Health Care Fraud: A Rising Threat

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--------------------If you have issues viewing or accessing this file contact us at NCJRS.gov.--.r)0,'".y ,- i,"INational Criminal Justice Reference Service------------ --rnCJrs11'PennsylvaniaCrime ComrrlissionThis microfiche was produced from documents received forinclusion in the NCJRS data base. Since NCJRS cannot exercisecontrol over the physical condition of the documents submitted,the individual frame quality will vary. The resolution chart onthis frame may be used to evaluate the documel)t quality.1.0: I,YII28.11111Health Care Fraud:A Rising Threat25.J F2Ii u:w.1.111111:i L:. t:lI.;:.LI.i'. 111111.25 111111.4 lllll1.6: ,0'.":."-MICROCOPY RESOLUTION TEST CHARTNATIONAL BUREAU OF STANDARDS-1963-A."c: -i ,'jMicrofilming procedures used to create this fiche comply withthe standards set forth in 41CFR 101-11.504.'tlr';"1-:4'IPoints of view or opinions stated in this document arethose of the author(s) and do not represent the officialpOSition or policies of the U. S. Depaliment of Justice.National Institute of Justice,United States Department of JusticteWashington, D. C. 2053110/26/82December 1981.',,."r. -'

----- - ,----, -- - --------- -- \l., ,, crf "' ;,. .,11. (j- ".'".COMMONWEALTH OF PENNSYLVANIAoHealth Care Fraud:.jARising Threat t ':' :;'·- c 'J; ,'. ; l1ri i;;9)!'-, i'\': ;'rv:APRJ} 8 19az( tII .j)II);;j ,. . Pennsylvania C i\i{'1e Commission\.-j."0ij;,.r \\11-"ISBN 0-937972-02-9",Printed in the Commonwealth of Pennsylvania523 E. Lancaster Ave.\;L.Post Office. Box 45St. Dav cts, PA 19087(215r087 -6500,', .- I,'·---.- 1-(-- -------'---- -.,-.-----';-- ---.,,.·"----:-:: . ',".-/"'!"".'I),.:',. ,-". .'.'--- .-,. "-"" f-".7:,? -- ' :'---.'''--.,," l

