Zalma`s Insurance Fraud Letter

Zalma’s Insurance
Fraud Letter
The Essential Resource For The Insurance Fraud Professional
A ClaimSchool ™ Publication, Written by Barry Zalma, Esq., CFE
© 2015 ClaimSchool, Inc. & Barry Zalma
Volume 19, No. 6
March 15, 2015
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Quote of the Issue
“Two things are infinite: the universe and human stupidity, and I’m not sure
about the universe.”
Albert Einstein
Did 60 Minutes Reveal Fraud by Flood Insurers?
As in every catastrophe, people who are not paid what they believe they are owed, claim that the
engineers hired by the insurers fraudulently placed the cause of loss in a cause that was not covered
or where coverage is limited. As with various hurricanes, the difference in cause is between wind
and water, between wind and flood, between wind and wavewash. Now, as the claims from
Superstorm Sandy, the head of Federal Emergency Management Agency’s (FEMA) flood insurance
program acknowledged he has seen evidence of fraudulent engineering reports that may have been
used to deny flood claims by Superstorm Sandy victims, according to CBS’s “60 Minutes” program
that aired Sunday, March 1, 2015.
“I’m not gonna sit here and conceal the fact that it happened. ‘Cause in the last three weeks, I’ve
seen evidence of it,” said Brad Kieserman, FEMA’s deputy associate administrator for insurance.
Kieserman said in the “60 Minutes” program that he’s already had to answer to allegations of fraud and criminal activity at the expense of
Sandy’s hardest-hit families.
Kieserman said he has referred to the inspector general the evidence he’s seen of fraudulent reports and what could be criminal activity by
using unlicensed engineers.
When asked when did FEMA learn that there may be a problem, that fraudulent reports may have been used to deny claims, Kieserman said
based on what he’s seen, “there were signals in late 2013, early 2014, that there were problems that the Sandy survivors were experiencing
with engineering, with the claims process, with appeals.” Kieserman said that as far as he knows, no one at FEMA has ever said to the
insurance companies or to the engineering companies to “keep the claims down.” “60 Minutes,” on the other hand, said lawyers paid for by
FEMA have gone after Sandy survivors in court, accusing them of fraud. Regardless, the questions is why it has taken FEMA, a part of the
Department of Homeland Security, has done nothing to prosecute those it claims were defrauding insured victims of Sandy. The U.S.
Department of Justice, however, has effectively prosecuted those who submit fraudulent flood insurance claims.
Kieserman said last month FEMA is working to settle lawsuits by hundreds of Sandy victims
who challenged denials or alleged underpayments of flood insurance claims.
Private insurers participating in FEMA’s National Flood Insurance Program have come under
scrutiny in recent months over allegations they denied or rejected damage claims based on
allegedly falsified reports. About 1,500 cases over flood claims from Sandy are pending in
New York and New Jersey courts.
Since the 60 Minutes Program, Federal disaster assistance officials have begun reaching
Zalma's Insurance Fraud Letter -- Page 1 of 13
settlements with more than 1,000 Hurricane Sandy victims who allege they were unfairly denied flood insurance
claims or paid too little for them. Lawyers for property owners told federal magistrate judges overseeing
lawsuits in Brooklyn and Central Islip in New York in a filing Monday that settlements have already been
reached in 160 cases. The accords are the first wave of hundreds more expected after some homeowners
complained that companies that help provide flood insurance rejected claims based on fraudulently manipulated
engineering reports of storm damage.
Susan Hendrick, a spokeswoman for FEMA, didn’t immediately respond to an e-mail seeking comment on the
settlements.
Private insurers working in partnership with FEMA’s National Flood Insurance Program have come under
scrutiny over allegations they denied or rejected damage claims based on falsified reports. About 1,500 cases
over flood claims from the devastating 2012 hurricane are pending in New York and New Jersey courts.
According to complaints from some homeowners, initial engineering reviews that correctly linked home damage
to the surging waters were revised to cast blame on long-standing structural flaws. The alleged scheme came to
light after a Long Beach, New York, homeowner discovered that conclusions originally voiced by an engineer were reflected nowhere in
his firm’s final report.
As of March 12, 2015, the Federal Emergency Management Agency’s Administrator Craig Fugate has agreed to reopen every flood
insurance claim filed in the wake of Hurricane Sandy — a move that could cost taxpayers millions.
U.S. Sen. Robert Menendez, D-N.J., said Fugate agreed to have the agency review all 144,000 flood claims filed after the 2012 storm and
not just the 2,200 that are still in litigation. Fugate agreed to expand the agency’s review of Sandy claims after meeting with Menendez and
fellow U.S. Sens. Cory Booker, D-N.J.; Kirsten Gillibrand, D-N.Y.; and Chuck Schumer, D-N.Y.
The expanded review comes amid growing allegations that some insurance companies
participating in the National Flood Insurance Program’s Write-Your-Own program denied
claims based on based on falsified engineering reports.
Insurance Information Institute President Robert Hartwig criticized the move to Best’s
News Service, saying the decision will create substantial cost burdens for FEMA and the
NFIP. The NFIP is currently more than $24 billion in debt.
FEMA has not said how the review will be conducted.
Earlier this month, FEMA agreed to settle the first round of lawsuits stemming from
insurance claims filed in the wake of Sandy. If approved, the settlements would resolve 160
Sandy-related lawsuits.
