The New Face of Medicare
Drug dealers and organized-crime groups have invaded the Medicare system and are taking the government and citizens for a billion-dollar ride
Gabriel Hernandez is not your typical medical practitioner. He couldn't tell an X-ray from an EKG. His sole preparation for a career in the field was 10 lucrative years as a "logistics coordinator" for the Medellin, Colombia, cocaine cartel, a job that gave him plenty of cash, sleek powerboats--and five years in federal prison. But shortly after his release in 1993, a crooked accountant tipped Hernandez to the largess of the federal Medicare program, and his new career was born.
Hernandez set up more than two dozen phony medical clinics in the names of friends and relatives and applied for a "provider number," the code that doctors and companies use when they submit bills to Medicare's computers. Florida's Medicaid office--more than half funded by federal Medicare--gave him his provider number within two weeks. No one bothered to check his clinics, his background, or his list of patients. A few days later an assistant began billing the state, via computer, for mythical checkups and procedures, and Medicaid payment checks began to flow in. Each Sunday night, Hernandez would call the state's 24-hour provider hot line to find out the exact amount of the checks coming to his companies on Wednesday--a real convenience for a guy who had to worry about laundering ill-gotten cash.
In the course of two easy years, Hernandez received checks totaling $1.7 million. After payments to his associates and money launderers, he netted $500,000. Not bad, he says, considering that this was part-time work. Hernandez's downfall came when a friend snitched on him. Now in prison, he says he is remorseful--but also amazed at how simple, and safe, it all was. "The drug business was very dangerous," he says with a charming smile. But not health care fraud. "It was easy money, and there was no risk."
Federal investigators recently have zeroed in on allegations of Medicare bill padding by large hospitals. But a new, more pernicious side of the scandal has been left relatively unexplored. Hernandez, authorities say, is only one of a horde of hardened criminals who saw Medicare for what it really was--an unguarded, $250 billion-a-year pile of cash just waiting to be had. Over the past decade, many of the criminally inclined have moved out of the drug trade to start careers in Medicare fraud, a crime where penalties are low and rewards stratospheric. To realize this windfall, they have set up thousands of phony clinics, medical-equipment outlets, and laboratories--a vast underworld of health care that investigators find particularly difficult to understand, let alone penetrate. Owners are shielded by layers of "cut-out" companies. Lowly runners and mules are employed, and sometimes blackmailed, to move the money. Profits flow through a maze of bank accounts and to offshore places like Liechtenstein, the Turks and Caicos Islands, and Cyprus--and often back into the drug business. One Russian informant, in an interview, says Russian groups cleverly serve up defunct medical companies to investigators, diverting them from ongoing fraud. "We're always chasing something that isn't there anymore," says Bruno Varano, who heads the New York section of the Department of Health and Human Services' Office of Inspector General.
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