PennsylvaniaCrime Commission.Alvin B. I.ewis, Jr., Esq., ChairmanClifford C. Coopelr, Esq.Malcolm L. Lazin, Esq.Thomas F. lamb, Esq.Dean RoachWallace P. Hay, Executive DirectorDonald Johnson, Esq., Df!puty Executive Director/Chief CounselStaffSharon BeermanFrank BoothCarl BrownDeborah BrownNancy ChecketVincent ClementeEileen CommonsTom ConnorJohn Contino, Esq.Willie C. ByrdWendy D'AgostinoMichael D'AnielloChristopher DeCreeVictor DiCiccoJohn DitmoreDaniel FedeanisWilliam ForanWilliam J. Fry, IIIDonna GroomMichael HoeyOliver HunterJames KanavyLee KautzmanSteven KellerGregory KerpcharGino LazzariJeannie McBrideDwight McKeeEdward MokosNancy MonziJoseph MoraceWasyl PolischukGerald RockeySharon RockeyAlbert RisdorferMary M. RussellLois RyalsConnie SchafferLuke SchultzDiana SchwandtGregory SmithPaul SpearGeorge Van DurickMargaret WardJoan Weiner, Esq.Michael ZaffiriMAGLOCLENBrooke ApplebyJean DegnanMarilyn B. PetersonAlexanderJ. RockWarren B. SurdamMargaret TaylorLEVITICUSJulie BrinkleyDeborah FeurerGeorge GalovitchBill RichettAcknowledgementsThis report is the result of an intensive investigation and analysis doneby the Southeastern Regional Officewith the cooperation of numerousother agencies.Staff members who participated inthe investigation under the directionof Special Agent in Charge FrankBooth are:Carl BrownVincent ClementeVictor DiCiccoJeannie McBrideJoseph MoraceJack MurmyloAlbert RisdorferGerald RockeyJoseph SalernoCarol SalterJohn Contino, Esq. was the legaladvisor to the investigation. Marilyn B.Peterson edited this document.Special acl nowledgements go toGregory Magarity, Esq., who acted asSpecial Counsel to the Crime Commis·sion for the public hearings held July28,29 and 30, 1981.,-U.S. Dej"Jartment of JusticeNational Institute of JusticeThe following agencies and individ·uals were instrumental in aiding theCommission in its investigation:Arizona Drug Control District, TucsonCalifornia Department of JusticeIllinois Department of Law EnforcementIllinois Legislative Investigating Com·missionLong Beach, California, Police DepartmentLos Angeles, California, Police Depart·ment. New Jersey State PoliceNew York Department of LaborNew York Police DepartmentNew York State Commission of InvestigationNew York State Organized Crime TaskForcePennsylvania State PolicePhiladelphia Police DepartmentPhoenix, Arizona, Police DepartmentRiverside County Sheriff's Office, CaliforniaDepartment of JusticeUnited States Department of JusticeStrike Force, Philadelphia and LosAngelesThe CommissionThe Pennsylvania Crime Commis·sion is an independent state agencymandated to investigate organizedcrime and PlJblic corruption, to issuereports on these investigations to tileGeneral Assembly and the people, aridto refer information on criminal violations to prosecutors and other lawen·forcement agencies.The Pennsylvania Crime Commission Act (Act of October 4, 1978, P. L.876, No. 169) became effective on De·cember 4, 1978. Prior laws and execu·tive orders authorized the work of theCommission sinCe 1967.Due to the Commission's uniquestatus, it can focus on broad or narrowpatterns of organized criminal activity.Its purpose is not to 1001 at isolated,transactional, incidents of criminal ac·tivity in one municipality or another.The Commission looks at patterns andinterrelationships of criminal activitiesacross the state, which extend beyondthe geographic or capability range ofexisting police agencies.The Commission maintains oneheadquarters and four regional officesin the state. It has a current authorizedpersonnel complement of 57 posi·tions. In addition, the Commission isthe recipient of two federal grants withauthorized personnel complementstotailing 13 positions.Those two grants fund the Leviti·cus and MAGLOCEN projects. Leviti·cus is a seven-state consortium of lawenforcement and regulatory agencieswhich focuses on fraud in the coal industry. MAGLOCLEN is an associationof more than a dozen major lawen·forcement agencies in eight states. Itis designed to provide investigativeand technical support, an informationsystem, and auxiiliary funding to aidthose agencies in the apprehension oforganized criminals involved in inter·state activities.Through its work with these proj·ects and its ongoing investigations,the Pennsylvania Crime Commissioncontinues working toward cooperativelaw enforcement activities in Pennsyl·vania. The realization of this goal willgreatly" enhance law enforcement'sability to fight organized crime.This document has been reproduced exactly as received from theperson or organization originating it. Points of view oropinions stat din this document are those of the authors and do not necessarilyrepresent the official position or policies of the National Institute ofJustice.Permission to reproduce this hled material has been granted by Pennsylvania Crime CommlSSl onto the National Criminal Justice Reference SelVice (NCJRS).\1Further reproduction outside of the NCJRS system requires permission of the owner."II.

