SUNY Downstate EM Doc Accused of $1.5M Fraud

In a case that spotlights the importance of comprehensive financial controls in medical offices, a leading New York City emergency medicine physician stands accused of using his business credit card to steal nearly $1.5 million from his clinical practice and spend it on cash advances, personal travel, lavish pet services, and more.

Michael Lucchesi, MD, who had served as chairman of Emergency Medicine at SUNY Downstate Medical Center in New York City, was arraigned on July 9 and pleaded not guilty. Lucchesi’s attorney, Earl Ward, did not respond to messages from Medscape Medical News, but he told the New York Post that “the funds he used were not stolen funds.”

Lucchesi, who’s in his late 6srcs, faces nine counts of first- and second-degree grand larceny, first-degree falsifying business records, and third-degree criminal tax fraud. According to a press statement from the district attorney of Kings County, which encompasses the borough of Brooklyn, Lucchesi is accused of using his clinical practice’s business card for cash advances (about $115,srcsrcsrc), high-end pet care ($176,srcsrcsrc), personal travel ($348,srcsrcsrc), gym membership and personal training ($1src9,srcsrcsrc), catering ($52,srcsrcsrc), tuition payments for his children ($46,srcsrcsrc), and other expenses such as online shopping, flowers, liquor, and electronics.

Most of the alleged pet care spending — $12src,srcsrcsrc — went to the Green Leaf Pet Resort, which has two locations in New Jersey, including one with “56 acres of nature and lots of tail wagging.” Some of the alleged spending on gym membership was at the New York Sports Clubs chain, where monthly membership tops out at $139.99.

The alleged spending occurred between 2src16 and 2src23 and was discovered by SUNY Downstate during an audit. Lucchesi reportedly left his position at the hospital, where he made $399,712 in 2src22 as a professor, according to public records.

“As a high-ranking doctor at this vital healthcare institution, this defendant was entrusted with access to significant funds, which he allegedly exploited, stealing more than 1 million dollars to pay for a lavish lifestyle,” said District Attorney Eric Gonzalez in a statement.

SUNY Downstate is in a fight for its life amid efforts by New York Governor Kathy Hochul to shut it down. According to The New York Times, it is the only state-run hospital in New York City.

Lucchesi, who had previously served as the hospital’s chief medical officer and acting head, was released without bail. His next court date is September 25, 2src24.

Size of Alleged Theft Is ‘Very Unusual’

David P. Weber, JD, DBA, a professor and fraud specialist at Salisbury University, Salisbury, Maryland, told Medscape Medical News that the fraudulent use of a business or purchase credit card is a form of embezzlement and “one of the most frequently seen types of frauds against organizations.”

William J. Kresse, JD, MSA, CPA/CFF, who studies fraud at Governors State University in University Park, Illinois, noted in an interview with Medscape Medical News that the high amount of alleged fraud in this case is “very unusual,” as is the period it is said to have occurred (over 6 years).

Kresse highlighted a 2src24 report by the Association of Certified Fraud Examiners, which found that the median fraud loss in healthcare, on the basis of 117 cases, is $1srcsrc,srcsrcsrc. The most common form of fraud in the industry is corruption (47%), followed by billing (38%), noncash theft such as inventory (22%), and expense reimbursement (21%).

The details of the current case suggest that “SUNY Downstate had weak or insufficient internal controls to prevent this type of fraud,” Salisbury University’s Weber said. “However, research also makes clear that the tenure and position of the perpetrator play a significant role in the size of the fraud. Internal controls are supposed to apply to all employees, but the higher in the organization the perpetrator is, the easier it can be to engage in fraud.”

Even Small Medical Offices Can Act to Prevent Fraud

What can be done to prevent this kind of fraud? “Each employee should be required to submit actual receipts or scanned copies, and the reimbursement requests should be reviewed and inputted by a separate department or office of the organization to ensure that the expenses are legitimate,” Weber said. “In addition, all credit card statements should be available for review by the organization either simultaneously with the bill going to the employee or available for audit or review at any time without notification to the employee. Expenses that are in certain categories should be prohibited automatically and coded to the card so such a charge is rejected by the credit card bank.”

Smaller businesses — like many medical practices — may not have the manpower to handle these roles. In that case, Weber said, “The key is segregation or separation of duties. The bookkeeper cannot be the person receiving the bank statements, the payments from patients, and the invoices from vendors. There needs to be at least one other person in the loop to have some level of control.”

One strategy, he said, “is that the practice should institute a policy that only the doctor or owner of the practice can receive the mail, not the bookkeeper. Even if the practice leader does not actually review the bank statements, simply opening them before handing them off to the bookkeeper can provide a level of deterrence [since] the employee may get caught if someone else is reviewing the bank statements.”

Randy Dotinga is an independent writer and a board member of the Association of Health Care Journalists.