to the nursing home field. which ac-
counts for almost 40 percent of the Medicaid prog-ram. Some 27 hear-
ings have been devoted to this subject since July of 199. I)etails of the
subcommittee's findings have been outlined in a continuing 12-volume
report which has been released in increments since November of 1974.
(1)







This subcommittee has also examined abuses in the supplementary
security income program. the recent trend to discharge thousands of
individuals from State mental hospitals and place them in old hotels
or other unsuitable. unsupervised facilities. It has also examined the
growing fraud and abuse among some of the agencies providing home
health services under Medicaid.
In February this subcommittee released a report dealing with
"Fraud and Abuse Among Clinical Laboratories," charging that $1
ot of every $5 spent for laboratory services under the Medicare and
Medicaid 1procyrams is fraudulent.
Most recently, the subcommittee is working on a report, entitled
"Fraud and Abuse Among Physicians ParticipatinI in the Medicare
Prosrram." This report indicates that a small number of physicians
abuse tile Medicare programm (only 4 percent of the 2.50,000 who partic-
ipate) but the amount of fraud is significant-estimated at about
$300 million a year. A preview of this forthcoming report was given
oy the chairman of this subcommittee in his July 28, 1976. appearance
before the Senate Committee on Finance.
The report which follows attempts to document the degree of fraud
and abuse peripetrated by practitioners in the Medicaid program. Our
investigation focused on five States which receive more than 50 to 55
percent of Med(icaid funds: California. New Jersey. Michigan, Illinois.
and iNew York.
.ew York was sin-led out for in-depth analysis for several reasons:
(a) it has the larcrest Medicaid program in the Nation, spending an
average of $180 per inhabitant while the national average is $66 per
inhabitant: (b) New York accounts for almost 25 percent of total
Medicaid outlays despite the fact that New York has less than 9 per-
cent of the country's population; (e) the New York program histori-
cally has been charged with being of the worst managed in the Na-
tion; and (d) because of the apparent relationship between the mis-
management of the program and New York's current fiscal crisis.
In the course of this investigation, the following steps were taken
in an effort to ascertain as accurately as possible the size and dimen-
sions of the problem and to determine what remedial steps are neces-
s arv. Senate investigators attempted to test the system from three per-
spectives: government, provider, and patient.
Specifically, the investigation involved the following:
(1) Examining in detail more than 100 major reports produced by
Federal. State, or local agencies detailing fraud, waste, or inefficiency
in the Medicaid program with particular emphasis on New York.
(2) Reviewing records in the New York City Department of Health,
in the office of the U.S. attorney for the southern district of New
York, and the District Attorney's Office for New York County, as
well as in the offices of Michigan's Post Payment Surveillance ITnit-
the so-called Fraud Squad.
(3) Manually evaluating the medical vendor statement-a com-
puter printout-compiled from payment records of the New York
City Department of Social Services.








(4) Interviewin "2 1)1ic oflii a 1 aI W I len i r u it I e-1tIn iI "Itr ga -
Iories to 30 additional lpblic ofIIiaII wit Ii rdll, -I or Ipa reIIIliIo-
bilitv for Ihe operat iou of t lie Medi,'aid proi-raii iIli New Yirk.
(5) Interviwin more tha1n ;2 phy1ician who, work in or I
"Medicaid mii)s'" (54! were Ill inovis pl~i'i inte, iewel v in I aIt+
arv in coI,.i oll w1tli oh P tlI) t 0n cliii I t1 L fra li .
(B) Seun liiif luest ion na res to t he T2h( l lyivi a in NXw x' Yrk \vl lo
w+ere paid froiti $7;5,004) to +7s5.~4)U~v) t lie edipaid !,rOLt :w\ iat
veal'.
(7) o(,, if i.?" [i t a;+.+t" i, P! f;l it .,,l! ( iftm +/h i1' f/KilI wl It0 -a .o-
C l Ii IA W'/I q nI/,(0/iitf ;j If Ii f I fh n / [Pra-
codld tlj,! f;, ,1;d //S. (' m ~ t /, / + ,, /I / !t, //.N1+ li'(, ,0 /o t+ -
Ment SOme 2() 1;11 x. If or, f/t,l 121 of ft/./I, ,,x t;.+ l.+, t. 'I' '
(ity. /ht 0 11ta;1 /' HY.e'+ /t ( f'n/;o , U' .t /.*' t/ .11, /,i/i/ .
(8) Anom in ing est ali-IIIIiel It If I I'I Oflr t i p)urpmses o+f l)Iini aiiil operate iH2z lhealtlh ('arc. ill ilit ic's. A\cr oiiipauiii'd
by col eratinj i! vs i ii vesti anH wV t'e I a I IIe'('- iph i:i. i Ill
the New ork T i otll Med/icaid ills for al( ill 1anhattan I.
Brook I ,yN QN eens. aI tl lIronx. This teclinijiie alon with i l, i -
terviews of the d I vl]Ivsician- in Illinois ravet iC diret iIi lontl tn 1
to the financial opetatiol of niinier Hius Med1ica l mills.
(9) Monitori 1,, the operat0i1 of a ,torefronit medical clin ic st-a -
lished last I )ecenbl*wr bv ( iica g )s Better ( Tove rnlient A -ic i at 011.
Part 1 of this eI ort p)rovides tle iecesaiy tatttl ,s;t l ,1)a. Part "
outlines tle active phases of this invest igat io inI all its d itieI1ion+.
Part 3 is an evaluation of past studies, reports, and re(cors, addresse(l
particularly to the New York Medicaid pirg-nain. Part 4 explores the
interrelationship between misnmnageiiient of the Medicaid program,1
and New York City's current fiscal cr1ss. Part ;5 of this report ad-
dresses the question of responsibility for the serious and protracted
abuses apparent in the Medicaid program. Part 6 is a summary which
also states our conclusions. Part 7 contains 111 reconendations.
Appendix 1 carries the names and addresses of all pliysicians iiiaking
more than 100.000 from the Medicaid program in 1974, i addition
to New York figures for 1975.
After this intensive investigation the committee staff cohirdes--
as it did in the report relating to fraud and abuse among clinical lab-
oratories-that fraud and abuse in the Medicaid Iprograin is massive.
Our in-depth analysis in New York State indicates that the size and
dimensions of the problem in that State are astonishing.
Amazing a.s it seems, the cormil'ttee staff (arwd flat most of the
problems in the Aew York program haee b(en nkcjw for 10 year.s Or
more. Federal, ,tate. and local officials are and ha'( ben; apprwised
of the nature of the problem for a number of years as fahnced by
the mountain of reports go4ny bark to lo6.l(( lan., th ,se .4hortcoin-
ings and the names of specific 1?rorid,1 rs who are df'audig th pro-
qram (and the method8 us'ed by the.e pro iders ) ar/ad ./ bu
knaLm to both po7iwymakers and law e ,nforcement (iqeflc/.N. Spite
alternate alarm.s sounded by qenerations of office hold!rs, ad (4Spite
an equal number of pre. s release. indicating proqr,,s tot'ard Nfab-







lishing accountability, the fraud and the abuse continue in blatant
fashion. This situation can no longer be tolerated, particularly in view
of New York City's fiscal crisis and the commitment of taxpayers'
dollars in the form of loans insuring the city's solvency.
The operation of the Medicaid program in Michigan (and to a
lesser extent, in California and New Jersey) provides an effective
contrast to the past administration of programs in New York and
Illinois.* In these States, some abuses still exist, but blatant whole-
sale thefts are not as evident, reflecting what appears to be a serious
effort to root out fraud and abuse.
*For further discussion of the administration of the Medicaid program in Illinois, see
parts 2-4 "Medicare and Medicaid Frauds," hearings by the Subcommittee on Long-Term
Care. Also. "Fraud and Abuse Among Clinical Laboratories," a report by the Subcommittee
on Long-Term Care, February 19, 1976. It should be added that much recent progress has
been made in Illinois due to the efforts of Mr. James Trainor, director, Illinois Depart-
ment of Public Aid.












Part I

THE NUMBERS

Last year "ericans spent an average of $547 eacl-o-2r 2.s' p
family-for health are. Tlis is 3 tilileS as much as was spent for
health in 1965) ($3 billion) and 1(0 tunes thle amount spelnt in 1960
($12 billion). Measured in terns of tle gross national p)rodluct, tl
cost of health care has increased from 4.6 percent in 19.)0 to 8.3 per-
cent today-fully one-twelfth of the (N1Y at the end of 1975.
The rapid growth in sI)en(ling is associated with a sharp increase in
governniental l)articii)ation. In 1965). pIbl ic funds lllade up only 26
percent of all health expenditures; todlav, public funds make 11p) -2
percent of the total.
As noted above, the medicaidid p program has contributed signiti-
cantly. increasing from $1.5) billion sj)ent in fiscal year 1966 to a $S"15
billion program today.
In 1973. 23.) million people received medical assistance under M Nedic-
aid- in 1975, there were an estimated 28.6 million Medicaid eligibles.
Using 197.) estimates, .).1 million Medicaid eli,.i)le s were, aged. 200.)00
were blind. 2.4 million were disabled, 12.9 million were children under
21, and 7.9 million were adults in the aid to families with dependent
children.
According to the special analysis of the budget of the U.S. Gov-
ernment from which these figures were taken, the average benefit per
Medicaid recipient was .21 with average payments of $467 being
paid to the aged, $521 to the blind and disabled, $99 to clldren under
21, and $142 to adults in AFDC families.
Table 1 below lists Medicaid patients by eligibility and percent of
Medicaid funds going to each category. As noted. in calendar 1975.
the aged constituted 23.5 percent of Medicaid eligibles and received
38.7 percent of Medicaid funds. As table 2 indicates, the percent of
Medicaid funds may actually be much higher. perhaps approaching
50 percent of Medicaid funds.
TABLE I

Percent of Percent of
medicaid medicaid funds
eligibles by received by
category category
Age 65 or over ------------------------------- 23.5 38.7
Blindness ------------------------------------------------------------------ .5 .6
Permanent and totally disabled------ .13.7
Membership in family with dependent children under 21 ------------------------- 56.0 30.3
Other title XIX recipients ---------------------------------------------------- 6.9 6. 1
Total ---------------------------------------------------------------- 100.0 100.0
Due to rounding figures do not total 100.
(5)







6

TABLE 2
[in calendar 1975, the States and Federal Government spent $14,000,000,000 for medicaid. A breakdown of these expen -
diturss by category and by percent of such services received by the elderly follows below]
[Dollar amounts in millions]

Going to elderly
Paid (percent) Going to aged

Hospitals--------------------------------------------$4, 200 26 $1,092
Physicians-_ ___ 1,400 23 322
Nursing homes:
Skilled ------------------------------------------- 2,700 82 2,214
Intermediate --------------------------------------- 2,500 72 1,800
Drugs ------------------------------------------------ 901 41 369
Dental care --------------------------------------------- 371 125 93
Lab and X-ray ------------------------------------------- 118 125 30
Home health -------------------------------------------- 112 125 28
Outpatient clinics ----------------------------------------- 850 125 212
Other/eye care and glasses ----------------------------------- 848 125 211
Total ------------------------------------------ 14,000 46 6,371

1 Estimated.

A. MEDICAID PAYMENTS BY TYPE OF SERVICE

Seventy cents of every Medicaid dollar was spent for inpatient serv-
ices in 1973. Although fewer than one in six Medicaid recipients re-
ceived general hospital inpatient services, payments for such services
constituted the largest share of the Medicaid dollar: 31 percent. The
various long-term care inpatient services (mental hospital, skilled
nursing, and intermediate care facility) comprised 39 percent of pay-
ments. Persons receiving such services represented at most 6.2 percent
of Medicaid recipients. Physicians' services and prescribed drugs rep-
resented 11 and 7 percent of the payments, respectively. Table 3 pro-
vides details.

TABLE 3.-Distribution of medicaid dollars by type of service (fiscal year 1973)


PHYSICIANS'


PRESCRIBED

OUTPATIENT


CLINIC SERVICES


70%


INTERMEDIATE CARE FACILITY


-MENTAL HOSPITAL SERVICES









Table 4 indicates the concentration of Medicaid Immvlielt-, ill tt 10
largest States. Last year sole $14 billion in Mekiaii! flnhii l -+ wele paiii
out in calendar year 1975. The 1(0 largest State1 are, a foRl>w"


New York ------------$3, 252, 328, 327
California ------------ 1,483,9 363
Pennylvania ----------768, 224, 615
Illinois --------------- 753, 418, 270
Michigan ------------- 677, 077, 811


Mas~s i(.h uset ts .. ......
Texas
O h io --- ---------- ----
Wisconsin
New Jersey


S7-7, 11.5, 417
)19, 912, 7s-)
413, 276, 4N0
402, (39, 501
401, 726, 751


TABLE 4.-Proportion of total U.s. miediaid payments by sclcct(d stat( .s,
calendar year 1!)7
(Total expenditures,' calendar year 1975, were $14 billion)


I Includes expenditures for payments made directly to medical vendors and fur
monthly premiums or per capita payments into agency pooled find,, to the Social
Security Administration (for aged persons), or to health insuring agencies. Includes
all such expenditures made under federally aided assistance programs and under general
assistance programs financed from State-local funds.
-Michigan, Pennsylvania, Massachusetts, Texas, New Jersey, (1 hio, Wis(-i nsin, and
Minnesota.
Source: SRS. NCSS, medical assistance financed under title XIX of the Social
Securityv Act, December 1974. NCSS Report B-1. p. 40.







B. MEDICAID IN NEW YORK
Medicaid expenditures in New York State are now at $3.2 billion
a year. This figure represents 23 percent of all Medicaid expenditures
annually by all States and territories of the United States. The cost
of Medicaid in New York is paid for by the Federal (50 percent-
$1.60 billion), State (25 percent-$800 million), and local govern-
ments (25 percent-$800 million). New York is only 1 of 5 States
where the State and localities equally split the non-Federal contribu-
tion share and only 1 of 14 States where the localities make some con-
tribution. In 36 States the cost of Medicaid is split 50-50 between the
Federal and State Governments.
Approximately 2.1 million persons are enrolled in the Medicaid
program in New York State. There are basically three types of enroll-
ment in New York as in most other States. All individuals qualifying
for welfare (public assistance) in New York are automatically eli-
gible for medical assistance (Medicaid). All recipients of the Federal
supplementary security income (SSI) (the uniform Federal welfare
payments to the poor averages $157 a month) are automatically eli-
gible. In addition, States may elect, as New York has, to make Medicaid
available to those with incomes too hi.zh to allow them to qualify for
welfare. Individuals who apply for Medicaid in local welfare offices
qualify, providing their incomes are no more than 133 percent higher
than New York's limit for welfare eligibility. In total, Medicaid ac-
counts for over o ne-hal'f of New York's $6 billion yearly total for
welfare. Table 5 indicates the relative position of New York compared
to the rest of the States in terms of Medicaid outlays per inhabitant.
New York leads all States with $180.62 in Medicaid funds spent per
inhabitant. No other State is over $100. Wyoming is last with outlays
of $16.14 per inhabitant on the average.








TABLE 5


N)


1972

U.S AVG $4406
N Y $125.87
MASS $65,52
WIS $4198
RI $6144
VT. $56 74
MICH $4931
CALIF $6695
MINN $4993
ILL. $46.59
PA $3551
OKLA $4745
CONN $3806
GA $4005
N J $3631
MD $4795
MAINE $41,47
ARK. $25,19
WASH $40.20
KANS $3385
HAWAII $4076
LA $2224
MISS $2836
TEX $3152
KY $2465
COLO $3741
ALA $2507
MONT $2466
VA $2428
N OAK $2500
OREG $2216
OHIO $2088
TENN $1814
IOWA $1301
N H $1496
NC $2425
IDAHO $21 92
IND $2441
S DAK $2314
SC $1664
NEV $2484
NEBR $31 65
UTAH $24.99
DEL $21 00
N MEX $1997
ALASKA $11 60
MO $1592
W VA $1441
FLA $1416
WYO $1337


MEDICAID EXPENDITURES PER INHABITANT, 1972 AND 1975
DOLLARS
20 40 60 80 100 120 140


160


180 200


ce HEW SRS


1975

$65.60
$18062
$9962
$87 48
$86.60
$84.92
$7696
$7661
$7319
$6864
$6700
$5815
$5768
$5735
$55,82 74
$55.33 7z
$54 99
$52.95
$5285
$52,05
$50.70
$49 10
$4711
$4534
$4474
$43,26
$4248
$4195
$4087
$4084
$39,64
$39.23
$39.13
$3774
$3768
$3730
$3682
$3653
$3609
$34,50
$3430
$3243
$3101
$3014
$29,25
$2737
$26.31
$25.26
$23,54
$16 14






10

The cost of Medicaid and the number of recipients in New York
State hare increased enormously since the program's inception in 1966.
In the 10 fiscal years of the program's existence, these costs have risen
by approximately 800 percent and the number of recipients by ap-
proximately 900 percent to the current level of $3.2 billion in costs for
2.1 million recipients.
As table 6 indicates, payments are made to various kinds of pro-
viders. Approximately 70 percent of the payments ($1.9 billion) go to
institutions providing inpatient care (hospitals, nursing homes, pub-
lic home infirmaries, and intermediate care facilities) and 30 percent
($800 million) for outpatient care (clinic care, prescribed drugs, den-
tal and physician services, and other medical services such as physical
therapy and medical devices). Twenty-three percent of all the moneys
($620 million) went to physicians, dentists, pharmacists, and clinics.
The bulk of the payments (84 percent-$2.7 billion) are made by the
58 local social service districts throughout the State. Supervision over
these providers for compliance with Federal and State requirements
is done by the local health departments and State Department of
Health. The remaining 16 percent ($500 million) is paid directly by
the State Department of Social Services to the State Department
of Mental Hygiene. These moneys are monitored by the respective
agencies.
TABLE 6.-Where the Medicaid dollar goes in New York




NURSING HOMES-. 3
DOCTORS
5.6%

L 9.7% OTHER
CLINICS 114% .



HOSPITALS "-. "




C. NEW YORK PHYSICIANS RECEIVING OVER $100,000
FROM MEDICARE OR MEDICAID
There are about 378,000 physicians in the United States at the
present time. New York claims almost 10 percent of this mmber-
or about 35,000 doctors. Nearly two-thirds of all doctors (250,000),
participate in the Medicare and Medicaid programs.






11

In 17)4, of those 2500)0, some 365 pe1 iciI' 1eeive( Sl )"00I( o()
niore front the Me(Il(aid lpro~rain .*)1) were ill New York. Il 197.5.
79 doctors received over $10),00)0 ftrou Mediicaid in New York.
Also in 19)74, there were 247 doctors who recei ve(! ove "S 1()0 f 1% r' ro
the Medicare program ; 82 of t!his imil er were in New York.
Precise (ata as to the 111111I Ite of 1)livsiciai)s ill New York ,St1t, lr
ticipatin r in the Me ldla1(1 pro)grall are not taxa'ilale. New York ('itv
figures extracted manually fromt tie medical vendor stIteielit )rint-
out given. to the ,onlllittee stalff provide the following totals for New
York ( ity, which accounts for 68 percent of all New York MedIicaid
expenditures and for (1 percent of Medicaid recipients:

PRA('TITIOxNERS PARTI(CIPATING IN MEDI(AI), 'NEW Y(RK (I'71Y
Physicians ---------------------------------------------9. 32(
Dentists ------------------------------------------------1.974
Podiatrists ----------------------------------------------(6 1
Optometrists --------------------------------------------410
Chiropractors -------------------------------------------229












Part 2


PRACTITIONER ABUSE OF THE MEDICAID
PROGRAM

In the investigation of Medicare and Medicaid, committee staff
quickly learned that there were many differences between the types of
practitioner fraud and abuse perpetrated against the two programs.
Medicare frauds were, for the most part, isolated individual acts, one
man, acting alone, generally billing for services not rendered. In Med-
icaid, most abuses involve a conspiracy of several practitioners and the
introduction of assembly-line methods to defraud the Government.
Medicaid fraud includes everything from billing for services not
rendered to "writing paper"--the wholesale manufacture of phony
bills.
Our first exposure to such practices came in the course of an in-
vestigation relating to fraud and abuse among clinical laboratories.
We monitored the work of Chicago's Better Government Association
(BGA) which established a storefront medical clinic on Morris Ave-
nue in Chicago. Representatives of more than 12 laboratories entered
the clinic and all but 2 offered investigators kickbacks of from 25 to 55
percent of Medicaid billings provided they could secure all the clinic's
laboratory business.
Armed with the information that laboratories gave kickbacks (and
with the approximate amounts), the committee staff, aided by the
BGA, constructed a profile on each of the laboratories, identifying the
names of every physician who used them. These names were cross-
indexed with the names of doctors with incomes over $100,000. Some
50 doctors were selected.
To our surprise, the addresses where we found the doctors practicing
were, without exceptions, little storefront clinics not much more elabo-
rate than the one established on Morris Avenue.
In New York, we had much the same experience. We began with
a list of physicians who have repeatedly been charged with fraud and
abuse. This list was derived from newspaper clippings and other pub-
lic sources. To these names, we added the names of a number of New
York's high providers (making over $75,000 a year fronm Medicaid).
In tracking the addresses of these physicians, we once more found our-
selves involved with "Medicaid mills."

A. MEDICAID MILLS: BACKGROUND AND DEFINITION
"Medicaid mill" is a term new to the health care field. "Mills" are
unregulated and unlicensed. Legally, they fall into a crack between
a clinic-which, by definition, presents a single bill for all services
offered-and individual practitioners.
(12)







e ial is(e eraly' a I iole- it-tiIe-Nwail (1t eI a 1 i l a Ii )l1i-
Met I icaiti11111uis
date(d part of town. A few have large 1)late wihVllows.I Iit;t I v so a
solid Irick wit liotit windows or witl wiuIv ow oarle(t. Sot, \vIaitini
o00111s, lhowver, vere attractivelv" ati even 4.11eerflillv ftll 1is wI.
(1oluI)lete with, wood janelinli, televi iotI set,'4 anti 1 )d i2rilt 1)last it, ,liri .
This Vas in stark contrast, lovever, t) Iuaiv of tle "t r'eatillliC. ro()lII>
iiimti(itiatelv I)evondl. Altiost all carry an vXtv1ils\e uttiltiliilrlal list ()f
servics---vervthin gf ronti internlists to ch1iroI)ra(t)rs. lodtiat fists, aI-
lergists. al(1)s(lchiat ri't. T 'ly ar'e easy to find dcsie(l I for visibility. iI any viarry Npennants an1( )alelwrs. M')st liav
door-to-cur ) ca1o)ies. Sotie adert ise tleir v)rese('e witli arrows
pailte(r oi neighbi orinr 1i lu 1(i i a l( 111( 1 the or(Is tro ( ItIii) I -
"mdile a]1center"V l" i Itten aI)ove or 1)elOv.
Most mills are single-stora facilities, not infrequent Ivl, tieroviilu
floor of fornier residential tbuilding-s. ()t hers are fitted into<.()IIIw1rcal
real estate too run (lown to be suited for its original )urpose. A very
few have been specially designed for use as we(ical facilities. I iisitle.
they tend to be cramped: a. small waiting ro<) ni. a dozen or lore
chairs, and a number of very small servicintr nl)ides. T" .ealiv. t he
room in which the patient sees the physician is ) feet lv 10 feet or less.
Usually, the facility is minimally equiI)ped. Someo (0 noth have t he
most basic Sul)plies and equipment, trieilloneters. st etliosol eS s)a
dispensers etc.
The doctors found in mills are also characteristic. They ten I to be
foreign medical graduates. Thev tend to lbe young. The tenl to work
"welfare medicine" exclusively and to have no private I)ra('t ice.
' Many Medicaid mills emplov "hawkers* who rounl Il) customers
for treatment. Several mill administrators have alinitted to Senate
investigators that they bribe social workers at hospitals or discharge
planners at State mental hospitals to sen then business. A number
cater to the drug traffic: and many others make deals with unions oI'
other private pension plans to provide health services for their
IIemi l-S.
The best thing that can be said for such facilities is that they are
located in the ghettos-the areas of greatest need. I however. tIe appea'-
ance of medical care is an illusion which soon evaporates. ()ne resident
of the inner city told us: "We never go to these places when we are
really sick : we go to hospital emergency roois. If it is something like a
hurt finger thenvou night go.
It appears clear that these facilities would not survive without
Medicaid. Repeatedly in our investigation. the staff learned of now-
pr'osper'ous participants in the Medicaid proirrain who could never fint
practice )efore the proliferation of Medicaid mills. r example.
three New York chiropractors who ultinatelv formed a l)artflershil)
which gave themn the ownership of a half dozen facilities and andinCOnue
of '500,000 a year each had been unable to find work in their lrofes-
sions until the enactment of Medicaid. Significantly. the practitioners
were licensed to practice a (ozeny ears before the enactment of the
Medicaid program, but until that time two of the men were working as
taxi drivers and the third was working as a butcher.
No one could tell the staff exactly how manv doctorss anol other pro-
viders practice in Medicaid mills.'( ompare(d to the total nun iber of
doctors in the Nation (378.000). tlhy are probably few. The only nuean-
ingful statistics obtained related to the c'itv of New York. As noted
above, there are some 9.()00 doctors who work in that cit v's Medicaiol
program.