In November, U.S. Magistrate Judge Gary Brown issued a ruling in which he found “reprehensible gamesmanship” was being perpetrated
by engineering firms on behalf of WYOs against disaster victims covered under the National Flood Insurance Program. Brown said
hundreds of Sandy flood insurance claims may have been affected by altered engineering reports. Brown’s ruling came in a lawsuit filed by
a Long Beach, New York, couple who challenged a claims decision by Wright National Flood Insurance Co. Since then, a second
homeowners insurance company has been accused of using doctored engineering reports to support a decision to deny coverage of a claim
associated with Sandy.
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Getting the Whole Truth
The interview is an essential form of fact gathering for every type of human interaction. Interviews happen everywhere; they are performed
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interview. The standard interview does not have, nor should it be given, the pejorative sense conveyed by the
expression “giving someone the third degree.” Interview professionals do not use rubber hoses or hot lights, or
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Zalma's Insurance Fraud Letter -- Page 2 of 13
The book will be delivered to you by e-mail shortly after purchase.
Random Thoughts on Insurance - Vol. III
Since 2010 I have been writing a blog post at least five days a week. This e-book is a collection of those posts that reveal
my interest in insurance case law. Some of the cases reviewed were important. Some were of first impression. Others
will be totally unimportant. All were interesting to me and I hope are interesting to the reader. This e-book is more than
1200 pages of my review of interesting cases from 2013 through January 2014.
After you purchase please wait for the e-book to upload from PayPal. If it does not upload please e-mail
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The National Underwriter Company Publishes The Zalma Insurance Claims Library
The full Zalma Insurance Claims Library is available at www.nationalunderwriter.com/ZalmaLibrary.
Mold Claims Coverage Guide
Today, mold claims are common, but they continue to grow in complexity, involving not only property damage but
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Construction Defects Coverage Guide
This insightful and practical two volume resource was envisioned and written by nationally renowned expert Barry Zalma, and it
thoroughly explains how to identify construction defects and how to insure, investigate, prosecute, and defend cases
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Construction Defects Coverage Guide was designed to help property owners, developers, builders, contractors,
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Insurance Claims: A Comprehensive Guide
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IRC Estimates Auto Injury Fraud & Buildup Adds Up To $7.7 Billion Excess Claims
According to a recent report released by Penn.-based Insurance Research Council (IRC), a nonprofit research organization funded by
property/casualty insurers, auto injury fraud and buildup adds an estimated $5.6 and $7.7 billion in excess claims payments in 2012.
The comprehensive report, Fraud and Buildup in Auto Injury Insurance Claims is based on more
than 35,000 auto injury claims closed with payment. Twelve insurers, representing 52 percent of the
private passenger auto insurance market in the United States, participated in the study. The report is
part of an ongoing series of research on auto injury claims being conducted by the nonprofit.
The report noted that buildup is sometimes referred to as ‘soft fraud’. The excess payments
represented between 13 and 17 percent of total payments under the five main private passenger auto
injury coverages.
Twenty-one percent of bodily injury (BI) claims had the appearance of fraud and/or buildup in
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2012, according to file reviewers.
The IRC noted 18 percent of personal injury protection (PIP) claims closed with payment in 2012, an increase of
13 percent since 2002.
The most common type of abuse identified was claim buildup, defined as the inflation of otherwise legitimate
claims. Claims with the appearance of buildup accounted for 15 percent of dollars paid for BI and PIP claims in
2012.
While there was some evidence of staged accidents, most of the fraud reported appeared to be opportunistic in
nature. Kilgore said this may be due to the fact that the study only looked at claims that were closed with
payment.
Claims with the appearance of fraud and/or buildup were more likely than other claims to involve chiropractic treatment, physical therapy,
alternative medicine and the use of pain clinics.
The prevalence of apparent fraud and buildup varied widely among states, especially no-fault states.
States with the highest rates of fraud and buildup among PIP claims included:
•
Florida (31 percent)
•
New York (24 percent)
•
Massachusetts (22 percent)
•
Minnesota (22 percent)
•
Some no-fault states, like Kansas and Pennsylvania had very little reported fraud and buildup.
When reviewing PIP claims nationwide, 27 percent of claims arising from accidents that occurred within central
cities had the appearance of fraud and buildup versus 14 percent of claims in medium cities and small
town/rural areas.
The study revealed the top ways in which adjusters identify questionable claims:
•
Using index bureau checks.
•
Utilizing IMEs and peer reviews to ensure treatment plans are appropriate.
•
Referring claims to special investigation units.
Patterns of fraud included:
•
Claims that have sprain/strains injuries;
•
Chiropractic treatment;
•
Treatment by a pain clinic;
•
MRI’s for non-severe injuries.
The additional costs associated with fraud-fighting efforts were not included in the IRC estimates of excess payments.
Barry Zalma
Barry Zalma is the principal of Zalma Insurance Consultants. He is available for consultation on any and all insurance issues faced by you
or your clients.
Barry Zalma founded ZIC to help resolve every insurance claim problem faced by you or your clients. His
experience and skill as a consultant and expert witness can make the difference before a jury or other trier of
fact. For more than 45 years as a claims person and insurance coverage attorney, Barry Zalma has represented
insurers, advised insurers on claims handling, interpreted coverages and testified as an insurance coverage,
insurance bad faith, insurance claims handling and insurance fraud expert on behalf of insurers and policy
holders’ suing insurers.
Mr. Zalma is an internationally recognized expert on insurance, insurance claims handling, insurance coverage,
insurance fraud, and insurance bad faith. Barry Zalma will promptly review your file materials and advise you
about the viability of your decision to sue or your defenses. He can help you narrow the scope of discovery.
Consultation with Mr. Zalma and ZIC can save you or your client thousands of dollars in the defense or prosecution of an insurance dispute.