InvestigativeSummaryContentsInvestigative Summary . , 1Conclusions . , 2Recommendations. . . . . . . . . . . . . . . . . . . . . . . 2Chapter 1 A National Problem . 3How Health Plans Work . , 4The Roles of Organized Crime. . . . . . . . . . . . . 5Union Trust Funds. . . . . . . . . . . . . . . . . . . . . . . 7New Jersey Plan Tied to Bruno. . . . . . . . . . . . . 7Fraud in New York . 8Federal Investigations. . . . . . . . . . . . . . . . . . . . 8Current Laws. , 9ERISA and Other Controls . 12The Commission's Investigation . 12Chapter2 Labor Health Plans, Inc . . 13A Local Sales Pitch . 14Frank D'Alfonso . 16Helping the Union . 16Coast to Coast Connections . 17Top Teamster Ties . " . " . 18Chapter3 A.M.M.A. Health Center . 19Ties to Organized Crime . 20Dr. Silk . 21Medical Fraud . 21The Only Contract . 21A,M.M.A. Wages . 21Utilization Reports . 22A 16,000 Mystery. 25Ledger·de·Main . 25Chapter4American Health Programs, Inc . . 27A Success Story . 28Cast of Characters . 28HCA: A Spawning Ground . 29Marketing Techniques . 30From Trustee to Counselor . ; . 31"Keep Him Happy" . , . 33Utilization Reports . 34Lozanoff's Role . 35Weisinger's Deals . 37AppendicesThe Evidence . 38An Inside Look at Organized Crime:Fraticnno Testimony . 41Remarks of Dr. Alan E. Berger. 44IndexIndividuals . 46Business Entities . 46Unions and Associations . 47This report is one result of a threeyear investigation by the PennsylvaniaCrime Commission into the influenceof organized crime in the field of prepaid health care services and the questionable business activities engagedin by some health care plan providers.As examples of these situations inthe health plan industry, the Commission looked into three companies:Labor Health Plans, Inc. (LHP), of Chicago; the A.M.M.A. Health Center, Inc.,in Philadelphia; and American HealthPrograms, Inc., (AHP), located in Trevose, Bucks County.The Commission's investigationfound links between traditional organized criminals and two of the companies-Labor Health Plans andA.M.M.A. This report shows that LaCos a Nostra members or associateswere instrumental in helping thesecompanies receive union contracts.Moreover, there were indications that,in other cases, the unions were awarethat La Cosa Nostra groups would reapfinancial benefits if the contracts wereawarded to particular companies.This association between someunions and traditional organized crimefigures displays the influence overranking union members which organized criminals sometimes have.The investigation into AmericanHealth Programs (AHP) Inc. showed nolinks to traditional organized crime.The company did, however, seem tohave contacts in the unions or withpeople close to the unions which increased the likelihood of the r fecalvi ng the health plan contract. Often,these contacts were paid substantialfees or commissions for their efforts.The Commission further investigated the two local companies, A.M.M.A.and AH P, to determine if there was anyfraudulent activities in the administration of dental and health plans offeredby these companies. In both cases, itwas found that services rendered weresubstantially over-reported to theclient unions and that the companieswere involved in questionable investments.In the case of A.M.M.A., the Commission obtained records from participating doctors and clinics. Thesereports showed that, in relation to acontract with Teamsters Local 837,A.M.M.A. over-reported the value ofservices received by union membersby 254,715.AHP had several large contractswith local unions including AFSCMEDistrict Council 33 and the RetailClerks Union, Delaware Valley Healthand Welfare Fund. The Commissionobtained worksheets prepared by anAHP employee, Carol P. Lozanoff,which showed wide discrepancies between actual and reported usage ofservices of these two unions. In all,AHP reported over 2 million in valueof services to the unions which werenever received.Through the falsification of utilizatlre)n reports and the omission of actualprofits made from the contracts, bothcompanies were able to convinceunion leaders that their services werenecessary and within a reasonableprice range.While the Commission was unableto determine the actual profits garilered by either company, there aresome indications that the companieshad money readily available for somequestionable investments.A.M.M.A., for example, was able toloan nearly 160,000 to companieswhich had close ties to its owners overa three-year period. In some cases,these loans were interest-free andwere never repaid.AHP used nearly 2.5 million forbonuses to top-level employees andloans and investments during a twoyear period, A number of these investments have shown no appreciable return to date.In summary, the Crime Commission found that the three health planproviders used questionable marketing techniques, did not provide theirclients with actual accountings oftheir services or profits, and utilizedthose profits in an unsound businessmanner.,,.;rII.

ConclusionsAs a result of the Crime Commission's exhaustive investigation, thefollowing conclusions have beenreached:1. Traditional and non traditionalorganized criminals have infiltratedpre-paid health and dental care plan organizations throughout the country.These organized criminals and theirassociates have diverted millions ofdollars from union health and welfaretrust hmds through these organizations.2. Various union health and welfare fund trustees and administratorshave neglected their fiduciary responsibility in the award and administrationof health care benefits. Such contractsare sometimes awarded on the basisof favoritism rather than cost-effectivenes!). While the contracts are inforce, the unions may neglect to require the health plan organizations toprovide them with detailed accountings of services rendered, actual costsand profits made.3. Some Pennsylvania-based prepaid health care plan organizationshave submitted misleading and deceptive reports to union health and welfare fund trustees regarding benefitutilization by union members. Thesereports have cQntained figures inflatedto as much as 600 percent of actualand have resulted in contract renewalswhich might not have been given if theactual m:mber of services had been reported.4. Some pre-paid health care planorganizations have utilized questionable marketing techniques. Paymentshave been made to individuals whowere in some way associated with theawarding of health care plan contracts.Substantial commissions and consulting fees have been paid to individualsin return for minimal services.5. Pennsylvania-based health careplan organizations have been involvedin financial transactions which reduced the financial soundness of theorganization. Several of these transactions involved loans to or through individuals with close ties to the healthcare plan organizations.26. Pennsylvania law does not regulate profit making pre-paid health careplan organizations. Loopholes in thecurrent law encourage the types ofquestionable activities found in this report.7. Municipalities in the Commonwealth have no authQrity over theaward and administration of healthcare benefit contracts for public sector or municipal employees.8. These findings are not unique tohealth care plan organizations in theCommonwealth. Similar activities havebeen uncovered in other jurisdictions.RecommendationsA. The Professional Health Services Corporations Act in Pennsylvaniashould be amended to include the following provisions to regulate profitmaking health care plan providers: the submission of clear and complete statements of benefit coverage limitations on the amount thatthese companies can spend on marketing and administration the filing of detailed annual reports the regulation of investments a certification of authority totransact business the disclosure of the identity ofconsultants to the company, particularly t/lOse used for marketing yearly audits and certification bya Certified Public Accountant that incorporators must be competent and trustworthy a strict conflict of interest provisionB. The Employee Retirement andIncome Security Act (ERISA), shouldbe amended to cover trustees and ad·ministrators of public employee healthand welfare funds.C. Municipalities should be allowed to audit health and welfarefunds for which they provide fundingand should be part of the benefit provider selection process.D. The U.S. Department of Laborshould conduct periodic and randomaudits of union health and welfare andpension funds.E. Union members should have theability to initiate a civil action to recover trust fund money that has beenlost through either criminal or negligent conduct of the trust fund trusteesor administrator.F. In the case of public sectorunions, the governmental unit thatsupplies the funds for the purchase ?fbenefit programs should have the abIlity to initiate a civil action to recoverhealth and welfare fund money thathas been lost through criminal or neg.ligent conduct by trust fund trusteesor administrators.G. The government should havethe ability to recover on behalf ofunion trust funds, excess commissions or finder's fees.H. Trustees and administratorsshould be liable for treble damages forlosses resulting from theirconduct.ChaQterOneA National Problem,3