Clearly, a few physicians take most of the money paid out under New
York's Medicaid program. According to our analysis of computer bill-
ings, some 7 percent of the doctors practicing in New York City's
Medicaid program earned 50 percent of the total paid to all doctors
by the program. In Michigan, 3 percent of the doctors in that program
earned 25 percent of Medicaid funds paid to physicians.
In our investigation, we learned that many doctors in New York
were "ice skating," that is, working 1 day a week or half a day a week
in various clinics all over the city of New York. Occasionally, investiga-
tors recognized a practitioner whom they had seen before and had to
hope the doctor would not remember having previously "treated" them.
Another factor which is readily apparent is that the doctors who are
in Medicaid mills generally concentrate on welfare medicine. This can
be seen by the top-heavy nature of a graph of Medicaid billings in New
York City. The top 471 physicians in that city earned an average of
$80,000 each in 1974. The average income of the remaining physicians
participating in the program was $7,127-a difference of 1,254 percent.
These figures again come from our analysis of computer printouts for
calendar year 1974.

M2,EDICAID INCO-ME CONCENTRATED IN THE HANDS OF A FEW
PROVIDERS
In our analysis of computer printouts from New York we learned
that the concentration of Medicaid funds in the hands of a few applied
not only to physicians. Typically, a Medicaid mill will list every medi-
cal discipline and have one or more practitioners providing health serv-
ices. The presence of a variety of caregivers serves as a magnet to
attract clients.
Since most patients ask to see a doctor, the general practitioner is
said to be the key to the operation of a profitable Medicaid mill. After
"seeing a patient," (the expression is fairly exact as most visits last
only .3 to 5 minutes), a general practitioner will often "refer" (with
varying degrees of compulsion) patients to another practitioner.
Sometimes the patient is tol, "Wouldn't you like to see the dentist
now ?" In other cases, "You should really have your feet looked at," or
"We have a man here who can take care of this while you are waiting
for the doctor."
These "referrals," when divorced from medical necessity., are a form
of overutilization, if not outright fraud, of the Medicaid program. It is
these referrals that explain why a few practitioners in every discipline
make most of the money in the program. They revolve around the
Medicaid mill. The following totals are derived from our analysis of
New York's medical vendor statement:
Optometrist.-5 percent of the optometrists earned 21 percent of
the total paid in 1974; 22 optometrists earned an average of $67,612.63
each while the average for the remaining providers (95 percent) was
$13,913.
Podiatrist.-5 percent of the podiatrists participating in the Medic-
aid program in New York were paid 20 percent of the total expended
to their category, averaging $46,537 each, while the remaining 95 per-
cent averaged $10,748.






15


Dentt.c-O2.5 Iprcent of the dentists receive 26 I)er(ent of tle total.
with 50 of thes(a- r :ingIa an average of $145,803, while the remainder
received anI average of $10,8Q7.
Pharamaic,.-2 percent of tle pharmacies earned 12 IFrC4eit of t w
total.
FA(T}ITI N; FIRM S
A fawto01 rig fi r,, is e'sseiitiallv a ) illi lnj a e" 'yN. 1Fw-tors" ,a 'e loll i
provi(le needed services in tlie brines world. T'ler. c P i provide :
broadl range of services iwl tdin ,pr1parat 11 of inv1 ]ces (.llect ion
of accounits receivable, plUa1lelit of accoulnts pa'alYle an1d a vamiet-v of
other basic book-eeping and aceoint ing sertices. The reltislii
between factoring Comlpanies an e licaid Cls re direct.
In the Me( ica i( context, fa(torI prima rilv a:ct as ('ollect 1i( a' gelItS
for the F ractitioners. FactorinM finiins floilrish whwre Medi'ad I aV
meant is slow. Illinois and 'New York are the vmary Ications for
factoring firms. T!ese two States colIn}rie, about ,1 )percent of total
Medicaid billing ur anI the rate of payment has been 1 historic lv vry
slow in each State (at least 8-G months). In comparison, no factoln,
firms of any consquence can le found in ichigan where 8'7 I)w(iet
of all claims are paid within 15 days iand 97 percent are I ai1 withlin
80 (lays.
In our a sis of computer printouts from New York. we le rned
the higher the volume of Mei(calid payments, the greater the 1ikeli-
1100(1 a practitioner woul(I resort to factoringI. For examln)le, we leahred
from our analysis of one major factor in New York City, that p1ravti-
tioner" who used its services were paid a -Iioximately twic as much
per ie 1' (yr 6.,11) as the average Medicaid practitioner's in New York
City.
An average physician cannot afford to absorb the overload( acc lated by waiting 3 to 6 months for payment. Therefore. phyvsi('ians
with large outstanding accounts receivable from Medicareid
transfer their accounts to a factor who in turn advances them cas,
paymeti immediately. The charge for their service varies fromI 12 to 24
percent of the face value of the practitioners invoices. When compiuted
in terms of actual interest (interest = rate X time X pi'iiIpal)
the rate is more than 48 percent a year.
In many eases the factoring charge is really an additional unneees-
sary overhead charge incurred by Medicaid practitioners. For instance,
in New York City. the high volume Medicaid practitioners are in-
variably associated with Medicaid mills. As will be detailed later in
this report, there are many other nonessential Ipayments by Medicaid
lpractitioners to nonmediel entrepreneurs, such as: "rentals" ba.sd
on gross billings, "finders fees," "franchising fees" to mill owners, and
service charges.
Dr. Emil Lentchner. DDS, executive director the 11 District
Dental Society (Queens Countv, New York). wrote to the contiittee
that:
Factoring for collection of Medicaid claims is improper
and should be regulated. It is clear that, if Medicaid is effec-
tively administered (which is not the case) to provide







prompt payment of claims, "factoring" would not be sig-
nificantly indulged in. The clear effect of "factoring" is
to lower the net reimbursement to the health provider-
suggesting that the health service could have been pro-
vided for an amount less the "factoring" percentage. The
net result is to "lower" the quality of care provided to ac-
commodate the decrease in reimbursement.
One notorious example of the operation of factors is the Rugby
Funding Ltd. case* in New York City. Rugby was organized in
1967 with the sole purpose of servicing Medicaid practitioners. By
the end of 1969 the firm was doing an annual business of $12 mil-
lion per year servicing 400 Medicaid practitioners. The primary
service Rugby provided its customers was prompt payment on their
accounts receivable.
Rugby was able to effectuate prompt payment by legally nego-
tiating special prepayment agreements with local Medicaid authori-
ties. In New York City, Rugby had an agreement whereby the
city assured them a minium payment of $450.000 every 2 weeks.
Rugby was the New York subsidiary of a parent company Profes-
sional Health Services Inc., which had subsidiaries similar to Rugby
operating throughout New York State. In addition, the company
employed politically influential lawyers to facilitate their opera-
tions. One was John Phelan who they employed in 1969 to talk to
city authorities about processing Rugby's claims quickly at a time
when the city had a suit pending in State court against Rugby.
Phelan at the time was an aide to the State Senate Majority Leader,
Earl Brydges. Another example is the employment of Robert Mari-
nelli of Buffalo as an attorney for the company's western New
York subsidiary. _arinellis law partner was State Senator William
B. Adams. Adams was chairman of the State Senate Social Serv-
ices Committee and the sponsor of legislation passed in 1969 which
amended the State social services law so as to. in effect. fully legalize
factoring agreements in the Medicaid field. Senator Adams was in-
dicted in 1970 for alleged perjury and obstruction of justice in rela-
tion to the Rugby investigation. The charges were ultimately dis-
missed.
Not, only has the factoring business siphoned off large, and ap-
parently unnecessary, amounts of Medicaid moneys, but the firms
themselves have been fraught with corruption and have contributed
to Medicaid fraud and abuse.
For example in 1969 a Federal indictment was handed down charg-
ing Rugby with the following"
-Siphoning off $823,000 in income from the City Department of
Social Services into a bank account whose existence was kept
a secret from stockholders and from the public.
-Advancing more than $750.000 to itself from its own escrow ac-
count and telling stockholders the money was a liability.
-Conspiring to defraud the Federal Government in the admin-
istration of the Medicaid program.
See further. New York Times editions of October 29. 1969, May 5 and 6. 1970, and
January 25, 1972.







In testimony before the 1969 Manhattan grand jury (New York
County). Mr. Henry Rosner, deputyy commissioner of finance for the
New York City DI)epartment of Social Services, stated the city had
paid Rugby at least $330,000 in Medicaid claims wlich were unsul
stantiated I)v billings. Mr. Rosner further testified that Rugby may
have submitted forged billings.
There also is often overlapping ownership between Medicaid mills
and factoring companies. For example, in 1969 Rugby was the majority
stockholder of the 125th Street Medical Center. committeee staff lave
visited this center and found that it is still in operation. No (ata was
available as to current ownershi). In another current case, two (lent ist
brothers ( Alan and Howard ('ohen) own Narco Free(lome. Inc. ( Bronx,
N.Y.)-lthe fourth largest Medicaid-billin g methadlone clinic in the
city. The Cohen brothers are also the two sole stockholders in Lirode
Services. Inc.. which io the factor for .Narco Freedom. Inc. Ihe corn-
mittee staff found similar cases of overlapping ownership in Illinois.
The committee staff t)elieves that such overlapping ownership ar-
rangements further accentuate the profitmaking motive in the ole-
ation of Medicaid mills, increasing the )ropensitv for fraud and abuse.
and decreasing the quality of care rendered to Meldicaid clients.
Another abuse related to the existence of factors is the increase(]
possibility of illegal collusion between welfare department employees
and factors to increase the volume of payments and speed of paynient
to the factors. In Illinois, the Better Government Association (BGA)
has found indications that factors friendly with welfare department
employees receive more prompt payment than other persons submitting
Medicaid claims. In 1970. six New York City welfare department em-
ployees and six officers of Rugby Funding were indicted for allegedly
participating in a scheme in which more than $2, million in Medicaid
moneys were "stolen" from the city through collections on fictitious
bills. The city employees were charged with taking bribes.
Many of these factors. in Illinois, for instance, have been loan sharks
in the past. The BGA testified, in earlier committee hearings, that
organized crime is muscling into the factoring business. BGA stated
the take in Illinois is thought to be about $10 million per year. .ore-
over, the physician's )ills are often increased by factor-s. In 3.569' 6 cases
studied by the BGA. some 1,711 bills (nearly 50 percent) have been
raised to larger amounts by the factors.
The real tragedy of this situation is that the money Congress has
appropriated for health care is diverted into the hands of niddlemen.
The average citizen would ask. "Is this practice legal ?" The answer is
yes and no. The Congress. in 1972, outlawed the practice. However.
factoring firms have evaded the attempts at forcing then out of the
Medicare and Medicaid business by having practitioners give them a
"power of attorney." In essence, the execution of power of attorney
affords the factor an opportunity to change or otherwise tanper with
practitioners' bills prior to or after payment because the practitioner
has delegated to them all legal rights associated with those billings.
However, health departments still hold the practitioner, not the factor.
legally liable for the treatment he renders and for any false billing.
Legal action against factors must be initiated in a separate proceeding.








From the physician's point of view things can get even worse since
the factoring company rarely gives him any accounting. lie does not
know how much the factor has submitted in his name or how much Med-
icaid has paid him through the factor. All he has is the factoring firms'
check for a certain amount. Since factoring firms advance practition-
ers moneys, the practitioners are never really quite sure where they are
vis-a-vis the welfare department in payment. Factoring firms often
tell them that "we advanced you $10 but the State only paid us $8,
therefore you owe us $2."
CTHE KEY IS VOLUME"

As one dentist and mill owner told us, "The key is volume. You have
to have referrals and return visits. You have to get them to come back
and bring their friends. And you have to help each other." By "help
each other," he meant that once a patient comes in the door, he must be
passed around.
As the dentist put it, the way the system is structured the trick is to
see as many patients as possible as quickly as possible. Visits must be
brief. Accordingly, it is uneconomical to give good care. It takes too
much time. A doctor interested in making money will spend less and
less time with patients. As we learned, some doctors, in fact, see no
patients at all. One physician arrived for work at his Brooklyn clinic
each morning, got some coffee, the newspaper, and retired to his office
for the day. He saw no patients, merely reading the paper and writing
invoices from patients' file folders.

MOST COMMON ABUSES IN MEDICAID MILLS
The abuses most frequent in Medicaid mills are ping-ponging, gang-
ing, upgrading, steering, and billing for services not rendered.
-"Ping-ponging" is the expression given to the most common mill
abuse, the referral of patients from one practitioner to another
within the facility, even though medically there is no need. Gen-
erally, patients, come to see a GP or the internists-internists are
particularly prized by mill owners. They command the highest
fees for services, attract the most patients, and give the most
referrals. Once the patient has seen the internist, reasons can be
found for sending him or her to other providers in the facility.
-"Ganging" refers to the practice of billing for multiple service to
members of the same family on the same day. It generally occurs
when one member of a family is accompanied in his visit to see the
doctor by other members of the family-most commonly a mother
and her children. The abuse occurs when the physician or other
provider takes advantages of their presence and treats them with-
out a specific complaint, or bills as though he has treated them.
-"Upgrading" is the practice of billing for a service more extensive
than that actually provided. A physician may treat a suspected
cold, for example, and bill for treating acute bronchitis and
laryngitis.
-"Steering" is the direction of a patient to a particular pharmacy
by a physician or anyone else in the medical center. It is a violation
of the patient's freedom of choice.







-"Billin g for services not 1elidered (,onsists (ith1er of a(lirig serv-
ices Int peforlle(i onto an in voice c;'arrv g legitittate !tillinf.s 01'
slihi)liittintr a(I totally fraudul~llent, billing for a J)tient tthe dloctor ias
never seei and/or an ailnient lie ias not treate(1.
Other al)uses include:
-Billing for work performed by others or by tiniicensed lrac-
titioners :
-Making multiple copies of Medicaid cards,. apparently for miul-
tiple billing
-Soliciting, offering, or receiving kickbacks;
-Billing twice (or more) for the same srvice;
-Billing both Medicare and Medicaid for the same service.
In our investigation we found many variations on these basic
themes. We also learned of specific fraud and abuse relating to other
Medicaid providers. For example, one common fraud associated with
pharmacies who invariably are affiliated with Medicaid mills is called
,shortin.
"Shorting" refers to the pharmaceutical practice of issuing a short
count-of taking a prescription for a set number or quantity of medi-
cation and delivering something less. Generic substitution is chargng
Medicaid for brand-name drugs while supplying less expensive
generics.
"Upgrading of claims" is a charge that is often leveled at podia-
trists; that is, they charge for performing extensive foot surgery
when. in reality, they clip toenails or perform no services at all.
Optometrists often were found to prescribe glasses that were un-
necessary. Sometimes the precriptions in the lenses were so far from
the patient's needs that he or she was forced to return again for an
adjustment which, of course, was reimbursed by Medicaid. In other
instances, optometrists tell welfare clients that "for a few bucks under
the table" they can supply the more fashionable wire rim or plastic
frames rather than one of the limited choices (two frames) sanctioned
by New York Medicaid.

MEDICAID MILLS AND THE ENTREPRENEUR
If all of the preceding were not complicated enough, there is yet
another layer to the tangled web described as a Medicaid mill. In
many of the interviews we conducted in Chicago in conjunction with
our investigation of laborator- kickbacks, we were surprised that
numerous physicians listed as making over $100,000 from Medicaid
did not actually receive this amount. We were more surprised to learn
that most of the money (and kickbacks) went to businessmen who
owned the building or who held the lease to the Medicaid clinic. In
many instances we encountered foreign-trained physicians. Almost to
a man they told us they worked essentially on commission. They
were allowed to keep approximately 20 to 40 percent of the amount
of money they generated from Medicaid. They told us that they were
under continuous pressure to order more tests, to see more patients.
and to spend less and less time with them.
The Dressure, they reported, came from the entrepreneurs, holding
the real estate or the building lease, mill owners or administrators. In
our investigation in the other four States-New York. Michigan,






20


California, and New Jersey-we found these financial arrangements
were national patterns.
As is noted later, this arrangement raises numerous legal, moral,
and ethical questions. Even at the outset however, the committee staff
had grave reservations that the Congress intended 60 to 80 percent of
Medicaid moneys to be spent for rent, to be relegated as profit for a
businessman rather than as a legitimate fee for the services rendered
by practitioners.
B. "SHOPPING"*
In order to test the prevalence of the practices described above, the
committee staff determined to "shop" Medicaid mills in several States.
"Shopping" is a standard investigative practice used by Medicaid
fraud units. It consists of obtaining a valid Medicaid card and placing
the investigator in the role of a Medicaid recipient seeking treatment.
Valid Medicaid cards were obtained from four States. In New York,
cards were obtained with the assistance of the U.S. attorney, southern
district of New York. Ali agreement was made that the bills sent in by
practitioners following our visits would be referred to the U.S. attor-
ney's office so that criminal cases could be brought where appropriate.
A similar arrangement was made in New Jersey with the Special
Commission on Investigation and in Michigan with that State's Post-
payment Surveillance Unit. In California, our intermediary was the
Joint Legislative Audit Committee.
The efforts of this agency to obtain California Medicaid (called
Mfedi-Cai in Cali fornia) cardN for ims were rebuffed by the director of
the State Department of Health who argued that "Too many inves-
tqators would discourage proriders of medical care from accepting
Medi-Cal peaients." ,ubsequently. cards were arranged from another
source.
To play the role of Medicaid shoppers, the committee staff recruited
two. officers from the U.S. Capitol Police Force. With the permission
of Captain James Powell and Sergeant at Arms Nordy Hoffmann,
Privates James A. Roberts, Jr., and Darrell R. McDew were trans-
ferred temporarily to the committee.
On May 7, the officers were examined by Dr. Freeman Carey, attend-
ing physicians, U.S. Capitol, and certified as being in excellent health
w,,ith 'no m medical infirmities of any kind.
As the investigation progressed, other members of the staff, all in
good health (see following photographs), were called upon to assist in
the shopping. This development was precipitated when we learned
that the New York Citv Health Department has no female shoppers.
Since more than half of the city's recipients are female, the inclusion
of female shoppers was the only way to achieve a fair test of the
system.
* Statements concerning individuals or clinics are to be presented under oath by Senate
investigators at hearings planned for August 30 and 31, 1976. Named parties have been
notified and will have an opportunity to appear or they may reply in writing.




















,MIN iAI
Ft.Q













1'ri-'ate ,JIalles 1Roherts, I T.,. ('al)itol PIolice, assioed t 1( and \\orkill" ais nit] esti(I-
t (a] INN r Iimr lvo. ire
toF with the Senate ('oimmittee on Aging, poses s a Medicaid )atient sovkin .el'Vl ie
if) Mledicaid mills in lPaterO ,.






22


U


Private Darrell McDew poses as a Medicaid patient on Avenue B on
the Lower East Side of New York City.
















ii iii~ii i I L 'iiiiii!!iiiiii ii i~iiiiii~ iiiiM INi
i ii~~ii~ii~i I ,,,iii~iiiiiii~~iii~i jv,








P>atr'icia, ( l()'o ,
Is (1 Mledic'aid bt ]I Ifi( i 1- it) Los A l,'cles. 'll t'.













rxr














Catherine Hawes, in vestigator, Senate Comnmitt-ee on Aging, poses as
a Medicaid beneficiary on the street in Newark, N.J.





























Vl Ila. Ilailanda,.is, associate, ec,011se1, 1, ( ( XI1I ittee on Agin, ,)os as a Medi(aid
1)atient oD the Lwel East Side of Manliattani New York Cit v.






26


THE PROCEDURE
Senate investigators were given explicit instructions prior to their
entering Medicaid clinics. Each was told to present a general complaint
and preferably to use the following language: "I think I have a cold."
In some cases, symptoms were changed in order to "shop" specific pro-
viders and specialties. Shoppers were under orders not to seek referral
or to suggest the need for medical treatment in any other way.
The only other instruction they were qiven was that, for purposes
of their own health. they should refuse injections and X-rays whenever
possible and to limit the amount of blood they allowed to be taken
from them.
The shopping activity was monitored by committee staff positioned
in a surveillance vehicle borrowed from the Internal Revenue Service.
Security was maintained on the street by employing shoppers in teams
and using the "buddy system." Following each visit, the shoppers were
immediately debriefed and the recordings were sent to Washington
for transcription. These transcriptions have subsequently been reduced
to affidavit form. They have been presented to law enforcement au-
thorities and are the source of the following statements.

