Medicare Fraud Costs Taxpayers More Than $60 Billion Each Year

March 17, 2010— -- A four month "Nightline" investigation into Medicare fraud makes one thing perfectly clear: this is a crime that pays and pays and pays. The federal government admits that a staggering $60 billion is stolen from tax payers through Medicare scams every year. Some experts believe the number is more than twice that.

Fraudulent pharmacies, clinics and medical supply companies seem to pop up like mushrooms in South Florida, the area widely considered to be ground zero in the fight against a crime that requires little training and involves few risks.

Former car mechanics and drug dealers, bus boys and clerks can be involved in individual scams, taking tens of millions of dollars every year from the government program designed to provide health care to the nation's elderly. As one government official told "Nightline," having a Medicare license is having a license to steal.

The victims of the schemes? American taxpayers.

Federal agents Brian Piper and Omar Peres of the Office of Inspector General are part of a special strike force in South Florida on the trail of some of the most elusive and richest criminals in the U.S.

We rode along with them over two days recently, as they ran down tips and knocked on doors in pursuit of people defrauding Medicare.

Our first stop with Piper and Peres is a place that is registered as a pharmacy that Medicare has paid $1 million to in two months. When they arrive, there is nobody there. The shelves are nearly bare. The chances are that it never sold so much as an aspirin.

It looks to be what the agents say is a typical scam: a fraudster buys a pharmacy along with its Medicare license and entire patient database. This one was sold five months ago for just $45,000.

"They've left the patient records for all of the Medicare beneficiaries that they were billing. So if these records had been thrown in the trash, they could be found by anyone," said Piper.

Piper and Peres have often seen the scam before.

"This is actually someone's name, Medicare number, address, phone number, and this person may not even know that they were being billed yet," Piper noted.

The scheme is relatively low-risk and requires little investment. Investigators allege that one person at a computer terminal could have submitted the million dollars worth of claims this pharmacy sent to Medicare in two months, before shuttering the place and disappearing.

"You don't have to hire anyone," said Piper. "If you buy an existing company like has happened here, one person can come in at night -- midnight -- submit all the claims and you never even have to open the business."

It's that easy because Medicare is based on trust. When the program was introduced in the 1960s it was assumed that no one would try to defraud a system designed to take care of the health needs of the elderly. The government was required to reimburse vendors in less than 30 days. To this day, in 99.9 percent of the cases, Medicare "auto-adjudicates" claims within 30 days. In other words, the computer decides if the right codes are in the right boxes. If they are, jackpot, the checks are sent.

"That means that if you check the right boxes and fill out the right forms, you're going to get paid," said Kirk Ogrosky, who until recently was the federal prosecutor in charge of all criminal Medicare fraud at the Department of Justice.

Ogrosky said criminals' forms are often filled out more completely than actual health care providers'.

"Real hospitals and doctors who are struggling every day to keep up with the paperwork sometimes miss things ...whereas if you are a criminal trying to steal, all the forms look perfect every time because the whole goal of the enterprise is to check the right boxes," he said.

Medicare Makes Life Easy for Criminals

Medicare makes life very easy for criminals. Unlike credit card companies that stop payment the second a suspicious charge is made, "Nightline" learned Medicare is slow to respond even when people call to tell them about fraud.

Paula Teller spent three years trying to convince Medicare that fraudulent charges were being made using her Medicare number.

"Every week there was a charge of maybe $1,000 or $2,000," Teller said, "Thousands of dollars for treatments that I didn't even know what they were actually -- some kind of diabetes medication. ... I called Medicare and they kind of questioned if I was sure I hadn't had it done."

Teller estimates that $50,000 in phony claims was made under her Medicare card.

Judge Marshall Ader, who sat on the Florida state bench for decades, said he even had trouble getting Medicare to pay attention. When he saw that Medicare was being billed for two prosthetic legs using his Medicare number -- for the record he has both of his legs -- he hit the roof.

