U.S. Department of Justice Charges 15 in LA Healthcare Fraud… Accused of Billing $1.6 Billion for 'Fake Addiction Treatment Mobilizing Homeless People'

LOS ANGELES

The U.S. Department of Justice announced on the 22nd (local time) that 15 individuals, including six medical professionals such as physicians, have been charged in a coordinated health care fraud takedown across the Los Angeles area. Eight of them were arrested the same day. At the center of the sweep is a scheme that recruited homeless and low-income individuals nationwide to undergo fraudulent substance abuse treatment, billing private insurers more than $1.6 billion. The Justice Department called the matter "the largest case of its type ever prosecuted by the Department." The enforcement action also encompassed three Medicare hospice fraud schemes, unnecessary arterial procedures, Medi-Cal (California's Medicaid program) pharmacy fraud, and the illicit sale of weight-loss and diabetes drug samples.

Justice Department and U.S. Attorney's Office Cite Fraud Figures of $1.8 Billion and $2 Billion, Respectively

The total volume of fraudulent billings varied depending on the announcing agency. A press release from Justice Department headquarters (Office of Public Affairs) stated that the alleged conduct of the 15 defendants resulted in "over $1.8 billion" in fraudulent claims submitted to federal and private health care programs. A press release issued the same day by the U.S. Attorney's Office for the Central District of California (CDCA) put the total at "$2 billion." Within the Central District's release itself, a statement from FBI Director Kash Patel cited an "estimated loss of $1.8 billion."

The two releases also diverged on the locations of the initial court appearances for the eight individuals arrested. The Justice Department headquarters release stated that six were scheduled to appear in federal district court in downtown Los Angeles and two in federal district court in Texas. The CDCA release divided them into five in Los Angeles, two in the U.S. District Court for the Northern District of Texas, and one in the U.S. District Court for the Northern District of Illinois. Neither release disclosed the identities of the eight arrested individuals.

The 15 defendants charged include physicians, chiropractors, hospice operators, pharmacy personnel, and patient recruiters. The charging documents consisted of grand jury indictments, criminal informations, and criminal complaints. The Justice Department noted that indictments, informations, and complaints are merely allegations, and defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

Young and Three Others Accused of Bribing Homeless People with Plane Tickets and Drugs to Bill $1.6 Billion

The largest case is United States v. Young et al. Nathan Young (39, alias "Pablo") and David Young (71, alias "Sancho Lopez"), both of Los Angeles, and Honey Phipps (42) and Cody Phipps (36), both of Greenville, Texas, were indicted. According to the CDCA, the two Youngs operated "dozens of nominal substance abuse treatment businesses" across the Los Angeles area and nationwide, submitting more than $1.6 billion in fraudulent claims to private insurers over several years.

Patient recruitment was handled by "body brokers." The two Phippses were identified as recruiters who, under the direction of the Youngs, targeted homeless individuals, the indigent, and attendees of addiction support group meetings. Prosecutors stated that they selected individuals with the most comprehensive insurance coverage and even enrolled ineligible individuals into insurance policies. In exchange for luring patients, recruiters provided free airline tickets, cash, apartment and hotel accommodations, automobiles, gift cards, cannabis, cigarettes, controlled substances including illicit drugs, and prescription medications.

Prosecutors also detailed in the charging documents the methods used to detain patients. The two Youngs allegedly shuffled patients through various facilities to sustain insurance billing, and when patients attempted to leave, directed staff "to knock the client out" with drugs. They are also accused of severing family contact, withholding personal belongings, and physically blocking patients attempting to leave the facilities. Nathan Young was also accused of directing, after receiving a report that a patient wanted to leave a detox facility to smoke cannabis, that the patient be given what they wanted off-site to keep them detained.

