Stavis: NY too weak on Medicaid fraud

Paul F. Stavis retired in 2009 with 28 years of state service in the Medicaid system. He was counsel for the Commission on Quality of Care, counsel for Medicaid fraud for the state Department of Health, and a senior attorney for the Medicaid inspector general.

Gov. Andrew M. Cuomo has had preliminary success with his Medicaid Redesign Team in persuading providers and patient advocacy groups to agree to more than $2 billion in cuts. But the total absence of any redesign of the state's incredibly inept anti-fraud capabilities is inexplicable.

Anti-fraud efforts in New York have not been taken seriously by the state's executive agencies for more than three decades, even though cutting theft, diversion and fiscal abuse would cut costs while leaving services unaffected. Indeed, it would also improve patient care and treatment by eliminating the bogus, unnecessary and incompetent services that always accompany fraud.

The FBI and other experts have long contended that at least 10 percent to 17 percent of Medicaid money nationwide is utterly wasted in fiscal gaming. When you apply that estimate to New York State, you're talking about a potential annual recovery of $5 billion to $10 billion.

The victims of such fraud include Medicaid patients, honest providers and, of course, New York State taxpayers; New York is one of three states where counties, through their property taxes, pay approximately 25 percent of the program's costs, on top of their state income tax, which pays the other 25 percent of the state share.

Yet, the state's oversight agencies have refused to confront fraud, even when it is obvious. As counsel for the state's Department of Health, I collected substantial evidence of former New York State Senate Majority Leader Pedro Espada's fraudulent activities in 2005, five years before his current federal indictment, and urged -- to no avail -- a full audit of his activities. Two years later, I reported the same facts to the state Office of the Medicaid Inspector General, which also did nothing. I had this experience with other potential fraud cases as well.

Meanwhile, the legislature has for decades refused to plug a major legal loophole that makes much of this fraud and fiscal abuse possible: New York does not criminalize the misuse of Medicaid money -- for instance, for purposes of personal enrichment -- after it has been legitimately claimed by a provider.

That's illegal under federal law, as is seen in the recent federal indictment of Espada and his son Pedro G. Espada. The Espadas, executives of the nonprofit Medicaid provider Soundview Health Network, allegedly diverted at least half a million dollars of Medicaid funds for their own or their family's personal enrichment. The state, lacking a Medicaid misappropriation law, couldn't prosecute them -- but the federal government could.

Such self-indulgent use of nonprofit corporate funds for the luxurious living of executives is not uncommon, given the lack of any serious oversight, regulation or other deterrent by state agencies. Rather, the state will frequently continue to subsidize suspected perpetrators. The Department of Health granted Soundview almost $1 million in subsidies for its operation, even after seeing evidence of the probability of ongoing fraud. But when the federal government found out about it, officials ordered the payments stopped and the money paid the Espadas to be returned. (It hasn't been yet.)

The Espada case is but one example of Medicaid impropriety. There are countless other outrageous ways to divert millions of dollars in Medicaid funds and shocking uses of such diverted funds.

In fiscal audits, we saw some providers make "donations" to charities in a foreign country; give almost $2 million a year to a house of worship, and fund religious schools both in a foreign country and in New York City.

Medicaid funds are also used to pay excessively high salaries to corporation executives, somewhat like recent controversies over Wall Street compensation. But Wall Street executives are paid with private money, whereas most Medicaid nonprofit providers are wholly or largely funded with public money. For example, the Young Adult Institute, the state's largest residential Medicaid service provider, paid excessive corporate salaries and perquisites -- $4 million annually combined-- to its two top executives, Joel and Philip Levy. While this isn't fraud, it should be considered fiscal abuse -- especially since such nonprofits are chartered to serve the poor. (It's worth noting that in January, Attorney General Eric Schneiderman announced an $18 million settlement with YAI over charges of actual Medicaid fraud.)

A recent study by the state's Commission on Quality of Care showed that high six- and even seven-figure salaries are not unusual in Medicaid nonprofits. State executive agencies do not regulate, restrict or oversee the compensation packages of not-for-profit officers of Medicaid facilities, even though New York's Not-for-Profit-Corporation Law mandates that salaries must be "reasonable." The State Legislature or the Department of Health should determine what a "reasonable" range is, given the size, number of patients, or budget of Medicaid providers.

In perhaps the most pernicious cases, Medicaid funds also find their way to legislators through contributions from health provider organizations -- that is to say, lobbyists -- as well as in significant attorney fees for both litigation and lobbying. Not surprisingly, the legislature has seemed loath to make reforms. As counsel for three different agencies over 20 years, I drafted legislation to close the Medicaid misappropriation loophole, but the legislature has refused to pass it. Gov. Cuomo should make this a priority in his anti-fraud efforts. New York's inability to criminally prosecute the Espadas -- having to call in the federal government to do it -- is an embarrassment.

In 1976, in its five-volume report, the Moreland Act Commission on hospitals and nursing homes called the state Department of Health a "dramatic failure" in regulating and showing leadership in addressing the Medicaid Program and fraud within it. Sadly and incredibly, nothing has changed in the past 35 years, except things have actually gotten worse.

Last month's report of the State Senate's Independent Democratic Conference noted the Office of the Medicaid Inspector General was created in 2006 expressly to fight fraud, yet its chief auditor, John Foley, testified under oath to the Senate Investigations Committee that: "I am not focused on fraud. Our office is not charged with going out to audit fraud." This stunning misreading of both the statute and core mission is not only a damning admission, but also reflects the impotence of the state in fighting fraud and establishing a strong enough deterrent. The State Senate Committee on Investigations concluded that: the office "has failed to fulfill virtually every aspect of its mission in the past five years."

The good news is that Gov. Cuomo can change the state's direction on Medicaid fraud with the stroke of his pen: He should issue an executive order stating that there will be zero tolerance for Medicaid fraud or fiscal abuse; that any credible evidence of such activities must be pursued by audit or investigation and reported to his office and that of the state attorney general; and, that no deals will be approved that reduce the recovery of what was stolen or diverted from the Medicaid program. And he should immediately propose legislation to close the loophole that now legally allows Medicaid money to be diverted and misapplied.

By its lax efforts, the biggest perpetrator of Medicaid fraud and abuse in New York State is New York State. The state must mount an aggressive, effective campaign to combat the culture of self-enrichment that has taken hold in far too many provider agencies, perverting their mission of serving the poor and disabled and robbing taxpayers of their hard-earned money.