winter 2014 insurance fraud insight in america ideas · has influenced people’s attitudes and ......

WINTER 2014Volume 5 • Number 3

Published quarterly by the Coalition Against Insurance Fraud

insight

analysis

ideas

19

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Civil suits allow auto insurers to take down organized fraud ringsAutomobile insurers increasingly are turning to civil suits to help

counter the growth of complex, organized fraud rings.

By Frank Goldstein, Esq.

Deterring workers-comp fraud in San Diego Public-awareness efforts by the San Diego District Attorney’s

office warned county residents about fraud and have greatly expanded case referrals for investigation.

By Dominic Dugo

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TrendWatch: new developments about fraud in AmericaHall of Shame’s No-Class of 2014 exposes newest master marauders

… Misclassifying of workers sparks more crackdowns.

By Coalition Staff

25

Rational swindlers avoid crime when risk not worth the reward Criminology theory is widely used in many criminal justice areas, yet

there is no application of these theories to insurance fraud.

By Michael Skiba, PhD

Corporate dentistry bleeds Medicaid and vulnerable childrenCorporate-owned dental chains are exploiting the underserved

market for low-income child Medicaid patients.

By Debbie Hagan

journal ofInsurance Fraud

in AmericaWINTER 2014

From the publisher

WINTER 2014Volume 5 • Number 3

he JIFA is a window into all corners of the fraud world — an incisive guide to what definitive trends and practical solutions are afoot. Fraud fighters continually tinker with the formula for convincing consumers to stay away from fraud. Saturation bombing of anti-fraud messages has measurably helped level off workers-compensation schemes in populous San Diego County, a key regulator writes in this issue.

Dental scams are nothing to smile about, a citizen blogger says. Chain dental firms are pulling low-income kids’ teeth and inserting steel crowns in worthless surgery that lines the dentists’ pockets with lucrative insurance payouts. Many scams can be explained by academic theories of crime. Deterring fraud succeeds by overriding people’s rational choices to commit fraud. Make the crime too expensive and they may back off, writes an SIU with a PhD in insurance fraud.

Fraud fighters are making the rational and irrational choices of fraudsters harder to bear every day. Find out uniquely why, and how, in this issue of JIFA.

T

Sincerely,

2014. All rights reserved. For republishing information, contact Kendra Smith.

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Journal of Insurance Fraud in America2

journal ofInsurance Fraud

in America

Abstract: Workers-compensation fraud is a problem in San Diego County, with a population of more than three million. Public-awareness efforts by the District Attorney’s office warned county residents about fraud and have greatly expanded case referrals for investigation over the last three years. Suspected fraudulent claims also have largely flattened out. This suggests that the Crime Prevention Campaign has influenced people’s attitudes and actions. The strategy over the last three years involved flooding the market with deterrent messages. Brochures were handed out and mailed throughout the county. Billboards were erected along freeways. Posters were distributed to business owners to warn employees and managers against scams.

By Dominic Dugo

nsurance fraud costs California consumers $15 billion a year.1 Approximately $4 billion of this amount is lost to workers

compensation schemes.2 As a result, the San Diego County District

Attorney’s Office has worked closely with the California Department of Insurance, insurers and the local community to aggressively investigate and prosecute this costly crime. Just as important, we also are working to deter future fraud.

The traditional deterrence approach of highlighting prosecutions to community groups and insurers has shown limited success. However, with innovative thinking “outside the box,” a public-awareness campaign focused on crime prevention is helping reduce workers compensation fraud in the county.

And it is succeeding at a fraction of the cost to prosecute. Law enforcement must keep in mind that decreasing the overall level of workers-comp fraud is the ultimate goal. Prosecuting cases is only one of the many tools in the District Attorney’s arsenal.

Designing an effective crime prevention strategy requires an understanding of the types of cases prosecuted, and the target audiences’ profiles.

Applicant fraud is most commonly understood

I

Deterring workers-comp fraud in San Diego

Flooding market with a stern tagline motivates consumers and businesses

Insight • Analysis • Ideas 3

as workers comp fraud. This involves workers lying about an injury to obtain benefits they are not entitled to receive. Cases include employees faking a work injury, exaggerating the extent of a work injury, falsely claiming that an off-duty injury occurred at work, working at a new job while collecting benefits from the previous job, and/or lying about prior injuries.

An entertaining video showing how the suspect is faking the injury usually accompanies these cases.

Four types of employer fraud

While employee applicant fraud is common, more than 50 percent of the cases the District Attorney prosecutes involves crimes by employers and providers. There are four types of employer fraud.

First, employers may deny injured workers the full range of workers compensation benefits. An employer may pay a medical bill, persuade an employee to accept cash in lieu of filing a workers comp claim, or intimidate workers into using their personal health policies.

Second, premium fraud involves employers lying to insurers to lower their workers compensation premiums. Employers in the underground economy may say their payroll or staff size is lower than they really are. They may pay workers in cash and then fail to report this payroll to the state and their insurer.

Third, some employers operate their business without buying state-required workers-compensation coverage. For example, the owner of a restaurant with 10 employees doesn’t purchase insurance to cover employees injured on the job. Workers could be dangerously exposed if they are hurt.

Fourth, the county also prosecutes medical and legal providers for falsely billing insurance carriers for services never performed. Suspects include patients, doctors, chiropractors, lawyers and other professionals.

Planning: Define audiences

We have learned over the years that more than 95 percent of the defendants we have prosecuted for workers compensation fraud do not have a criminal record. This is a critical fact when designing an effective public-awareness approach. By contrast, we

find that robbers, drug dealers, auto thieves, sexual predators and gang members often have significant criminal records.

Drug dealers selling cocaine on the corner or gang members doing a drive-by shooting don’t need to be told they are committing a crime that will lead to incarceration. It is obvious and well-known that these are criminal acts that will be prosecuted.


However, a worker staying out on workers comp leave for a few extra weeks or employers paying some employees cash to reduce premiums may not readily realize their actions could lead to felony convictions.

Thus, our crime-prevention awareness programs focus on informing and educating the community about workers compensation laws and the serious price that perpetrators will pay. With the exception of uninsured employers, workers comp fraud is a felony in California. The penalty is up to five years in prison.

The county’s top priority is to deter crime. Yet we understand that certain individuals will not be deterred from workers compensation fraud. Unfortunately, hardened criminals exist despite the community’s best efforts to prevent fraud. They also may not be persuaded by outreach efforts. Therefore, the county has a dedicated team that investigates and prosecutes these criminals.

Yet certain individuals will commit workers comp fraud because of an economic downturn or an opportunity to make “easy” money. We target this group of potential defrauders with public-awareness

campaigns. A large percentage of these individuals can be persuaded to not commit fraud.

The District Attorney’s experience in the last three years demonstrates that aggressive crime prevention awareness campaigns can reduce fraud while also helping increase prosecutions. Two key results:

Suspected fraudulent claims that insurers have officially reported to the California Department of Insurance have remained largely unchanged for the last three years.

Historically, almost all workers comp fraud prosecutions originated from insurance industry case referrals. A small number of referrals stemmed from

non-insurer sources. Today, our Crime Prevention awareness programs have drastically altered where our referred cases are sourced. The outreach efforts are generating a large volume of referrals. This is the effort that unfolded:

Strategy: Flood the market

During the last three years, the crime-prevention campaign has embarked on 11 high-profile public-awareness tactics. They have alerted the community that workers comp fraud committed by an employee or employer is a felony with serious jail time.

Our strategy is to flood the market with short, easily understood messages using numerous outreach vehicles that are provided free of charge. This approach reinforces our prevention messages to as many people as possible. We seek to make our

tagline as wellknown in the county as the AFLAC duck.

The primary message or tagline on all material: “Don’t do it. Don’t tolerate it. Report it: (800) 315-7672.”

Posters. A time-honored medium in a digital

age — posters may be the most effective and affordable anti-fraud tool in our campaign.

Employees and employers were cautioned via 200,000 posters in English, Spanish and Chinese. Employers were warned not to illegally deny benefits,

“Hundreds of employers use the posters. One large grocery store chain laminated 800 of them.”


and employees were urged not to fake work injuries to collect benefits. “Commit workers’ comp fraud, get a new outfit,” the posters warned tongue in cheek about jail uniforms.

Hundreds of employers use the posters. One large grocery store chain laminated 800 of them. A school district with a serious fraud problem even hung posters in restrooms. Posters also went

to employers, insurers, government agencies and healthcare providers.

