MEDICAID HAS ROLE IN DRUG TRADE

Dealers Use Low-Copay Drug Cards To Tap Supply

Now serving a seven-year term for drug trafficking, Zola Starnes said she
bought OxyContin from a Medicaid recipient who got them with his drug card
for a minimal co-pay. She then resold them at a profit.

PIKEVILLE - When Zola Starnes was dealing drugs in Pike County last year,
she says, she had millions of silent partners helping to ensure her supply:
taxpayers.

Starnes knew a man who was entitled to a state Medicaid card, giving him
access to the $3.8 billion public-health program that pays for doctor
visits and prescription drugs for poor and disabled people.

Through Medicaid, the man got 90 20-milligram OxyContin pain pills each
month for a negligible co-payment, then sold Starnes the pills for $15
apiece. She then sold them for $25 each.

"That's how it works. It happens a lot," said Starnes, 43, who began
serving a seven-year prison sentence in July for drug trafficking.

In rural Kentucky, where abuse of prescription pain-killers has swamped
courts, overrun treatment centers and caused dozens of overdose deaths,
many police and prosecutors agree that the tax-financed Medicaid program is
a significant source of drugs that find their way into the black market.

And while Medicaid is contributing to the problem, it-doesn't do much to
help provide a solution: In Kentucky, unlike 29 other states, the program
will not pay for drug treatment for most adult addicts who qualify for
benefits.

"Government's subsidizing the addiction. They ought to pony up some money
for the treatment," said Eugene Sisco of ASAP Consulting in Pikeville,
which provides alcohol and drug counseling.

If Medicaid is stingy with treatment, by law it's more generous in one
respect: Recipients caught selling drugs typically aren't barred from the
program even after conviction.

It's impossible to estimate the degree to which the Medicaid program
underwrites rural Kentucky's prescription-drug trafficking.

Some police say diversion from Medicaid is among the biggest sources of
street-level drugs they see. Others cite such pipelines as Mexican
pharmacies or "doctor shopping" -- going to several physicians to get
duplicate prescriptions -- a practice the Medicaid program forbids.

But it's clear that a good number of the painkillers and other drugs for
sale on the street got there courtesy of taxpayers:

. When Beattyville Police Detective Matt Easter sent an informant out to
make an undercover drug buy last fall, the informant asked the suspect why
he had the generic version of a much-abused painkiller.

Because, the man said on tape, "I've got my medical card to pay for 'em."

. Jamestown police arrested a 67-year-old grandmother in July 2002 after
she sold an informant one OxyContin and five tablets of Adderall, a drug
used to treat attention deficit-hyperactivity disorder. The Adderall, which
can be abused as a stimulant, was prescribed to the woman's grandson and
provided through a state medical card, Police Chief Joey Hoover said.

In a separate case last August, Jamestown police bought drugs three times
from a man who receives Medicaid benefits. Police made two of the three
drug buys the same day the man filled his prescription for painkillers,
Hoover said.

. In a survey this year by the Appalachia High Intensity Drug Trafficking
Area, substance-abuse treatment providers in the Appalachian areas of
Kentucky, West Virginia and Tennessee said their clients were increasingly
using government-assistance programs to finance drug habits because of a
rising preference for prescription drugs.

State leans heavily on federal aid

Generally, the 672,000 people served by Medicaid in Kentucky are low-income
children and their parents or guardians, and elderly, blind or disabled people.

Roughly 177,000 gain automatic access to Medicaid because they have low
incomes, few assets and are considered disabled under the federal
Supplemental Security Income program.

SSI, which supplies monthly cash benefits to its enrollees, is well used in
Kentucky. Statewide, the percentage of people on the program is double the
national average. In some poor, rural counties it is five times the
national average or more.

The maximum monthly SSI benefit is $564 for a single person, but a state
medical card can provide an avenue to make far more.

Some prescriptions that Medicaid recipients get for a co-pay of only a
dollar can be worth thousands on the street. OxyContin, for instance, is
worth up to $1.50 per milligram on the street, meaning an 80-milligram pill
is worth $120.

"If it's something they can supplement their income on, let's face it, the
temptation's there," said Hoover, the Jamestown police chief.

Court records show many people arrested on charges of selling drugs in
Eastern and Southern Kentucky receive federal disability payments -- a
strong indication that they're also Medicaid recipients.

Of 31 people charged in a drug roundup by state police in McCreary County
last July, for instance, court records listed one-third as disabled. And of
62 people indicted in October 2002 in Wayne County after an investigation
by the Lake Cumberland Area Drug Task Force, more than 20 were listed as
disabled.

There is no way to tell from public records in many cases whether someone
listed as disabled receives SSI, or benefits from another source, such as
private insurance or workers' compensation.

