j ourn a l o f

Insurance Fraud

in America

WINTER 2014
Volume 5 • Number 3

insight
analysis
ideas

Published quarterly by the Coalition Against Insurance Fraud

WINTER 2014
3

Deterring workers-comp fraud in San Diego
Public-awareness efforts by the San Diego District Attorney’s
office warned county residents about fraud and have
greatly expanded case referrals for investigation.
By Dominic Dugo

9

Civil suits allow auto insurers to take down organized fraud rings
Automobile insurers increasingly are turning to civil suits to help
counter the growth of complex, organized fraud rings.
By Frank Goldstein, Esq.

14

Rational swindlers avoid crime when risk not worth the reward
Criminology theory is widely used in many criminal justice areas, yet
there is no application of these theories to insurance fraud.
By Michael Skiba, PhD

19

Corporate dentistry bleeds Medicaid and vulnerable children
Corporate-owned dental chains are exploiting the underserved
market for low-income child Medicaid patients.
By Debbie Hagan

25

TrendWatch: new developments about fraud in America
Hall of Shame’s No-Class of 2014 exposes newest master marauders
… Misclassifying of workers sparks more crackdowns.
By Coalition Staff

j ourn a l o f

Insurance Fraud

WINTER 2014
Volume 5 • Number 3

in America

From the publisher
he JIFA is a window into all corners of the fraud world — an incisive guide to what definitive trends
and practical solutions are afoot. Fraud fighters continually tinker with the formula for convincing
consumers to stay away from fraud. Saturation bombing of anti-fraud messages has measurably helped
level off workers-compensation schemes in populous San Diego County, a key regulator writes in this
issue.
Dental scams are nothing to smile about, a citizen blogger says. Chain dental firms are pulling low-income
kids’ teeth and inserting steel crowns in worthless surgery that lines the dentists’ pockets with lucrative insurance
payouts. Many scams can be explained by academic theories of crime. Deterring fraud succeeds by overriding
people’s rational choices to commit fraud. Make the crime too expensive and they may back off, writes an SIU with
a PhD in insurance fraud.
Fraud fighters are making the rational and irrational choices of fraudsters harder to bear every day. Find out
uniquely why, and how, in this issue of JIFA.

T

Sincerely,

Get insiders’ info

2014. All rights reserved. For republishing information, contact Kendra Smith.
2

Journal of Insurance Fraud in America

Deterring workers-comp fraud in San Diego
Flooding market with a stern tagline motivates consumers and businesses
By Dominic Dugo

I

nsurance fraud costs California consumers
$15 billion a year.1 Approximately $4
billion of this amount is lost to workers
compensation schemes.2
As a result, the San Diego County District
Attorney’s Office has worked closely with the
California Department of Insurance, insurers and
the local community to aggressively investigate and
prosecute this costly crime. Just as important, we
also are working to deter future fraud.
The traditional deterrence approach of
highlighting prosecutions to community groups
and insurers has shown limited success. However,
with innovative thinking “outside the box,” a
public-awareness campaign focused on crime
prevention is helping reduce workers compensation
fraud in the county.
And it is succeeding at a fraction of the cost to
prosecute. Law enforcement must keep in mind that
decreasing the overall level of workers-comp fraud
is the ultimate goal. Prosecuting cases is only one of
the many tools in the District Attorney’s arsenal.
Designing an effective crime prevention strategy
requires an understanding of the types of cases
prosecuted, and the target audiences’ profiles.
Applicant fraud is most commonly understood

Abstract: Workers-compensation fraud is a problem in San Diego County, with a population of more
than three million. Public-awareness efforts by the District Attorney’s office warned county residents
about fraud and have greatly expanded case referrals for investigation over the last three years. Suspected
fraudulent claims also have largely flattened out. This suggests that the Crime Prevention Campaign
has influenced people’s attitudes and actions. The strategy over the last three years involved flooding
the market with deterrent messages. Brochures were handed out and mailed throughout the county.
Billboards were erected along freeways. Posters were distributed to business owners to warn employees
and managers against scams.

Insight • Analysis • Ideas

3

as workers comp fraud. This involves workers lying
about an injury to obtain benefits they are not
entitled to receive. Cases include employees faking a
work injury, exaggerating the extent of a work injury,
falsely claiming that an off-duty injury occurred at
work, working at a new job while collecting benefits
from the previous job, and/or lying about prior
injuries.
An entertaining video showing how the suspect
is faking the injury usually accompanies these cases.

find that robbers, drug dealers, auto thieves, sexual
predators and gang members often have significant
criminal records.

Four types of employer fraud
While employee applicant fraud is common,
more than 50 percent of the cases the District
Attorney prosecutes involves crimes by employers
and providers. There are four types of employer
fraud.
First, employers may deny injured workers
the full range of workers compensation benefits.
An employer may pay a medical bill, persuade an
employee to accept cash in lieu of filing a workers
comp claim, or intimidate workers into using their
personal health policies.
Second, premium fraud involves employers lying
to insurers to lower their workers compensation
premiums. Employers in the underground economy
may say their payroll or staff size is lower than they
really are. They may pay workers in cash and then
fail to report this payroll to the state and their
insurer.
Third, some employers operate their business
without buying state-required workers-compensation
coverage. For example, the owner of a restaurant
with 10 employees doesn’t purchase insurance to
cover employees injured on the job. Workers could
be dangerously exposed if they are hurt.
Fourth, the county also prosecutes medical and
legal providers for falsely billing insurance carriers
for services never performed. Suspects include
patients, doctors, chiropractors, lawyers and other
professionals.

Planning: Define audiences
We have learned over the years that more than
95 percent of the defendants we have prosecuted for
workers compensation fraud do not have a criminal
record. This is a critical fact when designing an
effective public-awareness approach. By contrast, we
4

Drug dealers selling cocaine on the corner or
gang members doing a drive-by shooting don’t need
to be told they are committing a crime that will
lead to incarceration. It is obvious and well-known
that these are criminal acts that will be prosecuted.
Journal of Insurance Fraud in America

However, a worker staying out on workers comp
leave for a few extra weeks or employers paying some
employees cash to reduce premiums may not readily
realize their actions could lead to felony convictions.
Thus, our crime-prevention awareness programs
focus on informing and educating the community
about workers compensation laws and the serious
price that perpetrators will pay. With the exception
of uninsured employers, workers comp fraud is a
felony in California. The penalty is up to five years
in prison.
The county’s top priority is to deter crime. Yet
we understand that certain individuals will not
be deterred from workers compensation fraud.
Unfortunately, hardened criminals exist despite the
community’s best efforts to prevent fraud. They also
may not be persuaded by outreach efforts. Therefore,
the county has a dedicated team that investigates
and prosecutes these criminals.
Yet certain individuals will commit workers
comp fraud because of an economic downturn or an
opportunity to make “easy” money. We target this
group of potential defrauders with public-awareness

non-insurer sources. Today, our Crime Prevention
awareness programs have drastically altered where
our referred cases are sourced. The outreach efforts
are generating a large volume of referrals. This is the
effort that unfolded:

Strategy: Flood the market
During the last three years, the crime-prevention
campaign has embarked on 11 high-profile
public-awareness tactics. They have alerted the
community that workers comp fraud committed by
an employee or employer is a felony with serious jail
time.
Our strategy is to flood the market with
short, easily understood messages using numerous
outreach vehicles that are provided free of charge.
This approach reinforces our prevention messages
to as many people as possible. We seek to make our

“Hundreds of employers use the
posters. One large grocery store
chain laminated 800 of them.”
tagline as wellknown in the county as the AFLAC
duck.
The primary message or tagline on all material:
“Don’t do it. Don’t tolerate it. Report it: (800)
315-7672.”
Posters. A time-honored medium in a digital

campaigns. A large percentage of these individuals
can be persuaded to not commit fraud.
The District Attorney’s experience in the last
three years demonstrates that aggressive crime
prevention awareness campaigns can reduce fraud
while also helping increase prosecutions. Two key
results:
Suspected fraudulent claims that insurers have
officially reported to the California Department of
Insurance have remained largely unchanged for the
last three years.
Historically, almost all workers comp fraud
prosecutions originated from insurance industry case
referrals. A small number of referrals stemmed from
Insight • Analysis • Ideas

age — posters may be the most effective and
affordable anti-fraud tool in our campaign.
Employees and employers were cautioned via
200,000 posters in English, Spanish and Chinese.
Employers were warned not to illegally deny benefits,
5

and employees were urged not to fake work injuries
to collect benefits. “Commit workers’ comp fraud,
get a new outfit,” the posters warned tongue in cheek
about jail uniforms.
Hundreds of employers use the posters. One
large grocery store chain laminated 800 of them.
A school district with a serious fraud problem
even hung posters in restrooms. Posters also went

to employers, insurers, government agencies and
healthcare providers.
We also fanned out with presentations to
business and other community groups. Attendees
often commented that the posters reduced workers
comp fraud in their businesses. A state agency in the
county with 1,000 employees had 500 open claims.
Claims dropped 50 percent after the agency placed
the posters throughout the workplace.
Billboards. We placed 120 freeway billboards
and transit-shelter posters across the county in
November-December 2012 and again in 2013.
Because Spanish speakers (roughly 38 percent of
California’s population) form the largest group
whose primary language is not English, 40 billboards
were in Spanish. An estimated one million people
saw the tagline message.
PSAs. Public-service announcements frequently
aired on TV. Stations generously donated studio
time to shoot the 30-second PSAs in English and
Spanish. The messages were delivered by DA Bonnie
Dumanis and her Spanish-speaking communications
chief Jesse Navarro.
The PSAs formed a succinct contact with San
Diego residents. They provided consumers with
deterrent messages and the fraud hotline number.
More than 3,000 PSAs aired on nine
English-speaking channels and seven Spanish
stations during July 2012-May 2013, and July
6