We also fanned out with presentations to business and other community groups. Attendees often commented that the posters reduced workers comp fraud in their businesses. A state agency in the county with 1,000 employees had 500 open claims. Claims dropped 50 percent after the agency placed the posters throughout the workplace.

Billboards. We placed 120 freeway billboards and transit-shelter posters across the county in November-December 2012 and again in 2013. Because Spanish speakers (roughly 38 percent of California’s population) form the largest group whose primary language is not English, 40 billboards were in Spanish. An estimated one million people saw the tagline message.

PSAs. Public-service announcements frequently aired on TV. Stations generously donated studio time to shoot the 30-second PSAs in English and Spanish. The messages were delivered by DA Bonnie Dumanis and her Spanish-speaking communications chief Jesse Navarro.

The PSAs formed a succinct contact with San Diego residents. They provided consumers with deterrent messages and the fraud hotline number.

More than 3,000 PSAs aired on nine English-speaking channels and seven Spanish stations during July 2012-May 2013, and July

2013-May 2014. A 20-minute Vietnamese television interview of Dumanis aired 12 times.

Print ads. Paid ads formed another campaign prong. In one approach, we bought ads in English and ethnic newspapers, and community news outlets. Chamber of commerce newsletters carried the messages forward in 2011.

More than 2,000 ads have appeared in nearly 50 publications serving these communities: English, Spanish, Chinese, Vietnamese, Japanese, Italian, Korean, Cambodian, Thai, Laotian, Filipino, African-American and Military.

Thousands of people also cross from Mexico into the U.S. each day because the county borders on Mexico. So we ran ads in Mexican newspapers that are distributed at the Tijuana border.

The anti-fraud posters appeared in the ads in each publication’s language.

Brochure. A brochure was mailed to 180,000 employers throughout the county in 2013. Just like the posters, the free brochures are handed out at all community events. Previously, 16,000 brochures were inserted into a local business newspaper.

Community talks. We gave more than 120 presentations to community and business groups, amounting to roughly 6,000 people over the last three years. The target groups included chambers of commerce, private and public employers, insurers, employee groups and trade organizations.

Business and labor groups were informed of their rights, duties and penalties when dealing with workers-comp benefits. The typical presentation explained the varied schemes and recent high-profile cases. Brochures and posters also were provided free of charge.

Despite the relatively limited number of people the presentations reached, they often generated viable case referrals that saved tens of thousands of stolen workers compensation dollars.

6 Journal of Insurance Fraud in America

Trolleys & buses. More than 250,000 people use public transportation in San Diego County each day. As a result, we placed anti-fraud ads inside 640 trolleys and buses throughout the county during November-December 2013. Our well-known English and Spanish posters were used.

Cross-border fliers. San Diego County has one of the world’s busiest borders. More than 50 million people cross the border with Mexico annually. Thousands of people living in Mexico come to the county as day workers each morning.

Capitalizing on the typical northbound traffic backups, we handed out 190,000 double-sided fliers (English and Spanish) at the Tijuana and Calexico border crossings throughout 2013.

The flier, which is our poster in English and Spanish, educated consumers crossing the border about their rights and responsibilities under the workers-comp system.

Radio ads. Consumers were alerted to comp schemes via radio ads. More than 300 ads aired on four radio stations along with 25 radio news interviews in 2012 and 2013 combined. The ads aired in English and Spanish.

Facebook. The campaign broadened with a Facebook component to reach consumers of all ages who frequent this popular site. We bought Facebook ads in 2013. The ads were our posters. Visitors clicking on the ad were directed to the DA’s newly redesigned insurance-fraud homepage.

Visitors could conveniently download the brochure, watch the PSAs in English or Spanish, or get the hotline number to report suspected scams. The Facebook ad logged 3.3 million views in a brief two-month period.

Google. The world’s largest search engine was an effective outlet. Our posters, tagline and insurance-fraud weblink were positioned alongside Google search results as “Sponsored links” — or subtle advertising. We paid per click to maximize budget efficiency. Importantly, the ad also was formatted for smartphones, tablets and desktop computers. This made the messages easily accessible to virtually every digital user in the county. The link pulled 1.1 million views during the two-month effort.

Success: Crime flattens out

Our workers-comp prosecutorial staff has remained largely the same over the last three years,

while only 3-5 percent of our $4.5-million annual budget goes to public awareness. Several indicators suggest the campaign has succeeded. It has done so with such affordable use of these outreach resources.

Indicator: Suspicious claims that insurers officially reported in the county have remained largely unchanged for the last three years. This comes after a steady growth in questionable claims for several years (See Exhibit 1).

Exhibit 1: Insurer referrals

Indicator: Investigations the DA opened

increased 63 percent from 183 in 2011-2012 to 298 in 2013-2014 (see Exhibit 2). Prosecutions spiked from 88 to 146 over this span (see Exhibit 3). Convictions have risen from 58 to 91 — a 56-percent increase (see Exhibit 4). Many other cases still are pending in court.

Indicator: The above numbers point to a parallel fact: Referral sources have greatly expanded during the campaign period, especially by consumers. In turn, this has grown the number of cases for prosecution. Several major cases have earned convictions. Others are being investigated thanks to leads generated by the awareness campaigns. Dozens now are received each year.

We’re building community buy-in. Historically, almost all workers comp prosecutions stemmed from cases that insurers referred for potential investigation and prosecution by the DA. These referrals came from just 40 insurer investigators. How can just 40 investigators, however dedicated, be expected to uproot a large fraud problem in a county of 3 million people?

The public-awareness campaigns worked to enlist the entire San Diego community as allies — a potential anti-fraud army of millions. Referrals from throughout the community thus have risen sharply. The hotline rings off the hook at times, especially


when billboards appear along freeways or PSAs air on television.

People are thinking twice about workers-comp scamming. How many people are upset that a coworker is faking an injury? How many office employees know construction-company owners who are avoiding reporting full payroll to the insurer?

Exhibit 2: New investigations

Indicator: Common sense tells us that since 95 percent of workers-comp defendants do not have a criminal record, our “Scared Straight” message that comp fraud is a felony crime does deter large numbers of potential perpetrators.

Indicator: Anecdotal community feedback at public events says the awareness campaigns are reducing workers comp fraud.

Exhibit 3: Defendants prosecuted

Seek level playing field

We must continue promoting a competitive and fair business environment, with a level playing

field for law-abiding employers in San Diego County. The state and county are working hard to make this happen. We are enlisting partners such as employers, employees, workers and other stakeholders.

Exhibit 4: Defendants convicted

This healthy climate brings us ever closer to a goal of lower workers compensation fraud, more benefits for injured workers, and more-affordable goods and services for consumers. By continuing to innovate and think beyond the box, well-targeted awareness campaigns can have an impact on people’s attitudes — and actions. The result is a far-more-conducive environment for enabling workers compensation coverage to achieve its full potential in helping the county flourish.


1 Reducing Fraud in California, California Department of Insurance, Advisory 1 Task Force on Insurance Fraud, 2008 http://www.insurance.ca.gov/0300-fraud/upload/FraudReport.pdf

2 Conservative estimate extrapolated from multiple statewide and academic studies of workerscompensation fraud in California.

endNOTES

About the authors: Dominic Dugo is chief of the Insurance Fraud Division for the San Diego prosecutor’s office. He also oversees the office’s public-awareness campaigns.

By Frank Goldstein, Esq.

ountering automobile-insurance fraud has become especially troublesome with the

continued spread of organized crime rings in varied states. This was evidenced when law enforcement recently cracked a suspected major staged-crash operation in Florida.1,2

In that case, investigators reaffirmed how well-orchestrated many rings have become in recent years. In fact, several automobile-fraud rings create files that both identify insurers they perceive as soft touches willing to pay claims and avoid prolonged anti-fraud efforts, and which carriers are more likely to fight back.

I believe the rise of organized insurance-fraud rings can be linked in no small measure to many insurance carriers looking the other way and paying suspicious claims just to stop the bleeding. The thinking is, let’s cut our losses and not get mired in a protracted legal fight that could cost more than the initial fraud. That position only emboldens aggressive fraud rings.

