Shell Companies Defraud Medicare
MSNBC had a great article on Reuter's investigation into the use of shell companies to steal taxpayer funds from Medicare. The story had many examples including a fake AIDS clinic in Miami which had bilked Medicare of more than $4.5 million. The scheme involved forming at least 29 other shell companies — paper-only firms with no real operations. The shells functioned as a vital tool to hide the Medicare deceit. Hundreds of others have used the veil of corporate secrecy to help steal hundreds of millions of dollars from one of the nation's largest social service programs, a Reuters investigation has found. Basic checks by Reuters of Medicare providers show shell companies remain prime tools in perpetrating fraud. Simply by reviewing the incorporation records of Medicare providers in two buildings there, reporters uncovered information that one government official said could prompt "a serious criminal investigation" of some of the companies.
The fraud rings merge stolen doctor and patient data under the auspices of a shell company and then bill Medicare as rapidly as possible. Other shell companies are often layered on top to camouflage the fraud. Some of the shells purport to be billing companies; they form a buffer between the sham entities and Medicare. Others pay kickbacks to doctors and patients who sign off on bogus medical claims or sell their Medicare ID numbers to enable the shell company to bill the government. Still other shells act as fronts to launder the profits.
The key to this kind of fraud, known as a "bust-out" scheme, is for each of the fake companies to bill as much as possible before authorities catch on.
Last year, "improper payments" resulted in $48 billion in losses to the Medicare program, nearly 10 percent of the $526 billion in payments the program made, according to a Government Accountability Office report last March. Exactly how much of those payments moved through shell companies remains unclear. That's because neither Medicare nor law enforcement agencies systematically track how often such companies are used in the frauds. And not until 2007 did the federal government form task forces to exclusively target Medicare fraud rings.
But recent indictments issued by those task forces indicate that shell-perpetrated fraud is pervasive. Reuters examined indictments issued since 2007 in the eight states that have Medicare fraud task forces in place. The examination found that shell companies were involved in more than a third of the fraudulent Medicare claims identified by the task forces — $1 billion of the $2.9 billion uncovered.
The indictments and other cases indicate that at least 300 shell companies posed as legitimate Medicare providers and billing firms, or laundered payments from Medicare. Shell companies remain a significant tool of deception to swindle hundreds of millions of dollars from taxpayer-supported Medicare.
In one of the largest cases of Medicare fraud ever charged, the operation was enabled by shell companies. In October 2010, federal prosecutors indicted 44 members of an Armenian organized crime ring. Their network, which stretched from Los Angeles to Savannah, Ga., used 118 shell companies in 25 states to pose as Medicare providers, billing more than $100 million, according to federal indictments in three states.
The difficulty of spotting — and stopping shell-perpetrated Medicare fraud is compounded by incorporation laws that vary from state to state and make forming fake businesses easy.
Intentionally submitting false corporate information constitutes fraud in every state. But none check the validity of corporate records when a company incorporates or collect information on the "beneficial owners" — those with a controlling interest in the corporations.
In Florida, FBI agents say almost every Medicare fraud scheme involves shell companies.
As part of their investigation, Reuters asked analysts from the Recovery Accountability and Transparency Board to use its software programs to examine the companies. The board monitors $787 billion in stimulus funds for fraudulent activity using sophisticated computer systems; last year, it had worked with Medicare officials to look for patterns of fraud.
Devaney, who is also the inspector general for the Department of the Interior, says the board's analysis of the 26 Medicare providers led investigators to another 15 Medicare entities associated with those providers. He believes the findings could prompt a "serious criminal investigation."
CMS, which runs Medicare, says it doesn't have the resources to analyze incorporation records for each of its 1.5 million providers and suppliers. Those records are separately maintained by each state. Medicare claims filed by each of the fake clinics were accompanied by all the right doctor, patient and treatment codes, say law enforcement officials and fraud investigators.
CMS says it has been handcuffed in combating shell companies that posed as legitimate providers because it lacked the resources to extensively review the backgrounds and addresses of providers. Less than 5 percent of all payments were subjected to audits.
The healthcare reform law passed in March 2010 allocates $350 million over the next 10 years to fight fraud in Medicare and Medicaid, its sister program for the poor. The law also imposes stiffer sentences for the scam artists. CMS is installing new fraud-fighting computer analytics to check the backgrounds of doctors and providers to ensure, for example, that Medicare ID numbers aren't being stolen. The programs may help connect the people to the corporations they're running about 75 percent of the time, says Peter Budetti, deputy administrator and director of program integrity at CMS.
New providers also will be subject to automated enrolment screening. Their names will be checked against databases that include the federal government's banned contractor lists, state and federal criminal dockets, and state licensing records. Although the new screening system will have access to state incorporation records, CMS acknowledges it will still struggle to pierce the shell-company veil because states don't collect information on the real owners when corporations are formed or sold.
