Feds Charge 14 with Engineering COVID-Related Fraud Schemes Netting Tens of Millions

The defendants were charged in seven district courts spanning the country.

The locations of the seven U.S. Attorney’s Offices that this week brought healthcare fraud charges against 14 defendants accused of seeking to illegally profit off of the suffering associated with the COVID-19 pandemic read like a cross-country road-trip itinerary: California to Florida to New York City and a few destinations in between.

And it’s more than likely that this is just the beginning.

“The multiple healthcare fraud schemes charged today describe theft from American taxpayers through the exploitation of the national emergency,” Deputy U.S. Attorney General Lisa O. Monaco said in a statement Wednesday. “These medical professionals, corporate executives, and others allegedly took advantage of the COVID-19 pandemic to line their own pockets instead of providing needed healthcare services during this unprecedented time in our country. We are committed to protecting the American people and the critical healthcare benefits programs created to assist them during this national emergency, and we are determined to hold those who exploit such programs accountable to the fullest extent of the law.”

The news was part of a U.S. Department of Justice announcement also noting that the Center for Program Integrity of the Centers for Medicare & Medicaid Services (CPI/CMS) separately announced that it has taken adverse administrative actions against more than 50 medical providers for their involvement in fraud schemes relating to COVID-19 – or abuse of CMS programs that were designed to encourage access to medical care during the pandemic.

“Medical providers have been the unsung heroes for the American public throughout the pandemic,” FBI Director Christopher Wray said. “It’s disheartening that some have abused their authorities and committed COVID-19-related fraud against trusting citizens. The FBI, along with our federal law enforcement and private-sector partners, are committed to continuing to combat healthcare fraud and protect the American people.”

The allegations were jarring.

Multiple defendants charged Wednesday allegedly offered COVID-19 tests to Medicare beneficiaries at senior living facilities, drive-through COVID-19 testing sites, and medical offices to induce victims to provide their personal identifying information and a saliva or blood sample. The defendants are alleged to then have misused the information and samples to submit claims to Medicare for unrelated, medically unnecessary, and far more expensive laboratory tests, including cancer genetic testing, allergy testing, and respiratory pathogen panel tests.

In some cases, federal officials said, the COVID-19 test results were not provided to beneficiaries in a timely fashion or were not reliable, risking further spread of the virus, and in many cases, the results were not provided to the patients or their actual primary care doctors at all. Proceeds of the fraudulent schemes were then allegedly laundered through shell corporations and used to purchase exotic automobiles and luxury real estate.

In another type of scheme, officials described how defendants allegedly exploited CMS policies intended to enable increased access to care during the pandemic. Pursuant to the COVID-19 emergency declaration, they noted, telehealth regulations were relaxed to allow Medicare beneficiaries to receive a wider range of services from their doctors without having to travel to a medical facility. Some of the federal charges announced Wednesday, the first of their kind, targeted defendants who allegedly submitted false and fraudulent claims to Medicare for sham telemedicine encounters that never took place; as part of these cases, medical professionals are alleged to have offered and paid bribes in exchange for the medical professionals’ referrals for medically unnecessary testing.

The announcement also included the third round of criminal charges related to the misuse of Provider Relief Fund money, which was made available as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

The enforcement actions included the following, separated by DOJ district, and according to federal officials quoted Wednesday:

• Western District of Arkansas: Billy Joe Taylor, 42, of Lavaca, Arkansas, was charged with healthcare fraud in connection with an alleged scheme to defraud the U.S. of over $88 million, including over $42 million in false and fraudulent claims submitted during the pandemic, that were billed in combination with claims that were submitted for testing for COVID-19 and other respiratory illnesses. Taylor, owner and operator of Vitas Laboratories LLC and Beach Tox LLC, two testing laboratories, allegedly used access to beneficiary and medical provider information from prior laboratory testing orders to submit fraudulent claims for urine drug tests and other laboratory tests that were not actually ordered or performed. The complaint also alleges that hundreds of claims were submitted for beneficiaries after they had died or otherwise ceased providing samples.
  
• Southern District of Florida: Michael Stein, 35, and Leonel Palatnik, 42, both of Palm Beach County, Florida, were charged in connection with an alleged $73 million conspiracy to defraud the United States and to pay and receive healthcare kickbacks during the COVID-19 pandemic. Stein, the owner and operator of purported consulting company 1523 Holdings, LLC, and Palatnik, an owner and operator of Panda Conservation Group, LLC, a Texas company that owned and operated testing laboratories in Dallas and Denton, Texas, allegedly exploited temporary waivers of telehealth restrictions enacted during the pandemic by offering telehealth providers access to Medicare beneficiaries for whom they could bill consultations. In exchange, these providers agreed to refer beneficiaries to Panda’s laboratories for expensive and medically unnecessary cancer and cardiovascular genetic testing. Separately, Juan Nava Ruiz, 44, and Eric Frank, 47, both of Coral Springs, Florida, were charged for an alleged $9.3 million healthcare kickback scheme, along with Christopher Licata, 44, of Boca Raton, Florida, who was previously charged in a separate Indictment. Licata, an owner of Boca Toxicology, LLC, a clinical laboratory based in Boca Raton, allegedly offered and paid kickbacks to patient brokers, including Ruiz and Frank, in exchange for referring Medicare beneficiaries to Boca Toxicology for various forms of genetic testing and other laboratory testing that they did not need.