This seeming money-saving decision likely has cost some insurers much more over the long term because perpetrators keep returning to the same well for relatively easy pickings. Large-scale scammers

Uncivil civil suits allow auto insurersto take down organized fraud rings

Civil actions give insurers a legal tool to counter the spread of complex rings

Abstract: Automobile insurers increasingly are turning to civil suits to help counter the growth of complex, organized fraud rings. Civil actions can be expensive and require a full commitment to seeing the action through. Insurers often barely break even after large legal expenses. Yet the suits signal to the criminal underworld that defrauding particular insurers is a no-win proposition. They also allow insurers leeway to take action instead of waiting for criminal charges to be handed down. Auto insurers increasingly are filing state and federal RICO actions. RICO allows insurers to present evidence of the defendant’s entire criminal operation. This gives insurers a powerful legal tool to take down the complete enterprise.

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who have succeeded in one state often migrate to other states they believe lack the infrastructure to successfully combat their operations. Different locales, but the same insurers are hit up for fraudulent payments.

This rise of organized auto-fraud rings comes with a price tag. Average automobile premiums must be raised to cover fraud losses; just how much depends upon the state in which an insured lives. In New York, for example, auto-insurance fraud costs residents $1 billion every year, state officials estimate.3

No-fault schemes also add nearly $100 in extra premiums for the average family with two drivers in Florida, the Insurance Information Institute estimated at the height of a successful 2012 drive to reform that state’s no-fault fraud laws.4

Suits make statements

A number of auto insurers, however, have actively begun using civil suits to counter organized auto-fraud rings. These carriers are willing to absorb usually significant court costs without assurances of full restitution. They want to send a statement to the public and criminal underground that targeting them exacts a large and untenable price.

Insurers also can act decisively on their own rather than wait for the criminal system to accept and prosecute cases. The burden of proof is lower in civil cases than criminal actions as well, and can earn potentially large court awards that offer opportunities to bankrupt the ringleaders. All told, civil suits can be an imposing weapon.

Overall, some insurers appear to be filing more civil actions to take a public stand against insurance fraud. The aim is to stop the crime on a global front. Otherwise the concern is that fraud rings will simply continue reinventing themselves and their scams, thus eroding insurer profits and raising customers’ auto premiums.5

Led by several major insurers, numerous fraud cases have been litigated in recent years. Civil suits

“This rise of organized auto-fraud rings comes with a

price tag.”

typically seek millions of dollars in restitution from fraud rings.

� In a case settled out of court days before trial, State Farm Insurance may have recovered as much as $20 million from the Palm Beach Lakes (Fla.) Surgery Center for wrongfully driving up medical costs by colluding with attorneys and medical device manufacturers in a 2013 no-fault fraud case.6

� In New York, Allstate filed a $30-million lawsuit against numerous doctors, attorneys and clinics involving a more than $400-million “massive and sophisticated” no-fault scam involving 22 healthcare firms, 10 licensed medical professionals and three attorneys in a case the FBI labeled at the time as the largest single no-fault auto insurance fraud ever charged.7 Several defendants have pled guilty, with millions of dollars recovered to date.

� In August 2014, Allstate and the State of California won a judgment of more than $1.4 million against a Sonoma County business that billed for fraudulent auto-glass and windshield replacements.8

Insurers may face reprisals

So why don’t all insurers litigate civil cases, and more often? Even though I litigate insurance fraud, I am not always convinced that filing a suit is the optimal course of action.

There is much to consider. Filing a successful civil action typically requires significant substantiation to prove fraudulent activity. An insurer must be prepared to fight ... long and hard.5 A lawsuit usually is time-consuming and expensive. And insurers often are fortunate to break even because court-ordered restitution may have been laundered or spent.

Beyond that lies the possibility of reprisal. Many defendants file a counter-suit almost immediately after an insurer files its action. Bad faith is one common allegation. Insurers must be certain of their facts.

Although insurers lodge most civil suits in state courts, a growing number of actions are playing out in federal venues.

Farmers Insurance, for example, sought nearly $2 million in a federal lawsuit filed in Minnesota against 46 chiropractors and an MRI firm it alleged was ordering unnecessary scans for auto-accident victims.9


State Farm filed a federal suit alleging a “massive fraud scheme” against the 1-800-ASK GARY accident-referral service in Florida. The insurer alleges the large firm illegally referred crash victims only to medical providers controlled by owner Gary Kompthecras in Florida, Minnesota and Kentucky.10

The defendants allegedly “promoted their fraudulent enterprises by providing money to anyone who referred accident victims to the clinics, offering cash directly to patients who agreed to accept unnecessary chiropractic treatment, and dispensing treatment in a manner designed to maximize profits, rather than heal patients.”

RICO takes down rings

Geico filed suit against a Florida chiropractic center and its recruiters in July 2012. The insurer was going after a suspected staged-crash ring that allegedly stole more than $2.3 million in bogus claims.11

The insurer alleged civil conspiracy, common-law fraud, tortious interference with contractual relationships, tortious interference with advantageous business relationships and unjust enrichment, plus violations of federal RICO

(Racketeering Influenced and Corrupt Organization Act) and the Florida Deceptive and Unfair Trade Practices.

The suit illustrates that insurers may combine RICO with a wide range of other state and federal charges to cast a large legal net that increases the likelihood of a favorable verdict.

Whether a state or federal action, RICO suits enable insurers far more freedom to present to the court a total picture of a complex fraudulent enterprise. Insurers can go beyond presenting evidence solely for a single false claim. RICO allows insurers the legal infrastructure to identify and take down the entire operation in civil court.

A number of prosecutors and insurance companies are successfully using RICO charges. The federal law allows crime-syndicate leaders to be prosecuted for crimes they ordered or assisted in — even if they did not directly participate in the criminal action.

RICO has proved so effective on the federal level that 33 states have adopted RICO laws to enable suits against criminal enterprises at the state levels.12

Suing to recover more than $185 million in fraud-related damages since 2003,13 Allstate uses

The insurer alleges the large firm illegally referred crash victims only to medical providers controlled by owner Gary


RICO lawsuits to go directly after the leaders of organized fraud rings, beyond solely the lieutenants and foot soldiers. The tactic has worked, as evidenced by the company’s $7-million judgment in its first Nevada medical-fraud case.14

Filed in 2010, the suit challenged several medical professionals and personal-injury attorneys, and sought to recover funds from 78 auto-accident claim settlements. Allstate alleged that each defendant violated Nevada and federal law based on a pattern of deceitful behavior.

As Allstate puts it: “exaggerating treatment reports, providing unnecessary chiropractic services, preparing fraudulent bills and making unnecessary referrals to healthcare providers for their own financial gain.”

RICO suits also can stretch expensively for years. Allstate’s federal lawsuit, for example, alleged deception and coercion against accident victims by medical clinics in Alabama, Indiana, Ohio and Texas. The case also involved a Louisiana telemarketing firm and 66 defendants in a complex multi-layer prosecution.15

Allstate alleged the organization solicited persons involved in automobile accidents, ran them though unnecessary treatment, and referred them to allied personal-injury law offices to make false claims.

This lawsuit was filed in March 2008,16 and went to trial in February 2013. A verdict eventually was handed down that April.17 The verdict was appealed, and an appeals court finally approved the $6-million award in April 2014.18

Building complex and far-ranging RICO cases such as this also requires meticulous preparation to prove such expansive allegations. The insurer also could face actions alleging bad faith, defamation, abuse of process and other charges. Many insurance companies may not have the resources or will for

such a protracted legal battle, and thus let other insurers fight the fight.

Insurers taking longer view

Carriers using civil suits, along with support legislation and landmark court cases, believe they must make a stand or automobile-fraud will continue escalating. While cost-benefit analyses and the time commitment remain important considerations when deciding whether to file civil cases, insurers are moving forward for other reasons

Many are taking a closer look at their exposure, searching for patterns and trends, and then filing suits — even with no immediate return on the investment. I believe this is leading many carriers to


“Carriers using civil suits, along with support legislation and

landmark court cases, believe they must make a stand or

automobile-fraud will continue escalating.”

1 33 Arrested in Staged Accident Scheme, National Insurance Crime Bureau, May 21, 2014.

2 Insurance Fraud Ring Busted, wptv.com, May 16, 2014.3 Allstate Alleges $30 Million Insurance Fraud, Demands NY

Reform, Law360.com, May 11, 2012.4 No-Fault Auto Insurance in Florida, white paper, Insurance

Information Institute, 2011.5 Conversation with insurance company SIU representative,

August 18, 2014.6 Source: Insurer settles lawsuit against West Palm Beach

surgery center, maker over spinal device for as much as $20 million, Palm Beach Post, February 23, 2013.

7 Two Clinic Owners Plead Guilty for Their Roles in Massive No-Fault Insurance Fraud Scheme, fbi.gov/newyork, February 13, 2013.