TREATMENT
In the 3 months of our shopping activity in four States (New York,
California, Michigan, and New Jersey), our investigators (perfectly
healthy) were told the following:
(1) Private Roberts entered Gouveneur Medical Center in the
lower East Side of Manhattan, New York City, complaining of burn-
ing and discharge in his urinary tract. He was given a general physi-
cal and a tuberculosis (TB) test, told he had a heart mfirmur and given
an electrocardiogram (EKG). A second shopper, Investigator William
Halamandaris, entered the same clinic several minutes later complain-
ing of a possible head cold. His "head cold" was diagnosed as "sinus-
itus," he was given a general physical, an EKG, a TB test. told he had
a severe heart murmur and that he probably had rheumatic fever as a
child. In addition the doctor ordered a series of X-rays of the patient's
sinuses and chest, and referred him to the heart specialist-all in the
space of 3 minutes.
Third shopper, Patricia G. Oriol, chief clerk of the Senate Commit-
tee on Aging, entered this same clinic a month later complaining of
a possible cold. She too was told she 'had a severe heart murmur and
high blood pressure and told to return for further tests.
All three shoppers were given a large amount of medication and
specifically instructed to have the prescriptions filled "at the pharmacy
next door." (It is a violation of New York State law and Federal
regulations to refer a patient to a specific pharmacy.)
(2) At the Avenue C Medical Center, Darrell McDew, complaining
of slight dizziness, received a general physical and was referred to the
chiropractor and optometrist. He ws 6iven an EKG, scheduled for
laboratory work. and offered a vitamin B,. shot. As a result of his visit
to the optometrist, Private McDew, who has 20/20 vision, received a
set of eyeglasses (one of three pairs he rcceied while shopping






27


Medicaid m~ills). Private Roberts, entering the same clinic, again com-
plaining of a urinary problem, received a general physical, and was
referred to the chiropractor, optometrist, and dentist. Private Roberts
also received a set of eyeglasses and was scheduled to return for exten-
sive blood tests. Roberts was told to fill his prescriptions at the adjoin-
ing pharmacy.
(3) At the Riis-Wald Medical Center, one block away from the Ave-
nue C Clinic on the Lower East Side, Private McDew was given a geni-
eral physical, referred to the chiropractor and the podiatrist. The podi-
trist informed Private McDew that ie had hamnmri toe, and flat feet
(for which the podiatrist placed "arches"-actually they were small
pieces of felt-see photo-in his tennis shoes). He was also told his feet
sweat. Subsequently, the same shopper met the same podiatrist (again
on referral as a result of a "ping-pong") in a second clinic in Uptown
Harlem. The podiatrist, after putting face and name together, checked
his notebook and informed our investigator: "Remember what you had
before? Well, you've got it again." He placed another set of "arch sup-
ports"-this time in the investigator's oxfords. In addition to arch
supports, Private McDew received skull and chest X-rays (more than
10) and was ordered to return "next week" for additional tests. When
Private Roberts entered the Riis-Vald clinic, he received a general
physical and was referred to the chiropractor who ordered a full set of
X-rays. He was also referred to the podiatrist, but had to refuse treat-
ment because his toes had been painted the previous day by another
podiatrist.
(4) At the East Harlem Medical Center, Private McDew asked to
see a podiatrist. He was sent, instead, to the general practitioner and
owner. The doctor listened to his chest and referred him to the chiro-
practor. He saw the podiatrist only after he had seen all other practi-
tioners in the facility. Despite the nature of his complaint, "The bot-
tom of my feet hurt," blood and urine samples were taken and his chest
and feet were X-rayed. The podiatrist prescribed ankle braces which
Private McDew was told to obtain "down the street" from a particular
supplier. He was specifically referred to the East 116th Street Phar-
macy to fill three pharmaceutical prescriptions which included two
antibiotics. Private Roberts entered this same clinic complaining of
tiredness, and received a general physical. He was referred to the podi-
atrist and given a future appointment to see the psychiatrist. Blood
and urine samples were taken. His feet and chest were X-rayed and lie
was given two prescriptions which he was told to fill at the adjoining
pharmacy.
(5) On May 20 at the Family Health Professionals Office on Second
Avenue, Uptown New York City, Private Roberts saw a general prac-
titioner, was referred to a dentist, and a podiatrist who diagnosed a
bunion on his left foot. On the following day, May 21, at the Urban
Medical Group, a clinic located on Third Avenue, Private Roberts,
complaining of a cold, had a general physical, was referred to the
optometrist, and a podiatrist who examined his feet and also diagnosed
a bunion, this time on hi8 right foot. Roberts has no bunions on either
foot.
(6) Entering the 164th Street Medical Clinic on Morris Avenue
in the Bronx, Private Roberts, complaining of a cold, received an





28






29


allergy test (before seeing the doctor), then a general plysical ,and a
hearing test, chest X-riys, and an EKG. lie was also sli('(lule(, for ain
ear, nose, and throat exaininat ion at a later date. Private cIc)ew,
complaining of a headache, also received an allergy test, a relleral
physical, an EKG( and a number of X-ra vs.
(7) At the 80 Delancy Medtical ('enter, Pat ()riol, ,Oml)laiiig ot
a cold, was given a general physical, a TB test, a nuniher of X-rays.
ald an EKG. Blood and urine samll,)es were taken and she was re-
ferred to the lharmacy in the building.
(8) At the 14th Street Medical (enter, locate(d at ,09 East lth
Street, Senate investigators sought treatment on six different occasions.
On every occasion they were turned away with statements such as.
"The (doctor just left. or "He is not seeing any nore patients today, or
"If you want inedical treatment, go to the city c inic." Observation of
the. clinic over a protracted period indicated that it was a haven for
addicts and(l id a lively traffic in drugs. ('ommittee staff were success-
ful in taking movie fils of several of these transactions. Two months
after shoppers visited this clinic, it was closed by the New York City
Department of Health. In closing the clinic, Dr. Martin Paris. execu-
tive medical director of Medicaid, said" "Physicians involved were
effectively utilizing their metlical degrees to act as legal pushers. The
drugs were used as bait to insure them a steady flow of Medicaid
patients."
(9) The Grand Street Medical Center in Brooklyn was visited by
Pat Oriol, complaining of a cold. She was given a general physical
and received four prescriptions. She was scheduled to return for two
blood tests, an SMA 6, a complete blood count (CBC), an EKG,
and an electroencephalogram (EEG). She was directed to the adjoin-
ing pharmacy to fill prescriptions for valium, ornade. vitamin C,
and tyzine.
(10) At the Peoples Medical Center in Brooklyn, Catherine Hlawes
complained of a cold. She saw a general practitioner and received a
complete phy-sical exam. She was then referred to a gynecologist, pedi-
atrician, and podiatrist. The podiatrist scraped the bottom of her feet
with a knife, trimmed her toenails, and took two X-rays. Miss Hawes
said her feet bled for a week. She also received four prescript ions, in-
chiding nose drops, Cepacol mouthwash, E-mycin, and valium.
(11) Entering the Berman Medical Center in Detroit, investigator
William Halamandaris complained of a sore arm. He was diagnosed
as being depressed and nervous, told he had tennis elbow and given
prescriptions for elavil (an "upper"), valium (a tranquilizer or
"downer"), an antibiotic, and vitamins. The shopper had to refuse
a "shot to make him feel better" three specific times.
(12) At the Omega Clinic, also in Detroit. shopper Pat Oriol re-
ceived a prescription for Ornade Spansules and a vitamin supplement,
which she took to the Kingsmart Drug Store to be filled. The druggist
there informed her that he had only one of the two prescriptions on
the form. which he provided, and then proceeded to fill out a second
prescription for the second compound (Therabee), sign ina the doc-
tor's name at the bottom and telling our shopper she could "take it
anywhere" to be filled. (Copies of the two prescriptions are repro-
duced below.)







30

PHARMACEUTICAL SERVICES, INC.
Phone 921-5254-55
9016 Van Dyke Detroit, Michigan 48213


Name


7SerXing Homes and Hospitals

~ Ll,,S


6) Address -


Authorization is given to dispens by /
, non-proprietary name per approved
i formulary unless checked here 0 .


Non- Rep 0


Date7.

RAge

















Refill Times


NKOMO Date!

Name s
Ares Age


Non-Rep. ]
RofilL.Times
oIEA NO.


Dr.

Address


MA 1O


Ill I I


j


e4

:61 e


Awtzo







(13) In New ,Jersey at the Wasligtol Park Medical (enter. I)r.
Sonoski examiined Mrs. Oriol for a "running nose. l )r. Soiioski gave
her a eneral pIVSiclU1 aI)poijntllelnts to see flie gynecologist and m~lia-
trist, scheduled her for a full set of tests, ani offered lr an illjcct ion
which (as refuse. hen iivoices fo' t hat visit were c(llertetl by tie
Nev Jersey Special (onlnmission of Invest igation, we folinl1 tlw Me(lie-
aid pIogram hd1(1 not only been billed for tlle shot Mr'. ()riol had spe-
cifically refused. but for a TB test anti a blood! test as well. Il ie ,-
m1linuflte physical she had received was billed at $80. A seconid siopp-er,
Pvt. 'James Roberts. entering the sa I(e fai llity, received tl e a ie gen-
eral tjeatnijit. Aa in the progratl was billed for a slot, a TB tes 't a m1
U blood test, all of whicli hatid not been ecel Ve 1. lIe too received a
3-minute I~hysical.
14) Iii ( a ifornia at the Inter-Med Clinic, in Los Angeles. opper
Catherine Irawesreie" ved wlat she called "t he niost tborouh11 examis|-
nation she had while visiting Melicaid clinics." The physician spent
apl)proxiflately 15 miinutes with her taking a medical history antd per-
forming a general physical. The nurse, lowev-er, who took blood pres-
sure, temperature, height, and weight. ordered a urine saml)le wlinli
she testedI as well (using the labstick nmethod) anti l)1oioIuIlC
normal-l-c'? thoU/h thot"1e ,(m pie was (( soUp-atd-clca,li.ser <.o/f?1);iftioti
Mf;. Haue. had coicocted i. the re'est room, thus employing a strata-
gem similar to one already improvised by senator Moss.
(1,5) At the Kandel Medical Center in Los Angeles. Mrs. ()riol.
again complaining of a possible cold. received an examiination whicli
consisted of looking into her ears and throat, and listening to lieri heart
with a stethescope placed on her collarbone. The doctor ordered a 1)10(
test, urine sample. chest X-rays, and three prescriptions. A technician
perfornled the urine and blood analysis in the facility and informed
heri that she had a kidney and bladder infection and added"\Ve'll
have to do more work on you."
(16) Associate Counsel Val J. Halamandaris entered the Concourse
Medical Group. located at 1398 Grand Concourse. Bronx. N.Y. He
spent less than 5 minutes with a general practitioner. le observed r.
patient obtaining a prescription for elavil without ever seeing a phy-
slcian. He observed that the Medicaid cards of patients were routine
Xeroxed several times. In the open file for one patient. given an elavil
prescription without seeing the doctor, were no less than eight Xerox
copies of his Medicaid card. Although Counsel Halamandaris left the
facility without seeing any other practitioners, the billings which have
been returned for the visit claimed treatment lby a podiatrist and one
other practitioner.
THE BILLINGS
The above exan)les are merely illustrative of the more than 200
visits made by committee staff. Other visits were equally dramatic.
However. even when a visit was less "eventful" or dramatic, the billings
submitted invariably included either inaccurate diagnoses, changing
for services not rendered, or both. Accordingly. this investigation will
not be complete until all the bills are retrieved and law enforcement
officials have the opportunity to compare them against the sworn affi-
davits we have prepared. This includes the bills presented by
pharmacists.








Even at this early date, a number of billings have been returned
which indicate charges for many services we did not receive and for
visits that did not take place. The billings also indicate positive diag-
noses used as justification for providing additional tests. The six Sen-
ate investigators have been diagnosed as having:


Tylomia (calcium on the feet),
Severe urinary tract infection,
Inner ear infection,
Low back syndrome,
Sesplanus plantafecetis,
Lower back pain,
Flat feet,
Insomnia,
Tension headache,
Headache and tension,
Symptomatic pronation (deform-
ed foot),
Virus,
Hayfever,
Larangytis,
Bronchitis,


Right toe infection,
Chest pains (hyper-spasms),
Cystitus,
Displacement of lateral sensoral,
Bilateral hyvalgus,
Palix valgus (overlapping toes),
Sinutitis maxillary,
Acute otis media,
Conjuntivitis,
Allegic rhynitus,
Acute hypertension,
Asthma,
Anxiety, and
In-grown toenail (billed as a sur-
gical procedure at a cost of $17).


The preliminary billings already indicate that one podiatist billed
for treating three Senate investigators without seeing any of the
fhree.
CONCERNS ABOUT QUALITY OF CARE
For all the emphasis on fraud and abuse, the most important single
1)oint is the quality of care provided under the Medicaid program.
From our detailed investigations, we have concluded that the concept
of "Medicaid mills" is incompatible with quality health care. Time
and time again, we saw patients with very real and obvious medical
problems going untreated. Time and time again we saw serious medi-
cal problems ignored or undertreated while essentially minor com-
plaints were overtreated. At one point we saw a mother bring a child
with a severely cut foot into a shared health care facility in New York
only to be turned away and told that the clinic would not provide the
required service.
We saw known and obvious addicts being given valium, elavail, and
methadone without prescriptions (in fact, without even seeing a
doctor).
We saw X-ravs being given (to us) without. plates in the machine.
We had numerous X-rays "Iven without changing plates. We had
chest and feet X-rayed with dental X-ray equipment.
On one occasion, Officer Roberts was given a foot. X-ray using a
mentall X-ray machine. A piece of film was placed on the floor and
Roberts was asked to place his foot on the film while the attendant
turned on the machine. The entire procedure took place in the middle
of a hallway without benefit, of lead shields or other protections for the
patients, attendants, and others.
W~e have been given EKGs when the tapes were not marked and
(Iated.






33


We had allergy tests that were not read.
We ]had TB tests- where t he area was not circled (as it is Iit stalari d
InedIcal pr Iact ice) : IOr Were we t od \\I lat exact iol to look for or w h It
to do in case of a ireactionl.
We had E"K("s taken w ith1 elet ro les place! over oN r stock i.
In almost every instance where a stethlo coI)e was use(l. it was played
over our cloth ing.
We have seen disImosa)le needles retained and reused.
We have seen clinics with one theruuoiuet(r.
In all the time we spent in Medicaid mills we neer had anytbiiii
approach ingr an 'adequate ici(al i story ta ken.
We never sj)enit uinore than in utes wN it 't any I)artiu'llar
pract it lonr.


TSIOY(ONENIN IN.\I)EQUATE ( UIE


In addition. physicians we have interviewed* or tlio-e who co-
operated with us in our investigation have provided a number of
examl)Ies of the inadequate care received by patients in Medicaid mills.
These include:
-Undiagnosed scurvy (deficiency of vitamin C).
-Undiagnosed acromegalia,
-Undiagnorsed diabetes,
-TUndiagonosed tachycardia. severe,
-Undiagnosed tuberculosis,
-jndiagnosed syphilis and gonorrhea,
iindia1nosed cellulitis.
-Undiagrnosed rheumatoid arthritis,
-T7ndiagnosed malnutrition.
-Undiagnosed heart disease,
U ndiadnosec carcinoma (cancer).
The following are five more-detailed examples of the kinds of
shortcomings found in many Medicaid mills:
(1) One physician told us of a patient who had a tracheotomy 12
vears ago and has had recurrin( pain in his face ever since. He had
l)een coming to one particular Medicaid mill seekincr relief from that
recurring pain for more than 3 years. The doctor said that on examin-
iln the exterior wound she found that it had healed and'( gave no
indication of the source of pain. In examining the man further. she
asked him to open his mouth, and thereupon discovered a tumor the
size of an ePg. She said that it was literally choking the man. The
tumor was so large as to have been obvious to anyone who had -looked.
The patient said that this was the first time in his clinic experience that
anyone had bothered to look in his mouth.
(2) A Harlem physician reinforced what we learned in Illinois about
the dismal quality of laboratory work performed for Medicaid
patients. As an example, he told us that every serology that he had seen
performed by one particular laboratory had a positive reading. He said
everx- one of these serologies that he checked with the public health
department came back negative. He also provided an example of one
e page 46 for additional Information on interview technique.







patient who, if the hematocrit readings were to be believed, would have
had to have been hemorrhaging to death on one day and getting whole
blood transfusions the next.
(3) A girl who had been treated at one New York clinic for over a
year came in to see a physician who had been working with us at one
point in our investigation. All the girl could tell the doctor was that
she had lost 105 pounds in the last year. The doctor verified the weight
loss and determined that the patient either had primary pituitary fail-
ure or primary adrenal failure. She had all the physical signs including
tachacardia, low blood pressure, and anorixia. The doctor told us that
the patient will either die or go blind from these ailments, but she has
been treated instead for nonexistent diabetes.
(4) A physician in uptown Manhattan told us a patient came in with
pain radiating from his abdomen, pin-hole pupils, and posterial hyper-
tension. The doctor ran a VDRL test, learning that the man had
syphilis. When confronted, the patient indicated he knew this to be the
case; he had been treated before for the disease. However the only
treatment he had been receiving for syphilis in the New York Medic-
aid mill he utilized was rendered by a chiropractor.
(5) Another patient entered a Medicaid mill in Harlem complain-
ing of chest pains. He was referred to one of the physicians cooperat-
ing with us in our investigation instead of his usual practitioner.
Upon reading the patient's electrocardiogram, taken several months
previously, the physician learned that the 35-year-old patient had
suffered cardiac infarction (a heart attack) some time in the past. The
doctor who normally treated this man either did not discern this fact
or did not tell the patient. At any rate, there was no evidence in the
chart, or from talking to the patient, that he was treated for this
condition.
SHORTCOMINGS: OTHER PROVIDERS
We learned of similar shortcomings with respect to the quality of
medical treatment offered by other providers as well as physicians.
For example, we discovered:
-Pharmacists who dispense outdated drugs.
-Dentists who insert fillings that fall out, bridges that crumble,
and dentures that don't fit..
-Optometrists who dispense inaccurate or worthless prescriptions.
-Chiropractors who X-ray the entire body even though they are
only authorized to X-ray the lower back.
-On one occasion we witnessed an optometrist measure everyone
in the waiting room for a pair of glasses including a 6 month old
baby and a man returning to his seat.

SENATOR FRANK E. Moss POSES AS A MEDICAID PATIENT
The efforts of the staff to brief Senator Frank E. Moss of the fore-
going events produced several questions and quizzical looks if not out-
right disbelief. The Senator decided to come to New York "to see
things for himself."
A valid Medicaid card was arranged in the Senator's name through
the U.S. attorney's office with the cooperation of the department of





35


social services. The address indicated on his card [p. 36] is the st reet
address for the Statler Hilton in New York City where tihe Senator
and staff were staying.
On June 7, Senator Mloss put on "the worst looking (,lotlie- I could
find" and appeared in the office of the U .S. attorney, sout hern (list rict
of New York. The photograph [p. 37] shows Senator Moss signing
his Medicaid card.
Later that morning the Senator entered the East I larle Medical
Center, 145 East 116th Street, accompanied by Patricia, G. Oriol, who
posed as his "girlfriend." He presented hiniself for treat ment, saying
he thought he might have a cold. lie was given a, brief cirsory exaiiii-
nation by Dr. Clyde Weisbart, owner and adininistrator.
The physician asked Senator AMoss if he had a fever and the Senator
replied he ,did not. he physician then took a brief medical history,
askingr the Senlator if Ile had diabetes, high blood pressure, or any
allergies, and if he had ever been in a hospital. lie asked the Senator
if he had an arthritic condition. Despite the fact that the Senator
said he did not, Dr. Weisbart decided to send him to the chiropractor,
saying, "What I am going to do is to send you up to see Dr. Cohen.
He is our chiropractor. You might have some muscle spasm."
The doctor added, "You do have a red throat."
The physician continued, "I don't think you have a meningital
problem. It might feel tight, it might be just a muscle spasm, but he
can work on it. He is pretty good at what lie does. He'll relax you, and
probably give you some medication."
He continued, "You aren't allergic to anything, are you? I am going
to get a blood test, urine test, and a chest X-ray."
Senator Moss was directed up the stairs to see Dr. Cohen.
Dr. Cohen asked the Senator if he had a history of arthritis. Senator
Moss responded, "Not that I know of. I have no way of knowing that I
have. No one ever told me I have."
The doctor then proceeded to twist the Senator's neck, asking,
"There, doesn't that feel better?"
The chiropractor stressed that the relief was only temporary and
that lie needed to get at the underlying causes for any permanent re-
lief. "I'll have to give you a little bit of treatment before I can honestly
tell you what is wrong and what I can do. It might be necessary to
look at a picture to find out the underlying problems. There could
have been a problem a couple of years ago. or it could be. a symptom
of another condition."
The chiropractor invited the Senator to come back for treatment
the next day. "Come straight here tomorrow; 11 or 11:30 is good,"
reminded Dr. Cohen. "What we will do now is send you downstairs to
get a picture of your cervical spine."
The Senator submitted himself to extensive X-rays and blood
tests. He gave a urine sample., and was given a return appointment.
He was directed to the "pharinacy next door" to have the prescriptions
filled which he had been given by Dr. Weisbart.














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~CR {/7) YRKmeE P AT.
"NEW YOKCITY __ PT
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MEDICAL IDENTIFICATION CARD 7 r i I I
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COVERAGE
Eft. 'Adults IChildren
Period Case Number .Li Hat
0/U 1'-- .' I a)tn. hEN






































Senator Frank E. Moss signs his Medicaid card in the office of the
United States Attorney, Southern District of New York. Investi-
gator Bill Halamandaris looks on.

Senator Moss and Pat Oriol are shown in front of the 1 16th Street
pharmacy after having these prescriptions filled [see p. 38]. The medi-
cine received included erythrocyns, darocet, and phenergen.
Dir. Weisbart and his brother-in-law. Dr. Sampson, collectively
billed iMedicaid for more than $300,000 for personal services. In
addition, the pharmacy is one of the high volume providers, showing
billings of about $100,000 a year. As indicated above. Senate in-
vestigators had "sho)ped" this facility a number of times previously.
On each occasion the pattern was consistent" a brief Veneral exalnina-
tion. several prescriptions, extensive blood, lab and X-ray work, and a
number of referrals.






























Senator Moss examines medications he has received from the 116th Street pharmacy
after treatment in the East Harlem Medical Center. The Senator posed as a Med-
icaid beneficiary accompanied by his "girlfriend" Patricia G. Oriol, chief clerk of
the Senate Committee on Aging.






39


MOSS VISITS THE I64TII STREET CLINIC
The 164th Street (liniv oi Morris Avenue iil t le Bronx is a new
facility administ ered by I)r. Enrique I)avis, who billed Me al(, for.
more than $100,000 last year. Senate investigators lad "sliuppewd" this
facility more than a month before and inl each case the shopper was
greeted with an allergy test, literally as they walked in the door (lw-
fore seeing a physician). Again the pattern was cosI1>lstent. a brief
examination, extensive blood and lab work, and a numnher of re ferrals.
In the interim. between the initial visits to the 164th Street ('lnic and
the entry made by Senator Moss on June 7, the Clinic obtained the
services of one more provider, a psychiatrist who changed the texture
of the facility from one dealing primarily in overutilization (high
volume an unnecessary tsts) to one caterinig to the ii(eds of tlie a(ldi(ct
cmonunAity.
Inside the facility, again accompanied by his "girlfriend," Pat
Oriol, Senator" Moss found many of the same conditions. A nulblr
of tests were ordered. He was asked to give blood and urine, and was
scheduled to come. back for further testing and treatiulent with the
suggestion that referral to other practitioners iimight be necessary. lie
was given several prescriptions for his nonexistent cold, and was in-
structed to have them filled at the adjacent pharmacy.
Page 40 carries a photograph of Senator Moss and Patricia G. Oriol
in front of this clinic. Pvt. Darrell R. McDew is visible under the sign
saying "prescriptions."

-MOSS VISITS 209 EAST 14TH STREET
Senator Moss also visited the clinic located at 209 East 14th Str-eet.
It is called the 14th Street Medical Center. Investig(ators preseilted
themselves for treatment at this place 6 previous times and were
turned away. The clinic was a haven for addicts. Senate investigators
were successful in filming the lively traffic in drugs that took place in
front of the facility.
Senator Moss did not obtain treatment at. the 14th Street Medical
Center, but did enter the adjacent, pharmacy. In the phariiacy located
in the basement, Senator Moss found himself in a rool the size of a
bathroom and partitioned with builletproof glass twtween the phanlia-
cists and the receiving area. A number of apparent addicts were mill-
ingcr about.
Behind the plexiglas stood the pharmacist filling prescriptions,
seemingly at random. A number of bottles in front of him were all
filled with the same white pill compound in seemingly assembly line
fashion. The pharmacist asked Senator Moss what le wanted. He said
he was looking around.
Two months later the health department closed the facility at the
14th Street. Medical Center for catering to the needs of ad"dict. saying
doctors were using their medical licenses to act essentially as "legal
pushers." Significantly, the facility was actually closed because of vio-
lation of the city health code: mclean an(l unsan itary, co1N lit ions.
Page 41 shows Senator Moss in front of this clinic.






























Senator Moss and Pat Oriol posing as Medicaid patients in front of the 164th Street Medical
Center in the Bronx, New York. Pvt. Darrell McDew is under the "prescriptions" sign, far left.































erat(oIn P Moss, pos1ig as a Medicaid ptt, Vists the MediCal (ite' at 20 East 14
Street on the lower East Side of Manhattan.






42


AFTERTHOUGHTS
Two days later Senator Moss returned to Washington somewhat
tired. Asked how he was he answered: "Fine for someone who is so
sick." He displayed bruises in his arms caused by inept blood drawing
[see photo below]. "You have to experience it to believe it," he said.
Note: 3 weeks prior, Senator Moss had been given his annual physical
and declared in excellent health with no medical problems.


















II

















Senator Frank E. Moss on the "morning after." (Discoloring
resulted from inept blood drawing.)






