Thread: 4 charged with $17 million workers comp fraud

Published: June 13, 2011
Updated: 5:20 p.m.

4 charged with $17 million workers comp fraud

BY VIK JOLLY
THE ORANGE COUNTY REGISTER

SANTA ANA – Orange County District Attorney Tony Rackauckas and California Insurance Commissioner Dave Jones on Monday revealed details of what they said was a $17-million workers' compensation-insurance overbilling scheme run from Buena Park medical offices involving two doctors, an administrator and a bill collector.

The four, including one doctor from Newport Beach accused of being the mastermind, were quietly indicted on May 11; grand jury transcripts in the case were unsealed Monday. The 181 pages of the 884-count indictment were spread out on the floor at the District Attorney's Office as officials discussed the case.

According to prosecutors, charged in the scheme were:

•Dr. Sim Carlisle Hoffman, 59, of Newport Beach, a radiologist and owner of Advanced Professional Imaging, Advanced Management Services, and Better Sleeping Medical Center in Buena Park, faces 883 felony counts of insurance fraud, and one count of aiding and abetting the unauthorized practice of medicine. If convicted, he faces two to 892 years in state prison.

•Beverly Jane Mitchell, 60, of Westlake Village, the administrator in charge of insurance billing for all of Hoffman's businesses, faces the same charges and sentence as Hoffman.

•Dr. Thomas Michael Heric, 74, of Malibu, a neurologist who worked for Hoffman at the medical center, faces 296 counts of insurance fraud and one felony count of aiding and abetting the unauthorized practice of medicine. If convicted, he faces two to 315 years in state prison.

•Louis Umberto Santillan, 44, of Chino Hills, who worked for Hoffman in billing collections at Advanced Professional Imaging, a nerve-testing center, is charged with 141 felony counts of insurance fraud and faces two to 150 years in state prison if convicted.

All four defendants are out on bail.

Among the accusations:

•Hoffman is charged for billing for epilepsy and seizure testing on 1,247 patients without ever conducting these tests on a single patient, Rackauckas said.

•Authorities said that insurance companies were over-billed for performing a painful procedure 20 times when in fact a different, non-invasive test had been done just once.

"These patients were used as pawns in Hoffman's piggy bank," Rackauckas said. "The volume of this scheme leads to one reasonable conclusion – not accidental, but intentional."

Contact the writer: 714-834-3773 or vjolly@ocregister.com

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insurance companies were over-billed

And they didn't notice until they paid out $17 million?

Dr. Sim Carlisle Hoffman Fought Insurer in Court Before Being Slapped with 833 Fraud Counts for Being Alleged "Medical Mill Mastermind" By Matt Coker, Mon., Jun. 13 2011 at 3:28 PM

You won't find Orange County District Attorney Tony Rackauckas, a staunch conservative, on the same side of many political debates with California Insurance Commissioner Dave Jones, a flaming liberal.

But there the two were in the OCDA law library in downtown Santa Ana this morning, standing side-by-side to explain their joint case against a Newport Beach radiologist and three of his workers accused of pulling off a $17 million workers' compensation insurance over-billing scheme.

Grand jury transcripts unsealed this morning show that indictments were served May 11 on:


•Dr. Sim Carlisle Hoffman, a 59-year-old Newport Beach radiologist and owner of Advanced Professional Imaging (API), Advanced Management Services (AMS), and Better Sleeping Medical Center (BSMC) in Buena Park. He is charged with 592 felony counts of insurance fraud for BSMC, 291 felony counts of insurance fraud for API, and one felony count of aiding and abetting the unauthorized practice of medicine. If convicted, he faces a sentence ranging from two years up to 892 years and eight months in state prison. Hoffman is out of custody on $1.5 million bail. In 2001, Hoffman was disciplined by the Medical Board of California (Board) for excessive billing and subjecting a patient to radiology procedures that were not medically necessary.


•Beverly Jane Mitchell, 60, of Westlake Village and the administrator in charge of insurance billing for all of Hoffman's businesses. She faces the same charges and maximum sentence as Hoffman. Mitchell is out of custody on $250,000 bail.


•Dr. Thomas Michael Heric, a 74-year-old Malibu neurologist who worked for Hoffman at BSMC. He is charged with 296 counts of insurance fraud and one felony count of aiding and abetting the unauthorized practice of medicine. If convicted, he faces a sentence ranging from two years up to 315 years and eight months in state prison. Heric is out of custody on $500,000 bail. His medical license was suspended by the Board for 60 days as a result of a 2008 felony federal Medicare and Medi-Cal fraud conviction.