"I saw that there was a report for some prosthesis that I, of course, didn't use and had never used," said Ader, who has both of his legs and no need for prosthesis. "The bill was something like $30,000."

"I called Medicare, the investigative fraud unit ...Nobody seemed to care," he said. Ader told us it took over a year to sort out the situation.

Criminals Get Rich Quick

Meanwhile, criminals continue to get rich quick, often buying expensive toys from helicopters to sports cars and race horses, from these easy-to-execute scams.

Another variation of the scam took place at a phony AIDS clinic, where a patient being paid off by fraudsters made a fake Medicare claim at the facility. "Nightline" was provided with undercover video inside the clinic documenting the scam in action.

The video shows the informant following the fraudsters into a back room, where he gets a cash kickback for use of his Medicare number.

According to Piper, Medicare was billed three times a week at this clinic and paid out $10,000 per claim -- more than $30,000 a week for a service that was never provided.

"That's just per patient. One patient," he said. "So when you get a group of 10, 20, 30 patients you can see what a lucrative crime this was."

The clinic was closed, but not before Medicare paid the fraudsters $2 million. The criminals were sent to prison in sentences ranging for three to seven years.

Prosecuting Medicare Fraudsters

Plenty of criminals are arrested by the FBI and the Office of Inspector General. Just recently in Detroit, where another strike team is located, agents conducted an early morning raid on a clinic that had collected $15 million in an alleged Medicare scam.

U.S. Attorney Jeffrey Sloman spearheads prosecutions in South Florida. He meets with us in a secret location and shows us the row after row of pending cases representing what he calls "over a billion dollars of fraud... probably...two billion." Sloman said: "there is definitely more out there."

Despite the fact that the South Florida strike force prosecuted approximately 170 cases last year, all their hard work hardly makes a dent.

"That's the stunning thing about it...from my standpoint, relatively simple fixes can be instituted and aren't then something's terribly wrong," Sloman said.

Obama Administration on Stopping Medicare Fraud

Earlier this week President Obama said stopping such fraud would help fund his ambitious health care plan.

"Nightline" asked Obama's Secretary of Health and Human Services, Kathleen Sebelius, how much money the administration is counting on saving over the next ten years.

"Well, right now, I think the estimates are somewhere in the $25 billion range," she said.

While that may sound like a lot, at the rate things are going, it isn't very ambitious; $1 trillion is likely to be stolen from Medicare in the same period.

Sen. Charles Grassley, R-Iowa, who has been holding hearings for decades on Medicare fraud, said he's worried the president's health care bill fails to address the problem at the heart of the matter: pay and chase. Medicare pays the criminals and then chases after them.

"What's in there is good," says Grassley, referring to the Medicare fraud provisions in the Administration's bill, "but it isn't as fundamental of a fix as we need. The fix is to shut down the check-wiring for suspected fraud until you find out whether there's real fraud of not."

When asked why the fix isn't part of the president's health care bill, Grassley said: "I hope it's an oversight, but except for saying it's an oversight, I can't give you a reason why it's not in there."

So we asked Secretary Sebelius. She said it was not an oversight.

"I think we have a difficult balance here," she said in an interview with "Nightline." "They can't just slow down payments willy-nilly because that's an unfair burden on the majority of providers who are legitimate."

In fact, Sebelius' staff later told us that despite what Sen. Grassley said, they already have the power to stop payments --- though it's an option they rarely use, even when there is clear evidence of fraud.

"Medicare very rarely suspends payment. Many of the criminals that are stealing from Medicare file the same claims over and over again for different patients," Ogrosky said. "If you have one hundred patients getting a dosage of a drug intended for chemo, they would be getting the same amount of the drug regardless of their body weight, regardless of the state of their diseases, regardless of their condition...if you were to ask any doctor, they would tell you that's impossible."

That should be good evidence of fraud, he said, yet over and over again, Medicare pays. Meanwhile, the vicious cycle continues: law enforcement continues to do its best to chase down the bad guys and the system continues to pump out the checks to the cheats.