Blood Money: Lab Case Highlights Nationwide Medicaid Fraud Units

Editor’s note: The opinions expressed here are those of the authors and don’t necessarily reflect the opinion of the New Jersey Department of Law and Public Safety, Division of Criminal Justice.  

Mohammad Akthat Javid thought he had the perfect scam: he would magically transform red blood into green cash. And his fraud worked quite well, for awhile. As the president of a clinical laboratory in New Jersey, he had constructed an elaborate Medicaid fraud and money-laundering operation through which he paid out more than $1.5 million in kickbacks to his co-conspirators during a 10-month period.

Unfortunately for Javid, New Jersey’s Medicaid Fraud Control Unit (MFCU) – a group of fraud examiners, investigators, attorneys, auditors, and analysts – had a strong desire to cut off his blood supply. When they were finally done with him, Javid was in jail and his operation was history.

Javid’s crime wasn’t an aberration in the ’90s but was part of a trend as fraudsters did their best to rip off the Medicaid system. The U.S. spent more than $41 trillion on healthcare in 1999, or 15 percent of its gross national product. At the same time, the General Accounting Office has estimated that fraud and abuse account for at least 10 percent of healthcare costs. Applied to 1999 spending figures, that brings the cost of healthcare fraud to $410 billion a year.

But state MCFUs, created in 1977 through amendments to the Social Security Act, were also a trend in the ’90s that promise to make a sizable dent in Medicaid fraud in the new decade. The units, which have been established in all but three states, have a combined strength of 1,275 staff members and a total federal budget of $95 million.

Bad Blood 

The MFCUs target all healthcare areas but recently have focused on laboratories that cheat both government and private insurers. In recent “labscam” cases, several independent clinical labs encouraged physicians to order rare and expensive tests that were medically unnecessary by assuring that the additional tests would be free or of minimal cost. Actually, the labs were billing government insurers for these tests without the referring physicians’ knowledge. As a result of a three-year task force effort, involving the Department of Health and Human Services, Office of Inspector General, and the Department of Justice, federal and state governments were awarded a total of $642 million to settle potential civil and criminal liabilities in four cases involving most of the states.

Javid, and many other laboratory managers and healthcare clinic owners across the United States, found a way to turn blood into money. Crooked clinics – called “Medicaid mills” by MFCU investigators – purchase human blood from “blood brokers” who draw blood from people willing to sell it. Many of their donors are drug addicts. Word travels fast on the streets when a clinic buys blood – patient lines form long before opening hours.

The clinic owners match these samples with fictitious laboratory requisition forms, using Medicaid recipient numbers from their files. They order an expensive panel of tests, which the laboratory managers – Javid and his ilk – perform and bill to the Medicaid program. The lab then kicks back a portion of the Medicaid payments to the clinic owners.

In Javid’s case he was at the hub of the conspiracy and the healthcare clinic owners were the spokes. The clinic owners supplied a steady stream of blood specimens to Javid, the president and manager of United Clinical Laboratory (UCL). UCL was the management company of United Diagnostic Laboratories (UDL), which tested the specimens for Javid and was a Medicaid provider entitled to bill the Medicaid program. UCL and UDL were at the same location. Medicaid paid between $300 and $720 for the requested panel of tests on each specimen. The Medicaid dollars flowed through UDL to UCL. Javid paid a $100 kickback for each specimen a clinic owner provided.

The clinic owners also obtained the blood specimens through the neighborhood clinics they operated. These clinics employed doctors who were willing to bend the rules and require blood samples of all Medicaid patients who visited the clinics regardless of their diagnoses or treatments. Patients often were willing to have blood drawn in exchange for prescriptions from the physicians for high-priced drugs of their choice. Patients receiving Medicaid benefits had these prescriptions filled and paid for by Medicaid.

