Corporate Dentistsry Bleeds Medicaid; Journal of Insurance Fraud in America

8/20/2019 Corporate Dentistsry Bleeds Medicaid; Journal of Insurance Fraud in America

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WINTER 2014

Volume 5 • Number 3

Published quarterly by the Coalition Against Insurance Fraud

insight

analysis

ideas

Civil suits allow auto insurers to take down organized fraud rings

Automobile insurers increasingly are turning to civil suits to helpcounter the growth of complex, organized fraud rings.

By Frank Goldstein, Esq.

Deterring workers-comp fraud in San Diego

Public-awareness efforts by the San Diego District Attorney’soffice warned county residents about fraud and have

greatly expanded case referrals for investigation.

By Dominic Dugo

TrendWatch: new developments about fraud in America

Hall of Shame’s No-Class of 2014 exposes newest master marauders… Misclassifying of workers sparks more crackdowns.

By Coalition Staff

Rational swindlers avoid crime when risk not worth the reward

Criminology theory is widely used in many criminal justice areas, yetthere is no application of these theories to insurance fraud.

By Michael Skiba, PhD

Corporate dentistry bleeds Medicaid and vulnerable children

Corporate-owned dental chains are exploiting the underservedmarket for low-income child Medicaid patients.

By Debbie Hagan

in America

WINTER 2014


2/28

From the publisher

WINTER 2014

Volume 5 • Number 3

he JIFA is a window into all corners of the fraud world — an incisive guide to what definitive trends

and practical solutions are afoot. Fraud fighters continually tinker with the formula for convincing

consumers to stay away from fraud. Saturation bombing of anti-fraud messages has measurably helped

level off workers-compensation schemes in populous San Diego County, a key regulator writes in this

issue.

Dental scams are nothing to smile about, a citizen blogger says. Chain dental firms are pulling low-income

kids’ teeth and inserting steel crowns in worthless surgery that lines the dentists’ pockets with lucrative insurance

payouts. Many scams can be explained by academic theories of crime. Deterring fraud succeeds by overriding

people’s rational choices to commit fraud. Make the crime too expensive and they may back off, writes an SIU with

a PhD in insurance fraud.Fraud fighters are making the rational and irrational choices of fraudsters harder to bear every day. Find out

uniquely why, and how, in this issue of JIFA.

T

Sincerely,

2014. All rights reserved. For republishing information, contact Kendra Smith.

Get insiders’ info

Journal of Insurance Fraud in America2

in America


3/28

Abstract: Workers-compensation fraud is a problem in San Diego County, with a population of more

than three million. Public-awareness efforts by the District Attorney’s office warned county residents

about fraud and have greatly expanded case referrals for investigation over the last three years. Suspected

fraudulent claims also have largely flattened out. This suggests that the Crime Prevention Campaign has influenced people’s attitudes and actions. The strategy over the last three years involved flooding

the market with deterrent messages. Brochures were handed out and mailed throughout the county.

Billboards were erected along freeways. Posters were distributed to business owners to warn employees

and managers against scams.

By Dominic Dugo

nsurance fraud costs California consumers

$15 billion a year.1 Approximately $4

billion of this amount is lost to workers

compensation schemes.2

As a result, the San Diego County District

Attorney’s Office has worked closely with the

California Department of Insurance, insurers andthe local community to aggressively investigate and

prosecute this costly crime. Just as important, we

also are working to deter future fraud.

The traditional deterrence approach of

highlighting prosecutions to community groups

and insurers has shown limited success. However,

with innovative thinking “outside the box,” a

public-awareness campaign focused on crime

prevention is helping reduce workers compensation

fraud in the county.

And it is succeeding at a fraction of the cost to

prosecute. Law enforcement must keep in mind that

decreasing the overall level of workers-comp fraudis the ultimate goal. Prosecuting cases is only one of

the many tools in the District Attorney’s arsenal.

Designing an effective crime prevention strategy

requires an understanding of the types of cases

prosecuted, and the target audiences’ profiles.

Applicant fraud is most commonly understood

I

Deterring workers-comp fraud in San DiegoFlooding market with a stern tagline motivates consumers and businesses

Insight • Analysis • Ideas 3


4/28

as workers comp fraud. This involves workers lying

about an injury to obtain benefits they are not

entitled to receive. Cases include employees faking a

work injury, exaggerating the extent of a work injury,falsely claiming that an off-duty injury occurred at

work, working at a new job while collecting benefits

from the previous job, and/or lying about prior

injuries.

An entertaining video showing how the suspect

is faking the injury usually accompanies these cases.

Four types of employer fraud

While employee applicant fraud is common,

more than 50 percent of the cases the District

Attorney prosecutes involves crimes by employers

and providers. There are four types of employer

fraud.First, employers may deny injured workers

the full range of workers compensation benefits.

An employer may pay a medical bill, persuade an

employee to accept cash in lieu of fi ling a workers

comp claim, or intimidate workers into using their

personal health policies.

Second, premium fraud involves employers lying

to insurers to lower their workers compensation

premiums. Employers in the underground economy

may say their payroll or staff size is lower than they

really are. They may pay workers in cash and then

fail to report this payroll to the state and their

insurer.Third, some employers operate their business

without buying state-required workers-compensation

coverage. For example, the owner of a restaurant

with 10 employees doesn’t purchase insurance to

cover employees injured on the job. Workers could

be dangerously exposed if they are hurt.

Fourth, the county also prosecutes medical and

legal providers for falsely billing insurance carriers

for services never performed. Suspects include

patients, doctors, chiropractors, lawyers and other

professionals.

Planning: Define audiences

We have learned over the years that more than

95 percent of the defendants we have prosecuted for

workers compensation fraud do not have a criminal

record. This is a critical fact when designing an

effective public-awareness approach. By contrast, we

find that robbers, drug dealers, auto thieves, sexual

predators and gang members often have significant

criminal records.

Drug dealers selling cocaine on the corner or

gang members doing a drive-by shooting don’t need

to be told they are committing a crime that will

lead to incarceration. It is obvious and well-known

that these are criminal acts that will be prosecuted.



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However, a worker staying out on workers comp

leave for a few extra weeks or employers paying some

employees cash to reduce premiums may not readily

realize their actions could lead to felony convictions.Thus, our crime-prevention awareness programs

focus on informing and educating the community

about workers compensation laws and the serious

price that perpetrators will pay. With the exception

of uninsured employers, workers comp fraud is a

felony in California. The penalty is up to five years

in prison.

The county’s top priority is to deter crime. Yet

we understand that certain individuals will not

be deterred from workers compensation fraud.

Unfortunately, hardened criminals exist despite the

community’s best efforts to prevent fraud. They also

may not be persuaded by outreach efforts. Therefore,

the county has a dedicated team that investigatesand prosecutes these criminals.

Yet certain individuals will commit workers

comp fraud because of an economic downturn or an

opportunity to make “easy” money. We target this

group of potential defrauders with public-awareness

campaigns. A large percentage of these individuals

can be persuaded to not commit fraud.

The District Attorney’s experience in the last

three years demonstrates that aggressive crime

prevention awareness campaigns can reduce fraud

while also helping increase prosecutions. Two key

results:

Suspected fraudulent claims that insurers have

officially reported to the California Department of

Insurance have remained largely unchanged for the

last three years.

Historically, almost all workers comp fraud

prosecutions originated from insurance industry case

referrals. A small number of referrals stemmed from

non-insurer sources. Today, our Crime Prevention

awareness programs have drastically altered where

our referred cases are sourced. The outreach efforts

are generating a large volume of referrals. This is theeffort that unfolded:

Strategy: Flood the market

During the last three years, the crime-prevention

campaign has embarked on 11 high-profile

public-awareness tactics. They have alerted the

community that workers comp fraud committed by

an employee or employer is a felony with serious jai l

time.

Our strategy is to flood the market with

short, easily understood messages using numerous

outreach vehicles that are provided free of charge.

This approach reinforces our prevention messagesto as many people as possible. We seek to make our

tagline as wellknown in the county as the AFLAC

duck.

The primary message or tagline on all material:

“Don’t do it. Don’t tolerate it. Report it: (800)315-7672.”

Posters. A time-honored medium in a digital

age — posters may be the most effective and

affordable anti-fraud tool in our campaign.

Employees and employers were cautioned via

200,000 posters in English, Spanish and Chinese.

