Blog Article 

 Healthcare Fraud: A $44M Case Study 

Michael Santos

Michael Santos

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Introduction

When doctors and others in the healthcare industry claim that cosmetic surgery is medically necessary, they can invite intense scrutiny from the Federal Bureau of Investigation (FBI) and the Department of Justice (DOJ). 

The case study below is a recent reminder that to the FBI and the DOJ, all manner of healthcare provider fraud is a top law enforcement priority. 

No wonder.

In 2016, for example, fraudulent healthcare provider billing, such as billing for services not medically necessary, comprised 46 % of provider fraud cases, which has continued to rise.

Discussion

Our December blog post “MOST COMMON HEALTHCARE PROVIDER FRAUD SCHEMES,” highlights healthcare provider fraud, which occurs when doctors and other medical service providers engage in false and misleading practices for personal gain. It is one of the most prevalent forms of fraud in the healthcare industry. 

See below our previous blog:

Federal and state law enforcement agencies continue to devote massive resources to crack down on healthcare provider fraud schemes. Healthcare fraud is a felony under state and federal law, and penalties include time in prison and fines.   

Healthcare provider fraud is a top law enforcement priority because it is so widespread in the US. 

As the $44 million fraud case study below shows, healthcare provider fraud often can occur on a massive scale. 

What is healthcare provider fraud?

Healthcare provider fraud occurs when dishonest providers intentionally submit or cause others to submit false or misleading information to obtain unwarranted healthcare benefits. Healthcare provider fraud is a white-collar crime involving filing dishonest healthcare claims to turn profits. 

Healthcare providers involved in fraud often rely on different types of creative and complicated schemes such as forgery, bribes, fake patients, and falsified billings. They do this to financially benefit from insurance companies and administrative vulnerabilities in public programs such as Medicare and Medicaid.

A Case Study

The DOJ recently obtained the conviction of Linda Morrow on one count of conspiracy to commit healthcare fraud. Morrow pleaded guilty, admitting that she helped her cosmetic surgeon husband run a massive fraudulent billing scheme out of The Morrow Institute (TMI) in Rancho Mirage, California. 

Morrow also pleaded guilty to contempt of court.

The scheme underlying her conviction billed unwarranted cosmetic surgeries to unsuspecting insurance companies to the tune of $44 million. Cosmetic surgeries that did not meet the standard of “medically necessary” were falsely claimed as such.

What is the standard for “medically necessary?”

Insurance companies cover medical care, items, and services that they deem “medically necessary.” For Medicare, medically necessary is “healthcare services or supplies needed to diagnose or treat an illness or injury, condition, disease, or its symptoms and that meet accepted standards of medicine.”

And the American Medical Association focuses on healthcare services that a physician or other healthcare provider, “exercising prudent clinical judgment,” would provide to a patient to prevent, evaluate, diagnose, or treat an illness, injury, disease, or its symptoms, and that: 

  • Follow generally accepted standards of medical practice (based on credible scientific evidence published in peer-reviewed literature);
  • Are clinically appropriate, in terms of type, frequency, extent, site, and duration, and considered adequate and effective for the patient’s illness, injury, or disease; and
  • Are not primarily for the convenience of the patient, physician, or another healthcare provider; and
  • Do not cost more than an alternative service or sequence of services that are at least as likely to produce equivalent therapeutic or diagnostic results as to the diagnosis or treatment of that patient’s illness, injury, or disease.

Finally, healthcare providers must keep accurate documentation in their patients’ medical files that support the reasons for performing medical procedures. Falsifying a patient’s diagnosis to justify tests, surgeries, or other unnecessary procedures, and generally over-utilizing medical services is criminal.

For a good reason, insurance companies do not always pay for whatever a healthcare provider may believe is “medically necessary.” There are standards against which to judge the decisions of healthcare providers.

That is not to say that cosmetic surgery is never medically necessary. 

Simply put, healthcare providers have to follow existing medical standards to apply for insurance when cosmetic surgery is medically necessary. 

Cosmetic surgery procedures can be medically necessary when they improve the health or function of a person’s body; the fact that they are also cosmetic is secondary. Issues such as birth defects, injuries, pain, and disease qualify people for “medically necessary” and insured cosmetic surgery.

Facts of the case

Morrow was arrested in 2019 and has been in federal custody since her arrest. 

Indeed, Morrow also pleaded guilty to one count of contempt of court for leaving the US in 2017 after a federal grand jury indicted her and her husband for the healthcare fraud scheme. In 2017 Morrow and her husband fled to Israel, using a fake Mexican passport to enter Israel. Israel deported Morrow back to the US in 2019 after US authorities tracked her down.

Linda Morrow acted as the “executive director” of TMI. As such, she participated in the scheme to defraud health insurance companies by submitting bills for cosmetic procedures such as “tummy tucks,” “nose jobs,” breast reconstructions, and others. 

The defendants falsely submitted these cosmetic procedures as “medically necessary.” 

More specifically, Morrow would alter medical records to bill tummy tucks as hernia repair or abdominal reconstruction surgeries, record nose jobs as deviated septum repair surgeries, and record breast surgeries as necessary to correct tuberous breast deformity.