•Louis Umberto Santillan, 44, of Chino Hills and a billing collections worker for API. He is charged with 141 felony counts of insurance fraud and faces a sentence ranging from two years up to 150 years in state prison if convicted. Santillan is out of custody on $250,000 bail. Santillan has no college degree or certification.


Dr. Sim Hoffman?
​The four are scheduled to be arraigned June 22 in Santa Ana. A condition of Hoffman and Heric's bail is that they face the California Medical Board for license revocation proceedings.

One part of the alleged fraud involves an intricate medical procedure only two physicians in the state are licensed to perform, and neither of them work in Hoffman's facility. And yet, the state worker's comp insurer was billed by Hoffman's office for the painful procedure being performed on mostly Spanish-speaking patients, some as many as 20 times each.

That portion of the alleged fraud alone accounts for $9 million in over-billings. Authorities characterize 1,247 patient files as being "cookie cutter" and all signed by Heric.

Ironically, federal Judge David O. Carter had Hoffman's lawyers in his Santa Ana courtroom as soon as this past February. In Sim Hoffman, et al v. Zenith Insurance Company, the doctor alleged that his insurer violated the U.S. Racketeer Influenced and Corrupt Organizations Act (or RICO) by failing to pay off on some claims the carrier suspected were fraudulent. Carter ruled in favor of Zenith.

What follows are Rackauckas' remarks from today which, more than anything, explain the alleged scam. That's followed by the OCDA statement on the indictments--in English and Spanish.


June 13, 2011

Remarks by District Attorney Tony Rackauckas
Hoffman et al. indictment
June 13, 2011

Thank you for coming.

We are honored to have with us Insurance Commissioner Dave Jones. We are also joined in the audience by representatives from a number of insurance companies. Thank you for being here. On May 11, 2011, the grand jury returned a 181-page, 884-count indictment against doctors Sim Hoffman and Thomas Heric, medical center administrator Beverly Mitchell, and medical bill collector Louis Santillan.

Today is the first day the transcripts from those grand jury proceedings are available to the public. This case is a massive workers' compensation insurance fraud scheme involving over $17 million in overbilling for unnecessary or never-performed procedures.

The mastermind of this medical mill is Dr. Sim Hoffman. Hoffman is a radiologist who owns the sleep and nerve testing centers. He is charged for using patients as props in order bilk the system by over-billing the insurance companies. Dr. Hoffman was disciplined in 2001 by the Medical Board of California for similar unethical medical practices.

Neurologist Thomas Heric was brought in by Hoffman to the sleep center to "study" the patients and write reports on their status. Heric's so-called "studying" of patients involved using a made-up formula, entirely of his own creation, that is not recognized in any medical community. Every single report written by Heric? Cookie cutter reports on 1,247 patient files. Every patient? Diagnosed with a "disability," yet not one of those patients every received treatment.

In 2008, Heric's license was suspended for 60 days in 2008 for a felony federal Medicare and medi-cal fraud conviction. After Hoffman was disciplined in 2001, administrator Beverly Mitchell was brought in to act as Hoffman's right hand. Instead of cleaning up his act, she helped him expand his businesses and is charged for personally processing and submitting the fraudulent billings.

Louis Santillan was hired as a bill payment collector. He has no college degree and no certification. He is charged with knowing that Hoffman was running a sham business and collecting $800,000 in commission from fraudulent obtained money over two years.

This particular scheme was two-fold. First - Hoffman's sleep center, which operated under the pretense of diagnosing and treating patients with sleep disorders. To streamline the case, we sought an indictment on acts occurring for only a one-year period from 2007 to 2008. Hoffman is charged for billing for epilepsy and seizure testing on 1,247 patients without ever conducting these tests on a single patient.

During this time period, not a single patient ever received any treatment from the defendants for the supposed "disorders" Hoffman and Heric diagnosed. For this part of the mill involving processing 1,247 patients, Hoffman is accused of billing exactly $6,728 to the insurance company. This scheme resulted in over $8.4 million in fraudulent billings.

Second - Hoffman's nerve testing center, Advanced Professional Imaging. Patients were referred to him for "testing" as part of a worker's compensation claim. Hoffman would perform an EMG test on them, which should be billed at approximately $35 per test. Instead, Hoffman and Mitchell are charged with billing insurance companies for Single Fiber EMGs, which can be billed at $330 per procedure.

