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The Doctor Will Screw You Now 

How Cleveland doctors fattened themselves on unnecessary tests and kickback schemes.

Stiff necks and aching backs were good to Dr. John Strom. He owned several chiropractic clinics in Northeast Ohio and lived in a four-bedroom colonial in Highland Chase, a Stow subdivision of winding, equine-themed streets.

Chiropractors are not health care's most glamorous specialists, especially here, where the twin towers of medicine -- the Cleveland Clinic and University Hospitals -- leave only morsels to those without "M.D." sewn to their coats. Strom drummed his patients from strip malls.

Most doctors look upon the business side of patient care with diffidence, but Strom ran a bare-knuckles operation. Twice he was sued by direct-mail companies for not paying his bill. Apparently, Strom or someone in the Affordable Chiropractic Clinics office decided that, since the advertisements ("Feel good again!") were ineffective, the company shouldn't have to pay. The suits were later dismissed.

In 1993, WJW-TV/Channel 8 questioned Strom about an employee who was allegedly performing unsanctioned tests. When the reporter, Tom Meyer, asked to enter the office, Strom tried to wrestle the camera away from the photographer, according to police. The tussle sent the cameraman spinning to the ground. An assault charge was filed against Strom; a jury found him not guilty.

For a time, Strom's combativeness served him well. At one point in the mid-1990s, he owned eight clinics. He covered expenses and split the profits with chiropractors who kneaded spines under his shingle. But the last few years have been bleak for Affordable Chiropractic. Today, the only clinic bearing Strom's name sits in North Olmsted, across from Great Northern Mall.

A practice, after all, is hard to run from a federal halfway house.

Between 1992 and 1998, Strom collected $62,907 from medical laboratories that ran tests on his patients. Ostensibly, the labs paid Strom to rent space in his clinics. In reality, the leases cloaked kickbacks for patient referrals.

Not only was Strom paid for referrals -- a violation of both law and professional ethics -- the tests he ordered were often worthless. A Cleveland Clinic neurologist who examined the work of one lab that paid Strom was "thunderstruck" by the irrelevance and unreliability of the results.

Strom wasn't oblivious to the possible shadiness of these arrangements. On several occasions, an office administrator suggested that he consult an attorney. He never did. Strom did call the Ohio State Chiropractic Association, which informed him that the arrangements were likely illegal. But instead of heeding the advice, Strom encouraged chiropractors he employed to enter their own agreements. He could then forgo their pay raises.

Unfortunately for Strom, a federal task force had been formed in 1993 to investigate health-care fraud in Cleveland. Sources in the industry told investigators about an arcane business arrangement between a testing lab and doctors that, on its face, wouldn't seem peculiar. A closer look at the numbers, however, revealed a quid pro quo scheme where labs were kicking back handsome fees for patient referrals.

The FBI searched Strom's office in 1997. Once agents knew what they were looking for, the paper trail wasn't hard to follow.

In October, Strom pleaded guilty to one count of conspiring to defraud patients of honest service and one count of mail fraud. He's serving four months in an Akron halfway house, to be followed by four months of home detention. He also was ordered to pay $62,907 in restitution. (Strom did not respond to interview requests.)

His might seem an isolated case of a caregiver undone by greed. But the Cleveland U.S. Attorney's Office has already secured kickback pleas from four other medical providers. Another is scheduled for trial, and more indictments are to come. By the time the feds close their files, the probe will likely uncover $2 million in fraud.


The $1.2 trillion U.S. health-care industry is as complex as it is huge. Medicare alone handles 900 million claims a year. Considering the volume, the range of services, and the automated billing flume, it's little wonder why the General Accounting Office has designated Medicare as high-risk for fraud and abuse.

But scams aren't limited to Medicare. The cost of deceit throughout medicine is estimated to be between $35 billion and $100 billion a year.

Sixty percent of doctors admit they've lied about a patient's condition to extend coverage or buy another day in the hospital. Given the sour reputation of insurance companies and HMOs, many consider these harmless -- even noble -- fibs. It's called "soft fraud."

Then there's the real stuff.

