DOJ announces $1.8 BILLION healthcare fraud crackdown in California, says rehab clinics drugged patients to keep billing insurers

The Justice Department described the alleged substance abuse treatment scheme as the largest of its kind it has ever prosecuted, with $1.6 billion being billed. Other cases in the takedown involved unnecessary invasive arterial procedures that allegedly harmed patients, and hospice providers accused of billing Medicare for people who were not terminally ill.

Eight defendants were arrested Thursday, with six expected to appear in federal court in Los Angeles and two in Texas.

“These charges include the largest sober home fraud scheme the Department has ever prosecuted, and a scheme involving unnecessary invasive procedures detected through data analytics,” said Assistant Attorney General Colin M. McDonald of the DOJ’s National Fraud Enforcement Division. “Our message is simple: if you steal health care dollars from the American taxpayer or abuse your position to harm patients, we are coming for you – and the data will lead us to wherever you are.”

At the center of the addiction treatment case are father and son David Young, 71, and Nathan Young, 39, both of Los Angeles. Prosecutors allege they controlled dozens of purported treatment companies and used patient recruiters, including Honey Phipps, 42, and Cody Phipps, 36, of Greenville, Texas, to bring people to their facilities.

The recruiters allegedly targeted homeless individuals, people living in poverty, and attendees at substance abuse support groups. Prospective patients were offered money, apartments, hotel stays, cars, gift cards, marijuana, cigarettes, illegal drugs, and prescription medications.

Prosecutors say the defendants sought patients whose insurance offered the highest reimbursements and sometimes fraudulently enrolled people in policies for which they were ineligible.

Patients were then allegedly divided according to their insurance coverage. Some with lucrative policies received private apartments, hotel accommodations, and dinners, while others were housed in cramped, unsanitary properties described as “trap houses.”

According to the indictment, the Youngs cycled patients through facilities regardless of whether treatment was necessary or provided. When patients tried to leave, the Youngs allegedly directed staff to medicate them “to knock the client out.”

Prosecutors also allege patients were offered drugs, cut off from family communication, denied access to their belongings, and physically blocked from leaving.

Employees allegedly coached patients to fabricate symptoms, and some patients were encouraged to consume drugs or alcohol to qualify for detoxification. Subsequent “therapy” sometimes consisted of Zoom sessions with more than 100 attendees, during which patients merely had to activate their cameras.

Nicholas Moore, 33, of North Myrtle Beach, South Carolina, pleaded guilty to conspiracy to commit health care fraud and wire fraud in connection with the operation. Moore, who managed several facilities, admitted helping submit $199 million in fraudulent insurance claims.

A separate indictment charges cardiothoracic surgeon Dr. Harold Tabaie, 78, and chiropractor Hany Malek, 61, with a roughly $135 million scheme involving unnecessary arterial procedures.

Malek allegedly posed as a medical doctor and diagnosed patients with arterial disease. Tabaie then performed atherectomies, procedures using a bladed catheter to remove arterial plaque, on patients who allegedly did not have the disease. Some experienced extreme pain and discomfort. The DOJ said data analysis identified Tabaie as an extreme national outlier in billing for the procedures.

Three hospice cases involved more than $138 million in allegedly fraudulent Medicare claims. Prosecutors say beneficiaries who were not terminally ill were enrolled in hospice, sometimes without their knowledge, while providers billed for unnecessary or nonexistent services.

In one case, Geoffrey Jimenez, 60, allegedly recruited seniors at community centers with offers of free medical services and kickbacks. Some beneficiaries learned they had been placed in hospice only after Medicare or their regular medical providers contacted them.

The announcement also included separate charges against two doctors accused of accepting kickbacks for unnecessary genetic testing and a physician accused of illegally selling prescription drug samples, including Ozempic and Mounjaro.

Additionally, prosecutors announced an indictment against Christina Mareik, 61, who was previously charged by complaint in a separate nearly $270 million Medi-Cal pharmacy fraud case. Authorities allege the scheme generated approximately $269 million in fraudulent claims, of which California’s Medicaid program paid approximately $179 million.