In May, four family members and two doctors were charged in connection to a medical insurance fraud billing scheme. Pamela and Philip Ganong, owners of several sober-living homes across Southern California, allegedly formed a temporary staffing agency called Compass Rose Staffing to act as the “front” for the scheme.

Prosecutors say the Ganongs would enroll residents and non-residents of their sober-living homes as employees of Compass Rose staffing, require frequent, sometimes daily, urine drug testing as a condition of their employment, and would then overbill insurance companies for the drug testing. Between 2012 to 2014, the Gangongs allegedly registered fraudulent employees on the payrolls of four of their companies - William Mae Company, Compass Rose Recovery, Compass Rose Staffing, and Ghostline Labs - and would submit claims for each employee under the insurance plans of each of the four companies.

Susan Lee Stinson, Pamela Ganong’s sister, is accused of dropping off paychecks at the sober living facilities and sending requests for urine drug test prescriptions to doctors hired by the Ganongs. Prosecutors say Dr. Carlos Mantano and Dr. Suzie Schuder would prescribe urine drug prescriptions starting at three times per week and increasing to seven times per week per patient, allegedly receiving 20 percent of the net insurance proceeds and a per-patient fee of $200. Schuder also allegedly served as the Lab Director for Ghostline before the company existed; Ghostline is of particular importance in the case, as prosecutors say the Ganongs billed for high-complexity urine tests the company did not have the proper certification to perform.

Pamela, Philip, and son William Ganong are accused of submitting bills for approximately $22 million to Aetna, Anthem, Cigna, and United Health Care and collecting $15 million from the scheme.

This case has broken in a period of great scrutiny over the future of the insurance industry, and reflects just the kind of conduct continued political efforts are seeking to combat.

Historically, the insurance industry has been highly unregulated, as the policy interests in rapid payment of medical bills has led to the development of an industry model where insurance companies are obligated to pay first and investigate potential fraud later. This traditional set-up, in which payment is made by insurance companies on nothing more than trust in medical practitioners, has served to incentivize fraudulent billing. Negligible safeguards are in place to stop medical doctors from billing for seven high-complexity urine drug tests for one patient in a week.

Governmental efforts in the past decade have sought to slowly temper the rampant opportunities for fraud under the “pay and chase model” with more sensible “prevention and detection” policies. During the final year of Obama’s presidency, the Department of Justice and the Office of the Inspector General under the Department of Health and Human Services (HHS-OIG) directed efforts toward prevention and detection of insurance fraud. The two departments released an annual Health Care Fraud and Abuse Control (HCFAC) Program report showing that the government was able to recover $6.10.1 for every dollar spent on healthcare-related fraud and abuse investigations. President Trump appears to have continued this prioritization of fraud and abuse prevention; though the National Institutes of Health would experience a cut of almost $6 billion, the HCFAC would receive $70 million more than it did under the Obama Administration, for a total of $751 million in discretionary funding in the fiscal year of 2018.

The effects of these fraud prevention efforts are unclear. This is especially apparent following the release of Attorney General Jeff Sessions’ memoranda outlining the Department of Justices’ prioritization of street and drug crime. What is clear, however, is the need for an industry-wide shift away from a “pay and chase” model toward more sensible, preventative regulation. We will continue to monitor this and provide updates as they become available.

Sources
1. News Release, Four Family Members and Two Medical Doctors Charged With Medical Insurance Fraud for $22 Million Urine Test Billing Scheme at Sober Living Homes (May 23, 2017), http://orangecountyda.org/civica/press/display.asp?layout=2&Entry=5189

2. James A. Leventis, In This Issue: Evaluating CMS’s Fraud Prevention System, 28 HEALTH LAWYER 29 (2016).

3. The Department of Health and Human Services and the Department of Justice Health Care Fraud and Abuse Control Program Annual Report for Fiscal Year 2015 at 8, DEP’T OF HEALTH AND HUMAN SERVS. & DEP’T OF JUSTICE (Feb. 26, 2014), last accessed at https://oig.hhs.gov/publications/docs/hcfac/FY2015-hcfac.pdf.

4. Evan Sweeney, Amid Deep Cuts Across HHS, Trump’s Budget Maintains Focus on Healthcare Fraud Enforcement, FIERCEHEALTHCARE (Mar. 21, 2017), http://www.fiercehealthcare.com/antifraud/amid-deep-cuts-across-hhs-trump-s-budget-maintains-focus-healthcare-fraud.