Letters from prison tell the story of a $1.65 million insurance fraud

Fictitious insurance claims filed by Joshua Miller, owner of a Syracuse hearing-aid dispenser, cost the New York state insurance fund $1.65 million. Learn how he, and others, edged the system to commit the crime.

Joshua Miller was born into a lower middle-class family of five children that didn’t have much to share with one another in their home in Oneonta, New York. He landed his first job as a paperboy when he was 10. As a teenager, he mowed lawns and shoveled snow for neighbors to earn spending money. In high school, he worked as a cook in a restaurant and continued with the same paper route until his graduation in 1996 when he began working on a business management degree at Niagara University.

By 2004, Miller had started working at a New York state-licensed hearing aid dispenser and seven years later would become the owner of the company — Syracuse Hearing Aid Centers LLC. In 2006, he met Christina. They married in 2008 and later had four children. Miller considered himself the luckiest man in the world.

That luck changed Sept. 14, 2016, when Onondaga County Court Judge Anthony F. Aloi sentenced Miller to four to 12 years in state prison for his 2015 conviction of first- and second-degree grand larceny after his guilty plea for his part in defrauding a New York State health insurance program of $1.65 million. (See Minoa scam artist gets 4 to 12 years for faking $1.6 million in hearing aids sales, by Douglass Dowty, Syracuse.com, June 29, 2016.)

How did a hardworking man who built such a great life and family wind up going to state prison? From November 2016 to February 2017, we corresponded with Miller while he was incarcerated at the Mid-State Correctional Facility in Marcy, New York. In those letters, he describes his motivations for the crimes he committed and the circumstances that led him down the proverbial slippery slope to becoming a convicted fraudster.

How did Miller become our pen pal? During a 2016 spring semester fraud examination class at Cornell University, Professor Jack Little (one of the authors of this article) tasked his students with researching a fraud of their choice. Megan Sutton (the other author of this article), and her class teammates, investigated Miller’s case. When Little was grading the team’s work, he asked Sutton’s team members, “So, why did he do it?” because they hadn’t discovered the usual reasons: unshared pressure in family finances or compulsive behaviors such as addictions. As Sutton was returning to Cornell for her final year, she and Little decided to reach out to Miller to dig deeper into the rationale behind the fraud. This article contains their findings.

How the fraud was discovered

According to a news release from the New York State Inspector General’s Office, a manager of New York’s employee health insurance plan uncovered the scheme when this person was conducting a routine audit and noticed something unusual — an inexplicable spike in young, hearing-impaired state workers concentrated in Syracuse, New York. (See the Syracuse.com article.)

However, that wasn’t what happened. During a telephone discussion between one of the authors (Little) and a source in the fraud investigation department of United Healthcare, the source said the initial discovery of the fraud was based on a tip from a municipal employee to the company fraud hotline covered by the insurance plan. The inspector general’s office launched the audit after receiving that information.

The same municipal employee also informed the Better Business Bureau (BBB) that in August 2013, while at the New York State Fair with her husband, she spoke with Miller at the Syracuse Hearing Aid Centers’ booth. Miller showed the woman’s husband several custom headphones. Her husband provided basic information on Miller’s signup forms. Miller asked the woman if she’d also like to be fitted for headphones, but she declined. Miller then asked if their children would like to be fitted, allegedly saying, “just put their names on the sheet, and you can ask them if they would like to come into the office,” according to the woman’s BBB complaint.

A week later, the husband contacted Miller’s office asking for the three children’s names to be removed from the paperwork. Miller’s representatives assured the woman’s husband that his company would remove the children’s names.

About three weeks later, the woman received four $3,000 checks from the insurance company for herself, her husband and two of their children. When the woman called the insurance company, she discovered that Miller had submitted claims for her entire family for hearing aids. The check for their third child was sent directly to Miller.

When the woman called Miller’s office to inquire about the checks, the receptionist claimed another receptionist had made a mistake that the company would resolve even though she admitted it had cashed her third child’s check.

In January 2014, the insurer sent the whistleblower municipal employee a bill stating that she owed Syracuse Hearing Aid Centers for the hearing devices. She then sent all four checks back to the insurance company and told them that Miller had never returned the fifth check. She submitted a fraud report to the insurance company’s fraud hotline.

In her BBB complaint, she notes that if the checks had all been sent directly to Miller’s Syracuse Hearing Aid Centers, she probably never would’ve noticed. Surprisingly, after all of this, Miller still offered her husband $25 if he referred someone to them.

[We’re not surprised that a tip ultimately uncovered this fraud. The ACFE’s 2016 Report to the Nations on Occupational Fraud and Abuse states that 39 percent of initial detection of occupational frauds come from tips, whereas internal audits only account for 17 percent.]

An arresting conclusion to investigations

The municipal employee’s fraud complaints plus the bizarre spike in young, hearing-impaired state workers concentrated in Syracuse, New York, prompted further investigations, which culminated in the Nov. 23, 2015, arrest of Miller on the grand larceny charges plus first-degree health care fraud.

