How to Scam Medicare in Four Easy Steps!

An early look at a Pacific Standard story that's currently only available to subscribers.
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An early look at a Pacific Standard story that's currently only available to subscribers.
(Photo: Brent Humphreys; Styling: James Boone; Model: Dean Dickinson)

(Photo: Brent Humphreys; Styling: James Boone; Model: Dean Dickinson)

Medicare fraud may cost the United States between $60 billion and $120 billion annually. For the more than 50 million Medicare beneficiaries, fraud can mean receiving unnecessary, and in some cases dangerous, tests and procedures that pad a doctor’s paycheck. For the rest of us, it means wasted taxpayer dollars that could be invested in the program, which is funded in part by a trust fund projected to run out of money in 2030. Government officials have been looking for solutions to Medicare’s fraud problem for decades, and in 2010 they unleashed a Big Data solution to shut it down. Joe Eaton examines why the effort isn’t working.

Eaton's Pacific Standard cover story is currently available to subscribers and will be posted online on Monday, January 11. Until then, an excerpt:

Early on an October morning in 2010, Sergeant Steve Opferman of the Los Angeles County Sheriff’s Department wheeled an unmarked police car up to a nondescript suburban tract home in Montebello and waited.

Opferman, an undercover health-care fraud investigator with long black hair and a passing resemblance to the actor Steven Seagal, had been tailing Arthur Manasarian, a suspected member of an Armenian-American crime ring, since Manasarian arrived in town two days before on a flight from Russia. Agents tracked Manasarian as he walked through the gate at Los Angeles International Airport and followed the Mercedes-Benz sedan that dropped him off at the Montebello house, which was owned by a distant relative. If Opferman’s surveillance team was correct, he hadn’t left. When Opferman’s team of agents from the Federal Bureau of Investigation, local police, and sheriff ’s deputies got the signal to go, they knocked on the door, prepared to bash it open with a battering ram if necessary. Instead, a short, balding man in sweatpants—more accountant than gangster—answered. It was Manasarian. He did not resist, and police found no guns. The team radioed the arrest to FBI agents in L.A., who passed the message to New York, where the agency was tallying the results of a nationwide operation.

Across the country, police and FBI agents were waiting outside the homes and hotel rooms of dozens of other suspects in what at the time was the largest known scam by a single criminal enterprise against Medicare, the public health insurance program for the nation’s elderly. Federal indictments charged Manasarian and 72 others in a scheme as brazen as it was simple. According to the indictments, the group set up more than 100 fake medical clinics from New York to L.A. and billed Medicare using the stolen identities of doctors and senior citizens. The take was at least $35 million.

Before the day was through, the operation netted 52 people, including a high-level underworld enforcer named Armen Kazarian. At a press conference in Manhattan, federal prosecutors and law enforcement officials billed the arrests as a triumph in the fight against health-care fraud.

But for cops like Opferman and other health-care fraud experts, the arrests were just another high-profile example of a failure: the failure of the federal government to protect Medicare from criminals. Fighting fraud with law enforcement is like “dipping a net in a river”—you may catch one big fish but thousands of little fish pass through, says Opferman, who retired in March. It’s everywhere. And by the time police catch up with fraudsters, the money—taxpayer money—is gone.

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