March 1, 2012 -- In the wake of an ABC News undercover investigation, federal authorities in Texas are investigating how an active 82-year-old grandmother was diagnosed as homebound, with a range of ailments that she did not have, including Type 2 diabetes, opening the door to potentially tens of thousands of dollars in Medicare payments for home health care, supplies and equipment she did not need.
A hidden camera recorded the undercover grandmother's visit to a doctor in McAllen, Texas, where she told the doctor and nurses she exercised regularly and, other than some hypertension and arthritis, was in excellent health.
"I've really enjoyed good health all my life, God's been good to me," the doctor was told by Doris Ace, the grandmother of ABC News producer Megan Chuchmach.
Yet the official certification sent to Medicare for home health care services indicate she was homebound and suffered from two internal infections, incontinence and needs "assistance in all activities, unable to safely leave home, severe sob," an abbreviation for shortness of breath.
Mrs. Ace had specifically told the doctor and her nurses she did not suffer from incontinence or shortness of breath.
On a patient referral form for home health care service, signed by the doctor, our undercover grandmother was also wrongly diagnosed with type 2 diabetes, even though she was not given a blood test which doctors say is the only way to authoritatively diagnose diabetes.
The overall diagnosis of the undercover grandmother's health could have provided the justification for what could be tens of thousand dollars a year worth of unneeded treatment and medical supplies and equipment, federal investigators said in an interview to be broadcast tonight on ABC News' "World News with Diane Sawyer" and "Nightline".
"That's fraud," said Tim Menke, senior adviser for investigations in the Inspector General's office at the Department of Health and Human Services.
"Our Medicare system is an honor system," said Menke after viewing the files and the ABC News undercover tape of the doctor's office visit. "And there's not much honor left in the system when you see things like that."
McAllen is considered a hotbed of Medicare fraud by the Inspector General's office which has already brought cases against a number of doctors and health care agencies and has many others under investigation.
"The fraud indicators are off the charts," said Menke of McAllen and surrounding towns in the Rio Grande Valley. "We have ten of the top physicians who have billed nearly $200 million in one specialty last year alone."
Nationwide, the Inspector General's office estimates that $60 billion dollars of taxpayer money is lost to unchecked Medicare fraud every year.
"We've seen it in Miami, Detroit and now in McAllen and it's very, very common," he said.
"They're lying in order to steal from you and me and the taxpayers," he added.
The McAllen doctor, Dr. Padmini Bhadriraju declined to comment to ABC News but denied any wrongdoing through her lawyer.
The lawyer, John Rivas, said the doctor acknowledged an "error" in the diabetes diagnosis for ABC News' undercover grandmother on the patient referral form but said, "this section was filled out by someone other than Dr. Bhadriraju," even though he confirmed the doctor did fill out the majority of the form and signed it in her handwriting.
Her signature served as certification that "my clinical findings support that this patient is homebound."
The doctor's lawyer said neither the doctor nor others in her office knew who filled in the incorrect diabetes diagnosis.
Rivas also said the doctor played no role in the official certification form sent to Medicare, although records show she billed Medicare for the review of the form and its plan of care.
"The records provided by ABC News do not support any allegations of fraud. It would be irresponsible journalism to air a story on Medicare/Medicaid fraud using this referral as an example when there is clearly no evidence of fraud," he added in a letter to ABC News.
ABC News ended the undercover investigation before any medical supplies or equipment could be billed to Medicare based on the false diagnosis.