ZIC will assist you in the effort to find a solution to an insurance claims dispute that is fair, intelligent, beneficial and economical.
ZIC is available to provide expert advice and, if needed, expert testimony to individuals and their counsel. Advice from ZIC is
indispensable to the resolution of insurance disputes. Consultation from ZIC can save you, your counsel or client hundreds of hours of
Zalma's Insurance Fraud Letter -- Page 4 of 13
investigative and legal work.
With comprehensive knowledge of insurance and insurance claims handling Mr. Zalma understands, and can
explain in language a lay jury understands, how and why insurance claims should be resolved.
ZIC rates are all inclusive. Mr. Zalma’s hourly fee takes account of all incidentals from telephone calls and postage
to computer time and word processing. As for third-party costs, ZIC passes along all discounts and vendor savings.
The client pays what ZIC pays. Not a penny more. ZIC has made the billing process simple.
He is knowledgeable and qualifies as an expert in cases involving insurance bad faith, insurance claims, insurance
claims handling, and insurance fraud. Mr. Zalma aids insurers, insurance agents and brokers, and attorneys
representing both plaintiffs and defendants with their insurance cases.
Dentist Loses License for Only Two Years for Medicaid Fraud
“Chutzpah” is a Yiddish term for unmitigated gall such as a person convicted of murdering his parents asking the court for mercy because
he is an orphan. In this case a dentist pleaded guilty to defrauding the Medicaid system for more than four years, received probation only on
the criminal charge because he assisted the prosecutor in convicting his co-conspirators and then
sought to keep his license. In Kim v. Board of Regents of State, --- N.Y.S.2d ----, 125 A.D.3d 1207,
2015 WL 790474 (N.Y.A.D. 3 Dept., 2/26/15) a New York appellate court was called upon to decide
the propriety of the revocation of his Kim’s license to practice dentistry.
FACTS
In 2005, petitioner, a recently licensed dentist, began working at a dental clinic in Brooklyn; many of
the clinic’s patients were insured through New York’s Medicaid program. Thereafter, in 2010,
petitioner was indicted and charged with grand larceny in the first degree, insurance fraud in the first
degree, engaging in a medical assistance provider prohibited practice in violation of Social Services
Law § 366–d (2)(b) and (4) and conspiracy in the fourth degree. The charges stemmed from petitioner’s participation in a scheme to
defraud the Medicaid program by utilizing paid recruiters, known as “flyer guys,” to solicit patients to receive dental services at the clinic in
exchange for some form of remuneration and by entering into an illegal fee-splitting arrangement with non-dentists in the clinic’s practice.
Pursuant to a written plea agreement, petitioner pleaded guilty to grand larceny in the second degree and violating Social Services Law §
366–d (2)(b) and (4) with the understanding that, if he cooperated with the Attorney General in the prosecution of his codefendants, he
would be permitted to withdraw his plea as to the larceny charge. Following petitioner’s compliance with the terms of this agreement,
petitioner’s plea to grand larceny in the second degree was vacated, and he thereafter was sentenced—with respect to his conviction under
the Social Services Law—to five years of probation and ordered to pay restitution in the amount of
$200,000.
As a result of this conviction, respondent Office of the Professions, a division of respondent
Department of Education, charged petitioner with professional misconduct pursuant to Education
Law § 6509(5)(a)(I). Following an expedited hearing, respondent Regents Review Committee found
petitioner guilty of professional misconduct and recommended a two-year suspension of petitioner’s
license to practice dentistry in New York. Respondent Board of Regents adopted those findings and
recommendation and suspended petitioner’s license for two years. Petitioner thereafter, expressing
unmitigated chutzpah, commenced an article 78 proceeding to challenge that determination.
The sole argument raised by petitioner upon review is addressed to the severity of the penalty imposed. Specifically, petitioner contends
that the underlying suspension fails to take into account, among other things, his cooperation in assisting the Attorney General in
prosecuting his codefendants, his stated remorse, his status as a new dentist in an established practice and his overall lack of awareness of
the fact that the conduct in which he engaged actually constituted a crime. Petitioner further contends that the penalty imposed is
disproportionate to that meted out to his codefendants and other similarly situated individuals.
“The standard of review [that] we must accord to penalty determinations in proceedings of this nature is highly deferential” and, therefore,
the administrative penalty imposed will not be disturbed unless it is “so incommensurate with the [underlying] offense as to shock one’s
sense of fairness” (Matter of Singh v. New York State Dept. of Health Bd. of Professional Med. Conduct, 74 AD3d 1391, 1393 [2010]
[internal quotation marks and citations omitted].
The court found that the Board expressly took into consideration many of the mitigating factors upon which
petitioner now relies, including petitioner’s cooperation with the Attorney General and his demonstrated
remorse, as well as the fact that his conduct did not directly implicate patient care, that he did not submit claims
for work not actually performed, that he was not convicted of larceny or fraud, that he is paying restitution in an
amount greater than many of his codefendants and that his misconduct consisted solely of an illegal
fee-splitting arrangement and “making small improper payments to patients.” Although petitioner
testified—and continues to emphasize—that he was unaware that such activities were criminal in nature, he
readily acknowledged at the hearing that he was aware that “flyer guys” were retained to “lure” Medicaid
patients into the clinic’s practice (often by utilizing small cash payments) and that he knew that this activity
“was wrong” and did not “seem[ ] kosher.” Nonetheless, petitioner turned a blind eye to this activity for
Zalma's Insurance Fraud Letter -- Page 5 of 13
approximately four years, during which time he reaped the financial benefits of being employed at the clinic. In light of petitioner’s
misconduct, and taking into consideration the mitigating factors cited by petitioner, the gravity of the underlying offense and the need to
fashion a penalty that serves as a deterrent to other health professionals, we cannot say that the two-year suspension imposed by the Board
is so disproportionate to petitioner’s offense as to shock one’s sense of fairness.