8 Sonoma County windshield repair business ordered to pay $1.4 million in fraud case, Press Democrat, August 7, 2014.

9 Insurer accuses 46 Minnesota chiropractors, MRI firm of fraud, Star Tribune, October 15, 2013.

10 State Farm accuses 1-800-ASK GARY of “massive fraud scheme,” Star Tribune, August 1, 2013.

11 Chiropractors in $2.3 Million PIP Insurance Fraud Scheme Will Face RICO Charges, FLPIPGuide.com, April 15, 2014.

12 RICO State by State: A Guide to Litigation Under the State Racketeering Statutes, Americanbar.org/publications GP Solo eReport, 2nd edition, November 2012.

13 Allstate Files $6.3 Million No-Fault Fraud Lawsuit in NY, NU Online News Service, December 21, 2011.

14 Allstate Wins Major Medical Fraud Lawsuit; Puts Fraudsters on Notice, PRNewswire, September 13, 2012.

15 Alleged Multi-Million Dollar Fraud Ring Target of Federal Lawsuit, PRNewswire, March 6, 2008.

16 Allstate Insurance Company et al. v. Plambeck et al, dock-ets.justia.com/dockets/texas, March 8, 2008.

17 Allstate Says Evidence Supports Jury’s $6M RICO Award, Law360.com, June 18, 2013.

18 Allstate Can Keep $6M Telemarketing Fraud Award, Law360.com, April 2, 2014.

endNOTES

take the longer view — that fighting today will help minimize future exposures.

The insurance industry may have won several recent key battles and is increasingly deploying anti-fraud tools that have helped put a dent in fraud. While we all realize we will not eliminate fraud. It is too profitable, and in some cases, just too easy. The question becomes: How do we attack it?

By taking more aggressive action against the rings and their leadership, insurers can strip away much of the profit and make it more-difficult for organized rings to succeed. More important, that creates major victories for their customers, who are the ones who must pay the price for fraud.


About the author: Frank S. Goldstein is the founder and managing partner of Goldstein Law Group, a premier AV-rated law firm concentrating on the investigation, detection and litigation of fraudulent insurance claims. The firm’s practice areas include auto, property and healthcare insurance fraud. Goldstein

concentrates on civil prosecution of insurance fraud claims and defense of insurance matters, including personal-injury protection, bodily injury and uninsured/underinsured motorist claims. Goldstein was recognized as Insurance Attorney of the Year at the annual Florida Insurance Fraud Education Committee conference in 2013.

Rational swindlers avoid crimewhen risk not worth the reward

Theories about rational crime choices and deterrence offer clues about preventing fraud


Abstract: Criminology theory is widely used in the many criminal justice areas, yet there is no application of these theories to insurance fraud. Better understanding these theories and how criminals are motivated will assist insurance companies in developing effective anti-fraud strategies. Rational-choice theory, in particular, is the foundation of environmental criminological principles. It thus follows that if fraudsters consciously choose to commit fraud, then anti-fraud strategies should focus on decreasing opportunity. We want to design programs that increase the difficulty of committing fraud, and reduce the choices that offenders may have. This will fit into the cost-benefit analysis and deter fraudsters.

By Michael Skiba, PhD

riminology is the scientific study of criminal behavior. Criminological theory focuses on what causes crime. The goal is to

help understand the criminal mind as a roadmap to developing effective anti-crime strategies.

Crime theory helps reveal what motivates and deters criminals. Criminological theory has been widely used in mainstream disciplines such as homicide and robbery. However, there is a large gap in research and hence academic theory that applies to insurance fraud.

What internal and external factors positively motivate and negatively deter insurance fraudsters? What makes them commit and not commit fraud?

Understanding this framework will assist insurers, regulators and legislators in developing more-effective anti-fraud strategies.

Studies suggest that both planned and opportunistic fraud are rising. However, opportunistic fraud presents the most significant threat in our current fraud environment.1

This analysis focuses on opportunistic fraudsters — those who have a legitimate loss but exaggerate claims. Organized crime rings, staged crashes and other planned frauds involve criminals whose psychological makeups are distinct from opportunistic fraudsters. They would be ideal focal points for separate analyses.

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One such study was a survey of 69 children with measurable reduced cognitive functioning.2 The children were canvassed for 13 possible offenses: alcohol use, animal cruelty, breaking and entering, indecent exposure, fire setting, paraphilia, physical assault, sexual assault, substance use, theft, truancy, vandalism and vehicular homicide.

Alarmingly, the results showed that 23 children — fully one third — had committed serious offenses. Of this group, 17 (72 percent) had two or more incidents on record. Similar to the biological school, the psychological school has little relevance to insurance fraud. Insurers do not have the ability to manipulate an offender’s internal, cognitive flaws.

Sociological. Environment rather than the individual is the key to behavior influence. This school focuses less on individual microbehavior and more on macro group behavior. Many sociological theories can apply to insurance fraud because environmental factors can be manipulated. Let us review some of the most significant theories and how they apply to insurance fraud.

Strain theory works to explain behavior by focusing on social strain or pressure. People experience social strain when they feel pressure or stress from being unable to obtain certain goals within society.

As a global culture, we measure success by wealth, power, prestige and material possessions. Frustration ensues when a certain status cannot be obtained. That status may be measured in money, employment, school or community. This frustration is likely to generate criminal behavior.

Strain theory proposes that crime stems from the conflict between people’s goals and how they achieve their goals. People feel strain when they cannot obtain these benchmarks of success through traditional means of employment and working. Thus they pursue crime as an alternate means to success.

Strain theory is relevant to the anti-fraud community because many opportunistic fraudsters commit fraud to help alleviate social strain. Since America currently faces a tight job market, with reductions and downsizing quite common, many people do not have the traditional means to earn a stable income and obtain their benchmarks of success. They commit insurance fraud to fill that void.

Many social theories focus on environmental factors and their significant role in crime.

There are three major schools of criminology theory (or criminal behavior):

� Biological; � Psychological; and � Sociological.

All three theories are explored here in an insurance-fraud context to determine which apply most to anti-fraud preventative efforts.

Biological. This theory proposes that the primary root causes of deviant criminal behavior are abnormalities present within an individual. The biological school of criminology focuses on genetic abnormalities, or defects, that are inborn and push an individual toward crime.

Cesare Lombroso pioneered this school. He portrayed criminals as people with certain inbred physical traits due to poor body construction such as sloping foreheads, asymmetry of the skull, long arms and other ape-like, subhuman characteristics. Criminal behavior stemmed from these inborn factors, not from rational thought and free will.

Many researchers conclude that chemical imbalances are common to these individuals. Thus, balancing these chemicals with medication is the most-effective method of behavior management. The biological school offers little for insurance-fraud preventative efforts. Fraud fighters are not equipped to medicate potential offenders or help rebalance their genetic flaws.

Psychological. This school focuses on the individual’s mind — specifically, personality flaws and how they contribute to criminality.

Like the biological school, the psychological school focuses on the individual as the root cause of deviant behavior. Environmental or other social issues are secondary, if considered at all. Some studies in this area have focused on risk factors such as reduced cognitive functioning, low IQ and mental illness, and how they strongly correlate to criminal deviance.

“Strain theory proposes that crime stems from the conflict between people’s goals and

how they achieve their goals.”

Rational-choice theory is a central theme of environmental criminological theory. It is based on the premise that offenders make a rational choice to commit crime, and are influenced in part by environmental factors.

Rational-choice theory was developed in the 1970s and 1980s. It is similar to many tenets of classical criminology. It proposes that offenders make a conscious, rational choice to commit crime. Some theorists relate this conscious choice to the economic principle of cost-benefit analysis: People weigh the benefits and potential outcomes of an action, and then make a conscious choice to act.

Rational-choice theory is the foundation of environmental criminological principles. It thus follows that if fraudsters consciously choose to commit fraud, anti-fraud strategies should focus on decreasing opportunity. We want to design programs that increase the difficulty of committing fraud, and reduce the choices that offenders may have. This will fit into the cost-benefit analysis and deter fraudsters.

Deterrence theory was developed from this rational-choice perspective. It proposes that anti-crime (or in our case, anti-fraud) programs focus on reducing opportunity to deter rational thinkers from committing crimes.

This school of thought also assumes fraudsters are rational thinkers who will avoid criminal behavior if they are highly deterred. Insurers can take many actions to increase deterrence. They can

develop and publicize strict zero-tolerance programs by making it clear that fraud cases will be diligently investigated and prosecuted.

