Fight to Prevent Medicare Fraud Turns Violent

April 26, 2010— -- Gangs across the country are arming themselves with powerful weapons to bilk taxpayers out of billions of dollars through Medicare fraud. What used to be a mostly non-violent, white collar crime has turned potentially deadly, and Federal agents who once combed through paperwork are now firing rounds at the shooting range to prepare for extreme dangers.

"Our folks are out there engaging a criminal element that is dangerous," said Jay Hodes, an agent with the Department of Health and Human Services Office of Inspector General.

For more on this story, watch Pierre Thomas' report tonight on 'World News with Diane Sawyer' on ABC.

Medicare fraud has become very big business for gangs, members of the Mafia and other thugs. One estimate suggests that criminals steal some $60 billion from the federal government via healthcare fraud every year.

They commit the fraud by recruiting people with clean records who then apply for Medicare vendor licenses. Websites walk them through the process, step-by-step.

"It's so easy to steal from Medicare and Medicaid, it attracts a violent criminal element so they can cash in on their schemes," said Tim Menke, the chief of investigations for the HHS Office of the Inspector General.

Schemes include setting up phony medical equipment companies which then rip off taxpayers by billing for services never rendered and equipment never actually delivered.

Criminals Make Death Threats, With Millions at Stake

Many of the criminals are armed to the teeth to enforce their authority. Undercover surveillance footage shows members of an Armenian gang in Los Angeles as they confront an accomplice suspected of skimming their profits in a $30 million Medicare fraud scheme. The gang members threatened to kill the man.

"You and me, we're going to have a war tonight," said a man on the tape. "Two hundred thousand [expletive] dollars, it really matters."

"We are seeing a variety of different groups who are attracted to healthcare fraud," said Menke. "In California, we see Armenians. In Texas we see Nigerians. In Florida, Cubans. And in the Northeast we'll see Ukranians and Russians."

Medicare Fraud Turns Violent: Criminals Armed to the Teeth

According to the government, the groups across the country will beat or threaten witnesses to prevent them from testifying against them. They don't hesitate to bribe or threaten patients in order to get them to submit false claims, and they back up those threats with paramilitary-style high powered weapons, including 50 caliber sniper rifles. At one so-called medical equipment company in Dallas, a huge weapons cache was discovered with approximately 60 assault weapons.

As part of one investigation into a Medicare fraud case, a search of a doctor's property in the Northeast turned up explosives and landmines, and authorities have seized dozens of rifles and handguns in San Francisco from a facility operated by a gun runner who worked with a Mexican cartel.

The exotic weapons that Health and Human Services investigators have collected look like something out of a Hollywood blockbuster -- pistols that shoot like machine guns and other special equipment. Medicare fraud has turned into an arms race.

"When we start coming across silencers and body armor, that tells us the criminals are playing for keeps," said Menke.

Federal Government Promises to Crack Down on Fraud

Health and Human Services officials promise they're also working to stop the problem before it starts by cutting down on fraudulent applications.

"These are hard core crooks, and we got to do something about this," said Peter Budetti, the Deputy Administrator for Program Integrity, Centers for Medicare and Medicaid Services. "18,000 new applications come into the Medicare program every month and we are realizing that far too many of them are criminal elements and fraudsters."

Budetti said that his agency is working to improve the vetting process by visiting sites to make that businesses are real.

"For the new people, we look to see if they have been in business before," he said. "Who are the owners? Do they have a history of working with Medicare and actually providing any supplies to Medicare beneficiaries?"

Budetti claims in the first year these new measure were put in place, 16,000 companies were dropped from the program.

But despite that, the fact remains that medicare fraud is so wide and deep, taxpayers are still being scammed out of billions of dollars right now.