Julio Hernandez says he felt "healthy as a horse" before he agreed to use his body as an instrument for insurance fraud. But during a five-month stretch last year, the 36-year-old Phoenix resident endured the following medical procedures:
Removal of his sweat glands.
Rent a Patient
A nose operation.
Hernandez admits he needed none of those procedures. But, he says, a work associate persuaded him to travel to Southern California for the operations, again and again.
The associate, Qui Pham, is a shipping and receiving supervisor at Onyx Environmental Services, a huge hazardous-waste company with a recycling plant in west Phoenix. Pham moonlights as a health-care coyote -- a ubiquitous middleman for Southern California surgical clinics that are performing unnecessary, sometimes risky medical procedures on "rent-a-patients" such as Hernandez.
Almost all of those patients are immigrants from nations that include Cuba, Mexico, Vietnam and Bosnia.
In return for using their bodies as mini-cottage industries, they are getting paid cash in under-the-table payments. Hernandez and five other rent-a-patients tell New Times that Qui Pham gives them $800 in $100 bills after they undergo a medical procedure at one of the clinics.
Pham says he has no knowledge of this or any other health-care insurance scam.
On top of that, several patients have been cashing lucrative insurance-claim checks -- checks that they'd promised to turn over to the clinics. The sums of money they're collecting -- some would call it stealing -- once seemed unattainable to these lower-income refugees.
"They cut on me here, there, everywhere, and nothing was wrong with me," says Hernandez, who admits to cashing Blue Cross/Blue Shield insurance checks totaling about $103,000 since last October.
"They just messed with my body, and I let them. They pay you to be their little animal. I decided to [cash] the checks when they came to me."
And what's in it for the others behind this ongoing scheme -- Pham and his cohorts, the surgical centers, the doctors?
Millions of dollars, according to law enforcement sources in Southern California.
To document this scheme, New Times tracked down and interviewed key participants, analyzed hundreds of pages of insurance, medical and public documents, and spoke with numerous law enforcement and insurance industry fraud investigators.
Rent-a-patient schemes are commonplace to veteran health-care fraud investigators contacted for this story. Normally, they say, "patients" are paid to go to clinics solely for unnecessary diagnostic tests and cursory exams.
The insurance companies (or Medicare or Medicaid) then get billed for services and medical equipment that never actually were provided.
What's chillingly different about the California scam is that the Arizona rent-a-patients actually are having unnecessary surgical procedures performed on them. And those operations are beginning to cause physical problems for some of those patients.
In concert with the Southern California outpatient clinics (most prominently, the Unity Outpatient Surgery Center in Buena Park), Qui Pham recruits people with health-insurance plans that allow easy access to out-of-network medical care.
Six rent-a-patients tell New Times that Pham promises to pay them $800 in cash for submitting to unspecified medical procedures. If they do sign on, Pham then faxes their driver's licenses and insurance cards ahead to the clinic.
According to the six, Pham has told them he collects up to $2,000 from an unknown party in California for each person he convinces to undergo a procedure.
Pham and others working with him normally drive the patients to Orange County after work on Fridays. They stay at a motel on Pham's (or someone else's) dime, then awaken before dawn on Saturdays, and stand in line at the clinic. The six say Pham tells them what to say when they get there.
"You've got to say, I sweat too much,' or I got stomach problems,' or Nose always hurts,' something like that," says Oskar Mora, an Onyx laborer who underwent medically unnecessary surgery on his sweat glands in March. He now says he is having great physical distress since the surgery.
Once inside the clinic, the rent-a-patients say, they sign an "informed consent" form, an agreement to accept binding arbitration in case of a dispute, and a promise to turn over all insurance-claim checks sent to them instead of to the clinic.
They then meet with a doctor, usually for the first time, and undergo whatever medical procedures have been chosen for them.
Afterward, according to medical records reviewed by New Times, the clinic often releases the patients to Qui Pham -- who is listed as a "friend." Pham's cell phone number is noted on the records, which is how New Times was able to contact him for comment. In a short phone conversation, Pham continued to insist he knows nothing about the rent-a-patient scheme, but acknowledged that he's an employee at Onyx.