• Northern District of California: Mark Schena, 58, of Los Altos, California, President of Arrayit Corporation, is charged along with two others, the Arrayit Vice President of Marketing and the President of an Arizona marketing organization, in connection with the submission of over $70 million in false and fraudulent claims for allergy and COVID-19 testing. A superseding indictment against Schena includes new counts of healthcare fraud, a conspiracy to pay kickbacks, and payment of kickbacks in connection with false and fraudulent statements about the existence, regulatory status, and accuracy of an Arrayit COVID-19 test. The conspiracy allegedly sought to induce the ordering of the fraudulent tests by bundling the COVID-19 test and Arrayit’s medically unnecessary allergy test. The COVID-19 test results were found to have been not provided in a timely fashion and were not reliable in detecting COVID-19.
  
• Eastern District of New York: Peter Khaim, 41, and Arkadiy Khaimov, 38, both of Forest Hills, New York, who owned and controlled several New York pharmacies and sham pharmacy wholesaling companies, were charged in a superseding indictment for their participation in an alleged $45 million healthcare fraud, wire fraud, and money laundering scheme. The defendants and their co-conspirators allegedly obtained billing privileges for multiple pharmacies by using nominees to serve as the purported owners and supervising pharmacists. The defendants then allegedly submitted false and fraudulent claims to Medicare, including by using COVID-19 “emergency override” billing codes to circumvent otherwise applicable pre-authorization requirements and limits on the frequency of refills for expensive drugs (primarily, the cancer treatment gels Targretin and Panretin). The defendants allegedly used an elaborate network of international money laundering operations to conceal and disguise the proceeds of the scheme.

• District of New Jersey: Alexander Baldonado, 65, of Queens, New York, was charged with six counts of healthcare fraud. Baldonado, a medical doctor, allegedly participated in an event that advertised COVID-19 testing; in addition to authorizing the COVID-19 tests, Baldonado allegedly ordered expensive and medically unnecessary cancer genetic testing for Medicare beneficiaries who attended the event. Baldonado also allegedly billed Medicare for services, including lengthy office visits, that were never provided to these beneficiaries. Approximately $2 million in claims were submitted as a result of Baldonado’s COVID-19 healthcare fraud scheme, and approximately $17 million in claims were submitted as a result of Baldonado’s broader healthcare fraud scheme. Separately, Donald Clarkin, 65, of Staten Island, New York, was charged in connection with a $5.4 million conspiracy to defraud the United States and pay and receive healthcare kickbacks. Clarkin, a partner at a diagnostic testing laboratory, allegedly exploited the pandemic by offering kickbacks in exchange for respiratory pathogen panel tests that would be improperly bundled with COVID-19 tests and billed to Medicare. Clarkin also allegedly paid and received kickbacks and bribes in exchange for arranging for the ordering of medically unnecessary genetic tests that were ineligible for Medicare reimbursement.
  
• Middle District of Louisiana: Malena Lepetich, 38, of Belle Chase, Louisiana, was charged for an alleged $15 million scheme to commit healthcare fraud, to defraud the United States, and to pay and receive healthcare kickbacks. Lepetich, the owner of MedLogic, LLC, a clinical laboratory based in Baton Rouge, Louisiana, allegedly solicited and received kickbacks in exchange for referrals of urine specimens for medically unnecessary testing. Lepetich also allegedly offered to pay kickbacks for referrals of specimens for COVID-19 and respiratory pathogen testing. Finally, Lepetich allegedly caused the submission of over $10 million in claims to Medicare, Medicaid, and Blue Cross Blue Shield of Louisiana for panels of expensive respiratory testing that were medically unnecessary.
  
• Central District of California: Petros Hannesyan, 36, of Burbank, California, was charged with the theft of government property and wire fraud in connection with $229,454 that he obtained from COVID-19 relief programs. Hannesyan, the owner of Hollywood Home Health Services, Inc., a home health agency located in Los Angeles, allegedly misappropriated funds from the CARES Act Provider Relief Fund and submitted false loan applications and a false loan agreement to the Economic Injury Disaster Loan Program, rather than use the funds for COVID-19 patient care and to support small businesses experiencing disruption due to the COVID-19 pandemic.
  

“It’s clear fraudsters see the COVID-19 pandemic as a money-making opportunity – creating fraudulent schemes to victimize beneficiaries and steal from federal healthcare programs,” U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG) Deputy Inspector General for Investigations Gary L. Cantrell said. “Our agency and its law enforcement partners are aggressively and effectively investigating these egregious crimes, which is made equally clear given the results of this takedown. We will continue to support the unprecedented COVID-19 public health effort by holding accountable people who use deceptive tactics to profit from the pandemic.”

Ronald Hirsch (MD, FACP, CHCQM), vice president of the Regulations and Education Group at R1 Physician Advisory Services and a member of the Advisory Board of the American College of Physician Advisors and the American Case Management Association, said Wednesday’s announcement inspired no small measure of fury among the vast majority of responsible providers who pulled a grateful nation out of the worst public health crisis this century.

“Every day, every single one of us works hard to follow the law and provide excellent care to patients, be it at the bedside or in an administrative capacity. Then you read something like this, and it is just infuriating,” Hirsch said. “These scum doctors, pharmacists, nurses, and non-medical people took advantage of a worldwide pandemic to cheat to the tune of hundreds of millions of dollars. Yes, this is why we all have to struggle to get paid for the amazing care we provide. May they all rot in prison for the rest of their lives.”

To report suspected fraud, providers can contact the National Center for Disaster Fraud (NCDF) at 866-720-5721 or file an online complaint at: https://www.justice.gov/disaster-fraud/webform/ncdf-disaster-complaint-form. Complaints filed will be reviewed at the NCDF and referred to federal, state, local, or international law enforcement or regulatory agencies for investigation.

To learn more about the DOJ COVID response, go online to https://www.justice.gov/coronavirus. For further information on the Criminal Division’s enforcement efforts on PPP fraud, including court documents from significant cases, visit the following website: https://www.justice.gov/criminal-fraud/ppp-fraud.