$1 Billion Medicare Fraud Case Reveals Profitable Black Market

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In the largest healthcare fraud case the U.S. Justice Department has ever brought, prosecutors charged that the owner of a network of Florida nursing facilities orchestrated an elaborate scheme to defraud Medicare and Medicaid of more than $1 billion over the last 14 years.

The case, reported by The New York Times, and including allegations of bribes to Miami doctors, hush money to witnesses, and laundering of huge profits through shell companies, exposed a lucrative Medicare black market that has surfaced in the last decade.

“Medicare fraud has infected every facet of our healthcare system,” Wifredo A. Ferrer, the United States attorney in Miami, said in announcing the indictments of the owner of the medical facilities, Philip Esformes, and two others. Mr. Esformes’ lawyer said that the businessman, who runs about 30 healthcare facilities in Florida and other states, “strongly asserts his innocence.”

Prosecutors, however, described him as the “mastermind” of a conspiracy that cycled some 14,000 elderly people in and out of nursing homes and assisted-living facilities, whether they needed medical care or not.

With the help of doctors, pharmacists, healthcare consultants and other medical personnel who got kickbacks for their roles, the facilities billed Medicare and Medicaid for high-priced drugs, medical procedures and health equipment that the patients either did not need or never received, prosecutors said.

In some cases, they charged, Mr. Esformes’ operation “preyed upon” the elderly patients by giving them narcotics so that they would have to remain longer in the care facilities to treat their addictions and “the cycle of fraud could continue.”

The Justice Department charged that Mr. Esformes, 47, who owns homes in both Miami Beach and the Chicago area, profited handsomely from the dishonest and illegally obtained proceeds.

He reported assets of $78 million two years ago, and he withdrew more than $4 million in cash over the years from his many banking accounts, using proceeds from the scheme to pay for a $600,000 watch, the leasing of private jets and chauffeured limousines, and periodic trips with escorts to a Ritz-Carlton Hotel in Orlando, prosecutors charged in Federal District Court in Miami.

The scheme produced “staggering losses in excess of $1 billion,” said George L. Piro, the special agent in charge of the FBI office in Miami. Leslie R. Caldwell, who leads the Justice Department’s criminal division, said that the $1 billion in fraudulent billings made the prosecution the biggest that the department had ever brought against individuals in a healthcare case.

Steve’s Take: To put this Medicare scheme in context, the Miami Herald reports that the billing activity of defendant Esformes’ healthcare network equals the amount of money the convicted Fort Lauderdale Ponzi schemer Scott Rothstein churned while he fleeced wealthy investors from Florida to New York. Rothstein’s investment racket was considered one of the state’s biggest-ever financial fraud.

DOJ prosecutors said that Esformes continued to rip off the Medicare program even after he and others settled a civil dispute a decade ago with the U.S. government for $15.4 million over allegations of paying kickbacks to physicians in exchange for patient referrals to Larkin Community Hospital. In 2006, Esformes owned a chain of assisted-living facilities and supplied patients to the local hospital as part of the scheme, according to the settlement.

Although the DOJ deserves kudos for finally bringing the criminal action against Esformes and his accomplices, this scheme took place over a 14-year period. That’s $71 million a year in Medicare fraud, a national record.

And I’m stunned that this happened even with Esformes’ first run in with the Feds back in 2006 in the Larkin Community Hospital case. Why did it take so long to finally start the prosecution of this high-profile scoundrel; where were the Feds over these many years?

The $1 billion of allegedly illegally gotten gains is $200 million more than what Congress is dithering over for funding the fight again the Zika virus. We certainly could have used that either for Zika or other national public health priorities.

From my past history as a Fed with the IRS, I can assure you that hardly any of the $1 billion in Medicare fraud will be recovered. How someone as high-profile as Esformes escaped prosecution all these years is beyond me.

I know it happens, and building a winning case in such complex circumstances isn’t easy. I could close with something lame like “better late than never,” but our Medicare cops can, and I trust will, do a better job next time.