Chicago Pair Pleads Guilty to Union Health Plan Benefit Fraud

In an era of rapidly rising health care costs, almost any clinical service advertised as “free” is bound to attract lots of customers. It also can produce lots of scandal. Such was the case for seven years in a Chicago-area scheme operating under the guise of conducting blood tests and administering allergy shots. The third parties fleeced were several insurance companies and more than two dozen union benefit plans in Illinois and Indiana. Two principals, Edgar Vargas and Diane Smoot, pleaded guilty this past June, four months after being indicted with eight others in a scam netting at least $1.5 million and possibly a good deal more. 


A Chicago federal grand jury this past February handed down a 34-count indictment against the 10 defendants. From 2000 until early 2007, charged prosecutors, doctors and staffers operated or worked for a network of clinics in Chicago, Northwest Indiana and Phoenix, Ariz. under the name American Institute of Allergy (AIA). A male nurse, John Froelich, of Harwood Heights, Ill., controlled this network of companies. Dr. Edgar Vargas, a resident of Arlington Heights, Ill., was a participating physician; Diane Smoot, a resident of Gary, Ind., was AIA’s vice president of marketing. The seven other defendants were brothers Paul and Frank Kocourek, Joey Reyes, Theodore Zegarski, Robert Tully, Oranu Ibekie and Hartley Thomas, the latter three of whom, like Vargas, are medical doctors.


The group mailed or posted flyers advertising free blood tests to identify allergies. All too often, however, Vargas, Smoot and the others would not send blood samples out for lab analysis until the insurance companies and health plans agreed to pay. Those delays often caused samples to decay to the point where they no longer were useful. According to the indictment, doctors did not make a determination as to whether testing was necessary. And when blood samples were promptly analyzed, doctors would advise patients to receive allergy shots even if they were not good candidates. Shots were ordered without a doctor’s evaluation of risk, prepared by unqualified personnel in unsanitary conditions, and dispensed without equipment and personnel needed to ensure patient safety. 

At the very least, there is a basis for medical malpractice suits against the four physician defendants. But given that all 10 defendants save for Vargas also were charged with fraud makes prison sentences likely as well. In addition to defrauding insurers out of more than $1.5 million, the defendants submitted invoices to over 25 union plans. Thus the grand total was around $5 million, according to the U.S. Labor Department’s Office of Inspector General. The indictments and guilty pleas follow a joint probe by the Food and Drug Administration, the U.S. Postal Inspection Service, and the Department of Labor’s Employee Benefits Security Administration. DOL Inspector General Gordon S. Heddell remarked at the time of the indictments, “We will continue to collaborate with other law enforcement agencies in investigating those who abuse their professional training and status for personal gain.” The U.S. Attorney’s Office for the Northern District of Illinois has established a toll-free number (1-866-364-2621) for those believing to have been victimized. (U.S. Department of Justice, 2/15/07;, 2/15/07; U.S. Department of Labor, Office of Inspector General, 4/1/07-9/30/07).