How Medicare and Medicaid Fraud Turned a $100 Billion Downside for the US

A nondescript row of offices in a bland building tucked away in a quiet suburb of Miami seemed as good a place as any for a medical supply company to rent office space.

But this company rented two floors above a regional office of the US Department of Health and Human Services Criminal Investigation Department. It also tried to bill Medicare more than $500,000 for various medical devices — like braces, orthotics and wheelchairs — for patients that didn’t exist.

During a routine inspection by HHS’s Office of Inspector General, which investigates Medicare and Medicaid fraud, special agents in Florida noticed that a local business had recently changed hands and had a different address in its building. But this location had no real employees. It was no more than a mailing, a physical location of a shell company designed to make it appear legitimate on paper, said Omar Pérez Aybar, the special agent in charge of Florida.

A closer look at the company’s billing practices revealed what appeared to be Medicare fraud, Pérez Aybar said.

When agents spied on the new owner, he admitted that his name was used in company business records to disguise the identity of the true owners. With investigations ongoing and no arrests made, agents provided few details identifying the operation. But Pérez Aybar said it closed last year before Medicare lost money.

Fraud thrives

That’s just one of thousands of examples of how Medicare fraud is thriving — not just in South Florida, but across the country.

The National Health Care Anti-Fraud Association estimates that taxpayers lose more than $100 billion annually to Medicare and Medicaid fraud.

“That’s probably a conservative figure,” said Pérez Aybar. “If we think about all of Medicare and Medicaid’s businesses, that’s probably a drop in the bucket.”

Omar Pérez Aybar, Special Agent in Charge / Office of the Inspector General

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The scam runs the gamut: billing for unauthorized Covid tests, fake billing for wheelchairs, braces and other medical devices, genetic testing fraud, home health care billing and a host of other schemes. Investigators say scammers have gotten bolder in recent years – as Washington quickly distributed trillions of dollars in Covid-19 relief funds and other aid in response to the pandemic.

The rise in crime has weighed on the inspector general, who has just 450 agents across the country. The amount at stake is staggering: Medicare spends approximately $901 billion annually to serve its 65 million beneficiaries, while Medicaid spends $734 billion to provide medical care to more than 85 million poor and disabled Americans each year care, according to the Centers for Medicare and Medicaid Services. which falls under HHS. The inspector general describes the scam as widespread and inventive, according to its annual reports, routinely seducing full-time criminals as well as legitimate doctors and health professionals.

Scamming Medicare is ‘easy’

“It’s just that simple. It’s incredible,” said a Miami man who admitted he made a living stealing from Medicare.

This convicted felon says Medicare and Medicaid fraud is “very easy” to get away with.

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“You will be surprised. They will do anything for money,” he said, asking not to be identified for fear of retribution from people he had worked with in the criminal underworld. “It has always been like this. And people keep going – they get caught, they get out, and they’re going to do it again.”

According to agents handling his case, he was arrested and charged with running an illegal pill business. The scheme involved several players, all of whom were on the alert and received a share of the good fortune from Medicare’s scam, the special agents said.

Describing the scheme, the scammer said he recruited patients to receive a prescription from a doctor, which was then filled at a pharmacy and paid for by Medicare. He would then remove the label and “wash” the bottle to make it look like new before reselling the pills to a wholesaler, who would sell them back to that pharmacy or to another who was involved in the deal, he said. The same pills could be sold and resold to different fake patients multiple times, billing Medicare each time.

It was a lucrative scheme.

“I had houses, I had cars”

“I was inconspicuous, nobody knew about me. I had everything I had houses, I had cars, I had watches,” he said, adding that he routinely made millions from healthcare fraud for more than a decade.

Eventually, however, someone who knew him was caught and turned him over to law enforcement in exchange for lenient treatment, he said. He eventually pleaded guilty to healthcare-related fraud and served three years in prison.

Even if the scammers are caught, the reward can outweigh the risk.

“I don’t think the government can keep up,” he said. “People keep going. You won’t stop.”

Pérez Aybar said the inspector general was understaffed to handle the endless stream of cases. In fiscal 2021, about 2 cents for every $100 spent by HHS went to oversight and enforcement, according to the Office of the Inspector General.

Fraud is something Medicare and Medicaid take very seriously, Dara Corrigan, assistant administrator for the Centers for Medicare and Medicaid Services, said in a statement to CNBC.