2013-May 2014. A 20-minute Vietnamese television
interview of Dumanis aired 12 times.
Print ads. Paid ads formed another campaign
prong. In one approach, we bought ads in English
and ethnic newspapers, and community news
outlets. Chamber of commerce newsletters carried
the messages forward in 2011.
More than 2,000 ads have appeared in nearly
50 publications serving these communities: English,
Spanish, Chinese, Vietnamese, Japanese, Italian,
Korean, Cambodian, Thai, Laotian, Filipino,
African-American and Military.
Thousands of people also cross from Mexico
into the U.S. each day because the county borders
on Mexico. So we ran ads in Mexican newspapers
that are distributed at the Tijuana border.
The anti-fraud posters appeared in the ads in
each publication’s language.
Brochure. A brochure was mailed to 180,000
employers throughout the county in 2013. Just like
the posters, the free brochures are handed out at
all community events. Previously, 16,000 brochures
were inserted into a local business newspaper.
Community talks. We gave more than 120
presentations to community and business groups,
amounting to roughly 6,000 people over the last
three years. The target groups included chambers of
commerce, private and public employers, insurers,
employee groups and trade organizations.
Business and labor groups were informed of
their rights, duties and penalties when dealing with
workers-comp benefits. The typical presentation
explained the varied schemes and recent high-profile
cases. Brochures and posters also were provided free
of charge.
Despite the relatively limited number of people
the presentations reached, they often generated
viable case referrals that saved tens of thousands of
stolen workers compensation dollars.

Journal of Insurance Fraud in America

Trolleys & buses. More than 250,000 people
use public transportation in San Diego County each
day. As a result, we placed anti-fraud ads inside 640
trolleys and buses throughout the county during
November-December 2013. Our well-known English
and Spanish posters were used.
Cross-border fliers. San Diego County has one
of the world’s busiest borders. More than 50 million
people cross the border with Mexico annually.
Thousands of people living in Mexico come to the
county as day workers each morning.
Capitalizing on the typical northbound traffic
backups, we handed out 190,000 double-sided fliers
(English and Spanish) at the Tijuana and Calexico
border crossings throughout 2013.
The flier, which is our poster in English and
Spanish, educated consumers crossing the border
about their rights and responsibilities under the
workers-comp system.
Radio ads. Consumers were alerted to comp
schemes via radio ads. More than 300 ads aired
on four radio stations along with 25 radio news
interviews in 2012 and 2013 combined. The ads
aired in English and Spanish.
Facebook. The campaign broadened with a
Facebook component to reach consumers of all ages
who frequent this popular site. We bought Facebook
ads in 2013. The ads were our posters. Visitors
clicking on the ad were directed to the DA’s newly
redesigned insurance-fraud homepage.
Visitors could conveniently download the
brochure, watch the PSAs in English or Spanish, or
get the hotline number to report suspected scams.
The Facebook ad logged 3.3 million views in a brief
two-month period.
Google. The world’s largest search engine
was an effective outlet. Our posters, tagline and
insurance-fraud weblink were positioned alongside
Google search results as “Sponsored links” — or subtle
advertising. We paid per click to maximize budget
efficiency. Importantly, the ad also was formatted
for smartphones, tablets and desktop computers.
This made the messages easily accessible to virtually
every digital user in the county. The link pulled 1.1
million views during the two-month effort.

Success: Crime flattens out
Our workers-comp prosecutorial staff has
remained largely the same over the last three years,
Insight • Analysis • Ideas

while only 3-5 percent of our $4.5-million annual
budget goes to public awareness. Several indicators
suggest the campaign has succeeded. It has done so
with such affordable use of these outreach resources.
Indicator: Suspicious claims that insurers
officially reported in the county have remained
largely unchanged for the last three years. This
comes after a steady growth in questionable claims
for several years (See Exhibit 1).
Exhibit 1: Insurer referrals

Indicator: Investigations the DA opened
increased 63 percent from 183 in 2011-2012 to 298
in 2013-2014 (see Exhibit 2). Prosecutions spiked from
88 to 146 over this span (see Exhibit 3). Convictions
have risen from 58 to 91 — a 56-percent increase
(see Exhibit 4). Many other cases still are pending in
court.
Indicator: The above numbers point to a parallel
fact: Referral sources have greatly expanded during
the campaign period, especially by consumers.
In turn, this has grown the number of cases for
prosecution. Several major cases have earned
convictions. Others are being investigated thanks to
leads generated by the awareness campaigns. Dozens
now are received each year.
We’re building community buy-in. Historically,
almost all workers comp prosecutions stemmed
from cases that insurers referred for potential
investigation and prosecution by the DA. These
referrals came from just 40 insurer investigators.
How can just 40 investigators, however dedicated, be
expected to uproot a large fraud problem in a county
of 3 million people?
The public-awareness campaigns worked to
enlist the entire San Diego community as allies — a
potential anti-fraud army of millions. Referrals from
throughout the community thus have risen sharply.
The hotline rings off the hook at times, especially
7

when billboards appear along freeways or PSAs air
on television.
People are thinking twice about workers-comp
scamming. How many people are upset that a
coworker is faking an injury? How many office
employees know construction-company owners who
are avoiding reporting full payroll to the insurer?

field for law-abiding employers in San Diego County.
The state and county are working hard to make this
happen. We are enlisting partners such as employers,
employees, workers and other stakeholders.
Exhibit 4: Defendants convicted

Exhibit 2: New investigations

Indicator: Common sense tells us that since 95
percent of workers-comp defendants do not have
a criminal record, our “Scared Straight” message
that comp fraud is a felony crime does deter large
numbers of potential perpetrators.
Indicator: Anecdotal community feedback at
public events says the awareness campaigns are
reducing workers comp fraud.

This healthy climate brings us ever closer to a
goal of lower workers compensation fraud, more
benefits for injured workers, and more-affordable
goods and services for consumers. By continuing to
innovate and think beyond the box, well-targeted
awareness campaigns can have an impact on people’s
attitudes — and actions. The result is a far-moreconducive environment for enabling workers
compensation coverage to achieve its full potential in
helping the county flourish.

Exhibit 3: Defendants prosecuted
About the authors: Dominic Dugo
is chief of the Insurance Fraud Division
for the San Diego prosecutor’s office. He
also oversees the office’s public-awareness
campaigns.

endNOTES

Seek level playing field
We must continue promoting a competitive
and fair business environment, with a level playing

8

1
Reducing Fraud in California, California Department
of Insurance, Advisory 1 Task Force on Insurance Fraud,
2008 http://www.insurance.ca.gov/0300-fraud/

upload/FraudReport.pdf

2
Conservative estimate extrapolated from multiple
statewide and academic studies of workerscompensation
fraud in California.

Journal of Insurance Fraud in America

Uncivil civil suits allow auto insurers
to take down organized fraud rings
Civil actions give insurers a legal tool to counter the spread of complex rings
By Frank Goldstein, Esq.

C

ountering automobile-insurance fraud has
become especially troublesome with the
continued spread of organized crime rings in varied
states. This was evidenced when law enforcement
recently cracked a suspected major staged-crash
operation in Florida.1,2
In that case, investigators reaffirmed how
well-orchestrated many rings have become in recent
years. In fact, several automobile-fraud rings create
files that both identify insurers they perceive as soft
touches willing to pay claims and avoid prolonged
anti-fraud efforts, and which carriers are more likely
to fight back.
I believe the rise of organized insurance-fraud
rings can be linked in no small measure to many
insurance carriers looking the other way and paying
suspicious claims just to stop the bleeding. The
thinking is, let’s cut our losses and not get mired in
a protracted legal fight that could cost more than
the initial fraud. That position only emboldens
aggressive fraud rings.
This seeming money-saving decision likely has
cost some insurers much more over the long term
because perpetrators keep returning to the same well
for relatively easy pickings. Large-scale scammers

Abstract: Automobile insurers increasingly are turning to civil suits to help counter the growth of
complex, organized fraud rings. Civil actions can be expensive and require a full commitment to seeing
the action through. Insurers often barely break even after large legal expenses. Yet the suits signal to
the criminal underworld that defrauding particular insurers is a no-win proposition. They also allow
insurers leeway to take action instead of waiting for criminal charges to be handed down. Auto insurers
increasingly are filing state and federal RICO actions. RICO allows insurers to present evidence of the
defendant’s entire criminal operation. This gives insurers a powerful legal tool to take down the complete
enterprise.