Insurers also can support and publicize fraud convictions. This may send a strong message to future potential fraudsters. Insurance schemers are rational thinkers and will respond to deterrence if convictions are highly publicized.

Legislative anti-fraud efforts also will help create a deterrent effect. Because fraud is traditionally under-prosecuted, this sends a message to the public that it is a relatively low-risk crime.3 There is no deterrent effect when the punishment is low because the reward will be worth the risk to the rational fraudster.4

Routine-activities theory was developed by Lawrence Cohen and Marcus Felson in 1979.5 They also explore the environmental factors of crime. This theory proposes that three critical elements must be present for crime to occur:

� Suitable targets; � Capable guardians; and � Motivated offenders.

Crime happens when all three components align, the researchers propose. As stated earlier, there is virtually no application of sociological theories in the insurance-fraud industry. Thus we cannot draw upon specific studies to determine if certain theories will have merit in an insurance-fraud setting.

However, social theories, and specifically routine-activities theory, have great promise because insurers can manipulate all three critical elements in their favor. Routine-activities theory thus warrants more exploration. This theory has proven relevant and reliable in explaining behavior in other criminal areas such as street robbery and auto theft. Crime then will be deterred if one of the three elements is absent.

Elizabeth Groff tested routine-activities theory and found strong support in a street-robbery scenario.6 Street robbery was chosen because it involves direct interaction between victim and offender, and is considered a crime for economic gain. Both factors likely will result in a rational-choice decision. This study is valuable to the fraud arena because it focuses on the relationship between the victim (suitable target such as insurer or consumer) and offender (motivated offender).

Application of routine activities is significant because the potential for crime reduction is


making a choice

extremely high. These situational factors can be more easily and quickly altered than altering root-cause deviant behavior.

Insurance-fraud victims (or suitable targets) would be insurers and/or their policyholders. The motivated offender would be the potential fraudster. Crime could be prevented if one of the three elements is manipulated against the prospective perpetrators. That was the focus of the Groff study.

Andresen (2006) tested the merit of routine activities and focused on auto theft, breaking and entering, and violent crime in Vancouver.7 His significant study showed positive support for routine activities as a viable cause for criminal activity.

Making alterations to help reduce victimization as outlined in routine- activities theory was key to reducing criminal opportunities, these studies found. This in turn reduced criminality. In applying this to insurance fraud, if insurers as suitable targets alter their anti-fraud strategies, then this will reduce opportunity, disrupt the continuum and reduce fraud occurrences.

For example, insurance companies will disrupt the continuum and make themselves less-suitable targets by making more-aggressive red-flag systems, increasing the use of critical gatekeepers such as analysts and claims staff, and supporting public outreach.

As stated previously, having a suitable target is one of the three elements of routine-activities theory. The research cited thus far has shown support for routine-activities theory as an effective means to explain and deter criminal offending. Any manipulation of victim (insurer) activity reduces the opportunity to victimize.

This theory has significant implications for anti-fraud strategy. The research supports a fraud-reduction strategy focusing on making the target “harder” for an offender to victimize.

“Insurance-fraud victims (or suitable targets) would

be insurers and/or their policyholders. The motivated

offender would be the potential fraudster.”

Contemporary theories of offending support this approach in other criminal arenas.

Building upon the theories of environmental criminology are contemporary perspectives of crime prevention by environmental design (CPTED). CPTED theorists focus on the environmental factors of crime by analyzing extraneous factors that can help reduce crime and victimization.

The foundation of CPTED began when proponents found that altering the physical properties of buildings and other “physical” elements caused a significant reduction in criminality.

Early application in an urban-housing setting in Sarasota, Fla. in 1999 and 2003 showed that CPTED strategies are highly effective at reducing criminality. Criminal justice professionals in Sarasota reduced opportunity by modifying environmental factors such as zoning regulations, buildings and other physical structures.8

This basic theoretical foundation grew into a mindset that modifying environmental factors provides the rational offender less opportunity to commit criminal behavior, thus reducing the “suitable targets.”

A significant study of victimization by Byers & Crider in 2002 also shows that many offenders do not premeditate crime; they act when an opportunity presents itself.9 The researchers performed a qualitative analysis by conducting face-to-face interviews with criminal offenders who had victimized members of an Amish community. Several interviewees remarked that their criminality was never premeditated; it “just happened.”

Offenders acted in a deviant manner when they were presented an opportunity, the authors discovered. It thus behooves insurers to develop as many ways to reduce this opportunity as possible to thwart fraud events. These corporate strategies could include:

� More aggressive up-front identification of potentially fraudulent cases;

� Effective software packages to identify high-risk claims;

� Coordination with underwriting and sales staff to assist with fraud identification; and

� Aggressive investigation once a potentially fraudulent case is identified.

Companies should predetermine their vulnerable areas and then make these areas less-vulnerable.


An important CPTED strategy involves the concept of “foreseeable danger.” In this critical step, a risk assessor analyzes the case, crime, company, etc. and then determines potentially vulnerable areas on which to focus efforts.

This risk assessment is comprehensive and could entail reviewing prior data, spreadsheets, internal company information and external trends. Social-environmental theory proposes that crime is not a matter of motivation, but of opportunity. These rational-choice theories focus on how situational or environmental factors contribute to crime causation. These theories are based on rational thinking. Potential offenders use choice-structuring properties — the crime’s cost-benefit analysis. Making fraud more difficult will result in less opportunity and fewer fraud occurrences.

When I began my academic research career about 10 years ago, I realized that a lack of benchmark was a shortcoming of applying theory to anti-fraud practices. There are virtually no studies that apply these principles to insurance fraud.

This shortcoming offers a major opportunity for anti-fraud leaders to test these theories as anti-fraud strategies. The related challenge is to communicate

successes and failures to build a benchmark base that starts filling a large knowledge gap. Other industries succeed when applying theory to policy development.

Because there are no central repositories for reporting insurance fraud, insurers should consider creating a research foundation by pooling funding. If company-specific data on fraud strategies were available for interpretation, a more effective approach toward preventative efforts could be established.

1 A Phenomenological Study of the Barriers and Challenges Facing Insurance Fraud 1 Investigators, by J.Michael Skiba, Journal of Insurance Regulation, 2014, Volume JIR-ZA-33- 04, Page 26.

2 Incidence of Law-Violating Behavior in a Community Sample of Children and Adolescents withTraumatic Brain Injury. James Luiselli, Michelle Arons, Nina Marchese, Andrea Potoczny-Gray and Erika Rossi, International Journal of Offender Therapy and Comparative Criminology, 2000, Vol. 44, 6: Pages 647-656.

3 Why Fraud Persists, Coalition Against Insurance Fraud. http://www.insurancefraud.org/fraud-whyworry. htm#Why%20fraud%20persists

4 A Phenomenological Study of the Barriers and Challenges Facing Insurance Fraud Investigators, by J. Michael Skiba, Journal of Insurance Regulation, 2014, Volume JIR-ZA-33- 04, Page 14.

5 Social Change and Crime Rate Trends: A Routine Activity

Approach, by Lawrence Cohen and Marcus Felson, American Sociological Review, 1979, Volume 44(4), Pages 588-608.

6 Simulation for Theory Testing and Experimentation: An Example Using Routine Activity Theory and Street Robbery, by Elizabeth Groff, Journal of Quantitative Criminology, 2007 Volume 23(2), Pages 75-103.

7 A spatial analysis of crime in Vancouver, British Columbia: a synthesis of social disorganization and routine activity theory, by Martin Andresen, Canadian Geographer, 2006, Volume 50(4), Pages 487-502.

8 Zoning out Crime and Improving Community Health in Sarasota, Florida: Crime Prevention through Environmental Design, by Sherry Carter, Stanley Carter, and Andrew Dannenberg, American Journal of Public Health, 2003, September, Volume 93(9), Pages 1442-1445.

9 Hate crimes against the Amish: a qualitative analysis of bias motivation using routine activities theory, by Bryan Byers and Benjamin Crider, Deviant Behavior, 2002 Volume 23(2), Pages 115-148.

endNOTES

About the author: Michael Skiba has worked in the insurance-fraud profession for 20 years as an SIU investigator, analyst and in management. He currently works in the special investigations unit at Interboro/AutoOne/Maidstone Insurance. He also is

Lead Professor of Fraud Management at Colorado State University Global Campus. Skiba lectures internationally and regularly publishes on insurance fraud. He holds an MBA and PhD with a concentration on insurance fraud. Skiba also is president of the New York Chapter of the International Association of Special Investigative Units.