43


MEDICAL MiaLs: A Box SCORE
Medicaid mills are a growing phenomenon. They are the home of
Medicaid's high providers, the doctors and dentists who individually
billed the program for more than $100,000 last year.
The concentration of Medicaid funds is nothing short of phenom-
enal. In New York, the 7 percent of all doctors participating in the
Medicaid program received fully 50 percent of the funds going to
physicians' services.-_lmost all of these practitioners work in Medicaid
mills., Nor is this strictly a New York happening. A similar pattern
was revealed in the staff's investigation in Illinois, California, and New
Jersey. In Michigan, 3 percent of the Medicaid doctors working out of
Medicaid mills earned fully 25 percent of Michigan's total payments
for physicians' services.
Since Medicaid mills are essentially unlicensed and unregulated, no
one knows how many of such facilities there are in the United States.
Estimates in New York City alone vary from 350 to as many as 1,000
or more. From observations in five States, it is evident such facilities
are highly profitable. In Chicago, Senator Pete V. Domenici observed
that their rate of expansion was such that they were pushing out of
their wake another highly profitable enterprise: pornographic book
stores. The observation was made after passing a Medicaid clinic
which, until recently, had been such a magazine store.
The committee staff believes that the Congress must be informed
that Medicaid mills across the Nation may rake in as much as 75 per-
cent of all the money paid to physicians, dentists, chiropractors, po-
diatrists, pediatricians, clinical laboratories, as well as receiving pos-
sibly half of the money paid for Medicaid prescription drugs (the
remaining amount for drugs is paid to nursing home patients).
The foregoing assumption is already a fact in the city and State of
New York. It appears to be the fact also in the four other States we
studied in detail.
If the committee staff's analysis is correct then, based on 1975 Medic-
aid payments, Medicaid mills may receive 75 percent of the $3 billion
paid to doctors, dentists, labs, and pharmacies by Medicaid.
This means that Medicaid mills may be receiving $2,225 million a
year from Medicaid.
In the course of this investigation, we visited some 250 Medicaid
mills either as patients, interviewing physicians, or posing as business-
men pretending to buy clinics. By this process we gained unique in-
sights about the operation of such facilities. Insights were further
strengthened by looking over the shoulder of BGA investigators who
set up a storefront clinic themselves for purposes of testing the system
last December.
Senate investigators offered themselves for treatment more than 200
times. Some 120 of these clinic visits (as patients) took place in New
York Citys Harlem. Bedford Styvesant. Bronx. Queens, and lower
East Side. The remaining visits took place in California, New Jersey,
and Michigan.
Senate investigators were not successful in obtaining treatment in
every instance. In the beginning, the Medicaid cards investigators were
furnished with were from the series New York City routinely uses in
its "shopping" efforts. Some clinics showed an obvious recognition of
the names on our cards and turned investigators away.






44


In all, investigators saw about 85 practitioners. Perfectly healthy
staff members collected literally bushels full of prescriptions. Despite
the fact that investigators were instructed to refuse X-rays, more than
100 were received. Investigators received numerous other questionable
tests in view of their feigned ailment, usually a cold. These included
18 electrocardiograms, 8 tuberculosis tests, 4 allergy tests, hearing tests,
glaucoma tests, and three electroencephalogram tests. Investigators
were asked to give, and did give, a tremendous number of blood sam-
ples, and literally gallons of urine. They were told repeatedly (no less
than 11 times) to return for full-scale testing. They received seven
pairs of glasses without ever asking to see an optometrist. The eye-
glasses were not only unnecessary, they were totally useless, the refrac-
tions on the seven glasses were bizarre, with no consistency at all. In-
vestigators were repeatedly "ping-ponged" to neurologists, gynecolo-
gists, internists, psychologists, psychiatrists, heart specialists, podia-
trists, dentists, chiropractors, opticians, ophthalmologists, occulists and
pediatricians. In some clinics, investigators had to run out of the
clinics in order to end the protracted medical merry-go-round.
It is to be emphasized that these practices occurred in all four of the
States "shopped" by the connittee staff. One significant fact: In all
the 4 months of this investigation, only one physician told an investi-
gator, "Get out of here, there is nothing wrong with you."
If further generalizations are possible, most clinic visits, whether in
Watts or Bedford Styvesant, were brief. In most cases, physicians
ordered several tests. In at least 70 percent of the cases, overutilization
was present. In about 25 percent of the cases, Senate investigators
classified the excessive testing and ping-ponging as an obvious, inten-
tional attempt at defrauding the Medicaid program. In more than 90
percent of the clinic visits, staff members classified the quality of care
as inadequate. Factors in this determination are the normal procedures
an average physician would take with a patient with a possible cold.
All too often, temperature was not taken, blood pressure was not taken,
practitioners did not examine the patients' ears or eyes or did so only
in cursory fashion (example: shining a flashlight at a patient's throat
from 5 feet away, without using a tongue depresser). One explanation
for these lapses is that care takes time. It was the opinion of investiga-
tors that the practitioners they saw were under pressure to see as many
patients as possible; the pressure being applied by owners holding
percentage leases and expecting a high return on their investments.
In short, the care provided in more than 90 percent of the cases was
inadequate. This is obviously a fraud on the American taxpayers who
are under the impression that their tax dollars are buying useful health
care for the poor aged and disabled. As noted, the appearance of medi-
cal care is far from reality. Moreover, there is obvious overutilization
instigated by practitioners on unsuspecting patients who acquiesce in
the suggestions given them by men in white coats that they need to see
the chiropractor or the like. Overutilization may make up a full 25 per-
cent of the billings submitted to Medicaid from these Medicaid mills.
Direct fraud or billing for services not rendered also exists in about 15
to 20 percent of the billings submitted to Medicaid on behalf of the
visits of staff members. Full details will not be apparent until all bill-
ings are identified and retrieved for processing against the affidavits
completed under oath by the committee staff. In addition to these per-
nicious practices, Medicaid mills are layered with complex financial






45


leasing arrangements which exploit the foreign tra ined )llysic(ianls or
the young doctor out of medical sch(x)l in order to line tlhe I)xlwkets of
busiessmen who esentially )rovi(le 110 services to patients. (Criss-
crossing this complex medical maze are abllant layers ofi
rebates, and "cuts oil the top." The overwhelming impression in vesti-
gators are left with is that the Medicaid iuiills are rotten onions. Layer
after layer has beeni peeled away to reveal still more decay. A Siu1all, core
is all that is left in testimony to Congress' noble intent to make health
care available to all without regard to ability to pay.

0. OPENING A MEDICAID MILL: INTERVIEWING
PHYSICIANS IN ILLINOIS
As noted earlier, this investigation into fraud and abuse among
ractitioners participating in the Medicaid program commenced in
September of 1975. It began when a physician contacted the staff, tell-
ing us that he had been approached by a clinical laboratory and of-
fered a rebate of 30 percent if he would send them all of his labora-
tory business. At our request, lie consented to call the lab salesman
back. On October 14, 1975, the lab representative repeated the offer
with a Senate investigator present in the closet.
At the close of the meeting the representative indicated the lab firm
had similar kickback arrangements with clinics all over Chicago. An
analysis of billings paid to this laboratory gave us the names of the
physicians who employed their services. We then had a reasonable
expectation that they received the same arrangement for a 30 percent
kickback.
Confronted with this evidence, Senate investigators sought to find
the answer to an essential question: How common was the practice?
An extensive discussion among the staff led to the conclusion that
the best way to test the extent of such practices would be to simulate
the actions that would be taken by an independent physician begin-
ning a practice specializing in public aid patients. For this purpose, it
was decided that a storefront clinic would be opened in 'an appropri-
ate area. Only from the perspective of the practitioner at street level
could the committee gain information on the mechanics of the high-
ly questionable operations. And only through understanding the me-
chanics of the operation could effective corrective legislation be pro-
posed.
A decision was made to go ahead with this plan in conjunction with
the Better Government Association of Chicago, Ill., a nonprofit, non-
partisan civic organization which has cooperated with the Commnittee
on Aging for more than 6 years. Subsequently, due to considerations of
time and money, the BGA assumed primary responsibility for setting
up and operating the storefront clinic with committee staff present
only as observers. (See photo, page 47.)
Over the next 3 weeks, business representatives from more than 12
laboratories, doing more than 65 percent of the Medicaid business in
Illinois, visited the storefront clinic. All but two offered some form of
inducement or kickback. The offers ranged from an "education pro-
gram" for physicians in billing procedures to maximize returns from
public aid to cash rebates of more than 50 percent of gross payments
received from the Illinois Department of Public Aid.






46


PHYSICIAN INTERVIEWS: NEW INSIGHTS
Armed with this information, we constructed a "profile" on each
lab to identify the doctors who used them. We cross-indexed the names
of physicians making over $100,000 from Medicaid, selecting 50 phy-
sicians in 50 Medicaid clinics for interview. These interviews gave us
our first hard look at Medicaid mills.
In the great majority of cases, physicians confirmed the existence of
the arrangements. Under questioning they provided specifics concern-
ing the amount of rebates and the method of payment. In addition, a
number volunteered that they had similar arrangements with other
vendors such as pharmacies and medical supply companies.
We encountered two typical financial arrangements in Illinois Medi-
caid mills. In the first instance the physician himself was the owner of
the clinic, either owning or renting the building. In this case he sub-
leased to other practitioners for as much as 80 percent of the money
these doctors were paid from Medicaid for treating patients. In the
vast majority of cases, however, the physicians we saw indicated that
they were not the owners. They were employed essentially on commis-
sion, keeping perhaps 20 to 40 percent of the money they received
from Medicaid. The entrepreneur or businessman, generally not a med-
ical practitioner, kept the remaining 60 or 80 percent of the money.
Following are examples from each situation:
(i) Dr. H. M. William Winstanley told investigators that he
received some $100,000 from Medicaid for his medical center last year.
He paid a rent of $1,000 a month for a small suite. In turn, he "rented"
the suite to several practitioners. He received rental of $1,000 a month
from a pharmacist. (Actually the amount fluctuated with the volume
of billings the doctor submitted, but $1,000 was about average -he told
investigators.) The dentist, he claimed, paid him about $800 a month,
depending on billings.
The optician added another $400 a month. In return for sending his
laboratory business to United Medical Laboratory, he was paid $950 a
month which he viewed as a rental fee for a 7-by-10-foot room in his
clinic. In addition, he was paid $130 a month for an employee to draw
blood and perform related services in this room.
(ii) A second physician, Dr. Julio Lara-Valle told investigators
that the State's third largest laboratory in terms of public aid business
paid him $1,000 a month (more or less depending on volume) for the
use of a closet-sized room in a suite that cost him $300 a month to
rent. Under questioning from Senators Frank E. Moss and Pete V.
Domenici on their February 6, 1976, visit, the physician added he
was paid another $1,000 rental by the operator of the pharmacy
connected to his facility.
(iii) Our visit to Dr. Jose Jaime Hilao produced a surprise. He
stated that he was paid a salary depending on his Medicaid earnings.
He indicated that we should see the clinic owner, Mr. Robert C. Parro,
who owned the Robert C. Taylor Medical Center where Doctor Hilao
worked as well as the Professional Medical Group, a facility in an-
other part of Chicago, in which Dr. Hilao's wife worked. When inter-
viewed by Senate investigators and later by Senator Moss, Parro
stated that he had received more than $300,000 each year in Medicaid
funds from the Department of Public Aid. He confirmed the usual
financial arrangement with the physicians and he stated that his pres-





































Photo by George Qulnn, Chicago Tribunw
The storefront clinic at 1520 West Morse Street, Chicago, Ill.






48


ent "rebate" arrangement from the clinical laboratory amounted to
50 percent of the total his clinic charged Medicaid for lab services on
behalf of Medicaid beneficiaries. Mr. Parro expressed concern that
some people might consider this entire fee-splitting arrangement il-
legal or unethical, inasmuch as he, a layman, was sharing in the reve-
nue earned by Medicaid practitioners.
These interviews, and others like them, convinced us of the need
for a detailed examination of the financial and operational aspect of
Medicaid mills.

D. THE EXECUTIVE LEVEL
Our insight into the financial and operational aspects of Medicaid
mills comes, essentially, from three sources: (a) Reviewing cases in
the office of the U.S. Attorney, southern district of New York, re-
flecting what has been described as the single most extensive Medicaid
fraud investigation (begun in 1973 and involving over 100 practition-
ers associated with 8 Medicaid mills owned by 3 individuals and liter-
ally millions of dollars in fraud); (b) interviewing physicians who
have worked or who are still working in Medicaid mills; (c) posing as
businessmen attempting to buy into the executive level of mill
ownership.

1. MEDICAID MILLS: A LOOK AT THE INSIDE OPERATION
The following paragraphs detail some of the practices defined by
the Assistant U.S. Attorney, George Wilson, in the celebrated Medic-
aid fraud investigation. The names have been withheld by his request.
For a period of 3 years, 8 clinics controlled by Dr. I and Dr. S, two
chiropractors, billed the New York City Medicaid program in the
amount of $2,222,000. The two principals received a flat 25 percent of
this amount as rent from practitioners in their clinics plus 50 percent
of a net after factoring plus a kickback of 5 percent from the factor,
and a, 30-percent kickback from the clinical laboratory.
The following is a rough application of these figures to the total
moneys for which the clinic billed:


i. The factoring firm takes 12 percent $2,222,000 as his
fee, or $266,640. Of this amount ($266,640), 5 percent
is paid back to the principals as a kickback-
ii. 25 percent of gross is claimed by principals as rent-'--
iii. Subtracting $266,640 and $555,000 from the $2,222,000
leaves $1,400,360, which is divided 50-50 between the
owners and the practitioners who work in the clinics--


Amount to
principals

$10 332
555 000

700,120


iv. The total so far equals ---------------------------1,265,452
v. To this amount is added a 30-percent kickback (eight
clinics averaged about $800 a month in kickbacks over
3 years) for a total of ---------------------------- 217,400

Grand total -------------------------------- 1,482, 852
In short, the two Jnincipals made about $1.5 million from their
Medicaid mills aver this period.






49


These figures reflect the general pattern of rental arrangements, and
kickback fees. There are some rather special arrangeints. In 1, 70 an
agreement was entered in1to betweell tie two plriiicipals an(t )r. X an
elderly cardiologist. The terns of the contract were that )r. Y would
work for a weekly salary of $120 and that all tile Medicaid incow
earned would revert to tie employers. Itis funct ion was to sign fraudu-
lent invoices. He was driven from clinic to clinic and seated at a desk
with a pile of patient records and blank invoices,. Ie rarely saw pa-
tients, spending all of his time writing. The I 4.S. Att orly esi a1mtled
that 98 percent of his billings were fraudulent.
To make matters worse, a few months after the contract was entere(l
into a joint savings account waas opened by 1)iD. Y and alot I,")lr psI-
cian who worked in the clinic. Dr. B. Th(, es ta)listlsllnjleii of a joint
account was for the purpose of "laundering" Dr. Y Medicaid receipts
for eventual disbursement among the owners. Sll)sequellvtly to further
facilitate this disbursement of funds. a similar arrangement was 111a(t0
between Dr. Y and one of the secretaries employed at one of tie
clinics.
An interesting note is that when this case was unraveled b authori-
ties, Dr. Y was found to have received only about $10,000 out of a
total of $50,000 or more represented by checks made out to his order
by the factoring firm. (It is to be recalled that factors pay cash for
accounts, keeping their 12 percent or more and then collecting from
local welfare departments.)
The secretary mentioned above became so adept at preparing bills
that she soon did little else. She began to invent invoices and forge e
the doctors' names. First she wrote only a few fraudulent billings. Bitt
when she learned that her fraud went undetected. she wrote increas-
ingly more illegitimate invoices. She has adinitted writing So 11ny
phony invoices that at times she developed writers cramp. or wrote
with her left hand, and subcontracted to her roommate. Someti iues. she
confessed they both stayed up half the night "writing paper".
Among the other fraudulent practices discovered in these clinics
were:
A doctor who billed invoices at a clinic where he never worked:
A gynecologist who billed for a pap smear at a time when the treat-
ment table was pressed up against the wall;
A doctor who went to his office two and three times a week. picked
up charts of patients and began waiting killings at random. Appar-
ently. this was a fairly common practice for this practitioner who was
frequently observed sitting, drinking coffee, and writing, bills:
An X-ray technician who was told to use exposed fil because "no
one will know the difference":
An internist who studied the racing forms ill the itiornin ad wrote
invoices in the afternoon (while never seeing patient-): 1nd
A pediatrician who administered an antibiotic shot to a neighbor's
dog and billed Medicaid for the service.
An internist specializing in geriatrics (characterized as the most
flagrant a)user of the group) was observed Iv a nunlber of witness
sitting in the office of the clinic manager and "just signing ll- 1 name
through a whole pile of blank invoices." This physician had an ex-
tensive Medicare practice in addition to his Medicaid and private






50


earnings. He has been charged with an abuse known as "gang visits",
that is, walking through a nursing home and charging each patient
for a visit and examination. He averaged 60 patients an hour in this
fashion; one patient every minute. Under examination by the U.S.
attorney's office, he was asked if he took blood samples. He stated that
he did not. Asked if he took the pulse of patients, he said he did not.
In fact, his entire examination consisted of examining the feet of
patients, as he walked down the hall, to see if they were swollen. The
doctor made similar "gang visits" in four other New York nursing
homes.
RATIONALIZATIONS
The physicians involved attributed their conduct to the atmosphere
of the "mill" in which they worked. Frequently, they said they were
approached by the owners and told that their bills were low. Reported-
ly, they were told: "Get your billings up." The owners (principals)
rationalized their conduct, saying they were compensating for dis-
allowances and a too low fee schedule. They admitted they were spurred
on by the knowledge that the worse that can happen would be non-
payment of their claims or a fine. They cited as examples, numerous
flagrant offenders who had been fined amounts up to $10,000 or more
but still allowed to continue in the program.
The only fear expressed by this group of criminals was of the fac-
toring company, who they said had used its knowledge of the phony
billing practices as a lever to lower the kickback paid to 2 percent, then
down to 11/ percent, and finally to zero.

2. WHAT IT Is LIKE To WORK IN A "MEDICAID MILL"
In the course of the more recent investigation by committee staff,
some 60 physicians who work or have worked in Medicaid mills have
been interviewed. Questionnaires were sent out to 250 physicians mak-
ing more than $7,5,000 a year from the Medicaid program in New York.
In addition, committee staff met and discussed the problem at length
with the Illinois State Medical Society and with the Illinois Physicians
Union, both of whom were most helpful and supportive of the com-
mittee's efforts.
In the course of these interviews committee staff asked questions
ranging from "How does one apply to become a Medicaid physician?"
to "What is the quality of care that is offered?". With respect to the
application process, no better illustration can be found than the follow-
ing article, entitled "Medicaid and Me: Condition Normal," by B. P.
Reiter, M.D., which appeared in the July 21, 1975, New York magazine.

APPLYING FOR A JOB: DR. B. P. REITER
Once I finished medical school, I figured I would go out
and get rich. Not super-rich, but rich enough to move out of
my 1-room apartment. I also wanted to buy a new motor-
cycle, and perhaps pay off a few of the constellation of loans
I had collected in medical school.
I could do none of these things. It turned out I had an M.D.,
but I had no license. You need at least a year of internship in







order to get a license to practice medicine. I went and did an
internship. A lot of interesting things hapI)ened; lbut I sur-
vived. And I got my license.
Well, I thought, now I'm going to go out and get rich.
"What are you talking about ?" my friends said. "You have
to specialize."
"I don't want to specialize," I said, "I want to get a job."
"You can't get a good job unless you specialize in some-
thing."
I specialized in something. Three years later I had my
M.D., my license, and my specialty. I'm not going to talk to
anybody this time. I thought. I'm just going to go out and get
rich. I planned to open an X-ray office.
I called the X-ray equipment company and said hello, I'm
a young radiologist and I'd like to open an office. The X-ray
equipment company said no problem, they could set me up, on
a modest scale of course, for about $220,000. Oh, I said.
I didn't have $220,000. If I'd had $220,000, I wouldn't have
opened an office. I would have closed the office and retired.
Well, I figured, maybe I can find a job in the New York
Time. What with the doctor shortage and everything, there
ought to be a job someplace for a radiologist.
There was a whole string of ads in the Sunday Tinges.
"Medicaid Clinics! Serve the community! No overhead, no
investment, high volume. All types of doctors needed. Should
speak a little English."
I speak a little English, I said to myself. I called up one o F
the clinics.
"I'm a radiologist," I said, "and I was wondering ...
"Come in," they said. "Come in and see us !" I drove t )
Brooklyn the next day and found the place. It was hard to
miss-there was a gigantic, multilingual sign out front ad-
vertising medical care, dental care, chiropractic care, any
kind of care you wanted. Everything but topless waitresses.
Right next door, a similar, slightly smaller sign identified a
conveniently located pharmacy. Also gladly accepting
Medicaid.
I went inside. There was a small waiting room, with a very
big guard standing in the corner. I walked U) to the little
glass window.
"Hello," I said, "I have an appointment here.
"What'?" the woman on the other side said through an
intercom thing.
"I have an appointment. I am a doctor."
The piece of plate glass between us was about 3 inches
thick, and she couldn't hear anything. It was like a check-
cashing place on the Bowery. "What?" she said again.
"I said I'm a doctor," I yelled. "I've got an appointment !"
The guard came over and shook his stick at me. "Sit down
and be quiet," he said to me, "or you won't get your
methadone."






52


"I don't want any methadone," I said. "I'm a doctor and I
have an appointment about a job here."
"Sit down and be quiet," the guard said, looking nasty. He
was twice as big as I was and I sat down.
I looked around the little waiting room. This was a high-
volume operation all right, no question. I had to take a seat
way in the back, but there was another great big sign up front,
with an illuminated, moving message. It was certainly big
enough and bright enough not to be missed, even from the
cheap seats.
"V.D. Tests," it announced in several languages. "Preg-
nancy Tests. Pap Tests, Road Tests. Learners Permits. Auto
Insurance, Life Insurance. Personal Loans-Low Rates."
"What am I doing in this place ?" I said to myself. Two
gentlemen dressed up in long white coats appeared from be-
hind the armored window and came hurrying over to me.
"Are you the doctor who called up yesterday?" the smaller
one said. "The radiologist?"
"Yeah, I'm the radiologist."
"Wonderful, wonderful," he said. "This is my partner.
Come with us, doctor."
We went inside. The guard did not frisk me; but looked
like he wanted to.
The three of us sat down in a plasterboard office that had
padlocks on everything.
"Would you like a cigar, doctor?" the little one said.
"No, thank you," I said. "I'd like a job. I finished my
residency last June, and I'm pretty well trained in general
radiology, isotopes, and angiography."
"That's very nice," he said. "We take 70 percent."
"Pardon me?"
"You give us 70 percent of your billing."
"I don't understand," I said.
"Let's say you become our radiologist," the little one said
with a kindly look on his face. "We handle everything for you.
We take care of all the equipment, we buy the film, we pay
the technician. All you have to do is read the film."
"I see. Well, who supervises the technician's work?"
"Oh, we do," the big one said. "We watch him very closely."
"Yes," the little one said, "you don't have to worry about
anything. All you have to do is read the films and give us
70 percent of your billing."
"Seventy percent? You're kidding."
"This is a wonderful opportunity for a young doctor like
you," the little one said enthusiastically. "Do you know how
much that equipment cpsts ?"
I knew. "Well, I'm not sure," I said. "I mean, that doesn't
leave very much for me."
"Look at it this way. This is a very high-volume clinic.
Let's say you have $1,000 worth of billing. That's $300 a
week for you, right there. By the way, have you ever done
any Medicaid work before?"
"No. This is my first job."





53


"Well, there's one more thing," the big one interjected. "We
like to get paid right away."
"Yes," the little one said, "that's true. We have a lot of
overhead."
"What do you mean?" I asked, innocently.
"It works like this. Let's say there's $1,000 worth of bill-
ing for one week. You come in and read the films, you pick
up all the invoices, and you give us a check for $ 00. For
our overhead."
"You mean I have to pay you to work here?"
They both chuckled. "No, no, doctor," the big one said.
"You're looking at it the wrong way. You send the invoices
to Medicaid, and they pay you the $1,000. And you've got
$300, free and clear."
"How long does that take?"
"Oh," the little one said casually, "not more than 4 months."
"VWow," I said. "You mean, every week I give you $700,
and 4 months later I get it back from Medicaid ?"
"Well more or less. You know, we have to meet our over-
head here."
"I'm sorry," I said, getting up. "I don't have any money.
That's why I was looking for a job."
"Sit down, sit down," they both said, still extremely genial.
"No problem, doctor. We'll take care of everything, don't
worry. We factor."
"Oh," I said. "What's that?"
"We'll help you out. We have a company that loans money
to young doctors. You know, just until the bureaucrats at
Medicaid get around to sending out your checks. That 4
months can be a long time."
I was learning. "How much?" I said.
"Just 10 percent. We try to help our doctors along."
"You're joking," I said. "That's 30 percent a year. How
much do I keep? Eleven dollars?"
The two of them chuckled again. "You'll do very well,"
the big one said, "don't worry. It just takes a while for a
young fellow like you to get started."
"You mean," I summed up, "you loan me money at 30
percent a year, and I lend the same money back to you for
nothing? That's crazy."
"You're looking at it the wrong way, doctor," the little
one said.
"I don't think I can afford to work here," I said.
They changed the subject. "Say, would you mind looking
at a case for us? Our last radiologist got discouraged and
left. This patient's been waiting weeks for his results."
I love to look at films. I examined their case for them,
holding the films up to the window and squinting at them.
It was an oral cholecystogram.
"Where are the rest of the films?" I asked. "This is a very
incomplete study."
"Well," the little one said, "things have been kind of slow.
The technician tries to save us a little money sometimes-the
film is expensive. We've got a lot of overhead, you know."






