Methadone Clinic Operators to Repay $3 Million to State

Operators of one of the largest methadone clinic chains in California entered corporate guilty pleas to grand theft charges Thursday and agreed to pay more than $3 million in restitution for improperly billing the state for medical services provided to indigent heroin addicts.

The San Diego-based operation, which involves more than 20 partnerships and corporations, is partly controlled by Robert B. Kahn, the former president of the California Organization of Methadone Providers, a statewide trade association of clinic operators.

Kahn, along with business associates Galen E. Rogers and Joyce L. Howerton Ray, provide care for thousands of heroin addicts at 22 methadone clinics throughout Los Angeles, Riverside, San Bernardino and San Diego counties. Methadone is a powerful narcotic that can reduce the craving for opiates.

Kahn, Rogers and Ray entered the guilty pleas to three felony counts of grand theft before San Diego Superior Court Judge David Gill as part of a broad settlement of criminal and civil allegations made by the state attorney general’s office and Department of Health Services.

Both agencies charged that operations run by Kahn, Rogers and Ray illegally siphoned millions of dollars from the Medi-Cal and Drug Medi-Cal systems, two state health insurance programs that serve indigent drug addicts.

Among other charges, investigators said they found a pattern of double billing and overcharging for lab tests and medical services from 1991 to 1995. In one example, authorities said, clinics were charging the state $13 for vitamin packs that normally cost 45 cents. The bill to the state for vitamins: $800,000.

“The settlement ends a long, complicated investigation and should result in more honest billings to the state’s Medi-Cal programs,” said Deputy Atty. Gen. Annie Featherman, who handled the criminal case.

Under terms of the agreement, the operators will pay $3,050,713 in restitution and $150,000 to the state to cover the costs of the four-year investigation.

Kahn, 55, of San Diego; Rogers, 56, of El Cajon; and Ray, 62, of Anaheim, also promised to overhaul their billing practices, retrain their staffs and submit annual progress reports to health department officials. In exchange, the Department of Health Services agreed to drop a separate civil lawsuit related to the defendants’ business practices.

According to the attorney general’s office, the grand theft convictions only apply to three of the partners’ corporations and not to the owners individually. The corporations are Advanced Scientific Systems B Inc., Advanced Scientific Systems G Inc. and Jay Management Co. Inc.

Those entities, which were once related to a medical lab, can no longer participate in Medi-Cal or the federal Medi-Care program. Kahn, Rogers and Ray, however, will still be able to bill the state and federal government for services provided through their other holdings.

Defense attorney Michael Lipman said Thursday that the actions of his clients did not amount to criminal behavior because they had legitimate disagreements with authorities over what could be billed to state health insurance programs.

The state’s reimbursement rules for indigent methadone patients, Lipman contended, were so vague and confusing at the time that they invited misinterpretation by clinic staff.

“This case doesn’t lend itself to black and white, good and evil,” he said.

State authorities originally suspected that clinics run by Kahn, Rogers and Ray had improperly collected about $10 million from the Medi-Cal and Drug Medi-Cal programs.

But Featherman said Thursday that the settlement for $3.2 million and three corporate convictions for grand theft was adequate for a case that was complicated, contained volumes of paperwork and had been troubled from the start.

Shortly after the investigation began, a state appeals court ruled in September 1997 that authorities violated laws protecting patient confidentiality when they seized about 6,600 client charts at one of the group’s clinics. The state was forced to return the records and drop the facility from the criminal case.

“This was a compromise,” Featherman said. “We believe the settlement adequately reflects what we could have proven in a manageable case at trial.”