The suspension of his license was affirmed.
ZALMA OPINION
Mr. Kim, who knew what he was doing was not kosher, still wanted the privilege to continue practicing dentistry because he helped convict
his co-conspirators, should thank the Board for only suspending his license for two years. He should, instead of being out of work in his
profession, be allowed out of his prison cell only to help the dental health of his fellow prisoners.
Wisdom
“With malice toward none, with charity for all, with firmness in the right, as God gives us to see the right, let us strive on
to finish the work we are in, to bind up the nation’s wounds, to care for him who shall have borne the battle, and for his
widow, and his orphan—to do all which may achieve and cherish a just and lasting peace, among ourselves, and with all
nations.” - Abraham Lincoln
“I am patient with stupidity, but not with those who are proud of it.” - Edith Sitwell
“The only place where success comes before work is in the dictionary.” - Vidal Sassoon
“The higher we are placed, the more humbly we should walk.” - Cicero
“Love is the only force capable of transforming an enemy into a friend.” - Martin Luther King Jr.
Barry Zalma is On World Risk & Insurance News
Check out my “Who Got Caught” submissions at http://www.wrin.com and scroll down to “Who Got Caught.”
Good News
Convictions from the Coalition
Former Miss Montana avoids prison after stealing $122,000 from insurers
Christin Dianne Didier, a former Montana beauty queen who purchased a mansion in Somers, and then used the property to defraud
insurance companies out of $122,791, will spend the next five years on probation and pay $213,000 in
restitution.
Didier was convicted in March 2013 of seven counts of mail fraud and another felony count of conspiracy. Her
sentencing was handed down Thursday morning in U.S. District Court in Missoula, with Judge Donald Molloy
presiding.
Didier was named Miss Montana in 1994 at the age of 24. She bought the historic home in 2005 for $1.1 million
and lived there for several years with her mother and a friend, until a windstorm damaged the home in 2007.
A few months later, a fire rendered the home unlivable, forcing Didier and her mother to look for housing
elsewhere.
According to court documents, Didier and her co-conspirator, Surayya Mahasin Nasir, concocted a plan to defraud insurance companies
by alleging that Didier lived in a 7,000-square-foot home, complete with five bedrooms, two bathrooms and an in-ground pool near Rollins.
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Per their contractual agreement, the insurance company was obligated to pay Didier for comparable housing, while her historic home was
being repaired.
The insurance company sent Didier large sums of money every month for seven months while Didier alleged she lived in the fictitious
home, when in fact Didier, her dogs and her mother were living in an 860-foot cabin with two bedrooms, no indoor plumbing and no pool.
During her sentencing Thursday, Molloy ordered Didier to pay $213,163.25 in restitution, while giving her five years' probation for each of
the eight counts to run concurrently.
The 8,000-square-foot, 14-bedroom yellow mansion was built by sawmill owner John O'Brien in 1903. The property consists of the original
barn, carriage house and nearly six acres of land that overlooks the Flathead Lake.
Guilty of Medicaid Fraud
Olufemi Afuape and Oluyemisi Afuape, both of Lilburn, Georgia pleaded guilty to single counts of Medicaid fraud and conspiracy to
defraud the state in a scheme that submitted $1.4 million in fraudulent claims, the office said in a news release.
Oluyemisi Afuape, the wife, was sentenced to three years house arrest. Olufemi Afuape was sentenced to three years
work release at the Gwinnett Detention Center, followed by 12 years of probation.
They were ordered to pay $1,407,325.50 in restitution to the Georgia Department of Community Health.
Health Insurance Fraud Convictions
Fraudulently Obtaining Medicaid Payments While in Prison
Angela Jones, 51, of Madison, Missouri, on March 12, 2015 pleaded guilty to health care fraud, federal court
officials said.
Jones appeared in federal court in East St. Louis. She admitted she had submitted false bills saying she
provided personal assistant services in the Home Services Program, a Medicaid program that allows people to
stay in their homes instead of entering a nursing home. Jones admitted she was actually incarcerated while she
was billing the program.
Jones faces up to ten years in prison and a fine of up to $250,000 at her sentencing, which has been set for July 10.
$3.5 Million to Settle Health Care Fraud Claim
The Catholic Health Care System, aka ArchCare, allowed Medicare to be billed for patient
care at the highest therapy-based levels, even though its subcontractor RehabCare, was often
not providing therapy at those levels, according to the U.S. Attorney’s Office. ArchCare an
operator of a skilled nursing facilities agreed to pay $3.5 million to settle allegations that it
inflated Medicare claims for rehabilitation therapy, according to the U.S. Attorney’s Office.
Prior to Oct. 1, 2011, the ArchCare facilities failed to take sufficient steps to prevent RehabCare
from engaging in a pattern and practice of providing high levels of therapy that were not
reasonable or necessary during so-called “assessment reference periods,” when ArchCare was
required to report to Medicare the amount of therapy it was providing to its patients, according
to the allegations.
ArchCare billed Medicare patients at the highest therapy reimbursement level, but RehabCare then provided less therapy to those same
patients outside the assessment reference periods, when the facilities were not required to report to Medicare the amount of provided
therapy, according to the U.S. Attorney’s Office.