And while police and prosecutors emphasize that many honest, truly needy
welfare recipients don't abuse state and federal aid programs, the high
number of people on disability who are charged with dealing drugs causes
concern.

"It's just no question the Medicaid system, which is strapped for funds, is
financing a large degree of this stuff," said Larry Rogers, commonwealth's
attorney for Wayne and Russell counties.

Drug costs add to budget shortfall

Kentucky's Medicaid program faces a $500 million shortage next year -- in
part because prescription drug costs have shot higher over the past several
years, officials say.

Prescription narcotics make up a small, but steadily growing, part of the
program's cost. Over the last two fiscal years, Medicaid spending on
prescription drugs with the most potential to be abused went up from $14.9
million to $19.7 million, state officials say.

Medicaid spending on some of the most popular painkillers -- including
OxyContin, Lortab and Vicodin -- went from $1.1 million in 1997 to about $6
million in 2002, according to a state database of prescription records.

Some police officers and lawmakers think kicking drug dealers who abuse
Medicaid out of the program would deter the abuse -- and save some money.

"You cut five or 10 people off and put that in the paper, it would cause a
bigger ripple than arresting 75 people in one county," said Capt. Mike
Reichenbach, head of the Kentucky State Police drug-enforcement unit that
covers the eastern half of Kentucky.

Ten years ago, after a legislative study aired concerns about pill dealing,
state Rep. Jack Coleman, D-Burgin, successfully pushed legislation intended
to give Medicaid officials authority to cut off benefits for people caught
abusing the program.

"That's what we wanted to have done," he said. "They absolutely need to be
cut off the program."

But the knife never came down. State officials say federal law bars them
from ending benefits for recipients based on criminal convictions in state
court. Only the U.S. Department of Health and Human Services, the agency
that oversees state Medicaid programs, can kick people out of the program
- -- and then for only a limited set of federal violations and a limited
time, officials have said.

The rules for Medicaid and SSI bar paying benefits to people while they are
in prison -- but in Kentucky courts, drug dealers are often sentenced to
probation, meaning they wouldn't lose their benefits.

And even when recipients go to jail, by law they can resume benefits when
they get out if they still meet Medicaid and SSI eligibility criteria on
income and disability.

Similarly, a drug conviction would not be grounds for terminating a
person's SSI benefits, said Jason Cornett, spokesman for the Social
Security Administration in Kentucky.

However, the program includes tight limits on other sources of income,
which recipients are supposed to report. If the Social Security
Administration found out a person had made money from any other source,
including drugs, administrators could reduce or suspend checks for a time.

SSI lacking in enforcement

The Kentucky Medicaid program refers suspected fraud to other agencies for
possible criminal investigation and uses several methods to try to control
abuse, including a "lock-in" program that restricts recipients to using
only one doctor or pharmacy.

Officials plan to have a new online system ready soon that will allow
doctors and pharmacists to look at recipients' claims history, and have
revised a state regulation to try to make it easier to recoup money from
recipients in cases of fraud or overpayment.

Reichenbach's office began making extra efforts earlier this year to give
Social Security investigators information about potential abuses by SSI
recipients, providing a list each month of arrests by state police
narcotics detectives covering the eastern half of the state, with the
amount of drugs purchased and how much police paid for them.

Spokesmen for Social Security and its Inspector General's Office would not
comment on whether those referrals led to any criminal charges, new
investigations, suspensions or attempts to recoup money.

A Social Security spokesman told the Herald-Leader last year that efforts
by the agency's two investigators helped federal prosecutors win fraud
convictions against seven people in the eastern half of Kentucky from 2000
to 2002.

Law officers note that even though fraud in Medicaid and SSI is significant
in the aggregate, the amount of money involved in any individual case
probably wouldn't be much. That means the cases take a back seat to
attempts to police health care providers.

Still, a greater emphasis on pursuing abuses by SSI and Medicaid by
recipients would pay off by reducing waste and fraud, some police and
prosecutors think.

"A couple of investigators would pay for themselves in a week," said
Rogers, the prosecutor for Wayne and Russell counties.

Nationwide, the Social Security Administration hasn't done as much as it
should to try to root out fraud in SSI and recoup overpayments, the General
Accounting Office said last year. The report did not deal specifically with
recipients selling drugs.

GAO, the investigative arm of Congress, designated SSI as a high-risk
program in 1997, saying the program was vulnerable to overpayments.

In a 2002 update, GAO said Social Security had improved its oversight, but
still had some problems, including underused penalties for SSI recipients
who violated rules.

In one 20-month period, the GAO said, Social Security field offices
referred 3,000 cases of suspected fraud to the agency's investigators. But
investigators sent most of the cases back, saying among other things that
they involved too little money to prosecute.

The administrators who got the cases back had imposed sanctions, such as
reducing or suspending benefits, in only 21 cases as of January 2002, the
GAO report said.