Heath Hildebrand, the general manager of Onyx's Phoenix facility, issued a written statement after New Times informed him about the scam.
"We will be conducting our own internal investigation," he said in part, "in hopes of gaining a better understanding of all the facts. If it appears that any wrongdoing has occurred, we will take appropriate action and cooperate with any law enforcement authorities in their investigation."
Hildebrand also noted in a phone interview that the Onyx employees involved in the scheme "are all very good workers who we have cared about as people."
The several Onyx employees who have become rent-a-patients are covered by a Blue Cross/Blue Shield PPO (preferred provider option) plan. It allows for unfettered out-of-network access to medical care, including little preauthorization from the insurer for most procedures.
The California clinics soon submit their insurance claims to Blue Cross, which serves as an "administrator" for Onyx's self-insured plan.
Records reviewed by New Times show that the claims are for thousands of dollars more per procedure on the rent-a-patients than are considered "usual and customary" under any criteria.
Blue Cross routinely has approved those insurance claims, which have totaled hundreds of thousands of dollars for the Onyx employees alone.
But the best-laid plans of those who devised this rent-a-patient scam have been going awry.
Blue Cross policies call for insurance reimbursement checks to be issued directly to the patients instead of to the out-of-network clinics and doctors. And in recent months, several Arizona rent-a-patients have been cashing those checks themselves -- more than $400,000 at last count -- instead of signing them over to the clinics as they'd promised.
For example, insurance records provided by Glendale resident Andres Sanchez show that he underwent a septoplasty at Unity last October 4. The procedure is designed to alleviate problems caused by deviated septums, and usually costs about $5,000, everything included, according to two Southern California surgeons and a health-care information Web site.
But Unity billed Blue Cross/Blue Shield $42,237 for Sanchez's operation, including $25,531 for "surgical supplies" allegedly used during the procedure -- which he insists lasted no longer than 15 minutes.
On November 7, the insurer mailed Sanchez a check for the entire amount. Sanchez says he cashed the $42,237 check himself.
"People around me have been getting rich on this," the 52-year-old Cuban immigrant says through a translator. "The check was made out to me, and it was my body. I said, Okay.'"
Two of the Southern California clinics reacted to that unexpected turn in January by suing Sanchez and 11 other Valley rent-a-patients in Orange County Superior Court. The clinics -- Unity and Premium Outpatient Surgery Center of Huntington Beach -- are claiming breach of contract, fraud and other alleged wrongdoing.
Many of the rent-a-patients have hired their own Phoenix attorney to fight the clinics' lawsuit.
Ironically, the filing of the lawsuits by the clinics provided the catalyst for this story, and a previously unpublicized glimpse into the fraudulent scheme.
The brazenness of the lawsuits filed by clinics that are engaging in massive health-care fraud is matched only by the fraud itself.
"When you took the money, you were well aware that it did not belong to you," Roy C. Dickson, an attorney for the clinic, wrote to Julio Hernandez in a January 22 letter notifying him of the lawsuit. "You cannot possibly believe that you had a right to make a profit from having a surgery performed at Unity's facility while Unity is deprived of the income for allowing you to have the surgery there."
Thomas Brennan, the director of Pittsburgh-based Highmark Blue Cross/Blue Shield's special investigations unit, bristled when informed by New Times of the lawsuits:
"So they're greedy enough to try to go that route? That just about takes the cake."
Told of the scam, Washington, D.C.-based Blue Cross/Blue Shield spokeswoman Jackie Fishman replied in a prepared statement:
"We are aware of several allegations of similar conduct made against a number of surgery centers and providers that use these facilities, some of which are located in the state of California. Several Blue Cross/Blue Shield plans have identified claims that seem to fit this billing pattern . . .
"Collectively, we are searching for ways to deal with these cleverly disguised schemes while remaining compliant with the various state and federal prompt-pay statutes that make no provision for the suspension of payment of a claim that, on its face, meets payment guidelines."
Just after dawn on Saturday, April 5, a man with a pockmarked face and an Elvis hairdo leaned against a wall inside the Unity Outpatient Surgery Center in Buena Park, California.