Employers were warned not to illegally deny benefits,

“Hundreds of employers use theposters. One large grocery storechain laminated 800 of them.”



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and employees were urged not to fake work injuries

to collect benefits. “Commit workers’ comp fraud,

get a new outfit,” the posters warned tongue in cheek

about jail uniforms.Hundreds of employers use the posters. One

large grocery store chain laminated 800 of them.

A school district with a serious fraud problem

even hung posters in restrooms. Posters also went

to employers, insurers, government agencies and

healthcare providers.

We also fanned out with presentations to

business and other community groups. Attendees

often commented that the posters reduced workers

comp fraud in their businesses. A state agency in the

county with 1,000 employees had 500 open claims.

Claims dropped 50 percent after the agency placed

the posters throughout the workplace.

Billboards. We placed 120 freeway billboardsand transit-shelter posters across the county in

November-December 2012 and again in 2013.

Because Spanish speakers (roughly 38 percent of

California’s population) form the largest group

whose primary language is not English, 40 billboards

were in Spanish. An estimated one million people

saw the tagline message.

PSAs. Public-service announcements frequently

aired on TV. Stations generously donated studio

time to shoot the 30-second PSAs in English and

Spanish. The messages were delivered by DA Bonnie

Dumanis and her Spanish-speaking communications

chief Jesse Navarro.

The PSAs formed a succinct contact with San

Diego residents. They provided consumers with

deterrent messages and the fraud hotline number.

More than 3,000 PSAs aired on nine

English-speaking channels and seven Spanish

stations during July 2012-May 2013, and July

2013-May 2014. A 20-minute Vietnamese television

interview of Dumanis aired 12 times.

Print ads. Paid ads formed another campaign

prong. In one approach, we bought ads in Englishand ethnic newspapers, and community news

outlets. Chamber of commerce newsletters carried

the messages forward in 2011.

More than 2,000 ads have appeared in nearly

50 publications serving these communities: English,

Spanish, Chinese, Vietnamese, Japanese, Italian,

Korean, Cambodian, Thai, Laotian, Filipino,

African-American and Military.

Thousands of people also cross from Mexico

into the U.S. each day because the county borders

on Mexico. So we ran ads in Mexican newspapers

that are distributed at the Tijuana border.

The anti-fraud posters appeared in the ads in

each publication’s language.Brochure. A brochure was mailed to 180,000

employers throughout the county in 2013. Just like

the posters, the free brochures are handed out at

all community events. Previously, 16,000 brochures

were inserted into a local business newspaper.

Community talks. We gave more than 120

presentations to community and business groups,

amounting to roughly 6,000 people over the last

three years. The target groups included chambers of

commerce, private and public employers, insurers,

employee groups and trade organizations.

Business and labor groups were informed of

their rights, duties and penalties when dealing with workers-comp benefits. The typical presentation

explained the varied schemes and recent high-profile

cases. Brochures and posters also were provided free

of charge.

Despite the relatively limited number of people

the presentations reached, they often generated

viable case referrals that saved tens of thousands of

stolen workers compensation dollars.

6 Journal of Insurance Fraud in America


7/28

Trolleys & buses. More than 250,000 people

use public transportation in San Diego County each

day. As a result, we placed anti-fraud ads inside 640

trolleys and buses throughout the county duringNovember-December 2013. Our well-known English

and Spanish posters were used.

Cross-border fliers. San Diego County has one

of the world’s busiest borders. More than 50 million

people cross the border with Mexico annually.

Thousands of people living in Mexico come to the

county as day workers each morning.

Capitalizing on the typical northbound traffic

backups, we handed out 190,000 double-sided fliers

(English and Spanish) at the Tijuana and Calexico

border crossings throughout 2013.

The flier, which is our poster in English and

Spanish, educated consumers crossing the border

about their rights and responsibilities under the workers-comp system.

Radio ads. Consumers were alerted to comp

schemes via radio ads. More than 300 ads aired

on four radio stations along with 25 radio news

interviews in 2012 and 2013 combined. The ads

aired in English and Spanish.

Facebook. The campaign broadened with a

Facebook component to reach consumers of all ages

who frequent this popular site. We bought Facebookads in 2013. The ads were our posters. Visitors

clicking on the ad were directed to the DA’s newly

redesigned insurance-fraud homepage.

Visitors could conveniently download thebrochure, watch the PSAs in English or Spanish, or

get the hotline number to report suspected scams.

The Facebook ad logged 3.3 million views in a brief

two-month period.

Google. The world’s largest search engine

was an effective outlet. Our posters, tagline and

insurance-fraud weblink were positioned alongside

Google search results as “Sponsored links” — or subtle

advertising. We paid per click to maximize budget

efficiency. Importantly, the ad also was formatted

for smartphones, tablets and desktop computers.

This made the messages easily accessible to virtually

every digital user in the county. The link pulled 1.1

million views during the two-month effort.

Success: Crime flattens out

Our workers-comp prosecutorial staff has

remained largely the same over the last three years,

while only 3-5 percent of our $4.5-million annual

budget goes to public awareness. Several indicators

suggest the campaign has succeeded. It has done so

with such affordable use of these outreach resources.Indicator: Suspicious claims that insurers

officially reported in the county have remained

largely unchanged for the last three years. This

comes after a steady growth in questionable claims

for several years (See Exhibit 1).

Exhibit 1: Insurer referrals

Indicator: Investigations the DA opened

increased 63 percent from 183 in 2011-2012 to 298

in 2013-2014 (see Exhibit 2). Prosecutions spiked from

88 to 146 over this span (see Exhibit 3). Convictions

have risen from 58 to 91 — a 56-percent increase

(see Exhibit 4). Many other cases still are pending in

court.

Indicator: The above numbers point to a parallel

fact: Referral sources have greatly expanded duringthe campaign period, especially by consumers.

In turn, this has grown the number of cases for

prosecution. Several major cases have earned

convictions. Others are being investigated thanks to

leads generated by the awareness campaigns. Dozens

now are received each year.

We’re building community buy-in. Historically,

almost all workers comp prosecutions stemmed

from cases that insurers referred for potential

investigation and prosecution by the DA. These

referrals came from just 40 insurer investigators.

How can just 40 investigators, however dedicated, be

expected to uproot a large fraud problem in a county

of 3 million people?

The public-awareness campaigns worked to

enlist the entire San Diego community as allies — a

potential anti-fraud army of millions. Referrals from

throughout the community thus have risen sharply.

The hotline rings off the hook at times, especially



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when billboards appear along freeways or PSAs air

on television.

People are thinking twice about workers-comp

scamming. How many people are upset that acoworker is faking an injury? How many office

employees know construction-company owners who

are avoiding reporting full payroll to the insurer?

Exhibit 2: New investigations

Indicator: Common sense tells us that since 95

percent of workers-comp defendants do not have

a criminal record, our “Scared Straight” message

that comp fraud is a felony crime does deter large

numbers of potential perpetrators.

Indicator: Anecdotal community feedback at

public events says the awareness campaigns are

reducing workers comp fraud.

Exhibit 3: Defendants prosecuted

Seek level playing field

We must continue promoting a competitive

and fair business environment, with a level playing

field for law-abiding employers in San Diego County.

The state and county are working hard to make this

happen. We are enlisting partners such as employers,

employees, workers and other stakeholders.

Exhibit 4: Defendants convicted

This healthy climate brings us ever closer to a

goal of lower workers compensation fraud, more

benefits for injured workers, and more-affordable

goods and services for consumers. By continuing to

innovate and think beyond the box, well-targeted

awareness campaigns can have an impact on people’s

attitudes — and actions. The result is a far-more-

conducive environment for enabling workers

compensation coverage to achieve its full potential in

helping the county flourish.


1

Reducing Fraud in California, California Departmentof Insurance, Advisory 1 Task Force on Insurance Fraud,2008 http://www.insurance.ca.gov/0300-fraud/upload/FraudReport.pdf

2 Conservative estimate extrapolated from multiplestatewide and academic studies of workerscompensationfraud in California.

endNOTES

About the authors: Dominic Dugois chief of the Insurance Fraud Division

for the San Diego prosecutor’s office. Healso oversees the office’s public-awarenesscampaigns.