“We continually work to protect taxpayers’ money and strengthen program integrity in our operations by identifying vulnerabilities in the system,” she said. “CMS uses every tool at our disposal to reduce the risk of fraud and abuse in the Medicare and Medicaid programs and works with law enforcement to identify and investigate fraud and abuse.”

Buried Treasure

In another plan, inspectors general found $2.5 million in cash wrapped in plastic in PVC pipes under the home of Jesus Garces in 2021. He is serving a 12½-year sentence after pleading guilty earlier this year to counts of conspiracy to count in healthcare fraud and wire fraud. Garces ran a fraudulent Medicare business out of a mall, Pérez Aybar said. According to investigators and a copy of the video obtained by CNBC, a government informant recorded Garces with a hidden camera and smiled as he counted cash he stole from Medicare.

Federal agents found millions of dollars in PVC pipes under the home of a man now in prison on Medicare fraud charges.

YOUNG | FBI

“We were shocked to learn that there was so much cash,” Pérez Aybar said. “I think a lot of us hadn’t necessarily seen that much, but it was the way it was packaged, vacuum sealed back in bricks and put in PVC pipes. And it really gave us an indication of how brazen that was [durable medical equipment] cheating is.”

Garces “thought he was a CEO when in reality he was just a crook,” Pérez Aybar said.

Ricardo Carcas, the special agent who oversaw the Garce case, explained how these systems normally work.

“When I show up, I see that it’s the shell that we usually see in this durable medical device scam scheme,” Carcas said, pointing to the storefront at a Miami mall where Garces founded his fraudulent medical device company. “It was pretty empty – it just had a desk (and) a shelf with maybe three braces on it. And it was closed during opening hours.”

To prove it was fraud, Carcas said he identified the referring physicians who allegedly signed patients who billed their medical devices to Medicare. None of the patients saw these doctors.

Whack-a-Mole

“They bought a list of patient information,” Pérez Aybar said. “They have doctors that they either use as part of the program, they pay kickbacks, or they might also buy a list of doctor information and then you start filing the claims. Once the money is in the bank account, they have money launderers and mules who have paid them to go out and just withdraw the money from those accounts.”

Pérez Aybar described the fight against the scammers as “almost like the hit-the-mole game where we hit one and another shows up”.

On the ground, agents fighting healthcare fraud see a never-ending scenario.

Take the Miami Merchandise Mart for example.

The sprawling, aging mall is home to low-cost wholesale retailers, as well as numerous medical supply companies set up to scam the government, according to investigators.

When CNBC visited the mall in December, there were numerous storefronts, mostly empty save for the names of medical supply companies adorning the entrances.

Pérez Aybar described what agents had found in previous investigations at the mall and elsewhere.

“It’s Medicare regulations that you have to have a company, especially in this case for durable medical devices. And stuff like that usually – when we go out I just see a little bit of a shell. It’s an office that’s maybe 12 by 15 feet wide,” he said.

“Maybe there’s a desk, there’s a bit of oddity with one or two different types of braces. They’ll have the manuals that Medicare needs to do it—that they’re familiar with. And usually there’s some sort of divider when we say we’re talking about orthoses, because the patient is supposed to come in and actually be fitted.”

Medicare showcase

Along a corridor in the mall, CNBC found a young woman sitting alone at a desk in a small glass-enclosed store called United Med Supply Market Inc. She said it was a medical supply store and gave us the business card with a phone number for the owner. When a reporter called the number a few minutes later, the woman’s desk rang.

Company President Antonio Lantigua was reached by phone a few weeks later. When asked why the equipment wasn’t visible on site, he said they were storing it in other locations.

“We have devices in other places. We send papers to the company, the company sends devices to the patients,” Lantigua said.

When pressed for more information, he said, “I don’t know why you’re calling me,” and hung up.

Government documents show that United Med Supply Market billed Medicare more than $2 million, mostly for wound care.

After an investigation by the Inspector General, the company was barred from reporting Medicare payments.

Ali Ghraoui, general manager of the Miami Merchandise Mart, told CNBC in a February interview that United Medical had cleared that space and was working to improve the mall’s image.

However, as Pérez Aybar points out, there is always another fraudulent operation ready to cheat the system.

“South Florida is without question ground zero for healthcare fraud, but it is only one state. There are 49 others and territories that have these types of programs,” he said.