After billing Medicare for a short period, the equipment owners sell the businesses to others or install more straw owners -- without reporting ownership changes to the federal government. This enables them to collect big bucks over a few months without notice.

''It's such easy money,'' said the FBI's Waterman, who visited the Hialeah equipment supplier with U.S. Health and Human Services agent Julie Rivera. ``It's scary how easy it is.''

In last year's report, Health and Human Services Inspector General Daniel Levinson took Medicare to task for failing to screen medical equipment applicants for criminal backgrounds, conduct regular site inspections and ensure basic operational standards.

In an assessment published in May, Levinson concluded that Medicare had not completed his recommendations to fix the glaring problems in South Florida's medical equipment industry.

In his words, they were ``unimplemented.''

Medicare -- along with Congress -- should be more aggressive about safeguarding the fragile program with tougher watchdog regulations, said Christopher Dennis, special agent in charge of Health and Human Services' Office of Investigations in Miami Lakes.

''We're addressing 2008 issues with rules and regulations that are two decades old, but the criminals are getting smarter,'' Dennis said. ``We make [Medicare regulators] aware of the deficiencies. After that, our hands are tied. After that, it's up to Washington.''

Kimberly Brandt, director of program integrity at Medicare, blamed a lack of anti-fraud resources. Of Medicare's $432 billion annual budget, Congress allocates about $720 million to the health insurance program to combat waste and abuse.

''It becomes increasingly difficult each year to stretch those dollars to fight the fraudulent problems confronting the Medicare system,'' Brandt said.

Critics both inside and outside Health and Human Services point to persistent flaws in Medicare's oversight:

• Until recently, almost anyone -- including convicted felons -- could qualify to become a Medicare provider because the agency's criminal background checks, though required by regulation in recent years, were spotty or nonexistent.

In December, the Centers for Medicare and Medicaid, which manages the program, said it would start conducting full background checks on selected medical equipment suppliers in areas with ``high fraud potential.''

Brandt said regulators now conduct those checks on medical equipment applicants in Miami and Los Angeles, the country's worst areas for healthcare fraud.

• Private Medicare contractors review claims before authorizing payment, but they only focus on billing errors and excessive payments.

Contractors now use computer software to block invalid equipment codes used by scofflaw Medicare operators, Brandt said, saving hundreds of millions of dollars yearly. But critics counter that only some dubious claims are caught before payment. The operators are still able to come up with new claims codes to get around the software barriers.

• In a yearly audit, about 1 percent of the 1.2 billion annual claims are verified by the Centers for Medicare and Medicaid. But regulators zero in on billing mistakes and excessive reimbursements more than outright fraud.

ERROR RATE

Last year, the error rate was about 4 percent, or about $11 billion in ''improper payments'' -- about half Medicare's estimated losses in 2004. Brandt said some of those payments were for fraudulent billing, but she couldn't break it down.

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