According to the DOJ, the defendants would actively market their services as coverable under insurance plans. They would instruct patients to fill out medical forms claiming they had come to the clinic to receive medically necessary treatments. They would also convince patients to undergo multiple procedures simultaneously to maximize their insurance companies’ amount. They put people’s lives at risk, prosecutors said, and some patients suffered severe complications from having too many procedures at once.

Eventually, insurance companies became suspicious and stopped paying out on claims, so the couple began targeting patients who had insurance through labor unions or municipalities.  

As part of their scheme, the Morrows convinced patients to sign false “testimonial” letters or declarations that would induce insurance companies into believing that the patients had undergone medically necessary procedures. Morrow’s plea agreement admits that she personally coached employees and patients to draft falsified testimonial letters and declarations.

Morrow’s conduct during the criminal investigation and following leaves a lot to be desired. For example, after the FBI and the California Department of Insurance executed a search warrant, Morrow confronted a former employee at her home regarding her cooperation with law enforcement.

As mentioned above, Morrow also fled the country to evade charges following her indictment. She left the US with her husband to avoid prosecution, failing to appear in court as ordered. In addition, she helped move $4 million from domestic bank accounts to accounts in Israel.  

As would be necessary for anyone under indictment in the US running from the law, Morrow used fraudulent passports from Mexico and Guatemala to enter Israel and live there. While living as a fugitive, she applied for Israeli citizenship using a fraudulent identity.

The Victims

The scheme defrauded victims out of between $25 million and $65 million. Aetna, Anthem Blue Cross, Blue Shield of California, and Cigna Health Insurance are victims of the fraud. 

The scheme also defrauded Staples, Inc. and a self-insured group of public entities that included school districts. According to the DOJ, TMI pursued payment for fraudulent surgeries by filing the following claims: 

  • $10,931,237 against the Desert Sands Unified School District; 
  • $4,199,862 against the Palm Springs Unified School District; 
  • $1,341,519 against the City of Palm Springs; and 
  • $256,782 against the California Highway Patrol, according to court documents.
  • These insurers and municipalities are victims of the Morrows’ fraud.

Linda Morrow’s Sentencing

United States District Judge Josephine Staton set Morrow’s sentencing hearing for July 1. She faces sentencing for the two felony offenses to which she pleaded guilty.

Morrow faces a statutory maximum sentence of 20 years in federal prison.

Her hearing will be challenging, the situation exacerbated by the contempt of court conviction. Indeed, Morrow’s husband and co-defendant, a former cosmetic surgeon, is already serving a 20-year prison sentence in the case. 

David Morrow pleaded guilty in 2016 and fled with his wife in 2017 while he was free on bond awaiting sentencing. Judge Staton imposed David Morrow’s 20-year sentence while the couple was on the run. 

Moreover, for sentencing purposes, Judge Staton has already determined that the intended loss or “loss amount” from the scheme was more than $44 million. 

The loss amount is a significant factor under the US Sentencing Guidelines calculations that inform sentencing in federal criminal cases. 

Read our recent blog on Elizabeth Holmes ‘ sentencing guidelines calculations to learn more about how loss amount affects federal fraud sentencing.  

See below our previous blog:

Agencies involved in the investigation

The case involved cooperation between national and international law enforcement agencies.

The FBI, IRS Criminal Investigation, and the California Department of Insurance investigated the Morrows and TMI. 

Other agencies that worked on the case include:

  • the FBI’s Legal Attachés in Jerusalem, Mexico City, and Guatemala;
  • the Israeli National Police; 
  • the United States Marshals Service; 
  • the United States Border Patrol’s Northern Border Coordination Center; and 
  • the Department of Justice’s Office of International Affairs.

This case exemplifies the federal government’s vast resources and abilities, including tracking down and capturing people who try to run from the law.

In addition, the Financial Litigation Section of the Civil Division at DOJ is working on enforcing restitution orders in this matter.

To learn more about restitution enforcement and the role of the Financial Litigation Unit, See below:

How can Linda Morrow mitigate?

Our team would never say that any defendant is beyond help, no matter how poor their prior decisions have been. Evidently, Linda Morrow has made a multitude of poor decisions at this point, before, during, and after her criminal investigation. 

No doubt, her sentencing mitigation case is incredibly complicated. Factors that complicate her sentencing mitigation story would include her post-offense conduct, such as: fleeing after indictment, living on the run, failure to appear in court as ordered, falsifying official documents, witness intimidation, and hiding money in Israel (obtained from the sale of a Beverly Hills mansion while awaiting trial).

But that does not mean that Linda Morrow does not have a mitigation story. Morrow, and other people in a similar position, must remember the story published in DOJ reports about them is incomplete. There is much more to a person’s existence beyond that. 

The team at Prison Professors seeks to help people present a complete picture to the court at sentencing. 

CONCLUSION

Billing for medically unnecessary services is one of the most common provider fraud activities, which results in hundreds of millions defrauded from public and private insurers each year.

For this reason, federal law enforcement spares no expense to investigate and prosecute healthcare fraud schemes. 

If you are the target of a healthcare fraud investigation or criminal case, let us help you craft a sentencing mitigation plan. 

Prison Professors, an Earning Freedom company, works alongside (not in place of) civil and criminal defense counsel to help clients proactively navigate through investigations and prosecutions. Our team also helps clients prepare mitigation and compliance strategies.

If you have any questions or are uncertain about any of the issues discussed in this post, schedule a call with our risk mitigation team to receive additional guidance.

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