5 Held in Medicare Fraud Scheme Using Elderly Patients in State

By Brandon Bailey, San Jose Mercury News, Calif.

Mar. 23–Authorities have arrested five people and moved to seize $2.2 million in Swiss bank accounts controlled by the alleged ringleader in an extensive Medicare fraud scheme, which exploited elderly patients from San Diego to San Jose.

Federal prosecutors said Wednesday that Konstantin Grigoryan, a naturalized U.S. citizen from Ukraine, used a Panamanian corporation and several Swiss accounts to hide proceeds from a network of Southern California clinics and medical testing companies that he secretly controlled.

Parts of the scheme were first disclosed publicly in 2003 when the Mercury News reported that hundreds of Vietnamese immigrants living in Santa Clara County had been recruited to visit clinics in Southern California, where they were given a free lunch and medical checkup.

After those visits, the elderly immigrants received billing statements showing that Medicare had paid for thousands of dollars’ worth of diagnostic tests or medical equipment that they either didn’t need or never received.

At least two of the medical offices connected to Grigoryan closed shortly after their operations were described in the Mercury News and the newspaper’s Vietnamese language affiliate, Viet Mercury. Authorities confirmed this week that investigators found a copy of the 2003 article on the hard drive of Grigoryan’s computer when they searched his home in Altadena, a suburb in Los Angeles County.

Grigoryan, 56, and his wife, Mayya Grigoryan, 54, along with three co-defendants, were arrested Tuesday when authorities unsealed a criminal complaint charging them with operating a conspiracy that netted more than $20 million from bogus Medicare billings between 2000 and 2005.

“This is a very sophisticated operation,” said Assistant U.S. Attorney Bruce Searby.

Also arrested were Eduard Gershelis, 34, Aleksandr Treynker, 48, and Haroutyun Gulderyan, 36, all from Southern California. None are doctors.

Phony billing suspected

Federal investigators allege that Grigoryan concealed his ties to more than a dozen health-care businesses, including doctors’ offices and medical testing services, that submitted phony bills to Medicare.

The case was investigated by the Federal Bureau of Investigation, the Internal Revenue Service and the inspector general’s office of the Department of Health and Human Services.

In court affidavits, agents said some of the businesses paid kickbacks to other clinics for referring patients, and also paid recruiting fees to individuals known as “cappers” who sought out unwitting patients and transported them to the clinics.

Authorities have said the elderly patients usually did not realize they were being used in an illegal scheme. Some of them suspected something was wrong, however, and reported their suspicions to federal authorities.

The affidavits also identify two Los Angeles doctors who saw elderly patients from Santa Clara County, and who referred many of those patients to companies linked to Grigoryan. The doctors, Laurie Magbanua and Gwenervere Flagg, are not charged with any crimes. Searby declined comment on their role in the case.

Grigoryan was convicted in 2004 of operating a similar scheme to defraud Medi-Cal, the state-operated program that uses federal funds to provide health care for low-income patients. He was given probation and barred from running any business that received state or federal health care payments.

But investigators allege that he continued to have a role in companies that submitted fraudulent bills to Medicare, which is a federally operated program that provides health care for the elderly.

New patients recruited

Authorities say the Medicare system eventually disqualified some patients after their names appeared in repeated billings, but that only led the Los Angeles-based defendants to recruit new patients from the Central Valley and Northern California.

The Los Angeles area is a hotbed of health care fraud, according to state and federal investigators, who say that other groups have carried out similar schemes in Southern California.

And some groups have opened shop in the Bay Area, tapping new supplies of elderly residents who are eligible for Medicare services. Last fall, federal authorities charged Vladimir Semenov and four co-defendants from the Los Angeles area with running a similar scheme from a storefront clinic in Milpitas. That operation was also described by the Mercury News in 2003.

Contact Brandon Bailey at bbailey@mercurynews.com or (408) 920-5022.

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Copyright (c) 2006, San Jose Mercury News, Calif.

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