Feds probing Medicaid fraud at SUNY Research Foundation

Whistleblowers Claim Evidence Tampering and Obstruction of a Federal

Investigation by Supervisors
Whistleblower case is currently being heard in the District Court of the
Northern District of New York.
Complaint posted on scribd by: judgeout
HHS audit posted on scribd by : judgeout

http://www.timesunion.com/AspStories/story.asp?storyID=857095

By BRENDAN J. LYONS, Senior writer

First published in print: Sunday, October 25, 2009

ALBANY -- A federal criminal investigation into systemic fraud related to audits of New York's
Medicaid program is targeting numerous supervisors and employees at the state Health
Department and the Research Foundation for the State University of New York. Interviews with
people familiar with the matter and documents obtained by the Times Union show that in recent
weeks at least seven employees with those agencies received letters from federal prosecutors in
Albany notifying them they are targets in the investigation. The letters say evidence is being
prepared for presentation to a federal grand jury for indictment in a case involving fraud, health
care fraud, falsification of records and conspiracy.

The targeted employees were encouraged to contact prosecutors to discuss a pre-indictment

settlement, and to consult attorneys if necessary. The letters were sent by assistant U.S. Attorney
Sara Lord, who specializes in white-collar crime cases.

Federal investigators with the U.S. Department of Health and Human Services are pursuing
whether the scandal reaches into the upper levels of management for the SUNY Research
Foundation and the state Health Department, according to sources briefed on the case. At stake is
more than $22 billion in annual matching federal funds for Medicaid. The allegations are that
Research Foundation workers, who were under contract with the state Health Department to
audit the program, were pushed to manipulate data related to the percentage of ineligible people
receiving benefits.

On Saturday, the Research Foundation issued a written statement in response to a request to

interview John J. O'Connor, who is SUNY vice chancellor and president of the Research
Foundation.

The statement shifted focus to an arm of the Research Foundation in Buffalo. People briefed on
the investigation said workers at the foundation's Albany headquarters are targets of the probe.
"We understand that a number of people received target letters from the assistant United States
attorney in connection with programs carried out by the Center for Development of Human
Services, which is part of Buffalo State College,'' the statement reads in part. "Since some of the
people who received target letters are RF (Research Foundation) employees, we are cooperating
fully with all requests from federal officials."

People familiar with the case said several Research Foundation workers have alleged they were
fired or retaliated against after questioning the practice of altering data or manipulating
information such as residency requirements of Medicaid recipients.

One such employee, Ava Dock, filed a civil complaint against the Research Foundation in U.S.
District Court late Friday. The complaint alleges Dock's job in Albany is being eliminated at the
end of this year because she stood up to supervisors who were altering data in their audits. The
complaint, which seeks at least $250,000 in damages, casts Dock as a whistleblower.

Dock's complaint also accuses an unnamed Research Foundation supervisor of altering records
before the information was released last year to investigators with the U.S. Department of Health
and Human Services office of inspector general. The OIG began investigating the New York
program last fall and is now the lead agency in the criminal investigation that has followed.

The Research Foundation's ''purpose to underreport New York's error rate for Medicaid claims
was to defraud the federal government ... in order to avoid the disallowance of federal matching
funds for Medicaid to New York,'' states Dock's complaint, which was filed by Albany attorneys
John D. Hoggan Jr. and Donald T. Kinsella.

The complaint adds that while the Research Foundation submitted documents to the federal
government purporting to show an ''error rate'' in its Medicaid program of below the maximum
permitted rate of 3 percent, that the error rate ''was actually in excess of 20 percent.''

The Research Foundation considers itself a private, not-for-profit agency though its leaders are
mostly made up of top SUNY officials. The foundation contends it is not subject to the state
Freedom of Information Law. Still, the foundation handles about $1 billion annually in revenues,
mostly in research grants from the federal government. Its workers also routinely conduct
business on behalf of the state through government contracts, and many of its employees have
state government jobs and state e-mail addresses.