Insight • Analysis • Ideas

9

who have succeeded in one state often migrate to
other states they believe lack the infrastructure
to successfully combat their operations. Different
locales, but the same insurers are hit up for
fraudulent payments.
This rise of organized auto-fraud rings comes
with a price tag. Average automobile premiums
must be raised to cover fraud losses; just how much
depends upon the state in which an insured lives.
In New York, for example, auto-insurance fraud
costs residents $1 billion every year, state officials
estimate.3

“This rise of organized
auto-fraud rings comes with a
price tag.”
No-fault schemes also add nearly $100 in extra
premiums for the average family with two drivers
in Florida, the Insurance Information Institute
estimated at the height of a successful 2012 drive to
reform that state’s no-fault fraud laws.4

Suits make statements
A number of auto insurers, however, have
actively begun using civil suits to counter organized
auto-fraud rings. These carriers are willing to absorb
usually significant court costs without assurances
of full restitution. They want to send a statement to
the public and criminal underground that targeting
them exacts a large and untenable price.
Insurers also can act decisively on their own
rather than wait for the criminal system to accept
and prosecute cases. The burden of proof is lower
in civil cases than criminal actions as well, and
can earn potentially large court awards that offer
opportunities to bankrupt the ringleaders. All told,
civil suits can be an imposing weapon.
Overall, some insurers appear to be filing more
civil actions to take a public stand against insurance
fraud. The aim is to stop the crime on a global front.
Otherwise the concern is that fraud rings will simply
continue reinventing themselves and their scams,
thus eroding insurer profits and raising customers’
auto premiums.5
Led by several major insurers, numerous fraud
cases have been litigated in recent years. Civil suits
10

typically seek millions of dollars in restitution from
fraud rings.
™™ In a case settled out of court days before trial,
State Farm Insurance may have recovered as much
as $20 million from the Palm Beach Lakes (Fla.)
Surgery Center for wrongfully driving up medical
costs by colluding with attorneys and medical device
manufacturers in a 2013 no-fault fraud case.6
™™ In New York, Allstate filed a $30-million
lawsuit against numerous doctors, attorneys and
clinics involving a more than $400-million “massive
and sophisticated” no-fault scam involving 22
healthcare firms, 10 licensed medical professionals
and three attorneys in a case the FBI labeled at the
time as the largest single no-fault auto insurance
fraud ever charged.7 Several defendants have pled
guilty, with millions of dollars recovered to date.
™™ In August 2014, Allstate and the State of
California won a judgment of more than $1.4
million against a Sonoma County business that
billed for fraudulent auto-glass and windshield
replacements.8

Insurers may face reprisals
So why don’t all insurers litigate civil cases, and
more often? Even though I litigate insurance fraud,
I am not always convinced that filing a suit is the
optimal course of action.
There is much to consider. Filing a successful
civil action typically requires significant
substantiation to prove fraudulent activity. An
insurer must be prepared to fight ... long and hard.5
A lawsuit usually is time-consuming and expensive.
And insurers often are fortunate to break even
because court-ordered restitution may have been
laundered or spent.
Beyond that lies the possibility of reprisal. Many
defendants file a counter-suit almost immediately
after an insurer files its action. Bad faith is one
common allegation. Insurers must be certain of their
facts.
Although insurers lodge most civil suits in state
courts, a growing number of actions are playing out
in federal venues.
Farmers Insurance, for example, sought nearly
$2 million in a federal lawsuit filed in Minnesota
against 46 chiropractors and an MRI firm it alleged
was ordering unnecessary scans for auto-accident
victims.9
Journal of Insurance Fraud in America

State Farm filed a federal suit alleging a “massive
fraud scheme” against the 1-800-ASK GARY
accident-referral service in Florida. The insurer
alleges the large firm illegally referred crash victims
only to medical providers controlled by owner Gary
Kompthecras in Florida, Minnesota and Kentucky.10
The defendants allegedly “promoted their
fraudulent enterprises by providing money to anyone
who referred accident victims to the clinics, offering
cash directly to patients who agreed to accept
unnecessary chiropractic treatment, and dispensing
treatment in a manner designed to maximize profits,
rather than heal patients.”

RICO takes down rings
Geico filed suit against a Florida chiropractic
center and its recruiters in July 2012. The insurer
was going after a suspected staged-crash ring that
allegedly stole more than $2.3 million in bogus
claims.11
The insurer alleged civil conspiracy,
common-law fraud, tortious interference with
contractual relationships, tortious interference
with advantageous business relationships and
unjust enrichment, plus violations of federal RICO

(Racketeering Influenced and Corrupt Organization
Act) and the Florida Deceptive and Unfair Trade
Practices.
The suit illustrates that insurers may combine
RICO with a wide range of other state and federal
charges to cast a large legal net that increases the
likelihood of a favorable verdict.
Whether a state or federal action, RICO suits
enable insurers far more freedom to present to
the court a total picture of a complex fraudulent
enterprise. Insurers can go beyond presenting
evidence solely for a single false claim. RICO allows
insurers the legal infrastructure to identify and take
down the entire operation in civil court.
A number of prosecutors and insurance
companies are successfully using RICO charges.
The federal law allows crime-syndicate leaders to
be prosecuted for crimes they ordered or assisted
in — even if they did not directly participate in the
criminal action.
RICO has proved so effective on the federal
level that 33 states have adopted RICO laws to
enable suits against criminal enterprises at the state
levels.12
Suing to recover more than $185 million in
fraud-related damages since 2003,13 Allstate uses

The insurer alleges the large firm illegally referred crash victims only to
medical providers controlled by owner Gary

Insight • Analysis • Ideas

11

RICO lawsuits to go directly after the leaders of
organized fraud rings, beyond solely the lieutenants
and foot soldiers. The tactic has worked, as
evidenced by the company’s $7-million judgment in
its first Nevada medical-fraud case.14
Filed in 2010, the suit challenged several
medical professionals and personal-injury attorneys,
and sought to recover funds from 78 auto-accident
claim settlements. Allstate alleged that each
defendant violated Nevada and federal law based on
a pattern of deceitful behavior.

“Carriers using civil suits, along
with support legislation and
landmark court cases, believe
they must make a stand or
automobile-fraud will continue
escalating.”

such a protracted legal battle, and thus let other
insurers fight the fight.

Insurers taking longer view
Carriers using civil suits, along with support
legislation and landmark court cases, believe they
must make a stand or automobile-fraud will continue
escalating. While cost-benefit analyses and the time
commitment remain important considerations when
deciding whether to file civil cases, insurers are
moving forward for other reasons
Many are taking a closer look at their exposure,
searching for patterns and trends, and then filing
suits — even with no immediate return on the
investment. I believe this is leading many carriers to

As Allstate puts it: “exaggerating treatment
reports, providing unnecessary chiropractic services,
preparing fraudulent bills and making unnecessary
referrals to healthcare providers for their own
financial gain.” 
RICO suits also can stretch expensively for
years. Allstate’s federal lawsuit, for example, alleged
deception and coercion against accident victims
by medical clinics in Alabama, Indiana, Ohio
and Texas. The case also involved a Louisiana
telemarketing firm and 66 defendants in a complex
multi-layer prosecution.15
Allstate alleged the organization solicited
persons involved in automobile accidents, ran them
though unnecessary treatment, and referred them
to allied personal-injury law offices to make false
claims.
This lawsuit was filed in March 2008,16 and went
to trial in February 2013. A verdict eventually was
handed down that April.17 The verdict was appealed,
and an appeals court finally approved the $6-million
award in April 2014.18
Building complex and far-ranging RICO cases
such as this also requires meticulous preparation to
prove such expansive allegations. The insurer also
could face actions alleging bad faith, defamation,
abuse of process and other charges. Many insurance
companies may not have the resources or will for
12

Journal of Insurance Fraud in America

take the longer view — that fighting today will help
minimize future exposures.
The insurance industry may have won several
recent key battles and is increasingly deploying
anti-fraud tools that have helped put a dent in fraud.
While we all realize we will not eliminate fraud. It is
too profitable, and in some cases, just too easy. The
question becomes: How do we attack it?
By taking more aggressive action against the
rings and their leadership, insurers can strip away
much of the profit and make it more-difficult for
organized rings to succeed. More important, that
creates major victories for their customers, who are
the ones who must pay the price for fraud.