The government took ArchCare’s cooperation and its current practices into account in reaching the resolution. ArchCare operates Terence
Cardinal Cooke Health Care Center in New York City and Ferncliff Nursing Home in Rhinebeck, New York, and it previously
operated Kateri Residence in New York City.
ArchCare’s subcontractor is Physical and Occupational Rehabilitation Therapy and Speech-Pathology Services, PLLC, an affiliate of
RehabCare Group East, Inc., and Kindred Healthcare, Inc., according to the U.S. Attorney’s Office.
This settlement also resolves allegations that ArchCare failed to prevent other RehabCare
practices designed to inflate Medicare reimbursement, including: presumptively placing patients
in the highest reimbursement level unless it was shown that the patients could not tolerate that
amount of therapy, rather than using individualized evaluations to determine the level of care
most suitable for each patient’s clinical needs; planning the minimum number of minutes of
therapy required to bill at the highest reimbursement level while discouraging the provision of
therapy in amounts beyond that minimum threshold, despite the Medicare requirement that the
amount of care provided be determined by patients’ clinical needs; arbitrarily shifting the number
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of minutes of planned therapy between different therapy disciplines to ensure targeted reimbursement levels were achieved; reporting that
time spent on initial evaluations was therapy time in order to avoid the Medicare prohibition on counting initial evaluation time as
reimbursable therapy time; reporting that time spent providing unskilled palliative care was time spent on reimbursable skilled therapy; and
reporting estimated or rounded minutes instead of reporting the actual minutes of therapy provided.
Guilty of $14.2 Million Medicare Fraud
Roman Johnson, 40, formerly of Buffalo, New York, a New York doctor pleaded guilty March 6, 2015 for his involvement in a scheme to
fraudulently bill Medicare for $14.2 million in claims for medically unnecessary treatments.
Johnson, pleaded guilty before U.S. Magistrate Judge Marilyn D. Go in the Eastern District of New York
to one count of conspiracy to commit health care fraud. Sentencing will be scheduled at a later date. As
part of the plea, Johnson agreed to pay $5,386,363 in restitution to the Medicare program, which
represents the total amount of money Medicare paid as the result of the fraudulent claims.
In connection with his guilty plea, Johnson admitted that he and other medical providers at the clinic
submitted approximately $14.2 million in false and fraudulent claims to Medicare for medically
unnecessary vitamin infusions, physical therapy, and occupational therapy that did not qualify for
reimbursement by Medicare.
Dentist Pays $484,744 after Admitting to Medicaid Fraud
Dr. Daniel P. Schecter, a dentist who provided services in Rockport, Maine, has paid $484,744.80 to settle claims involving improper
billing to MaineCare (Maine’s Medicaid program).
After an investigation by the U.S. Attorney’s Office, the U.S. Department of Health and Human Services, and
the Maine Attorney General’s Office throughout which Dr. Schecter cooperated, the United States and the State
of Maine filed a civil complaint seeking monetary damages against Dr. Schecter alleging that he violated the
federal False Claims Act from January 1, 2009 through November 19, 2012, by improperly billing MaineCare
for services rendered without medical necessity and proper supporting documentation, for unsubstantiated
tooth extractions and for narcotics prescribed without proper justification.
The settlement amount represents the amount of monies improperly billed by Dr. Schecter and held in
suspension by the Maine Department of Health and Human Services as a result of the investigation.
One Million Settlement From Doctor for Taking Kickbacks
Dr. Charles Denham, of Laguna Beach, California, has agreed to pay the United States $1 million to settle allegations that he violated the
False Claims Act by soliciting and accepting kickbacks, the Justice Department announced today. Denham is
a patient safety consultant who operates the consulting company Health Care Concepts Inc. and the research
organization Texas Medical Institute of Technology, both of which are also parties to the settlement. In 2009
and 2010, Denham was co-chair of the Safe Practices Committee of the National Quality Forum.
“Kickback schemes undermine the integrity of medical decisions, subvert the health marketplace and waste
taxpayer dollars,” said Acting Assistant Attorney General Benjamin C. Mizer of the Justice Department’s
Civil Division. “Doctors and other health care professionals who accept illegal inducements undermine the
public’s trust in federal health care programs and will continue to be the focus of our enforcement efforts.”
The settlement resolves allegations that, under agreements entered into in 2008, Denham received monthly
payments from CareFusion Corporation while serving as the co-chair of the Safe Practices Committee, which
reviews, endorses and recommends standardized healthcare performance measures and practices. The United States contended that
Denham did not disclose to the committee, or any other individual or component of the National Quality Forum, that he was receiving
payments from CareFusion. The United States further contended that Denham solicited and received these payments in exchange for
influencing the recommendations of the National Quality Forum and for recommending, promoting and/or arranging for the purchase of
CareFusion’s product, ChloraPrep, in violation of the Federal Anti-Kickback Statute. The United States alleged that this conduct caused the
submission of false or fraudulent claims for ChloraPrep to federal health care programs.
72 Months in Prison for $62 Million Medicare Fraud
Blanca Ruiz, 61, and Alina Fonts, 49, both of Miami, Florida were sentenced to serve 72 months in prison for
their roles in a $62 million Medicare fraud scheme involving intensive mental health treatment programs.
Ruiz and Fonts were convicted of conspiracy to commit healthcare fraud following a trial in November 2014.
Fonts was also convicted of two counts of health care fraud.
According to the evidence presented at trial, both Ruiz and Fonts were employed at Health Care Solutions
Network Inc. (HCSN), a now-defunct partial hospitalization program (PHP) that purported to provide
intensive treatment for severe mental illness. The evidence at trial demonstrated, however, that from 2004
Zalma's Insurance Fraud Letter -- Page 8 of 13
through 2011, HCSN billed Medicare and Medicaid for treatment that was not
medically necessary and often not provided at all. In Florida, HCSN operated
community mental health centers at two locations.