The Times Union is suing the Research Foundation, which employs roughly 13,000 people, in an
unrelated court action in which the newspaper is seeking access to the foundation's payroll
records. The case evolved from the Times Union's efforts to obtain employee records, including
time sheets, stems from the newspaper's reporting on Susan Bruno, a former Research
Foundation employee and the daughter of former Senate Majority Leader Joseph L. Bruno, a
Brunswick Republican.

The Times Union reported in January that Susan Bruno's resume on file with the Research
Foundation appeared to contain false information and her co-workers accused her of having an
$84,000-a-year no-show job. She later resigned from her job as a special assistant to O'Connor at
the Research Foundation.

The federal criminal investigation stretches back months. In July, Research Foundation officials
notified some workers that it had been served with federal grand jury subpoenas related to their
Medicaid auditing program. Part of the program is connected to Buffalo State College. But most
of the employees who are targets in the criminal investigation work in Albany, where the
Research Foundation is headquartered at 35 State St. ,across from the federal courthouse on
Broadway.

The Medicaid audits conducted by the Research Foundation on behalf of the state Health
Department were intended to be randomized checks of the eligibility of New York recipients of
Medicaid, which pumps billions of dollars a year into New York state -- money matched by state
and county funds. The allegations are that data was changed, altered or ignored to make it appear
there was a lower percentage of ineligible Medicaid recipients so the state would not have to
repay federal dollars from the program, records show.

Federal prosecutors also are examining whether Research Foundation supervisors may have tried
to obstruct efforts by federal auditors.

In July, a related internal Research Foundation memorandum was sent to four people, including
the interim president of Buffalo State College, Dennis K. Ponton, who also is a Research
Foundation employee. They were told in the memo the U.S. attorney's office had subpoenaed
documents related to two programs: the Payment Error Measurement program (PERM) and the
Medicaid Eligibility Quality Control Program (MEQC).

''It is of the utmost importance that we retain and preserve documents and electronic information
that may be relevant to this subpoena,'' stated the memo from Heather M. Hage, who is listed as
the Research Foundation's intellectual property manager for the Office of Technology Transfer.

In a follow-up memorandum three weeks later, Hage notified employees that the Research
Foundation had hired an Albany law firm, O'Connell & Aronowitz, ''to ensure that the
investigation is conducted in an orderly fashion.''

Hage's memo informed the employees that they may be contacted by federal agents or
prosecutors and ''the choice to speak with them is entirely yours. ... If at any time you feel
threatened or intimidated by anyone from the (U.S. attorney's office), I ask that you immediately
report the threat to me. Prosecutors and investigators often attempt to induce people to talk to
them.''

The employees also were instructed not to remove or copy any Research Foundation or state
Health Department documents without authorization.

That letter was sent out as several Research Foundation workers were cooperating with federal
investigators.
''The Research Foundation, through its legal counsel, will be making arrangements with (federal
prosecutors) to review documents and will provide them to the appropriate authority,'' Hage
wrote. ''Under no circumstances should any document or record be changed or altered in any
fashion before it is turned over.''

In the federal complaint filed by Dock late Friday, she alleges Research Foundation attorneys
from O'Connell & Aronowitz threatened her with termination if she did not agree to be
interviewed by them as part their own internal investigation. They would not allow Dock to be
accompanied to the interview with her attorney, according to the complaint.

Dock met with the Research Foundation's attorneys on Aug. 24, five days after the Research
Foundation notified her that her job was being eliminated because the agency was discontinuing
its PERM and MEQC contracts with the state.

Dock had received a letter stating the attorneys wanted to interview her to facilitate their
gathering of information for the federal subpoenas. But Dock's complaint alleges the Research
Foundation's attorneys asked her very few questions about the subpoenaed information. Instead,
she said, they ''challenged (her) opinions regarding the lawfulness of ... pervasive alteration and
falsification of data relating to the PERM/MEQC project.''

Dock recorded the interview and her complaint states she has been assisting federal investigators.

Brendan J. Lyons can be reached at 454-5547 or by e-mail at blyons@timesunion.com.

Federal whistle-blower complaint • SUNY Research Foundation ''deleted data fields and
replaced case files, falsely underreported the error rate for New York's implementation of the
Medicaid program.'' • More than a half-dozen Research Foundation employees are targets of a
federal criminal investigation related to the allegations.

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