DOJ Charges 15 in Southern California Health Care Fraud Cases Alleging About $2 Billion in Claims

The Justice Department announced charges Thursday, Oct. 22, against 15 people in a set of health care fraud cases centered on Los Angeles. Six of the defendants are medical professionals. Eight were arrested Thursday, and seven others were also charged.

The department put the total at about $2 billion in fraudulent claims to government and private insurers. Its itemized figures run closer to $1.8 billion. Prosecutors stressed these are several separate schemes, not one coordinated operation.

All of it is allegation at this point. The defendants are presumed innocent.

The $1.6 billion rehab case

The biggest case involves Nathan "Pablo" Young, 39, his father David "Sancho Lopez" Young, 71, both of Los Angeles, and Honey Phipps, 42, and Cody Phipps, 36, of Greenville, Texas. The Justice Department called it the largest sober-home fraud scheme it has ever prosecuted.

Prosecutors allege the group controlled dozens of treatment companies and used marketers, including so-called body brokers in Texas, to recruit homeless people and members of 12-step programs from across the country. The pitch, according to the department, included free flights, cash, apartments, gift cards, drugs and marijuana.

The department says patients with high-paying insurance policies got hotels, private apartments and dinners. Others were allegedly kept in what the charging documents call "trap houses," described as cramped, unsanitary and often derelict.

Prosecutors also allege patients were drugged "to knock the client out" if they tried to leave. Officials said some were enrolled in Zoom therapy sessions and told to keep their cameras on while lounging at the beach so the facilities could keep billing.

The four face charges including conspiracy to commit health care fraud and wire fraud, and violations of the Eliminating Kickbacks in Recovery Act. A fifth defendant, Nicholas Moore, an area manager, has pleaded guilty to conspiracy for helping submit about $199 million in false claims. The Daily Wire said it contacted lawyers for the Youngs. No lawyers were immediately listed for the Phippses.

"This was not treatment, it was not recovery. It was exploitation," said Colin McDonald, head of the Justice Department's National Fraud Enforcement Division.

Artery procedures and hospice billing

Dr. Harold Tabaie, 78, an Anaheim cardiothoracic surgeon, and Hany Malek, 61, a Tarzana chiropractor, are charged in an alleged $134 million to $135 million Medicare scheme (the department's figures vary slightly). Prosecutors say Malek posed as a medical doctor, diagnosed patients with arterial disease, and steered them to atherectomies, invasive procedures that use a bladed catheter to clear plaque.

Tabaie then allegedly performed the procedures on patients who did not have the disease, sometimes repeating them on people he had already treated unsuccessfully. Officials say patients suffered severe pain and, in some cases, injury. They also allege the pair billed Medicare under other providers' names to hide their volume.

McDonald said the case was detected through data analytics and called it "an assembly line of fraud." Malek separately faces bank fraud charges. Prosecutors allege he fabricated a 25% revenue loss to obtain a 2021 Paycheck Protection Program loan, then spent the money on personal expenses, family credit cards, other ventures and rare coins.

In a third strand, three Angelenos are charged in three hospice schemes that allegedly billed Medicare more than $138 million for patients who were not terminally ill. Prosecutors say seniors were strong-armed into hospice care. McDonald said Los Angeles "has become ground zero" for that type of fraud.

Other charges announced Thursday involve kickback-driven genetic testing and pharmacy fraud, according to the department.

Essayli and Bonta trade shots

The announcement turned political within hours. First Assistant U.S. Attorney Bill Essayli held a 9:30 a.m. news conference. "California has a fraud problem," he said. "Whether it's hospice fraud, or healthcare fraud or election fraud, California does fraud best."

The LA Times reported that Essayli's office was simultaneously seeking to sequester midterm ballots it says were issued to noncitizens.

About an hour later, California Attorney General Rob Bonta held his own news conference across the street. He said Essayli had deliberately left out his team's role in the operation, including the arrest of Tabaie, which Bonta credited to state investigators.

Bonta called it part of a pattern of "improper politicization and weaponization" of medical fraud investigations. "This isn't a political game for us," he said. "This is about protecting taxpayer dollars, protecting the programs that sick and vulnerable Californians rely on, and protecting our state."

Essayli's stated position on the credit question is the one he gave at the podium: the cases show a state with a fraud problem. The Justice Department's announcement presents the charges as the work of federal agencies including the FBI and IRS Criminal Investigation.

Darren Lian, IRS Criminal Investigation's special agent in charge in Los Angeles, said health care fraud "harms patients, drives up healthcare costs, and diverts critical resources away from those who genuinely need care."

What the money is

Claims are not payouts. The $2 billion figure is what prosecutors say was billed, and the department has not said how much insurers actually paid. Essayli described the cases as representing billions in intended losses.

He also framed the harm in terms of patients. "Every dollar drained from our private and public health insurance systems is one less dollar available to those who truly need it," he said.

The Justice Department has not said when the seven charged defendants who were not arrested Thursday will appear in court. Whether state and federal prosecutors can sort out their credit dispute before the cases go forward is also unresolved.