He spoke in a thick accent that betrayed his Vietnamese heritage to a portly Latino. The pair was among the 25 or so people already seated inside the clinic.
"No worries," cooed the Vietnamese man, who wore a black tee shirt with the inscription "Bad Bones."
"You done here quick, then go and rest. We drive back to Phoenix real early. You go to work no problem on Monday."
The Latino smiled nervously, his left leg twitching as he sat there. Another Vietnamese man seated nearby in the waiting room joked about needing a cigarette. Several rent-a-patients later identified that Vietnamese man to New Times as Qui Pham, the insurance-fraud recruiter who owns a home in Glendale.
A tired-looking man in blue scrubs and a cap stepped into the lobby and called for a woman with a Hispanic surname.
"Buenos días," he greeted her.
"Buenos días," she replied, before following him toward the surgery rooms.
In Unity's parking lot, three Enterprise rental vehicles with Arizona license plates awaited their drivers and passengers -- who had made the trek on the previous evening. The passengers included the Latino, who by now was pacing inside the clinic.
Located on Beach Boulevard, a thoroughfare that runs east from the Pacific Ocean, Unity takes up the first floor of an unremarkable two-story structure. Buena Park zoning records show Unity moved there last summer, replacing another clinic.
Papers filed with the California Secretary of State last August 29 say Unity is owned by Gordon Merrick, of Santa Monica, and Michael Chan, of Cerritos, California. Merrick is a veteran of the outpatient surgery world, most prominently as a consultant to outpatient clinics seeking accreditation and licensing.
Neither he nor Chan responded to telephone and e-mail requests for comment.
The number of outpatient surgery centers nationwide has surged from 2,425 in 1996 to 3,570 at the end of last year. The clinics accounted for 75 percent of all surgeries performed nationally in 2002, compared to just 15 percent in 1980, according to the U.S. Inspector General.
Many physicians say they prefer the clinics to hospitals because they can make more money, and faster. For various reasons -- including less red tape and fewer interruptions -- doctors can perform three times as many surgeries in outpatient settings than at hospitals.
That translates roughly into three times more income.
But an Inspector General's report last year warned that such clinics -- called "ambulatory surgical centers" -- have been operating with inadequate oversight. The report speaks of the dangers inherent in the lack of governmental supervision, both for the health of patients and because of potential health-care fraud.
Felix Navarro was one of the lucky ones. He underwent two medical procedures in Southern California late last year -- a colonoscopy and a septoplasty -- without the nagging physical troubles that other rent-a-patients have been griping about (especially those who have undergone sweat-gland surgeries and circumcisions).
A shy, unassuming 59-year-old who works at Onyx, Navarro's own odyssey from Cuba to Phoenix in the mid-1990s was remarkable. He says he and five other men escaped from Fidel Castro's Cuba by rowing a boat to Islamorada, on the southern tip of Florida.
Navarro later migrated to Phoenix -- where a son already was living -- through the graces of Catholic Social Services, and began to learn how to be an American.
Through an interpreter, Navarro says he'd known for months about "the trips to California," as he calls them. "Everything was fine with me, with my body. Qui [Pham] asked me if I wanted to go, and I went because I needed the money."
Navarro says Pham drove him and a carload of others to California each time after work on Friday afternoons. After sleeping at a motel near the Knott's Berry Farm theme park, Navarro says he and the others were taken before dawn to the Unity clinic, a short distance away.
Navarro says that one of his procedures, the septoplasty, took about 15 minutes. "They sprayed my nose, did something up there for a little bit, that was it. No big deal."
Under the terms of his insurance policy, Navarro was supposed to pay $2,500 for each of his "out-of-network" procedures. But like the other rent-a-patients interviewed by New Times, Navarro says he's never paid anything out-of-pocket for his procedures.
"Me pay them?" he asks, incredulous. "I don't think so."
After each procedure, Navarro continues, he collected his cash from Qui Pham, then returned to Phoenix on Sunday.
"Didn't miss work," Navarro says. "Like nothing happened."
