How Medicare Became a Thieves' Bazaar

In Dallas and across the country, hospitals, doctors and dealers have made Medicare the nation’s sweetest crime. The feds are now trying to shutter the door.

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

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

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

Miami HEAT taskforce members, Christopher Dennis and Reginald France.
Liliana Mora
Miami HEAT taskforce members, Christopher Dennis and Reginald France.

In 2010, Walther helped take down American Therapeutic, the highest-billing mental-health center in the country. The company was cycling addicts, alcoholics and Alzheimer patients through its six clinics. Patients' diagnoses were changed so they would qualify for expensive group therapy. In the end, owner Lawrence Duran received an unheard-of 50 years, a sign that judges were finally acknowledging the magnitude of these swindles.

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

When the Check Arrives, Minnesota Gets Alligator Arms

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

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

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

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

He was outraged. "You can't take tax-funded programs, turn them over to vendors and claim that what happened to the money is a trade secret," he says. Still, the HMOs were rattled. Their trade organization reached out to Feinwachs' boss in an attempt to silence him.

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

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

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

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

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

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

Two months later, Feinwachs was fired for insubordination

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

Minnesota claimed it was a donation. But the feds smelled a rat, believing it to be from Medicaid overpayments. The move was so mysterious that Congress summoned UCare CEO Nancy Feldman to explain. She admitted that Minnesota was pumping up its Medicaid reimbursements to cover losses in a state program that Medicaid doesn't reach.

Worse, Republican Governor Tim Pawlenty had canceled that program a year earlier. Neither the state nor the HMOs bothered to tell the feds they were still covering losses from a program that no longer existed.

"How do we know that other state, private and personal interests are not being funded through the federal Medicaid program?" Republican representative Michele Bachmann asked when testifying before Congress. "The answer is, we don't."

As multiple investigations continue, Feinwachs remains unemployed. He now spends his time agitating for reform.

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Medicare and all that crap is the current slavery for those who receive it. The dems use it for political reason no matter the cost to tax payers. The US is going to sink cause of them.


this country makes me fucking physically ill...knocking over a liquor store and stealing $400 bucks will get you a longer term in jail then stealing 73 million dollars from taxpayers...possessing marijuana which harms no one will get you a longer term...unless you happen to be rich or influential this country will fuck you up the ass continually and never stop the raping


Many believe there are patients who scam Medicare/Medicaid.  But, the real culprits tend to get away with fraud.  Sometimes, they are arrested and incarcerated; however, before cuts are made to this program, the FBI needs to weed out those who are abusing the system, the physicians. 


I can't help but see a distinct connection between the conservative movement's obsession with "smaller government" and abuse like this.  When you shrink federal regulatory agencies to the point they're practically defunded, guess what?  Many regulatory agencies simply do not possess the manpower to protect the American people from fraud.  This was obvious during the 2008 downturn when the SEC was so out-gunned that even if they could have brought financial fraudsters to trial, the government is likely to face odds of 20:1 in terms of lawyers and the money to pay for them.  And while Medicare itself recognizes this problem, well, there's nothing to say about this but...

...your tax cuts at work, people. 


This goes way back to Senator Frist and other godly Republicans.

They give out 5-10 grand to some political clown and then they own them

Sure you will have "water carrier" democrats but that aint where the big moneys at

"HCA also admitted fraudulently billing Medicare and other health programs by inflating the seriousness of diagnoses and to giving doctors partnerships in company hospitals as a kickback for the doctors referring patients to HCA. They filed false cost reports, fraudulently billing Medicare for home health care workers, and paid kickbacks in the sale of home health agencies and to doctors to refer patients. In addition, they gave doctors "loans" never intended to be repaid, free rent, free office furniture, and free drugs from hospital pharmacies"

It should be noted the Frists , Pere & Fils kept their heads because they found a fall guy to blame.

They bought out all these old inner city charity hospitals barely getting by and turned them into cash cows

Republicans commit respectable sins

The godly Frists are billionaires by the way


There are several problems:  the DOJ-state AG  has no political will to go after the big hospital chains or other big time offenders, many of whom are prominent in their communities-Parkland -UTSW THR etc and also have staff and administraion who are political donors, and or tout their "role" as erstwhile "safety nets for the poor."  These less than sterlling big hospital chains are also slated to enjoy special  immune status under the ACA ACO program which will put them beyond the reach of Anti-Trust scrutiny- soon -2014. The HHS is an IT nightmare with outdated computer banks and staffers who are poorly/inadequately trained (not very competent).  The individual docs in the community who are honest are under constant threat of "reign of terror" from low yielding "RACS" audits of simple mistakes with HUGE potential penalties because they are easy targets.  Good article... the big fish will continue to swim away under our current system of "justice".  I applaud you for naming names however.


Maybe you should read the article.  The largest offenders are not physicians, --some even  appear to be third party administrators of the programs themselves, put in place by the govt. administrators... If you paid the physicians 0, the program would still lose money through fraud. FYI


You ARE paying more taxes under PPACA.(device taxes, higher insurance premiums real estate taxes etc.)  The problem  simply is that the HHS-CMS is ill euipt or inept at dealing with losses from fraud even under the current system.  Imagine what will happen when there  are more enrollees.  The problem is not one of government" sizing"-- it is one of  administrative competence.  The current CMS structure is too complex  and outdated to administrate efficiently but, unfortunately for the tax payer, the administrative costs continue to rise, while payments to the providers (i.e. those actually  doing the work) continue to shrink (see the David Feinwachs entry-above). The providers get 20% of the total availabe funds.  If you gave the providers 0%, you would still lose money through fraud and incompetence. Sibelius is a former Gov of a mid sized state and doesn't know any more about the technical requirements of administrtion of HHS than  the gov of this state--she is a politician.


There are as we speak "formes fruste" of "Fristian" kickback activity going on at large non for profit hospital chains organizing ACO's to "better serve the public" These are simply vehicles to rip off the public under the guise of healthcare "reform".  The scam artists are always ahead of the government and sometimes operate under  govt. sponsorship.