About the author: Frank S. Goldstein
is the founder and managing partner
of Goldstein Law Group, a premier
AV-rated law firm concentrating on the
investigation, detection and litigation of
fraudulent insurance claims. The firm’s
practice areas include auto, property and
healthcare insurance fraud. Goldstein
concentrates on civil prosecution of insurance fraud claims
and defense of insurance matters, including personal-injury
protection, bodily injury and uninsured/underinsured
motorist claims. Goldstein was recognized as Insurance
Attorney of the Year at the annual Florida Insurance
Fraud Education Committee conference in 2013.

endNOTES
1
33 Arrested in Staged Accident Scheme, National Insurance
Crime Bureau, May 21, 2014.
2
Insurance Fraud Ring Busted, wptv.com, May 16, 2014.
3
Allstate Alleges $30 Million Insurance Fraud, Demands NY
Reform, Law360.com, May 11, 2012.
4
No-Fault Auto Insurance in Florida, white paper, Insurance
Information Institute, 2011.
5
Conversation with insurance company SIU representative,
August 18, 2014.
6
Source: Insurer settles lawsuit against West Palm Beach
surgery center, maker over spinal device for as much as $20
million, Palm Beach Post, February 23, 2013.
7
Two Clinic Owners Plead Guilty for Their Roles in Massive
No-Fault Insurance Fraud Scheme, fbi.gov/newyork, February
13, 2013.
8
Sonoma County windshield repair business ordered to pay
$1.4 million in fraud case, Press Democrat, August 7, 2014.
9
Insurer accuses 46 Minnesota chiropractors, MRI firm of
fraud, Star Tribune, October 15, 2013.

Insight • Analysis • Ideas

10
State Farm accuses 1-800-ASK GARY of “massive fraud
scheme,” Star Tribune, August 1, 2013.
11
Chiropractors in $2.3 Million PIP Insurance Fraud Scheme
Will Face RICO Charges, FLPIPGuide.com, April 15, 2014.
12
RICO State by State: A Guide to Litigation Under the
State Racketeering Statutes, Americanbar.org/publications GP
Solo eReport, 2nd edition, November 2012.
13
Allstate Files $6.3 Million No-Fault Fraud Lawsuit in NY,
NU Online News Service, December 21, 2011.
14
Allstate Wins Major Medical Fraud Lawsuit; Puts
Fraudsters on Notice, PRNewswire, September 13, 2012.
15
Alleged Multi-Million Dollar Fraud Ring Target of Federal
Lawsuit, PRNewswire, March 6, 2008.
16
Allstate Insurance Company et al. v. Plambeck et al, dockets.justia.com/dockets/texas, March 8, 2008.
17
Allstate Says Evidence Supports Jury’s $6M RICO Award,
Law360.com, June 18, 2013.
18
Allstate Can Keep $6M Telemarketing Fraud Award,
Law360.com, April 2, 2014.

13

Rational swindlers avoid crime
when risk not worth the reward
Theories about rational crime choices and deterrence offer clues about preventing fraud
By Michael Skiba, PhD

C

riminology is the scientific study of
criminal behavior. Criminological theory
focuses on what causes crime. The goal is to
help understand the criminal mind as a roadmap to
developing effective anti-crime strategies.
Crime theory helps reveal what motivates and
deters criminals. Criminological theory has been
widely used in mainstream disciplines such as
homicide and robbery. However, there is a large gap
in research and hence academic theory that applies
to insurance fraud.
What internal and external factors positively
motivate and negatively deter insurance fraudsters?
What makes them commit and not commit fraud?
Understanding this framework will assist
insurers, regulators and legislators in developing
more-effective anti-fraud strategies.
Studies suggest that both planned and
opportunistic fraud are rising. However,
opportunistic fraud presents the most significant
threat in our current fraud environment.1
This analysis focuses on opportunistic
fraudsters — those who have a legitimate loss but
exaggerate claims. Organized crime rings, staged
crashes and other planned frauds involve criminals
whose psychological makeups are distinct from
opportunistic fraudsters. They would be ideal focal
points for separate analyses.

Abstract: Criminology theory is widely used in the many criminal justice areas, yet there is no
application of these theories to insurance fraud. Better understanding these theories and how criminals
are motivated will assist insurance companies in developing effective anti-fraud strategies. Rational-choice
theory, in particular, is the foundation of environmental criminological principles. It thus follows that
if fraudsters consciously choose to commit fraud, then anti-fraud strategies should focus on decreasing
opportunity. We want to design programs that increase the difficulty of committing fraud, and reduce the
choices that offenders may have. This will fit into the cost-benefit analysis and deter fraudsters.

14

Journal of Insurance Fraud in America

There are three major schools of criminology
theory (or criminal behavior):
™™ Biological;
™™ Psychological; and
™™ Sociological.
All three theories are explored here in an
insurance-fraud context to determine which apply
most to anti-fraud preventative efforts.
Biological. This theory proposes that the
primary root causes of deviant criminal behavior
are abnormalities present within an individual. The
biological school of criminology focuses on genetic
abnormalities, or defects, that are inborn and push
an individual toward crime.

“Strain theory proposes that
crime stems from the conflict
between people’s goals and
how they achieve their goals.”
Cesare Lombroso pioneered this school. He
portrayed criminals as people with certain inbred
physical traits due to poor body construction such
as sloping foreheads, asymmetry of the skull, long
arms and other ape-like, subhuman characteristics.
Criminal behavior stemmed from these inborn
factors, not from rational thought and free will.
Many researchers conclude that chemical
imbalances are common to these individuals. Thus,
balancing these chemicals with medication is the
most-effective method of behavior management.
The biological school offers little for insurance-fraud
preventative efforts. Fraud fighters are not equipped
to medicate potential offenders or help rebalance
their genetic flaws.
Psychological. This school focuses on the
individual’s mind — specifically, personality flaws
and how they contribute to criminality.
Like the biological school, the psychological
school focuses on the individual as the root cause
of deviant behavior. Environmental or other social
issues are secondary, if considered at all. Some
studies in this area have focused on risk factors such
as reduced cognitive functioning, low IQ and mental
illness, and how they strongly correlate to criminal
deviance.
Insight • Analysis • Ideas

One such study was a survey of 69 children with
measurable reduced cognitive functioning.2 The
children were canvassed for 13 possible offenses:
alcohol use, animal cruelty, breaking and entering,
indecent exposure, fire setting, paraphilia, physical
assault, sexual assault, substance use, theft, truancy,
vandalism and vehicular homicide.
Alarmingly, the results showed that 23 children
— fully one third — had committed serious offenses.
Of this group, 17 (72 percent) had two or more
incidents on record. Similar to the biological school,
the psychological school has little relevance to
insurance fraud. Insurers do not have the ability to
manipulate an offender’s internal, cognitive flaws.
Sociological. Environment rather than the
individual is the key to behavior influence. This
school focuses less on individual microbehavior and
more on macro group behavior. Many sociological
theories can apply to insurance fraud because
environmental factors can be manipulated. Let us
review some of the most significant theories and how
they apply to insurance fraud.
Strain theory works to explain behavior by
focusing on social strain or pressure. People
experience social strain when they feel pressure or
stress from being unable to obtain certain goals
within society.
As a global culture, we measure success by
wealth, power, prestige and material possessions.
Frustration ensues when a certain status cannot be
obtained. That status may be measured in money,
employment, school or community. This frustration
is likely to generate criminal behavior.
Strain theory proposes that crime stems from
the conflict between people’s goals and how they
achieve their goals. People feel strain when they
cannot obtain these benchmarks of success through
traditional means of employment and working. Thus
they pursue crime as an alternate means to success.
Strain theory is relevant to the anti-fraud
community because many opportunistic fraudsters
commit fraud to help alleviate social strain. Since
America currently faces a tight job market, with
reductions and downsizing quite common, many
people do not have the traditional means to earn
a stable income and obtain their benchmarks of
success. They commit insurance fraud to fill that
void.
Many social theories focus on environmental
factors and their significant role in crime.
15

Rational-choice theory is a central theme of
environmental criminological theory. It is based on
the premise that offenders make a rational choice
to commit crime, and are influenced in part by
environmental factors.
Rational-choice theory was developed in the
1970s and 1980s. It is similar to many tenets of
classical criminology. It proposes that offenders
make a conscious, rational choice to commit crime.
Some theorists relate this conscious choice to the
economic principle of cost-benefit analysis: People
weigh the benefits and potential outcomes of an
action, and then make a conscious choice to act.
Rational-choice theory is the foundation of
environmental criminological principles. It thus
follows that if fraudsters consciously choose to
commit fraud, anti-fraud strategies should focus on
decreasing opportunity. We want to design programs
that increase the difficulty of committing fraud, and
reduce the choices that offenders may have. This will
fit into the cost-benefit analysis and deter fraudsters.