During Navarro's second trip to the coast, he says, Pham told him to complain that his stomach was bothering him. That apparently was enough for a doctor working at Unity last October to immediately perform a colonoscopy. (The medical records Navarro has in his possession are incomplete, and don't reveal the physician's name.)
While uncomfortable, the procedure usually is uneventful and relatively inexpensive. Simply put, doctors examine the inside of the colon using a flexible tube with a tiny video camera attached to the end of it.
Actually, preparation is said to be the worst part of colonoscopy. Doctors restrict their patients to a clear liquid diet before the procedure, and then complete the cleansing of the colon three or four hours before the procedure with an enema. The better the cleansing, the more accurate the test, medical experts say.
But few of the rent-a-patients interviewed by New Times say they had a pre-test cleansing. To the contrary, says another patient, Jhoan Alvarez, "I ate normal, a burger or something, after we got to California. Nothing much, but it was food."
The cost of a colonoscopy has dropped dramatically in recent years; typically it now ranges from $500 to $1,000. But Unity billed Blue Cross $41,278 for Navarro's procedure, a ridiculously padded sum.
One month later, on November 7, Navarro received a check for that exact amount in the mail. He, too, cashed the check, even though he knew he was supposed to turn it over to Qui Pham.
"Qui asked me every day for the check at work, and then [Unity] started calling me," Navarro says. "The lady from there said they'd give me a $5,000 bonus if I gave them the check, that I would have a good Christmas. I just put them off."
California's prompt-pay laws appear to be in part accountable for the quick distribution of Blue Cross' insurance-claim checks to the Arizona rent-a-patients.
Those laws force insurance companies to reimburse approved claims within 30 working days to PPO policyholders, and 45 days to those under HMOs. Enacted in 47 states during the late 1990s, the new laws were intended to force insurers to pay providers in a more timely fashion.
But many in the insurance industry say the prompt-pay legislation has given health-care scam artists an unintentional boost.
California doesn't allow insurers extra time to investigate suspected fraudulent claims. So, even if Blue Cross had suspected that this rent-a-patient scheme was afoot in Orange County, the company may have paid up anyway.
But the challenges presented by the prompt-pay laws don't explain why exorbitant, frequent claims from the Southern California clinics failed to raise red flags inside Blue Cross.
For instance, what plausible reason would any Arizona patient have to keep returning to California outpatient clinics for procedures that, legitimate or not, could have been done locally?
And why wasn't someone at Blue Cross/Blue Shield at least curious about a patient such as Julio Hernandez, who had a half-dozen medical procedures performed on him in California last year?
Blue Cross/Blue Shield's Jackie Fishman says she doesn't have the answer to either of those two questions. Instead, she points to the 600-plus suspected fraud cases that the association did refer last year to law enforcement.
Statistics provided by the insurer suggest that about half of those referrals led to criminal indictments, with about 180 convictions. It's uncertain, however, what percentage of those cases stemmed from outpatient surgery clinics.
"I'm not excusing or defending anyone for paying out excessive claims, but as a practical matter, it does happen," says Bill Mahon, president of the National Health Care Anti-Fraud Association, a nonprofit consortium of law enforcement and private health insurers based in Washington, D.C.
"Each member of our association processes literally millions of claims every year -- millions. One of the inherent flaws in all of this is that the health-care insurance system is not first and foremost a fraud-detection system, but a benefits-distribution system."
Of the California rent-a-patient scam, Mahon says, "If I were one of those Arizona people, I think I'd be less afraid that the insurance company is going to catch you than that the bad guys will send someone over from L.A. and do a number on you for cashing the check."
Charles Merten, an attorney from Portland, Oregon, notes that "improperly paid claims really don't matter to Blue Cross because they're just so big."
"If they mistakenly pay a bunch of money in claims, somebody else takes the hit, not them. They just go running to a Department of Insurance and get their rates hiked. They operate sort of like the government, with mountains of computer programs, amazing amounts of money, but with sloppy gatekeeping and lack of accountability."
In 2001, Merten filed a lawsuit in Multnomah County Circuit Court on behalf of a man who had been a fraud investigator for Regence Blue Cross/Blue Shield of Oregon. The still-pending suit contends the man was fired after he informed supervisors that the company was grossly overpaying physicians' claims, which allegedly resulted in higher premiums.