Corporate dentistry bleeds Medicaid,vulnerable low-income children

Dentists yank healthy teeth, fleece Medicaid under pressure to optimize income


Abstract: Corporate-owned dental chains are exploiting the underserved market for low-income child Medicaid patients with large-scale fraudulent and abusive treatment. Most dental clinics are honest and forthright. But aggressive business models pressure some dental chains to fraudulently optimize volume treatment, ignoring the child’s medical needs. Children undergo useless and painful root canals, cavity fillings and extractions. The clinics impose mouthfuls of steel teeth the children don’t need. Medicaid likely is billed hundreds of millions of dollars a year in false dental treatment of children. Lawsuits and criminal actions are breaking up schemes. Still needed are more enforcement by dental boards, and education of parents about the warning signs of a scam.

By Debbie Hagan

ower-income children staggered from their dental chairs. Many reached dangerously high heartbeat rates and were returned to their parents trembling, crying and

clothes soiled. They were scared and traumatized by the painful surgeries they’d just received, and begged their parents never to bring them to the dentist again.

Their parents took their kids for routine checkups, expecting caring and minimal treatment. Instead many left with a mouth full of frightening steel-capped teeth. Others had a dozen or more perfectly healthy teeth pulled without medical necessity. Children routinely were tightly strapped from head to toe onto a papoose board to prevent them from struggling when surgical instruments were shoved into their mouths without anesthesia.

These are the common horror stories of children receiving Medicaid dental care around the U.S. Most are from vulnerable, low-income families. Foster care children of military families also are abused.

Many and likely most Medicaid-serving dental clinics provide caring and valuable service. Yet large, corporate-owned dental chains have literally and figuratively extracted large and illicit profits by focusing on this underserved market of the

L


nation’s poor. Epidemic insurance fraud and abuse of little patients drive the business models pursued by some large chains that have erected networks of high-production Medicaid mills.

The nation’s state-federal Medicaid partnership covers 60 million lower-income Americans, with spending of $450 billion annually.1 The program’s sheer size places Medicaid at considerable risk of fraud and abuse. Medicaid child dentistry is among the highest risks. No composite figures track the insurance-dollar losses to defrauding of young Medicaid patients. The figure likely runs to hundreds of millions of dollars a year.

Texas state Medicaid investigators, for example, have paid more than $550 million for medically unnecessary orthodontic and dental services between 2007 and 2011.2

Criminal prosecutions, news exposes, hundreds of lawsuits plus congressional investigations are rocking dental chains as allegations of civil and criminal malfeasance keep surfacing.

Lower-income children are generally underserved, and thus form an inviting market for profit-trolling equity funds.

Fewer than half of Medicaid-enrolled children received dental care in 22 states, reveals a 2013 report by the respected Pew Charitable Trusts. More than 14 million Medicaid children didn’t receive dental care in 2011. This creates a lucrative market for corporate-owned dental chains to fill.3

Medicaid dental practices also are less-regulated than physician groups, and patients often see their dentist more often than their doctor.4

And several states continue raising reimbursement rates to successfully attract more dentists. Plus the tragic 2007 death of a Medicaid child attracted great national attention to the program’s problems. The child died from a brain infection caused by an untreated tooth abscess. Regulators upgraded Medicaid to make the program safer and attract more participants.

Thus we have these owners or portfolio managers: Big Smiles is in the portfolio of Morgan Stanley. Small Smiles was purchased for $435 million by a consortium of investment firms, including the Carlyle Group, Arcapita Corporate Investments and American Capital. Valor Equity Partners owns All Smiles in Texas. FFL Partners owns the largest national chain — Kool Smiles.

Medicaid became an especially inviting

investment in Texas in 2007 when a lawsuit settlement dramatically increased Medicaid fees. Corporate dental chains soon descended onto the federal insurance program.5

One was the Atlanta-based Kool Smiles. It is the largest Medicaid dental chain in the U.S., serving about two million children with 130 offices in 17 states.

Connecticut Medicaid also noticed a spike in children receiving stainless-steel crowns. The crowns didn’t fit and teeth underneath were decaying. The company eventually satisfied Medicaid that it had corrected the problems.

The problem of Medicaid fraud, however, is larger than Kool Smiles. High volume and rapid patient turnaround of assembly-line surgeries form the lynchpin of a business model that has dangerously commoditized dental care of thousands of Medicaid kids.

Dentists embedded in dishonest chains seek the largest Medicaid payments possible from a given procedure, regardless of medical need. Worthless tooth extractions, steel crowns and cavity drillings heist far more insurance money than honest, low-cost cleaning and preventative care.

The equity owners typically hand over business operations to so-called dental management firms that they own. The management companies publicly purport that they are mere vendors, providing dental clinics with back-office administrative services such as billing, payroll, staff hiring and other non-treatment, non-medical decisions.

In truth, the management companies illegally


control the chains. They install dentists as straw clinic owners. False ownership skirts laws in most states that ban corporate ownership of medical clinics, and require dentists to own and operate the clinics. The illegal arrangements are hidden in a complicated maze of service agreements, straw corporations and limited-liability corporations.

The management firms also hire dentists and support staff. More important, they control Medicaid income production. Dentists are required to produce so much income that fraudulent treatment and abandonment of clinical judgment are inevitable byproducts of work to meet such aggressive goals. Lucrative bonuses for meeting production goals reinforce the assembly-line treatment model.

The Medicaid mills thus falsely charge Medicaid for crowns, root canals, bridges and other expensive procedures when the children — often just babies — only need routine checkups, cleaning or filling of a small cavity. Bungled and medically useless surgeries often require expensive and traumatic remedial surgery and hospitalization.

The contracts of hired dentists tend to be restrictive, almost like handcuffs, and reinforce the aggressive treatment strategy. High production demands often are embedded in employment contracts.

Medicaid mills often treat 80-100 patients per day, with required billings of $500-$1,000 per patient that are tracked daily. The goal typically is to gouge as much Medicaid money as possible from the child’s first visit, and avoid lesser follow-up procedures that slow the billing flow.

Foreign dentists form a large component of business models. They comprise up to 30 percent of the Small Smiles dentists, for instance. Overseas dentists need steady work to legally remain in the

U.S. Clinic chains such as Small Smiles and Kool Smiles offer that gainsaying employment.

High treatment quotas impose a strong incentive to over-treat and defraud Medicaid just to stay employed. Once caught in the trap of insurance fraud, they are virtually forced to continue defrauding or risk being deported if they lose their jobs for missing quotas.

Recent graduates of U.S. dental schools also are recruited. They face considerable student debt plus difficulty in securing mortgages or other loans. The attractive salaries and easy employment give these graduates a quick leg up in life.

Contracts also tether dentists to the chain outlets, further entrapping them in a web of fraud. Small Smiles contracts, for example, stated that dentists must give 90 days notice before leaving or pay a fine of $500 per day. Some Small Smiles contracts had non-compete clauses restricting dentists from providing care to Medicaid children — at any other clinic — within the service area.

Dentists installed as straw owners have their own, often strange, contractual restrictions. The Small Smiles contract said the straw owners will lose their owner status — and lucrative income — if they divorce. The clinic would be contractually considered a marital asset and the dentist would have to sign over the illicit “ownership” to whoever is designated, usually for just $100.

Children often are strapped to so-called papoose boards. These and other restraining devices prevent the child from resisting and allow dentists to finish painful production-line surgeries faster. Years later children often clearly remember the abuse and trauma, which reinforces their reluctance to seek dental treatment as adults.

Here are several examples of children treated by a Texas chain. The names are changed to protect the little victims. Note that a typical pediatric root canal and crown take about 30 minutes per tooth. A filling takes 15 minutes per tooth, Dr. Norman Tinanoff, a University of Maryland professor, said as a witness in a 2014 civil suit against Small Smiles in New York.

� “Jordan” (age 6) received four baby root canals and six crowns in 20 minutes — less than two minutes of treatment per tooth. Medicaid was billed nearly $3,225.

� “Moses” (age 3) had a baby root canal and crown in every tooth. The dentist spent less than

“Small Smiles contract said the straw owners will lose their

owner status — and lucrative income — if they divorce. The clinic would be contractually considered a marital asset.”


two minutes per tooth. Later Moses had all but four teeth pulled due to abscesses.

� “Jack” (age 5) received 16 baby root canals and 16 crowns in 25 minutes. His dentist spent about one minute per tooth, billing $168.20 per minute.

� “Joe” (age 4) received 15 baby root canals and 16 crowns in 30 minutes.

