ABC NEWS Air Date: July 8th, 1991 ANNOUNCER: From ABC, this is World News Tonight with Peter Jennings. Sitting in tonight, Carole Simpson. CAROLE SIMPSON, ABC News: Good evening. We begin tonight with the largest case of medical-insurance fraud in U.S. History. In Los Angeles, law-enforcement authorities have unsealed 12 indictments and started arresting suspects. The charge is that they devised a scheme to bill insurance companies and the federal government for expensive medical tests that either weren't needed or were never done. ABC News has learned the details of how the suspects filed more than $1 billion in phony claims. Here's John Martin. JOHN MARTIN, ABC News: Advertisements and high-pressure telephone calls promised free medical check-ups. The indictments charge that's how customers were lured to clinics, many of them set-up in shopping centers. The clients filled out insurance forms and were given a series of medical tests conducted, agents say, by unqualified workers and physicians who were accomplices in the scheme. After the patients left, the clinics made up symptoms and diagnoses on the insurance forms to justify billing insurance companies for the unnecessary and expensive tests. JAMES GARCIA, Aetna Insurance Company: We were receiving about $2.5 million of claims per month at their peak. MARTIN: A task force of state and federal investigators identified more than 900 of these phony clinics across the United States. More than half were allegedly run by these two Russian immigrants, David and Michael Sumushkovich. One day after a Smushkovich clinic was identified by local reporters near San Diego, its employees removed equipment and most files and moved to another city. Michael Smushkovich opened a clinic in Tijuana, Mexico, running his operations from this high-rise building. He is seen in this undercover videotape. A key associate, Art Lasero is one of the suspects arrested last night. Last month, authorities arrested David Smushkovich in the Netherlands. Today, his brother Michael was arraigned in federal district court in Los Angeles, along with Michael's wife and a woman described as Michael's girlfriend. Authorities said the indictments implicate top lieutenants in a vast enterprise. DAVID SMITH, U.S> Postal Inspection Service: There are in excess of 100 people. This represents individual sheets on the different people that we are investigating, including physicians. MARTIN: Insurance companies weren't the only victims. Investigators say some patient's records were altered so drastically with phony illnesses that they were denied jobs or other insurance coverage. Chiropractor Craig Keoshan, in excellent health, was forced to clear his record with life-insurance examiners who were convinced from fake test results that he had heart trouble. CRAIG KEOSHAN: And these tests that they wanted me to go through to show that these things were normal were in the range of $5,000-$6,000 of testing. And how was that to prove that everything is OK? MARTIN: The biggest victim of all may have been the American taxpayer. The clinics attracted many military dependents insured by Uncle Sam. WILLIAM LANDRETH, Pentagon Inspector General's Office: The Department of Defense medical program has been severely impacted by the amount of claims that they've exceeded. This is the largest medical-fraud case, I think, in the history of the United States. MARTIN: An internal FBI report says fraud is increasing at an alarming rate withing the insurance industry, partly due to medical-testing schemes like this one. The report warns that, unchecked, this kind of crime could devastate the insurance industry. John Martin, ABC News, Washington. SIMPSON: And it doesn't stop there. Insurance companies routinely pass their costs along to the public in the form of higher premiums. Officials say that this one case of fraud raised the cost of medical-insurance premiums in California by 15 percent. ... CNN Health Week May 2, 1992 MENTAL HOSPITALS CAUGHT IN INSURANCE FRAUD DAN RUTZ, Anchor: Charges that mental patients were held prisoner in psychiatric hospitals until the insurance ran out have raised the ire of Congressional investigators. Jeff Levine looks into the chilling allegations. JEFF LEVINE, Medical Correspondent: Fifty-three-year-old Susan Alderson enjoys the freedom to walk her dog on a sunny day. But in the summer of 1987, she says she was held against her will in a Texas mental hospital. SUSAN ALDERSON: They threatened me at one point, when I threatened to write a letter stating that I wanted out of there, they threatened to take me to court and have me committed. LEVINE: Alderson says she committed herself after experiencing a psychotic reaction to a pain-killing drug. But she claims that instead of treatment, the hospital's goal was to bleed her insurance for $50,000. Ms. Alderson: People have just got to be very careful. You know, when someone says, "You have to go to a psychiatric hospital." They have to ask questions. LEVINE: That's exactly what Congressional investigators are doing. And they're not happy with the answers. Rep. PATRICIA SCHROEDER, D-CO: Our investigative team found that thousands of adolescents, children and adults have been hospitalized for psychiatric care that they really didn't need. LEVINE: And once in the institution, there was testimony of medieval kinds of mistreatment. Dr. DUARD BOK, Psychiatrist: I've heard of cases where recently, here in Virginia, children were placed in body bags. I heard of a case of a young adult or late teenager in Connecticut who died in a body bag. LEVINE: Of particular concern, say Congressional watchdogs, is the escalating use of mental-health services by military families. They have extensive government insurance covering that benefit. A report from the General Accounting Office shows a 126% increase in costs for psychiatric care during the late 80's for these military dependents. The total cost has peaked at around $600 million. Some of the problems in the hospitals noted by the GAO include unqualified staff, excessive use of restraints and unjustified strip-searches. Meanwhile, some psychiatrists are getting rich. RUSSELL DURRETT, Former Health Employee: It was very easy for a psychiatrist in our facilities to generate $600,000 to $900,000 a year in private-practice fees from us alone. LEVINE: There are even stories of bounties being paid for patients. ROBERT TRACHTENBERG, Psychiatric Hospital Assoc.: The inappropriate practices of a few, left unchecked, can deter patents in need of psychiatric care from seeking that help. LEVINE: No one knows just how widespread abuse in psychiatric hospitals is. And officials say they need tougher tools to crack down on doctors and hospitals that bend a patent's mind for profit. .... CNN World News Today June 30th, 1992 'OPERATION GOLD PILL' STING TARGETS MEDICAID CHEATS Catherine Crier, Anchor: U.S. government officials are calling it the biggest investigation into medical fraud ever. The scandal allegedly involves phony drug prescriptions, resold at the expense of the Medicaid program. CNN Medical Correspondent Jeff Levine reports a nationwide crackdown is underway. JEFF LEVINE, Medical Correspondent: This New York City pharmacy is one of 56 around the country targeted by federal agents as part of "Operation Gold Pill." The sweep involves more than 1,000 FBI agents, making arrests and seizing assets in cities from coast to coast. Most of the suspects are pharmacists and doctors accused of ripping off the Medicaid program for millions of dollars. Attorney General William Barr describes "Gold Pill" as the most widespread investigation of the health care industry ever carried out. WILLIAM BARR, Attorney General: This operation, which has been carried out in 50 cities across the nation and which will involve the arrest of approximately 100 individuals, is targeted at the illegal diversion of pharmaceuticals from the drug distribution chain. LEVINE: Law enforcement officials showed pictures of confiscated pills. Most of those arrested are pharmacists. One physician has been charged, but other indictments of MDs are expected. LOUIS SULLIVAN, Health and Human Services Secretary: For me, "Operatoin Gold Pill" is a better pill. As a physician, I find it unconscionable any health care professional would compromise a patient's welfare for economic gain. LEVINE: The FBI says doctors would write prescriptions for patients who weren't really sick, then bill the Medicaid assistance program for the unnecessary visit. Pharmacists who were in on the con would immediately fill the prescription and bill Medicaid again. The phony patient turns around and sells the medication to others, or even back to the pharmacies, which peddle the products to unsuspecting consumers. The Food and Drug Administration suggests checking out any drug that seems suspicious. Dr. DAVID KESSLER, FDA Commissioner: Again, I think the potential is small and the risk is small, but it is real, that medicines can have ended up- and we have seen some instances- of medicines ending in the wrong container. LEVINE: Another tactic is substitute less expensive generic drugs for brand names, or bill for prescriptions that were never filled. The prescribers tend to pick the most expensive remedies, like the primary treatments for AIDS. Others include drugs for ulcers, infections, allergies and heart disease. WILLIAM SESSIONS, FBI Director: This lucrative scheme to defraud the Medicaid program poses potentially significant health risks to the American public and cost taxpayers millions of dollars each year. LEVINE: Officials stress that no pharmaceutical companies are involved in the fraud. "Operation Gold Pill" is the culmination of a 21-month investigation by federal officials, but they say it's just a fraction of the billions of dollars that are lost in medical fraud every year. Jeff Levine, CNN Medical News, Washington. ... CNN World News July 31, 1992 NATIONAL MEDICAL ENTERPRISES SUED BY INSURANCE FIRMS PATRICK GREENLAW, Anchor: It is one of the biggest psychiatric health-care providers in the country and now the National Medical Enterprises is being sued. The charge? Fraud--bilking millions of dollars out of insurance companies and ultimately out of taxpayer's pockets. CNN's Greg LaMotte has more. GREG LaMOTTE, Correspondent: This psychiatric hospital is run by health- care giant National Medical Enterprises or NME. And if eight insurance companies are right, some patients may be here needlessly while others are charged for services that weren't performed. NME is being sued by eight insurers for submitting $490 million in claims from 1988 to 1991 in which the insurers allege, many were fraudulent. Among the allegations- NME submitted false patients diagnoses- falsified patient records- charged for unnecessary treatments or for treatments never delivered- and charged excessive fees for treatment that was rendered. Possibly the most startling aspect of this lawsuit alleges that bounty hunters and probation officers were paid between $500 and $3,000 per patient delivered and that drinks were purchased for members of Alcoholic's Anynymous and then the members were encouraged to commit themselves. THOMAS BRUNNER, Insurance Company Attorney: They would then provide treatment that was often unnecessary, and we believe in some instances and we will prove in our case, was not provided to these individuals and file large bills with the insurance companies of their patients in order to receive vast sums of money from the insurance companies. LaMOTTE: NME vehemently denies the allegations and company Vice President John Bedrosian points out, NME just last week, sued three of the insurance companies for failure to pay $45 million in claims. JOHN BEDROSIAN, National Medical Enterprises: This suit is nothing more than an attempt by these plaintiff carriers to detract and deflect attention from the real issues involved. And the real issues are their failure to pay for medically appropriate care. LaMOTTE: Word of the lawsuit sent NME stocks plummeting on Wall Street, falling by more than 10 percent. The General Accounting Office estimates that medical fraud costs the nation $70 billion a year. The latest lawsuit could become one of the largest ever against a major health-care provider and may heighten scrutiny for other hospitals and doctors who are finding it more difficult to collect on bills. NME runs 67 for-profit psychiatric hospitals, the second largest chain nationwide. Greg LaMotte, CNN, Canoga Park, California.