How Medicare fraud became Miami's vice

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0:11Philip S. Forms was pretty flashy for someone who ran nursing homes. He's this kind of insanely handsome, drives a$2 million Ferrari, cavorts with models. This is Malcolm Gladwell, the host of the Revisionist History podcast and the author of many books. His upcoming book is Revenge of the Tipping Point, and it has a chapter all about Philip S. Forms. He and his father build this nursing home empire, and they expand from Chicago to Miami. And Philip moves down there, and he goes crooked. In 2019, Philip goes on trial for one of the biggest Medicare fraud cases in history. In his defense, a rabbi who had known Philip's wider family for decades took the stand.

1:00He said when he was living in Chicago, he was an upstanding citizen from this, you know, deeply philanthropic family. And then he goes to Miami and everything falls apart. And the rabbi, the family friend, says, it's Miami's fault. And I actually agree with him. I think it's Miami's fault. It's this idea that a city can ruin an individual that fascinated Malcolm Gladwell. This is The Indicator from Planet Money. I'm Waylon Wong. And I'm Darian Woods. Today on the show, how Miami became known as the capital of Medicare fraud. We learn what went wrong in South Florida and what it says about how places can change our behavior.

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2:34Unexpected turns can bring new possibilities. With a hundred years of experience navigating ups and downs, Edward Jones can help guide you. Let's find your rich together. Edward Jones, member SIPC. Medicare is the United States' way of providing near-universal health care for over 65-year-olds and people with disabilities. It spends about$900 billion a year, and that's growing with the aging population. It is this tempting pot of money for criminals. Billions are fraudulently skimmed from Medicare each year. It's the equivalent of$238 for every American adult, and fixing this won't come easily.

3:17There's no way to police the system. It's too large. So basically, it works on faith. Malcolm Gladwell points out that there are a range of ways to defraud Medicare in the U.S. An unscrupulous doctor can exaggerate bills that the government reimburses. They can fake treatments, even create fake patients. The doctor files for a claim for treating a patient. Medicare pays. And after the fact, if they notice a pattern that's suspicious, they investigate. Only after the fact. Another form of Medicare fraud involves sending the government invoices for non-existent medical equipment. Things like wheelchairs, crutches, and oxygen tanks.

3:58Now, to send those phony invoices, you have to be a medical establishment. An even easier way to make money is to become a completely fake Medicare provider. Basically, you just need a doctor's national provider identifier number, and these can be stolen off the internet. Plus, you need a physical address. So all these fly-by-night operations rent these office spaces in these Medicare mills, and they install someone behind a desk, and that's their address. And they just bill to that address. Malcolm Gladwell went to Miami himself to inspect some of these ghost medical offices. It looks like a normal office building.

4:39And you walk in, it's been divided up into offices the size of closets. And each one of these closet-sized offices has some grandiose name. The Miami Rehabilitation Hospital. And there's nothing going on. There's like one person sitting there behind an empty desk. This is so prevalent in Miami that there are even like black market consultants that help set up these fake medical facilities for a fee. You know, if you and I wanted to move to Miami tomorrow with one connection, if someone just gave us a number, we could be up in business in like a week. And this seems to show up in the numbers. For every Medicare patient in 2006, most places in Florida were spending about$200 or$300 on medical equipment.

5:24You know, things like those crutches or that oxygen tank. In Miami, it was about$1 ,200. So the question Malcolm Gladwell wanted to figure out was why? Why Miami? One reason is that South Florida has a lot of older people, so there's more legitimate health businesses to blend in with. But where does the drive for fraud come from? There is another argument Malcolm finds compelling, and it begins by winding the clock back about half a century. I got very interested in this really fun theory that comes from a wonderful book written by a guy named Nicholas Griffin, who's really obsessed with what happens to Miami in 1979 and 1980.

6:08Within a 12-month span, the city undergoes three seismic shocks that shake the credibility of all the institutions. First, there was a race riot. After four police officers were acquitted of beating a black man to death, protests turned into looting and rioting, and 18 people died. The federal government declared Miami a disaster area. This, Malcolm Gladwell says, coincided with an ongoing trend of the white middle class leaving the city. Then there was the cocaine trade. With the demand for cocaine growing, Miami became the major hub for the illicit drug entering the United States. By 1980, the city was in the midst of a drug war of feuding cocaine traffickers.

6:52This would soon overload the city's morgues. Finally, there was the Mariel boatlift. And this was this extraordinary moment in history when about 125 ,000 Cubans migrated to the U.S., mostly in Miami. And this was all in the space of several months. An analysis in the International Review of Law and Economics finds property crime in Miami increased nearly a quarter to a third due to this particular influx, along with rising murder rates. That said, the authors are very careful to point out that this was an extremely unusual case and that it's unlikely to apply to other cases of migration where more screening and resettlement efforts happen.

7:32So Miami had three big shocks in the space of a year. Griffin says any one of these would be sufficient to shake the culture of a city to its foundations. And perhaps most influential for Medicare fraud was the cocaine trafficking. The knowledge and connections needed for laundering drug money were helpful for building Medicare fraud companies. And with all the drug money washing around Miami, police and politicians and banks were becoming susceptible to corruption, bought out and bribed by criminal organizations. Malcolm Gladwell has this term called an overstory, the kind of norms and unspoken rules permeating through a place.

8:12So the idea was Miami has a kind of particular overstory, a cloud hanging over Miami that influences the people who live there in ways they may not be aware of. And high-status people were associated with medical fraud. In 1997, the federal government raided a giant for-profit health care company called Columbia HCA. The government charged it with defrauding Medicare and other federal programs and fined it$1.7 billion. The CEO at the time, Rick Scott, as in former governor and now senator for Florida, Rick Scott. The senator we should mention was never formally charged himself. That kind of thing matters, right?

8:52If the people at the top of the food chain seem to be complicit in a certain kind of behavior, that gives permission to everybody else. Philip S. Forms, the guy at the start of the show, you know, the one who was involved in that huge Medicare fraud scheme involving his nursing homes. Well, Philip was sentenced to 20 years in prison until the sentence was commuted by a certain president who now lives in South Florida. Yeah, Donald Trump. Federal agencies are trying to push back on Medicare fraud generally. In 2007, the government launched its first strike force against health care fraud. Of course, located in Miami.

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