Evidence at trial showed that Ruiz and Fonts oversaw the alteration, fabrication and
forgery of thousands of documents, including patient medical records, to support the
fraudulent claims HCSN submitted to Medicare and Medicaid. Many of these
medical records were created weeks or months after the patients were admitted to
HCSN facilities for purported treatment. The evidence at trial demonstrated that the
“therapy” at HCSN oftentimes consisted of nothing more than Disney movies and
bingo games, and Ruiz and Fonts removed any references to these recreational activities in the medical records. Fonts also fabricated
medical records for North Carolina-based patients whom she never met.
According to the evidence presented at trial, Ruiz and Fonts were also aware that HCSN paid illegal kickbacks to owners and operators of
Miami-Dade County assisted living facilities in exchange for patient referrals to be used to submit false and fraudulent claims to Medicare
and Medicaid. Ruiz and Fonts knew that many of the referred patients were ineligible for PHP services because they suffered from mental
retardation, dementia and Alzheimer’s disease.
From 2004 through 2011, HCSN billed Medicare and the Medicaid program approximately $63 million for purported mental health
services.
92 Months in Prison for $27 Million Medicare Fraud
Michael Galatis, 63, of Natick, Massachusetts, the owner of a home nursing agency was sentenced February 26,
2015 to 92 months in prison for fraudulently billing millions of dollars of services to Medicare and then
laundering the proceeds. Galatis was sentenced by U.S. District Court Judge Douglas P. Woodlock. He was also
sentenced to three years of supervised release after the time was served and ordered to pay a $50,000 fine, $7
million in restitution to Medicare, and to forfeit proceeds of the fraud scheme, including his house, valued at
$850,000.
Galatis was convicted following a 16-day trial in December 2014 of conspiracy to commit health care fraud, ten
counts of health care fraud, and seven counts of money laundering.
Galatis, who is also a registered nurse, owned and operated At Home VNA (AHVNA), a home health agency
located in Waltham. From 2006 to 2012, Galatis submitted more than $27 million in false and fraudulent home
health care claims to Medicare. Medicare paid AHVNA more than $20 million of those fraudulent claims.
The Medicare program pays for home health services only if the services are medically necessary and the
individual is homebound. Galatis ignored these requirements and trained AHVNA nurses to recruit healthy
individuals with Medicare insurance who lived in large apartment buildings. Galatis held “wellness clinics” at
these buildings where nurses convinced senior citizens to enroll with AHVNA and have a nurse visit them in their home. Galatis, and his
co-conspirator, trained AHVNA nurses to manipulate the patients’ Medicare assessment forms to make it appear as though the patients
qualified for Medicare home health services, when that was often not the case. Galatis paid a physician, Dr. Spencer Wilking, to sign the
home health care orders, even though Dr. Wilking did not examine the vast majority of AHVNA’s patients.
Evidence at trial revealed the patients’ primary care physicians did not refer the patients to AHVNA and were unaware that AHVNA was
sending nurses to see their patients in their homes. A number of these physicians complained to Galatis, informing him that the patients did
not need a visiting nurse, but Galatis ignored these complaints. Similarly, AHVNA’s nurses testified that they informed Galatis that the
patients did not need a visiting nurse, but Galatis refused to discharge the patients and continued to bill Medicare.
In 2011, Medicare passed a new requirement that a physician certify that she or he had a face-to-face encounter with the patient about the
need for home health care. Even after this regulation was enacted, Galatis continued to bill Medicare for millions of dollars of home health
care even though Dr. Wilking signed each order without examining any of the patients. Galatis used the proceeds of the fraud scheme to
purchase a house currently valued at $850,000 in Natick free and clear of a mortgage.
Janice Troisi, also a registered nurse and the AHVNA clinical director, is scheduled to go to trial on July 27, 2015. Dr. Wilking, who
pleaded guilty in February 2014 to health care fraud, is scheduled to be sentenced on Sept. 22, 2015.
Sentenced for Psychotherapy Fraud to 87 Months in Prison
Gerald R. Funderburg Jr., 35, of Syracuse, New York, was sentenced by U.S. District Judge
Stephen J. Murphy III in the Eastern District of Michigan to serve 87 months in prison and pay
$1,453,064.59 in restitution.
Funderburg, a former Michigan resident who directed a $3.3 million psychotherapy fraud
scheme, that according to admissions made in connection with his guilty plea, from November
2006 through April 2011, Funderburg owned and controlled Funderburg Clinical &
Community Services (FCCS), which he used to submit false claims to Medicare for purported
Zalma's Insurance Fraud Letter -- Page 9 of 13
psychotherapy services.
Funderburg admitted that he used the Medicare information and identities of hundreds of Medicare beneficiaries without their consent to
submit claims for psychotherapy services that were not actually provided. Funderburg also admitted that he used personal information of
licensed social workers without their consent to obtain Medicare provider numbers in their names, which he then used to submit false
claims to Medicare for services purportedly provided by the same social workers. The social workers, however, did not provide the care
for which Funderburg billed Medicare.
Over the course of the scheme, Funderburg admitted that he caused FCCS to submit over $3.3 million in fraudulent claims, and Medicare
paid $1,453,064 for those claims.
Other Convictions
Potato Farmers Fraud
Aaron and Derek Johnson are scheduled to be sentenced Monday after a jury convicted them of conspiring to receive illegal payments and
giving false statements. They are two of a handful of farmers that found creative ways to defraud federal farm programs in recent years.