54


"Yeah," I said, "you must have some electric bill for all
those signs out there."
I inspected the films again, and made a learned discussion
about adenomyomatosis and cholesterolosis. The little one
looked at me absolutely blankly.
"What?" he said.
I figured maybe he was a psychiatrist or something, and he
had been away from clinical medicine for a while. "What's
your specialty, doctor?" I asked politely.
He thrust his hands into the pockets of his white coat and
leaned back in his swivel chair. "Oh, I'm not a doctor," he
said.
"Well, who are you ?" I asked.
"I'm the executive administrator," he said. My partner is
the doctor."
I turned to the bigger one. "What was your feeling about
this case?" I inquired.
"Me?" he said. "I'm a chiropractor. We have a different con-
cept of disease, you know."
"Oh boy," I said.
A family with a large number of children wandered into
the office. "Excuse me," the mother said, "is this where we find
out about the apartment that's for rent?"
"No, no," the chiropractor said, hustling them out, "that's
down in the basement. Go back downstairs."
He came back in looking annoyed. "I don't know how they
got past the guard," he said.
"Oh yes, there's one more thing." the executive adminis-
trator said, "You don't bill for any chest films."
"Don't you take chest X-rays here,?"
"Oh sure," he said, "you'll have plenty of chests to read.
But the pediatricians and internists like to bill for them."
"And I read them?"
"Well, yes," the executive administrator said. "The other
doctors like to bill for them, but sometimes they miss things
on the films."
"I bet."
"Yeah, well, you sort of check up on them, so they don't
get sued. It's a service I like to provide for our doctors."
"That's very nice of you." I said.
"One more thing, doctor," the chiropractor said. "Some of
the patients don't have Medicaid or Medicare, so you read
those films for free."
"You mean like for indigent patients?" I said. "Sure, that's
okay."
The chiropractor looked at me oddly. "We have no indigent
patients," he said, "I mean for private patients."
"I don't understand. Why don't you bill the private
patients?"
"Oh, we bill the private patients." the chiropractor said.
"You don't bill them. It's sort of a service you provide for us."
"I still don't understand," I said. "Why do you get paid if
I read the films?"







"W"ell the chiropractor said, "with cash changinghgl(ls
and everything, it's just easier. Ask arojind. all the Meliai(I
clinics work that way."
"Yeah, I said, "I bet they do.
It was the executive adnlministrator s turn. hIere just one
more thing," he said, holding up an invoice. whee wrhete it
says 'diagnosis ? Never put (down 'nornial. no latter what.-
"But suppose that the films are normal I said. )'t
you ever get any normals ?I
"Oh yeah," he said, "all of them are normal, just about."
"b'el. what am I supposed to put, down ?" I asked.
"It doesn't matter what you put down," lie said, "as long as
you don't put down 'normal.'
"You mean you want me to make things up? I can't do
that."
"No, no, of course not," the executive administrator said.
beginning to look impatient. "Just use the referring doctor's
diagnosis."
"This is getting kind of tricky," I said, "Is this legal ?"
"Would we break the law?" the executive administrator
said. "Let's go downstairs, and we'll show you."
We all went back downstairs. The chiropractor had to go
and reprimand a patient who was kicking the soda machine.
The executive administrator led me to a tiny examining
cubicle with (the name is changed) "R. Jacobson, Doctor of
Chiropractic" on the door.
"This is Dr. Jacobson," he said. "Dr. Jacobson, this is
the new radiologist. He needs some help in learning how to
fill out the invoices."
Dr. Jacobson was crowded into the little room with a young.
hulking, very healthy-looking patient. There were a couple of
viewboxes on the wall, and this chiropractor was looking at
some cervical spine films. Upside down. He stood up.
"Glad to meet you," he said. "The invoices are a snap to
fill out." He gestured at the X-rays. "This young man. for
instance, is suffering from a cervical radiculopathy."
"A what ?" I said.
"A cervical radiculopathy. Look at the films."
I went over. and as casually as I could, turned the films
right side up. "Where ?" I said. "I don't see anything."
"Right there," the chiropractor said, pointing. "Look at
those spurs."
"Those little osteophytes? Everybody has them. That's
practically normal."
The chiropractor gave me a very hostile look. and mo-
tioned me out into the corridor. He closed the door on the
patient.
"What's the matter with you?" he said. "Do you want the
patient to hear you ?"
"But there's nothing wrong with him on those films," I
said. "Besides, if he's got neurological symptoms you've got to
look at the neural foramina. You can't even see those on the
lateral films. Where are the oblique films?"






56


"All you M.D.'s think you're so smart," the chiropractor
said, retreating back into the examining cubicle. "You guys
give me a pain in the ass." He slammed the door.
The executive administrator took me by the arm. "We
don't take that many obliques here," he said. "We find we
don't really need them. Don't worry, you'll catch on. Where
are you parked?"
"Right out front."
"Come on, I'll walk you out to you car," he said expansively.
"Is the interview over?"
"Sure, sure," he said, lighting up a large cigar. "All these
details are simple. Don't worry about them. You know, we're
opening a new place in Queens next month. You might be
interested in doing some work for us out there too. We're
going to have a real empire. You're pretty lucky-you can
get in on the ground floor."
We walked out into the street. "Oh, that's too bad," he said,
looking at my ancient Volkswagen. "You've got M.D. plates
on your car."
"What's wrong with that?" I said.
"Well, nothing. Just keep changing your schedule. You
know, don't show up at the same time every day. Otherwise
you might get jumped."
"Me?" I said. "Why would anybody want to rip me off? I
don't have any money."
The executive administrator looked tolerant and amused.
"The methadone. They'll think you've got the methadone.
See you Monday."

3. "GETTING THE JOB"
As the above example illustrates, the most important factor in
getting a job in a Medicaid mill is a fondness for money. Qualifica-
tion, training, and education are almost never discussed. Physicians
repeatedly told investigators that the first two questions (and some-
times the only two questions asked) of a prospective job applicant
are: Do you have a Medicaid number?; and, Have you got anything
against making money?
The doctor in the foregoing example had the good sense to walk
away. Others with fewer options, particularly foreign trained medi-
cal practitioners, have not been as fortunate. In a May 11, 1976,
interview with the committee staff, one physician recounted his
experiences:
What the clinic administrator asked me first was, "how
much do you want to make ?" I said, "I don't know. I am new
to this country. What is possible?" He said, "You can make as
much as you want."
I said, "What do you mean you can make as much as you
want? What's the average? How does it work? How much do
you get for seeing a patient?"








He said. "Well, you know. each patient you see averages
$12, or something like that, and then if you order a lot of car-
diograms you make more. If you order a lot of X-rays you
make more. You make as much as you want to make."
I sai, "Well, how aim I going to get paid ?" lie said, J"Tlr
I said
are several ways. You can either wait for Medicaid to process
your invoices and get paid in about 6 nlonths, and then there
is prepayment, where they pay 75 percent of your bills in
10 days and the 25 percent they drag out forever, or you can
factor. You get your money right away but it costs you 12
percent interest."
So I said, "Fine. I'll factor." After several months I figured
it out, and it wasn't 12 percent I was paying the factor but
48 percent. The time turnaround (for the factor's money)
was 3 months. So, I thought, hey, I got to get out of this fac-
tor business. And I went down to the factor, which is Health
Factors (determined to have billed nearly $25 million to New
York's Medicaid program in 1974 by analysis of computer
printouts). I said, "How much do I owe?"
He (the factor) told me $8,000 had accumulated. I said,
"Give me all my invoices and I will give you the monev." He
said, "Fine, come back in 2 weeks." I went back in 2 weeks and
he had a whole pile of invoices for me, and he said, "Here
they are, let me have my money."
I said, "Let me add them up." He said, "Here, they are all
added up." I said, "Let me look at them." I went through
each one. They were 6-month-old and 10-month-old invoices.
So I said, "These must have been paid." The factor said.
"Well, there will have to be a reconciliation, come back in -2
weeks."
In 2 weeks when I came back it was $4,500. So I gave him a
check for this amount and got the invoices and Medicaid paid
me about $3,500 for them. I lost $1000, and that was OK. Then
I got my income tax thing (an earnings summary) from
Medicaid and they said I had made "X" amount of dollars,
but I actually made $5,000 less.
You see I had no way of knowing what was billed under
my name. I signed the invoices in blank. They were prepared
up front. Lennie or whoever fills out the charts and sends in
the billing form (to the factor) and you never see it again.
When the check comes in, it comes to the administrator.
who gives me half, and that's the factor's check anyway. I
never see the Medicaid check. I found out later that the
factor and the administrator were very close. The factor
owned the building and the administrator leased it from the
factor. There are other things I could tell you but I really
don't want to get into that.
The way this thing works, you're on the hook. They have
your power of attorney, so you are liable for whatever they
submit, and nobody worries too much about gettinfr caught.
The only thing you can get caught for is overbillinc. There






58


was one guy that showed me the ropes. He was billing Medic-
aid for as much as he could because he was moving to Cali-
fornia. What he did was to bill $12,000 a month, or $20,000,
or whatever. I really don't know. But I know everybody he
saw got everything possible (tests), and he had been doing
this for several months. He had been factoring so the factor
kept paying. Then he left and Medicaid stopped payment and
the factor was left holding the bag. He was a young guy-in
his early 30's. He died right after that. They said he had a
heart attack.
All I know is that a lot of checks I never signed got cashed
but I never got paid. Somebody would just endorse my name
and the bank would cash the check. Someone would sign my
name on an invoice and send it in. And I can't say anything,
because if there is anything wrong on any of the invoices, the
only one who is going to get screwed is me. It's in my name.
My impression is that you have to be a real pig to get into
trouble. There was a radiologist who was billing for one-
quarter of a million, or half of a million, out of his home. He
got into a lot of trouble for doing that but there is no real
control of the program. If I could live with myself I could do
it very easily.
Every day, when I see a patient, I have to write down what
I saw him for. I either write down 902b and I get paid $15, or
902e and I get $25, or 9004 and I get paid $7.50. Right now
I write down that 9004, and I have no problems sleeping. But
from the department of health's standpoint, you wouldn't be
worried about them picking it (fraud) up. They never have
and there is a lot of money going through those mills.
In places I worked, the administrator made a quarter of a
million profit. I was seeing eight patients an hour (the doctor
speaking is an internist) and they were pushing me to see
twice that many.

4. How To GET AWAY WITH IT
From what committee staff have been able to gather, it is common
practice for clinic administrators or cheating physicians to "school"
new doctors in the techniques of fraud. The best evidence of this
practice is an investigative tape recording made by law enforcement
officials in New York in 1975. it records a conversation between Dr. L,
a gynecologist, and Dr. B, a pediatrician.
Dr. L.: You see the trick is never to put down or to charge
for a patient you didn't see. When I billed for a SED (sede-
mentation) rate or a CBC (complete blood count), or what-
ever, I always drew blood. Where the blood went I did not
know.
Dr. B.: One of the most common things is to bill each
patient as if it was his first visit, to get the higher rate.
Suppose they hit you with that one?
Dr. L.: My attorney says, "I don't remember-I don't even
remember what I put down for 95 percent of my patients."






59


He also says, "You're close to the statute of limitations, so
stall. They are going to run out of time unless you give them
the nails they need to drive into your coffin."
Dr. B. : Suppose they bring in one of their house doctors
to examine your bills?
Dr. L.: I don't. know what you did in your practice. You
don't know what I did in mine. So what cani the expert tell
them? He'll say, "He is a good doctor so far as I know." The
nurse, is she going to argue? She wasn't even in the room
with you when you saw the patient. So you come down to
the patient. He is going to say, "What, I only saw the doctor
10 times in 3 years." You see there are only three parties-
doctor, nurse, and patient. The doctor is easy to wrap up,
the nurse doesn't know, and the patient isn't going to
remember.
If the patient walks in here and I bill him [sic] for a
vaginal smear, what is he going to say? How is he going to
describe what I did and didn't do? How is he going to know
how long it should take or what the procedures are?
If they ask you did you ever put down for a patient you
didn't see, you say, "I don't recall." If they ask you would you
do that, you say, "No, that is dishonest. I wouldn't even think
about it." "Did you do these procedures?" You say, "I
wouldn't even think about it." "Is this your signature?"
You say, "Yes, but that's not my writing. The girl did the
work. I should read it more carefully, she must have made
a mistake."
Dr. B.: I see.
Dr. L.: I am trying to tell you doubts. You create doubts.
NWho can disprove it? The nurse? Do you think she can re-
member any better than you? The nurse is out. The doctor is
out. I am not going to cast mud on anyone. The patient,
that's where it's at, that's the one they are interviewing.
Patients from 3 to 4 years ago. And you know the type of
intellect patients have to begin with. This is why I never
put down for a CBC, or a SED rate, or whatever, if I don't
draw blood. They remember if you give an injection. I don't
like going through the routine of doing it but it must be done.
Dr. B.: Yeah.
Dr. L.: There is no way to prove a thing. Even if they show
you the worst piece of paper you ever wrote, there is no way
to prove a thing. You never put through for a patient you
didn't see. The patient might have been on vacation or in
the hospital. That's the only way that they can hang you.
I'm not that stupid. It is stupid to write bills on patients you
didn't see, on dates you weren't in your office. Other things
(kinds of fraud) are all right. But if you put down anything
strange, you'd better set a date or a note explaining it. Those
are the things they look for.
In sum, as one Illinois practitioner put it. one patient can generate
revenue for a medical facility in excess of $250 for a single visit. The
process he described is as follows:






60


The patient comes in with a complaint. He or she wants to
see the doctor. They receive them, process their papers, and
they do see the doctor. The doctor evaluates and makes a diag-
nosis. In any event, he writes prescriptions and drug orders,
laboratory orders, X-ray orders, and the patient returns to
the waiting room. While they wait, they are asked if they
want to see the dentist, the eye doctor, the foot doctor, the
chiropractor, or any of the other health providing services
that are in this particular unit. They make the trip from one
to another like a roundrobin or a merry-go-round. The patient
is really unaware that he is being manipulated. It is a simple
matter, and then there are ways of increasing the laboratory
work. The doctor may order a urinalysis or a blood chemis-
try. If you are not familiar with medical terminology or the
way that laboratory sheets are set up, it is a system of boxes
and "X's." So a doctor checks two, and the firm or the ad-
ministrator or whoever checks six. You have increased the
amount of laboratory work six times. Where a urinalysis and
a blood chemistry test will run roughly $20, if you check the
additional boxes on this list, you'll run it up to $150.
The more volume the more money is what it amounts to. The
mother may be the prime patient, but she'll be asked, when
has the youngster had his last shots, or has he seen the doctor
lately, or the dentist, and usually, since its free, it's, "Sure,
take Suzy in, or Johnny, or whomever."

5. BUYING A MEDICAID MILL: THE ExEcuTIvE LEVEL
To further test the profitability of Medicaid mills and to gain more
insight into their financial arrangements, the committee staff decided
to pose as 'businessmen interested in buying Medicaid mills. Mills
change hands frequently; there is a lively market in such facilities. In
fact, the Medicaid mill has been described as the fastest growing indus-
try in New York. This traffic in Medicaid mills is commonly indicated
by advertisements in the classified sections of metropolitan newspapers.
In order to provide appropriate cover, a corporation was established
and common business cards were printed. The company's name was
listed in the real names of Senate investigators. An answering service
was established to respond to calls. With this slight cover, a number
of inquiries were initiated and a wealth of information provided.
Investigators answered advertisements in the New York Times, and
then, with the assistance of our accompanying physician, introduced
as an apparent business partner, pretended to be interested in buying
into the Medicaid mill business.

IN THE SHADOW OF YANKEE STADIUM
On Monday, May 17, 1976, a telephone call was placed in answer
to the following advertisement from the New York Times: "Medical
Center for sale. Great location, West Bronx. Call....
An appointment was made to meet with the owners on the follow-
ing day. We were told to look for a man wearing a brown leisure suit
standing outside a mill on East 161st; he identified himself on the
telephone as Mr. P, a C.P.A., and a partner in a firm located in White







Plains, N.Y. On the 18th, Associate Counsel Val J. Halamandaris
and a cooperating physician met a man so-clad who identified himself
as Mr. P.
Ile explained that he (idnt want buyers trooping in and ala ruling
the. mill's practitioners who hadn't been notified of the pending sale.
Aftei waiting on the street corner for somie time, Mr. P invitcd
investigators into a small, narrow, one-story facility. The building
was approximately 20 feet wide and 125 feet. long.
Walking through the front door, investigators found a bare wait-
ing room about 14 feet square which boasted only a few chairs, a
television set and a reception desk. Separated from the waiting room
by a wall was a pharmacy which also had entry from 161st Street.
The pharmacy looked to be about 6 feet by 20 feet deep.
Investigators were. invited into the working area. Passing the two
small public lavatories, Mr. P explained the large amounts of water
which was apparent, buckling the carpet, by saying the toilet had over-
flowed. Noting the stains of past floods, investigators asked hin if
this was a recurrent problem. He replied, "What can you do? The
pipes are old and these people come in-they don't know any better;
they throw all kinds of things into the toilet."
The first impression of the work area was a long, narrow hall run-
ning the length of the building separating the examining rooms. These
rooms were about 8 feet square. In stepping toward the back of the
building, the investigators saw signs wilich indicated dentistry, an
office of some sort, podiatry, and X-ray on the left; with pediatrics,
two or three medical examining rooms and a storage area on the right.
In the very back of the building there was a 6 by 9 foot room which
contained a Eureka 15 X-ray machine and a small alcove with film
and a cheap DSP processor (developer). No lead insulation was ap-
parent in the X-ray room.
Toward the middle of the building there was a second X-ray, a dental
machine, which was stored in the middle of a hallway leading toward
a side exit. Again, there was no evidence of lead shields or other pro-
tections against the possible damage which may be caused by X-rays.
In the small office occupied by the podiatrist was a third X-ray unit.
During the time of this staff visit, the dentist, Dr. Q, was occupied
showing the financial records to another prospective buyer. He was
asked out into the hall momentarily to meet investigators, spoke to
them briefly, and suggested that Mr. P take the investigators to a
nearby cafe for coffee, saying he would join us as soon as possible.
At the nearby restaurant, Mr. P unraveled the financial details of
the clinic's operation, indicating that it was a most profitable venture
and that it could become even more so with the right kind of people
who would like to work at it. Dr. Q soon joined the party. Dr. Q
announced that he was prominent in the New York health providers
association. He added that they had a third partner.
In the course of the discussion, Mr. P made several allusions to the
profitability of the mill, showing investigators the log0 book indicating
an average of 100 patient visits a day. He lauded the excellent location
of the clinic, in the shadow of the renovated Yankee Stadium and right
on a subway stop. He added that his internist made $100,000 a year. He
described leasing arrangements totaling $3,200 a month. These in-
cluded $1,000 a month paid by the pharmacy, $1,00 by the internist,
$500 by the optician, and $500 by the podiatrist. Asked if these amounts






62


varied with the volume of Medicaid business, they answered in the
affirmative. They added that since they owned their own X-ray equip-
ment they would receive 75 percent of the radiology billings. Dr. Q
added: "You can also get a percentage from the clinical laboratories.
I don't even want to talk about it. But they all pay a little something.
If you shop around, you can do pretty well for yourself.* "
Later, Mr. P stated that, "One thing good, if you buy this place, is
that no one can open up within 20 blocks of you."
Dr. Q also indicated that the clinic had the help of friends, includ-
ing one social worker who sends in patients to the clinic. He added
that the practice was strictly legal and that the health department
knew and sanctioned the idea. Asked if he paid the social worker any-
thing, he said, "No, but I give her the use of my car, things like that."
Asked why they were selling, Dr. Q indicated that he was spending
too much time administrating and that he only wanted to take care of
patients. Mr. P said he wanted to spend more time with his family. He
also made oblique references to another Medicaid mill they had an
interest in which had burned down and some suggestion of heavy debt.
When asked to further sketch liabilities, they indicated a 91/2-year
lease paying $1,750 a month in rent to a firm located on Long Island,
N.Y. With utilities, they had total monthly outlays of $1,900. Mr. P.
also indicated something about paying $8,000 a month in short-term
renovation loans. It was not clear whether they meant the current fa-
cility, the one that burned, or something else.
Pressed for details, they said: "Just come in the office and you can
see the books for yourselves," adding that another time would be
better since both had commitments. Mr. P was going to little league
practice. Investigators stated an interest in bringing "our accountant"
to go over the figures and the mill principals agreed.
Mr. P stated that they wanted $60,000 cash and that "whatever
deal we would like could be arranged." Dr. Q indicated he would
be willing to "sell out his dental practice" or to continue, providing he
would receive 50 percent of his billings. He offered to serve as a con-
sultant or to work in any other way.
The conversation ended with a discussion of how to, in Dr. Q's
words, "optimize" patients. He asked our cooperating doctor for his
specialty. His face lit up when the helpful physician stated he was an
internist. "Everything depends on having a good GP," said Dr. Q. "I
have one now who isn't worth a damn. She is satisfied with her lousy
$75 or $100 grand a year. I don't get any referral from her. You have
got to make maximum use of the patients who come in your clinic.
We're doing $3,000 worth of X-rays a week now; we should be doing
$9,000. You've got to work at it. You've got to push. That is the only
way to succeed in this business. With the right kind of people you can
do very well for yourselves." Mr. P excused himself saying he had
other appointments and would be glad to show the committee staff the
books.
Before leaving, Mr. P reassured investigators as to the profitability
of the venture, saying: "If I were you guys, I would get in on this.
It's a great deal, especially for a young doctor just getting into prac-
tice. If things go bad, you can always sell out," he reassured, "or take
out a lot of fire insurance. A lot of mills in this area have been burned
*Quoted excerpts are based upon notes made immediately after the conver-
sation.







out, including one owned by the pharmacist across tlie street," added
Dr. Q.
The interview was terminated at this point; Mr. 1' raced to llis
car, reaching for a business card, which he gave to investigators saying,
"Let us hear from you."

THE FAT]IER OF TIHE STOREFRONT CLINIC
On May 19, another advertisement from the Aev, Yor k Tils was
answered by committee investigators who immediately recognized the
name of the man who answered the telephone as an extremely Illgh-
voluime provider with a protracted history of fraud and abuse of the
Medicaid program in New York. A tentative appointment was
established for the following afternoon.
Because of the detailed file on this provider, the U.S. attorney's
office was notified. After a short discussion, that office provided Sen-
ate investigators with a recording device.
The following statements are taken from a recording made of the
subsequent meeting. In the course of the conversation, the subject of
the interview made a number of statements and specific allegations
involving fraud, bribery of city officials, union racketeering, arson, and
the involvement of organized crime figures in the ownership of Med-
icaid mills. These matters are now under investigation by the U.S.
attorney's office. For that reason, the names of all parties concerned
are withheld:
Essentially, I'm the dentist here. This is my practice. I
have been in the area since 1964. I have been in Medicaid
approximately 17 years. I was in Medicaid from the very in-
ception. I was across the street in my own medical center
which burned down, and I had everything, you know, long-
term medicine, the whole works. And I was one of the pio-
neers; I had one of the first storefront operations in 1966
with-we had eight dental chairs and I had about six full-
time dentists, two part-time dentists, and other providers.
Then we had a fire, -and the whole place burned down. You
know, the insurance just barely covered enough, and this
place was available.


I have since opened up in Florida. I have a group of clinics.
I have one in South Miami Beach. My brother is running it.
We just opened up in Winston Towers, north of Hollywood.