To give you some perspective, an EMG is a non-invasive, out-patient procedure. A Single Fiber EMG on the other hand is an invasive, painful procedure, often needing hospitalization to prevent bleeding and infection. Single Fiber EMGs take an hour to perform and involve sticking a giant needle into a single nerve. The needle tests for electricity conduction. Only two doctors in California are qualified to perform this test because it is so complex and requires specialized training. Hoffman is not one of those two doctors. And Hoffman didn't just bill for one Single Fiber EMG per patient. According to his bills, the patients went through this painful procedure over 20 times each.

This scheme resulted in over $9 million in fraudulent billing. Most of the patients were blue collar workers and the majority was Spanish-speaking.
Let me talk to you about 56-year-old Jane Doe. After 30 years with the same company, Jane Doe hurt her wrist and ankle by tripping over some boxes at work. Through the referral of an attorney, Jane Doe was sent to Hoffman's mill. On the conveyer belt, she underwent a sleep study, MRI, and nerve testing. Jane Doe was never told the results of her diagnostic tests. Months later, she was informed by her attorney that her claim had been denied by the insurance company. Jane Doe, shut out of her own case, was paid $5,900 cash, and told she could seek care in Tijuana. She never received any treatment for her injuries.

Hoffman, on the other hand, is still to this day aggressively pursuing payment of Jane Doe's fraudulent medical bills in the form of liens amounting to over $15,000. Now multiply Jane Doe's case by over 1,200 patients. These patients were used as pawns in Hoffman's piggy bank.

The volume of this scheme leads to one reasonable conclusion - not accidental, but intentional. Hoffman, Heric, Mitchell, and Santillan created a $17 million medical mill at the expense of over 1,200 patients and the workers' compensation insurance system. In Hoffman's analysis assembly line, patient out, profit in. It is no secret that these types of fraud are resulting in higher insurance rates and hemorrhaging California businesses.

We need to end these types of medical fraud mills - STAT. Let's end unethical doctors, unscrupulous dealings, and patients being treated like walking ATMs. We hope before people engage in these types of schemes, they ask themselves if this is worth 800 years in prison?

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June 13, 2011

RADIOLOGIST, NEUROLOGIST, AND TWO CO-DEFENDANTS INDICTED IN $17 MILLION WORKERS' COMPENSATION INSURANCE OVERBILLING SCHEME
*Grand jury transcripts revealed for the first time

SANTA ANA - The Orange County District Attorney's Office (OCDA) and California Department of Insurance (CDI) announced today the facts surrounding the indictment of a radiologist, a neurologist, and two co-defendants for a $17 million workers' compensation insurance overbilling scheme. The indictments against the four defendants were issued May 11, 2011, and the grand jury transcripts were unsealed today, June 13, 2011.

"We need to end these types of medical fraud mills - STAT. Let's end unethical doctors, unscrupulous dealings, and patients being treated like walking ATMs," stated District Attorney Tony Rackauckas. "We hope before people engage in these types of schemes, they ask themselves if this is worth 800 years in prison?"

"The magnitude of the fraud committed by these co-conspirators is reprehensible," said Insurance Commissioner Dave Jones. "When medical providers conspire to defraud the California workers' compensation insurance system, everybody loses, including the injured workers and the businesses that employ them."

This case was investigated by CDI and the OCDA. Deputy District Attorney Shaddi Kamiabipour of the Workers' Compensation Fraud Unit is prosecuting this case.

Defendants
Dr. Sim Carlisle Hoffman, 59, Newport Beach, is a radiologist and owner of Advanced Professional Imaging (API), Advanced Management Services (AMS), and Better Sleeping Medical Center (BSMC) in Buena Park. He is charged with 592 felony counts of insurance fraud for BSMC, 291 felony counts of insurance fraud for API, and one felony count of aiding and abetting the unauthorized practice of medicine. If convicted, he faces a sentence ranging from two years up to 892 years and eight months in state prison. Hoffman is out of custody on $1.5 million bail. In 2001, Hoffman was disciplined by the Medical Board of California (Board) for excessive billing and subjecting a patient to radiology procedures that were not medically necessary.

Beverly Jane Mitchell, 60, Westlake Village, is the administrator in charge of insurance billing for all of Hoffman's businesses. She faces the same charges and maximum sentence as Hoffman. Mitchell is out of custody on $250,000 bail.