making a choice

Deterrence theory was developed from this
rational-choice perspective. It proposes that
anti-crime (or in our case, anti-fraud) programs focus
on reducing opportunity to deter rational thinkers
from committing crimes.
This school of thought also assumes fraudsters
are rational thinkers who will avoid criminal
behavior if they are highly deterred. Insurers can
take many actions to increase deterrence. They can
16

develop and publicize strict zero-tolerance programs
by making it clear that fraud cases will be diligently
investigated and prosecuted.
Insurers also can support and publicize fraud
convictions. This may send a strong message to
future potential fraudsters. Insurance schemers are
rational thinkers and will respond to deterrence if
convictions are highly publicized.
Legislative anti-fraud efforts also will help create
a deterrent effect. Because fraud is traditionally
under-prosecuted, this sends a message to the public
that it is a relatively low-risk crime.3 There is no
deterrent effect when the punishment is low because
the reward will be worth the risk to the rational
fraudster.4
Routine-activities theory was developed by
Lawrence Cohen and Marcus Felson in 1979.5 They
also explore the environmental factors of crime. This
theory proposes that three critical elements must be
present for crime to occur:
™™ Suitable targets;
™™ Capable guardians; and
™™ Motivated offenders.
Crime happens when all three components
align, the researchers propose. As stated earlier, there
is virtually no application of sociological theories in
the insurance-fraud industry. Thus we cannot draw
upon specific studies to determine if certain theories
will have merit in an insurance-fraud setting.
However, social theories, and specifically
routine-activities theory, have great promise because
insurers can manipulate all three critical elements in
their favor. Routine-activities theory thus warrants
more exploration. This theory has proven relevant
and reliable in explaining behavior in other criminal
areas such as street robbery and auto theft. Crime
then will be deterred if one of the three elements is
absent.
Elizabeth Groff tested routine-activities theory
and found strong support in a street-robbery
scenario.6 Street robbery was chosen because
it involves direct interaction between victim
and offender, and is considered a crime for
economic gain. Both factors likely will result in a
rational-choice decision. This study is valuable to the
fraud arena because it focuses on the relationship
between the victim (suitable target such as insurer or
consumer) and offender (motivated offender).
Application of routine activities is significant
because the potential for crime reduction is
Journal of Insurance Fraud in America

extremely high. These situational factors can
be more easily and quickly altered than altering
root-cause deviant behavior.
Insurance-fraud victims (or suitable targets)
would be insurers and/or their policyholders. The
motivated offender would be the potential fraudster.
Crime could be prevented if one of the three
elements is manipulated against the prospective
perpetrators. That was the focus of the Groff study.

“Insurance-fraud victims
(or suitable targets) would
be insurers and/or their
policyholders. The motivated
offender would be the potential
fraudster.”
Andresen (2006) tested the merit of routine
activities and focused on auto theft, breaking and
entering, and violent crime in Vancouver.7 His
significant study showed positive support for routine
activities as a viable cause for criminal activity.
Making alterations to help reduce victimization
as outlined in routine- activities theory was key
to reducing criminal opportunities, these studies
found. This in turn reduced criminality. In applying
this to insurance fraud, if insurers as suitable targets
alter their anti-fraud strategies, then this will reduce
opportunity, disrupt the continuum and reduce
fraud occurrences.
For example, insurance companies will disrupt
the continuum and make themselves less-suitable
targets by making more-aggressive red-flag systems,
increasing the use of critical gatekeepers such as
analysts and claims staff, and supporting public
outreach.
As stated previously, having a suitable target
is one of the three elements of routine-activities
theory. The research cited thus far has shown
support for routine-activities theory as an effective
means to explain and deter criminal offending. Any
manipulation of victim (insurer) activity reduces the
opportunity to victimize.
This theory has significant implications
for anti-fraud strategy. The research supports
a fraud-reduction strategy focusing on making
the target “harder” for an offender to victimize.
Insight • Analysis • Ideas

Contemporary theories of offending support this
approach in other criminal arenas.
Building upon the theories of environmental
criminology are contemporary perspectives of crime
prevention by environmental design (CPTED).
CPTED theorists focus on the environmental factors
of crime by analyzing extraneous factors that can
help reduce crime and victimization.
The foundation of CPTED began when
proponents found that altering the physical
properties of buildings and other “physical” elements
caused a significant reduction in criminality.
Early application in an urban-housing setting
in Sarasota, Fla. in 1999 and 2003 showed that
CPTED strategies are highly effective at reducing
criminality. Criminal justice professionals in
Sarasota reduced opportunity by modifying
environmental factors such as zoning regulations,
buildings and other physical structures.8
This basic theoretical foundation grew into
a mindset that modifying environmental factors
provides the rational offender less opportunity
to commit criminal behavior, thus reducing the
“suitable targets.”
A significant study of victimization by Byers
& Crider in 2002 also shows that many offenders
do not premeditate crime; they act when an
opportunity presents itself.9 The researchers
performed a qualitative analysis by conducting
face-to-face interviews with criminal offenders who
had victimized members of an Amish community.
Several interviewees remarked that their criminality
was never premeditated; it “just happened.”
Offenders acted in a deviant manner when
they were presented an opportunity, the authors
discovered. It thus behooves insurers to develop as
many ways to reduce this opportunity as possible to
thwart fraud events. These corporate strategies could
include:
™™ More aggressive up-front identification of
potentially fraudulent cases;
™™ Effective software packages to identify
high-risk claims;
™™ Coordination with underwriting and sales
staff to assist with fraud identification; and
™™ Aggressive investigation once a potentially
fraudulent case is identified.
Companies should predetermine their
vulnerable areas and then make these areas
less-vulnerable.
17

An important CPTED strategy involves the
concept of “foreseeable danger.” In this critical step,
a risk assessor analyzes the case, crime, company, etc.
and then determines potentially vulnerable areas on
which to focus efforts.
This risk assessment is comprehensive and could
entail reviewing prior data, spreadsheets, internal
company information and external trends. Socialenvironmental theory proposes that crime is not
a matter of motivation, but of opportunity. These
rational-choice theories focus on how situational or
environmental factors contribute to crime causation.
These theories are based on rational thinking.
Potential offenders use choice-structuring properties
— the crime’s cost-benefit analysis. Making fraud
more difficult will result in less opportunity and
fewer fraud occurrences.
When I began my academic research career
about 10 years ago, I realized that a lack of
benchmark was a shortcoming of applying theory to
anti-fraud practices. There are virtually no studies
that apply these principles to insurance fraud.
This shortcoming offers a major opportunity for
anti-fraud leaders to test these theories as anti-fraud
strategies. The related challenge is to communicate

successes and failures to build a benchmark base that
starts filling a large knowledge gap. Other industries
succeed when applying theory to policy development.
Because there are no central repositories for
reporting insurance fraud, insurers should consider
creating a research foundation by pooling funding.
If company-specific data on fraud strategies were
available for interpretation, a more effective
approach toward preventative efforts could be
established.

About the author: Michael
Skiba has worked in the insurancefraud profession for 20 years as
an SIU investigator, analyst and
in management. He currently
works in the special investigations
unit at Interboro/AutoOne/
Maidstone Insurance. He also is
Lead Professor of Fraud Management at Colorado State
University Global Campus. Skiba lectures internationally
and regularly publishes on insurance fraud. He holds an
MBA and PhD with a concentration on insurance fraud.
Skiba also is president of the New York Chapter of the
International Association of Special Investigative Units.

endNOTES
1
A Phenomenological Study of the Barriers and Challenges
Facing Insurance Fraud 1 Investigators, by J.Michael Skiba,
Journal of Insurance Regulation, 2014, Volume JIR-ZA-33- 04,
Page 26.
2
Incidence of Law-Violating Behavior in a Community
Sample of Children and Adolescents withTraumatic Brain
Injury. James Luiselli, Michelle Arons, Nina Marchese, Andrea
Potoczny-Gray and Erika Rossi, International Journal of
Offender Therapy and Comparative Criminology, 2000, Vol.
44, 6: Pages 647-656.
3
Why Fraud Persists, Coalition Against Insurance Fraud.
http://www.insurancefraud.org/fraud-whyworry.
htm#Why%20fraud%20persists
4
A Phenomenological Study of the Barriers and Challenges
Facing Insurance Fraud Investigators, by J. Michael Skiba,
Journal of Insurance Regulation, 2014, Volume JIR-ZA-33- 04,
Page 14.
5
Social Change and Crime Rate Trends: A Routine Activity

18

Approach, by Lawrence Cohen and Marcus Felson, American
Sociological Review, 1979, Volume 44(4), Pages 588-608.
6
Simulation for Theory Testing and Experimentation: An
Example Using Routine Activity Theory and Street Robbery,
by Elizabeth Groff, Journal of Quantitative Criminology, 2007
Volume 23(2), Pages 75-103.
7
A spatial analysis of crime in Vancouver, British Columbia:
a synthesis of social disorganization and routine activity theory,
by Martin Andresen, Canadian Geographer, 2006, Volume
50(4), Pages 487-502.
8
Zoning out Crime and Improving Community Health in
Sarasota, Florida: Crime Prevention through Environmental
Design, by Sherry Carter, Stanley Carter, and Andrew
Dannenberg, American Journal of Public Health, 2003,
September, Volume 93(9), Pages 1442-1445.
9
Hate crimes against the Amish: a qualitative analysis of bias
motivation using routine activities theory, by Bryan Byers and
Benjamin Crider, Deviant Behavior, 2002 Volume 23(2), Pages
115-148.

