X-ray film fraud provides impetus for reform

The former radiology manager of a New Jersey hospital pleadedguilty last month to criminal charges related to his involvementin one of several scams that defrauded hospitals of millions ofdollars in x-ray film supplies.

Anthony DiGiacomo pleaded guilty in federal court on May 26to one charge of conspiracy to commit theft and one count of mailfraud for stealing x-ray film and running a phony invoice schemeat St. Barnabas Medical Center in Livingston, NJ.

DiGiacomo is one of 19 defendants who have entered guilty pleasin connection with the schemes, according to assistant U.S. attorneyRalph Marra. The defendants include former employees of x-rayfilm manufacturers, representatives of x-ray film distributorsand hospital officials.

The scams were cracked by a two-and-a-half-year FBI undercoverinvestigation, dubbed "Operation Catscam," that wasunveiled earlier this year. The size and scope of the corruptionstunned the medical communities in New York and New Jersey andhave prompted hospitals and x-ray film manufacturers to reformtheir film distribution policies.

Authorities discovered several loosely connected groups thatdefrauded hospitals by taking advantage of lax controls over x-rayfilm shipments. Defendants stole film from hospitals, used phonyinvoices to cover the thefts, and arranged kickbacks and bribesfor x-ray contracts. Eight hospitals in New Jersey and two inNew York were victims of the schemes.

In DiGiacomo's case, court records presented as evidence indicatehe admitted to netting $1.5 million over 10 years by stealingfilm from St. Barnabas while serving as radiology manager. Healso diverted shipments of free rebate film to a distributor involvedin the scam. DiGiacomo covered up the diversion by fabricatinginvoices to show that the film had been delivered to the hospital,according to U.S. attorney Marra.

Participating with DiGiacomo in the St. Barnabas scheme wereseveral others, including Lucas DeRosa, an account executive forDu Pont. DeRosa admitted in court to stealing x-ray film, takingkickbacks for falsifying invoice records and inflating the salesvolume of x-ray distributors to entitle them to extra-credit discounts.

Lester Kurylo and Michael Kulak of X-Cel X-Ray, an x-ray filmdistributor, allegedly accepted stolen film from DiGiacomo. DeRosa,Kurylo and Kulak were also allegedly connected to scams that defraudedother New Jersey hospitals, according to Marra. DeRosa and Kulakhave pleaded guilty to criminal charges, while Kurylo's case isstill pending.

Although many defendants were involved in several schemes, therings tended to operate independently of each other, Marra said.A total of $5 to $10 million was stolen.

Loose controls over x-ray film shipments and the high costof film were the primary factors behind the growth of the rings,according to Marra. A case of film is worth close to $1000 andcould easily be concealed by placing it in a suitcase. Becauseof poor accounting practices, hospitals never noticed the missingfilm.

"Hospitals had very poor controls over how much film theywere using," Marra said. "They weren't accounting forit, and I think that invites activities like the phony invoiceschemes we've seen."

One hospital administrator, however, eventually did noticediscrepancies: Sister Margaret Straney, CEO for Cathedral HealthcareSystem, is credited with sparking Operation Catscam after shenoticed billing irregularities and called the FBI. Cathedral HealthcareSystem operates three hospitals in New Jersey.

Both manufacturers and hospitals have since tightened up controlsover x-ray film sales and distribution. Du Pont no longer providesfree film to customers as a rebate for large purchases, accordingto Cathleen Branciaroli of Du Pont. Many of the scams involvedthe theft of rebate film because rebate shipments were relativelyeasy to conceal.

Du Pont was praised by authorities for cooperating with theinvestigation. Marra stressed that DeRosa was the only personat Du Pont involved in the fraud.

DiGiacomo and the other defendants in the case are scheduledto be sentenced in July. The investigation of x-ray film fraudis continuing, Marra said.