Dr. Thomas Michael Heric, 74, Malibu, is a neurologist who worked for Hoffman at BSMC. He is charged with 296 counts of insurance fraud and one felony count of aiding and abetting the unauthorized practice of medicine. If convicted, he faces a sentence ranging from two years up to 315 years and eight months in state prison. Heric is out of custody on $500,000 bail. His medical license was suspended by the Board for 60 days as a result of a 2008 felony federal Medicare and Medi-Cal fraud conviction.

Louis Umberto Santillan, 44, Chino Hills, worked for Hoffman in billing collections for API. He is charged with 141 felony counts of insurance fraud and faces a sentence ranging from two years up to 150 years in state prison if convicted. Santillan is out of custody on $250,000 bail. Santillan has no college degree or certification.

Prior to posting bail, all four defendants were required by the court to prove their bail money was from a legal and legitimate source. All four defendants are scheduled for continued arraignment June 22, 2011, at 8:30 a.m. in Department C-5, Central Justice Center, Santa Ana. Hearing on the revocation of Hoffman and Heric's medical licenses as a condition of bail will also be heard at that time.

Investigation
In January 2008, two BSMC employees filed a complaint with the California Department of Health Services regarding unsanitary conditions and lack of proper patient care at the facility. This complaint was forwarded to Don Marshall, Vice President of the National Anti-Fraud Program for Zenith Insurance Company (Zenith).

Based on this complaint, Zenith began a fraud investigation into BSMC and API and contacted CDI in July 2008. Zenith forwarded evidence that BSMC was not conducting an appropriate medical business and was overbilling for procedures that had no medical value or necessity.

CDI began investigating this case in July 2008 and turned over the case to the OCDA in June 2010. Following an extensive, lengthy joint investigation, the OCDA presented the case to the Orange County Grand Jury in May 2011. All four defendants were indicted May 11, 2011.

Fault in the Workers' Compensation Insurance System
California employers are required by law to maintain workers' compensation insurance for employees to provide medical services and lost wage compensation in the event of an injury sustained at work. Unlike other medical industries, doctors and insurance companies are not required by law to communicate with the workers' compensation insurance recipient/injured worker regarding what medical procedures are being claimed for the purpose of billing. Consequently, there is no system in place to verify which services were provided during a medical appointment.

As a result, unscrupulous medical providers are able to exploit the workers' compensation system and injured worker by subjecting the injured worker to unnecessary medical diagnostic tests in order to generate higher insurance bills. These unethical medical providers are also able to bill the insurance companies for services never rendered.

Profile of Injured Employees Targeted in Scheme
Employees injured on the job are entitled to file workers' compensation claims to have their medical treatment covered by their employer's insurance. In some cases, the injured workers hire attorneys when they feel the insurance company is not adequately handling their claim. These attorneys are responsible for communicating with the insurance company on behalf of their client and often refer the injured worker to chiropractors for treatment. The chiropractors frequently refer the injured workers to other medical providers, often unnecessarily, for diagnostic studies including sleep centers and nerve testing.

In this case, the injured employees were primarily blue collar workers in industries such as manufacturing, construction, or other fields involving manual labor. The majority are Hispanic and many are Spanish-speaking. All of these workers in this case were referred by chiropractors or attorneys to API or BSMC.

In order to streamline the case, the OCDA chose to limit the charges to 600 patients and select time periods. In all of these cases (below), the injuries to the worker could have been treated and fully resolved for under $5,000. The defendants are accused of instead fraudulently billing over $15,000 per patient.

API Overbilling Scheme
Hoffman is accused of opening API as a facility to perform Magnetic Resonance Imaging. In order to generate extra billing, he is accused of expanding to perform nerve testing called Electromyography (EMG), in which muscle cells are analyzed for neurological activity. This is a non-invasive, out-patient procedure that should be billed at approximately $35 per test.

Single Fiber EMG is an invasive, painful procedure that often requires hospitalization and can result in bleeding and infections if not performed properly. This test takes an hour to perform and involves sticking a massive needle into a single nerve to detect damage based on electricity conduction. This test is significantly more complex and costly that can be billed at $330 per procedure. Most neurologists are not qualified to perform this test based on the intense specialization and training required. Only two doctors in California are qualified.

Between June 2007 and March 2009, Hoffman is accused of conducting an EMG test on patients and overstating the nature of the test. Instead of billing for the performed EMG, he is accused of fraudulently billing insurance companies for Single Fiber EMGs.