A nose job appears on the insurance form as a deviated septum. A podiatrist who trims toenails at a nursing home may, at the end of the day, submit a dozen bills for foot surgery. In California in the late '80s and early '90s, trailers advertising free physicals rolled up to malls. Shoppers received casual exams, but their insurers received bills for physicals NASA might perform before launching astronauts. In Miami, poor children and their subsidized dental care were lured aboard trolling vans with the promise of McDonald's gift certificates. But kids were shuttled to five dentists before tasting their Happy Meals.

"To me, that's the most cynical manifestation of health-care fraud," says Executive Director Bill Mahon of the National Health Care Anti-Fraud Association, a partnership of insurance industry and government investigators.

Such activity is increasingly being pursued by the feds. In 2000, federal prosecutors filed 457 indictments alleging health-care fraud -- up from 246 in 1996 -- and recovered more than $700 million in fines and restitution. In Cleveland, two U.S. attorneys and a squad of FBI agents attend to such matters. They have discovered no shortage of work.

Kickbacks, according to FBI Supervisory Special Agent Julie Morgan, are a "major problem" in Northeast Ohio. "Quick and easy money is hard to turn away, whether you're a successful practitioner or a doctor just starting off."

David Ignatius, director of the Blue Cross and Blue Shield Association's anti-fraud unit, says the patient referral scam is relatively new. "The bad guys out there seem to regroup and throw different things at you."


Podiatrist Steven Novak owned five clinics, stretching from Rocky River to Willoughby. Novak tended to fallen arches and ingrown toenails from nondescript storefronts one might associate with light appliance repair. At night he drove home to splendor. His Pepper Pike home sold for $565,000 last year.

Novak, 43, leased office space to three labs. These "leases" camouflaged payments for patient referrals. Cardiac Interpretations, for instance, agreed to pay Novak on a sliding scale, based on the generosity of the patient's insurance: The doctor received $30 per Medicare referral; $50 for one paid by a private insurer.

Novak, in the government's narrative, received his first kickback in 1987. He developed a taste for the action. Over 10 years, Cardiac paid him $45,680; the feds determined $33,199 of it came in return for referring patients.

Diagnostic Testing of Ohio paid Novak $80 per hour to perform electrodiagnostic tests in his office. Initially DTO paid less, but Novak, after learning how lucrative these tests were, determined his "office space" was worth more. Eventually, the rent rose to $100 per hour -- a ridiculous figure, considering Novak's own lease. Over three years, DTO paid $39,000 to rent a room for a few hours a month. During that same time, Novak paid just $21,000 for his entire suite.

There's also compelling evidence that DTO's tests were conducted largely in the interest of cash.

Electrodiagnostic exams are used for diseases of the nerves and muscles. Patients who have numbness, tingling, pain, and weakness associated with everything from multiple sclerosis to carpal tunnel syndrome are candidates. In a nerve-conduction study, electronic prongs send a current through the muscle to record how the nerve works. In a companion test, a needle inserted into the muscle listens for activity.

DTO administered only the nerve-conduction test, likely because it can be performed by anyone. (Only doctors can stick the EMG needle.) No needle tests, however, appear to have been performed on patients referred to DTO. This is significant, because only in rare cases do the nerve-conduction tests by themselves tell doctors much. "We always do both parts of the test," says Asa Wilbourn, a Cleveland Clinic neurologist and president of the American Board of Electrodiagnostic Medicine.

Wilbourn examined DTO's tests at the request of the government. He says any trained neurologist or physiatrist would look at DTO's tests and ask, "My God, what is going on here?" Wilbourn saw a variety of errors in the data. Based on their symptoms, patients were overtested or administered the wrong test. Some results were so haywire, they could be produced by technical error. And from what Wilbourn could tell, results were seldom incorporated into patient care.

"The obvious way to interpret them is that they were running up the bill."

How high? Wilbourn says a portable nerve-conduction unit costs between $15,000 and $20,000. "You can make that money in two afternoons, the way they were going."

Novak's record-keeping supports the government's theory that DTO's tests were unnecessary. When FBI agents searched his office in 1998, they found DTO test reports scattered in piles or stuffed in a cabinet separate from the regular patient files.