Journal of Insurance Fraud in America

Corporate dentistry bleeds Medicaid,
vulnerable low-income children
Dentists yank healthy teeth, fleece Medicaid under pressure to optimize income
By Debbie Hagan

L

ower-income children staggered from their
dental chairs. Many reached dangerously
high heartbeat rates and were returned
to their parents trembling, crying and
clothes soiled. They were scared and traumatized by
the painful surgeries they’d just received, and begged
their parents never to bring them to the dentist
again.
Their parents took their kids for routine
checkups, expecting caring and minimal treatment.
Instead many left with a mouth full of frightening
steel-capped teeth. Others had a dozen or more
perfectly healthy teeth pulled without medical
necessity. Children routinely were tightly strapped
from head to toe onto a papoose board to prevent
them from struggling when surgical instruments
were shoved into their mouths without anesthesia.
These are the common horror stories of children
receiving Medicaid dental care around the U.S. Most
are from vulnerable, low-income families. Foster care
children of military families also are abused.
Many and likely most Medicaid-serving dental
clinics provide caring and valuable service. Yet
large, corporate-owned dental chains have literally
and figuratively extracted large and illicit profits
by focusing on this underserved market of the

Abstract: Corporate-owned dental chains are exploiting the underserved market for low-income child
Medicaid patients with large-scale fraudulent and abusive treatment. Most dental clinics are honest and
forthright. But aggressive business models pressure some dental chains to fraudulently optimize volume
treatment, ignoring the child’s medical needs. Children undergo useless and painful root canals, cavity
fillings and extractions. The clinics impose mouthfuls of steel teeth the children don’t need. Medicaid
likely is billed hundreds of millions of dollars a year in false dental treatment of children. Lawsuits and
criminal actions are breaking up schemes. Still needed are more enforcement by dental boards, and
education of parents about the warning signs of a scam.

Insight • Analysis • Ideas

19

nation’s poor. Epidemic insurance fraud and abuse
of little patients drive the business models pursued
by some large chains that have erected networks of
high-production Medicaid mills.
The nation’s state-federal Medicaid partnership
covers 60 million lower-income Americans, with
spending of $450 billion annually.1 The program’s
sheer size places Medicaid at considerable risk
of fraud and abuse. Medicaid child dentistry is
among the highest risks. No composite figures
track the insurance-dollar losses to defrauding of
young Medicaid patients. The figure likely runs to
hundreds of millions of dollars a year.
Texas state Medicaid investigators, for example,
have paid more than $550 million for medically
unnecessary orthodontic and dental services
between 2007 and 2011.2
Criminal prosecutions, news exposes, hundreds
of lawsuits plus congressional investigations are
rocking dental chains as allegations of civil and
criminal malfeasance keep surfacing.
Lower-income children are generally
underserved, and thus form an inviting market for
profit-trolling equity funds.
Fewer than half of Medicaid-enrolled children
received dental care in 22 states, reveals a 2013
report by the respected Pew Charitable Trusts. More
than 14 million Medicaid children didn’t receive
dental care in 2011. This creates a lucrative market
for corporate-owned dental chains to fill.3
Medicaid dental practices also are less-regulated
than physician groups, and patients often see their
dentist more often than their doctor.4
And several states continue raising
reimbursement rates to successfully attract more
dentists. Plus the tragic 2007 death of a Medicaid
child attracted great national attention to the
program’s problems. The child died from a brain
infection caused by an untreated tooth abscess.
Regulators upgraded Medicaid to make the program
safer and attract more participants. 
Thus we have these owners or portfolio
managers: Big Smiles is in the portfolio of Morgan
Stanley. Small Smiles was purchased for $435
million by a consortium of investment firms,
including the Carlyle Group, Arcapita Corporate
Investments and American Capital. Valor Equity
Partners owns All Smiles in Texas. FFL Partners
owns the largest national chain — Kool Smiles.
Medicaid became an especially inviting
20

investment in Texas in 2007 when a lawsuit
settlement dramatically increased Medicaid fees.
Corporate dental chains soon descended onto the
federal insurance program.5
One was the Atlanta-based Kool Smiles. It is the
largest Medicaid dental chain in the U.S., serving
about two million children with 130 offices in 17
states.
Connecticut Medicaid also noticed a spike in
children receiving stainless-steel crowns. The crowns
didn’t fit and teeth underneath were decaying. The
company eventually satisfied Medicaid that it had
corrected the problems.
The problem of Medicaid fraud, however, is
larger than Kool Smiles. High volume and rapid
patient turnaround of assembly-line surgeries
form the lynchpin of a business model that has
dangerously commoditized dental care of thousands
of Medicaid kids.
Dentists embedded in dishonest chains seek
the largest Medicaid payments possible from a given
procedure, regardless of medical need. Worthless
tooth extractions, steel crowns and cavity drillings
heist far more insurance money than honest,
low-cost cleaning and preventative care.
The equity owners typically hand over business
operations to so-called dental management firms
that they own. The management companies publicly
purport that they are mere vendors, providing dental
clinics with back-office administrative services
such as billing, payroll, staff hiring and other
non-treatment, non-medical decisions.
In truth, the management companies illegally
Journal of Insurance Fraud in America

control the chains. They install dentists as straw
clinic owners. False ownership skirts laws in most
states that ban corporate ownership of medical
clinics, and require dentists to own and operate
the clinics. The illegal arrangements are hidden in
a complicated maze of service agreements, straw
corporations and limited-liability corporations.
The management firms also hire dentists and
support staff. More important, they control Medicaid
income production. Dentists are required to produce
so much income that fraudulent treatment and
abandonment of clinical judgment are inevitable
byproducts of work to meet such aggressive goals.
Lucrative bonuses for meeting production goals
reinforce the assembly-line treatment model.
The Medicaid mills thus falsely charge Medicaid
for crowns, root canals, bridges and other expensive
procedures when the children — often just babies —
only need routine checkups, cleaning or filling of a
small cavity. Bungled and medically useless surgeries
often require expensive and traumatic remedial
surgery and hospitalization.

“Small Smiles contract said the
straw owners will lose their
owner status — and lucrative
income — if they divorce. The
clinic would be contractually
considered a marital asset.”
The contracts of hired dentists tend to be
restrictive, almost like handcuffs, and reinforce
the aggressive treatment strategy. High production
demands often are embedded in employment
contracts.
Medicaid mills often treat 80-100 patients
per day, with required billings of $500-$1,000 per
patient that are tracked daily. The goal typically is
to gouge as much Medicaid money as possible from
the child’s first visit, and avoid lesser follow-up
procedures that slow the billing flow.
Foreign dentists form a large component of
business models. They comprise up to 30 percent
of the Small Smiles dentists, for instance. Overseas
dentists need steady work to legally remain in the
Insight • Analysis • Ideas

U.S. Clinic chains such as Small Smiles and Kool
Smiles offer that gainsaying employment.
High treatment quotas impose a strong
incentive to over-treat and defraud Medicaid just
to stay employed. Once caught in the trap of
insurance fraud, they are virtually forced to continue
defrauding or risk being deported if they lose their
jobs for missing quotas.
Recent graduates of U.S. dental schools also are
recruited. They face considerable student debt plus
difficulty in securing mortgages or other loans. The
attractive salaries and easy employment give these
graduates a quick leg up in life.
Contracts also tether dentists to the chain
outlets, further entrapping them in a web of fraud.
Small Smiles contracts, for example, stated that
dentists must give 90 days notice before leaving
or pay a fine of $500 per day. Some Small Smiles
contracts had non-compete clauses restricting
dentists from providing care to Medicaid children —
at any other clinic — within the service area.
Dentists installed as straw owners have their
own, often strange, contractual restrictions. The
Small Smiles contract said the straw owners will
lose their owner status — and lucrative income — if
they divorce. The clinic would be contractually
considered a marital asset and the dentist would
have to sign over the illicit “ownership” to whoever is
designated, usually for just $100.
Children often are strapped to so-called papoose
boards. These and other restraining devices prevent
the child from resisting and allow dentists to finish
painful production-line surgeries faster. Years later
children often clearly remember the abuse and
trauma, which reinforces their reluctance to seek
dental treatment as adults.
Here are several examples of children treated
by a Texas chain. The names are changed to protect
the little victims. Note that a typical pediatric root
canal and crown take about 30 minutes per tooth.
A filling takes 15 minutes per tooth, Dr. Norman
Tinanoff, a University of Maryland professor, said as
a witness in a 2014 civil suit against Small Smiles in
New York.
™™ “Jordan” (age 6) received four baby root
canals and six crowns in 20 minutes — less than two
minutes of treatment per tooth. Medicaid was billed
nearly $3,225.
™™ “Moses” (age 3) had a baby root canal and
crown in every tooth. The dentist spent less than
21

two minutes per tooth. Later Moses had all but four
teeth pulled due to abscesses.
™™ “Jack” (age 5) received 16 baby root canals
and 16 crowns in 25 minutes. His dentist spent
about one minute per tooth, billing $168.20 per
minute.
™™ “Joe” (age 4) received 15 baby root canals and
16 crowns in 30 minutes.
Stolen insurance money enriches the winners
with princely lifestyles. Sprawling mansions, private
jets, luxury boxes at football games, expensive
vacation homes and other trappings of the rich and
famous come to the overseers. Taxpayers foot the
bills.