9/28

By Frank Goldstein, Esq.

ountering automobile-insurance fraud has

become especially troublesome with the

continued spread of organized crime rings in varied

states. This was evidenced when law enforcement

recently cracked a suspected major staged-crash

operation in Florida.1,2

In that case, investigators reaffirmed how

well-orchestrated many rings have become in recent

years. In fact, several automobile-fraud rings create

files that both identify insurers they perceive as soft

touches willing to pay claims and avoid prolonged

anti-fraud efforts, and which carriers are more likely

to fight back.

I believe the rise of organized insurance-fraud

rings can be linked in no small measure to many

insurance carriers looking the other way and paying

suspicious claims just to stop the bleeding. The

thinking is, let’s cut our losses and not get mired in

a protracted legal fight that could cost more thanthe initial fraud. That position only emboldens

aggressive fraud rings.

This seeming money-saving decision likely has

cost some insurers much more over the long term

because perpetrators keep returning to the same well

for relatively easy pickings. Large-scale scammers

Uncivil civil suits allow auto insurers

to take down organized fraud rings

Civil actions give insurers a legal tool to counter the spread of complex rings

Abstract: Automobile insurers increasingly are turning to civil suits to help counter the growth of

complex, organized fraud rings. Civil actions can be expensive and require a full commitment to seeing

the action through. Insurers often barely break even after large legal expenses. Yet the suits signal to

the criminal underworld that defrauding particular insurers is a no-win proposition. They also allowinsurers leeway to take action instead of waiting for criminal charges to be handed down. Auto insurers

increasingly are filing state and federal RICO actions. RICO allows insurers to present evidence of the

defendant’s entire criminal operation. This gives insurers a powerful legal tool to take down the complete

enterprise.

C



10/28

who have succeeded in one state often migrate to

other states they believe lack the infrastructure

to successfully combat their operations. Different

locales, but the same insurers are hit up forfraudulent payments.

This rise of organized auto-fraud rings comes

with a price tag. Average automobile premiums

must be raised to cover fraud losses; just how much

depends upon the state in which an insured lives.

In New York, for example, auto-insurance fraud

costs residents $1 billion every year, state officials

estimate.3

No-fault schemes also add nearly $100 in extra

premiums for the average family with two drivers

in Florida, the Insurance Information Institute

estimated at the height of a successful 2012 drive to

reform that state’s no-fault fraud laws.4

Suits make statements

A number of auto insurers, however, have

actively begun using civil suits to counter organized

auto-fraud rings. These carriers are willing to absorb

usually significant court costs without assurancesof full restitution. They want to send a statement to

the public and criminal underground that targeting

them exacts a large and untenable price.

Insurers also can act decisively on their own

rather than wait for the criminal system to accept

and prosecute cases. The burden of proof is lower

in civil cases than criminal actions as well, and

can earn potentially large court awards that offer

opportunities to bankrupt the ringleaders. All told,

civil suits can be an imposing weapon.

Overall, some insurers appear to be filing more

civil actions to take a public stand against insurance

fraud. The aim is to stop the crime on a global front.

Otherwise the concern is that fraud rings will simply

continue reinventing themselves and their scams,

thus eroding insurer profits and raising customers’

auto premiums.5

Led by several major insurers, numerous fraud

cases have been litigated in recent years. Civil suits

“This rise of organizedauto-fraud rings comes with a

price tag.”

typically seek millions of dollars in restitution from

fraud rings.

In a case settled out of court days before trial,

State Farm Insurance may have recovered as muchas $20 million from the Palm Beach Lakes (Fla.)

Surgery Center for wrongfully driving up medical

costs by colluding with attorneys and medical device

manufacturers in a 2013 no-fault fraud case.6

In New York, Allstate filed a $30-million

lawsuit against numerous doctors, attorneys and

clinics involving a more than $400-million “massive

and sophisticated” no-fault scam involving 22

healthcare firms, 10 licensed medical professionals

and three attorneys in a case the FBI labeled at the

time as the largest single no-fault auto insurance

fraud ever charged.7 Several defendants have pled

guilty, with millions of dollars recovered to date.

In August 2014, Allstate and the State ofCalifornia won a judgment of more than $1.4

million against a Sonoma County business that

billed for fraudulent auto-glass and windshield

replacements.8

Insurers may face reprisals

So why don’t all insurers litigate civil cases, and

more often? Even though I litigate insurance fraud,

I am not always convinced that filing a suit is the

optimal course of action.

There is much to consider. Filing a successful

civil action typically requires significantsubstantiation to prove fraudulent activity. An

insurer must be prepared to fight ... long and hard.5

A lawsuit usually is time-consuming and expensive.

And insurers often are fortunate to break even

because court-ordered restitution may have been

laundered or spent.

Beyond that lies the possibility of reprisal. Many

defendants file a counter-suit almost immediately

after an insurer files its action. Bad faith is one

common allegation. Insurers must be certain of their

facts.

Although insurers lodge most civil suits in state

courts, a growing number of actions are playing out

in federal venues.

Farmers Insurance, for example, sought nearly

$2 million in a federal lawsuit filed in Minnesota

against 46 chiropractors and an MRI firm it alleged

was ordering unnecessary scans for auto-accident

victims.9



11/28

State Farm filed a federal suit alleging a “massive

fraud scheme” against the 1-800-ASK GARY

accident-referral service in Florida. The insurer

alleges the large firm illegally referred crash victimsonly to medical providers controlled by owner Gary

Kompthecras in Florida, Minnesota and Kentucky.10

The defendants allegedly “promoted their

fraudulent enterprises by providing money to anyone

who referred accident victims to the clinics, offering

cash directly to patients who agreed to accept

unnecessary chiropractic treatment, and dispensing

treatment in a manner designed to maximize profits,

rather than heal patients.”

RICO takes down rings

Geico filed suit against a Florida chiropractic

center and its recruiters in July 2012. The insurer was going after a suspected staged-crash ring that

allegedly stole more than $2.3 million in bogus

claims.11

The insurer alleged civil conspiracy,

common-law fraud, tortious interference with

contractual relationships, tortious interference

with advantageous business relationships and

unjust enrichment, plus violations of federal RICO

(Racketeering Influenced and Corrupt Organization

Act) and the Florida Deceptive and Unfair Trade

Practices.

The suit illustrates that insurers may combineRICO with a wide range of other state and federal

charges to cast a large legal net that increases the

likelihood of a favorable verdict.

Whether a state or federal action, RICO suits

enable insurers far more freedom to present to

the court a total picture of a complex fraudulent

enterprise. Insurers can go beyond presenting

evidence solely for a single false claim. RICO allows

insurers the legal infrastructure to identify and take

down the entire operation in civil court.

A number of prosecutors and insurance

companies are successfully using RICO charges.

The federal law allows crime-syndicate leaders to

be prosecuted for crimes they ordered or assistedin — even if they did not directly participate in the

criminal action.

RICO has proved so effective on the federal

level that 33 states have adopted RICO laws to

enable suits against criminal enterprises at the state

levels.12

Suing to recover more than $185 million in

fraud-related damages since 2003,13 Allstate uses

The insurer alleges the large firm illegally referred crash victims only tomedical providers controlled by owner Gary



12/28

RICO lawsuits to go directly after the leaders of

organized fraud rings, beyond solely the lieutenants

and foot soldiers. The tactic has worked, as

evidenced by the company’s $7-million judgment inits first Nevada medical-fraud case.14

Filed in 2010, the suit challenged several

medical professionals and personal-injury attorneys,

and sought to recover funds from 78 auto-accident

claim settlements. Allstate alleged that each

defendant violated Nevada and federal law based on

a pattern of deceitful behavior.

As All state puts it: “exaggerating treatment

reports, providing unnecessary chiropractic services,

preparing fraudulent bills and making unnecessary

referrals to healthcare providers for their own

financial gain.”

RICO suits also can stretch expensively for

years. Allstate’s federal lawsuit, for example, alleged

deception and coercion against accident victims

by medical clinics in Alabama, Indiana, Ohioand Texas. The case also involved a Louisiana

telemarketing firm and 66 defendants in a complex

multi-layer prosecution.15

Allstate alleged the organization solicited

persons involved in automobile accidents, ran them

though unnecessary treatment, and referred them

to allied personal-injury law offices to make false

claims.