An internist is the key to the whole thing. An internist-
its unlimited with an internist. I can sit down with you if you
are really interested and show you how an internist, can make
so much money it is ridiculous.

I am telling you this is a safe investment. They have been
saying its [Medicaid] folding every year since I can remem-
ber and I have been in Medicaid since the beginning-since






64

Rockefeller signed the bill in 1966. Every 6 months they
were saying: "It's out, it's out !" There is always a crisis.
And I went right in and opened up a store. At the begin-
ning-people thought I was crazy at the beginning. In my
first year . up until I practiced under Medicaid I never
made $100,000 . I made over $200,000. I can show you
my income tax returns for 1966 and 1967. I am prepared to
show you that.

In dentistry a man should do $300 a day; if you don't
you're in bad shape. You give him [a hired dentist] $100,
and you take $200. You pay him a salary and that is it, or
you can pay him 35 percent, 45 percent, 50 percent, depending
on what you want to do. If you manage the place properly,
you should give the guy-it should be a 60-40 split. You get
60 percent, he gets 40 percent. Some people get 35 percent.
Asked if this amount (35 percent) would include income from
X-rays, the subject responded, "He doesn't get anything. Nothing.
He's a puppet. He is just there. He is a worker and you're the boss."
Asked about chiropractors, the subject responded that he gives
them the same arrangement-a 60-40 split.
What does it cost to run this place? It costs $950 for this
place and $200 for the drugstore. Together you are talking
$1,150 every month. I tell you what you should get in rent.
After about 3 months, you should get a minimum of about
$1,500 from the chiropractor, and $1,500 from the podiatrist.
The pharmacist is on an escalating lease. It is at $800 at
the present, but it escalates in $200 increments. And then
you've got your dentist and MD's and the rest. You've got
your rent free, you've got everything. I can't talk really freely
with you, you know. I don't know who you are. I just can't
tell you everything about what I know, you know.... It is
good to have a 38-caliber pistol around; it doesn't hurt. These
are some really rough times. Let's not kid ourselves.

You can make a nice buck with insurance if you feel like
going that route. People have done it, don't laugh. You've
got to insure for a couple of hundred thousand dollars and
that is it. Then if it burns you collect your money and you're
out.

It is a good business to be in, I'll tell you. Whether you buy
mine or not, it is definitely much better than investing in
something like Wall Street.

One of my places in Florida is for sale, too. It is a beautiful
spot. It's super. The volume down there is seasonal, you
understand, but it is beautiful. Only down there we don't
call it Medicaid, its Medicare. There is no dental medicine
down there. It's radiology and very heavy on the EKG's.
Everybody's into internal medicine and cardiology. My






65


brother is the internist there and we can make you a, whole
package deal.
Asked if he has flat rental arrangement or percentage arrangements
in Florida, he replied,
Percentage. 55-45 all across the board. The owners gets the
55.


Any kind of deal can be done here. Anything. The deal here
is what you want it to be, but you've got to have doctors. That
is the whole thing. Now, if I was an intern, I would go to the
medical societies and I would join everything in sight. You've
got to know a lot of medical doctors. You've got to really be
able to get to them. It is like a stock exchange. You' e got to
have new doctors on the line all the time.

You really want to do a job? Then you go down to the hos-
pital, say your name is Malcolm X or whatever you want to
call yourself, walk into an office there and ask to speak to
someone in personnel. Tell them "I would like to see some
patients as soon as possible. I would like to do more union
work." You should talk to one of the girls, and the secretaries,
and say, "Look Hon. spread the word around." You've got
to hustle. You know? There is no other way. You go talk to
Mr. [a union leader] and he puts you on a panel.
Asked if the union leader is going to want some money, the subject
responded "Yes." Asked "How much is he going to want ?' the subject
answered:
I am not at liberty to tell that but he is going to want some-
thing. You'll have to make your own connections.
There are lots of kickbacks you can do in dentistry and
medicine. I mean, I know guys that have got sweet things
going with their suppliers. And they pay list price and get a
nice cash rebate on it every month. I mean, I can tell you a
million ways to make a buck in this kind of field.
Asked for a couple more examples, the subject said:
I can't, I don't want to go to jail. Maybe you have a tape
recorder on you.
Medicine is a business like any other business. It is a very
big business. I was approached'by a guy about 3 years ago
who wanted to get into the Medicaid business. And I had a
very nice deal for him. Unfortunately. at that time. there was
a big war going around between Columbo and Gallo and the
guy disappeared from the face of the earth. He just van-
ished. He was a beautiful guy, too.
I can te-ach you the business very good. You've got to be a
doctor and a businessman. Then you'll do very well. I gave
it a little more than 5 years of my life and that was it. I did
very well. Every dollar, I made. I didn't inherit a thing. I
live very well. It's all from Medicaid. Okay? A place in
Darien. a place in Vermont. All from Medicaid.






66


E. FEE SPLITTING AND PERCENTAGE LEASES-
COMMON PRACTICES IN MEDICAID MILLS
The committee found in its investigations that fee-splitting and
percentage lease arrangements were common practices in New York,
New Jersey, Illinois, California and Michigan and that they go hand-
in-hand with Medicaid mills. In fact, the percentage lease is at the
heart of the array of economic incentives which encourage the forma-
tion of Medicaid mills.
As noted earlier in this report, such practices present serious moral,
legal, and ethical questions and have been debated for years by State
and Federal elected and appointed officials and professional legal and
medical societies.
The percentage lease undeniably increases providers' propensity to
commit abusive practices. These leasing agreements which give the
landlord a percentage of the provider's gross income in return for
office space, equipment, and various administrative services. The Asso-
ciation of Health Care Facilities, Inc. (hereinafter referred to as
"the association"), a New York City group representing owners of
about 123 Medicaid mills in the city. estimates that the average per-
centage lease is anywhere from 30 percent to 40 percent of the pro-
vider's gross fees for most medical disciplines. The association also
estimates that in the field of radiology a radiologist generally pays
anywhere from 60 percent to 75 percent of his gross to the owner of
the building. The reason for the higher rate for radiologists, the asso-
ciation claims, is the higher cost of X-ray equipment provided by the
landlord. In recent court testimony, Mr. Cyril Sack, president of the
Mermaid Medical Building Realty Corp., said he had based his 35
percent lease on information from an AMA journal article which said
the overhead cost of a private physician's office was 35 percent. Mr.
Sacks' corporation owns a building in Brooklyn leasing to 14 medical
professionals on percentage leases.
In New York City, most of the percentage lease arrangements are
in what are known as "Medicaid mills," "Medicaid clinics," or "shared
health facilities". These are buildings owned by an individual or in-
dividuals, usually in a partnership or corporation arrangement, who
lease office space, equipment, shared waiting rooms, laboratory serv-
ices, custodial and office help, and often administrative services to a
group of doctors. Each doctor usually has a separate lease which in
most cases is an oral, not written lease. Such facilities began to flourish
in the city in 1971 and are always located "in the areas where the medi-
cal indigents are located," according to the association. The primary,
if not exclusive, source of income for these facilities is Medicaid. It is
estimated that there are currently 451 such facilities in the city and
that at least 66 percent to 75 percent of all individual Medicaid pro-
viders in the city are located in these facilities.
In some cases the owners of these facilities own more than one fa-
cility. The owners sometimes are providers themselves on the facility
premises or at another location. In other cases the owners are also
owners of pharmacies or laboratories located on or near the facility
and often are used as the exclusive lab and pharmacy service by all
providers in the facilities. Dr. Morton Kurtz, secretary-treasurer of






67


the Queens County Medical Society, estimates that at least 15 percent
of the owners of such facilities are physicians.
The percentage of gross fees lease aiTangement has been ruled un-
ethical conduct for physicians by the American Medical Association
(AMA). Opinion No. 23 of the AMA's judicial council states:
An arrangement by virtue of which a physician leases office
space for a percentage of gross income is not acceptable; it is
violative of ethical principles. The practice indirectly results
in fee splitting and tends to exploit the practice of medicine.
If the size of a doctor's practice increases and imposes addi-
tional demands on the facilities of the building, these facts
may be considered when the time comes to renegotiate the
rental value of the leased premises, and a new fixed rental,
taking these items into account, might be agreed upon.
The AMA has defined "fee-splitting" in the judicial council's opin-
ion No. 16:
By the term secret splitting of fees is meant the sharing by
two or more men in a fee which has been given by the patient
supposedly as the reimbursement for the service of one man
alone. By secrecy is meant that the division of the fee is done
without the knowledge of the patient or some representative
of the family. It includes those cases in which the term assist-
ant is used as a subterfuge to obtain a part of the fee which
otherwise could not be rightfully claimed.
The AMA also has ruled as unethical the acceptance of rebates on
prescriptions and appliances, the ownership of clinics or laboratories
by joint stock companies composed in part or in whole by physicians,
and the percentage lease renting of pharmacy space for a pharmacy
owned by a physician or physicians.
These ethical standards are not necessarily legally binding, but they
are the standards of the national professional society of the Nation's
physicians. However, members of the AMA do agree by virtue of
membership to abide by the AMA's "principles of medical ethics" and
the judicial council's rulings as standards by which they "may deter-
mine the propriety" of their conduct "with patients, with colleagues,
with members of allied professions, and with the public." They have no
effect whatsoever on other medical professions and, in fact, the Amer-
ican Dental Society has no such rulings on fee-splitting.
Enforcement of the AMA's rulings and principles regarding fee-
splitting is the responsibility of local societies. The judicial council's
opinion No. 20 states:
Fee splitting is to be condemned wherever it may be found,
and component societies and constituent associations must
purge their membership of any who willfully refuse to desist
from such practice, the continuance of which can only bring
dishonor and reproach on the medical profession.
The State of New York Medical Society does not explicitly prohibit
fee-splitting in its "Principles of Professional Conduct" (hereinafter
referred to as "principles"). The State society's principles do prohibit
physicians from having financial interests in an optical dispensing





68


facility or pharmacy unless prior approval is obtained from the local
county medical society (chapter I, section 5, "principles"). The "prin-
ciples" also state it is unethical for a physician to "engage in barter or
trade in the appliances, devices or remedies prescribed for patients"
and further states:
He should receive his remuneration for professional serv-
ices rendered only in the amount of his fee specifically an-
nounced to his patient at the time the service is rendered or in
the form of a subsequent statement, and he should not accept
additional compensation, secretly or openly, directly or indi-
rectly, from any other source.
The enforcement of these "principles" is basically with the local
county societies.
Dr. Mortin Kurtz, secretary-treasurer of the Queens County Medical
Society, in recent court testimony said his society views the percentage
of gross fee leasing arrangement as unethical. However, his local so-
ciety apparently has not taken any action against doctors involved in
such leases despite knowledge and evidence of such participation.
In New York, the practice of fee-splitting vis-a-vis percentage leases
appears to be governed by a 1971 opinion by the State Department of
Education. In 1970, and again in 1971, Mr. August J. Bardo, Jr., then
director of the department's division of professional conduct stated
that:
It would not be illegal, on the other hand, for a physician,
dentist, podiatrist and chiropractor to conduct their separate
and independent practices on the same premises, and pay the
landlord a fair percentage of their gross income for the rent
and shared services.
The Bardo opinion did not specify what was "fair percentage" and
did not clarify whether the facilities operating in New York City
could be defined as having "separate and independent practices" in
view of existing evidence as to their operations.
The Bardo opinion went on to say:
However, such rental may not be based upon net income. It
would be the substance and not the form of the arrangement
that would determine its legality, any interference or control
by the landlord over the practice of the profession would be
illegal.
Evidence presented to date indicates that the percentage leases in
the facilities in question are not based on net income. However, in court
testimony the association and individual facility owners have admitted
that the leases are generally oral and often the landlord also operates
a pharmacy or lab utilized by the professionals in his facility. There
has been no ruling as to whether such "oral leases" and/or ownership
of labors or pharmacies serving the facility per se or in individual
cases constitute "interference or control by the landlord over the prac-
tice of the profession."
The State and local county medical societies as well as the State
department of education, health, social services, and law all appear to






69


abide by the Bardo opinion and until last month had not taken any
action against suhI1 "gross" income percentage lease arrangements
despite the unanswered questions in the Bardo opinion.
On June 7. 1976. the committee sent a detailed letter to Mr. Robert
Stone, counsel to the New York State Department of Edicat ion,
questioning the policy set forth in the Bardo opinion (see appelndix
2). By a letter of July 6, 1976, Mr. Stone advised the collmlittee that
effective August 31, 1976. the commissioner of education and board of
regents had amended the commissioners regulations so as to rescind
the Bardo opinion. The amended regulations prohibit the use of either
gross or net income as a basis for leasing arrangements for space and
other services between landlords and any licensee in the 13 health pro-
fessions in the State of New York (see appendix 2). They also state
that any health professional who has a financial intcr st in a per-
centage leasing facility is subject to unprofessional conduct charges.
Any professional violating the new regulation is subject to discipli-
nary action by Education.
The committee staff believes this change in policy is long overdue
and that it may provide the first major leral inroad against Medicaid
mill operations, if properly comnmunicated to and implemented by the
appropriate State and local agencies.
In June 1975, the New York City Department of Health attempted
to attack the percentage lease problem and to generally gain regula-
tory control over the "shared health facilities." Such facilities cur-
rently are not subject to regulation by the State or city since they are
not included in the definition of "clinics" in the public health law
(see article 28, section 600.7). The only regulation is over the indi-
vidual professionals at the facilities in their capacity as Medicaid
providers.
The city attempted to regulate these facilities by amending its local
medical plan with item 230 by requiring registration of all such facili-
ties with the city and a variety of prohibited practices and administra-
tive requirements, including a prohibition on percentage leases of any
type, a requirement that all leases be in writing, and access of the city
to all records of the providers.
The Association of Health Care Facilities, Inc., successfully received
a temporary and then permanent restraining order prohibiting im-
plementation of item 230. The case is now being appealed by the
city.
In the opinion, the judge stated the paying of a sum equal to a per-
centage of the physician's gross income "is neither illegal nor unethi-
cal" and that such practice "has long been recognized as legal, proper
and ethical in many professions and businesses." However, the opinion
made no reference to the AMA judicial council's rulings or the limits
of the Bardo opinion. Furthermore, in the transcript of the case.
argued in July 1975, the judge specifically stated that he was not con-
cerned with the AMA's opinion on percentage leasing.
The judge did say that the plaintiff association and its members
who designate themselves as "health care facilities" "would be well
advised to change their names and their signs on their buildings." He
did not pass upon the right of the city "to seek an injunction restrain-
ing the use of the words 'health care facilities' or 'medical clinics' by
those not conducting such facilities or clinics."






70


CASE EXAMPLES: MERMAID, PARSONS, AND MEDICAL FAcILIrES, INC.
The item 230 court case revealed three case examples of typical
facility operations of two coplaintiffs with the association (Parsons
Group, Inc., and Mermaid Medical Building Realty Corp.) and the
operation of the association's president (Medical Facilities, Inc.)

MERMAID
Mermaid owns a building at 3108 Mermaid Avenue (Brooklyn,
N.Y.) which is called "Community Medical Clinic." At various times
since its opening in June 1974, there have been between 10-14 medical
professionals leasing space and services in the building. As of July
1,975 there was a surgeon, chiropractor, dentist, podiatrist, phychia-
trist, neurologist, dermatologist, radiologist, pediatrician, dentist, and
pharmacist. Initially all held individual oral leases on a fixed rental
basis, but 6 months after the "clinic" opened they were changed to oral
leases based on an average of 25 to 35 percent of the individual prac-
titioner's gross income. In return, Mermaid supplies each practi-
tioner with a private office, shared use of waiting rooms, laboratory,
custodial help, central maintenance of records by a Mermaid employee,
and a "clinic" administrator paid by Mermaid. An estimated 600-800
patients come to "clinic" each week and 85 to 90 percent of all the pro-
viders' income at the clinic is from Medicaid. The building owners
state that they exercise no control over the individual practices of the
medical professionals.
The building is owned by Mr. Cyril Sack, president, and Mr. George
Greene, secretary-treasurer, who are the only officers and sole share-
holders of Mermaid Medical Building Realty Corp. Mr. Sack states
that he is at the "clinic" from 9 a.m. to 6 p.m. daily and receives no
salary from the Realty Corp. He gave no information as to Realty
Corp.'s annual income or his or Mr. Greene's gross or net share of
said income. Mr. Sack said his capital for the realty venture was de-
rived from personal savings.
Mr. Sack said his income is derived from ownership of four phar-
macies. Mr. Sack is not a registered pharmacist, according to the court
papers, and did not divulge his income as an owner of the four phar-
macies. However, data provided to the committee staff by the State
department of education indicates that Mr. Sack was a licensed phar-
macist in New York State until 1975, at which time the State board of
regents revoked his license for unprofessional conduct. He admitted
that three of the four pharmacies are located in Medicaid clinics (in
Bronx and Brooklyn) and one is an independent retail store.
One of the pharmacies is located in the "clinic" on Mermaid Ave-
nue. It is owned by the "3108 Mermaid Drug and Surgical Corp.,"
whose officers are Mr. Sack and a Mr. Franklin Sack. Neither man is
a registered pharmacist and they employ pharmacists at the Mermaid
and other pharmacies. Mr. Cyril Sack stated he receives a salary of $400
per week (approximately $21,000 per year) from the Mermaid phar-
macy. This is exclusive of any salaries he draws from the other
pharmacies, his income as an owner of the Mermaid and the other three
pharmacies, and his income as president of the Mermaid Realty Corp.








Mr. Sack provided no information on these potential or actual income
sources and did not indicate whether lie had a property i11telst in
the other two "clinics" where two of his other pharniacies are located.
Mr. Sack said the Mermaid pharmacy "fills most of the prescri)-
tions written by the doctors in the building and pays the realty cor-
poration a rental of 20 percent of its gross income."
Mr. Sack said the providers in the clinic use the Clarendon Labo-
ratory, but did not indicate where the lab was located, or if lie (Sack)
had any direct or indirect financial relationship with the laboratory.

PARSONS GROUP, INC.
Parsons Group, Inc. (hereinafter referred to as "the group"), is
the primary lessee of a building at 88-01 Parsons Boulevard in Ja-
maica, Queens. The "group," which began operation in 1972, in turn
sublets individual private office space to about 30 physicians. There are
currently 21 offices in the building for the 30 physicians. One office is
a dental office operated in partnership by three dentists who employ a
fourth dentist. All physicians are Medicaid providers. The sign on the
outside of the building does not list any specific names of physicians.
Each sublessee has an oral lease with each physician at an average
rental of 40 percent of the physician's gross income. According to Mr.
Thomas Panebianco, an attorney and president of both "the group"
and the 8801 Parsons Corp. (which owns the property), said that the
lowest percentage lease is 35 percent and the highest was 60 percent
charged to a radiologist. Mr. Panebianco maintains a law office five to
six blocks away from the building (146-08 Hillside Avenue) and the
individual providers' Medicaid payment checks are mailed by the city
to either the 88-01 Parsons Boulevard address or Mr. Panebianco's
law office address. Mr. Panebianco did not state whether he operated
as a "factor" for the providers-factors usually receive a 12 to 15 per-
cent commission on the providers' Medicaid income-or provide any
data on his financial remuneration from "the group" or the realty op-
eration. He also gave no information on other officers, partners, stock-
holders or other beneficiaries involved in "the group" or realty op-
eration.
In return for their rental the providers receive individual office
space, shared waiting room facilities, custodial staff and administra-
tive support services from "the group." There are administrative offices
on the premises and a clinic administrator employed by "the group."
Among other duties the administrator places ads in newspapers to
lease space and selects the lab to be used by all of the providers in
the building. The lab used is Biostat Laboratories. No further data
was provided regarding the laboratory's relation to "the group," the
realty corporation, any of the providers, or Mr. Panebianco.
There is a "3653 Broadway Pharmacal" located at the 88-01 Parsons
Boulevard address. While the phone number for "the group" is dif-
ferent than for the pharmacy, the receptionist for both phone numbers
answers, "Good afternoon, Parsons." No further information is avail-
able regarding the pharmacy, although it appears to be the pharmacy
used by most, if not all, providers at 88-01 Parsons Boulevard.






72


MEDICAL FACILITIES, INC. AND THE ASSOCIATION OF HEALTH CARE
FACILITIES, INC.
The founder of the association was Mr. Owen McCormack who
originally incorporated the association in October 1974 as a not-for-
profit corporation. In court testimony in July 1975, Mr. McCormack
said the association was originally formed to deal with a union (Local
143) which was trying to organize at Mr. McCormack's facility (Medi-
cal Facilities, Inc. in Bronx) and several others. Mr. McCormack esti-
mates the association currently has 70 members who owned among
them approximately 123 facilities.
Mr. McCormack was a public relations and public affairs representa-
tive before opening Medical Facilities, Inc. (MF) in 1969. Medical
Facilities is located at 481 East Tremont Street, Bronx, N.Y. Mr.
McCormack serves as president and treasurer and Mr. John Faux is
secretary.
Medical Facilities leases space to physicians under oral leases based
on 40 percent of the provider's gross income. A radiologist pays on a 60
percent basis. Mr. McCormack said all leases were originally written,
but in 1971 they were changed to the oral form and he simultaneously
instituted a central recordkeeping system. He gave no further details
as to the providers at or operation of Medical Facilities.
Mr. McCormack also said he owns and operates a pharmacy and
has a residence at the same address as Medical Facilities.

DENTAL EQUITIES, INC.
One classic case of the entrepreneurial aspect of "Medicaid mills" in-
volves two dentist brothers, Alan and Howard Cohen, who set up a
corporation called Dental Equities, Inc., in 1968. The corporation's
aim was to find buildings in ghetto areas which could be converted into
dental practices so as to take advantage of the high concentration of
Medicaid recipients in such areas.
On July 12, 1968, Dr. Alan Cohen sent out a letter to some dentists
in an apparent promotion campaign for Dental Equities. It read, in
part:
Your earning potential since the advent of Medicaid has
been dramatically increased. We can help you realize that po-
tential. Success and financial security are more readily avail-
able than you might think.
We will furnish you with your own fully equipped modern
dental office. No capital investment is required. We would like
to meet with you to discuss our "unique arrangement."
At the heart of the "unique arrangement" was a lease rider which
bound client dentists to hand over a percentage of their gross to Dental
Equities on a scale ranging from 20 percent of the first $200,000 and
ran to an additional 10 percent on income over $300,000 a year.
The Cohen rider also included one way for the dental client to es-
cape from its terms: "In the event the existing Medicaid program is
terminated, or if the program terminates treatment of dental patients
for general dentistry in private offices, the tenant may cancel and termi-
nate this lease."
Initially, response was excellent. Dental Equities filled about a dozen
properties . providing space and equipment. The Cohen rider also







commanded that the tenant dentists surrender full access to their 101ok
so Dental Equities could insure it was not being shortchanged.
In late 1968 or early 1969, an investigation was I)egull by the State
department of education to determine if the graduated scale lea e
arrangement constituted fee splitting. On August 6G, 1969, the counsel
for the State educat ion department, which regillates suich nlatt ers.
ruled that the lease had not run afoul of the law and mental Equities
was permitted to continue in business. As previously note(l, th(e Ameri-
can Medical Association has formally held the percent age lease prae-
tice to be unethical for physicians. "If this isn't fee splitting, it's fee
splitting's cousin, Said an AMA spokesman. But as a Dentist Cohen is
not subject to A.kMA sanction and dental professional grroups have
adopted ethical standards less rigorous than the AMA's.
Also the AMA's ethical standards on fee-5l(ittini, as Iotedl arl ier
are basically not recognized or implemented by professional societies
or State agencies in New York. As of August 1974 l)ental Eqtites
still owned three such properties.
The Cohen brothers are also involved in ownership of a Medicaid-
dependent methadone clinic, dental practice, and factoring company
all in Bronx. These are discussed in greater detail in the section of
this report on "Methadone, Maintenance."

