by James C. Sherlock

Health care fraudsters are often treated by Virginia elected officials in the same way moonshiners were in this state, as local heroes pursued only by the feds. Many prefer not to interrupt the product flow. They simply want a taste from the jar.

Dick Hall-Sizemore, a dedicated contributor to BR and a good man, wrote in a comment on this author’s article on restructuring Medicaid: “Having that much money at stake should be an incentive to go after fraud. Even a relatively small reduction in fraud can amount to big bucks.”  

He is exactly right. But “should be “is a plea, not an observation.  

Dick’s goals cannot be fully realized in Virginia and other states as long as elected officials treat Medicare and Medicaid as found money. With a ton of money at stake that is mostly federal, too many state politicians continue to view the fraudsters as harmless and motivated donors rather than as criminals. But the outcome of the worst frauds is the destruction of the lives and the premature and suspicious deaths of Virginians who cannot help themselves. Corrupt public officials have been around as long as governments themselves. The majority of Virginia elected officials at the state and municipal levels are on the take. Bribery is legalized here through unlimited campaign donations at both the state and local levels.

Members, the Governor, and the Attorney General, in January of this year, accepted campaign donations from those who have long been committing fraud in plain sight. Some of the most powerful members of our legislature treat healthcare fraud as a means to funnel money into the “communities.” One senior member has been identified by state inspection results as violating state laws and regulations. There is a word for that.

With $20B in Medicaid funds and $24B from Medicare flowing into Virginians’ pockets every year, medical services fraud has become a major industry in the state. It is stolen for the same reason Willy Sutton robbed banks. Federal estimates put annual healthcare fraud nationwide at over $50 billion, which would make Virginia’s share over $1 billion a year. Bet the over. In Virginia, this author’s years of research and reporting show that $1B a year appears to be a major underestimate of the take from fraud in the nursing home industry alone.

A recent headline shows law enforcement chipping away at fraud. The case recovered $10 million that had been stolen over a six-year period. It is easy to see that a joint federal-state investigation and prosecution at that level likely costs more than the recovery. But this author applauds it nonetheless.   

The biggest problem is with the regulators.  The General Assembly hobbles them, but they have not, in 60 years, used the authority they do possess to stop fraud.  This author tends to lay that at the feet of the political appointees who make the decisions, not the career staff.

The author eagerly awaits the federal arrest and conviction of the first major Virginia campaign donor who has profited from healthcare fraud, people who strip hundreds of millions of dollars a year from their intended recipients. This author has personally invested more than a thousand hours in supporting a federal investigation to that end. But in truth, it may never result in anything. There are political considerations having nothing to do with Democrats or Republicans, per se.

The same evidence is available to Virginia regulators, but they have not acted. Ever.

They are staffed and funded, and effectively work for the General Assembly under the laws it writes. As Shakespeare wrote in three different plays:

There’s the rub.  

Nursing Homes

Healthcare fraud has been professionalized by CEOs with MBAs and CFOs with accounting degrees. Stealing in the chain nursing home industry has become a formalized business model, as this author has shown repeatedly in this space. They have their own lobbyists to put down any attempt to rein them in. Professional work.

Virginia’s worst out-of-state nursing home chains steal with impunity and leave pain and death in their wake. Our elected and appointed officials know it. The industrial-scale fraud industry has shown it will spend whatever it takes to win, starting with $100,000 handed to Governor Spanberger and $25,000 to Attorney General Jones, and scaled contributions to the chairs and members of key committees. All those donations were recorded immediately before the 2026 General Assembly session. The eager donors were well advised. Eager recipients were there with their hands out. It works. Always has.  

Services for the intellectually and developmentally disabled.

Medicaid-funded community-based providers of support to the intellectually and developmentally disabled, number approximately 2,000 in Virginia and are increasing as fast as the Department of Behavioral Health and Disability Services (DBHDS) is permitted by action of the budget committees of the General Assembly to grant new licenses.  This is where the permanent federal court injunction that DBHDS is operating under comes in.  Virginia is enjoined to meet all needs for community health services for the intellectually and developmentally disabled.  That injunction defines the terms of Virginia’s responsibilities to do better.  There is a long waiting list.  Virginia funds new “slots” annually, and DBHDS issues the licenses.

Providers are inspected for compliance with state laws and regulations, but there has been no effective attempt to regulate them despite repeated inspection findings of systematic violations of state laws.  The office of the State Inspector General (OSIG) is required by statute to investigate complaints against DBHDS facilities and providers, but was fiercely criticized by JLARC in 2019 for turning the investigations over to DBHDS itself. In 2020, OSIG issued a report indicting DBHDS as a rogue agency, thwarting OSIG patient safety investigations.   In a written response contained in that report, the DBHDS Commissioner returned the insult.  Then, in 2023, DBHDS was in turn raked over the coals by JLARC for failing to ensure patient safety.  The laws it had violated were written at the point of a federal injunction by a General Assembly that did not want to do it.   Let’s say the relationship between OSIG and DBHDS has been rocky.  And that neither of them has any idea how much fraud is in the system.

Many community-based providers are perhaps considered too small for the state bureaucracy to engage with, creating a staffing-and-prosecution cost-benefit analysis to blame, like those rejecting broken windows policing. But some, like one exposed by BR in Portsmouth, are quite large. The very large number of providers of these community services probably defies oversight without increasing DBHDS’s staff and giving them summary authority to stop it. In either event, the stolen money sloshes around in the “community.” So the 2026 request for program enforcement assets for DBHDS was tabled by the General Assembly for review by its Joint Commission on Healthcare. DBHDS is the regulator of the personal for-profit business of the Chair of the Senate Committee on Finance and Appropriations. She is also a member of the Joint Commission on Healthcare. That is a special situation that needs to be specially addressed. And will not be.

Targeting Virginia

Any realistic approach to reducing health care fraud in Virginia needs to start with campaign donation limits. Likewise, any realistic approach to reducing patient costs and increasing service availability needs to start by reintroducing competition through repeal of the COPN law. As exposed repeatedly in BR, a combination of COPN and the absence of regulatory enforcement and of court-enforced fraud enforcement at scale here has attracted organized crime to the Virginia nursing home industry. Our worst nursing home chains were organized out-of-state specifically to target Virginia. They chose well.

Bottom Line

There is perhaps no realistic hope of relief from either COPN or weak state regulatory enforcement of fraud under current conditions. The General Assembly is well paid to support both. The walls are too high. That is but one reason this author recommends restructuring Medicaid to make it fully state-funded.

If Virginians pay higher state taxes to cover the full cost of Medicaid, they will pay closer attention to, and insist on, program integrity.  

In the meantime, Dick, we should not expect increased regulatory actions as long as state elected officials treat Medicare and Medicaid funds as a federal lake from which siphoned fraud money waters the community. It now also occurs to them that fraudsters are larger donors than they used to be.

Virginia is Minnesota.

Update May 6 at 11:39. There is reporting that the FBI is currently executing a search warrant at Lucas Lodge.