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October 22nd, 2009
06:33 AM ET

Organized crime's new target: Medicare and Medicaid

By Allan Chernoff, Sr. Correspondent and Sheila Steffen, Sr. Producer

Organized crime gangs are exploiting a new target for illegal profit: Medicare and Medicaid.

[cnn-photo-caption image= caption="Two members of a Nigerian organized crime ring are charged with defrauding Medicare of $6 million."]

Experienced in running drug, prostitution and gambling rings, crime groups of various ethnicities and nationalities are learning it's safer and potentially more profitable to file fraudulent claims with the federal Medicare program and state-run Medicaid plans.

"They're hitting us and hitting us hard," said Timothy Menke, head of investigations for the Office of Inspector General at the Department of Health and Human Services. "Organized crime involvement in health care fraud is widespread."

Los Angeles is among the hot spots for health care fraud, where Russian, Armenian and Nigerian gangs have been caught by federal agents.

Crime boss Konstantin Grigoryan, a former Soviet army colonel, pleaded guilty to taking $20-million from Medicare; Karapet "Doc" Khacheryan, boss of a Eurasian crime gang, was recently convicted with five lieutenants of stealing doctor identities in a $2-million scam, and last Thursday two Nigerian members of an organized crime ring, Christopher Iruke and his wife, Connie Ikpoh, were charged with bilking Medicare of $6-million dollars by fraudulently billing the government for electric wheelchairs and other expensive medical equipment.

Watch: Organized crime hits Medicare Video

The two have entered pleas of not guilty and are being held in a federal detention center. "They deny any allegations of wrongdoing," said their attorney James Kosnett.

Defrauding government-run health care programs involves stealing two types of identities: those of doctors, who bill for services, and patients, whose beneficiary numbers entitle them to medical care and necessary equipment. Criminals are expert at collecting both.

"That information is very, very valuable to these crooks. And the doctor may work at one clinic but he won't know about the 2nd and 3rd clinic that they've already set up using his identification," said Glenn Ferry, special agent in charge of the Los Angeles Region for the Health and Human Services Office of Inspector General. "They are definitely well-organized, well-schooled on how to commit Medicare fraud."

Dr. Gianfranco Burdi had his identity stolen when he was recruited to join what appeared to be a new medical practice near Koreatown in Los Angeles. After the managers failed to show a business license and proof of malpractice insurance, Dr. Burdi pulled out. Two years later the FBI came calling. Agents questioned Dr. Burdi – a psychiatrist – whether he had prescribed electric wheelchairs for Medicare patients – $800-thousand dollars worth.

"I said no. I am a psychiatrist. Why would I prescribe an electric wheelchair?" said Dr. Burdi. "It was shocking."

A jury found Leonard Uchenna Nwafor guilty of using Dr. Burdi's identification to bill Medicare for medically unnecessary durable medical equipment.

"I was naive enough to provide them my medical license, my other data," said Dr. Burdi.

Patient beneficiary numbers are easy to buy along L.A.'s "Skid Row." Impoverished residents of shelters there tell CNN they've accepted cash from recruiters – known as "cappers" – to go to bogus medical clinics where they share what they call their "red, white and blue," – their tri-colored Medicare card that has a beneficiary number for billing the government.

"People down here need to eat. Somebody who comes up on a quick hustle, quick money, they going to jump on. I'm one of them, I will," said a man who identified himself as "Scott". "They're just defrauding the patients, defrauding the government."

Jimmy Rodgers of San Bernadino tells CNN he went three times-a-week to a clinic, receiving $100-a-visit, but little medical care.

"This is just like carte blanche," said Rodgers, holding his red, white and blue Medicare card. "Matter of fact, better than carte blanche. Carte blanche has limitations on it."

The clinics, Rogers concedes, were clearly fronts for collecting beneficiary data. "They, were no doctors. They were just somebody who had their hand out," said Rodgers, who later cooperated with federal investigators. "And they just ripping the system off and using me as a means to rip the system off."

Once criminals have doctor and patient IDs they begin filing false claims. The Khacheryan gang told Medicare that health services were being provided on the 10th floor of a decrepit industrial building at 754 South Los Angeles Street. But there is no doctor's office there; only a mail drop where the Khacheryan group collected checks from Uncle Sam for hundreds of thousands of dollars.

The Inspector General's office of the Department of Health and Human Services estimates it is on track to recover about $4-billion dollars this year from breaking up health care fraud schemes perpetrated by all types of criminals, from organized rings to corrupt doctors.

That amount, though, is only about 5% of annual health care fraud in the United States, according to the National Health Care Anti-Fraud Association. Because government health programs operate on the honor system, law enforcement officials say it's easy for organized crime rings and average criminals to cash in at the taxpayer's expense.

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