There was the North Carolina couple who faked hail damage to their crops by telling
workers to throw ice cubes and scatter mothballs onto a tomato field; the South Dakota
couple who fleeced the government by collecting $1 million in wool payments for
sheep they didn’t own; and the Texas man who spent one year in prison for filing a
claim for cotton he never planted.
The latest case involves two brothers from North Dakota accused of using various
techniques to destroy their potatoes, such as adding septic tank chemicals and bringing
in what one witness called a “monster” portable heater to turn their warehouse into a
spud sauna.
Fraud is one of the biggest issues in the federal farm program and costs taxpayers
millions of dollars per year.
Federal prosecutor Nick Chase is asking seven years in prison per brother Johnson in the scheme he said cost the U.S. Agriculture
Department more than $1 million. Prosecutors in the Johnson case had to rely on the testimony of a former farmhand who happens to be
serving time in prison for sexual assault.
The Johnson brothers, who farmed in the Cooperstown area, were accused of adding spoiled and frozen potatoes to their stored crop and
using portable heaters to warm the warehouse above 80 degrees to make the potatoes deteriorate faster. The defendants found that the best
way to wreck the crop was using Rid-X, a chemical that’s designed to dissolve solid materials in septic systems, prosecutors said.
Derek Johnson’s lawyer wrote in his sentencing recommendation that the jury verdict on the conspiracy charge did not represent his client’s
minimal involvement. He claimed that the uncontroverted testimony at trial was that Aaron Johnson ‘made the deals,’ he completed and
filed all of the paperwork, and he made the decisions on all matters financial.
Guilty 13 Years Later of Arson-for-Profit
Sandra Kay Bryant admitted in March in federal court in St. Louis that she participated in setting a fire that killed
her teenage son in their home in Florissant.
Bryant, 59, pleaded guilty of aiding and abetting the use of fire to commit mail fraud, but court documents did not
mention the death of Zachariah Andrew Kemper, 15, who became trapped in the burning home.
Bryant admitted that financial difficulties drove her and her then-husband, Steven Kemper, to plan the fire to cash
in on insurance. She and Kemper set the fire early on the morning of Nov. 16, 2001, Assistant U.S. Attorney Tom
Rea said in court.
As part of his guilty plea to the same charge in 2013, Kemper, then 54, also admitted setting fire to his
mother-in-law’s house on Jan. 1, 1997. He was retaliating against Betty Bryant for ending her financial support
and cutting the couple out of her will after she discovered they had defrauded her.
On July 20, 1999, Sandra Bryant set fire to her mother’s new home in Alton when it failed to sell in a few months on the market, Kemper’s
plea documents say. Betty Bryant was in a rehabilitation center at the time and had agreed to the sale. Neither of those fires was mentioned
in Bryant’s plea documents.
Kemper’s plea says that Sandra Bryant planned to set the 2001 fire in their home in a trash can in a basement utility room. It was supposed
to look like an accident triggered by careless smoking and cleaning habits.
Under Kemper’s plea agreement, he faces up to 10 years in prison. His sentencing was delayed pending completion of the case against
Bryant.
Zalma's Insurance Fraud Letter -- Page 10 of 13
Kemper pleaded guilty both out of fear that he was near death and out of a desire to get the “truth out,” he told a judge at the time. He had
suffered a heart attack and stroke in 2008.
Prosecutors and Bryant’s lawyers will recommend an eight-year prison term when she is sentenced June 11,
less time already served in jail. U.S. District Judge Audrey Fleissig is not bound by the sentencing
recommendation. But if she agrees, the net result would be 46 months in prison, U.S. Attorney Richard
Callahan said.
Bryant had been scheduled for trial March 9 but had failed in an effort to keep her confession out of the trial,
Callahan said.
Callahan said that by the time the state courts ruled, the statute of limitations had passed for nearly all
applicable federal charges, except the one filed against them. He said the Bureau of Alcohol, Tobacco,
Firearms and Explosives, and experienced prosecutors, worked hard to disprove Kemper’s testimony during the
state court trial that he was an innocent victim. The case file grew to into two stacks of paper six feet high,
Callahan said.
Arson-for-profit is the most dangerous and vicious forms of insurance fraud proving, as did the death in this case, that insurance fraud is not
a victimless crime and not a violent crime. People die as a result of insurance fraud.
Convicted of Arson-for-Profit in Omaha
Thomas Schropp, 52, of Omaha, was convicted Tuesday on charges of arson, mail and wire fraud, according to U.S. Attorney Deborah
Gilg.
Minutes after multiple crews responded to the fire at his business in November 2008, owner Tom
Schropp showed up at PK Manufacturing.
The owner of PK Manufacturing was being investigated for a fire that burned his company to the
ground in November 2008. Prosecutors said he tried to collect $4.3 million from insurance after
paying a man to burn the place down.
The trial brief filed in federal court last week said Schropp owed more than $5 million on two bank
loans and that he tried to sell the business.
Schropp faces a mandatory minimum sentence of 15 years in prison for the arson conviction and up to 20 years for the mail and wire fraud
convictions.
One Year in Jail For Habitual Insurance Fraud Offender
Hakeem Sanusi, 64 of Eastpointe, Michigan was sentenced to one year in jail for selling fake auto insurance
certificates. Sanusi pleaded no contest to six counts of insurance fraud as a habitual offender. He was sentenced
on Feb. 26, according to Secretary of State Ruth Johnson and Eaton County Prosecutor Doug Lloyd.
The secretary of state has put an emphasis on cracking down on fraud.
