Editor's Corner: The billion-dollar healthcare fraud that should have never happened

Money
Money.
Ron Shinkman

When Barack Obama was first inaugurated, one of the many facets of his administration's plan for reforming the U.S. healthcare system was cracking down on fraud in the Medicare and Medicaid programs.  Since its inception, the Medicare Fraud Strike Force has been involved in cases that represent nearly $9 billion worth of fraud.

Fraud has always been healthcare's cockroach, something that you saw out of the corner of your eye but would often dash away the moment you took a step toward it. All the federal reports that have been churned out over the years pointed to grubby clinics that overbilled government programs, or sham home healthcare companies ostensibly operating in shabby storefronts that actually didn't exist. These are providers that don't put out press releases or have a social media strategy, for obvious reasons.

The Office of Inspector General of the U.S. Department of Health and Human Services and the FBI and other law enforcement agencies decided to simply pull up the rocks under which the cockroaches were hiding. A few years ago, there were regular seminars on fraud busting open to the media, and fairly regular announcements of big healthcare fraud busts by federal prosecutors, as well as some pretty impressive recovery numbers.

But those seminars and announcements slowed down to a trickle in recent years, particularly after Kathleen Sebelius resigned as HHS secretary in 2014.

Which is why I am not terribly impressed the G-Men came roaring back last week, announcing the biggest healthcare fraud bust in U.S. history. It was a billion-dollar sham nursing home/assisted living scheme taking place in Miami, which is to crooked Medicare billing what Palermo is to Mafia business administration.

The feds used sophisticated data analytics to identify the wrongdoing and its perpetrators, which involved a network of some 30 facilities that weren't permitted to bill Medicare but did so anyway for medically unnecessary care. Those Medicare beneficiaries were also allegedly steered to other providers in exchange for kickbacks.

But perhaps the fraud alleged against Philip Esformes and two of his colleagues wouldn't have been so big if the feds had put down their sophisticated analytics a moment and paid attention to the obvious: Esformes didn't hesitate to pay up to the feds to make past troubles go away.

Esformes was part of a $15.4 million settlement paid both to the federal government and the state of Florida a decade ago, according to the Justice Department. That was to end a 2004 federal civil case claiming that he and his father, Morris, among others, had been paying kickbacks to physicians to get them to refer patients to healthcare facilities they owned, allowing them to overbill the Medicare program for unnecessary medical procedures. The Justice Department said those actions were “essentially identical conduct” to what got them indicted last week.

I'm unsure why Esformes and his father weren't criminally prosecuted back then, given that the sums involved are much larger than many cases that do go forward. But the Obama-led Justice Department let the Esformes father and son off the hook, as well. In 2013, both Morris and Philip settled a whistleblower case for $5 million, in which they were accused of paying kickbacks in connection to the sale of a pharmaceutical company to Omnicare in 2004, the Chicago Tribune reported.

Had Esformes and his father been permanently barred from the Medicare program as part of the 2006 or 2013 settlements, all or at least part of the 10-figure bilk-a-thon likely would have never occurred. But both the Bush and Obama Justice Departments dropped the ball by not spotting a basket of rotten eggs for what it was and getting it as far away from taxpayer funds as possible.

How many patients received medically unnecessary and likely dangerous care as the result of the alleged actions of Philip Esformes and his two business partners remains to be seen. But given that they are accused of $1 billion in fraudulent billing, it would have to be an astronomical number.

The Justice Department should not be bragging about this bust. Its leadership should admit that the numbers are so big because it cast a net that was far too small. -- Ron (@FierceHealth)