This lawsuit was filed in March 2008,16 and went

to trial in February 2013. A verdict eventually was

handed down that April.17 The verdict was appealed,

and an appeals court finally approved the $6-million

award in April 2014.18

Building complex and far-ranging RICO cases

such as this also requires meticulous preparation to

prove such expansive allegations. The insurer also

could face actions alleging bad faith, defamation,

abuse of process and other charges. Many insurance

companies may not have the resources or will for

such a protracted legal battle, and thus let other

insurers fight the fight.

Insurers taking longer view

Carriers using civil suits, along with support

legislation and landmark court cases, believe they

must make a stand or automobile-fraud will continue

escalating. While cost-benefit analyses and the time

commitment remain important considerations when

deciding whether to file civil cases, insurers are

moving forward for other reasons

Many are taking a closer look at their exposure,

searching for patterns and trends, and then filing

suits — even with no immediate return on the

investment. I believe this is leading many carriers to


“Carriers using civil suits, alongwith support legislation and

landmark court cases, believe

they must make a stand orautomobile-fraud will continue

escalating.”


13/28

1 33 Arrested in Staged Accident Scheme, National InsuranceCrime Bureau, May 21, 2014.

2 Insurance Fraud Ring Busted, wptv.com, May 16, 2014.3 Allstate Alleges $30 Million Insurance Fraud, Demands NY

Reform, Law360.com, May 11, 2012.4 No-Fault Auto Insurance in Florida, white paper, Insurance

Information Institute, 2011.5 Conversation with insurance company SIU representative,

August 18, 2014.6 Source: Insurer settles lawsuit against West Palm Beach

surgery center, maker over spinal device for as much as $20million, Palm Beach Post, February 23, 2013.

7

Two Clinic Owners Plead Guilty for Their Roles in MassiveNo-Fault Insurance Fraud Scheme, fbi.gov/newyork, February13, 2013.

8 Sonoma County windshield repair business ordered to pay$1.4 million in fraud case, Press Democrat, August 7, 2014.

9 Insurer accuses 46 Minnesota chiropractors, MRI firm offraud, Star Tribune, October 15, 2013.

10 State Farm accuses 1-800-ASK GARY of “massive fraudscheme,” Star Tribune, August 1, 2013.

11 Chiropractors in $2.3 Million PIP Insurance Fraud Scheme Will Face RICO Charges, FLPIPGuide.com, April 15, 2014.

12 RICO State by State: A Guide to Litigation Under theState Racketeering Statutes, Americanbar.org/publications GPSolo eReport, 2nd edition, November 2012.

13 Allstate Files $6.3 Million No-Fault Fraud Lawsuit in NY,NU Online News Service, December 21, 2011.

14 Allstate Wins Major Medical Fraud Lawsuit; PutsFraudsters on Notice, PRNewswire, September 13, 2012.

15 Alleged Multi-Million Dollar Fraud Ring Target of FederalLawsuit, PRNewswire, March 6, 2008.

16 Allstate Insurance Company et al. v. Plambeck et al, dock-ets.justia.com/dockets/texas, March 8, 2008.

17 Allstate Says Evidence Supports Jury’s $6M RICO Award,Law360.com, June 18, 2013.

18 Allstate Can Keep $6M Telemarketing Fraud Award,Law360.com, April 2, 2014.

endNOTES

take the longer view — that fighting today will help

minimize future exposures.

The insurance industry may have won several

recent key battles and is increasingly deployinganti-fraud tools that have helped put a dent in fraud.

While we all realize we will not eliminate fraud. It is

too profitable, and in some cases, just too easy. The

question becomes: How do we attack it?

By taking more aggressive action against the

rings and their leadership, insurers can strip away

much of the profit and make it more-difficult for

organized rings to succeed. More important, that

creates major victories for their customers, who are

the ones who must pay the price for fraud.


About the author: Frank S. Goldsteinis the founder and managing partnerof Goldstein Law Group, a premier

AV-rated law firm concentrating on theinvestigation, detection and litigation of

fraudulent insurance claims. The firm’spractice areas include auto, property andhealthcare insurance fraud. Goldstein

concentrates on civil prosecution of insurance fraud claimsand defense of insurance matters, including personal-injuryprotection, bodily injury and uninsured/underinsuredmotorist claims. Goldstein was recognized as Insurance

Attorney of the Year at the annual Florida InsuranceFraud Education Committee conference in 2013.


14/28

Rational swindlers avoid crime

when risk not worth the reward

Teories about rational crime choices and deterrence offer clues about preventing fraud


Abstract: Criminology theory is widely used in the many criminal justice areas, yet there is no

application of these theories to insurance fraud. Better understanding these theories and how criminals

are motivated will assist insurance companies in developing effective anti-fraud strategies. Rational-choicetheory, in particular, is the foundation of environmental criminological principles. It thus follows that

if fraudsters consciously choose to commit fraud, then anti-fraud strategies should focus on decreasing

opportunity. We want to design programs that increase the difficulty of committing fraud, and reduce the

choices that offenders may have. This will fit into the cost-benefit analysis and deter fraudsters.

By Michael Skiba, PhD

riminology is the scientific study of

criminal behavior. Criminological theory

focuses on what causes crime. The goal is to

help understand the criminal mind as a roadmap to

developing effective anti-crime strategies.

Crime theory helps reveal what motivates and

deters criminals. Criminological theory has been widely used in mainstream disciplines such as

homicide and robbery. However, there is a large gap

in research and hence academic theory that applies

to insurance fraud.

What internal and external factors positively

motivate and negatively deter insurance fraudsters?

What makes them commit and not commit fraud?

Understanding this framework will assist

insurers, regulators and legislators in developing

more-effective anti-fraud strategies.

Studies suggest that both planned and

opportunistic fraud are rising. However,

opportunistic fraud presents the most significantthreat in our current fraud environment.1

This analysis focuses on opportunistic

fraudsters — those who have a legitimate loss but

exaggerate claims. Organized crime rings, staged

crashes and other planned frauds involve criminals

whose psychological makeups are distinct from

opportunistic fraudsters. They would be ideal focal

points for separate analyses.

C


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One such study was a survey of 69 children with

measurable reduced cognitive functioning.2 The

children were canvassed for 13 possible offenses:

alcohol use, animal cruelty, breaking and entering,indecent exposure, fire setting, paraphilia, physical

assault, sexual assault, substance use, theft, truancy,

vandalism and vehicular homicide.

Alarmingly, the results showed that 23 children

— fully one third — had committed serious offenses.

Of this group, 17 (72 percent) had two or more

incidents on record. Similar to the biological school,

the psychological school has little relevance to

insurance fraud. Insurers do not have the ability to

manipulate an offender’s internal, cognitive flaws.

Sociological. Environment rather than the

individual is the key to behavior influence. This

school focuses less on individual microbehavior and

more on macro group behavior. Many sociologicaltheories can apply to insurance fraud because

environmental factors can be manipulated. Let us

review some of the most significant theories and how

they apply to insurance fraud.

Strain theory works to explain behavior by

focusing on social strain or pressure. People

experience social strain when they feel pressure or

stress from being unable to obtain certain goals

within society.

As a global culture, we measure success by

wealth, power, prestige and material possessions.

Frustration ensues when a certain status cannot be

obtained. That status may be measured in money,employment, school or community. This frustration

is likely to generate criminal behavior.

Strain theory proposes that crime stems from

the conflict between people’s goals and how they

achieve their goals. People feel strain when they

cannot obtain these benchmarks of success through

traditional means of employment and working. Thus

they pursue crime as an alternate means to success.

Strain theory is relevant to the anti-fraud

community because many opportunistic fraudsters

commit fraud to help alleviate social strain. Since

America currently faces a tight job market, with

reductions and downsizing quite common, many

people do not have the traditional means to earn

a stable income and obtain their benchmarks of

success. They commit insurance fraud to fill that

void.

Many social theories focus on environmental

factors and their significant role in crime.

There are three major schools of criminology

theory (or criminal behavior):

Biological;

Psychological; and Sociological.

All three theories are explored here in an

insurance-fraud context to determine which apply

most to anti-fraud preventative efforts.

Biological. This theory proposes that the

primary root causes of deviant criminal behavior

are abnormalities present within an individual. The

biological school of criminology focuses on genetic

abnormalities, or defects, that are inborn and push

an individual toward crime.

Cesare Lombroso pioneered this school. He

portrayed criminals as people with certain inbred

physical traits due to poor body construction such

as sloping foreheads, asymmetry of the skull, long

arms and other ape-like, subhuman characteristics.