Stolen insurance money enriches the winners with princely lifestyles. Sprawling mansions, private jets, luxury boxes at football games, expensive vacation homes and other trappings of the rich and famous come to the overseers. Taxpayers foot the bills.

All Smiles founder Dr. Richard Malouf owns two jets and a $14-million mansion that includes a bowling alley and water park.6

An alarmed U.S. Senate and House have launched investigations as complaints, lawsuits and news articles documented abuses.

Small Smiles was prominent among the chains singled out in a June 2013 report by the U.S. Senate Finance Committee.

Small Smiles was one of the nation’s largest pediatric dental chains and most flagrant abusers, the Senate concluded. Small Smiles then was controlled by Church Street Health Management (CSHM), the purported dental service provider.

The chain had 70 clinics in 21 states at its height. Small Smiles treated more than a million children, and 400 dentists did six million procedures in 2010. The dentists were ill-trained to treat children; none was a pediatric specialist.

Nearly one-third of Medicaid billings by Small Smiles was unjustified, the Senate determined. “Larger sampling at this and other clinics could reveal massive overpayments,” the Senate concluded.7

A child at a Small Smiles clinic in Oxen Hill, Md. had this experience: “Screamed and fought the entire time ... She vomited approximately halfway through the procedure. The dentist immediately turned the patient on her side and suctioned her mouth and throat,” the Senate report said.

“This child’s airway was in jeopardy because the mouth prop opened her mouth so wide it restricted her ability to swallow and protect her airway.”8

Investigators found no medical necessity for treatments. The U.S. Department of Health and Human Services (HHS) found similar breaches at a Small Smiles unit in Youngstown, Ohio. The federal agency imposed a $100,000 penalty.

“Treatment was provided to restrained children who were fighting, crying and basically hysterical, using large mouth props that over-extended their mouths, compromising their ability to swallow and protect their airways,” the Senate report noted.9

Faced with federal sanctions, Small Smiles declared Chapter 11 bankruptcy in 2012. HHS finally banned Small Smiles from Medicaid for five years in April 2014. The order took effect September 30, 2014 and effectively denies the chain access to its main revenue stream. CSHM also must divest its management contracts with Small Smiles.

“CSHM failed to report serious quality-of-care reportable events, take corrective action, or make appropriate notifications of those events to the State dental boards as required ...” the federal Office of Inspector General says.10

“CSHM also failed to implement and maintain key quality-related policies and procedures, comply with internal quality and compliance review requirements, properly maintain a log of compliance disclosures, and perform training as required by the CIA. Finally, CSHM submitted a false certification from its Compliance Officer. ...”

Small Smiles still faces a staggering legal burden. It agreed to a separate $24-million federal civil settlement in January 2010. That resolved allegations that the company operated as a fraudulent scheme to bill Medicaid hundreds of millions of taxpayer dollars for unnecessary, inappropriate, unsafe and excessive dental procedures on young children.

The verdict set the tone for a huge backlog of


other lawsuits against Small Smiles. The money to fund settlements comes from a trust fund created as part of CSHMʼs dissolution. The chain faces about 100 civil actions around the U.S., including 30 actions in New York. They all allege that Small Smiles gave children damaging treatment.

Small Smiles aside, New York has been such an overall hotbed of Medicaid dental chicanery that HHS issued a separate report on the state in March 2014. Some 29 dentists “received extremely high payments per child; provided an extremely large number of services per child; or provided certain selected services, such as pulpotomies or extractions, to an extremely high proportion of children,” the report said.

“Additionally, almost a third of the general dentists were associated with a single dental chain that had settled lawsuits for providing services that were medically unnecessary ... Our findings raise concerns that certain providers may be billing for services that are not medically necessary or were never provided.”11

Texas is another epicenter of corruption, prompting an investigation by the U.S. House of Representatives. The number of dentists treating Medicaid patients spiked nearly two-thirds after the 2007 consent decree raising Medicaid reimbursements. Fraud followed in large volume, with much emphasis on outfitting kids with medically worthless braces.12

Most children don’t need braces, yet Texas Medicaid spent more on braces in 2010 than the other 49 state Medicaid programs combined. Just a handful of orthodontists billed Texas Medicaid more than Florida’s entire Medicaid program spent on orthodontics.13

“More than 90 percent of orthodontic reimbursement requests by All Smiles (unaffiliated with Small Smiles) were invalid,” revealed a Texas Medicaid audit. The state sued varied All Smiles entities, alleging the chain billed Medicaid for needless and phantom services. All Smiles closed 13 offices in the Dallas area after the investigation. That left 12,000 Medicaid patients to scramble for a new dentist.14

Turning the corner on this national epidemic must take place at many levels. Assertive enforcement is one key.

At least eight states have formed independent offices of Medicaid inspector general. They gather

and refer criminal cases to state Medicaid Fraud Control Units, most of which are housed in the state attorney general’s office.

Some states such as Oklahoma also require inter-agency cooperation and collaboration on Medicaid cases.

Liberal doses of profit-draining lawsuits by governments and private citizens will continue undermining the cheaters financially. These actions can bankrupt some cheaters out of existence or force them to clean up their operations. This speaks to the value of state and federal laws authorizing civil suits of this nature.

Some chains also are transitioning to accept only patients with private insurance, but revenue-generating procedures remain a priority goal.

Enforcement of state dental practice acts and strengthening current laws by state dental boards also is a key to rooting out bad actors. The North Carolina State Board of Dental Examiners, for example, passed regulations in 2012 that monitor and curtail the fraud-minded Medicaid business model.15

Parents also should be educated about potential dental scams and how to manage the dental relationship. Parents should be informed, for example, that they can be present during procedures and ask questions. A Patient’s Bill of Rights would be useful.

Dental boards and associations can play lead roles in family education. State regulations could

1 Fighting Medicaid Fraud, State Legislatures Magazine, April, 2013.

2 Company That Approved Unnecessary Orthodontia Kept Its State Contract, The Texas Tribune, May 1, 2014, July 18, 2014. https://www.texastribune.org/2014/05/01/company-okd-medicaid-billing-keeps-its-contract

3 In Search of Dental Care, The Pew Charitable Trusts, June 23, 2013. http://www.pewtrusts.org/en/research-and-analysis/reports/2013/06/23/in-search-of-dental-care

4 Private Equity Firms Eye Big Profits in Dentistry, DrBicuspid.com, May 2012. Web. 17 July 2014. http://www.drbicuspid.com/index.aspx?sec=log&URL=http%3a%2f%2fwww.drbicuspid.com%2findex.asp%3fsec%3dser%26sub%3ddef%26pag%3ddis%26ItemID%3d310662

5 Texas Drills Down on Medicaid Dental Fraud, The Wall Street Journal, August 19, 2012, July 17 2014. http://online.wsj.com/news/articlesSB10000872396390444233104577591243154716520

6 Dentist in Medicaid Suit Adding a Water Park to His Mansion, WFAA Wfaa.com, July 12, 2012, July 18, 2014. http://www.wfaa.com/news/investigates/Medicaid-Mansion-Expansion--162280556.html

7 Small Smiles Wins 1st Case Alleging Mistreatment of Kids, DrBicuspid.com, October 9, 2013, July 18, 2014. http://www.

drbicuspid.com/index.aspx?sec=sup_n&sub=pmt&pag=dis&ItemID=314430

8 Joint Staff Report on the Corporate Practice of Dentistry in the Medicaid Program, Committee on Finance, United States Senate, June 2013.

9 ibid.10 OIG Excludes Pediatric Dental Management Chain From

Participation in Federal Health Care Programs, Office of Inspector General, U.S. Department of Health and Human Services, April 3, 2014. https://oig.hhs.gov/newsroom/news-releases/2014/cshm.asp

11 Questionable Billing for Medicaid Pediatric Dental Services in New York, Department of Health and Human Services, Office of Inspector General, March 2014. http://oig.hhs.gov/oei/reports/oei-02-12-00330.pdf

12 Uncovering Waste, Fraud, and Abuse in the Medicaid Program, Committee on Oversight and Government Reform, U.S. House of Representatives, April 25, 2012.

13 ibid.14 ibid.15 Management arrangements, North Carolina State Board of

Dental Examiners, July 18, 2014. http://www.ncdentalboard.org/management_arrangements.htm

endNOTES


About the author: Debbie Hagan is a Kentucky-based citizen blogger and investigative journalist who covers dental fraud through her blog, Dentist the Menace.

require it. Plentiful material should be prominently displayed for patients at dental clinics, and sent to Medicaid recipients once a first appointment is made.