Cash was not the only method of payment. Novak had a referral arrangement with Metro Medical Laboratories for blood and nail culture work. Metro's owner, Trilok Chopra, is also the proprietor of the Mad Greek Restaurant in Cleveland Heights. According to investigators, Novak suggested that, in lieu of cash, Chopra comp meals at the Mad Greek. Before an Indians season opener, Novak entertained 20 physicians at the restaurant. Chopra swallowed the $2,500 bill.

Novak was so comfortable with the system that he too paid cash for referrals. He owned a side business, Physician Shoe Service, that custom-made orthopedic shoes. Following the cozy lead of the labs, Novak paid $20 for each customer other podiatrists referred to his store.

(Novak declined to be interviewed for this story. "If you give me a call back in August or some time, maybe I'll change my mind, but right now it's not something I'm interested in.")

But Novak's care was questioned even before the FBI started sniffing around his practice. A 1987 lawsuit alleged that he misdiagnosed a foot ailment and performed unnecessary surgery. Last year the son of a deceased diabetic sued him for malpractice. The patient, Richard Kosakowski, age 75, saw Novak for treatment of a bunion on his right foot. Diabetics, because of the circulation problems posed by the disease, must take special care of their feet. Yet the Kosakowski suit claimed that Novak failed to prescribe an antibiotic. An infection developed; Kosakowski's right toe had to be amputated. A week later, he lost his leg below the knee. Within a month, the infection had spread into his bloodstream, and he was dead.

Both civil cases were settled, and the agreements are sealed. But Novak was unable to make the government's case vanish as easily.

The feds aren't saying how they first learned of his scams, but it's likely Novak's name surfaced in their conversations with Cardiac Interpretations owner Joseph Beckerman. In 1997, agents busted Beckerman for faking a podiatrist's referral to his lab, and he agreed to work for the feds. He then paid kickbacks to unsuspecting doctors, an FBI wire recording the whole process.

Seven months after Beckerman agreed to cooperate, Novak's office was searched.

In April, Novak accepted a plea agreement. He will have to pay $263,623 in restitution, and he'll find out at his sentencing July 11 whether he'll have to do time. Given Strom's fate, it's likely Novak will also bunk in a federal halfway house.


"He's a minnow in a sea full of sharks."

Those are the words of attorney Niki Schwartz, whose client, 57-year-old Sugarcreek chiropractor Ted McCoy, is accused of receiving $32,612 in kickbacks from DTO. McCoy has pleaded not guilty.

To hear Schwartz tell it, his client is a country doctor who all but makes house calls on horseback. "He's a very nice man in the heart of Amish country," Schwartz says. "He's very rural in his persona and lifestyle -- not at all sophisticated. Much more of a victim than a culprit who got ensnared in this thing."

In what's become a recurring motif, Schwartz and Pyle present their clients as kindly caregivers, too concerned with patient well-being to scrutinize their lease agreements. They suggest the real con men are the silver-tongued lab owners who assured doctors that deals were legit and tests were medically sound. Schwartz says Gregory Sears, DTO's owner, provided letters signed by lawyers that attested to the leases' legitimacy. Other court documents say Sears organized a dinner for potential clients, where a neurologist vouched for DTO's work. (The alleged neurologist, Dr. Lawrence Saltis of Akron General Hospital, did not return phone calls.)

Sears makes a convenient devil. He's dead.

He opened Diagnostic Testing in 1993 after moving to Akron from Pittsburgh in his employ with another lab. His was the first lab to get the FBI's attention. In 1998, his office was searched, and Sears was called before the grand jury. He did not handle the weight of the investigation well. Sears refused to attend the grand jury hearing and began drinking his life away. In November 1998, he died from chronic alcoholism at age 39.

Sears doesn't appear to have had any medical training. Before getting into the lab business, he studied accounting and worked in construction. As it turns out, he didn't need training. The state only regulates facilities that test blood, tissue, and urine. Asked if anyone could perform the type of tests Diagnostic Testing conducted, Ohio Department of Health spokesman Jay Carey says, "It appears that way."