The charges include conspiracy to commit health care fraud and wire fraud, conspiracy to violate the Eliminating Kickbacks in Recovery Act (EKRA), health care fraud, and violations of EKRA. The two Youngs were additionally charged with substantive counts of health care fraud and EKRA violations. Nicholas Moore (33, of North Myrtle Beach, South Carolina), who served as a "regional manager" and nominal owner and director of several detox facilities within the organization, pleaded guilty to a superseding information charging him with conspiracy to commit health care fraud and wire fraud. Moore admitted to facilitating approximately $199 million in fraudulent billings.

A baseline of comparison is found in prior Justice Department announcements. In January 2023, the Justice Department announced that Dr. Michael Ligotti, who served as medical director for more than 50 "sober homes," addiction treatment centers, and clinical laboratories in Palm Beach County, Florida, was sentenced to 20 years in prison. Between 2011 and 2020, Ligotti billed more than $746 million and collected approximately $127 million. At the time, Assistant Attorney General Kenneth Polite described that case as "the largest addiction treatment fraud scheme ever prosecuted by the Department." The billed amount in the Young case is more than double that figure.

Data Analytics Flag Thoracic Surgeon’s Arterial Procedure Billings as 'Extreme Outlier'

The second major pillar involves unnecessary atherectomy procedures billed to Medicare (the public health insurance program for seniors aged 65 and older). Thoracic surgeon Harold Tabaie (78) of Anaheim and chiropractor Hany Malek (61) of Tarzana were indicted by a grand jury on four counts of health care fraud. The CDCA's case description characterized it as a $135 million scheme, while the summary at the beginning of the press release noted $134 million in false billings submitted to Medicare.

Prosecutors stated that the scheme was uncovered when "data analytics revealed Tabaie was an extreme outlier." Tabaie's atherectomy billing numbers were sharply detached from those of other physicians nationwide. Prosecutors alleged that Tabaie performed repeated procedures on patients where prior procedures had failed, and operated on patients who did not have arterial disease. Some procedures inflicted severe pain and discomfort on patients. The press release summary also noted that the procedures resulted in "patient harm." Malek was also charged with two counts of bank fraud for falsely claiming in a 2021 Paycheck Protection Program (PPP) loan application on behalf of a company he owned that gross receipts had fallen by more than 25% between 2019 and 2020.

Colleen McDonald, Deputy Assistant Attorney General in the Justice Department's Fraud Section, stated that the charges included "the largest sober home fraud scheme ever prosecuted by the Department" and "unnecessary invasive procedure fraud uncovered through data analytics." Deputy Assistant Attorney General McDonald warned: "If you steal taxpayers' health care dollars or exploit your position to harm patients, we will find you. The data will lead us to wherever you are."

Three Hospice Fraud Schemes Alleged to Have Billed Over $138 Million by Indiscriminately Certifying Terminal Illness

Combined fraudulent billings across three hospice fraud schemes exceeded $138 million. A criminal complaint was filed against Jeffrey Jimenez (60) of Los Angeles on health care fraud charges. According to prosecutors, Transitions Hospice, operated by Jimenez, billed Medicare approximately $9.8 million and received more than $8.3 million. More than 10 other hospice entities controlled by Jimenez similarly submitted billings totaling more than $107 million. Transitions' live-discharge rate was approximately 85%, more than four times the national average, while other entities had rates exceeding 75%, with some surpassing 90%. Bank records show that more than $444,000 was wired directly to Jimenez personally.

Dr. Richard Keech (83) of Torrance was charged by information with causing more than $10 million in false billings by falsely certifying patients as terminally ill while serving as medical director of Blue Cross Hospice and Atlantica Management. Armani Rafie (59) of Van Nuys was charged by information for allegedly submitting approximately $21 million in false billings to Medicare and receiving more than $17.5 million through four hospices in Sherman Oaks: Golden Age, St. Mary’s, CA Hospice Care, and Miracle. The live-discharge rates at these four hospices were three to five times the national average, and marketers were paid $1,500 to $1,800 per referred patient.