Another source of blood specimens for two of the clinic operators was from an amateur phlebotomist who bought blood from individuals for $50 a “set” – 40 vials. The clinics then paid her $200 for each set. The clinics randomly assigned Medicaid names and recipient numbers to the specimens and forwarded them to UDL. UDL received a Medicaid payment of $6,000 to $14,000 for each set of tests and then paid about $2,000 per set in kickbacks to the clinic operators.

Investigative Steps 

Javid’s scam began to unravel in 1995 after Trenton city trash collectors inadvertently discovered blood-soaked medical waste in a torn plastic trash bag near the apartment of a woman who bought and re-sold blood. The MFCU of the New Jersey Division of Criminal Justice began investigating the case.

After a visit from MFCU investigators Janis Vona and Joan Rudderow, the blood seller confessed her crimes and agreed to be a cooperating witness and participate in a controlled sale of blood specimens to Tahir Sherani, one of the co-conspirators, who owned two clinics. The transaction was captured on video and audio tape.

After the controlled sale, Sherani was followed to an office building that housed the United Diagnostic Laboratory. A review of Medicaid paid claims information showed that in 1994 UDL billed Medicaid – and was paid – $500,000. By October 1995, UDL received more than $5 million from Medicaid.

With search warrant in hand, investigators interviewed UDL employees who said that UCL operated as a management arm of UDL. During the search of Javid’s office, investigators seized UCL’s checkbook and the lab’s most recent checking account statement, which included the canceled original checks. Javid admitted he was the owner of UCL and later explained he wrote kickback “commission” checks payable to those names supplied by his co-conspirators.

Analyzing the Financial Data 

The next step was to obtain as many of the canceled checks from the UCL account as possible. Investigators had seized only one month’s statement from UCL’s headquarters and had to subpoena the remainder from the bank. The MFCU’s financial analyst, Marilyn B. Peterson, CFE, combined those checks with originals obtained from the lab’s accountant and created a bank record database.

The fronts and backs of the checks were examined for leads to other individuals, corporations, and accounts. The accounts to which these checks led were then subpoenaed. The records of this second tier of accounts also were examined, which led to another round of subpoenas. More than 100 bank accounts were identified in the course of the investigation and 50 accounts were subpoenaed. In some instances, affidavits of non-disclosure, obtained through the permission of the Superior Court Judge, were used so that the banks wouldn’t advise their customers that their accounts were being examined.

Investigators discovered that several of the bank accounts were pass-through or conduit accounts. Representatives from shell companies ran large sums through these accounts, including money for kickback checks, leaving a small balance at any time.

Corporation records from the Department of the Secretary of State were examined to determine the owners and directors of various companies identified through the checks and bank accounts. Some companies appeared to be shell corporations because they used the same addresses, they had been formed by the same incorporators, and were owned by the same individuals.

Upon further review, investigators discovered that these shell companies, which were established by the clinic owners and Javid, had no normal business activity such as salary checks, or payments for rent, utilities, and telephone. The business accounts were used as conduits and showed checks either converted to cash or outgoing checks made to friends or family members.

Money-laundering Indicators 

As the investigation progressed, the following money-laundering devices were discovered:

• structuring (multiple checks written to the same entity on the same day under the $10,000 limit);
• aliases on bank accounts;
• conduit accounts;
• shell companies;
• attorney trust accounts;
• wire transfers to countries with no money-laundering legislation;
• checks written without “payee” filled in;
• cash conversions through ATMs;
• asset purchases;
• conversions to certified checks, which can be kept and cashed much later; and
• use of fictitious management companies.

Javid’s co-conspirators used various methods to launder the kickback money. Sherani used nominees (friends or relatives who agreed to engage in financial transactions on her behalf) and aliases to manage more than $250,000 in kickbacks. Some of the checks were written to Sherani under the alias, “Tahir Ali.” Sherani had an Immigration and Naturalization Service registration card in that name (later discovered to be a fake) and used it for identification to cash the checks. She cashed multiple kickback checks, for less than $10,000 each, on a single day to avoid the reporting limitation. Two other co-conspirators, clinic operators Arshad Khan and Rehan Zuberi, both of Paterson, N.J., also used their clinics as Medicaid mills where the patients had to provide blood samples to receive treatment or traded blood in exchange for excessive prescriptions.