All Smiles founder Dr. Richard Malouf owns
two jets and a $14-million mansion that includes a
bowling alley and water park.6
An alarmed U.S. Senate and House have
launched investigations as complaints, lawsuits and
news articles documented abuses.
Small Smiles was prominent among the chains
singled out in a June 2013 report by the U.S. Senate
Finance Committee.
Small Smiles was one of the nation’s largest
pediatric dental chains and most flagrant abusers,
the Senate concluded. Small Smiles then was
controlled by Church Street Health Management
(CSHM), the purported dental service provider.
The chain had 70 clinics in 21 states at its
height. Small Smiles treated more than a million
children, and 400 dentists did six million procedures
in 2010. The dentists were ill-trained to treat
children; none was a pediatric specialist.
22

Nearly one-third of Medicaid billings by Small
Smiles was unjustified, the Senate determined.
“Larger sampling at this and other clinics could
reveal massive overpayments,” the Senate concluded.7
A child at a Small Smiles clinic in Oxen Hill,
Md. had this experience: “Screamed and fought the
entire time ... She vomited approximately halfway
through the procedure. The dentist immediately
turned the patient on her side and suctioned her
mouth and throat,” the Senate report said.
“This child’s airway was in jeopardy because the
mouth prop opened her mouth so wide it restricted
her ability to swallow and protect her airway.”8
Investigators found no medical necessity for
treatments. The U.S. Department of Health and
Human Services (HHS) found similar breaches at a
Small Smiles unit in Youngstown, Ohio. The federal
agency imposed a $100,000 penalty.
“Treatment was provided to restrained children
who were fighting, crying and basically hysterical,
using large mouth props that over-extended their
mouths, compromising their ability to swallow and
protect their airways,” the Senate report noted.9
Faced with federal sanctions, Small Smiles
declared Chapter 11 bankruptcy in 2012. HHS
finally banned Small Smiles from Medicaid for five
years in April 2014. The order took effect September
30, 2014 and effectively denies the chain access to
its main revenue stream. CSHM also must divest its
management contracts with Small Smiles.
“CSHM failed to report serious quality-of-care
reportable events, take corrective action, or make
appropriate notifications of those events to the State
dental boards as required ...” the federal Office of
Inspector General says.10
“CSHM also failed to implement and maintain
key quality-related policies and procedures, comply
with internal quality and compliance review
requirements, properly maintain a log of compliance
disclosures, and perform training as required by the
CIA. Finally, CSHM submitted a false certification
from its Compliance Officer. ...”
Small Smiles still faces a staggering legal burden.
It agreed to a separate $24-million federal civil
settlement in January 2010. That resolved allegations
that the company operated as a fraudulent scheme
to bill Medicaid hundreds of millions of taxpayer
dollars for unnecessary, inappropriate, unsafe and
excessive dental procedures on young children.
The verdict set the tone for a huge backlog of
Journal of Insurance Fraud in America

other lawsuits against Small Smiles. The money to
fund settlements comes from a trust fund created
as part of CSHMʼs dissolution. The chain faces
about 100 civil actions around the U.S., including
30 actions in New York. They all allege that Small
Smiles gave children damaging treatment.
Small Smiles aside, New York has been such an
overall hotbed of Medicaid dental chicanery that
HHS issued a separate report on the state in March
2014. Some 29 dentists “received extremely high
payments per child; provided an extremely large
number of services per child; or provided certain
selected services, such as pulpotomies or extractions,
to an extremely high proportion of children,” the
report said.
“Additionally, almost a third of the general
dentists were associated with a single dental chain
that had settled lawsuits for providing services that
were medically unnecessary ... Our findings raise
concerns that certain providers may be billing for
services that are not medically necessary or were
never provided.”11
Texas is another epicenter of corruption,
prompting an investigation by the U.S. House of
Representatives. The number of dentists treating
Medicaid patients spiked nearly two-thirds
after the 2007 consent decree raising Medicaid
reimbursements. Fraud followed in large volume,
with much emphasis on outfitting kids with
medically worthless braces.12
Most children don’t need braces, yet Texas
Medicaid spent more on braces in 2010 than the
other 49 state Medicaid programs combined. Just a
handful of orthodontists billed Texas Medicaid more
than Florida’s entire Medicaid program spent on
orthodontics.13
“More than 90 percent of orthodontic
reimbursement requests by All Smiles (unaffiliated
with Small Smiles) were invalid,” revealed a Texas
Medicaid audit. The state sued varied All Smiles
entities, alleging the chain billed Medicaid for
needless and phantom services. All Smiles closed
13 offices in the Dallas area after the investigation.
That left 12,000 Medicaid patients to scramble for a
new dentist.14
Turning the corner on this national epidemic
must take place at many levels. Assertive
enforcement is one key.
At least eight states have formed independent
offices of Medicaid inspector general. They gather
Insight • Analysis • Ideas

and refer criminal cases to state Medicaid Fraud
Control Units, most of which are housed in the state
attorney general’s office.
Some states such as Oklahoma also require
inter-agency cooperation and collaboration on
Medicaid cases.
Liberal doses of profit-draining lawsuits by
governments and private citizens will continue
undermining the cheaters financially. These actions
can bankrupt some cheaters out of existence or force
them to clean up their operations. This speaks to the
value of state and federal laws authorizing civil suits
of this nature.
Some chains also are transitioning to accept
only patients with private insurance, but revenuegenerating procedures remain a priority goal.
Enforcement of state dental practice acts and
strengthening current laws by state dental boards
also is a key to rooting out bad actors. The North
Carolina State Board of Dental Examiners, for
example, passed regulations in 2012 that monitor
and curtail the fraud-minded Medicaid business
model.15
Parents also should be educated about potential
dental scams and how to manage the dental
relationship. Parents should be informed, for
example, that they can be present during procedures
and ask questions. A Patient’s Bill of Rights would be
useful.

Dental boards and associations can play lead
roles in family education. State regulations could
23

are taught little about business operations. This
increases their vulnerability to predatory dentistry
recruiters. More student loan forgiveness and/or
loan assistance would also reduce their susceptibility
to entrapping contracts.
Dental Medicaid thievery involving children
is a persistent scam that stoutly resists efforts to
eradicate and make the dental treatment a safe haven
for all low-income children. The solution rests in
continuing to raise awareness that spurs lawsuits,
regulatory action and other counter-steps. It’s a long
process, but worth resolutely pursuing for the sake of
vulnerable children and their parents who trust that
their Medicaid dentist will adhere to the Hippocratic
oath, “First, do no harm.”
require it. Plentiful material should be prominently
displayed for patients at dental clinics, and sent
to Medicaid recipients once a first appointment is
made.
Dental students should be warned about scams,
restrictive contracts and illegal business models
as part of their dental schooling. Dental students

About the author: Debbie Hagan
is a Kentucky-based citizen blogger
and investigative journalist who covers
dental fraud through her blog, Dentist
the Menace.

endNOTES
1
Fighting Medicaid Fraud, State Legislatures Magazine,
April, 2013.
2
Company That Approved Unnecessary Orthodontia
Kept Its State Contract, The Texas Tribune, May 1, 2014,
July 18, 2014. https://www.texastribune.org/2014/05/01/
company-okd-medicaid-billing-keeps-its-contract
3
In Search of Dental Care, The Pew Charitable Trusts, June
23, 2013. http://www.pewtrusts.org/en/research-and-analysis/
reports/2013/06/23/in-search-of-dental-care
4
Private Equity Firms Eye Big Profits in Dentistry,
DrBicuspid.com, May 2012. Web. 17 July 2014. http://www.
drbicuspid.com/index.aspx?sec=log&URL=http%3a%2f%2f
www.drbicuspid.com%2findex.asp%3fsec%3dser%26sub%3dd
ef%26pag%3ddis%26ItemID%3d310662
5
Texas Drills Down on Medicaid Dental Fraud,
The Wall Street Journal, August 19, 2012, July
17 2014. http://online.wsj.com/news/article
sSB10000872396390444233104577591243154716520
6
Dentist in Medicaid Suit Adding a Water Park to His
Mansion, WFAA Wfaa.com, July 12, 2012, July 18, 2014.
http://www.wfaa.com/news/investigates/Medicaid-MansionExpansion--162280556.html
7
Small Smiles Wins 1st Case Alleging Mistreatment of Kids,
DrBicuspid.com, October 9, 2013, July 18, 2014. http://www.