Sanusi was arrested in September after secretary of state staff suspected customers had sent in fake insurance
certificates to renew their license plate tabs.
ZIFL can only wonder how many times Sanusi must commit insurance fraud before he receives a sentence that
will act as a deterrent.
Arson-For-Profit Fails
James Marvin Plower of Olin, Iowa has pleaded guilty in federal court to mail fraud and using fire to commit a
felony.
Federal prosecutors say Plower faces at least 10 years in prison and up to 30 years.
At a plea hearing Friday in federal court in Cedar Rapids Plower said he made up a scheme to defraud his insurance
company. He set fire to his home in Martelle and submitted an insurance claim asserting the fire was accidental. He
collected more than $66,000 from the insurance company.
Plower, who is 50, was convicted of one count of mail fraud and one count of using fire to commit a federal felony.
He was released on bond until he is sentenced at a later date.
Zalma's Insurance Fraud Letter -- Page 11 of 13
Zalma Insurance Consultants provides the following services to its clients:
•
Acting as a consultant or expert witness on behalf of
insurers and insureds in litigation.
•
Consultation with insurance claims personnel on methods
to avoid charges of bad faith.
•
Acting as a consultant to the insured in the presentation of
a first party claim.
•
•
Analysis of claims file material to allow the party to
present evidence to establish and document bad faith or
the existence of a genuine dispute between the insurer and
insured.
Consultation with insurers and insureds on insurer
compliance with Fair Claims Practices laws and
regulations.
•
Training on insurance and insurance law for all insurer
•
Acting as a mediator to help resolve insurance claims short
of litigation.
•
Analysis of insurance policy wording.
•
Litigation advice to defense or plaintiffs’counsel.
•
Review of policy wording and claims files to determine if
there is a basis for payment or denial of a claim.
•
Analysis of insurance litigation for the insurer and the
insured.
Consultation from Zalma Insurance Consultants can save you or your client thousands of dollars in the defense or prosecution of an
insurance dispute. Zalma Insurance Consultants will find a solution to your insurance claims dispute that is fair, intelligent, beneficial and
Economical.
If you only need an opinion letter I will review your entire claim file and policy wording and prepare a coverage opinion letter for the flat
fee of $4,000.00. Otherwise, my services are billed at $500.00 per hour, portal to portal.
Zalma Insurance Consultants provides expert advice to counsel for insurers and plaintiffs’ counsel. Advice from Zalma Insurance
Consultants is indispensable to the resolution of insurance disputes. Consultation from Zalma Insurance Consultants can save you, your
counsel or client hundreds of hours of investigative and legal work. Call Barry Zalma at 310-390-4455 or e-mail at [email protected].
Zalma’s Insurance Fraud Letter
© 2015 by Barry Zalma & ClaimSchool, Inc.
4441 Sepulveda Blvd, CULVER CITY CA 90230-4847
http://www.zalma.com # [email protected] # http://zalma.com/blog
ZIFL is made available by the publisher for educational purposes only as well as to give you general information and a general
understanding of the law, not to provide specific legal advice. By using ZIFL you understand that there is no attorney client relationship
between you and the publisher. ZIFL should not be used as a substitute for competent legal advice from a licensed professional attorney in
your state.
The Insurance Fraud Deskbook
Barry Zalma, Esq., CFE
2014 Paperback, 638 Pages, 7x10
The Insurance Fraud Deskbook is a valuable resource, peer reviewed by the American Bar Association, for
those who are engaged in the effort to reduce expensive and pervasive occurrences of insurance fraud. It
explains the elements of the crime and the tort to claims personnel, and it provides information for lawyers
who represent insurers so they can adequately advise their clients. Prosecutors and their investigators can use
this book to determine what is required to prove the crime and win their case.
The full text of decisions from courts of appeal and supreme courts across the country are provided so the
reader can understand what happens after the investigation is completed and can apply that information to
Zalma's Insurance Fraud Letter -- Page 12 of 13
undertake their own thorough investigations. It allow claims personnel and their lawyers to understand what errors would cause a defect or
a not-guilty verdict.
The effort to reduce insurance fraud requires the assistance of both civil and criminal courts. The Insurance Fraud Deskbook can help the
prudent fraud investigator, insurance adjuster, insurance attorney, insurance Special Investigation Unit and insurance company management
to attain the information needed to deal with state investigators and prosecutor.
Available from the American Bar Association at:
http://shop.americanbar.org/eBus/Default.aspx?TabID=251&productId=214624; or
[email protected], or 800-285-2221.
As readers of ZIFL are aware, Barry Zalma is an insurance coverage attorney, consultant and expert witness. As a
California attorney, Mr. Zalma limits his practice to transactional, rather than litigation, counsel concerning insurance coverage
matters, mainly representing insurers and those in the business of insurance. Mr. Zalma was licensed to practice law in 1972 and
has operated his own firm since 1979. He is admitted to practice before all California courts, California U.S. District Courts and
the Ninth Circuit Court of Appeals. He has qualified as an expert in various state and federal courts across the U.S. and the British
Cayman Islands.
The comments made in each issue of ZIFL are for information only and are not intended as legal advice. If you need legal
advice, Barry Zalma practices law as the Law Offices of Barry Zalma, Inc., 4441 Sepulveda Boulevard, Culver City CA 90230 or
at 310-390-4455, fax: 310-391-5614, or at [email protected]. If you need an insurance claims handling, insurance coverage or
insurance bad faith consultant and expert contact Mr. Zalma at Zalma Insurance Consultants, 310-390-4455 or e-mail to
[email protected].
Zalma's Insurance Fraud Letter -- Page 13 of 13