{:4 t\lat ona{Probiem ,-For example, a dentist might re- elve 5 per month per patient or lamI y as a fixed fee. This would computeS60 per year per patient. If the pa-i?lent only made one visit during that ear, and received 30 worth of sent: es, the dentist would make an addilanaI 30. However, if the patientmade frve VISitS at 30 each (total/1S15 ), the dentist Would 'lose' 907 1 ervlces for that year, However. ther so af!1 Ple opportunity, if the c ntractn t Inues, to recoup this 'loss'. i d : h rkbisthecovered. intiofb ., y a comblnano aSlc fees received plus patientpayments.eraIT: :! fot et eHealthPlans \lvorkHOlJiJtbheenefits are genth f 'consumer inIn h orm of mcreasing product costshealt c: :,rblicbempl?yee unions:borne by the tax are eneflts costs areThpaye cOllec iv: f; r.e generally, throughtributes anIOlOg agreements, canagreed upon amount f,ttrhust or health ande purchase of he Ithonot labore unron members In th.ecase of a union whO hnici alIC represents muP'u dor government personnel theIns are suppli d b 'or state.ey the municipality : t o :;i eo e:: b halfw org ni-A board of truste thplications frome en seeks ap.care benefits. Thg vlder of. henlthreviewed and the ap lcatlons areselected It h I provIder is then,.s ou d be noted th fprovider Who contracts with th at .lieIS most often not the ende. unionhealth care. nathe it .prOVider oftive company who hiS an admlnistra·cal and/ordental aim ndles the medi·Many health care be' nare provided by establis eedl packagescamp'0inSuranceanl,es.thers are provided bnon:pro lt health plan urganization Yf:roflt-onented health plan organlz ,?ns, The. types of companies dealt thm ,thlS rep rt re profit makingp an organIzations.Th.ere are two Ways that thesebenefit package plans can work. In onef t he health care plan company es.a IS es hat the usual and custom. ry charge 15 for various specific servoIces. ! e employee or union memberma VISIt the doctor or dentist of theirc.holce, but the nealth plan organiza.tlon only pays this customary fee andany am.ount over that must be borne bythe patIent.Under the second method thehe lth plan organization enlists p rtici'patrn doctors or dentists in a geo.graphtc. area and receives an agree. ent With the·se participating special.Ist to accept a fixed fee per patientThIS fee is pai? monthly by the healthplan. ; rga.nrzatlon and is received bypartlclpatmg physicians and dentistsr ardless of how many (or how few)VISItS are made by the patient.hThe Roles OfOrganized CrimeThe Crime Commission's 1980 Report, which looked at criminal activi·ties during the 1970s, defined organized crime as groups of people work·Ing together, usually on an ongoingbasiS, in a mix of legal and illegal activoities. It further noted that one goal oforganized crime is to achieve monopo·IIstic control over certain industries orcommercial ventures to fUrther theireconomic gain.The public and some law enforcement agencies view organized crimeas synonymous with La Cosa Nostra.This misconception is one which denies the mounting evidence of criminalgroups with varied ethnicities andcommo

Oliver Hunter James Kanavy Lee Kautzman Steven Keller Gregory Kerpchar Gino Lazzari Jeannie McBride Dwight McKee Edward Mokos Nancy Monzi Joseph Morace Wasyl Polischuk Gerald Rockey Sharon Rockey Albert Risdorfer Mary M. Russell Lois Ryals Connie Schaffer Luke Schultz Diana Schwandt Gregory Smith Paul Spear George Van Durick . turn to date .

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