Dr. Rudra Sabaratnam, an owner and the chief executive of City of Angels Medical Center, and Estill Mitts, an alleged patient recruiter, were indicted by a federal grand jury last week on 21 counts of healthcare fraud, money laundering and income tax evasion.
The men were arrested this morning as part of the federal government's criminal investigation, according to FBI spokeswoman Laura Eimiller.
"It's a scheme that ranged from street operatives to the CEO of a hospital," said U.S. Atty. Thomas P. O'Brien, adding that he expects several more arrests in coming weeks.
At the same time, Los Angeles City Atty. Rocky Delgadillo announced civil litigation against the three hospitals and their operators in what officials said was a "scheme to defraud the Medi-Cal and Medicare programs out of millions of dollars."
Beginning at 8 a.m., agents working with the federal Department of Health and Human Services, the Internal Revenue Service and the California Department of Justice raided City of Angels Medical Center, Los Angeles Metropolitan Medical Center and Tustin Hospital and Medical Center.
The raids cap what law enforcement sources told The Times was a nearly two-year investigation of alleged medical fraud on skid row.
The city attorney's office alleged that the hospitals tried to fill empty beds in a bid to boost their finances.
The hospitals allegedly were aided by a patient recruiting operation on skid row that plucked homeless people from the streets and delivered them with fake medical conditions to the hospitals.
Metropolitan Medical Center in 2006 was accused by the Los Angeles Police Department of using ambulances to "dump" five patients in one day onto the streets of the downtown skid row area against their will after their discharge from the hospital. At the time, officials at the hospital strongly denied any wrongdoing.
But the city attorney now alleges that those patients had been recruited "by runners" who directed them to an assessment center on 7th Street, where their Medicare and Medi-Cal benefits eligibility was checked and a "fabricated description of conditions" was prepared by non-doctors so they could be eligible for treatment. All five of the patients were admitted to Metropolitan Medical Center.
Each of the patients received $20 to $30 when they returned to the assessment center after spending one to three days in the hospital, according to the suit.
"Within the past four years, hundreds, if not thousands of other homeless persons in skid row have been recruited, hospitalized, treated and discharged in a manner substantially similar . . . as part of a long-running scheme to bilk the Medicare and Medi-Cal programs out of millions of dollars by causing unnecessary hospitalization for paid recruits," the lawsuit alleges.
"Today, we are sending the message that those who would seek to defraud our healthcare system, and those who would callously exploit mentally-impaired and drug addicted homeless men and women to turn a profit will be prosecuted to the fullest extent of the law," said Delgadillo in a statement. "These criminals thought they could get away with this scheme because -- they figured -- no one cares about the homeless on skid row. They were dead wrong."
Among those named in the suit are Pacific Health Care Corp.; Los Angeles Metropolitan Medical Center, its Chief Executive John Fenton and admitting physician Frederick Rundall; Tustin Hospital and Medical Center, its Chief Executive Daniel Davis, Chief Financial Officer Vincent Rubio and admitting physicians Kenneth Thaler and Al-Reza Tajik; and City of Angels Medical Center and its owner-operators Robert Borseau and Sabaratnam. Mitts, the owner and manager of Metropolitan Healthcare LLC and the president of the 7th Street Christian Day Center, which was until recently located on skid row, is also named in the suit.
City attorneys allege that the Tustin hospital was guaranteed 40 to 50 patients a month while City of Angels got 25 to 30 patients month. Metropolitan Medical Center received patients whenever beds were available, according to the suit. City attorneys allege the admitting Drs. Rundall, Thaler and Tajik did not see their patients until shortly before their discharge. City attorneys allege that for patient referrals, Mitts' group was paid $20,000 per month each from Metropolitan Medical Center and Tustin, while City of Angels paid between $400 to $1,000 a week to the recruiting group.
The suit also alleges that the Tustin hospital's chief financial officer personally received a $3,500-a-month kickback from Mitts' group to ensure that Tustin continued to take homeless patients from the skid row center.
The street recruiter typically received $40 for each homeless recruit with Medicare eligibility and $20 for each recruit with Medi-Cal benefits, the suit alleges.
At City of Angels, FBI agents and members of the Los Angeles County Sheriff's Department's major crimes squad, who were providing backup, entered the building shortly after 8 a.m. Employees gathered in small groups in the lobby, where they had been told to wait. Sitting at tables with colleagues or talking on cellphones, most said they were puzzled by the search.
"At first, when I saw all these agents in all their shirts, I thought it must be a training exercise," said one employee who refused to give his name, saying he didn't want trouble with his boss. "But then I realized it was the real thing. They told me I couldn't go back to my work area."
Near the entrance to the hospital's administrative offices, dozens of federal, state and local law enforcement personnel gathered, their shirts bearing the logos of their agencies. Half an hour into the search, a team of computer forensics experts from the U.S. Department of Health and Human Services arrived with large briefcases on rollers. Medical center employees estimated that there were at least 50 members of the search team.
Authorities have expressed concern about schemes that use the area's homeless population to defraud the federal government. State and federal investigators have broken up two food stamp scams, one of which involved a merchant who allegedly gave homeless people 50 cents on the dollar for their stamps then charged the entire value -- $6 million -- to the government.
In 2006, officials filed charges against the owner of a MacArthur Park-area clinic for allegedly rounding up homeless people on skid row with Medi-Cal or Medicare cards and giving them a battery of medical tests charged to government programs. Authorities allege that the tests cost taxpayers at least $1.6 million and perhaps much more.
Last month, in a separate federal lawsuit stemming from alleged Medicare and Medicaid false claims involving a Chula Vista psychiatric hospital, the U.S. 9th Circuit Court of Appeal upheld a $15.6-million award against Sabaratnam, Borseau and firms they operated.
According to the court's decision, the defendants submitted a series of false claims in the late 1990s for rent, legal fees and interest expenses related to operations of Bayview Hospital, which was operated by firms Sabaratnam and Borseau controlled. The court rejected an appeal by Sabaratnam and Borseau that argued the federal government had not proved the disputed claims were false.
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