Medicaid Fraud Schemes Entrap Both Drug Users And Shady Doctors

It began when a garbage man making his rounds came upon a plastic bag of blood on a sidewalk in Trenton, N.J.

The trail led investigators to the nearby apartment of a doctor's former receptionist. She had set up a blood-drawing clinic complete with tourniquets, tubes, syringes, gauze and centrifuges. Her doors, investigators learned, were opened daily to drug addicts who came to sell their blood for $50.

She delivered the blood to a doctor who ran a diagnostics clinic in Pennsylvania. He paid her $200 for each batch and then used the blood to run expensive, needless tests under the names of real Medicaid clients, turning the original $50 bag of blood into thousands of dollars in illegal Medicaid bills.

It was all part of a ghoulish and intricate underground business built on the blood of street dwellers, prostitutes, drug addicts and the poor that has been looting Medicaid of millions of dollars a year in New Jersey.

The woman, Paula Rodgers of Trenton, and her connection, Dr. Atiq Butt, have been stopped. Butt was sentenced this summer to seven years in prison, and Rodgers has become a cooperating witness.

Since that bag was found three years ago, the blood-bartering business has become the target of a major crackdown by the attorney general's office. Two dozen people have been indicted for their roles in blood collection, testing and related schemes.

Still, most investigators believe their efforts merely scratch the surface. "They're like mushrooms," said John Krayniak, a deputy attorney general and chief of the state's Medicaid fraud unit.

The probe pitted detectives against unscrupulous clinic and lab operators whose scams not only defraud Medicaid but fuel illegal traffic in drugs that fight AIDS and other deadly diseases.

At the top of the fraud chain sit lab operators and clinic owners who get rich by ordering needless tests on blood specimens. At the bottom are desperate people who sell the blood, some of it infected with HIV or hepatitis, that keeps the scheme rolling. "It's like nothing you've ever seen. It's disgusting," said Sheila Brown, an investigator who has worked undercover in clinics.

"These people that come to these places, they know what's going on. They know they're being used for their blood. Some of them give so much of it they're falling over," Brown said.

Some donors are paid in Medicaid prescriptions for expensive AIDS-fighting drugs, blood-pressure medication, antibiotics and tranquilizers. They sell the prescriptions to dealers on the street called "nonmen" who then get the prescriptions filled from a legitimate pharmacy. No cash changes hands because the drugs are Medicaid prescriptions. The nonmen then sell the drugs to unscrupulous pharmacists for 30 cents to 50 cents on the dollar. Those pharmacists then resell the drugs at market price to unknowing consumers.

Blood bartering is easily the strangest scam to take its place among schemes that steal from Medicaid, according to New Jersey fraud investigators.

Blood has become a catalyst for fraud because it provides criminals with a way to penetrate Medicaid's massive computer system.

Equipment used to test blood automatically sends bills to Medicaid computers. Payments also are automated, and once each week an average of $105 million - 720,000 claims - is dispensed from New Jersey Medicaid computers to the bank accounts of about 8,000 providers.

Once corrupt providers figure out how to bill "correctly" and beat the Medicaid computer with charges for bogus tests or procedures, there's little to stop them from billing for hundreds, even thousands of tests, investigators said.