Khan and Zuberi used a shell company, large ATM withdrawals, asset conversions, and wire transfers overseas to launder more than $760,000 in proceeds from their Medicaid fraud. At one point, Zuberi directed Javid to make a $25,000 kickback check payable to a car dealership for partial payment of a $50,000 sports utility vehicle. The vehicle then was registered in two different names (Zuberi’s brother-in-law and sister) and reported stolen by his sister under suspicious circumstances less than three months after its purchase. The SUV never was recovered.

The Old Shell Game 

Zahid Ilyas, who owned clinics in Newark and Jersey City, was the most entrepreneurial co-conspirator. He used shell companies, aliases, and investment schemes to launder more than $750,000 in kickbacks from Javid. Ilyas’s checks were made out primarily to Bota Inc., a pass-through account. He also had many checks made payable to “Tahir Ashref,” an alias. Ilyas and Javid then used shell companies to attempt to convert their fraudulently obtained Medicaid dollars into hard assets. They transferred almost $200,000 to an attorney’s trust account. The attorney then wrote a check for $349,999 from his trust account, which he used as a down payment on an automobile dealership for Ilyas and Javid. Their scheme was interrupted when Javid was arrested and incarcerated and Ilyas was unable to obtain additional financing for the dealership. But then Ilyas also was arrested, and, in an ironic twist of fate, lost most of his investment due to poor business skills and a partner who stole from him while Ilyas was in jail.

Expert Financial Testimony 

During the grand jury phase of the investigation, Peterson – the case’s financial analyst – testified about the flow of money from Medicaid to the co-conspirators, a preview of her eventual trial testimony. At this point, Javid and Ilyas had pleaded guilty and turned state’s witnesses. However, weeks before the projected trial date, Zuberi also pleaded guilty, after his motion to suppress evidence was denied, leaving Sherani as the only defendant deciding to stand trial.

To call Peterson as an expert financial witness, deputy attorneys general John Krayniak and Cherrie M. Black needed to get approval from the court. In September 1998, Krayniak and Black sent a notice of intent to call an expert witness to the court and defense counsel. After the court granted their request, they then submitted and argued a motion to admit summary chart evidence, which the court also approved. (Peterson was the first expert witness qualified in a New Jersey Superior Court on the subject of patterns of money laundering.)

Judgment Day 

Sherani was found guilty of money laundering in the third degree, conspiracy, theft, corporate misconduct, and Medicaid fraud. She was sentenced to five years of probation, and ordered to serve 364 days in the county jail and pay $74,000 in restitution. This prosecution was the first jury trial conviction obtained under New Jersey’s money- laundering law.

Javid was sentenced to 10 years in the New Jersey state prison and ordered to pay approximately $1 million to the New Jersey Medicaid program. Ilyas pleaded guilty to theft and money laundering and was sentenced to six years in prison and ordered to pay $761,000 in restitution. Zuberi pleaded guilty to theft and money laundering and was sentenced to six years in prison and ordered to pay $50,500 in restitution – the value of the SUV he purchased with kickback money. Khan fled prior to indictment and remains a fugitive.

Effective Weapon 

The state-level Medicaid Fraud Control Units are proving to be an effective weapon in the fraud examiner’s arsenal. By bringing together the talents and energies of attorneys, investigators, auditors, and analysts, the MFCUs may be the best bet in fighting Medicaid fraud not only in laboratories and clinics but also in nursing homes, hospitals, pharmacies, durable medical equipment sales and rental, and home healthcare.

John Krayniak, J.D., is chief of the Medicaid Fraud Section in the Office of the Insurance Fraud Prosecutor of the New Jersey Division of Criminal Justice, a former law enforcement officer, and a career prosecutor. He is a member of the executive board of the National Association of Medicaid Fraud Control Units (NAMFCU).  

