Bloomberg News

Donor Says He Sought Menendez on Medicare Regulations

April 02, 2013

Donor Says He Discussed Medicare, Port Disputes With Menendez

The criminal probe of Salomon Melgen became public in late January, when agents from HHS and the Federal Bureau of Investigation raided his offices over two days in West Palm Beach, Port St. Lucie and Delray Beach. He said agents took patient files and billing records and the FBI interviewed all 30 of his employees. Photographer: Joe Raedle/Getty Images

Salomon Melgen, the Florida political donor at the center of a criminal probe, said he and Senator Robert Menendez are “like brothers” who spoke weekly, yet his companies never benefited and he broke no laws.

“I don’t have any business interests at all that have been helped by any politicians,” Melgen, an ophthalmologist, said at his office in Port St. Lucie on Florida’s east coast.

Melgen, 58, spoke in his first interview since a scandal erupted over his relationship with Menendez, a New Jersey Democrat who heads the Senate Foreign Relations Committee.

A grand jury is examining whether Menendez improperly helped Melgen in his business dealings, according to the Washington Post. The senator intervened in a Medicare-billing dispute and urged the U.S. government to press the Dominican Republic to enforce a contract with a Melgen company to provide port-security services, the newspaper said.

Melgen acknowledged that he discussed with Menendez his problems with Medicare regulations and the port contract. He said he wants to restore his reputation, adding that headlines from dozens of news accounts have tarnished him.

“They took away my dignity,” Melgen, who came to the U.S. from the Dominican Republic in 1979 and still owns a home there, said in the March 21 interview. “They portrayed me as a greedy guy who was with politicians for the quid pro quo.”

Prosecutors typically use grand juries to determine whether there’s probable cause to believe a crime was committed. Grand juries, which meet in secret, can decide whether to return indictments or take no action.

$700,000 Donated

Last year, Melgen’s business gave more than $700,000 to help elect Senate Democrats, including Menendez. The senator has visited Melgen’s Dominican house “many times” as well as his home in North Palm Beach, Florida, the doctor said.

Menendez and Melgen have been friends for 20 years, said the senator’s spokeswoman, Tricia Enright.

“People bring issues to the senator and his staff all the time and they are evaluated on the merits,” Enright said. She called the allegations against the lawmaker “politically motivated.”

Menendez, 59, flew three times on Melgen’s private jet, the doctor said. Menendez repaid him $58,500 in January for two of those trips in 2010, saying he should have disclosed them earlier. The Senate Ethics Committee is investigating.

‘Like Brothers’

“The senator and I have become like brothers, like friends,” said Melgen. “I talk to him weekly. I see him once a month. Not right now, since this whole thing has started. But we enjoy each other’s company,” he said. “To me, he’s the leader of the Hispanic community. I believe in him. He could do great things for this country, especially as chairman of the Foreign Relations Committee.”

Melgen saw more than 100 patients at his Port St. Lucie office on the day of the interview. Many of the patients get monthly injections of Lucentis, a drug used to treat macular degeneration, which can cause blindness.

Menendez’s office has said he asked the U.S. Department of Health and Human Services to clarify regulations that led the agency to rule in 2009 that Melgen overbilled Medicare (USBOMDCA) by $8.9 million for Lucentis in 2007 and 2008. Melgen is appealing that ruling by the Centers for Medicare & Medicaid Services.

“I did not ask Senator Menendez or any public official to intervene in the pending overpayment case that I filed against CMS,” he wrote in response to follow-up questions. “My representative and I have discussed the lack of clarity in Medicare billing rules and CMS’s contradictory guidance with several public officials, including Senator Menendez and his staff.”

FBI Raid

The criminal probe of Melgen became public in late January, when agents from HHS and the Federal Bureau of Investigation raided his offices over two days in West Palm Beach, Port St. Lucie and Delray Beach. He said agents took patient files and billing records and the FBI interviewed all 30 of his employees.

His public troubles began in November. That’s when the Daily Caller website ran stories just before the Nov. 6 election saying Menendez had sex with prostitutes at Melgen’s Dominican villa. The site later said two prostitutes were 16. Menendez, who was re-elected, denounced the claims as smears.

On March 18, Dominican police rejected the prostitution claims, saying three women were paid by a lawyer to falsely say on videotape they had sex with the senator.

‘Dirty Game’

In January, Citizens for Responsibility and Ethics in Washington, a watchdog group, released a letter it sent to the Justice Department and FBI last July 17. CREW cited e-mails it got from someone calling himself Peter Williams, who said Menendez had sex with prostitutes at Melgen’s house and elsewhere.

Menendez has “absolutely been smeared” in an “unbelievably dirty game,” said Melanie Sloan, executive director of CREW.

“It seems like the FBI made every effort to run it down and they could not find any evidence to support this allegation because it’s not true,” Sloan said. “I expect that sometime in the not-too-distant future we’ll find out who was behind it.”