F. METHADONE MLANTENA-NCE
Another major area of Medicaid fraud and abuse is methadone
clinics. These clinics have some unique characteristics, but also share
all the problems of fraud, abuse, and excessive third-party interven-
tion which the committee has uncovered in Medicaid mills.
An estimated $30 million in Medicaid moneys a year is sI)elnt on
methadone maintenance in New York City for approximately 3,-000
clients in privately operated clinics. Of these moneys, approximately
$18 million goes to "non-profit centers" (i.e., city clinics and hospitals)
servicing 22,000 patients and the remaining $1'2 miillion iroes to private
clinics servicing approximately 11.000 patients. The private clinic
share constitutes about 55 percent of all persons in all methadone
clinics in New York City and almost 45 percent of all expenditures
and 40 percentt of all MA expenditures for such operations. The Medic-
aid payments for private clinics go directly to individual MA pro-
viders since they operate the clinics and bill Medicaid under their
name.
Methadone clinics in New York State are qfl)ject to requirements
issued by two Federal agencies (National Institute for Drug Abuse
and the Drug Enforcement Administration) three State agencies
(Office of Drug Abuse Services, Department of Health, and )epart-
ment of Social Services), and three local agencies (Health, Social
Services, and in New York City, the Addiction Services Agency).
Methadone clinics are reimbursed either on a "fee for service" basis
or a Medicaid rate established on overall program costs. In the latter
case, the program must meet all establishment standards of the Public
Health Council (art. 28, Public Health Law) aid their reimburse-
ment rate is set by the Health Depaitment's Bureau of Health Eco-
nomics in the same manner rates are set for nursing homes. There
are between 15-20 "fee for service" clinics in New York City. All are


75-902 0 76 6






74


privately operated and receive reimbursement at the rate of $4 per
patient visit. A $6 average per patient visit rate applies to private
clinics outside the New York City area.
A total of approximately 116 non-proprietary clinics in New York
City receive the article 28 rates which range from $8-$20 per patient
visit. Approximately 39 are operated by the City itself, 8 under direct
State operation (Office of Drug Abuse Services (ODAS)), and 69 are
"public-non-profit." Of the 69 "public-non-profit", most are operated
by hospitals with another 9 operated by the Addiction Research and
Treatment Corporation (ARTC) and one by Narco Freedom, Inc.-
a "not-for-profit" corporation located at 2780 Third Avenue, Bronx.
THE MARY SCRANTON CLINIC
In fact, the highest billing Medicaid physician in the nation is
Dr. William Triebel who received $857,000 from Medicaid in 1974
for operating his Mary Scranton Clinic in New York City. Dr.
Triebel's billings for the clinic's main office at 205 Second Avenue alone
were $451,156. The Mary Scranton Foundation, Inc., a "not-for-
profit" entity, is the parent organization and also operates clinics at 2
other New York City locations-400 East 77th and 2 West 116th
Street. The total Medicaid billings for the three Scranton clinics in
1974 was approximately $857,000, and is now estimated by committee
staff to be at least $1 million a year.
The Scranton operation began in 1970 and was founded by Dr.
Triebel, a Manhattan psychiatrist, who named the operation after his
mother's maiden name. Triebel and his wife are 2 of the Foundation's
5 trustees and two of the three trustees who derive income from the
clinics. Triebel also maintains a separate private psychiatric practice
while remaining a trustee of the Foundation and director of the Sec-
ond Avenue clinic. Despite numerous audits and other investigations,
finding violations of State and Federal regulations at Dr. Triebel's
clinic, he has yet to be penalized in any way by ODAS, Medicaid, or
any law enforcement authority. The committee staff notes with irony
that on August 20, 1976 the State Health Department announced that
Dr. Triebel made restitution of $320 for double-billings detected by the
department. The $320 is equivalent to .4% of Dr. Triebel's 1974 Medic-
aid income of $857,000.
In 1974, there were seven other operators of private methadone
clinics whose Medicaid billings were over $100,000-ranging from
$131,000-$282,000. According to HEW statistics, these eight metha-
done clinic operators alone represent 15% of the 55 New York State
physicians who received $100,000 or more from Medicaid in 1975.
THE NARCO FREEDOM CASE
In the case of Narco Freedom, the Public Health Council did not
approve the program for article 28 establishment until 1974. The pro-
gram had a record of serious deficiencies based on prior ODAS re-
views; its first Medical Director, Dr. Evaldas Deckys, was convicted
for illegal sale of dangerous and narcotic drugs while on the facility
premises; the succeeding Medical Director, Dr. Roger Tarter, was
convicted on charges of writing false prescriptions for methadone
and demoral and using the demoral for himself-ultimately resulting
in an improper injection and the amputation of two fingers on his






75


right hand. Dr. Tarter ultimately received a suspension of his doctor's
license by the State Education Department, but the suspension was
itself suspended to a three-year probation period. Dr. Tarter is still
the Medical Director for Narco Freedom which received the fourth
largest amount of Medicaid funds for all methadone clinics in the
city ($571,459 in Fiscal Year 1975), and is the director of a Federally-
funded "drug-free" clinic at (1oney Island IHospital.
Narco Freedom received its initial article 2S reimbursenent rate
in 1975 at approximately $9 per patient visit. Prior to 1975, Narco
received the $4 rate on "fee for service" basis. In auditing the facility's
submission the State Health Department disallowed nearly 50% of
all claimed reimbursable items before arriving at the $9 rate. The
health department's audit also found that approximately 62% of all
the facility's expenditures ($402,800 of 647,500) went to "salaries
and wages."
Nearly 14% of the overall expenditures and 233% of all "salaries
and wages" expenditures went for the salaries of three officers of the
corporation which runs the facility:
1. Dr. Roger Tarter (president of corporation) received $25,000 as
"medical director" on a part-time basis (15 hours/week) while simul-
taneously holding a position as "full time" director of a "drug-free"
program at Coney Island Hospital;
2. Dr. Alan Cohen (executive vice president) received $35,000 as
"program administrator". In 1973 Dr. Cohen was the 30th highest
billing dentist in the City's Medicaid program. He received $141,270.51
in 1973 with his dental office being in the same building, listed as a
different address, as Narco Freedom (487 Willis Avenue).
3. Dr. Howard Cohen (vice president) received $30,000 as "pro-
gram coordinator". Dr. Cohen is also a dentist, the brother of Dr.
Alan Cohen, and also was a high biller as a Medicaid dentist in
partnership with his brother through 1972.
Narco Freedom also paid an additional 3% of its overall expenses
($22,300 of $647,500) for "professional consulting fees", "advertis-
ing and public relations", and "accounting and legal". Included in
these fees were payments to the other four board members of Narco
Freedom (Melvin Rubin, Secretary-Treasurer, as accountant to the
program and Jerome Gordon, Jerome Disson and Francisco Lugarina
as consultants). Mr. Dissoti also operated two high-billing Medicaid
pharmacies in the Bronx.
Narco Freedom's billing is handled by Lirode Service, Inc., a factor-
ing company. The only two stockholders in Lirode are Alan and
Howard Cohen and Lirode's four directors include the two Cohen
brothers and two other members of their family.
Dr. Alan Cohen also still controls Dental Equities, Inc. which was
established in 1968 to lease property and equipment to dentists in
ghetto areas who wanted to open a Medicaid-oriented practice. The
Dental Equities leases gave the company a percentage of the dentists'
gross fees on a scale ranging from 20%:c of the first 200,000 up. Dental
Equities had eight such leases at its beiht and still had three leases
in effect as of late 1974. (see section E of this part.)
The Cohen brothers also own the 487 WillisAvenue property -where
their dental office is located. They also le.se space in that building to
A&S Dental Labs and to Dr. ",amshid Sheik-both recipients of
Medicaid funds.






76


G. FRAUD AND ABUSE BY MEDICAID PRACTITIONERS
OTHER THAN THOSE WORKING IN MEDICAID MILLS
While fraud seems to be particularly abundant in Medicaid mills,
there is also a significant amount of fraud and abuse among other in-
dividual practitioners participating in the program. Below are exam-
ples taken from files of Federal and State agencies.

1. CHIROPRACTORS
In 1972, a Brooklyn chiropractor billed for 12 visits in less than 1
month for a patient who denied ever seeing the physician. Another
Brooklyn chiropractor was indicted earlier this year and charged
with submitting billings for treating people who were dead, for men
in prison, for people who have been homebound for more than 5 years,
and for children under the age of 5 he had never seen.
A Detroit chiropractor, not allowed to dispense medicine or give
injections under Michigan law, was charged last year with nine counts
of Practicing internal medicine without a license.
In 1975, a New York chiropractor was indicted for entering false
dates and false statements on Medicaid invoices, both for patients
he had not seen and for patients he had seen only once. Those patients
he did see were billed for many more treatments-up to 15 times as
many as were actually administered. The chiropractor confessed that
at least 50 percent of his invoices were fraudulent.
In 1974, two chiropractors who billed the New York City Medicaid
program in excess of $300,000 were charged with fraudulently billing
Medicaid for patients never seen, billing for more than 100 Medicaid
patients a day, billing Medicaid for patients seen by other doctors,
and billing for two or three visits by the same patient in a single day.

2. DENTISTS
In 1969, a New York dentist was indicted on 471 counts which in-
cluded submitting invoices for services never received, soliciting sig-
natures on invoices before the work was performed, forging patients'
signatures on invoices, billing repeatedly for the same service includ-
ing several sets of false teeth for the same patient, and billing for the
work performed by another dentist. The litany also included: Broken
or ill-fitting bridgework, filling and extracting the same tooth, and
billing twice for the same extractions. Ultimately, the dentist received
a 90-day jail sentence of which he served 70 days. He was reinstated
in the Medicaid program.
Another New York dentist recently developed a technique for get-
ting around New York's requirement of prior approval for major
dental work. Before he was discovered by authorities, he was drilling
holes in perfect teeth and X-raying the teeth with the newly created
cavities. The X-rays were kept to justify the fillings which the dentist
then installed in the once-healthv teeth.
Earlier this year a Maryland dentist was charged with 74 counts
of filing Medicaid payments under false pretenses. In one instance, he
claimed he had extracted 38 teeth from one patient. The average adult
has only 32 teeth. He had been billing the Medicaid program for more
than $200,000 a year.






77


In Illinois last year, a professor of dentistry was asked to evaluate
the billings submitted to the Illinois Departmnent of Public Aid by( a
high-volue Medicaid dentist. This is what the professor concluded:
Obvious fraud on the part of the recipient was (iscovered
in approximately 20 percent of all I)PA forms. The IDPA
was billed in excess of $6,000 for professional services which
were possibly not rendered, double and triple billing, and
very questionable dental treatment.
Specific acts of fraud are listed:
(1) Extraction of a tooth on a Monday. On Tuesday the
State was billed $40 for the placement of two plastic fillings
on the tooth that was extracted.
(2) Form No. 134 would indicate a filling on tooth No. 7.
A second, third, and a fourth form No. 134 on different dates
would indicate the same filling on the same tooth. This viola-
tion was the most common.
(3) Five permanent fillings would be placed on a tooth on
a given date. Within 1 to 2 days a stainless steel crown was
inserted on that specific tooth. Total cost : $130.
(4) In a 1-week period 43 fillings were inserted on one pa-
tient for a total billing to the State in excess of $900. The
type of filling material utilized on specific teeth is extremely
questionable.
(5) Treatment of the six anterior or front teeth, maxillary
and mandibular. It would be extremely easy for the dentist,
without difficulty, to insert up to 60 fillings in 12 teeth with
total billing to the State of $1,200. From a professional view-
point, the involved dentist, without doubt, inserted fillings
into specific areas of the anterior teeth that were not indi-
cated. An anterior tooth needing five fillings is an extremely
rare occurrence. An isolated case, yes., but not literally hun-
dreds of patients. If, in fact, these were his professional find-
ings, I suggest he write a scientific paper and publish it in a
dental journal. It would make dental history!

3. PHvYSICIANS
A New York physician last year was charged with spending less
than 3 hours a day in his office and vet billing the program for more
than $150,000-a rate approaching one patient every 2 minutes.
A Michigan doctor in 1975 was charged with billing for work not
performed by an unlicensed practitioner, including diagnosis and e
scribing treatment.
A New York psychiatrist who ran a methadone clinic which w"a
described as a "factory" was charged with distributing methadone
indiscriminately to anyone possessing either a Medicaid card or cash.
Another New York psychiatrist was charged with bupgiading" his
counseling sessions, billin.4 the program for an hour's counseling when
the sessions had. in fact, lasted some 15 minutes.
A third psychiatrist billed, at a rate higher than that allowed by
the pro-aram. for an inordinate number of single visits and as many
as 19 patient-hours a day.
Three psychiatrists in Nassau County, N.Y., last year billed for
more than $100,000 in fraudulent treatment, including 50) patients







they never treated, a number of others they had never seen, -and for
treating a woman who was dead.
A Michigan physician was charged with "family ganging," billing
for excessive services, billing for as many as 140 home visits a day,
and billing separately for as many as 8 or 10 recipients at a given
address.
A New York physician in 1975 billed for as many as 150 Medicaid
patients a day (in addition to another 150 private patients he treated
each day), upgrading second and subsequent visits and billing for as
many as 97 percent of his services at a higher rate.
In 1975, a New York physician, who has consistently been among
the highest billers in the city, billing for more than $100,000 for each
of the last 4 years, was charged for billing up to 80 methadone detoxifi-
cation cases, even though department of health guidelines limit the
number that can adequately be treated to 25.
A Michigan doctor, in 1974, was charged with overbilling more than
$800,000 over a 2-year period, including services not performed and
EKG's, X-rays and lab work not documented in the patients' records.
A Washington State physician was charged in 1975 with steering
patients to a particular pharmacy, indicating it was the only place
in town the patient could get a particular medication.
A second Washington physician was charged with issuing dupli-
cate narcotics prescriptions to patients last year.
A Michigan physician was charged with billing for work performed
by unlicensed physician assistants and medical assistants. The more
than 80 unlicensed providers he hired billed Medicaid $5 million
in fiscal year 1973-74.

4. PODIATRISTS

A Port Washington, N.Y., podiatrist billed for seeing 50 or more
patients a day, more than 15 beyond the established quality care line,
billing for 60 toe j ackets in one day (an average practitioner does
about 4), X-raying two-thirds of new patients (the guidelines are
about 40 percent). In addition, the department of health determined
that 90 percent of the castings performed were unnecessary.
A New York City podiatrist in 1974 was charged with billing the
city for hundreds of shoe molds, prescribed, but not delivered, excessive
use of injections and X-rays, and double billing Medicaid for patient
treatment.
A Manhattan podiatrist was charged with billing Medicaid for toe
slings, for seeing patients at a rate exceeding many times the average
podiatrist's practice, excessive padding and strapping, and employing
mass-made appliances but billing for custom-made.
In 1975, a Brooklyn podiatrist was charged with consistently ex-
aminin! all members of a family despite the fact that only one mem-
ber had sought treatment. He was also charged with requiring patients
to return when the diagnosis did not warrant it.
5. OPTOMETRISTS AND OPTICTANS

On July 14 of this year, the Chicago Tribune reported the fraudu-
lent practices of optometrists and opticians participating in the Il-
linois Medicaid program. Among the findings of the Tribune investiga-
tion are:






79


The State I)epartment of Public Aid paid for 2h pairs of
glasses for one yoing M(icaid patient within tihe space of
6 months.
Vie Illinois D)epartment of tiiblic Aid is so inefficient in
monitoring its payouts that five optonitrists and two ol)t ical
companies were able to collect $1,2.3,5.40 during a 7-iin Imnll
period for a- visits to eve care specialists by a seven-iimemIer
public aid family. The fainilv says it never received the serv-
ices or the rlasses.
In one instance, an optometrist was paid $2) for an eve
examination he said lie had performed on a west side welfare
recipient who had died 1 month before. In another case.
an optician was paid ,29.5 for a pair of glasses issued to a
nursing home resident who had died 21 days before.
The Public Aid Department paid eye care vendors for
services to persons who had gone off the welfare rolls, or
whose addresses were checked out by reporters to vacant lots
and even the Chicago River, or who were unknown to apart-
ment building landlords.
Names of hundreds of welfare recipients who told the
Tiibmne they never had been to an eye doctor in their lives
were sent to Springfield on the blue paper billing forms for
payment.
The practice of filling out the blue forms with names of un-
treated relief clients was so widespread that the investigators
came to refer to the whole fraudulent operation as the "Blue
Paper fraud."
When a resident of the Robert Taylor Homes went to a
nearby optical center to have her glasses prescription filled,
the optician issued her three pairs, telling her she should
always have extra pairs for emergencies.
A Harvey mother and her nine children were given three
sets of glasses, each within a year's time, because the mother
said, "The glasses kept falling off our faces."
Hundreds of relief clients who actually sought and obtained
glasses complained to investigators that the glasses were
cheap, kept breaking, and in some instances were nothing
more than "window glass."
The investigators found the 871 individuals who claimed
they never had received the services for which optometrists
and optical firms were paid were named on bills submitted by
the following practitioners during the period between Jan-
uarv 1, 1975 and April 30, 1976:
R. B. Optical Co. owned by Romero Bernales, with 32 in-
dividuals who claimed no knowledge of its billed services:
his wife, Lolita Bernales, 26 individuals: Jerome Brotman. 67
individuals: Norman Brotman, his brother, 56 individuals:
Crown Optical Co., 19 individuals: George W. Davis, 36:
Samuel A. Dorsey, 113; Bruce Fogel, 74: Ford Optical, 18:
Fullerton Optical, 81; Neilan Jacobs, 38: Orillaza Optical,
209; Harold Seldin, 37; Henry Sikora, 42; and Suico Optical,
23.
These persons and firms collected a total of $1,223,768 from
the Public Aid Department in 1975, and through April 1976,






80


have received another $559,387 in payments, some of which,
of course, may be legitimate.

6. PHARMACIES
A Brooklyn pharmacist was indicted last year and charged with
selling amphetamines and barbiturates without a prescription. He was
charging $0.75 to $1.50 a pill.
A second pharmacy was charged with forging prescriptions; 20
of 160 prescriptions checked by investigators were forged. Another
58 were upgraded from over-the-counter drugs to more expensive
con pounds.
This year, three Manhattan pharmacists were charged with issuing
sychotropic drugs with overlapping prescription periods, substitut-
ino generic drugs, and double billing Medicaid.
In 1974, a pharmacy in Twin Falls, Wash., was charged with falsi-
fication of billings and billing Medicaid for drugs the Veterans' Ad-
ministration provided free of charge.
A pharmacy in Yakima, Wash., earlier this year was charged with
double billing, false billing, and other illegal acts.
A pharmacy in Ellensburg, Wash. was charged with dispensing
drugs to recipients without a prescription from a physician.
H. SUMMARY: AN IN-DEPTH LOOK AT AN ONGOING
MEDICAID MILL
In our examination of Medicaid mills, we have determined that such
facilities are uncommonly profitable. On average, a practitioner will
pay from 30 to 40 percent of his income as rent; he will lose 12 percent
of his income to the factor and, in most cases, be asked to divide the
remaining net 50-50 with a mill owner. The State of New York's rec-
ords (particularly even more to the point, the records of the City of
New York) are such that it is difficult to be precise. But it is clear that
at least half of the amount paid to doctors and other practitioners
working in mills does not go for the provision of services but, rather,
is bled off in factoring charges, kickbacks, rent, and "finders fees."
From the point of view of the Congress and the taxpayer, the expendi-
ture of money in this fashion is clearly wasted. In addition to these
"wasted" sums must be added the fraud and abuse which, it is now
apparent. riddles the Program. All in all, it is apparent that less than
ove-third of the millions flawinq through Medicaid mills goes for the
purpose for which it was intended: the provision of health services for
the poor and elderly.
Equally apparent, is the fact that the ounlity of medical care ren-
dered in the great majority of these establishments is minimal.
The following in-depth analysis of one Medicaid mill is provided
to summarize findings previously discussed separately.
The facility is located at 80 Delancy Street on the lower East Side of
New York and is called the 80 Delancy Medical Center. This center has
billed the Medicaid program for more than $1 million each year since
1972. It's medical facilities are on the second floor of a six-story bui-ld-
ing and consists of a small pharmacy and a number of small examining
rooms where as many as 20 practitioners have been employed at the
same time. A photograph of the facility is shown on page 81.










lr~jO-A


nM-






82


The history of abuse at 80 Delancy is extensive, involving the phar-
macy, individual providers, and the facility itself, which has been con-
sistently singled out by the City Health Department for specific
violations of the health code.
As an example of the difficulties encountered with this facility, the
following excerpts are taken from a report prepared by the health de-
partment after a detailed audit (visit) by a team composed of a
doctor, a dentist, a registered nurse, and a health department investiga-
tor. The report is dated July 17, 1973. Their findings were as follows:
(1) Sanitary inspection.-In general, there is good lighting
and ventilation. However, the following health code violations
are in evidence and require immediate correction:
(a) Indequate handwashing facilities.
(b) No handwashing done between patients.
(c) Some littered floors and bathrooms.
(d) Exposed rheostat wiring in podiatry room.
(e) Encrusted handwash sink in lavatory adjacent to wait-
ing room.
(f) No soap or single-servi e towels in lavatories.
(g) Uncovered waste receptacles.
(2) Dental audit.-The dental facilities are pleasant, large,
and airy. The offices are fully equipped and well staffed. The
only problems are:
(a) There is no appointment book. An appointment book
should be maintained for the provision of adequate followup
care and the reduction of patient waiting time.
(b) Pre-op X-rays, diagnosed and charted by staff den-
tists, are not examined by Dr. Alan Rosen prior to treatment.
Given the fact that all of the billing is being done in Dr. Ros-
en's name and he is thus responsible for the quality of the
work being performed, it is strongly suggested that he be at
least doing random checks of these X-rays.
(3) Physician's audit:
(a) The radiologist, Dr. Max Rakofsky, has some films
that defy interpretation. Since most of his films are of good
quality, it is difficult to understand this dichotomy. Non-
diagnostic X-rays may be harmful to patients. Nondiagnostic
X-rays are not reimbursable by Medicaid.
(b) On May 1, 1973, Dr. Sholom Shakin was audited by Dr.
Howard Katz. Although his records were found to be basi-
cally good, it was noted that SMA-12's, CBC's, and urinal-
yses were being ordered indiscriminately. Also, while it may
be sound and reasonable practice to order chest X-rays on all
new patients, according to our guidelines EKG's on patients
under 40 years of age should not routinely be performed
unless warranted specifically by diagnoses. There was a fur-
ther problem in that followup visits were billed for on a
first-visit basis in Dr. Shakin's name. The administrator,
Dr. Kolman Brown, indicated that this was a secretarial
error and that he would rectify the situation. Such errors
must not reoccur in the future.






