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Attorney General Lockyer Announces Indictment of Tower Health Executives in Medi-Cal Fraud Case

CEO, CFO Arrested and Jailed for Fraud Scheme That Bankrupted Southland HMO
Wednesday, July 20, 2005
Contact: (415) 703-5837

(SACRAMENTO) – Attorney General Bill Lockyer today announced the indictment of Tower Health’s top two executives for illegally siphoning more than $2 million of health-care reimbursements that should have gone to Inland Empire physicians providing care for Medi-Cal patients.

“These criminals are being arrested because to them, HMO stands for ‘huge money opportunity,’ “ said Lockyer. “They bilked taxpayers at a time when the state cannot afford to lose a single one of the critical dollars that provide care for kids, seniors and families in need. This is pure fraud and we will prosecute them to the fullest extent.”

Robert Hugh Cohen, M.D., of Los Angeles, former president and CEO of Tower Health, and John Carlo Morreale of San Pedro, former CFO, were arraigned late yesterday by Judge Douglas A. Fettel in San Bernardino County Superior Court on eight felony charges of grand theft, perjury, Medi-Cal fraud and filing false corporate financial reports.

The two defendants were indicted by the San Bernardino County Grand Jury on June 22, and arrested by Attorney General investigators on July 15. But the charges were sealed until Cohen, 45, and Morreale, 55, appeared in court for their arraignment. If convicted on all charges, Cohen faces a maximum 17½ years in state prison, and Morreale faces more than nine years. Each faces a maximum fine of more than $7.2 million.

Tower Health was a health maintenance organization (HMO) that served patients throughout southern California and Nevada. It was the largest provider of Medi-Cal services in Riverside and San Bernardino counties.

An investigation conducted by the Attorney General’s Bureau of Medi-Cal Fraud and Elder Abuse (BMFEA) revealed Cohen and Morreale diverted state Medi-Cal funds intended to reimburse physicians and other care providers for services rendered to Medi-Cal beneficiaries.

The defendants siphoned a total of more than $10 million from Tower Health and “loaned” the money to other companies owned by Cohen and also to his family members. These loans ultimately were written off. The diverted $10 million included more than $2 million that was supposed to reimburse Inland Empire Medi-Cal service providers, the BMFEA investigation found.

The investigation focused on a contract between Tower Health and Inland Empire Health Plan (IEHP), a joint venture operated by San Bernardino and Riverside counties to provide health care for Medi-Cal patients. Tower Health and the Western Alliance Physicians Association (WAPA), a sister organization run by Cohen and Morreale, won a contract with IEHP to provide patient care. The IEHP provided Tower Health and WAPA more than $1 million per month in payments and reimbursements.

Problems with Tower Health and WAPA surfaced when IEHP began receiving complaints that providers were not being paid. Subsequently, IEHP’s finance manager discovered $1.4 million in reimbursement checks that had been written but never mailed.

Ultimately, the siphoning of funds left Tower and WAPA insolvent. As a result, the California Department of Managed Health Care took possession of Tower Health to prevent patients, including 100,000 enrollees, from losing their health care.

Lockyer’s investigators determined Cohen and Morreale deliberately misled health care officials by submitting fraudulent financial statements that falsely reported Tower Health and its related businesses were solvent and paying health care providers in a timely manner.

Judge Fettel set bail at $1 million for Cohen and $500,000 for Morreale. A pre-trial conference has been tentatively set for August 19th and a jury trial has been tentatively set for September 6th.

Since taking office as Attorney General in 1999, Lockyer has made the prosecution of Medi-Cal fraud a top priority. During Lockyer’s tenure, the BMFEA has filed more than 850 criminal cases and won nearly $110 million in court-ordered restitution, while criminal filings and restitution orders have increased by 148 percent and 468 percent, respectively. In 2001, Lockyer received a national award from the U.S. Department of Health and Human Services for having the top-performing health care fraud and elder abuse prosecutorial program in the country.

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