Marilyn B. Peterson, CFE, CCA, is the financial analysis coordinator for the New Jersey Division of Criminal Justice. She is the author of “A Guide to the Financial Analysis of Personal and Corporate Bank Records,” published by The National White Collar Crime Center. Peterson is a Certified Criminal Analyst. She is treasurer of the Association’s New Jersey Chapter and is a member of the Editorial Review Board of The White Paper.  

SIDEBAR 

Fraudsters Invade Every Healthcare Area 

It seems that every player in the healthcare arena is defrauding the Medicaid system – patients, providers, suppliers, and institutions. The frauds fall into several general categories including provider fraud, nursing home/rehabilitation fraud, recipient fraud, transportation fraud, home health services fraud, durable medical equipment provider fraud, and Medicaid mill fraud.

Provider fraud can include billing for services never rendered, providing unnecessary services, submitting false cost reports, and giving or accepting kickbacks. Perpetrators can include sole practitioners who submit claims for services never rendered, or large institutions that exaggerate the level of care provided to their patients. Medicaid Fraud Control Units (MFCUs) have prosecuted psychiatrists who have demanded sexual favors from their patients in exchange for prescription drugs, and even funeral directors who bill the estates of Medicaid patients for funerals they didn’t perform.

Provider fraud schemes have become more complex over the last decade. Following are some indicators of provider Medicaid fraud and abuse.

• Time sequence of medical progress is askew. (Medical treatment dates out of sequence could indicate that someone added information later.)
• Amount billed doesn’t correspond to services rendered.
• Common procedure terminology (CPT) codes show evidence of upgrading or splitting to increase costs.
• Physicians refer patients to CT scanners, MRIs, thermography units, pain clinics, and physical therapy units owned by those same physicians.
• Provider has multiple tax numbers.
• CPT code is inappropriate.
• Injury isn’t described in medical terms.

(Source: Aetna Insurance)
Nursing home/rehabilitation fraud often includes improper expenses being included in cost reports, which form the basis for reimbursement. It also can reflect patient abuse and neglect, which may involve providing inadequate medical or custodial care, creating healthcare risks, committing acts of violence (slapping, kicking, hitting or punching) or sexual abuse, and misappropriating patients’ personal funds (commingling patient and facility funds or using patient funds to pay for facility operations).

Recipient fraud can occur when the Medicaid recipients are receiving some benefits from the fraud, but it usually includes collusion with a medical provider who shares the profits with the recipient. This type of fraud also includes instances in which recipients receive controlled substances in return for their assistance in a fraud.
Transportation fraud occurs when a Medicaid carrier overbills for medical transportation services. This might include inflating the number of miles in trips, creating false trips, or billing for trips that weren’t medically necessary.
Home health services provider fraud includes inflating the number of hours of care provided or providing care to recipients who don’t qualify.

Durable medical equipment (DME) provider fraud includes “upcoding” – claiming reimbursement for an expensive, complex item when a lesser item is provided. Also, a DME supplier may pay kickbacks (“commissions”) to physicians to induce them to order expensive, unneeded equipment.

Medicaid mill fraud is committed by clinics, which exist to maximize profits by generating Medicaid billings for services rendered at the clinic and for ancillary services. (A typical Medicaid mill fraud case is described in the accompanying article.) Often, a Medicaid mill:

• is found in areas with high concentrations of Medicaid recipients;
• inhabits small, storefront spaces;
• lacks basic equipment and supplies necessary for practices;
• changes location frequently;
• hides its ownership by using “nominees” and incorporation services;
• may bill through the provider number of a physician who is also an employee;
• uses a shell company as a billing entity;
• has a mail-drop corporate address;
• may own more than one clinic;
• ranges in levels of legitimacy from totally illegal to engaging in some illegal practices; and
• bills Medicaid at a moderate level and then rapidly increases to a much higher level.