SANTA ANA – The owners of a string of Southern California sober living homes and two medical doctors are facing insurance fraud charges tied to what authorities allege was a $22 million urine test billing scheme, the Orange County District Attorney’s Office announced Tuesday.
Six people were charged last week with a variety of felonies – including medical fraud, insurance fraud and money laundering – in connection to the suspected scheme involving recruited sober living residents and alleged front companies that are accused of persuading insurance carriers to pay for unneeded or non-existent urine tests.
The charges were revealed two days after publication of the Southern California News Group’s investigation into the region’s rehab industry, including the shady practices of some sober living homes and the excessive insurance charges some rack up for urine tests.
The investigation revealed, among other things, that fraudulent urine tests – often performed by labs owned by the owners of rehabs or sober living homes – were a main tool some in the industry used to bilk millions of dollars from insurance companies.
In the case announced Tuesday, Deputy District Attorney Hope Callahan said that among the potential victims in the alleged scheme were sober living residents going through a vulnerable time in their lives who trusted the operators of the homes to help them and “not be used to make money.”
At the center of the allegations are Philip Ganong, 63, of Bakersfield and Pamela Ganong, 61, of La Jolla, who owned sober living homes in Orange County, Bakersfield, Los Angeles and San Diego and also formed a medical testing lab. It is unclear if the Ganongs are married.
They are accused of billing four insurance companies – Aetna, Anthem, Cigna and UnitedHealthcare – a total of $22 million and collecting $15 million.
Prosecutors said the Ganongs hired the charged doctors – Carlos X. Montano, 61, of Newport Beach and Suzie Schuder, 70, of Corona del Mar – who wrote urine test prescriptions for first three and later seven times a week for the Ganongs’ employees.
Prosecutors allege that the claims for urine drug testing the company submitted on behalf of both employees and sober living residents were routinely for “services not covered, not rendered or not medically necessary.”
To facilitate more tests, prosecutors allege, the Ganongs set up a temporary labor agency that was little more than a front to “overbill insurance companies for the collection and testing of urine.”
Those on the payroll for all of the Ganongs companies submitted the daily urine drug tests, according to the DA’s office. That included “fraudulent employees” who received free rent as kickback for the urine samples, prosecutors allege.
Prosecutors also say the Ganongs billed insurance companies for “high-complexity” urine tests, which their lab didn’t have the ability to perform.
The effort, prosecutors said, started with the employees at Compass Rose Recovery, which oversaw the sober living homes and which in 2012 had a dozen people on payroll and health insurance.
Some sober living home residents were then listed as employees, expanding the health insurance for Compass to almost 100 employees, prosecutors said. Then, in 2013, a labor agency was created so that even more people could be listed as employees, the authorities added.
The Ganongs and their son, William Ganong, 33, of Bakersfield, were charged with 13 counts of insurance fraud, and the elder Ganongs also face 26 counts of money laundering.
The prosecutors said the parents’ maximum sentence would be 47 years, eight months in state prison if convicted. William Ganong faces a maximum sentence of 36 years, eight months if found guilty.
Pamela Ganong’s sister, Susan Stinson, 63, of Carlsbad, was charged with conspiracy to commit medical insurance fraud and was accused of dropping off paychecks at the sober living facilities and sending emails to the doctors requesting urine test prescriptions. Her maximum sentence would be three years in prison.
Montano was charged with three counts of insurance fraud and conspiracy to commit medical insurance fraud, and his maximum sentence would be 16 years, eight months. Schuder was charged with four counts of insurance fraud and conspiracy to commit insurance fraud. Her maximum sentence would be 17 years, eight months.
Prosecutors allege that in return for writing “unnecessary urine test orders,” Montano and Schuder received 20 percent of the net insurance proceeds from the urine drug testing billing as well as per-patient fees of $200.
The Ganongs changed insurance carriers four times, which prosecutors described as an effort to avoid detection. They also changed the name of their lab after two insurance carriers began auditing them.
According to state records, both Montano and Schuder have current physician and surgeon licenses. Their attorneys could not be reached for comment.
Philip Ganong’s attorney, Kate Corrigan, noted that a judge allowed her client to post the $300,000 bail on Monday.
“The court set a reasonable bail amount that enables my client to defend himself against the allegations made by the Orange County District Attorney’s Office,” Corrigan said. “We intend to vigorously defend this case.”
