Investigator drops the veil on how addiction fraud cases are probed

This, astonishingly and disgustingly, is how “health care” for a potentially deadly condition can unfold in California:

“I can get you 1500,” read one text message collected as evidence from a “body broker,” whose job was to put heads in beds so addiction rehabs could bill health insurers.

“What do I need to do?” the prospect responded.

“We need a positive.”

“For what?”

“Heroin.”

“I’ve never used that (expletive). I smoke weed.”

“Don’t worry about it. I can show you how. Meet me at (redacted) room 202 at 8.”

The prospect agreed. He was later found dead. The broker might have faced charges for negligent homicide, but he was soon found dead, too.

“This is a truthful, real thing that happens,” said Capt. Vlad Mikulich of the California Department of Insurance. “I can’t say that it has happened a thousand times. But even once is too much.”

We’ve been covering this infuriating space for eight years now, from parents’ agony to patients’ despair, and we’ll wager it has happened way more than a thousand times. Mikulich’s outrage was refreshingly raw as he dropped the veil on how his fraud division actually works while speaking to a rapt California Sober Living and Recovery Task Force meeting earlier this month.

Why do these investigations take so long? How does California law and policy hurt rather than help? Why are federal laws — and Florida’s! — so much better than ours? We’ll get to all that. But meantime, know this:

“They’re taking human beings and treating them as if they’re a commodity, as if they were oil or pork, and then selling them from one rehab center to another rehab center with no interest in actually helping them out,” Mikulich said. “It’s a massive industry about money…. There is nearly zero regulation on what’s happening.”

“We know, unfortunately,” said Mission Viejo mayor pro tem Wendy Bucknum, a co-founder of the Task Force.

Addicts get paid to sign up for rehab, and get paid to recruit others to sign up for rehab. Victims become part of the scheme, “and the lines are so blurred you’re not actually sure who you should be investigating, who you should be charging, who has been abused,” Mikulich said.

He played the disturbing trailer for the movie “Body Brokers,” which dramatically illustrates the story. “Brought to Los Angeles for treatment, a recovering junkie soon learns that the rehab center is not about helping people — it’s merely a cover for a multi-billion dollar fraud operation that enlists addicts to recruit other addicts,” says the film’s logline.

And it’s as bad out there now as it ever was, Mikulich said. Maybe worse.

That this continues after years of California officials proposing law after law to rein in the industry leaves this scribe, and many others, sputtering with rage.

“A large number of these people do not make it,” Mikulich said. “And it’s just criminal, literally criminal, that this is happening to a group of people who need a lot of help.”

Under cover

In 2014, Mikulich worked on an investigation into thousands of unnecessary worker’s comp back surgeries that netted the former owner of Pacific Hospital in Long Beach, as well as a former state senator who accepted bribes to help keep the scheme running.

Within just a couple of years, addiction treatment fraud burst onto the scene. The investigation into Sovereign Health was one of the first cases he supervised. In 2016 and 2017, the quest for hard evidence began.

“To infiltrate that organization, we essentially had to get a patient in to figure out what’s going on,” Mikulich said. “So the FBI placed a person in Florida, who made a phone call to their 1-800 line saying, ‘I’m a drug addict….’ They said, ‘Come to this airport. We’ll have a ticket ready for you so you can fly to our place and get the treatment you need.’ “

The FBI agent did just that, flying into Ontario. Officials met him there, wired him up, and made sure he looked the part. He took a taxi to a facility in the Palm Springs area — with undercover officers trailing not far behind. Then he registered, filled out forms and settled in for treatment. He had to be monitored the whole time by undercover agents to ensure his safety.

“It’s a huge endeavor,” Mikulich said. “The amount of manpower you need in vans and teams to make sure no one’s getting hurt…. it’s very, very labor intensive.”

And that, mind you, is just to gather enough evidence to convince a judge that there’s probable cause to issue a search warrant.