Criminal behavior stemmed from these inborn

factors, not from rational thought and free will.Many researchers conclude that chemical

imbalances are common to these individuals. Thus,

balancing these chemicals with medication is the

most-effective method of behavior management.

The biological school offers little for insurance-fraud

preventative efforts. Fraud fighters are not equipped

to medicate potential offenders or help rebalance

their genetic flaws.

Psychological. This school focuses on the

individual’s mind — specifically, personality flaws

and how they contribute to criminality.

Like the biological school, the psychological

school focuses on the individual as the root cause

of deviant behavior. Environmental or other social

issues are secondary, if considered at all. Some

studies in this area have focused on risk factors such

as reduced cognitive functioning, low IQ and mental

illness, and how they strongly correlate to criminal

deviance.

“Strain theory proposes thatcrime stems from the conflictbetween people’s goals and

how they achieve their goals.”


16/28

Rational-choice theory is a central theme of

environmental criminological theory. It is based on

the premise that offenders make a rational choice

to commit crime, and are influenced in part byenvironmental factors.

Rational-choice theory was developed in the

1970s and 1980s. It is similar to many tenets of

classical criminology. It proposes that offenders

make a conscious, rational choice to commit crime.

Some theorists relate this conscious choice to the

economic principle of cost-benefit analysis: People

weigh the benefits and potential outcomes of an

action, and then make a conscious choice to act.

Rational-choice theory is the foundation of

environmental criminological principles. It thus

follows that if fraudsters consciously choose to

commit fraud, anti-fraud strategies should focus on

decreasing opportunity. We want to design programsthat increase the difficulty of committing fraud, and

reduce the choices that offenders may have. This will

fit into the cost-benefit analysis and deter fraudsters.

Deterrence theory was developed from this

rational-choice perspective. It proposes that

anti-crime (or in our case, anti-fraud) programs focus

on reducing opportunity to deter rational thinkers

from committing crimes.

This school of thought also assumes fraudsters

are rational thinkers who will avoid criminal

behavior if they are highly deterred. Insurers can

take many actions to increase deterrence. They can

develop and publicize strict zero-tolerance programs

by making it clear that fraud cases will be diligently

investigated and prosecuted.

Insurers also can support and publicize fraudconvictions. This may send a strong message to

future potential fraudsters. Insurance schemers are

rational thinkers and will respond to deterrence if

convictions are highly publicized.

Legislative anti-fraud efforts also will help create

a deterrent effect. Because fraud is traditionally

under-prosecuted, this sends a message to the public

that it is a relatively low-risk crime.3 There is no

deterrent effect when the punishment is low because

the reward will be worth the risk to the rational

fraudster.4

Routine-activities theory was developed by

Lawrence Cohen and Marcus Felson in 1979.5 They

also explore the environmental factors of crime. Thistheory proposes that three critical elements must be

present for crime to occur:

Suitable targets;

Capable guardians; and

Motivated offenders.

Crime happens when all three components

align, the researchers propose. As stated earlier, there

is virtually no application of sociological theories in

the insurance-fraud industry. Thus we cannot draw

upon specific studies to determine if certain theories

will have merit in an insurance-fraud setting.

However, social theories, and specifically

routine-activities theory, have great promise becauseinsurers can manipulate all three critical elements in

their favor. Routine-activities theory thus warrants

more exploration. This theory has proven relevant

and reliable in explaining behavior in other criminal

areas such as street robbery and auto theft. Crime

then will be deterred if one of the three elements is

absent.

Elizabeth Groff tested routine-activities theory

and found strong support in a street-robbery

scenario.6 Street robbery was chosen because

it involves direct interaction between victim

and offender, and is considered a crime for

economic gain. Both factors likely will result in a

rational-choice decision. This study is valuable to the

fraud arena because it focuses on the relationship

between the victim (suitable target such as insurer or

consumer) and offender (motivated offender).

Application of routine activities is significant

because the potential for crime reduction is


making a choice


17/28

extremely high. These situational factors can

be more easily and quickly altered than altering

root-cause deviant behavior.

Insurance-fraud victims (or suitable targets) would be insurers and/or their policyholders. The

motivated offender would be the potential f raudster.

Crime could be prevented if one of the three

elements is manipulated against the prospective

perpetrators. That was the focus of the Groff study.

Andresen (2006) tested the merit of routine

activities and focused on auto theft, breaking and

entering, and violent crime in Vancouver.7 His

significant study showed positive support for routine

activities as a viable cause for criminal activity.

Making alterations to help reduce victimization

as outlined in routine- activities theory was key

to reducing criminal opportunities, these studies

found. This in turn reduced criminality. In applying

this to insurance fraud, if insurers as suitable targets

alter their anti-fraud strategies, then this will reduceopportunity, disrupt the continuum and reduce

fraud occurrences.

For example, insurance companies will disrupt

the continuum and make themselves less-suitable

targets by making more-aggressive red-flag systems,

increasing the use of critical gatekeepers such as

analysts and claims staff, and supporting public

outreach.

As stated previously, having a suitable target

is one of the three elements of routine-activities

theory. The research cited thus far has shown

support for routine-activities theory as an effective

means to explain and deter criminal offending. Any

manipulation of victim (insurer) activity reduces the

opportunity to victimize.

This theory has significant implications

for anti-fraud strategy. The research supports

a fraud-reduction strategy focusing on making

the target “harder” for an offender to victimize.

“Insurance-fraud victims(or suitable targets) would

be insurers and/or theirpolicyholders. The motivated

offender would be the potentialfraudster.”

Contemporary theories of offending support this

approach in other criminal arenas.

Building upon the theories of environmental

criminology are contemporary perspectives of crimeprevention by environmental design (CPTED).

CPTED theorists focus on the environmental factors

of crime by analyzing extraneous factors that can

help reduce crime and victimization.

The foundation of CPTED began when

proponents found that altering the physical

properties of buildings and other “physical” elements

caused a significant reduction in criminality.

Early application in an urban-housing setting

in Sarasota, Fla. in 1999 and 2003 showed that

CPTED strategies are highly effective at reducing

criminality. Criminal justice professionals in

Sarasota reduced opportunity by modifying

environmental factors such as zoning regulations,buildings and other physical structures.8

This basic theoretical foundation grew into

a mindset that modifying environmental factors

provides the rational offender less opportunity

to commit criminal behavior, thus reducing the

“suitable targets.”

A significant study of victimization by Byers

& Crider in 2002 also shows that many offenders

do not premeditate crime; they act when an

opportunity presents itself.9 The researchers

performed a qualitative analysis by conducting

face-to-face interviews with criminal offenders who

had victimized members of an Amish community.Several interviewees remarked that their criminality

was never premeditated; it “just happened.”

Offenders acted in a deviant manner when

they were presented an opportunity, the authors

discovered. It thus behooves insurers to develop as

many ways to reduce this opportunity as possible to

thwart fraud events. These corporate strategies could

include:

More aggressive up-front identification of

potentially fraudulent cases;

Effective software packages to identify

high-risk claims;

Coordination with underwriting and sales

staff to assist with fraud identification; and

Aggressive investigation once a potentially

fraudulent case is identified.

Companies should predetermine their

vulnerable areas and then make these areas

less-vulnerable.



18/28

An important CPTED strategy involves the

concept of “foreseeable danger.” In this critical step,

a risk assessor analyzes the case, crime, company, etc.

and then determines potentially vulnerable areas on which to focus efforts.

This risk assessment is comprehensive and could

entail reviewing prior data, spreadsheets, internal

company information and external trends. Social-

environmental theory proposes that crime is not

a matter of motivation, but of opportunity. These

rational-choice theories focus on how situational or

environmental factors contribute to crime causation.

These theories are based on rational thinking.

Potential offenders use choice-structuring properties

— the crime’s cost-benefit analysis. Making fraud

more difficult will result in less opportunity and

fewer fraud occurrences.

When I began my academic research careerabout 10 years ago, I realized that a lack of

benchmark was a shortcoming of applying theory to

anti-fraud practices. There are virtually no studies

that apply these principles to insurance fraud.

This shortcoming offers a major opportunity for

anti-fraud leaders to test these theories as anti-fraud

strategies. The related challenge is to communicate

successes and failures to build a benchmark base that

starts filling a large knowledge gap. Other industries

succeed when applying theory to policy development.