Miller allegedly used his business, Syracuse Hearing Aid Centers LLC, as a front by overbilling the state insurance plan for unneeded services. Through his audiology practice, Miller submitted 512 fraudulent claims to the plan using “Current Procedural Terminology Codes” to allege that Syracuse Hearing Aid Centers LLC was outfitting hearing-impaired state workers with high-quality hearing aids. (See the grand jury report.) In reality, Miller offered the state workers — the vast majority of whom had no hearing impairment — Tunz Custom Audio Monitor earbuds, Audibel SoundGear or Magnum Ear hearing protection that shouldn’t have been covered by insurance.

These products are meant to improve the quality of sound or reduce the exposure to sounds 90 decibels or more, but they aren’t medically necessary and therefore not covered. This iteration of the scheme netted Miller $1.5 million.

On 63 different occasions, Miller also submitted claims for hearing-aid reimbursement when he hadn’t provided any devices to patients. This variation of the scheme netted him $178,000. Miller was also charged with a third count of falsifying or omitting information on the insurance claims filed through the insurance plan, but his plea agreement was only for the first- and second-degree grand larceny charges.

Of the various fraudulent claims, about 500 involved hospital or state prison workers, and the others involved state police and other state agency members.

Abusing the insurance plan

The New York State Department of Civil Service describes the state insurance plan that Miller ripped off, The Empire Plan, as the New York State Health Insurance Program’s “unique health insurance plan designed exclusively for New York State’s public employees and employers.” The plan protects more than 1.2 million state and local government employees, retirees and their families. Approximately 800 local government employers offer The Empire Plan to their employees.

The Empire Plan offers hospital, medical/surgical, mental health and prescription drug programs. It contracts with insurance companies — Empire BlueCross BlueShield for hospital and United Healthcare for medical/surgical specifically — to administer these benefits.

The Empire Plan describes its “Hearing Service Plan” benefit: “Hearing aid evaluation, fitting and purchase of hearing aids is covered under the Basic Medical Program, up to a maximum reimbursement of $1,500 per hearing aid, per ear, once every four years. Children age 12 and under are covered up to $1,500 per hearing aid, per ear, once every two years if the existing hearing aid can no longer compensate for the child’s hearing loss. This benefit applies whether you use a participating or nonparticipating provider and is not subject to deductible or coinsurance.”

This is the provision of the insurance coverage that Miller abused. He would identify an individual and his or her family, perhaps perform a hearing test and then offer them “hearing enhancement” or “hearing protection” products as described above, even though there were no identified hearing losses necessitating hearing devices.

Top-of-the-line hearing aid devices are expensive — ranging from $1,500 to $3,500 per unit. Miller would bill the insurance company for high-end devices but deliver cheaper protection and enhancement products to the patients.

In his letters from prison to us, Miller said his former employer taught him the illegal practice. Miller said some of his (Miller’s) customers expected to receive free hearing protection/enhancement products with the bill sent directly to insurance companies. Miller said this is a common practice within the hearing-aid dispensing profession. He also said the insurance industry tolerates a certain number of these false claims if the providers “don’t get greedy.”

An accomplice or perhaps many

Miller didn’t perpetrate this crime entirely by himself; he had at least one willing accomplice. Joshua Powers, a 36-year-old New York state corrections officer working at the Auburn Prison and Upstate Medical Center, met Miller at the 2013 New York State Fair and agreed to advertise “the deal” for him. 

Powers solicited hundreds of New York state employees by promising them no out-of-pocket expenses for high-tech gadgets; he consequently played an integral role in expanding the fraud’s scale.

Miller, who paid Powers up to $300 for each referral, eventually fed him about $72,000 in referral fees, which Powers used to buy a pickup truck, a boat, jet skis and a vacation cruise.

Powers solicited most of his prospective customers among coworkers at the Upstate Medical University Hospital and at the New York State Department of Corrections. Miller then targeted these corrections officers at eight correctional facilities across the state plus staff at Upstate Medical University and the Willard Drug Treatment Campus, according to a New York state inspector general release.

In May 2016, Powers was arrested and pleaded guilty to a misdemeanor petty larceny charge. He was freed with the conditions that he was to stay out of trouble for a year and had to agree to cooperate against Miller.

Powers paid immediate restitution of the $72,000 in referral fees and a $500 fine. But he kept his job as a New York state corrections officer. Powers’ penalties were minor even though his referrals accounted for about half of Miller’s fraudulent insurance claims.

Miller, in his letters, infers that Powers played an even more sinister role. “I got involved with a person who knew lots of people with The Empire Plan. ...” He wrote that Powers “approached me and said ‘my uncle Mike is running for union president. … I will get you so many people and so much money, you will wind up in prison.’ ” Little did he know just how correct he would be.

Powers’ uncle is Michael Powers, president of the New York State Correctional Officers and Police Benevolent Association. “The six-month period I got involved with the C.O. [Joshua Powers, the corrections officer] was when it went off track,” Miller writes. Miller believes that Powers was a key player in perpetrating the fraud.

In another respect, Miller had many other accomplices in his crime. Most of the people who received free hearing protection/enhancement products were as complicit as Miller. He learned from Schmidt, the former owner of the hearing-aid business and other colleagues in the profession that it was somehow acceptable to appease these individuals. Legal authorities probably should’ve held the complicit law enforcement or corrections officers and charged some of them.