Sovereign was raided by the FBI in 2017. But it wasn’t until May of this year that Sovereign’s CEO, Tonmoy Sharma, was arrested and charged with making some $200 million worth of fraudulent insurance claims, doing unnecessary urinalysis tests and paying illegal kickbacks to “body brokers” who steered addicts Sovereign’s way. (Sharma has pleaded not guilty, cobbled together a half-million dollar bail and mocked the charges, saying “you can indict a ham sandwich.“)

Crime wheel

Traditional organized crime — “The Godfather” type — has a pyramid structure, Mikulich said. There’s a leader at the top. If you chop the head off the snake, the whole thing crumbles.

But addiction fraud doesn’t look like that. Instead, it resembles “a wagon wheel of organized crime,” with a hub-and-spoke structure.

In the middle is the marketer, who sells people. The spokes can include a detox center, medical doctor, sober living facility, urine-testing company, hospital, pharmacist, psychologist — even “a horse trainer, God help us.”

Yes, equine therapy is billable. “You’re going to pet horses and it’ll stop your addiction and they charge for it,” he said with incredulity. “If your red flag isn’t going off, hearing that as medical treatment…. It’s so unregulated they actually do things of that nature.”

These wheels operate like terrorist cells, he said, where person A doesn’t necessarily know what X, Y and Z are doing, “making it very difficult to prove that someone even knew this part of the fraud was going forth.” And when one spoke disappears, the wheel doesn’t collapse in on itself; someone else simply moves in to fill the spot.

In California, this crime pays.

A guy is brokering 10 insured patients a month, for $10,000 per patient, is grossing $100,000. Say he has to share $25,000 with them to make it happen. That’s still $75,000 in his pocket.

If he’s caught and successfully prosecuted under California law, he’s looking at up to a year in jail (unlikely) and a $5,000 fine.

“So I pay my $5,000 fine, I keep my $70,000, and I keep going,” he said. “Moneywise, it makes no sense for me to stop my business. It just doesn’t. So they just keep going.”

Federal law is very different. In 2018, Congress passed the meaty Eliminating Kickbacks in Recovery Act. Violators can face devastating penalties, including fines of up to $200,000, imprisonment for up to 10 years, or both. Florida’s anti-kickback law can garner up to five years in jail.

“Guess what?” Mikulich said. “Seventy-five thousand dollars isn’t worth five years in prison….It’s kind of sad California has not passed something of that nature. It would make a difference in what we do as investigators.”

Making matters worse is that outpatient addiction treatment in California does not require a license, even though it can be life-or-death, and even though that’s where most treatment happens. Tragically, Gov. Gavin Newsom vetoed a bill requiring licensing for outpatient facilities in 2019.

It’s like the main character in “Body Brokers” says: It’s a gold mine.

Billions

If young lives lost don’t bother you — and the vast majority of folks in the shuffle are in the 18-to-34 age range — perhaps the billions of squandered dollars will.

About $33 billion a year is spent on addiction treatment in the U.S., Mikulich said. If addiction stuck to general health care fraud scenarios, some 3-10% of that would be lost to fraud.

Instead, he suspects fraud-related losses in the space are much higher, due to the profound lack of controls. And that increases health care costs for everyone.

It’s not a partisan failing, he said. George W. Bush expanded funding in 2004 with the “Access to Recovery” program, and addiction treatment coverage became mandatory under Barack Obama’s Affordable Care Act a decade or so later.

Republicans and Democrats were trying to fix a problem they saw — rising drug deaths — but, he said, “they didn’t have a solution; they still don’t have a solution.”

Psychiatrists have told us that the ubiquitous, non-medical, 30-, 60-, 90-day programs that insurers cover don’t “cure” addiction. That can take years, involving the full spectrum of peer support; life, skills and job training; and medical management. It’s a mission beyond the capabilities of plain old health insurance.

Legislators. Governor. Watch “Body Brokers.” Watch “Shuffle.” Read our reporting over the past eight years. Read the new books by Dave Aronberg and Shoshana Walter.

Then require licensing for outpatient treatment; pour as much money into rehab fraud as you pour into worker’s comp fraud (currently at a ratio of about $1 rehab to $16 worker’s comp in California); adopt real criminal penalties for what’s essentially human trafficking; and bring addiction treatment into the fold of mainstream medicine.

May the words of a lawmaker from a hearing a few years back ring in your ears and haunt your nightmares: “At some point, the blood of these kids is not just on the hands of these horrible operators, but on your hands as well.”

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