But what lab operators lacked in training, they made up for in smoothness of tongue. Chagrin Falls chiropractor Carl Evans worked in one of Strom's clinics before going out on his own. He, too, was approached by labs. Their offers made him uncomfortable. "They seemed more like salespeople than health-care people."

Sales skills, however, were not enough to keep the scams afloat. Diagnostic Testing died with Greg Sears. Metro's Chopra, after pleading guilty, is sticking to cooking souvlaki at his restaurant. Medical Dynamics owner Joseph Matejka pleaded guilty to one count of paying kickbacks. He received probation and a $3,000 fine. Ultrasound Diagnostic Services owner Gary Kirsch has pleaded not guilty to paying kickbacks. His trial is scheduled for next month

For Beckerman, the informant, the screws must not have been turned tight enough. He was caught pocketing $1,200 agents had given him to use for bribes. He received two years' probation for theft of government funds and making false statements to a government agency. He has moved to Kentucky, where his attorney says he works in sales.

While lab owners may have been slippery-quick with glossy brochures and false promises, the government doesn't accept the argument that doctors lacked the savvy to know better.

The federal anti-kickback statute is clear: Any kind of remuneration for patient referrals is forbidden. This includes kickbacks disguised as fees for consulting, marketing, research, and office space. Professional canons also prohibit referral payments. The American Chiropractic Association's code of ethics, for instance, specifically addresses rental agreements between doctors and labs. "Arrangements in which 'rental fees,' 'rebates,' or free gifts are received in return for patient referrals are, in the ACA's view, unethical and unacceptable . . ."

For a doctor not to know, Assistant U.S. Attorney Subodh Chandra says, "would be akin to standing on the edge of the Grand Canyon and saying you do not accept that there is a big hole."

Rob Sherman, the Ohio State Chiropractic Association's attorney, says he warned members in a newsletter that the lease agreements were "on the ledge."

"I didn't like the arrangements from day one."

And even if doctors convinced themselves they were charging fair market value for their office space, this doesn't address the validity of the nerve-conduction tests. When DTO stopped paying Novak in 1997, for example, the podiatrist stopped ordering electrodiagnostic tests for his patients. Why? Chandra says his palm wasn't getting greased.

Lawyer Pyle asserts "there's a debate" about what surface tests can tell a physician. But Wilbourn describes the tests he examined as "total overkill," and Chandra jokes that asking Wilbourn to evaluate electrodiagnostic work "is like asking an SAT question to the College Board." The feds also consulted a neurologist at University Hospitals.

The doctors who sent their patients to DTO seem to have rationalized the tests because they weren't painful or invasive; it wasn't as if they were cutting open healthy bodies to rack up surgery hours. Indeed, the government is loath to offer specifics on how patients were hurt by the schemes, other than by having to make co-payments for tests they didn't need. Though Wilbourn says he read test results that suggested nerve damage but found no record of appropriate treatment, insurers bore the brunt of the scam.

Yet court records and the doctors' maddening sense of entitlement leave little air for sympathy.

Wloszek is a registered nurse who earned her chiropractor's license in 1992. For two years, she worked for Affordable Chiropractic, Strom's chain. When she opened her own practice in 1994, she entered into a lease agreement with DTO.

For three and a half years, Sears paid Wloszek more than $1,200 a month. Pyle, her attorney, says this amount was "infinitesimal" compared to her gross income ($460,000 per year, according to court records). But that speck, as it were, came in handy. Sears's money allowed Wloszek to inhabit an office virtually rent-free; her monthly payments for a seven-room suite averaged $1,300.

Still, Wloszek manages to play the victim. In addition to believing she was duped by Sears, she contends she received poor legal advice. She's suing Weston Hurd Fallon Paisley & Howley, alleging that the firm's attorney did not adequately warn her about the Sears lease. Patrick McLaughlin, an attorney representing Weston Hurd, says Wloszek received "quality legal service" based on the information she provided. Besides, he notes that Wloszek admitted to taking kickbacks two years before the supposedly deficient consultation.

The chiropractor, McLaughlin suggests, wants it both ways: She wants to reap the benefits of taking a plea, but stick her lawyers with the financial consequences.

