CNN investigation into massive fraud leads to charges, convictions

2013: Rehab program rife with fraud
2013: Rehab program rife with fraud

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2013: Rehab program rife with fraud 10:26

Story highlights

  • Charges, convictions follow CNN/CIR investigation into California's Drug Medi-Cal program
  • "Rehab Racket" investigative series aired on "Anderson Cooper 360" in July 2013

(CNN)As a result of a yearlong investigation by CNN and the Center for Investigative Reporting, 11 people were charged with trying to bilk Drug Medi-Cal, the country's largest drug rehab system.

So far, nine people have been convicted, and two more are facing charges.
The "Rehab Racket" investigative series, which aired on "Anderson Cooper 360" in July 2013, revealed that California's Drug Medi-Cal program paid out $94 million over two fiscal years to 56 clinics in Southern California that showed signs of deception or questionable billing practices. That represented half of all public funding to the program.
    The series discovered clinic operators who were billing for drug rehab services they did not actually provide and counselors who diagnosed teens with nonexistent addictions. In addition, some clinics were being run by convicted felons and others who should have been barred from Drug Medi-Cal.
    In addition, "Rehab Racket" found that state oversight to the program was seriously flawed.
    The investigation "was kind of like a slap across the face -- which meant that Sacramento couldn't go on ignoring this," Richard Rawson, co-director of the UCLA Integrated Substance Abuse Programs, told CIR.
    Rawson said "Rehab Racket" helped spur a new system where patients will receive improved overall care.
    "We want to be sure it's done right," said Marlies Perez, a California official who oversees compliance for substance abuse disorders.
    Nine people charged as a result of the series have been convicted in schemes to cheat California's drug rehabilitation system, according to state records. The two others who were charged have pleaded not guilty. Their cases are pending.
    One of the clinics featured in the series was being operated by Alexander Ferdman, who served time in Texas for orchestrating an organized crime scheme.
    Felons are supposed to be blocked from running clinics, but that didn't stop Ferdman.
    He eventually built his clinic into a $2-million-a-year operation, all from taxpayer money.
    Ferdman told CNN in 2013 that he accepted a plea deal in the Texas case because he was facing a long prison term. He denied any wrongdoing.
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    "There was no fraud, and there was no record of it in any way," Ferdman said at the time. "It's a very long story."
    Earlier this year, Ferdman was charged with grand theft, identity theft and presenting false Medi-Cal and insurance claims. He pleaded guilty to grand theft in September and received five years probation.
    Ferdman did not respond to a call on Tuesday from CNN seeking comment.