Dental students should be warned about scams, restrictive contracts and illegal business models as part of their dental schooling. Dental students

are taught little about business operations. This increases their vulnerability to predatory dentistry recruiters. More student loan forgiveness and/or loan assistance would also reduce their susceptibility to entrapping contracts.

Dental Medicaid thievery involving children is a persistent scam that stoutly resists efforts to eradicate and make the dental treatment a safe haven for all low-income children. The solution rests in continuing to raise awareness that spurs lawsuits, regulatory action and other counter-steps. It’s a long process, but worth resolutely pursuing for the sake of vulnerable children and their parents who trust that their Medicaid dentist will adhere to the Hippocratic oath, “First, do no harm.”

TrendWatch: new developments about fraud in America


Hall of Shame’s No-Class of 2014 exposes newest master marauders

America’s aces of avarice took a reluctant bow with election to the Insurance Hall of Shame.

The No-Class of 2014 has been dishonored by the Coalition Against Insurance Fraud. They were ranked among the nation’s most brazen, klutziest or vicious convicted insurance criminals of the last year.

Behind the ballyhoo is a serious purpose. The Hall of Shame draws public attention to a crime that many Americans dismiss as a victimless white-collar prank. Most consumers are honest, but an uncomfortably large percentage still tolerates insurance fraud to varying degrees.

The Hall of Shame counters this outrage deficit disorder with the ages-old technique of storytelling. Human brains are biologically wired to remember and interpret events. Stories thus are 20 times more likely to be remembered than hard facts. Among the Hall of Shamers:

Dr. Spyros Panos (Poughkeepsie, N.Y.). The orthopedist made more than $35 million in false claims for thousands of botched and faked surgeries. He rushed up to 20 surgeries in a day — as many as orthos normally perform in a month. Christine Steele had two useless knee surgeries and hasn’t worked fulltime ever since.

Angela Garcia (Cleveland). Garcia let her infant daughters Nyeemah and Nija die in a house fire she set for just $64,000 worth of insurance money.

Garcia had overvalued her home contents and made claims for possessions she didn’t have. Garcia also removed valuables before the fire. The girls were dead from smoke inhalation when firefighters found their lifeless bodies in their upstairs bedroom.

Andy Lee House (Galveston, Tex). House drove his rare Bugatti Veyron into a swampy lagoon to collect $2.2 million. House lied to his insurer that a pelican flying too low forced him to veer off the road into the swampy waters.

Just House’s luck, a car enthusiast was driving by. Awed by the sleek silver Bugatti, he videotaped House racing into the lagoon. The video shows no pelican in sight. Nor were there skid marks or other evidence suggesting House tried to brake.

Joseph Haddad (Bridgeport, Conn.). The attorney ran a large crime ring that stole millions of dollars in worthless and inflated treatment to crash victims his recruiters delivered.

Haddad created a complex network of docs, chiros, diagnostic clinics and recruiters. Medical providers diagnosed victims, often without exams, then billed insurers for months of phantom or useless treatment. Haddad’s recruiters bought police crash reports that identified the victims. The runners then hounded victims to sign up at Haddad’s office.

Dr. Farid Fata (Detroit). Seniors received painful and debilitating chemotherapy for cancer they didn’t have. Cancer doctor Fata made a hefty $225 million in bogus Medicare claims.

About half was for worthless chemo and other cancer treatments. He pumped chemicals into patients who were in remission, or were near death and didn’t need more treatment.

Dr. Spyros Panos


Fata gave one cancer-free patient 155 chemo treatments over 2 1/2 years. Medicare paid out more than $91 million overall, and Fata billed private insurers as well.

Misclassifying of workers sparks more crackdowns

So many employers are misclassifying workers to illegally dodge workers compensation premiums that more alarmed policymakers are redoubling efforts to blunt the longstanding crime wave.

Washington state is the latest state to weigh in.Some 14 percent of 3,954 audited employers had

misclassified workers, the state Department of Labor & Industries discovered in FY 2013. The agency referred only three of those cases to prosecutors but plans to pursue more cases in the future, the state says.

L&I also has begun performing more site inspections of public-works projects, and has implemented a new database. L&I can cross-reference data from several state agencies. The agency now can spot inconsistencies in paperwork submitted by employers. The system also helps

different state agencies share information about employers and refer potential violators to L&I.

Injured construction workers in Florida can go months without a paycheck and are left with thousands of dollars in medical bills due to shell games dishonest employers are playing in the Sunshine State. In an in-depth report, the Miami Herald details how fraudsters are forming shell companies they rent out to subcontractors to obtain low-cost workers- compensation insurance.

Convenience stores and other cash outlets hide the schemes by laundering money and paying workers in cash. A new database set up by the state this year should help detect such scams.

Nearly the entire staff of a Florida fruit-packing firm, for example, may have defrauded workers-compensation insurers. Many employees made claims using fake IDs, Florida’s insurance department charges. They also used fraudulent IDs to gain employment as supposed U.S. citizens, officials say.

At least 27 workers allegedly stole identities of victims from other states. The investigation began when an employee who sought medical attention for a work injury allegedly admitted using a fake ID to gain employment.

The feds also are clamping down on illegal misclassifying of

construction employees.The U.S. Department of Labor is teaming with

state licensing agencies to discover when license holders run afoul of wage and hour laws. The federal agency also is meeting with construction companies and worker-rights groups. DOL also plans to add 300 investigators next year — including 52 in the Southwest.

One of every 13 employees in Texas, for example, works in the construction industry. Yet more than 40 percent of Texas construction workers


either are classified as independent contractors or paid under the table, says a study by the Workers Defense Project and the University of Texas.

The feds also are looking closer at the relationship between general contractors and the subcontractors they hire to determine if there are illegal joint-employment deals.

Virginia has created a task force to study employer misclassification and payroll fraud. One-third of audited employers in some industries misclassify employees, the state says. They can lower costs up to 40 percent and create an unfair competitive advantage. A pilot project showcasing joint enforcement is one mandate.

In North Carolina, a new fraud-alerting tool has unearthed five employers that failed to buy state-required workers comp coverage, the state industrial commission says.

The system uses data from other state agencies to produce a list of potentially dishonest employers, ranked by priority. In a recent sweep, the commission identified potentially 36 noncompliant employers in Guilford County. Five were charged with failure to carry comp coverage.

Rising data breaches cost consumers, medical providers

The healthcare industry experienced more data breaches than ever last year, raising the specter of widespread vulnerability of patients to potentially costly identity thievery.

This was a key finding of new research by the Identity Theft Resource Center. The group regularly updates breach tallies.

Healthcare accounted for nearly 42 percent of reported breaches, exposing 7.5 million medical records. This compares starkly with the financial-services industry’s 6.2 percent slice of the pie with 1.2 million records exposed.

Most data breaches, however, go unreported because federal law requires reporting only of certain kinds of breaches.

Some 90 percent of healthcare firms experienced a data breach in the previous two years and 38 percent had had more than five incidents in 2013, shows a survey the Ponemon Institute released earlier this year.

Cyber attacks on healthcare firms have doubled in the last four years, the survey says.

Employee negligence was the main security risk, 75 percent of healthcare firms say. Breaches cost the healthcare industry up to $5.6 billion a year, says Ponemon.

A Chinese cyber assault, for example, resulted in the theft of 4.5 million records at hospital operator Community Health Services earlier this year. Key elements needed to steal people’s identities were taken: personal data such as names, Social Security numbers and addresses.

The antivirus firm ESET calculated that 24,800 Americans had protected health information exposed — every day — in 2013. This was based on breaches listed on the HHS website.

The human stakes are high:More than 1.8 million people in the U.S. were

victims of medical identity theft in 2013, says the Ponemon survey. That is a 19-percent spike over the previous year.

Consumer healthcare records sell for about $50 each on the black market, compared to $10 for other records, says Experian’s Data Breach Resolution Group.

Half of ID theft victims said they’d do nothing differently, Ponemon found in a consumer survey last year.

Several dozen businesses (including healthcare providers such as hospitals) also ramped up the Medical Identity Fraud Alliance this year.

The group sponsored the Ponemon consumer survey and has three organizational priorities: develop best practices to prevent medical identity theft; educate consumers, providers and third-party vendors; and pursue legislation and regulations.

The Coalition Against Insurance Fraud is a national alliance of insurers, consumer groups and government agencies combatting all forms of insurance fraud through legislation, public education and research.

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