In a statement announcing the temporary suspensions, Department of Health Care Services Director Toby Douglas said the 16 clinic sites have been referred to the state's Department of Justice. On Wednesday, the health department's chief deputy director, Karen Johnson, said her staff also would be "fanning out statewide to review every rehab facility."
Douglas' deputy in charge of audits and investigations, Bruce Lim, said the action was spurred by media inquiries, one of many ways regulators identify problems. Investigators are reviewing issues raised by CIR and CNN, including questions about clinics with felons at the helm, he added.
"That's a top priority for us and a concern," Lim said.
Lim, who has been the investigations chief for three years, said he could not identify the clinics or address criticism that his department has long ignored the problem.
"I can't speak for the past," he said.
Past fraud conviction
On September 29, 2003, a state alcohol and drug program analyst arrived at a busy Panorama City strip mall to certify the state's newest Drug Medi-Cal clinic, Able Family Support.
Karen Morrison scrutinized the governing body's meeting schedule and reviewed staff résumés. Records from the visit offer no hint that she asked -- or knew -- about the criminal record of the man who greeted her.
Morrison, now a real estate agent, said she does not recall the visit or a provider with a felony history.
But Alexander Ferdman was on parole at the time, having served one year of a seven-year sentence for engaging in organized crime.
Prosecutors in Texas had pegged Ferdman as the ringleader of a scam that robbed auto insurers of millions. An indictment from the Travis County district attorney's office says a team of fixers staged crashes and recruited actual crash victims as pawns to generate fake legal and medical bills.
One witness described Ferdman as the man who paid off operatives from a briefcase full of cash.
Although the state can grant special exceptions for felons to be Medi-Cal providers, it doesn't appear that regulators did so for Ferdman. When he moved to California to open a rehab clinic, nothing in state records indicated that regulators knew about Ferdman's organized crime conviction.
A standard form in 2003 asked about clinic leaders' convictions, but missed the mark, inquiring only about fraud against the government. Ferdman defrauded private insurers. And by late 2011, when Ferdman was asked in a routine disclosure form whether he had been convicted in the last 10 years, he could honestly respond "no."
Ferdman told reporters that he accepted a plea agreement in the Texas case because he was facing "99 years." He denied any wrongdoing.
"There was no fraud, and there was no record of it in any way," Ferdman said. "It's a very long story."
Soon after the state cleared his rehab center to open in 2003, Ferdman made some questionable spending decisions.
A state review of the center's 2004 budget revealed that public funds intended to help low-income addicts covered $10,000 in gifts and travel, including $605 spent at a Palm Springs spa resort, a $586 crab feast, $108 for flowers and a Betty Boop souvenir.
In his written response to state auditors, Ferdman defended the spending as "business purchases" necessary for "promoting and outreach" for the clinic.
Taxpayers also spent $2,000 a month on car expenses for Ferdman and Able Family's co-founder, Leonid Aksert. Ferdman told auditors that the travel stipend was approved by the center's board of directors. State records show that the five-member board included Ferdman, Aksert and their wives.
State auditors asked Los Angeles County to repay the state $68,000 provided to Able Family in 2004. Ultimately, Able Family repaid half of the money the state wanted back.
That wouldn't be the last time Ferdman and Able Family came to the attention of auditors.
Medical license denied, clinic approved
Rebecca Lira was disgusted in 2001 as she watched fraud seep into the rehab system she had helped build two decades before. "I really wanted to close all of them down, bust all of them, if you will," she said.
A deputy director with the state Department of Alcohol and Drug Programs, Lira decided to confront the problem by grilling people who applied to launch new clinics.