Melgen has long provided financial support to Menendez’s political aspirations. Last year, his ophthalmology business gave $700,000 to Majority PAC, a super political action committee that supports Democratic Senate candidates. The committee spent $582,500 to help Menendez win re-election.

When Menendez was chairman of the Democratic Senatorial Campaign Committee in 2009, Melgen and his wife gave more than $60,000 to the group. In the past two years, the Melgens also gave $40,000 to a Menendez legal defense fund.

Single Investment

Melgen began a career in medicine in the Dominican Republic before arriving in Miami in 1979, speaking little English. He trained in ophthalmology at the University of Missouri-Kansas City School of Medicine from 1981 to 1984. Melgen set up a practice in West Palm Beach in 1988, according to his resume.

A single investment made him a rich man. He said he provided “a substantial portion of the startup capital” as an angel investor in Seisint Inc., which developed a supercomputer system known as Matrix that could examine billions of personal records in seconds. Seisint’s data mining helped authorities investigate the Sept. 11 terror attacks.

When Reed Elsevier Group Plc bought Seisint in 2004 for $775 million, Melgen became wealthy, although he would only say he made a “sizable profit.”

Port Security

Melgen’s experience with Seisint led to his interest in port security, he said. In December 2006, he signed an option contract to buy 50 percent of ICSSI, and later purchased the whole company. ICSSI had signed a contract in 2002 to provide X- ray inspection services of shipping containers at Dominican ports, he said.

ICSSI has been unable to get the Dominican government to honor the contract. The Dominican director of the Customs Department recommended annulling the contract in 2008, saying it was unconstitutional and allowed the company to charge “exorbitant” fees to shippers to process cargo.

Melgen said ICSSI has no employees, has made no money, and has spent $2.5 million. “The value of the contract is zero unless the D.R. enforces the contract law it passed,” he said.

The New York Times reported that Menendez pushed U.S. State and Commerce department officials to eliminate Dominican roadblocks to starting the contract.

Menendez’s staff also sought to discourage any plan by the Department of Homeland Security to donate port security equipment to the Dominican Republic, saying in an e-mail it might undermine efforts by a private company to do the work, the paper reported. The e-mail didn’t name Melgen or his company.

Honoring Contracts

When asked in writing later if he had requested Menendez’s intervention with the U.S. agencies, Melgen wrote: “My representatives and I have discussed with Senator Menendez the absolute failure of the Dominican government to honor its legally binding contracts with a U.S. company.”

Prosecutors have a difficult time building corruption cases against public officials for bribery or gratuities, said David Schertler, a former federal prosecutor now in private practice in Washington.

In a bribery case, he said, “prosecutors must show an explicit quid pro quo agreement involving a public official performing a public act in exchange for receiving something of monetary value from the person who benefits. It’s hard for prosecutors to make that link without clear evidence showing the agreement between the two participants.”

In a gratuity case, he said, prosecutors need not show a quid pro quo. Rather, they must show a public official got “something of value because he performed the official act.”

Appealing Decision

On the Medicare issue, Melgen’s billing dispute is over Lucentis, which is made by Roche Holding AG (ROG)’s Genentech Inc. The drug comes in vials that hold about .2 milliliters, or 20 units of the drug. The labeling calls for doctors to use five units in a syringe, and one vial should be used for only one patient.

In a letter on June 30, 2009, a CMS contractor, SafeGuard Services LLC, said Melgen had billed for as many as three patients per vial. The allowed reimbursement, it said, was $2,030 per vial, not $6,180. SafeGuard said he owed $3.1 million for 435 patients in 2007 and $5.8 million for 546 patients in 2008. Another CMS contractor upheld that ruling.

Melgen appealed and lost, and his case is now before the Medicare Appeals Council. In a brief filed last Nov. 14, Melgen attorney Alan Reider said the issue is “whether, and how much, Medicare will reimburse for a drug when a physician lawfully obtains and administers multiple doses from a single-use vial.”

Multiple Doses

He said Medicare policy “not only permits -- but encourages -- billing for multiple-dose administrations from a single-use vial.”

After CMS said he had overbilled, Melgen said: “I asked Senator Menendez for a clarification of the policy.”

He added, “That’s what I wanted the senator to intervene on, not in my case.” Melgen said Menendez told him, “They said the policy was very clear.”

There were a total of 34,542 appeals from 6,102 medical providers that were decided by administrative law judges in fiscal 2010, according to the most recent data available. Of those appeals, 61 percent were favorable to the provider when heard by an administrative law judge.

Melgen said the worst part of the investigation has been the impact on his patients.

“This is my passion. I love my patients,” he said. “They get to love me, and I love them.”

To contact the reporter on this story: David Voreacos in Newark at dvoreacos@bloomberg.net

To contact the editors responsible for this story: Timothy Franklin at tfranklin14@bloomberg.net; Michael Hytha at mhytha@bloomberg.net


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