Man Sentenced to Life Imprisonment for Defrauding Over 100 Million Yuan from Medical Insurance
The Xinhua Street Community Health Service Station, located near the South Fourth Ring Road in Fengtai District, Beijing, has a prominent sign but remains locked up with a notice stating that outpatient services are suspended.
On a day in January 2024, the once-busy health service station now sees occasional passersby peering in, hoping for medical assistance or to collect medication, only to find the doors closed. A local resident remarked to China News Weekly that the station had been out of operation for several years, with rumors circulating about the owner potentially fleeing due to debts or changes in policies regarding private contracts.
According to China News Weekly, the person who contracted this community health service station is Li Penghui, who was arrested in July 2020 on charges of fraud. Alongside this facility, Li had contracted seven other community hospitals in Beijing’s Fengtai District.
On December 29, 2023, the Beijing Second Intermediate People’s Court sentenced Li Penghui to life imprisonment for fraud, while also convicting him of embezzlement, bribery as a non-state official, and issuing false invoices, resulting in a cumulative life sentence.
The court found that Li, in collusion with others, exploited his control over the Xinhua Street Community Health Service Station and seven other community hospitals to defraud over 120 million yuan from the country’s medical insurance fund.
Fraudulent Claims of Over 100 Million Yuan
Before the incident, Li Penghui served as the legal representative of Beijing Jingminkang Investment Management Co., Ltd. (hereafter referred to as “Jingminkang Company”). He was arrested by the Fengtai District Bureau of Public Security in Beijing on July 29, 2020, and was formally charged on September 4 of the same year.
Alongside Li, three others, including Fan Zongtang, Fan Wenyuan, and Li Peirong, were also apprehended on the same charges. Prior to their arrest, Fan Zongtang was the actual controller of Beijing Nengji Traditional Chinese Medicine Co., Ltd. (hereafter referred to as “Nengji Company”), while Fan Wenyuan was a supervisor at Nengji, and Li Peirong was the financial supervisor of Jingminkang Company.
The investigation culminated in a case that was transferred to the People’s Procuratorate of Fengtai District, which subsequently forwarded it to the Second Branch of the Beijing People’s Procuratorate for prosecution. On October 2021, the Second Branch indicted Li and his co-defendants.
From 2015 to 2020, Li Penghui and his accomplices devised a scheme to unlawfully acquire national medical insurance funds by instructing employees to purchase raw and finished traditional Chinese medicine from Nengji Company, while simultaneously forging raw material testing reports and production records, and labeling the products with fake quality certification. These products were then sold to the eight community health service stations under Li’s control, allowing for the fraudulent reimbursement of over 120 million yuan from the medical insurance fund.
The Scheme Unraveled
Documents reveal that during 2015 to 2020, Li and his associates aimed to illegally procure medical insurance funds through deceptive practices. By directing employees to issue dual pricing invoices to conceal and inflate the actual purchasing and selling prices of medicines, they defrauded the medical insurance system of approximately 43 million yuan.
The eight community hospitals managed by Li Penghui included Xinhua Street, Zhen Guosi, Liuliqiao Nanli, Chengnan Jiayuan, Fengtishidai, Wangyuan, and Danchang New Area, as well as the Taipingqiao Community Health Center.
Li, born in December 1973 in Huai Bin County, Xinyang City, Henan Province, graduated high school before studying medicine in Shijiazhuang, eventually moving to Beijing to work as a dermatologist and open a clinic. Legal documents show he has a college diploma.
To manage the eight community hospitals, Li established Jingminkang Company in 2014. These hospitals are classified as non-profit entities and are not permitted to engage in profit-making activities; any surplus cannot be distributed as dividends, and all are designated medical institutions under the insurance plan.
Company registration records indicate Jingminkang Company has a registered capital of 20 million yuan and primarily engages in business services, with Li holding a 100% ownership stake. Although the company still exists, it has been listed by the court as a high-consumption restriction entity.
A co-defendant, Li Peirong, is Li Penghui’s aunt, born in 1963. According to family sources, Li Peirong was involved in financial management at her nephew’s company after moving to Beijing. Other family members implicated included Li Penghui’s brother-in-law, Wang Mopeng, who served as the procurement manager at Jingminkang Company.
Fan Zongtang, the second co-defendant, born in 1962 in the renowned medicinal herb town of Bozhou, Anhui Province, oversaw Nengji Company, which he founded in 2013. His son, Fan Wenyuan, was also involved in the operation of the company.
A Systematic Approach to Fraud
Li Penghui’s case was extensively examined over three days in court, with testimony from over 40 witnesses presented in the trial.
Witness Xu Hong, a relative of Li, testified that he worked at Jingminkang Company in 2016, helping to manage products at Nengji’s factory. In July 2020, Li instructed him to accompany Wang Mopeng to purchase medicinal materials from Hebei. The purchased herbs were sent to Nengji’s factory for processing and labeling before being distributed to the community health service stations.
Xu described how they bought herbs at low prices; the pricing model ensured that they earned a considerable profit margin. Only medications eligible for reimbursement by medical insurance were purchased, leaving out any non-reimbursable drugs, which were sold exclusively to Jingminkang’s health service stations.
Numerous employees at Nengji testified about the fraudulent handling of testing data for medicines intended for reimbursement. For instance, a former quality department employee recounted how Wang Mopeng was instructed to falsify test results and alter inspection reports to ensure that the products met quality standards. Such discrepancies were often overlooked, with adjustments made to testing methods until the results were favorable.
Li’s operations involved issuing two types of sales invoices to inflate the prices and create an appearance of legitimacy. The invoices issued to community health service stations were based on these manipulated prices, allowing Li and his associates to profit by defrauding the medical insurance system.
Verdict and Sentencing
On December 29, 2023, the Beijing Second Intermediate People’s Court rendered its judgment: Li Penghui was sentenced to life imprisonment for fraud, while also facing charges of embezzlement, bribery, and issuing false invoices, resulting in the confiscation of all personal property. Other defendants received varying sentences, including Fan Zongtang, who was sentenced to 15 years, and Li Peirong, also receiving 15 years.
The verdict comes amidst ongoing scrutiny of community health service stations in China, which play a crucial role in public health but have been susceptible to fraudulent activities. The case was initiated after national health insurance authorities received complaints about the eight community health service stations allegedly colluding with suppliers to issue false invoices and fraudulently collect insurance funds.
This case highlights the systemic issues within the healthcare fraud landscape and raises concerns regarding the oversight and management of community health service facilities in China.
