Los Angeles hospice fraud reaches billions as Medicare providers scam federal system with fake companies

Ghost patients, sham companies, offshore owners and corrupt doctors. Auditors and prosecutors say hospice fraud in Los Angeles is off the charts, with providers scamming billions from taxpayers for patients that don't exist, poor care and no care.

"Hospice is crazy here," says Dr. Mehmet Oz, head of the Centers for Medicare and Medicaid Services. 

"You've got hospice that's grown seven-fold in the last five years. They represent about three and a half billion dollars of fraud, we believe, just in LA County."

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Backing him up was California Attorney General Rob Bonta, who said last year, "Hospice fraud has become an epidemic in California, specifically in the greater Los Angeles area."

Bonta says fraudulent providers submit false claims for unnecessary services, and recruiters get kickbacks for signing up seniors, whether they're sick or not. Hospices also enroll patients who don't even know they've been scammed until they seek out medical care.

"As a hospice owner, I could sign up everybody in this room for hospice," an LA hospice owner told us. 

A whistleblower told us there's no limit on the number of hospices an individual can own, and applicants can live abroad. 

"It's all just paperwork. I could fill [an application] out in Kazakhstan if I want, and get a hospice license."

He explained how the scam works:

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"A Medicare MIB number is more lucrative than a credit card," says Sheila Clark, president of the California Hospice and Palliative Care Association, referring to the 11 character code each Medicare recipient has that allows federal reimbursement. "They're human traffickers. They're trafficking beneficiaries in and out of hospices, home health."

LA County alone has 1,923 hospice providers. That's more than 36 states combined and 33 times more than either Florida's 58 cents or New York's 40, even though LA has hundreds of thousands of fewer seniors.

"Eighteen percent of the whole country's home health care billing is coming out of Los Angeles County," says Oz. "How is that possible?"

The epicenter of LA's fraud happens in the San Fernando Valley, specifically the Van Nuys neighborhood where state auditors found 210 hospice agencies within a square mile. One commercial building — without any signage indicating hospice services were located inside — received state licenses for 112 hospices. Fox News went to those addresses and did not see a single person. 

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At other locations in the valley, hospices operated inside strip malls alongside burrito stands, nail salons, dance studios, tax preparers and even an auto parts store and wrecking yard.

"These are Russian, Armenian gangs, mafia that are leading a lot of these efforts, we believe, have been able to corrupt, and work with doctors who are willing to lie," says Oz.

Oz was referring to the dozens of defendants of Armenian American descent prosecuted for Medicare fraud at both the federal and state level.

Investigators first uncovered the international organized crime connection about 10 years ago when federal prosecutors charged 73 members and associates throughout the U.S. and Armenia of stealing $100 million from Medicare by using a series of phantom clinics to bill for thousands of unnecessary medical treatments. 

Known as the Mirzoyan-Terdjanian crime ring, defendants received one- to three-year sentences for racketeering, health care fraud and money laundering. Since then, many other Armenian American hospice owners have been prosecuted in California.

California imposed a moratorium on new hospice licenses until it can clean up the industry. Problem is, hundreds of fraudulent providers remain in business, says Clark. And when seniors actually need care, they can't get it because the hospice "owns" their Medicare numbers, prohibiting legitimate doctors and hospitals from providing care.

"They call the hospice, there's no working phone number. There's nobody there. I've had Benny's bang on the door. There is nobody there. What do they do? They say, 'I didn't enroll in this hospice.' They need the care but can't get it," says Clark. 

"We need to listen to these people when they say, 'I've been scammed.'"