Emerging health care fraud: Schemes go beyond Medicare, Medicaid fraud

Part 1 of 2

By Al Scott, CFE
al-scott-80x80   Rx for fraud: Health care fraud issues

In part 1 of 2 parts, Al Scott, CFE, principal for NSD Bio Group LLC in Philadelphia, Pa., describes lesser-known but emerging health care frauds, including schemes involving fraudulent treatments, cures and devices, and crimes involving the manufacture, sale or distribution of unapproved FDA-regulated products. In part 2, he describes Chinese emerging enforcement approaches. The opinions expressed in this column aren't necessarily those of the ACFE, executives or employees. — ed.

In January of 2012, the critically acclaimed television show, "60 Minutes," featured a segment, "Stem Cell Fraud," which included an exposé on an Alabama doctor, Dan Ecklund, who's under investigation for fraud. His U.S. medical license was revoked in 2005, but that didn't keep him from starting a company in Ecuador to peddle stem cell treatments online as a fraudulent cure-all for incurable diseases. 

This investigative piece followed a 2010 segment about fraud in the regenerative medicine sector. In that investigation, Lawrence Stowe and Frank Morales promised miracles from a $125,000 stem cell therapy for patients suffering from multiple sclerosis (MS), Parkinson's, ALS and other diseases. That story launched a U.S. federal investigation, which led to an allegation that Stowe and Morales procured $1.5 million via stem cell fraud. 

As a result of the "60 Minutes" show, Stowe surrendered to authorities. Morales was already in jail on an indictment for a cross-border scheme to use stem cells as a bogus cure for cancer, MS and other incurable diseases.

In October of 2011, the U.S. Department of Justice (DOJ), via the efforts of the Food and Drug Administration (FDA) Office of Criminal Investigations (OCI), charged Ralph Conti, M.D., a Las Vegas pediatrician, with participating in a scheme to defraud investors and chronically ill patients of large amounts of money through the use of experimental stem cell implant procedures that wouldn't benefit patients and weren't approved by the FDA. 

Conti was charged in a superseding indictment with conspiracy to commit mail and wire fraud and criminal forfeiture. Also named was his partner, Alfred T. Sapse, of Las Vegas, who had been previously indicted in the same case.

Under direction from Sapse, Conti would implant portions of placental tissue into patients' abdomens for the treatment of their diseases. They allegedly targeted extremely sick patients with false claims and misrepresentations. They would say that they obtained the placental tissue for the procedures only from Caesarian section births, which ostensibly reduce the risk of infection. The dynamic duo also would tell patients that their "proprietary" procedure was especially effective for patients with multiple sclerosis, cerebral palsy and retinitis pigmentosa — a disease of the retina, which can cause blindness. 

Several of their approximately 34 patients became infected from the procedures. In February 2007, Sapse moved to Mexico, where he directed another physician to implant placental tissue in approximately 100 patients until May 2010. 

In December 2011, Richard Bohner, an officer for Norian Corporation — a wholly owned subsidiary of Synthes Inc. based in West Chester, Pa. — was sentenced to eight months in prison for one misdemeanor count of shipping adulterated and misbranded medical devices in interstate commerce. Bohner was the last of four executives to be sentenced in the case. His former colleagues were each sentenced from five to nine months in prison. The defendants approved clinical trials using bone void fillers (Norian XR and Norian SRS) to treat vertebral compression fractures of the spine (VCFs) — a painful condition commonly suffered by elderly patients. Despite known and serious safety concerns and a warning on the label that the products weren't intended for that use, Synthes didn't stop the illegal testing until after a third patient had died on the operating table during one of these surgeries. Three of the four executives also lied to the FDA during an investigation. 

From May 2002 until fall of 2004, Norian conspired with others, including Synthes and the former executives, to conduct unauthorized clinical trials of Synthes' medical devices. These surgeries were performed despite a warning on Norian XR's FDA-cleared label prohibiting this use and in the face of serious medical concerns about the safety of the devices when used in the spine. 

Before the marketing program began, pilot studies demonstrated that the bone cement reacted chemically with human blood in a test tube to cause blood clots. The research also showed that such cement-caused clots became lodged in the lungs of pigs. The company ignored this knowledge and proceeded to market the product for VCFs without any FDA-required testing. It took a third patient dying on the operating table before Norian stopped marketing the product. After the death of this patient in January 2004, Norian and Synthes didn't recall Norian XR from the market, which would have required them to disclose details of the three deaths to the FDA. Instead, they compounded their crimes by carrying out a cover-up in which they made false statements to the FDA during an official inspection in May and June 2004. (See "Anger from survivor of Synthes victim," by David Sell, July 31, The Philadelphia Inquirer.)

These cases represent a small sample of many investigations pursued by the OCI, a special unit that conducts and coordinates criminal investigations. OCI special agents employ customary federal law enforcement methods and techniques in the investigation of suspected criminal violations of the False Claims Act, Federal Food, Drug, and Cosmetic Act; the Federal Anti-Tampering Act and other related federal statutes. 

OCI investigations concentrate on significant violations of these laws, with a priority on conduct that may present a danger to the public health. Criminal investigations of health care fraud have increased significantly over the past three calendar years: 7.5 percent from 2009 to 2010 (43 to 50 cases), and an aggressive 120 percent from 2010 to 2011 (50 to 110 cases). (See U.S. FDA Strategic Priorities Document 2011-2015.) 

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