Whistle-Blower’s Lawsuit Accuses Scripps Clinic, Eye Doctor of Fraud

A unique lawsuit that accuses the prestigious Scripps Clinic and Research Foundation in La Jolla and one of its former eye doctors of defrauding Medicare in treating hundreds of elderly patients was unsealed in Los Angeles federal court Tuesday.

An unusual feature of the multimillion-dollar action is that it was filed by another former eye doctor at the clinic, who stands to receive up to $1.5 million under a new law that gives whistle-blowers important legal clout and financial incentives for reporting overcharges in federal government programs.

U.S. Atty. Robert Bonner announced Tuesday after reviewing the allegations that his office will intervene in civilly prosecuting the case, which seeks between $3.7 and $6.3 million in damages and penalties.

The whistle-blowing doctor is entitled under the federal False Claims Amendments Act of 1986 to receive between 15% and 25% of any judgment.

Lawyers at the Center for Law in the Public Interest, who filed the lawsuit on behalf of the doctor, said this is one of the first actions in what they foresee as a flood of lawsuits by whistle-blowers buoyed by significant incentives to report fraud that has occurred within the last 10 years in all kinds of federal programs, ranging from defense contracts to school lunch programs and construction jobs.

At least two similar lawsuits targeting the defense industry for a total of more than $200 million in damages are pending in Colorado and Washington, D.C.

In the Scripps case, ophthalmologist Raymond Y. Chan is accused of defrauding the federal Medicare program between 1984 and 1986 by billing for eye surgery that he did not perform on his elderly patients or by billing for operations that he did perform but that were medically unnecessary.

The lawsuit estimates that Chan overcharged Medicare by $300,000 during a two-year period, with both the doctor and the Scripps Foundation sharing in the windfall. Based on complex provisions for double and triple damages as well as fines allowed in the False Claims Amendments Act, the lawsuit seeks recovery of between $3.7 to $6.3 million.

Reached for comment, Chan said that he had never defrauded Medicare and that he did not want to comment on the lawsuit because “this is the first I’ve heard of it.�

Scripps spokesman David Gollaher said that Chan’s bills have recently been scrutinized by administrators and that “we’re not saying whether there were or there weren’t irregularities.�

Ophthalmologist Dr. Paul E. Michelson, who used to work with Chan at the Scripps Clinic Medical Group, accused Chan of abuses after he randomly examined records for 37 of Chan’s hundreds of patients and documented $47,000 in Medicare overcharges, said attorney John Phillips at the Center for Law in the Public Interest.

According to the complaint, Chan allegedly used lasers to treat patients suffering from glaucoma or cataracts and then defrauded Medicare by billing as if he had performed surgery with a knife, which is almost three times as expensive.

Chan is also accused of performing unnecessary laser procedures on patients who either did not suffer from glaucoma or who were not first treated with the “the accepted, appropriate, safer and far less expensive medication therapy� mandated by the American Assn. of Ophthalmology.

“This is one of the most clear-cut cases of unnecessary treatment. There is no dispute,� center attorney David Huebner said. “The (patient) charts show that a person would come into the office one day and two days later be zapped with a laser.�

He said Michelson filed the lawsuit because “he wanted to protect the patients and was appalled by the idea of unnecessary (laser) procedures being performed on patients who could be helped by just eye drops.�

Michelson, now in private practice in San Diego, said in an interview, “My own concerns were strictly the ethics involved here.� He said he filed the lawsuit “as a matter of conscience� and that “the financial aspect of the law was of no consideration in my case.�

He said that he will donate “a significant percentage� of any of the money he receives to the center’s nonprofit subsidiary, Taxpayers Against Fraud.

‘No Action Was Taken’

The complaint says that Michelson attempted to bring the alleged Medicare abuse to the attention of his superiors, including a member of the foundation’s Clinical Board of Governors, but that “no action was taken by these Scripps officials to stop the misrepresentations or to inform the government of the overcharges.�

Michelson was terminated from Scripps in July, 1986--for “incompatibility,� the lawsuit said--and filed his complaint under seal in April, 1987.

Under the law, the complaint automatically triggered a federal inquiry.

“This law allows a private plaintiff to bring a lawsuit to get the ball rolling,� Assistant U.S. Atty. Howard Daniels said. “Then the U.S. government investigates, and if we find likely violations, we step in.�

Daniels said, “We don’t know yet what the total bill will be.�

Chan’s earnings at Scripps depended to a large degree upon the bills he generated, according to the lawsuit. Chan submitted his bills to Scripps administrators who in turn billed Medicare. Chan then received a percentage of his total billings, with the Scripps Foundation receiving most of the rest.

“For every $1 fraud, Scripps Foundation got 50 cents and the doctor got 50 cents,� Phillips said.

Phillips said that neither Scripps nor Medicare officials appear to have noticed Chan’s “disproportionate number of laser procedures. . . . It appears Medicare doesn’t do a very good job of policing.�

The Center for Law in the Public Interest lobbied hard for passage of the federal False Claims Act, an updated version of a law passed during the presidency of Abraham Lincoln to crack down on fraudulent government contractors. The newly amended measure gives whistle-blowers larger financial rewards, better legal standing and greater job protection than the old law, Phillips said.

Since the new law passed two years ago, the center has received more than 350 calls from whistle-blowers. Based on the most solid evidence, Phillips said, the center has filed three complaints and five others are being drafted.

A lawsuit in Colorado, which seeks to recover up to $10 million, accuses officials of Rockwell International Corp. and Lawrence Livermore National Laboratory of using Department of Energy dollars to manufacture more more than 4,000 items for their personal use, including a wine press and racks, belt buckles, coffee mugs, automobile parts, clocks, jewelry and foot massagers. The complaint was triggered by an engineer at Rockwell’s nuclear weapons plant in Rocky Flats, Colo.

Critics of the law have suggested that it will lead to numerous frivolous or vexatious lawsuits and might allow the architect of a fraudulent scheme to reap a windfall by filing a claim. Phillips said this is unlikely but that the center is nevertheless working on possible “technical amendments� to the law that would prevent it.