With Lax Oversight, Fraud Flourishes in California’s Drug Rehab Clinics

“He basically said, ‘How do you think you’re going to get paid?’ ” Askew said.

Pride Health Services specializes in billing for “ghost clients,” fabricating paperwork for patients who don’t actually come in, according to former employees and whistle-blower complaints.

It is part of a rehab racket – a pattern of fraud by rehabilitation clinics that collect government funding to help the poor and addicted, a yearlong investigation by The Center for Investigative Reporting and CNN has found.

Thousands of pages of government records and dozens of interviews with counselors, patients and regulators reveal a widespread scheme – concentrated in the Los Angeles region – to bilk the state’s Medicaid system.

In the underbelly of the Drug Medi-Cal program, clinics pad client rolls by diagnosing people with addictions they don’t have. They round up mentally ill residents from board-and-care homes to sit in therapy sessions they can’t follow. They lure patients in from the street by handing out cash, cigarettes and snacks. They have patients sign in for days they aren’t there.

Drug Medi-Cal paid out $94 million in the past two fiscal years to 56 clinics in Southern California that have shown signs of deception or questionable billing practices, representing half of all public funding to the program, CIR and CNN found. The report is part of a three-day series continuing on CNN’s “Anderson Cooper 360” tonight and Wednesday, with additional material online at www.cironline.org.

The yearlong investigation also raised questions about the adequacy of government oversight of the rehab program, built on an honor system in which honor often is lacking. Oversight is marred by infrequent and cursory inspections and by a failure to act even when red flags appear.

One man opened a San Fernando Valley clinic two years after leaving a Texas prison, where he served time for orchestrating an organized crime scam. Another clinic operator in Long Beach was barred from collecting a single Medicaid dollar, yet the state and county paid him more than a million.

Once open, bad clinics rarely are shut down. CIR and CNN identified a dozen clinics caught cheating the system that not only remained in business, but also were rewarded with more public funds.

Following a year of public records requests and questions from CIR and CNN, state regulators announced a crackdown earlier this month. The state Department of Health Care Services temporarily suspended 16 clinics suspected of flouting the law and pledged to tighten oversight. Officials would not identify the targeted clinics, saying the information would compromise the investigation.

Last week, the department’s chief deputy director, Karen Johnson, said her staff also would be “fanning out statewide to review every rehab facility.”

But according to interviews with former state officials, the department has fielded concerns about rehab clinic fraud for at least five years yet has done little to combat it. In the past, the agency delegated the rehab program to the state Department of Alcohol and Drug Programs but remained involved in oversight. It took direct control last July.

The state certifies the clinics while counties handle the money and shoulder the financial risk when mistakes are made. Both county and state analysts audit the clinics annually.

To many inside government and out, it has not been clear who’s in charge. In that vacuum, fraud has thrived.

Fake clients

Inside the Inglewood clinic where Tamara Askew worked in 2009, a small lobby was empty on April 3. A receptionist told reporters there were no group counseling sessions that day or any Wednesday. The exchange was caught on a hidden camera.

Yet billing records obtained by CIR and CNN show that Pride Health Services charged taxpayers for counseling 60 people at the clinic that day, at a cost of about $1,600.

The clinic’s executive director, Godfrey Nwogene, did not respond to requests for an interview or to a letter seeking responses. When reporters asked for him at the clinic, workers called police and closed the office mid-day.

One man who should have been stopped by authorities long ago is Alexander Ferdman.

Felons are supposed to be blocked from running clinics. But when Ferdman opened his Panorama City clinic in 2003, he was on parole, having served one year of a seven-year sentence after prosecutors pegged him as the ringleader of a Texas scam that robbed auto insurers of millions.

Over the course of a decade, he built Able Family Support into a nearly $2 million-a-year operation – all from taxpayer money.

Ferdman told reporters that he accepted a plea agreement in the Texas case because he was facing “99 years.”

“There was no fraud, and there was no record of it in any way,” Ferdman said, standing in the parking lot of his clinic. “It’s a very long story.”

There have been red flags at his clinic over the years. Able Family billed for a group therapy session held on a Sunday when the counseling center was closed, according to a July 2011 billing review by Los Angeles County. The 10 a.m. on-site review also turned up notes recounting results of a group therapy session that had not yet been held.

County regulators issued a report warning Ferdman that the clinic could lose its contract. The county ultimately docked him $7,000.

And then the funding boosts came. John Viernes Jr., director of Substance Abuse Prevention and Control in Los Angeles County, approved an increase in Able Family’s funding from $1.6 million in 2011 to nearly $2 million in 2013. Viernes’ staff said such funding increases are approved routinely if clinics fix problems cited in audits.

This spring, reporters conducted a stakeout at Ferdman’s clinic. Over the course of nearly 10 hours April 4, no more than 30 people trickled into the rehab center.

