In fiscal year 1994, a Stone Mountain, Georgia, psychiatrist billed Medicaid for $6.6 million—as if he had provided therapy to patients for at least 488 hours each and every week. The next year he billed another $6 million, and the State of Georgia paid every penny. Through July 1995, James E. McClendon, 46, was the most richly reimbursed physician in Georgia.

The state pays almost $26 an hour per patient for group-therapy claims. Many of the services are provided in after-school programs that enroll hundreds of poor children, often illegally recruited through door-to-door solicitation and flyers, according to state officials.

Medicaid rules require psychiatrists to provide nearly all services in person, but McClendon was paid for overseeing the work of others, including college students. Says Marjorie P. Smith, Georgia's Medicaid administrator, "It's not uncommon for us to discover during an investigation that, well, they've outsmarted us again." A federal grand jury is investigating bills submitted by McClendon.

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