Hoffman is accused of billing for Single Fiber EMGs as many as 20 times per patient, despite this test never being rendered by Hoffman or any physician employed at API on any patient. The defendant is accused of inflating insurance billings from what should legitimately have been under $2,000 to approximately $10,000 per patient.

After receiving payment from the insurance companies on the fraudulent bills, Hoffman is accused of re-submitting the same bill as a lien against the patient's workers' compensation insurance case in order to collect additional payment.

Hoffman is accused of fraudulently billing seven insurance companies including Berkshire Hathaway Homestate Companies, California State Compensation Insurance Fund, Commercial Property and Casualty Insurance, Fireman's Fund Insurance Company, Liberty Mutual, Travelers Insurance, and Zenith.

In all, he is accused of billing insurance companies over $9 million in Single Fiber EMGs alone in the API scheme.

Sleep Center Overbilling Scheme
Hoffman is accused of opening BSMC in 2007 and failing to hire a certified technician or a qualified physician to supervise the sleep center, as required by law. A "sleep center" is a medical facility that specializes in the diagnosis and treatment of patients suffering from sleep disorders.

Between November 2007 and November 2008, Hoffman is accused of filing insurance claims for 1,247 patients. He is accused of billing for epilepsy and seizure testing for all 1,247 patients without ever conducting these tests on a single patient.

Hoffman is accused of paying Heric $100 per patient to write a report on the patient's condition (see below). Despite all of the 1,247 "reports" indicating that the patient needed medical treatment, none of the patients ever received medical treatment or care from BSMC.

In the course of the investigation it was determined that two of the patients who underwent "testing" suffered severe sleep disorders and were in dire need of medical attention. These disorders were neither diagnosed nor treated at BSMC. During the grand jury proceedings, medical experts opined that the service rendered to patients at BSMC was a "disgrace" and had "no medical value."

Hoffman is accused of operating this facility as a "medical mill" for the sole purpose of insurance billing and without providing any legitimate treatment to any of his patients. For all 1,247 patients, Hoffman is accused of billing exactly $6,728 to the insurance company.

Hoffman is accused of fraudulently billing the City of Los Angeles and 19 insurance companies including Berkshire Hathaway Homestate Companies, California State Compensation Insurance Fund, Chartis division of American International Group, Commercial Property and Casualty Insurance, Crum & Forster Holdings Corporation, Employers Insurance, FirstComp Insurance, Fireman's Fund Insurance Company, The Hartford Financial Services Group, Liberty Mutual, Matrix Direct Insurance Services, Republic Indemnity Company of America, SeaBright Insurance Company, Sentry Insurance, Specialty Risk Services, Travelers Insurance, Southern California Risk Management Associates (now York Insurance Services Group - California), Zenith, and Zurich Financial Services Group.

By November 2008, he is accused of billing insurance companies over $8.4 million in the BSMC scheme.

Role of Hoffman's Co-defendants
As a result of Hoffman's 2001 Board discipline, he is accused of hiring Mitchell to manage all billing and administration for his businesses through AMS as part of his rehabilitation. Mitchell is accused of knowing that Hoffman had been disciplined by the Board and helping him to continue his fraudulent scheme. She is accused of directly supervising all fraudulent billing from API and BSMC to the insurance companies knowing that the procedures were overstated or never performed. Mitchell is also accused of "unbundling," or breaking up procedures and billing them separately instead of together with the intention of fraudulently collecting higher payments.

Heric is a neurologist and is associated with Hoffman from several years ago. He was convicted in 2008 of felony federal fraud, for which his medical license was suspended by the Board for 60 days. In exchange for $100 per patient, Heric is accused of writing "reports" on all 1,247 sleep center patients evaluating the data generated during their sleep study. He is accused of finding in his "reports" that all 1,247 patients were "disabled" by using a formula entirely of his own invention not recognized in the medical community to reach his conclusions. None of these patients ever received any treatment for their supposed disability. All of his reports on the 1,247 patients are almost identical. Heric's reports were used to lend legitimacy to the fraudulent insurance bills for each patient.

Santillan is accused of supervising the collections department for Hoffman's businesses and collecting payment on the medical bills knowing they were inflated and fraudulent. He is accused of receiving approximately $800,000 in commission on all of the fraudulent monies collected for Hoffman between 2006 and 2007.

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