Blue Cross has rejected the allegations as those of a disgruntled ex-employee.
Oskar Mora lifts up his shirt and displays two dime-size circular scars several inches apart under each armpit.
"That's where they cut out my sweat glands," says Mora, another Cuban refugee who's in his early 30s. "They really screw me up with this."
Mora -- who's been working at Onyx as a laborer for about six months -- says he feels a severe loss of strength in his hands, a well-documented side effect of the sweating surgery.
Since his March 8 surgery at Unity, Mora also says he's been sweating profusely in other parts of his body, including his legs and torso.
"Qui told me out there to say I had problems breathing, so I thought I was gonna get the nose [septoplasty]," says Mora, the soft-spoken father of a 3-year-old son. "Then he changed it before I went in. Now, I say, I sweating too much. Please help me.'"
Most insurance companies cover sweat-gland surgeries to help with a disorder called hyperhidrosis, or excessive sweating. Many doctors perform a procedure in which they clip or remove part of the nerve near the top of the spine that controls palm sweat.
Side effects of the surgery often include so-called "compensatory sweating," which is precisely what Mora and three other Arizona rent-a-patients describe in separate interviews with New Times.
Mora hasn't received his requested medical records from Unity yet, so it's uncertain which doctor performed his sweat-gland surgery.
Dr. Curtis Dickman of Phoenix's Southwest Centre for Hyperhidrosis, and the Barrow Neurological Institute says he's startled and disgusted at the scam involving the Arizona rent-a-patients.
"We have excellent success with our treatment of hyperhidrosis, and consider it a viable and important surgery," says Dickman, a highly respected surgeon. "But we generally don't go that route unless a person first has tried non-surgical treatments, and unless we've spent a lot of time going over the procedure with the patient.
"To do otherwise not only is unethical, immoral and a serious case of medical malpractice. The people involved in doing this to these patients ought to be thrown in jail."
That raises the issue of "informed consent."
A "Patient's Guide" issued by the state of California says informed consent "is more than merely your agreement to a particular treatment or procedure. [It] is your agreement to a proposed course of treatment based on receiving clear, understandable information about the treatment's potential benefits and risks. You must also be informed about all treatments available for your health condition, and the risks of receiving no treatment."
But the Arizona rent-a-patients say they had little discussion with anyone at the clinics about the procedures they were about to undergo, much less the risks.
"It was, This is what we're going to do,' and then they did it," says Sandra Padilla, a Mexico native who underwent a colonoscopy, endoscopy and then had her uterus scraped -- known as a D & C -- at two Orange County clinics last year. "Some of us don't even know English."
Blue Cross cut checks for the routine procedures totaling $76,000 to Padilla's live-in boyfriend, Julio Hernandez, the primary insured. Hernandez admits he cashed those checks.
As for his own "informed consent," Hernandez says he recalls only a brief conversation with someone at the Unity clinic before he underwent a circumcision last October.
"I ask him, What do you do?' and he says, We cut skin, but you not feel nothing.' He says it will hurt after for some days, and then all better. Then they put me to sleep."
But Hernandez and another west Phoenix man who also endured an unnecessary circumcision last year say the results were more than cosmetic.
"It doesn't feel right and it doesn't look right," says 20-year-old Jhoan Alvarez, another Cuban-born immigrant who worked at Onyx until a few months ago.
Echoes Carrie Andrews, a mother of two who lives with Alvarez, "He's my man. But after he got cut on [last October], it got infected, and it's just been a mess ever since."
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Oskar Mora said last week that he still hadn't gotten his check from Blue Cross for his sweat-gland surgery. He says Qui Pham has told him the check should be for about $60,000, about $50,000 more than an average sweat-gland surgery.
Mora admits he'll be tempted to cash the check, as many of his peers at Onyx and others have done. But he says a Phoenix attorney with whom he's been in touch has urged him not to do it.
"Please listen," Mora says. "I make a couple of hundred dollars a week. We never see $800 like Qui [Pham] promise us. I need the money. But I don't think I am, what is the word when you want too much?"
That word is greedy.