Medi-Cal Workers Under Scrutiny in Probe

SACRAMENTO — Four state workers suspected of taking payoffs from medical supply companies are under investigation in the FBI probe of fraud in California’s Medi-Cal program.

The FBI is looking into whether the employees sold official Medi-Cal numbers that were used to bill the state for phony purchases.

The staffers, whom officials declined to identify, have been transferred to other jobs in the Department of Health Services while the investigation continues.

The revelation of irregularities in the state bureaucracy is the first indication that the FBI has evidence of direct government complicity in the fraud. FBI officials estimate the illegal billings at more than $1 billion, making it one of the biggest frauds against a state in American history.

Department of Health Services spokesman Ken August said that months ago officials discovered “questionable practices going on” and conducted an internal inquiry, giving their findings to the FBI.

“Four employees were removed from their positions and later transferred to positions outside of Medi-Cal,” he said. “The investigation is ongoing.”

FBI agents would not discuss the investigation that has enveloped the part of the program that provides free medical equipment to ill and disabled poor people. But other sources said the employees are suspected of expediting the assignment of official Medi-Cal numbers to the medical supply operators, who used them for the fake billings.

It is unclear whether the state employees knew that the numbers would be used for fraud. And investigators said they have no evidence that any other employees were involved, or that those under investigation were central figures in the fraud operations.

But network insiders said it was widely known that one could “purchase” a provider number and start billing Medi-Cal within several days--a process that normally takes weeks. An FBI informant who described the scheme for The Times said one supply store owner bragged to him of paying $15,000 to get the number in two days. Others have cited similar prices; one owner interviewed said the fee depended on how quickly it was needed.

For the fraud operator, the Medi-Cal number is the key that unlocks a bank of government dollars. It allows businesses to bill the state electronically for medical supplies and services provided to Medi-Cal patients.

The FBI discovered that dozens of pharmacies and medical supply businesses, primarily in Los Angeles, were using the numbers to submit phony invoices to the state. The businesses said they had provided millions of dollars in services and supplies to particular patients, when in reality they had provided nothing.

Charges have been filed against 64 businesses, and 300 more are under investigation. Most of those charged are recent immigrants from the former Soviet Armenia. Most of the businesses are in North Hollywood, Burbank and Glendale.

Until recently, a Medi-Cal provider number could easily be obtained by any business that applied and met a few minimum requirements. But it often took weeks to process the paperwork. Getting the number in a few days would be well worth the price of the expedited processing, the FBI informant said.

In part because of the expedited numbers, businesses began popping up like mushrooms. One state employee, dating a man involved in the fraud, was well known for taking payoffs in exchange for provider numbers, he added.

“This whole [fraud] wasn’t just being done by providers,” he said. . . . The fish stinks from the head down.”

An official close to the inquiry said the irregularities were discovered when one of the four employees went on vacation and a substitute noticed the computer was showing a large number of applications being granted in a short time.

Health department officials said the investigation has prompted them to tighten the application process. In October they put a moratorium on new provider numbers for medical equipment.

“Fraud harms everyone--taxpayers, providers and beneficiaries and will not be tolerated.” said Diana Bonta, the new director of health services. “[We are] committed to protecting and preserving the integrity of the Medi-Cal program. We have dedicated the necessary resources to ensure Medi-Cal funds are spent providing much needed health care to low income and needy Californians.”