DOJ Targets COVID-19 Fraud With Coordinated, Multi-District Law Enforcement Action

On May 26, 2021, the U.S. Department of Justice (DOJ) announced criminal charges against 14 defendants in seven federal districts across the United States for their alleged participation in various health care fraud schemes that exploited the COVID-19 pandemic and resulted in over $143 million in false billings.

These charges come after DOJ sought to hire a full-time CARES Act prosecutor and a little more than a week after Attorney General Garland ordered the establishment of a special task force dedicated to countering COVID-19 fraud broadly. The stated purpose of that task force was to bring together the DOJ’s resources with other government agencies against pandemic-related fraud, A.G. Garland said in a memo to senior department officials. Led by Deputy Attorney General Lisa Monaco, the new task force will look for trends, examine past enforcement actions, and bolster efforts to investigate and prosecute criminals both in the U.S. and internationally. It is clear that COVID-19 relief fraud is a key focus for the DOJ for the foreseeable future.

Last week’s multi-district COVID-19 fraud takedown, coordinated by the Fraud Section’s National Rapid Response team, comes on the heels of large national takedowns in Operation Brace Yourself and Operation Double Helix. These cases demonstrate a continued, coordinated effort by the Fraud Section’s Health Care Fraud Unit and its Market Integrity and Major Frauds Unit to attack COVID-related fraud from multiple angles and with theories ranging from wire fraud to health care fraud. 

The cases are notable for a number of reasons, including prosecution in a non-Medicare Fraud Strikeforce Jurisdiction; prosecution of telehealth fraud, notwithstanding expanded telehealth waivers created by the Centers for Medicare and Medicaid Services (CMS); and continued prosecution of fraud under the various CARES Act loan programs, as discussed below. Further, several of the cases are not new prosecutions but rather charge additional counts or additional defendants in ongoing prosecutions. Finally, the cases show that the Fraud Section’s Health Care Fraud Unit will continue to focus on the use of COVID-19 testing as a Trojan horse for expensive genetic testing, often ordered for unwitting patients.

The takedown announced by the DOJ has the Fraud Section prosecuting cases in seven federal districts: Western District of Arkansas, Northern District of California, Middle District of Louisiana, Central District of California, Southern District of Florida, District of New Jersey, and the Eastern District of New York. 

Western District of Arkansas
Billy Joe Taylor, the owner and operator of two testing laboratories, was charged with health care fraud of over $88 million, including over $42 million in false and fraudulent claims during the COVID-19 health emergency. These fraudulent claims were billed in combination with claims that were submitted for testing for COVID-19 and other respiratory illnesses. Of the prosecutions announced, this one was of particular interest as the only one brought in coordination with a United States Attorney’s Office in a district where the Fraud Section is not currently operating a Medicare Fraud Strike Force.

Northern District of California
Mark Schena, the president of Arrayit Corporation, is charged along with two others, the Arrayit vice president of marketing and the president of an Arizona marketing organization, in connection with the submission of over $70 million in false and fraudulent claims for allergy and COVID-19 testing. This was not a new prosecution but a superseding indictment charging additional counts of health care fraud, a conspiracy to pay kickbacks, and payment of kickbacks in connection with false and fraudulent statements about the existence, regulatory status, and accuracy of an Arrayit COVID-19 test.

Central District of California
Petros Hannesyan, the owner of a Los Angeles home health agency, was charged with the theft of government property and wire fraud in connection with $229,454 that he obtained from COVID-19 relief programs, including the CARES Act Provider Relief Fund and the Economic Injury Disaster Loan Program.

Southern District of Florida
Michael Stein and Leonel Palatnik were charged in connection with an alleged $73 million conspiracy to defraud the government and to pay and receive health care kickbacks. This case is the first in the nation in which plaintiffs allegedly exploited expanded telehealth opportunities created by CMS waivers during the pandemic, highlighting that there is still blatant fraud in the program even with expanded access created during the pandemic. 

Juan Nava Ruiz and Eric Frank were charged for an alleged $9.3 million health care kickback scheme, along with Christopher Licata who was previously charged in a separate indictment. Licata, an owner of a clinical laboratory, allegedly offered and paid kickbacks to patient brokers, including Ruiz and Frank, in exchange for referring Medicare beneficiaries to his lab for various forms of genetic testing and other laboratory testing. Allegations include the submission of $422,748 in claims related to medically unnecessary respiratory and genetic testing that was bundled with COVID-19 testing. 

Middle District of Louisiana
Malena Lepetich, the owner of a clinical laboratory, was charged for an alleged $15 million fraud offering to pay kickbacks for referrals of specimens for COVID-19 testing. 

District of New Jersey
Dr. Alexander Baldonado was charged with six counts of health care fraud for allegedly participating in an event that advertised COVID-19 testing. In addition to authorizing the COVID-19 tests, Baldonado allegedly ordered expensive and medically unnecessary cancer genetic testing for Medicare beneficiaries who attended the event. Approximately $2 million in claims were submitted as a result of Baldonado’s COVID-19 health care fraud scheme, and approximately $17 million in claims were submitted as a result of Baldonado’s broader health care fraud scheme. 

Donald Clarkin, a partner at a diagnostic testing laboratory, was charged in connection with a $5.4 million conspiracy, allegedly exploiting the pandemic by offering kickbacks in exchange for respiratory pathogen panel tests that would be improperly bundled with COVID-19 tests and billed to Medicare. 

Eastern District of New York
Peter Khaim and Arkadiy Khaimov, who both owned and controlled several New York pharmacies and sham pharmacy wholesaling companies, were charged in a superseding indictment for their participation in an alleged $45 million health care fraud, wire fraud, and money laundering scheme. The defendants and their co-conspirators allegedly obtained billing privileges for multiple pharmacies by using nominees to serve as the purported owners and supervising pharmacists. The defendants then allegedly submitted false and fraudulent claims to Medicare, including by using COVID-19 “emergency override” billing codes to circumvent pre-authorization requirements. 

The announcement of this pandemic themed takedown shows the DOJ’s continued commitment to and plans for ongoing prosecution of fraudsters looking to profit from the pandemic. With white collar prosecutions at an all-time low in many jurisdictions, the Fraud Section’s COVID-related enforcement is clearly an area where the agency is committed to bringing more cases. The DOJ press release includes statements from numerous high level officials at the DOJ, FBI and HHS-OIG, indicating that this is an area of high priority for all agencies involved. Notably, the time is near for what would typically be the Fraud Section’s annual national health care fraud and opioid takedown. If that takedown occurs this year, it will be interesting to see how much focus is placed on pandemic related fraud cases.