The lawsuit fits a history of victimhood. In 1998, Wloszek complained to The Plain Dealer about a Cleveland Clinic physician who refused to prescribe her fertility drugs. Wloszek, 35 years old at the time, did not have a partner with whom to raise the child. "I feel so discriminated against," she told the paper.


Some may snicker at chiropractors and podiatrists accepting kickbacks, as if crookery is to be expected from medicine's minor leaguers. But "real" doctors have also been snared. William Kay, M.D., appears to have used his offices in University Heights, Parma, and Cleveland as workers' comp milk machines.

Kay, 54, rented "space" to DTO at $100 an hour. In a little more than two years, DTO wrote him 72 checks totaling $152,500. These payments provided Kay with handsome margins. It was almost double what he paid in rent at his three clinics.

Court records show a doctor determined to bleed every nickel from the Ohio Bureau of Workers' Compensation. Kay directed his staff to order nerve-conduction tests as often as the state would pay for them. When staffers questioned the necessity, he disregarded them.

Kay pleaded guilty to one count of conspiring to defraud patients of honest service and one count of mail fraud. He's been ordered to pay $690,997 in restitution, most of it to the state. His sentencing is July 11. (Neither Kay nor his attorney returned phone calls.)

Bonifacio Ferrer, M.D., had a similar $100-per-hour agreement with DTO. The rent Ferrer collected covered half the costs of his Puritas Road office.

Ferrer, 65, pleaded guilty to two counts of violating the kickback statute. His restitution bill amounts to $176,658. He too will be sentenced July 11.

This wasn't the first time Ferrer had aroused suspicion. Civil court filings and Ohio State Medical Board inquiries paint the disturbing picture of a doctor too eager to reach for his scalpel.

While a surgeon at Grace Hospital in the 1980s, Ferrer was sued five times. By itself, this fact is not particularly revealing. Claims of malpractice are inevitable in the surgeon's trade. What's striking is a recurring charge that Ferrer performed unnecessary procedures. According to one suit, he hospitalized a patient 27 times in six years and used non-absorbable sutures during a vaginal procedure, requiring an additional surgery. Another suit claimed Ferrer ordered several operations for a 24-year-old woman, including a hysterectomy a second doctor said wasn't needed. In an affidavit in yet another suit, a University Hospitals doctor described Ferrer's justification for an abdominal scope as "dumb and suggests that this physician is more interested in doing procedures than he is in helping patients." All the suits were settled out of court.

The Ohio State Medical Board has also been interested in Ferrer. It examined operations on two patients. Neither suffered post-operative complications, but after weighing the evidence, the board concluded that Ferrer "had little interest in addressing the medical problems which had necessitated the hospital admissions" and merely "viewed these patients as possible surgical candidates."

For his actions, Ferrer was excluded from the Medicare program for four years and his license placed on probation for five. Ferrer and his attorney did not return Scene's phone calls.


The medical profession doesn't have much to say about the kickback cases.

"As an association, we recommend that members seek a competent health-care attorney," was all a spokeswoman at the American Podiatric Medical Association had to say.

"If you break the law, you break the law," an American Medical Association spokesman said. "No policies or opinions we have supersede that."

The American Chiropractic Association did not return calls.

Yet the doctors still must answer to their professions. Wloszek was suspended by the Ohio State Chiropractic Board for three months. Strom has asked for a hearing. McCoy won't answer to the board until his criminal matter is disposed. And the medical board lists Novak, Kay, and Ferrer as active, though they face questions now that their criminal pleas have been entered.

Why the doctors would risk their licenses, their practices, and their freedom for extra cash is a mystery. None will speak to reporters. But greed seems to answer a lot of questions. "I have almost never seen a poor physician convicted of health-care fraud," says Bill Mahon of the National Health Care Anti-Fraud Association.

The more pressing question might be, how many doctors are involved? One podiatrist says half the foot doctors in town used Beckerman's lab. It could be that all these arrangements were on the up-and-up. It could also mean there are a lot of nervous doctors out there.

Wloszek's attorney describes her prosecution as "kind of oppressive."

"Of course," John Pyle says, "the government likes to make examples of people."

An example, perhaps, that needed to be made.

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