Sunday, January 3, 2016

Fraud and Financial Forfieture

Getting there may be half the fun, but being there is critical. This is true for a variety of occupations, but recent news stories suggest that it is particularly important for professionals who are billing someone for being there. Another old saying is that "it is not how much you make, it is how much you keep." These two sayings have been attributed to many over the years. 

Much of the professional world works on what is called a "fee-for- service" basis. It could be based on the time required for the service or the completed service itself. For example, I could agree to paint your garage for $1,000. In this instance, I am taking the risk regarding whether I make a profit or loss. If supplies are $200, and I want to make $20.00 per hour, I need to spend 40 hours or less on the work($800/$20) painting. If I work faster, and finish in 30 hours, I make more than $20 per hour; work slower, and I make less. 

Or I might agree to perform the work on an hourly basis. In this paradigm, I agree to paint your garage for $20.00 per hour. I know at the outset I will make my desired hourly rate. You take the risk. If I finish in 30 hours, you saved $200; if I take 50 hours it costs you $200 more than the $1,000 expected or estimated. Both examples of fee-for-service have this similarity, one will pay the fee and the other renders a service. Seems simple. 

In the service industry, both providers and payers negotiate their respective roles in these exchanges. Each is perhaps seeking some modicum of certainty or predictability. Each is perhaps taking some risk. The painter may want the certainty of the hourly rate or the potential for profit. The garage owner may want certainty of a capped price or the potential for savings. In either instance, however, fee for service requires two basic factors. One party delivers a service and the other party delivers the fee. 

Fraud is essentially the intentional deception of someone for gain, often monetary gain. In the examples above, perhaps I purposely work slowly to drag out the time required for that painting. This might be fraud, or it may be I am a slow and careful painter. There could be debate on cause and effect, fraud or lack of competence. 

But what if I do not show up at all, do not paint at all, and yet I still bill you for the garage painting? When you find out that I did not paint the garage, how do you get your money back? Will you get your money back?

Recently there have been allegations of egregious behavior in the workers' compensation industry. A pain physician in Buffalo New York was recently accused of billing for services that he did not provide. We hear of this on a small scale periodically, doctor sees patient, performs two services, bills for three. Provider spends ten minutes on something, bills for fifteen. Mistake? Arguable? Perhaps.

The Buffalo News reports, however, that this doctor had a successful practice and was privileged to travel to some interesting locations including "Moscow, Berlin and St. Thomas. And Athens, Istanbul and Ukraine a year later." Travel and site-seeing is a great distraction. 

The doctor allegedly did not let his absence from the office affect his earnings, however. Travel, after all, can be expensive. Prosecutors allege that over a 4 year period this doctor submitted over 2,000 identified charges for seeing patients in the workers' compensation system. The prosecutors claim the doctor's "credit cards, bank accounts and airline records indicate he was out of town at the same time he claimed to be treating patients" for those identified charges in Buffalo. Mistake? Unlikely perhaps. 

More recently, ABC News reported a raid on nine southern California sites and the arrest of multiple conspirators in an alleged fraud. Owners and employees of G&G Translation submitted billings for services and are accused "that $24.6 million of those billings from 2008 to 2012 were fraudulent billings." That averages to about $6 million per year.

The California Insurance Commissioner says that the translation company "got a hold of patient lists and sent bogus bills to the insurance companies." They billed for services that they did not render. Similarly to the Buffalo doctor who allegedly billed for service rendered while out of the country, some of the translations services billed appear to be impossible. 

The California officials claim that "$422,000 in charges racked up" were attributable to a translator "who never even set foot in a clinic." They claim they know this is true "because she was incarcerated." In fact, they claim this translator not only was incarcerated at the time of the supposed services, but is "in fact still in state prison today." 

Fraud can be subtle. This seems less than subtle. 

The California case made headlines. Anytime you mention $24 million dollars in fraud, you are likely to get headlines. But it was not the only translator fraud case to make news in 2015. According to the Washington State Department of Labor and Industries, a translator there was accused of "several schemes to steal from the state." These included billings for "appointments that never occurred." Her records document billings for "physically impossible" trips, some of which overlapped. Essentially, the billings had to be lies unless the translator had a DeLorean with a flux capacitor (see Back to the Future). 

What is the detriment for such behavior? Some people's moral compass alone would keep them from stealing money. The fact that stealing is wrong would be enough. This is apparently just not enough for everyone. 

This is not limited to doctors and translators. I clerked at a firm with another law clerk a great many years ago. We were each employed by an attorney and were paid by the hour. The other clerk made a great deal more money than I did, though I spent more time at the office. Curious. One day he bragged to a group that from the moment he awakened each day he was "thinking of (insert case name)" and that it was therefore appropriate that he "was billing his time" to that client. 

The attorney in charge laughed at this comment uproariously. I realized that the attorney did not care. The clerk was being paid $15 per hour for that fraudulent time. Yes, "fraudulent." Sorry, but billing a client for time you spend eating breakfast, showering and commuting is beyond questionable. The attorney, though, was in turn billing his client $75.00 per hour for this reported "paralegal work." The attorney, knowing of the clerk's admission, was gleaning a $60.00 per hour profit on this inflated or conflated time. I left that position shortly after that, and frankly never looked back. Neither that clerk nor that attorney saw anything wrong with their behavior.

What is the detriment, to deter those without a moral compass? There is the potential for incarceration. Those who commit these offenses can be locked-up in a jail for some time period in hopes that this will prevent them from further theft and that it will deter such behavior. We do not see a great many situations in which people are actually put in jail though. There was a recent case of employer fraud with jail time, but they are just not that common. Time will tell if the Buffalo doctor or the translators are actually convicted and put in jail. 

Additionally, there is the detriment of having to repay the stolen money, or "restitution." In the case of the Buffalo doctor, officials were able to identify assets that were related to the money allegedly taken. The Federal Bureau of Investigation seized two of the doctor's cars "a $126,000 Ferrari and a $103,000 Ford GT Coupe." These assets can be sold, and the resulting cash can repay those who were defrauded. 

While the story does not explain completely, I am doubtful this $239,000 will cover the extent of the allegations. They allege that there are over 2,000 instances in which he billed for services when he was physically not present. The $239,000 divided by 2,000 is only about $119.00 per instance. That would seem low for a doctor's appointment. The total attributable to the 2,000 instances alleged would seem likely to have yielded more than $239,000.

Recent news has included civil forfeiture as a possible detriment. In the physician dispensing paradigm, WorkCompCentral reported in December that a doctor might lose thirteen cars including Ferraris, Lamboghinis, Mercecedes and an Aston Martin. 

The Washington translator was allowed to enter a "diversion program." These are usually for relatively minor crimes and for first-time offenders. She will spend a year in the program, pay court costs and program costs ($150 monthly) and "obey the law." If she does so for a year, the charges will be dropped. 

So the question is how "the system" will deal with these individuals. The Washington translator has conceded the charges are true. Will the criminal system determine the Buffalo doctor and the California translators are guilty? Will they have to pay the money back? Will the translators have assets like Ferraris to pay those moneys back? After all, it's not how much you make it's how much you keep. If they have spent the $24 million, what are the odds that they can ever figure out a legal way to make the cash to repay that amount?

Will the doctor and translators spend time in jail? If so, will these examples deter others?

Are these examples indicative of widespread issues with blatant fraud? Is it a coincidence that these cases, involving impossible billings, are coming to light recently? With these blatant examples in the news, how common are more subtle varieties of fraud? How much of the billions of dollars spent in this system is wasted on fraud? 

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