83


(4) Managerqel report :
(a) Inadequate priNvacy in the allergist s (I)r. Johii Mc-
Govern) examiiinigf room. P atieits were conrregated outside
of the examining room, which was clearly open to view.
Within the room, one patient wvith her iIblouse off was heing
examined while two RN's were administering injections to
the patients streaming through. This is inhuman stockyard
treatment. A patient must receive adequate privacy during
anyN examination and/or t reatment.
(b) Referralh; should be recorded in the (lay book.
(c) There are no patient profiles in the pharmacy for in-
dividual patients or families. As of May 1, 1973, a)atient
profile was made mandatory at all pharmacies in or adjacent
to medical centers. A pharmacy investigator vill make a site-
visit in the immediate future to check on the implementation
of this requirement.
APULITZEE PRIZE WINNING SERIES IN TIE NEW Y()RK IAILY NE:WS
The facilities and practitioners at 80 Delaney were discussed in
detail in Reporter William Sherman's Medicaid 'probe series for the
New, York ['ally News. In January of 1973. Sherman posed as a Medic-
aid beneficiary and sought treatment in many Medicaid mills, in-
cluding 80 Delancy Street.
In the fifth of his 12-part series, Mr. Sherman described the Del-
Med Pharmacy, stating:
The pharmacy in the Delaney Medical Building is only a
counter in the second-floor hallway. And behind that, a room
with some shelves and a small working area for mixing pre-
scriptions. But last year, out of that small one-man operation
at 80 Delancv Street, came $95.000 worth of Medicaid billings.
The business was generated from a large group of doctors,
dentists, podiatrists, and other specialists who rent space on
that floor and cater exclusively to Meldicaid clients.
In all, that center, which features a color television and a hot
coffee machine in the waiting room, will generate more than
$1 million in Medicaid billings this year.
Sherman went on to say:
An investigation [of the Del-Med Pharmacy at 80 Delancy]
showed that urescri)tions w ere bromirht to tie )harmacv bv
attendants of the medical center. A sample survey of 15 pa-
tients showed eizht discrepancies. including bills for twice
the amount of the medicine actually dispensed. The investiga-
tion also revealed that o.eneric (lrugs are l)eing sulstitlte(l for
brand name (Irigs and billed for under the more expensive
brsnd names.
The owner of the Del-Med Pharmacy told the Dr;/*/y AYirx,
that he rDaid 413.200 in rent a year for that closet--ized space
located in the hallway.
In his sixth report, dated January 31. 1973. Mr. Sherman told of
visiting the podiatrist at the 80 Dela'ney Medical Bifildin,. Mr. Slier-
man said he found that bills and X-rays came first. before lie even
took off his socks and shoes. Mr. Sherman descri!e(d the process as
follows:






84


At the Delancy Medical Building, 80 Delancy Street, the
patient was ushered into a small room on the second floor
where a young receptionist took his Medicaid card, began
filling out an invoice, and then said, "We are going to X-ray
your feet."
"But I want to see the podiatrist," insisted the patient.
"He's busy; go into that room for X-rays," she ordered.
"You haven't asked me what is wrong yet; nobody has
even seen my feet," he argued.
"It doesn't matter," she said, "the city requires that we
X-ray everybody's feet before we see them." The patient
refused and a health department podiatrist said later that
it is absolutely ridiculous to X-ray someone's feet before you
examine them. More important, it is unhealthy to expose
someone to radiation unnecessarily..
When the News reporter refused the X-rays, the recep-
tionist, Maggie Rivera, brought in podiatrist Neal Blatt who
said he was sitting in for someone else. Blatt examined the
patient's feet, noted a slight rash on the left foot, sprayed
the foot, rubbed some ointment on, bandaged the foot heavily,
and wrote out two prescriptions.
The treatment took 5 minutes. Such examinations usually
cost the city $5.25, according to the standard Medicaid fee
schedule. Including the bandaging and the prescription, the
bill would total about $15.
The man Blatt was sitting in for was Jay Rosenberg, and
health department records show that he earned $69,611 in
Medicaid funds for 1971. During the first 6 months of 1972,
lie billed for $43,986, an increase over his previous year's
earning rate. That figure made him the highest billing podia-
trist out of 702 practicing in the city last year.
A health department investigation of Rosenberg's practice
showed that on many occasions he was seeing more than 50
patients a day. Department podiatrist Benjamin Watkins
maintains that 35 patients per day is the maximum a foot
doctor can see to insure quality care.
Rosenberg, records show, also billed for 60 toe jackets
during 1 day's practice. Toe jackets cost the city $11.20 each.
They are made from a plaster cast of a toe, consist of mole-
skin, and. fit over the toe like a miniature sock. The average
podiatrist, Watkins said, rarely makes more than four toe
jackets a day. The jacket is used, in rare cases, to prevent
severe friction or to protect an arthritic or deformed joint.
Some of Rosenberg's patients, the investigation revealed,
complained that their toe jackets collapsed in a few weeks.
The department found that Rosenberg was using polyfoam
for the jackets instead of moleskin.
Rosenberg agreed to make a restitution of $6,000 to the
city and a short suspension from the Medicaid program was
imposed.
RELATIONSHIPS
The Medicaid mill is owned by a corporation, Del-Med Service Co.,
Dr. Coleman Brown, 805-215th Street, Bayside, New York, president.






85


ie has owned tie facility since 1969.having thought out one Edward
Cohen of Lawrence, Long Island. 'lie building, acCOT-ding to available
records, is owned by Institutional Manageineit, 13()0 West 42nd Street
in New York. Institutional Management also leases to Cohen Optical,
which is located on the gromd floor of the I)elancy Medlical Buildig.
Cohen Optical is owned by Mr. Robert ( ohen and his brother, in
partnership. They also ownii lealt Factors according to listings in
the reverse telephone directory and in formation provided by several
physicians who have dealt with Hlealth Factors. Hlealtih Factors has
been listed at 16 Delancy street, 111 )elancy Street and 421 East 6th
Street. The practitioners at 80 I)elancy Street, who utilized a factoring
firm (according to city health records), all used Health Factors.

LEASING ARRANGEMENT: WHERE TilE MONEYY (GOES
No one knows for sure how much money is generated at 80 Delaney
Street. In an attempt to estimate the amount of money billed Medicaid
out of the 80 Delancy Street medical center, committee staff aggregated
the income of those individual practitioners identifiable as billing out
of the center. With the information and a health department summary,
indicating the percentage each of those practitioners paid as rent,
an attempt was made to calculate the total earnings of the mill. Again.
it should be emphasized that these are estimates. The tangled
condition of New York City's records does not permit any better
calculations.
After unravelling the disorganized medical vendor printouts pro-
vided to us by New York City officials, staff identified eleven of the
individuals who bill out of 80 Delancy Street. The practitioners
received the following sums in calendar 197 4:
Stanley David Blatt --------------------------$11, 879
Max Rakofsky -------------------------------342 641
Lewis A. Lando -------------------------------63, 4
S. Gupta ------------------------------------39, 505
John Lorenz ---------------------------------21,621
Ellen Rosen --------------------------------144, 102
Marvin Baumol -------------------------------33,694
Nourolleh Chadi -------------------------------32281
Richard M. Bauer -----------------------------2 32
Coleman Brown -------------------------- 119, 431
The I)el-Med Pharmacy ----------------------100, 224

Total ---------------------------------------905. 680
Six other practitioners who, according to health department records.
billed out of 80 I)elaney Street could not be found in the jumnble of
computer printouts.
In addition to Medicaid patients, stated to be some 350 a week.
practitioners drew from more than 280 private paying patients
per week as well.
According to the health department's records, every practitiloner in
the facility was on a percentage lease. Dr. Nasser, a 1sychiatrist, paid
the least, some 25 percent of his gross earnings. Most IrIctitioiers paid
40 percent. Dr. Rakofsky, the radiologist wvho billed for more than
S300,000 in 1974, was paid $400 a month by the owner for reading
X-rays.






86


Based on available figures, total earnings for the facility were esti-
mated in excess of $2 million. Applying the stated lease percentages
against that figure reveals a minimum income to the owners of
$800,000. In this figure we make no attempt to calculate possible re-
bates from a variety of vendors, including clinical laboratories, fac-
tors, and pharmacies. We deal solely with what the mill owners call
"rent."
THE TRACK RECORD CONTINUES
Health department records indicate that this facility continues to
violate certain aspects of the City's health code. In October of 1975,
investigators marked the mill for close. scrutiny because of a develop-
ing pattern of upgrading return visits to first visits. First visits are
reimbursed at the higher rate. The files also indicate that EKG's were
commonly taken but not interpreted, a reference similar to the state-
ment in the 1973 audit, described above, referring to X-rays "without
diagnostic purpose."
SHOPPING AT 80 DELANCY
Senate investigators shopped at 80 Delancy three times. Private
James Roberts entered the facility twice, the first time on May 11, 1976.
He was treated by a Dr. Rod for a head cold complaint, given a gen-
eral physical, and referred to the Del-Med Pharmacy with three pre-
scriptions. The entire process took 31/2 minutes. At Cohen Optical,
located in the same building, when Pvt. Roberts asked to have his eyes
examined, he was referred to 80 Delancy. At the Portnow Surgical
Supply, located across the Street from 80 Delancy, when Pvt. Roberts
complained of a back pain, he was again referred to 80 Delancy for a
prescription. The second time Pvt. Roberts entered the mill was on
June 5, 'when he again complained of a cold. He was treated by
Dr. Gupta, given a number of X-rays, asked for blood and urine
samples and referred to the Del-Med Pharmacy with four prescrip-
tions. The bill submitted by Dr. Gupta for that visit, totaling 4 minutes
work, indicated Roberts had an asthmatic condition and totaled $30.
The second shopper to enter this clinic was Mrs. Pat Oriol (who also
entered on June 5) complaining of a cold. She saw Dr. Gupta a few
minutes after Pvt. Roberts. She was given a general physical, a TB
test, X-rays, asked for blood and urine samples, and given an EKG.
She was given two prescriptions but not referred to the pharmacy.
The bill submitted -by Dr. Gupta for the 3 minutes she spent with
Mrs. Oriol totaled $46 including diagnoses of an upper respiratory
infection, and chest hyper-spasms.
Both shoppers indicated that they were X-rayed in a hallway closet
adjacent to the bathroom, and within a few feet of the reception room.
Mrs. Oriol had the humiliating experience of being examined with
the door open and stated that at one point a handyman came in and
picked up the garbage while she was disrobed. She further stated that
she 'was asked to wait for her turn to be X-rayed in the general waiting
area while dressed only in a thin, paper hospital gown. While she was
waiting, she observed an unidentified optician measuring nearly every-
one in the waiting room for glasses. She stated that he stopped people
as they walked by and, at one point, even measured a 6-month-old baby
for glasses.











Part 3


THE CHRONOLOGY: TEN YEARS OF REPORTS
The operation of the Medicaid program in New York State has been
the subject of more than 10 major reports in the, last 10 years. More-
over, there is a great deal of similarity in the )roblems identified and
in the solutions suggested over the past 10 years. Even a cursory view
of these reports indicates th:t they have been largely ignored and
that the problems have been exacerbated over the years. Only very re-
cently have there )een any signs of improvements. The most, positive
developments in this area in the past 10 years are the appointment of
Mr. Charles J. Hynes, the special prosecutor for nursing homes, the
establishment of the Moreland Act Commission for the same purpose,
and the commitment of funds for the long-overdue Medicaid Man-
agement Information System (MMIS). All three of these develop-
ments can be credited to the administration of Governor Hugh Carey.
Excerpts from the major reports relating to the administration of
Medicaid (exclusive of nursing home reports) follow below.
(A) "Report on the Audit of Medical Assistance Program Admin-
istered by the State of New York," May 1, 1966, to June 30, 1968: The
August 1969 report prepared by the HEW Audit Agency said in part:
Our review disclosed weaknesses in the administration
of the medical assistance program indicating a need for
prompt action to strengthen the administrative procedures
and internal controls to reasonably assure that the program
objectives are being accomplished.
-The affidavit or declaration system for establishing
Medicaid eligibility is used but "to date, the validation proc-
ess has not provided management with useful and precise
data on the actual and potential rate of ineligibility under
the declaration system.
-The percentage of sample cases closed because of in-
eligibility was more than 18 percent and should have
alerted management that problems existed in their deter-
mination process.
-The New York City Department of Soria1 kS ervices
has not satis factorily implemented procedures to ident ty
arn Proceed against recipients who obtaiwd medical assist-
ance on the basis of fraud and rmsrepresentation. The Pity
took no effectie folom.tp action to proceed aqaivst the re-
Ci/ents inroled. One of the primary reasons for inaction
was the inability of the New York City Department of So-
cial Services computer to provide data identifvi ng the cost
and other details of services rendered to such recipients.
-From the incey)tion of the Medicaid ,)romram in May
1966 to the present (April 1969), the New York City Depart-


(87)






88


ment of Social Services has not properly utilized its computer
capability to enable management to effectively monitor pro-
gram expenditures. Patient and vendor profiles, which would
provide ready access to information on past services rendered
a recipient and/or payments made to a vendor, have not been
established. Moreover, controls have not been established to
detect duplicate payments made.
(B) Medicare and Medicaid hearings before the Committee on
Finance of the U.S. Senate, July 1 and 2, 19t9, represented the first
detailed look at fraud and abuse in government health care programs.
At page 68 of the hearing record, then Under Secretary of Health,
Education, and Welfare, J ohn Veneman reinforced the need for
patient profiles:
Senator, I might point out that one of the big weaknesses
we have now in the entire program is that in many of the
States, they do not even have a patient profile by name or even
a doctor's history provider profile.
At page 34 the report also states:
There is substantial evidence that many physicians are en-
gaging in the practice known as "gang visits" to nursing home
and hospital patients. Under this practice a physicians may see
as many as 30, 40 and 50 patients in a day in the same facil-
ity-regardless of whether the visit is medically necessary or
whether any service is actually furnished. The physician in
many cases charges his full fee for each patient, billing Medi-
care for as much as $300 or $400 for one sweep through a nurs-
ing home.
There is evidence that physicians are now billing separately
for services which were previously routinely included in a
charge for an office visit or a surgical fee. For example, routine
laboratory tests which were part of the office visit charge are
now billed in addition to the fee for the visit. In some cases a
surgeon now charges separately for preoperative and postop-
erative visits, services which used to be part of his surgical fee.
This kind of price increase does not show up in the consumer
price index figures set out in an earlier chart.
Conflict of interest situations occur with apparent wide-
spread physician investment in nursing homes and proprie-
tary hospitals. The physicians in these situations have an eco-
nomic incentive to order as many services as possible and to
extend the duration of stay for those of his patients whom he
places in a medical facility in which he has an investment.
It appears that manv general practitioners are providing
services-such as psychiatric counseling, injections, and lab-
oratory work-to an extent unrelated to medical needs and
solely for the purpose of maximizing their Medicare billings.
(C) "Medicare 'and Medicaid, Problems. Issues, and Alternatives."
report of the staff to the Committee on Finance, U.S. Senate, Feb-
ruary 9, 1970, charged widespread fraud and abuse in Medicare and
Medicaid, with costs mounting beyond control. The appendix of the
report carries a "Summary of Medicaid State Audits by the HEW






89


Audit Agency." T-e covering letter si gnedb by John .1. Mallen. I )eluty
I)i rector of the Audit Arev(',. st a tcs"
The report shows the existence of wi(lesI)read a(hministra-
tive Iprol)lels which require promlpt action 1wv ldtll the States
and SRS if 1)Irogi'aIl o)jc ties ar'e to 1 a(CIrieevedI efficientlv
and economically. Prol)lenl areas of m()st concern centered on
(1) duplicate payminents. excessive rates ani fees. and I other
types of erroneous charges which would not have occurred if
adequate inanaoemient control liad been estal)lish(,d over
claims sulbimitted : (2) the lack of "t reviews of tili-
zation of service; and (3) the nee(d for improved prce(luir'
in determining eligibility and operating quality control I)ro-
grams. With respect to New York. the report notes "seriolls
weakness in management controls."
(D) Medicaire and Medicaid hearings before the Subcommittee on
Medicare-:Medicai(l. Committee on Finance. U.,S. Senate, July 2. 19(70.
includes testimony by Lowell E. Bellin. first deputy commissioner,
Department of Health, New York, N.Y. On that date. Dr. Bellin pro-
vided the outline of a newly instituted program called a. -Medicaid
mai ore tan$5000() er rn
watchdog system. Physicians aking more thn a year fro
Medicaid were marked for monitoring or investigation. The figure.
Bellin stated, was the equivalent of a doctor seeing 40 Medicaid pa-
tients a day (not counting private-paving and "Medicare customer's .
He noted several areas of abuse in the program, including the ob-
taining of duplicate professional services from separate practitioners.
e.g., more than one pair of glasses from different optometrists. He
said:
Without the means to identify such patients, it is impossible
to be precise about the magnitu e of such abuse. Within I year
we expect to have the computer capability ot identify all
Medicaid services provided to any individual patient [patient
profiles].
[I]n comparison to the abuse emanating from providers of
care, we estimate the dollar cost of patient abuse to be rela-
tively negligible.
On June 16 of these same hearings. Dr. William S. Apple, executive
director of the American Pharmaceutical As:ociation, testified that
kickbacks were common practice between pharmacists and nursmin
home administrators. The average kickback he said. was 15 to 20 per-
cent. Asked if it was a. widespread national practice, Dr. Apple
responded:
Well, Senator Ribicoff, with regard to the nursing home sit-
uation, it is the worst we have experienced in the history of
our profession. It has been virtually a gun to the head of the
pharmnacist-vou will not get in the door without a kickback.
In the September 21i hearing in this series, Meade Whitaker, tax
legislative counsel of the Treasury Department, told the committee
that one doctor out of every three who received substantial income
from treating patients under Medicare and Medicaid appeared to be
cheating on his income tax. Some 4,000 of 11,000 doctors examined by


75-902 O) 76 -7





90


the Internal Revenue Service underrepresented their payments from
the p-rogram by a sufficiently large margin to justify detailed audits
of their tax returns. Audits of 3,000 of the 4,000 were complete at the
time of Mr. Whitaker's appearance and he noted that about "half of
these show deficiencies."
(E) Supreme court of the county of New York, "Report of the
Fourth November 1969 Grand Jury," January 1972. Perhaps the
most significant document in this section is the 1972 report of
a Manhattan grand jury filed after a 2-year review of the adminis-
tration of Medicaid in New York City. The grand jury reecived testi-
mony from 47 witnesses including Medicaid patients; Medicaid pro-
viders; administrators from the city's health and social services de-
partments; Federal, State, and city auditors; and investigators and
accountants from the New York County District Attorney's office. In
all. they took 1,500 pages of testimony and received 403 exhibits and
documents in evidence.
The grand jury found the program was administered "in an in-
credibly chaotic manner" and concluded that "corrective legislative,
executive, and administrative action in the public interest" was re-
quired.
In releasing the report, State Supreme Court Justice Jacob Gru-
ment keyed on the testimony of a former high-ranking official in the
city's Medicaid program who testified that of more than $2 billion
"nearly 50 percent of the money spent on Medicaid went down the
drain" due to improper practices during the period May 1966 to
December 1969.
The committee staff interviewed Judge Grument in April 1976. The
judge indicated he remembered the grand jury report very well. Asked
if he thought the grand jury's evidence justified this conclusion, he
answered, "Yes, or I wouldn't have said what I did."
More specifically, the grand jury said:
It is evident that improper and corrupt practices disclosed
by this investigation were, in large measure, caused by the
fact that these essential services were rendered in a complete-
ly disorganized, if not chaotic, manner.
The abuses included:
-Payments for services not rendered, often procured by forg-
ing patient signatures or having patients sign Medicaid forms
prior to treatment, such as dental work and physical therapy
to the elderly.
-Payments for unauthorized or unnecessary services, such as tooth
extractions, X-rays, a bridge, and referral visits to other medi-
cal specialists in a Medicaid group (this practice is commonly
known as "ping-ponging").
-Payments for defective pharmaceutical devices, such as vapor-
izers and corrective footwear.
-Payments for brand name drugs when generic name (i.e., less ex-
pensive) drugs were provided.
-Payment for Medicaid clients who were actually ineligible for
Medicaid.







The grand jury also observed major adnmin istrat ive families r(pon-
sible for these aluses ain(I ftr otller It sse> ini Met lii 1 i(Ivi if '
-Failure to have )atient aIII(] lrx ider 1 profiless to ietect al nvive
providers, even t hougih tle FeferalI (vm .... o't I Itli(e
city to (do So.
-Failuure to lave a system to dietect lt1)1li<,ate. t r)1lic-ate. o)r mlvi-
ti1)le payIIenIts to 1)rnv riders.
-Failure to ade(uately control l)lank eeks.
-F ailre to promI)tlY PIy P1)ovid(Ies resulting in theid vent (f
third-party "factoring" companies wlhich chargee! lrov i e 12
to 15 Per(enit Colflh1lission ,lia rge of tleir total hillines. "I'llis
increases the providers* propensity to ivfilate Me(dica ifl chains.
-Failumre to read State actioll on Petderal anti State reI)ort s 5i vi'
1969 criticizii-r a(hmnlistratie deficiencies.
-Failure to file timely- claims for State. Federal. and1 tlIir(1-I- art
insurer reiilbur(ellent resulting in the "loss of inillion- (of
dollars."
-Fail ire to atleqiuately screen Medicaid apli giantss for eliir)ilitv.
-Failure to a(lequatelv maintain records for detection anti lr( )sc(,ti-
tion of frauds anti abuses; iany records were fomitl lolil i- 1'
out of order and in 'shoeboxes in va rel hous(.
-Failure to alter the inefficient delegation of paynlent resi)onsil;bilitv
to social services and proiiam n1o litorino to health.
Other relevant comnients from the prrand jpry intlided
The city comptroller's office cited one (case where the city's
Department of Social Services had lost "i Iefh aI
Medicare reimbursement because the claim was not timelv. The
reason for the loss was that the notification slips uset for
reimbursements were hidden in several shoehoxes andi were.
therefore, never processed."
The comptroller's office received half of the money, but the
other one-quarter million coul(1 not be recovered because. ac-
cording to one auditor. "The records did not lend themselves
to discover what had happened to these cases or whether the
city had, in fact. claimed against the State for reimburse-
ment."
Invoices that had been submitted by Medicaid providers
and allegedly paid by the city were found bv the New York
County I)istrict Attorney's investigators to he*, strewn abmot
in a warehouse, torn and mutilated, with no semblance of an
attempt to file them. Huge stacks of invoices were piletl tn
desks, in cartons. and scattered about the room in an appar-
entlv disorganized manner. The grand jury found that miany
of the records sought had been either lost or destroyed.
Two of the city's top Medicaid administrators were inter-
viewel in April 1971 by the gran(l jury. They were presented
with findings from an August 20. 1969, HEW Treport. a Fehru-
ary 1971 city comptroller's audit, and three State conmp-
troller's audits (September 1970. November 1970. and Apri l
1971). all of which documented criticisms of the administra-
tion of Medicaid in New York City. According to the grand
jury, one witness testified "that he was totally unaware of the
existence of these reports . The other "expressed total
ignorance of the existence of the reports."






92


DISTRIBUTION OF THE GRAND JURY PRESENTIMENT
The committee staff attempted to learn who had received copies of
the original grand jury presentment which, it should be remembered,
is a summary report and not the original grand jury minutes. With
the cooperation of the district attorney for New York County, Robert
Morgenthau, the committee staff appeared before the State supreme
court, county of New York, and received permission to review and
copy the entire grand jury records. By checking records in the district
attorney's mail room, it was determined that copies of the grand jury
presentment were sent to the following individuals: Hon. John L.
Mitchell, Attorney General of the United States; Hon. Nelson Rocke-
feller, Governor, State of New York; Hon. John A. Lindsay, Mayor,
city of New York; Hon. Abraham D. Beame, then comptroller, city
of New York; Human Resources Administrator Jule Sugarman; Mary
C. McLaughlin, commissioner of health, New York City; Michael
Whiteman, esq., counsel to the Governor; and Hon. Perry Duryea,
minority leader. State assembly.
All letters and replies are reprinted in appendix 2 of this report.
A alysis o f the replies received indicates that there was little done by
public oflc'als e'en in the face of so massive an indictment of the city'8
operation of the Medicaid program.

ANALYSIS OF THE REPLIES
Perry Duryea, minority leader of the State assembly, could point
only to creation of the office of welfare inspector general (OWIG) as
the legislative action taken in response to the report. However, the
committee staff observes that the legislature created OWIG in 1971 and
by the time the grand jury report was issued OWIG had been in op-
eration for 6 months. In fact, the Governor's counsel, Michael White-
man, sent a copy of the report to OWIG (see Mr. Whiteman's com-
ments below and in appendix 2).
Commissioner Mary C. McLaughlin said she did not remember read-
ing the report, and alded that all Medicaid cases were sent to her first
deputy, I)r. Lowell Bellin, the present commissioner of health in New
York City. Ms. McLaughlin referred her letter to Dr. Bellin, and Sen-
ator Mfoss also wrote, but neither brought any response.
The former U.S. Attorney General, John Mitchell, responded that he
did not remember personally reviewing the document, and referred
the committee to the Department of Justice records section to see where
the report was sent.
Hugh Morrow. answered on behalf of the Vice President, the Honor-
able Nelson A. Rockefeller. saying files were being researched, but
nothing further was received beyond this June 24 interim reply. How-
ever, Michael Whiteman, then counsel to Governor Rockefeller, re-
ported that Governor Rockefeller directed copies of the grand jury
presentment to George Berlinger, the State welfare inspector general.
an:d Stuart Scott, chairman of the Temporary commission to Study the
Governmental Operations of the State of New York. Copies were also
sent to Dr. Andrew C. Fleck, first deputy commissioner of health, and
to Barry L. Van Lare, executive deputy commissioner of social services.
As noted later, Mr. Berlinger released his report in January of 1974,
but the Scott commission report is silent on the grand jury report.