Because there are no central repositories forreporting insurance fraud, insurers should consider

creating a research foundation by pooling funding.

If company-specific data on fraud strategies were

available for interpretation, a more effective

approach toward preventative efforts could be

established.

1 A Phenomenological Study of the Barriers and ChallengesFacing Insurance Fraud 1 Investigators, by J.Michael Skiba, Journal of Insurance Regulation, 2014, Volume JIR-ZA-33- 04,Page 26.

2 Incidence of Law-Violating Behavior in a CommunitySample of Children and Adolescents withTraumatic BrainInjury. James Luiselli, Michelle Arons, Nina Marchese, AndreaPotoczny-Gray and Erika Rossi, International Journal ofOffender Therapy and Comparative Criminology, 2000, Vol.44, 6: Pages 647-656.

3 Why Fraud Persists, Coalition Against Insurance Fraud.http://www.insurancefraud.org/fraud -whyworry.htm#Why%20fraud%20persists

4 A Phenomenological Study of the Barriers and ChallengesFacing Insurance Fraud Investigators, by J. Michael Skiba, Journal of Insurance Regulation, 2014, Volume JIR-ZA-33- 04,Page 14.

5 Social Change and Crime Rate Trends: A Routine Activity

Approach, by Lawrence Cohen and Marcus Felson, AmericanSociological Review, 1979, Volume 44(4), Pages 588-608.

6 Simulation for Theory Testing and Experimentation: AnExample Using Routine Activity Theory and Street Robbery,by Elizabeth Groff, Journal of Quantitative Criminology, 2007 Volume 23(2), Pages 75-103.

7 A spatial analysis of crime in Vancouver, British Columbia:a synthesis of social disorganization and routine activity theory,by Martin Andresen, Canadian Geographer, 2006, Volume50(4), Pages 487-502.

8 Zoning out Crime and Improving Community Health inSarasota, Florida: Crime Prevention through EnvironmentalDesign, by Sherry Carter, Stanley Carter, and AndrewDannenberg, American Journal of Public Health, 2003,September, Volume 93(9), Pages 1442-1445.

9 Hate crimes against the Amish: a qualitative analysis of biasmotivation using routine activities theory, by Bryan Byers andBenjamin Crider, Deviant Behavior, 2002 Volume 23(2), Pages115-148.

endNOTES

About the author: MichaelSkiba has worked in the insurance-

fraud profession for 20 years asan SIU investigator, analyst andin management. He currently

works in the special investigationsunit at Interboro/AutoOne/ Maidstone Insurance. He also is

Lead Professor of Fraud Management at Colorado StateUniversity Global Campus. Skiba lectures internationallyand regularly publishes on insurance fraud. He holds anMBA and PhD with a concentration on insurance fraud.Skiba also is president of the New York Chapter of theInternational Association of Special Investigative Units.



19/28

Corporate dentistry bleeds Medicaid,

vulnerable low-income childrenDentists yank healthy teeth, fleece Medicaid under pressure to optimize income


Abstract: Corporate-owned dental chains are exploiting the underserved market for low-income child

Medicaid patients with large-scale fraudulent and abusive treatment. Most dental clinics are honest and

forthright. But aggressive business models pressure some dental chains to fraudulently optimize volume

treatment, ignoring the child’s medical needs. Children undergo useless and painful root canals, cavityfillings and extractions. The clinics impose mouthfuls of steel teeth the children don’t need. Medicaid

likely is billed hundreds of millions of dollars a year in false dental treatment of children. Lawsuits and

criminal actions are breaking up schemes. Still needed are more enforcement by dental boards, and

education of parents about the warning signs of a scam.

By Debbie Hagan

ower-income children staggered f rom their

dental chairs. Many reached dangerously

high heartbeat rates and were returned

to their parents trembling, crying and

clothes soiled. They were scared and traumatized by

the painful surgeries they’d just received, and begged

their parents never to bring them to the dentistagain.

Their parents took their kids for routine

checkups, expecting caring and minimal treatment.

Instead many left with a mouth full of frightening

steel-capped teeth. Others had a dozen or more

perfectly healthy teeth pulled without medical

necessity. Children routinely were tightly strapped

from head to toe onto a papoose board to prevent

them from struggling when surgical instruments

were shoved into their mouths without anesthesia.

These are the common horror stories of children

receiving Medicaid dental care around the U.S. Most

are from vulnerable, low-income families. Foster carechildren of military families also are abused.

Many and likely most Medicaid-serving dental

clinics provide caring and valuable service. Yet

large, corporate-owned dental chains have literally

and figuratively extracted large and illicit profits

by focusing on this underserved market of the

L


20/28


nation’s poor. Epidemic insurance f raud and abuse

of little patients drive the business models pursued

by some large chains that have erected networks of

high-production Medicaid mills.The nation’s state-federal Medicaid par tnership

covers 60 million lower-income Americans, with

spending of $450 billion annually.1 The program’s

sheer size places Medicaid at considerable risk

of fraud and abuse. Medicaid child dentistry is

among the highest risks. No composite figures

track the insurance-dollar losses to defrauding of

young Medicaid patients. The figure likely runs to

hundreds of millions of dollars a year.

Texas state Medicaid investigators, for example,

have paid more than $550 million for medically

unnecessary orthodontic and dental services

between 2007 and 2011.2

Criminal prosecutions, news exposes, hundredsof lawsuits plus congressional investigations are

rocking dental chains as allegations of civil and

criminal malfeasance keep surfacing.

Lower-income children are generally

underserved, and thus form an inviting market for

profit-trolling equity funds.

Fewer than half of Medicaid-enrolled children

received dental care in 22 states, reveals a 2013

report by the respected Pew Charitable Trusts. More

than 14 million Medicaid children didn’t receive

dental care in 2011. This creates a lucrative market

for corporate-owned dental chains to fill.3

Medicaid dental practices also are less-regulatedthan physician groups, and patients often see their

dentist more often than their doctor.4

And several states continue raising

reimbursement rates to successfully attract more

dentists. Plus the tragic 2007 death of a Medicaid

child attracted great national attention to the

program’s problems. The child died f rom a brain

infection caused by an untreated tooth abscess.

Regulators upgraded Medicaid to make the program

safer and attract more participants.

Thus we have these owners or portfolio

managers: Big Smiles is in the portfolio of Morgan

Stanley. Small Smiles was purchased for $435

million by a consortium of investment firms,

including the Carlyle Group, Arcapita Corporate

Investments and American Capital. Valor Equity

Partners owns All Smiles in Texas. FFL Partners

owns the largest national chain — Kool Smiles.

Medicaid became an especially inviting

investment in Texas in 2007 when a lawsuitsettlement dramatically increased Medicaid fees.

Corporate dental chains soon descended onto the

federal insurance program.5

One was the Atlanta-based Kool Smiles. It is the

largest Medicaid dental chain in the U.S., serving

about two million children with 130 offices in 17

states.

Connecticut Medicaid also noticed a spike in

children receiving stainless-steel crowns. The crowns

didn’t fit and teeth underneath were decaying. The

company eventually satisfied Medicaid that it had

corrected the problems.

The problem of Medicaid fraud, however, islarger than Kool Smiles. High volume and rapid

patient turnaround of assembly-line surgeries

form the lynchpin of a business model that has

dangerously commoditized dental care of thousands

of Medicaid kids.

Dentists embedded in dishonest chains seek

the largest Medicaid payments possible from a given

procedure, regardless of medical need. Worthless

tooth extractions, steel crowns and cavity drillings

heist far more insurance money than honest,

low-cost cleaning and preventative care.

The equity owners typically hand over business

operations to so-called dental management firms

that they own. The management companies publicly

purport that they are mere vendors, providing dental

clinics with back-office administrative services

such as billing, payroll, staff hiring and other

non-treatment, non-medical decisions.

In truth, the management companies illegally


21/28


control the chains. They install dentists as straw

clinic owners. False ownership skirts laws in most

states that ban corporate ownership of medical

clinics, and require dentists to own and operatethe clinics. The illegal arrangements are hidden in

a complicated maze of service agreements, straw

corporations and limited-liability corporations.

The management firms also hire dentists and

support staff. More important, they control Medicaid

income production. Dentists are required to produce

so much income that fraudulent treatment and

abandonment of clinical judgment are inevitable

byproducts of work to meet such aggressive goals.

