New York City Is Accused of Massive Medicaid Fraud Scheme

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New York City has allegedly squeezed millions out of Medicaid.

Federal authorities say they've uncovered a long-running Medicaid scam that extracted millions in fraudulent gains, and was run by...New York City.

A civil fraud lawsuit announced on Monday alleges that the city, through its Medicaid biller, Computer Sciences Corporation (CSC), used a sophisticated scheme of computerized fraud to violate Medicaid reimbursement rules, leading to millions in illegitimate payments.

The allegations, made by Preet Bharara, the U.S. Attorney for the Southern District of New York, are complicated -- the city is accused of circumventing Medicaid rules in order to speed program payments for low-income children with developmental disabilities.

In order for Medicaid to cover such programs, the city first had to show that private insurers had already turned the claims away. The alleged scheme essentially made it look as if the city had submitted the payments for private reimbursement, when in fact it never had.

Among other aspects of the scheme, the vendor, CSC, allegedly programmed its computer systems to automatically insert a fake insurance policy number -- "999-999-999" -- with many of the claims submitted to Medicaid. The fake number ensured that every claim was immediately denied by private insurers, which got the Medicaid ball rolling much faster, expediting payments to the city.

There was no personal gain involved; the charging documents don't allege that anyone was, for example, pocketing these funds. They were going where they were ultimately supposed to -- to poor children who needed help.

Even so, Bharara, the federal government's chief law enforcement officer in the region, says the scheme was illegal. He's seeking "treble" damages from the city -- a fine of three times the sum of the ill-gotten gains -- but doesn't specify the amount fraudulently obtained, beyond saying that it was "millions" of dollars.

This is one of those stories that leaves you wondering who the winners are. The kids? They got help faster than they otherwise would have. The private insurers? They were, of course, let off the hook for claims they might have otherwise had to pay. And who's the bad guy? These crooks conniving to...get help for sick children? Hmm.

The city's Law Department told the New York Times that it is cooperating with the investigation, but that the whole thing was a misunderstanding.

"We strongly disagree with the allegations, which we believe involve technical billing issues, not fraud," the Law Department told the Times. "All services billed were authorized and provided."

Bharara, in a statement, said that "billing frauds like those alleged undermine the integrity of public healthcare programs like Medicaid. All public healthcare program participants, whether they are healthcare providers, localities like the City, or contractors like CSC, should understand that they must comply with the applicable billing rules."

Read the whole charging document on the next page.