An expert opinion

It’s difficult to differentiate between those who knowingly participated in Miller’s scheme and those who were innocent victims. Laurie Fenstermacher, a credentialing and EDI [electronic data interchange] manager at Practice Management Advisors, a medical billing firm in Pennsylvania, says that Miller’s customers “would have gotten an explanation of benefits in the mail. When you go to the doctor, the doctor gets back an explanation of benefits showing what’s paid to him, and then you as the patient also get an explanation of benefits showing what’s been paid [for the hearing aids].”

Knowing accomplices probably ignored the letters, but many of the true victims who should’ve been aware of the crime might have never found out because, as Fenstermacher says, “a lot of people get their explanation of benefits and look at it like it’s junk mail.” They throw them out without even opening them, she said.

Rationalization upon rationalization

You might wonder how Miller rationalized his fraud. In his letters, he writes he was a hardworking man his whole life and was fixated on making a better life for himself and his family. He describes how the desire to “make the sale” to earn the money to make his business more successful overtook him and drove him to make these bad decisions. As he puts it, he “went off the track for a while.”

Miller clearly blames his profession for his crime. His boss and former owner of the business showed him the fraudulent process. Miller saw his competition making the same spurious claims. And his clients pushed him to file claims so they could enjoy hearing protection/enhancement products that weren’t actually covered by their insurance plans.

In his letters, Miller continually refers to providing these products as a “gray area” under the insurance regulations. He felt that his customers were receiving hearing protection products that just might protect their hearing and keep them from needing hearing aids down the road.

He also blames Powers, although it’s unclear who motivated whom in that relationship. Miller, however, writes that it was Powers who made the initial contact and pushed the crime to another level.

What can we learn from all of this?

Certainly something’s wrong with a medical billing system that permits these kinds of fraud. Fenstermacher, the medical billing expert, says that insurance companies should make an increased effort to encourage individuals to read their EOB forms, which could increase discovery opportunities.

Perhaps insurance companies can modify EOB forms to require patients’ active approvals for claims to be paid. Proof of purchase of the actual hearing aid product bearing the patient’s name could be included with each insurance claim.

Fenstermacher says that less than 5 percent of total claims are ever audited, and a medical practice could go years without ever being reviewed. She adds that this is one of the biggest problems with a health care audit — the auditors select who to review by randomly choosing individuals who use their insurance plan. The auditors instead, she says, should randomly select patients from each of the practices with which the insurer interacts.

Currently, not all practices have an equal chance of being audited, Fenstermacher says. More routine and equitably distributed audits would help discover frauds earlier and would discourage fraudsters from believing there was a low probability their businesses would be audited, she says. (From Megan Sutton's March 22, 2016, interview with Fenstermacher. This interview is no longer available.)

Although tips often uncover most frauds, insurance companies shouldn’t view tips as the sole sources, as in this case. With so many organizations now using data analytics, it’s hard to believe that insurance companies couldn’t analyze claims 24/7 to discover anomalies such as the number of claims per capita or number of procedures per provider.

Miller’s advice

Miller was motivated by greed and the desire to become more successful. Sentencing Judge Anthony F. Aloi noted, “[Miller] is not a bad man. [He’s] a good man who did a bad thing.” (See Miller’s Sentencing Appearance.)

Miller seems to show that he has taken responsibility for his crime and knows he must pay the price for his actions. “Maybe I can help others realize that I had a great life and business prior to my crime, and I should have followed [the advice that] slow and steady wins the race,” he writes. “My want to have it all fast led to my crime, and others can learn honest work pays off, and you will feel better about it. Being a productive member of society is far better than sitting here doing no good for society as a whole.”

Miller knows he can never undo his actions. He got caught up in wanting everything “right now.” Through telling his story, he hopes that others can learn from his crime. He ends one letter with this warning: “Just because this is the way you are taught, it does not mean it is always right.”

He adds that it’s important to “make sure what you do is legit and never trade your morals or ethics for quick money, as quick money is not always good money. Hard work is best.”

If only someone had given Miller this advice before he took the first step in launching his fraudulent scheme.

Access a complete listing of all the correspondence between authors Jack Little and Megan Sutton and Mid-State Correctional Facility inmate Joshua Miller.

The letters in each exchange are in chronological order beginning with typed correspondence from the authors, Miller’s response as typed up by the authors and then Miller’s handwritten note. The authors say they’ve made every effort to transcribe Miller’s notes word for word. — ed.

Megan E. Sutton graduated in January 2017 from the Dyson School of Applied Economics and Management in the Cornell SC Johnson College of Business at Cornell University. She is an incoming advisory staff member at EY in New York City. Her email address is: mes445@cornell.edu.

John E. “Jack” Little, CFE, CPA, is the director of the Masters of Professional Studies in Accounting at Johnson Graduate School of Management and a professor of practice, accounting, at the Dyson School of Applied Economics and Management in the Cornell SC Johnson College of Business at Cornell University in Ithaca, New York. His email is: jack.little@cornell.edu.