Lucrative bonuses for meeting production goals

reinforce the assembly-line treatment model.

The Medicaid mills thus falsely charge Medicaid

for crowns, root canals, bridges and other expensive

procedures when the children — often just babies —only need routine checkups, cleaning or filling of a

small cavity. Bungled and medically useless surgeries

often require expensive and traumatic remedial

surgery and hospitalization.

The contracts of hired dentists tend to be

restrictive, almost like handcuffs, and reinforce

the aggressive treatment strategy. High production

demands often are embedded in employment

contracts.

Medicaid mills often treat 80-100 patients

per day, with required billings of $500-$1,000 per

patient that are tracked daily. The goal typically is

to gouge as much Medicaid money as possible from

the child’s first visit, and avoid lesser follow-up

procedures that slow the billing flow.

Foreign dentists form a large component of

business models. They comprise up to 30 percent

of the Small Smiles dentists, for instance. Overseas

dentists need steady work to legally remain in the

U.S. Clinic chains such as Small Smiles and Kool

Smiles offer that gainsaying employment.

High treatment quotas impose a strong

incentive to over-treat and defraud Medicaid justto stay employed. Once caught in the trap of

insurance fraud, they are virtually forced to continue

defrauding or risk being deported if they lose their

jobs for missing quotas.

Recent graduates of U.S. dental schools also are

recruited. They face considerable student debt plus

difficulty in securing mortgages or other loans. The

attractive salaries and easy employment give these

graduates a quick leg up in life.

Contracts also tether dentists to the chain

outlets, further entrapping them in a web of fraud.

Small Smiles contracts, for example, stated that

dentists must give 90 days notice before leaving

or pay a fine of $500 per day. Some Small Smilescontracts had non-compete clauses restricting

dentists from providing care to Medicaid children —

at any other clinic — within the service area.

Dentists installed as straw owners have their

own, often strange, contractual restrictions. The

Small Smiles contract said the straw owners will

lose their owner status — and lucrative income — if

they divorce. The clinic would be contractually

considered a marital asset and the dentist would

have to sign over the illicit “ownership” to whoever is

designated, usually for just $100.

Children often are strapped to so-called papoose

boards. These and other restraining devices preventthe child from resisting and allow dentists to finish

painful production-line surgeries faster. Years later

children often clearly remember the abuse and

trauma, which reinforces their reluctance to seek

dental treatment as adults.

Here are several examples of children treated

by a Texas chain. The names are changed to protect

the little victims. Note that a typical pediatric root

canal and crown take about 30 minutes per tooth.

A filling takes 15 minutes per tooth, Dr. Norman

Tinanoff, a University of Maryland professor, said as

a witness in a 2014 civil suit against Small Smiles in

New York.

“Jordan” (age 6) received four baby root

canals and six crowns in 20 minutes — less than two

minutes of treatment per tooth. Medicaid was billed

nearly $3,225.

“Moses” (age 3) had a baby root canal and

crown in every tooth. The dentist spent less than

“Small Smiles contract said thestraw owners will lose their

owner status — and lucrativeincome — if they divorce. The

clinic would be contractuallyconsidered a marital asset.”


22/28


two minutes per tooth. Later Moses had all but four

teeth pulled due to abscesses.

“Jack” (age 5) received 16 baby root canals

and 16 crowns in 25 minutes. His dentist spentabout one minute per tooth, billing $168.20 per

minute.

“Joe” (age 4) received 15 baby root canals and

16 crowns in 30 minutes.

Stolen insurance money enriches the winners

with princely lifestyles. Sprawling mansions, private

jets, luxury boxes at football games, expensive

vacation homes and other trappings of the rich and

famous come to the overseers. Taxpayers foot the

bills.

All Smiles founder Dr. Richard Malouf owns

two jets and a $14-million mansion that includes a

bowling alley and water park.6

An alarmed U.S. Senate and House have

launched investigations as complaints, lawsuits and

news articles documented abuses.

Small Smiles was prominent among the chains

singled out in a June 2013 report by the U.S. Senate

Finance Committee.

Small Smiles was one of the nation’s largest

pediatric dental chains and most flagrant abusers,

the Senate concluded. Small Smiles then was

controlled by Church Street Health Management

(CSHM), the purported dental service provider.

The chain had 70 clinics in 21 states at its

height. Small Smiles treated more than a million

children, and 400 dentists did six million procedures

in 2010. The dentists were ill-trained to treat

children; none was a pediatric specialist.

Nearly one-third of Medicaid billings by Small

Smiles was unjustified, the Senate determined.

“Larger sampling at this and other clinics could

reveal massive overpayments,” the Senate concluded.7

A child at a Small Smiles clinic in Oxen Hill,

Md. had this experience: “Screamed and fought the

entire time ... She vomited approximately halfway

through the procedure. The dentist immediately

turned the patient on her side and suctioned her

mouth and throat,” the Senate report said.

“This child’s airway was in jeopardy because the

mouth prop opened her mouth so wide it restricted

her ability to swallow and protect her airway.”8

Investigators found no medical necessity for

treatments. The U.S. Department of Health and

Human Services (HHS) found similar breaches at a

Small Smiles unit in Youngstown, Ohio. The federal

agency imposed a $100,000 penalty.“Treatment was provided to restrained children

who were fighting, crying and basically hysterical,

using large mouth props that over-extended their

mouths, compromising their ability to swallow and

protect their airways,” the Senate report noted.9

Faced with federal sanctions, Small Smiles

declared Chapter 11 bankruptcy in 2012. HHS

finally banned Small Smiles from Medicaid for five

years in April 2014. The order took effect September

30, 2014 and effectively denies the chain access to

its main revenue stream. CSHM also must divest its

management contracts with Small Smiles.

“CSHM failed to report serious quality-of-carereportable events, take corrective action, or make

appropriate notifications of those events to the State

dental boards as required ...” the federal Office of

Inspector General says.10

“CSHM also failed to implement and maintain

key quality-related policies and procedures, comply

with internal quality and compliance review

requirements, properly maintain a log of compliance

disclosures, and perform training as required by the

CIA. Finally, CSHM submitted a false certification

from its Compliance Officer. ...”

Small Smiles still faces a staggering legal burden.

It agreed to a separate $24-million federal civil

settlement in January 2010. That resolved allegations

that the company operated as a fraudulent scheme

to bill Medicaid hundreds of millions of taxpayer

dollars for unnecessary, inappropriate, unsafe and

excessive dental procedures on young children.

The verdict set the tone for a huge backlog of


23/28


other lawsuits against Small Smiles. The money to

fund settlements comes from a trust fund created

as part of CSHMʼs dissolution. The chain faces

about 100 civil actions around the U.S., including30 actions in New York. They all allege that Small

Smiles gave children damaging treatment.

Small Smiles aside, New York has been such an

overall hotbed of Medicaid dental chicanery that

HHS issued a separate report on the state in March

2014. Some 29 dentists “received extremely high

payments per child; provided an extremely large

number of services per child; or provided certain

selected services, such as pulpotomies or extractions,

to an extremely high proportion of children,” the

report said.

“Additionally, almost a third of the general

dentists were associated with a single dental chain

that had settled lawsuits for providing services that were medically unnecessary ... Our findings raise

concerns that certain providers may be billing for

services that are not medically necessary or were

never provided.”11

Texas is another epicenter of corruption,

prompting an investigation by the U.S. House of

Representatives. The number of dentists treating

Medicaid patients spiked nearly two-thirds

after the 2007 consent decree raising Medicaid

reimbursements. Fraud followed in large volume,

with much emphasis on outfitting kids with

medically worthless braces.12

Most children don’t need braces, yet TexasMedicaid spent more on braces in 2010 than the

other 49 state Medicaid programs combined. Just a

handful of orthodontists billed Texas Medicaid more

than Florida’s entire Medicaid program spent on

orthodontics.13

“More than 90 percent of orthodontic

reimbursement requests by All Smiles (unaffiliated

with Small Smiles) were invalid,” revealed a Texas

Medicaid audit. The state sued varied All Smiles

entities, alleging the chain billed Medicaid for

needless and phantom services. All Smiles closed

13 offices in the Dallas area after the investigation.

That left 12,000 Medicaid patients to scramble for a

new dentist.14

Turning the corner on this national epidemic

must take place at many levels. Assertive

enforcement is one key.

