Insurers Sue Over Alleged Health Scam

Striking back at nine Southern California clinics accused of running a massive insurance scam, Blue Cross/Blue Shield has filed suit in federal court alleging that a dozen of the insurance giant’s state plans were bilked out of $30 million in unnecessary surgeries and medical procedures.

The lawsuit, filed Thursday in U.S. District Court in Los Angeles, names 40 clinics, owners, management companies and physicians and stems from a “rent-a-patient” scam in which recruiters allegedly enlisted patients nationwide to travel to Southern California for unneeded procedures in return for cash, vacations or cosmetic surgery.

The clinics filed between $600 million and $700 million in fraudulent claims to Blue Cross/Blue Shield and about 90 other insurance companies, of which $345 million was paid since 1999, according to the FBI, which is investigating. At least seven of the nine clinics named in the lawsuit are in Orange County.

Southern California has in recent years emerged as a hotbed for rent-a-patient scams, with federal investigators estimating that such operations have cost public and private insurers as much as $500 million. Investigators said the region has proved an ideal place for the scams because patients can be lured by all-expenses-paid trips to the beach.

California also requires insurance carriers to pay claims in 30 to 45 days, leaving less time for the firms to examine suspected fraud here than in some other states.

The suit alleges that the clinics “imported large numbers of patients” from as far away as Florida, Minnesota and Texas and sometimes billed for multiple surgeries on the same healthy patient. In one case, a clinic allegedly performed endoscopies and colonoscopies on a husband and wife -- and their 12-year-old child.

Some of the surgeries, which are inherently dangerous, left patients with health complications.

A 24-year-old Phoenix man underwent an endoscopy, colonoscopy, sweaty palms surgery, nasoplasty and a circumcision at one clinic -- all unnecessary, said Blue Cross/Blue Shield investigator Tom Brennan. The man lost sensitivity in his hands as result of the palm surgery, a procedure that involves collapsing a patient’s lung to clamp a nerve near the spine that controls perspiration.

In July, Orange County authorities charged three people who ran a Buena Park clinic with defrauding insurance companies out of $14.2 million. Prosecutors said unnecessary medical procedures were performed on more than 5,000 people at the Unity Outpatient Surgery Center from August 2002 to April 2003.

Owners Tam Vu Pham, 39, his wife, Huong Thien Ngo, 38, both of Fullerton, and Lan Thi Ngoc Nguyen, 48, of Huntington Beach, were charged with 46 felonies, including grand theft, conspiracy, insurance fraud and tax evasion. The trio and the clinic were among the defendants named in Blue Cross/Blue Shield’s lawsuit.

In October, a federal grand jury indicted the Millennium Outpatient Surgery Center in Santa Ana and four individuals in an alleged $34-million scheme to defraud insurance companies for unnecessary medical procedures.

Charged with multiple counts were owner Thu Ngoc “Perry” Pham, 41, of Mission Viejo; Olga Lilia Toscano, 37, of Irvine; Maria Licea Rosales, 37, of Santa Ana; and Esmeralda Ortiz Tello, 32, of Anaheim. Pham and Millennium were named in the Blue Cross/Blue Shield lawsuit.

Officials investigating the operations said middlemen recruited mostly blue-collar workers with insurance policies. Many who took part were immigrants, officials said, some solicited by handwritten fliers.

“Those of you who have Aetna, Cigna, Blue Cross, Blue Shield, or any PPO medical insurance plan and would like to make $4,000-$5,000 in cash! NO WORK INVOLVED!” read one flier investigators found in a factory break room.

According to federal authorities, some patients were lured with the prospect of complimentary plane trips and hotel stays by the beach. But others were drawn because the clinics said that in addition to the unnecessary procedures, they would receive face-lifts, tummy tucks, nose jobs and other types of cosmetic surgery.

Investigators also said they found that recruits were coached about what symptoms to describe to justify the procedures they would undergo.

Insurance companies were working with the FBI and local authorities in several states, though Southern California is the “epicenter” of the rent-a-patient scheme, said Byron Hollis, anti-fraud director for Blue Cross/Blue Shield.

Hollis said insurance companies first noticed the suspicious claims in 1999 and that the number ballooned in 2001.

“We began sharing information about these cases, and we were talking about the same people. We looked at each other and said, ‘We got a problem,’ ” Hollis said.

Hollis said the investigation received a boost in 2002, when several “rental patients” in Arizona went to authorities after receiving bills for lab work and other treatment not covered by their insurance plans. The insurance industry began cooperating with the FBI and state and local authorities in 2003.

“We entered into an information-sharing arrangement whereby they provided us data, and we conducted the analysis through our intelligence section,” said Dan Martino, an FBI agent in Los Angeles.

Among the procedures investigators found to be routinely performed were endoscopies, in which a flexible fiber-optic cable is used to look inside a patient’s stomach or esophagus; and colonoscopies, in which a long tube with a camera lens at the end is inserted in the large intestine to look for polyps and tumors. The average cost of legitimate treatment ranges from $1,500 to about $3,000. But authorities said they found that some clinics inflated those costs many times.

Some of the patients who received the procedures were cooperating with law enforcement, officials said.

The U.S. attorney’s office in Los Angeles has been reviewing evidence collected by the FBI against more than 100 surgical centers, dozens of patient recruiters and doctors nationwide.

“There are lots of targets,” said Pegeen Rhyne, an assistant U.S. attorney in Los Angeles who is coordinating the criminal investigation.

“We are going after the most egregious we’ve identified and working from there.”

Times staff writers Christine Hanley and Dave McKibben contributed to this report