24

drbicuspid.com/index.aspx?sec=sup_n&sub=pmt&pag=dis&I
temID=314430
8
Joint Staff Report on the Corporate Practice of Dentistry in
the Medicaid Program, Committee on Finance, United States
Senate, June 2013.
9
ibid.
10
OIG Excludes Pediatric Dental Management Chain From
Participation in Federal Health Care Programs, Office of
Inspector General, U.S. Department of Health and Human
Services, April 3, 2014. https://oig.hhs.gov/newsroom/newsreleases/2014/cshm.asp
11
Questionable Billing for Medicaid Pediatric Dental
Services in New York, Department of Health and Human
Services, Office of Inspector General, March 2014. http://oig.
hhs.gov/oei/reports/oei-02-12-00330.pdf
12
Uncovering Waste, Fraud, and Abuse in the Medicaid
Program, Committee on Oversight and Government Reform,
U.S. House of Representatives, April 25, 2012.
13
ibid.
14
ibid.
15
Management arrangements, North Carolina State Board of
Dental Examiners, July 18, 2014. http://www.ncdentalboard.
org/management_arrangements.htm

Journal of Insurance Fraud in America

TrendWatch: new developments
about fraud in America
Hall of Shame’s No-Class of 2014
exposes newest master marauders
America’s aces of avarice took a reluctant bow
with election to the Insurance Hall of Shame.
The No-Class of 2014 has been dishonored by
the Coalition Against Insurance Fraud. They were
ranked among the nation’s most brazen, klutziest
or vicious convicted insurance criminals of the last
year.
Behind the ballyhoo is a serious purpose. The
Hall of Shame draws public attention to a crime
that many Americans dismiss as a victimless
white-collar prank. Most consumers are honest, but
an uncomfortably large percentage still tolerates
insurance fraud to varying degrees.
The Hall of Shame counters this outrage deficit
disorder with the ages-old technique of storytelling.
Human brains are biologically wired to remember
and interpret events. Stories thus are 20 times more
likely to be remembered
than hard facts. Among
the Hall of Shamers:
Dr. Spyros Panos
(Poughkeepsie, N.Y.). The
orthopedist made more
than $35 million in false
claims for thousands
of botched and faked
surgeries. He rushed up to
20 surgeries in a day — as
many as orthos normally
Dr. Spyros Panos
perform in a month.
Christine Steele had two
useless knee surgeries and
hasn’t worked fulltime
ever since.
Angela Garcia (Cleveland). Garcia let her infant
daughters Nyeemah and Nija die in a house fire
she set for just $64,000 worth of insurance money.
Insight • Analysis • Ideas

Garcia had overvalued her home contents and made
claims for possessions she didn’t have. Garcia also
removed valuables before the fire. The girls were
dead from smoke inhalation when firefighters found
their lifeless bodies in their upstairs bedroom.
Andy Lee House (Galveston, Tex). House drove
his rare Bugatti Veyron into a swampy lagoon to
collect $2.2 million. House lied to his insurer that a
pelican flying too low forced him to veer off the road
into the swampy waters.
Just House’s luck, a car enthusiast was driving
by. Awed by the sleek silver Bugatti, he videotaped
House racing into the lagoon. The video shows no
pelican in sight. Nor were there skid marks or other
evidence suggesting House tried to brake.
Joseph Haddad (Bridgeport, Conn.). The
attorney ran a large crime ring that stole millions of
dollars in worthless and inflated treatment to crash
victims his recruiters delivered.
Haddad created a complex network of docs,
chiros, diagnostic clinics and
recruiters. Medical providers
diagnosed victims, often without
exams, then billed insurers for
months of phantom or useless
treatment. Haddad’s recruiters
bought police crash reports
that identified the victims. The
runners then hounded victims to
sign up at Haddad’s office.
Dr. Farid Fata (Detroit).
Seniors received painful and
debilitating chemotherapy for
cancer they didn’t have. Cancer
doctor Fata made a hefty $225
million in bogus Medicare claims.
About half was for worthless chemo and other
cancer treatments. He pumped chemicals into
patients who were in remission, or were near death
and didn’t need more treatment.
25

Fata gave one cancer-free patient 155 chemo
treatments over 2 1/2 years. Medicare paid out more
than $91 million overall, and Fata billed private
insurers as well.

Misclassifying of workers sparks
more crackdowns
So many employers are misclassifying workers to
illegally dodge workers compensation premiums that
more alarmed policymakers are redoubling efforts to
blunt the longstanding crime wave.
Washington state is the latest state to weigh in.
Some 14 percent of 3,954 audited employers had

misclassified workers, the state Department of Labor
& Industries discovered in FY 2013. The agency
referred only three of those cases to prosecutors but
plans to pursue more cases in the future, the state
says.
L&I also has begun performing more
site inspections of public-works projects, and
has implemented a new database. L&I can
cross-reference data from several state agencies. The
agency now can spot inconsistencies in paperwork
submitted by employers. The system also helps
26

different state agencies share information about
employers and refer potential violators to L&I.
Injured construction workers in Florida can
go months without a paycheck and are left with
thousands of dollars in medical bills due to shell
games dishonest employers are playing in the
Sunshine State. In an in-depth report, the Miami
Herald details how fraudsters are forming shell
companies they rent out to subcontractors to obtain
low-cost workers- compensation insurance.
Convenience stores and other cash outlets
hide the schemes by laundering money and paying
workers in cash. A new database set up by the state
this year should help detect such scams.
Nearly the entire staff
of a Florida fruit-packing
firm, for example, may
have defrauded workerscompensation insurers.
Many employees made
claims using fake IDs,
Florida’s insurance
department charges. They
also used fraudulent IDs
to gain employment as
supposed U.S. citizens,
officials say.
At least 27 workers
allegedly stole identities of
victims from other states.
The investigation began
when an employee who
sought medical attention
for a work injury allegedly
admitted using a fake ID
to gain employment.
The feds also are
clamping down on
illegal misclassifying of
construction employees.
The U.S. Department of Labor is teaming with
state licensing agencies to discover when license
holders run afoul of wage and hour laws. The federal
agency also is meeting with construction companies
and worker-rights groups. DOL also plans to add
300 investigators next year — including 52 in the
Southwest.
One of every 13 employees in Texas, for
example, works in the construction industry. Yet
more than 40 percent of Texas construction workers
Journal of Insurance Fraud in America

either are classified as independent contractors or
paid under the table, says a study by the Workers
Defense Project and the University of Texas.
The feds also are looking closer at the
relationship between general contractors and the
subcontractors they hire to determine if there are
illegal joint-employment deals.
Virginia has created a task force to study
employer misclassification and payroll fraud.
One-third of audited employers in some industries
misclassify employees, the state says. They can
lower costs up to 40 percent and create an unfair
competitive advantage. A pilot project showcasing
joint enforcement is one mandate.
In North Carolina, a new fraud-alerting tool
has unearthed five employers that failed to buy
state-required workers comp coverage, the state
industrial commission says.
The system uses data from other state
agencies to produce a list of potentially dishonest
employers, ranked by priority. In a recent sweep, the
commission identified potentially 36 noncompliant
employers in Guilford County. Five were charged
with failure to carry comp coverage.

Employee negligence was the main security risk,
75 percent of healthcare firms say. Breaches cost the
healthcare industry up to $5.6 billion a year, says
Ponemon.
A Chinese cyber assault, for example, resulted in
the theft of 4.5 million records at hospital operator
Community Health Services earlier this year. Key
elements needed to steal people’s identities were
taken: personal data such as names, Social Security
numbers and addresses.
The antivirus firm ESET calculated that 24,800
Americans had protected health information
exposed — every day — in 2013. This was based on
breaches listed on the HHS website.

Rising data breaches cost
consumers, medical providers
The healthcare industry experienced more data
breaches than ever last year, raising the specter of
widespread vulnerability of patients to potentially
costly identity thievery.
This was a key finding of new research by the
Identity Theft Resource Center. The group regularly
updates breach tallies.
Healthcare accounted for nearly 42 percent of
reported breaches, exposing 7.5 million medical
records. This compares starkly with the financialservices industry’s 6.2 percent slice of the pie with
1.2 million records exposed.
Most data breaches, however, go unreported
because federal law requires reporting only of certain
kinds of breaches.
Some 90 percent of healthcare firms
experienced a data breach in the previous two years
and 38 percent had had more than five incidents in
2013, shows a survey the Ponemon Institute released
earlier this year.
Cyber attacks on healthcare firms have doubled
in the last four years, the survey says.
Insight • Analysis • Ideas

The human stakes are high:
More than 1.8 million people in the U.S. were
victims of medical identity theft in 2013, says the
Ponemon survey. That is a 19-percent spike over the
previous year.
Consumer healthcare records sell for about $50
each on the black market, compared to $10 for other
records, says Experian’s Data Breach Resolution
Group.
Half of ID theft victims said they’d do nothing
differently, Ponemon found in a consumer survey last
year.
Several dozen businesses (including healthcare
providers such as hospitals) also ramped up the
Medical Identity Fraud Alliance this year.
The group sponsored the Ponemon consumer
survey and has three organizational priorities:
develop best practices to prevent medical identity
theft; educate consumers, providers and third-party
vendors; and pursue legislation and regulations.

27

The Coalition Against Insurance Fraud is a national alliance of insurers, consumer groups and government
agencies combatting all forms of insurance fraud through legislation, public education and research.