At least eight states have formed independent

offices of Medicaid inspector general. They gather

and refer criminal cases to state Medicaid Fraud

Control Units, most of which are housed in the state

attorney general’s office.

Some states such as Oklahoma also requireinter-agency cooperation and collaboration on

Medicaid cases.

Liberal doses of profit-draining lawsuits by

governments and private citizens will continue

undermining the cheaters financially. These actions

can bankrupt some cheaters out of existence or force

them to clean up their operations. This speaks to the

value of state and federal laws authorizing civil suits

of this nature.

Some chains also are transitioning to accept

only patients with private insurance, but revenue-

generating procedures remain a priority goal.

Enforcement of state dental practice acts and

strengthening current laws by state dental boardsalso is a key to rooting out bad actors. The North

Carolina State Board of Dental Examiners, for

example, passed regulations in 2012 that monitor

and curtail the fraud-minded Medicaid business

model.15

Parents also should be educated about potential

dental scams and how to manage the dental

relationship. Parents should be informed, for

example, that they can be present during procedures

and ask questions. A Patient’s Bill of Rights would be

useful.

Dental boards and associations can play lead

roles in family education. State regulations could


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1 Fighting Medicaid Fraud, State Legislatures Magazine, April, 2013.

2 Company That Approved Unnecessary OrthodontiaKept Its State Contract, The Texas Tribune, May 1, 2014, July 18, 2014. https://www.texastribune.org/2014/05/01/company-okd-medicaid-billing-keeps-its-contract

3 In Search of Dental Care, The Pew Charitable Trusts, June23, 2013. http://www.pewtrusts.org/en/research-and-analysis/reports/2013/06/23/in-search-of-dental-care

4 Private Equity Firms Eye Big Profits in Dentistry,DrBicuspid.com, May 2012. Web. 17 July 2014. http://www.drbicuspid.com/index.aspx?sec=log&URL=http%3a%2f%2f www.drbicuspid.com%2findex.asp%3fsec%3dser%26sub%3ddef%26pag%3ddis%26ItemID%3d310662

5 Texas Drills Down on Medicaid Dental Fraud,The Wall Street Journal, August 19, 2012, July17 2014. http://online.wsj.com/news/articlesSB10000872396390444233104577591243154716520

6 Dentist in Medicaid Suit Adding a Water Park to His

Mansion, WFAA Wfaa.com, July 12, 2012, July 18, 2014.http://www.wfaa.com/news/investigates/Medicaid-Mansion-Expansion--162280556.html

7 Small Smiles Wins 1st Case Al leging Mistreatment of Kids,DrBicuspid.com, October 9, 2013, July 18, 2014. http://www.

drbicuspid.com/index.aspx?sec=sup_n&sub=pmt&pag=dis&ItemID=314430

8 Joint Staff Report on the Corporate Practice of Dentistry inthe Medicaid Program, Committee on Finance, United StatesSenate, June 2013.

9 ibid.10 OIG Excludes Pediatric Dental Management Chain From

Participation in Federal Health Care Programs, Office ofInspector General, U.S. Department of Health and HumanServices, April 3, 2014. https://oig.hhs.gov/newsroom/news-releases/2014/cshm.asp

11 Questionable Billing for Medicaid Pediatric DentalServices in New York, Department of Health and HumanServices, Office of Inspector General, March 2014. http://oig.hhs.gov/oei/reports/oei-02-12-00330.pdf

12 Uncovering Waste, Fraud, and Abuse in the MedicaidProgram, Committee on Oversight and Government Reform,U.S. House of Representatives, April 25, 2012.

13

ibid.14 ibid.15 Management arrangements, North Carolina State Board of

Dental Examiners, July 18, 2014. http://www.ncdentalboard.org/management_arrangements.htm

endNOTES


About the author: Debbie Haganis a Kentucky-based citizen bloggerand investigative journalist who coversdental fraud through her blog, Dentistthe Menace.

require it. Plentiful material should be prominently

displayed for patients at dental clinics, and sent

to Medicaid recipients once a first appointment ismade.

Dental students should be warned about scams,

restrictive contracts and illegal business models

as part of their dental schooling. Dental students

are taught little about business operations. This

increases their vulnerability to predatory dentistry

recruiters. More student loan forgiveness and/or

loan assistance would also reduce their susceptibilityto entrapping contracts.

Dental Medicaid thievery involving children

is a persistent scam that stoutly resists efforts to

eradicate and make the dental treatment a safe haven

for all low-income children. The solution rests in

continuing to raise awareness that spurs lawsuits,

regulatory action and other counter-steps. It’s a long

process, but worth resolutely pursuing for the sake of

vulnerable children and their parents who trust that

their Medicaid dentist will adhere to the Hippocratic

oath, “First, do no harm.”


25/28

TrendWatch: new developments

about fraud in America


Hall of Shame’s No-Class of 2014exposes newest master marauders

America’s aces of avarice took a reluctant bow

with election to the Insurance Hall of Shame.

The No-Class of 2014 has been dishonored by

the Coalition Against Insurance Fraud. They were

ranked among the nation’s most brazen, k lutziestor vicious convicted insurance criminals of the last

year.

Behind the ballyhoo is a serious purpose. The

Hall of Shame draws public attention to a crime

that many Americans dismiss as a victimless

white-collar prank. Most consumers are honest, but

an uncomfortably large percentage still tolerates

insurance fraud to varying degrees.

The Hall of Shame counters this outrage deficit

disorder with the ages-old technique of storytelling.

Human brains are biologically wired to remember

and interpret events. Stories thus are 20 times more

likely to be rememberedthan hard facts. Among

the Hall of Shamers:

Dr. Spyros Panos

(Poughkeepsie, N.Y.). The

orthopedist made more

than $35 million in false

claims for thousands

of botched and faked

surgeries. He rushed up to

20 surgeries in a day — as

many as orthos normally

perform in a month.

Christine Steele had two

useless knee surgeries and

hasn’t worked fulltime

ever since.

Angela Garcia (Cleveland). Garcia let her infant

daughters Nyeemah and Nija die in a house fire

she set for just $64,000 worth of insurance money.

Garcia had overvalued her home contents and made

claims for possessions she didn’t have. Garcia also

removed valuables before the fire. The girls were

dead from smoke inhalation when firefighters found

their lifeless bodies in their upstairs bedroom.

Andy Lee House (Galveston, Tex). House drove

his rare Bugatti Veyron into a swampy lagoon to

collect $2.2 million. House lied to his insurer that apelican flying too low forced him to veer off the road

into the swampy waters.

Just House’s luck, a car enthusiast was driving

by. Awed by the sleek silver Bugatti, he videotaped

House racing into the lagoon. The video shows no

pelican in sight. Nor were there skid marks or other

evidence suggesting House tried to brake.

Joseph Haddad (Bridgeport, Conn.). The

attorney ran a large crime ring that stole millions of

dollars in worthless and inflated treatment to crash

victims his recruiters delivered.

Haddad created a complex network of docs,

chiros, diagnostic clinics andrecruiters. Medical providers

diagnosed victims, often without

exams, then billed insurers for

months of phantom or useless

treatment. Haddad’s recruiters

bought police crash reports

that identified the victims. The

runners then hounded victims to

sign up at Haddad’s office.

Dr. Farid Fata (Detroit).

Seniors received painful and

debilitating chemotherapy for

cancer they didn’t have. Cancer

doctor Fata made a hefty $225

million in bogus Medicare claims.

About half was for worthless chemo and other

cancer treatments. He pumped chemicals into

patients who were in remission, or were near death

and didn’t need more treatment.

Dr. Spyros Panos


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Fata gave one cancer-free patient 155 chemo

treatments over 2 1/2 years. Medicare paid out more

than $91 million overall, and Fata billed private

insurers as well.

Misclassifying of workers sparksmore crackdowns

So many employers are misclassifying workers to

illegally dodge workers compensation premiums that

more alarmed policymakers are redoubling efforts to

blunt the longstanding crime wave.

Washington state is the latest state to weigh in.

Some 14 percent of 3,954 audited employers had

misclassified workers, the state Department of Labor

& Industries discovered in FY 2013. The agency

referred only three of those cases to prosecutors but

plans to pursue more cases in the future, the state

says.

L&I also has begun performing more

Corporate Dentistsry Bleeds Medicaid; Journal of Insurance Fraud in America

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