A month later, the clinic submitted its bill to the county seeking reimbursement – not for 30 people, but for 179. The government promptly paid it – $6,400 for clients Able Family reported it saw that day.

County regulators said the findings look “incriminating.” Able Family operates a small satellite clinic near downtown, the county noted – but a security guard there said about 25 people come to that office each day. County auditors went out to dig through paperwork at the clinic, only to find Able Family closed.

The clinic’s medical director said the state had just suspended Able Family.

Ferdman would not explain the discrepancy.

“I can’t explain, because you will cut and paste and edit, and my answers will be to a totally different question,” Ferdman said in a telephone interview, before hanging up.

Nonexistent addictions

Rather than make up clients, Tim Ejindu’s clinics in Riverside and Pomona would fill clinic rosters with vanloads of foster children from group homes.

The problem, said former employees, was that some of them didn’t have drug or alcohol problems.

Victoria Byers remembers boarding a van at her group home as a teenager and going to rehab at So Cal Health Services in Riverside. She couldn’t figure out why she had to take drug tests and sit in group therapy sessions on addiction.

“And I told them, you know, ‘Why should I be here? I have no drug issue,’ ” said Byers, now a slow-to-smile 22-year-old.

Under pressure to diagnose the teenagers with fake addictions, counselors reverted to racial stereotypes, said TaMara Shearer, who worked as a supervisor at both clinics. They labeled white teens as alcohol drinkers and black or Latino teens as marijuana smokers, she said.

Nearly one-third of the foster children who showed up at Ejindu’s clinics had no addiction, Shearer estimated.

Riverside County cut funding for So Cal Health Services in 2010 after receiving complaints of fraud and documenting a high rate of dropouts. But Ejindu continued on in Los Angeles County. There, under the red-tiled roof of the Pomona Alcohol and Drug Recovery Center, problems persisted.

“Any loopholes, he knows how to find them. I’ve watched him do it,” Shearer said. “He thinks Americans are dumb.”

An L.A. County audit found evidence last year of altered client records that the county considers “fraudulent practices.” But after Ejindu complained that the auditor had taken files from staffers’ desks, the findings were set aside.

When contacted by reporters at his clinic, Ejindu declined to answer questions, closing the clinic door and refusing to reopen it.

Clients paid to show up

At GB Medical Services in Long Beach, clinic operator George Ilouno used a different tactic to pad his billing. He and his staff paid clients $5 every time they signed in for a counseling session, according to former employees and clients.

Darshaye Miles, 19, of South Los Angeles, said she bought marijuana with the $5 she earned going to rehab. Little counseling or guidance was offered, she said, even to people who needed it.

“I really want the world to hear the story about these alcohol programs because I think that they just scam,” Miles said. “They (are) just doing it to get their money.”

Ilouno never should have been allowed to open a clinic in the first place. He was blacklisted from billing government health programs more than a decade ago due to a student loan fraud conviction. That didn’t stop him from opening GB Medical Services in 2007 as co-founder and program director, state records show.

The next year, counselor Art Hill filed a whistle-blower complaint with the state, charging that Ilouno’s staff paid clients. In an interview, Hill also said Ilouno asked him to giftwrap bottles of alcohol, including Hennessy cognac, for rehab patients.

In one of the few prosecutions of the rehab racket, the state Department of Justice began investigating Ilouno in 2008 based on Hill’s complaint. The state could have suspended the clinic’s funding then. But instead, as the investigation dragged on, Ilouno collected $1 million in taxpayer funds.

In March, the Justice Department charged Ilouno and three of his counselors with Medi-Cal fraud and grand theft. Ilouno and a fourth staffer were charged with giving kickbacks. The arrest declaration included an analysis of billing records for the fiscal year ending in 2010, which found $64,400 had been obtained fraudulently.

Two staffers pleaded no contest to a felony, and another pleaded no contest to a misdemeanor. Ilouno has pleaded not guilty. The fourth staff member has not yet entered a plea.

Approached in the parking lot of his clinic, Ilouno declined to answer questions and sped away in his Mercedes. His Malibu criminal defense attorney, Robert Helfend, denied in a letter that alcohol had been given out. He also said counselors had acted without GB Medical’s knowledge or consent.

Even after Ilouno’s arrest, GB Medical continued to bill taxpayers for services. But in July, a sign posted on GB Medical’s door said the clinic no longer provides Drug Medi-Cal services.

CNN senior investigative producer Scott Zamost, CNN investigative correspondent Drew Griffin, CIR reporter Joanna Lin, CIR intern Mihir Zaveri and Stephen K. Doig, Knight Chair in Journalism at Arizona State University, contributed to this report. This story was edited by Amy Pyle, Robert Salladay and Mark Katches, with contributions from Susanne Reber of CIR and Richard T. Griffiths of CNN. It was copy edited by Nikki Frick and Christine Lee.