The Champion
Sept/Oct 1994

Defending Charges of Health Care Fraud
By J. Richard Kiefer & Carol A. Glass

J. Richard Kiefer is a partner in the firm of Kiefer & McGoff, Indianapolis, Indiana. Much of his practice is devoted to representing health care professionals -- hospitals, nursing homes, doctors, nurses, pharmacists and others -- who are accused of neglect, Medicare or insurance fraud.

Carol A. Glass is of counsel to the firm of Kiefer & McGoff. A sole practitioner, she concentrates on health care, criminal and juvenile law.

On June 29, 1994, National Medical Enterprises, Inc. (NME), agreed to pay a record $379 million in criminal fines, civil damages, and penalties to settle the largest health care fraud case in U.S. history. As part of that record amount, the Justice Department obtained the largest criminal fine ever assessed in a health care case -- $33 million -- as well as an agreement in principle that NME would pay $16.3 million for damages it had done to the state-funded Medicaid programs in each state in which it had operated psychiatric facilities.1 At one time, NME owned more than 70 psychiatric and substance abuse hospitals in addition to several score of rehabilitation and acute care hospitals.

The fines and penalties were imposed as part of an agreement by NME to plead guilty to one count of conspiracy and six counts of paying illegal remuneration to induce doctors and other professionals to refer patients to its hospitals.2 The charges were based upon a federal statute prohibiting a health care provider from offering or paying "any remuneration" to induce Medicare or Medicaid funded referrals.3

Equally as noteworthy as the large fines and penalties obtained from NME was the government's agreement that the corporation would not be excluded for five years from participation as a provider in the Medicare and Medicaid programs, as would be expected upon its conviction of a program-related offense.4 Instead, the agreement provided for NME to divest itself of its psychiatric and substance abuse hospitals and to pursue a corporation integrity plan spelling out measures to assure better patient care and compliance with health care regulations for its remaining facilities. Such an agreement is "unprecedented in the health care arena."5

This settlement culminated an intensive, years-long investigation by a daunting consortium of agencies including the Criminal and Civil Divisions of the Justice Department, the Federal Bureau of Investigation, the Office of Inspector General of the Department of Health and Human Services, the Defense Criminal Investigation Service, the U.S. Postal Inspection Service, the Internal Revenue Service (IRS), the Office of Inspector General of the Office of Personnel Management, the Securities and Exchange Commission (SEC), the U.S. Attorneys in 23 federal districts and state law enforcement agencies in 27 states and the District of Columbia.

The intensity of that investigation is illustrated by a single day in August 1993 when more than 600 agents from the Federal Bureau of Investigation (FBI), Department of Health and Human Services (HHS), Department of Defense (DOD), and state Medicaid fraud control units raided the corporate offices of National Medical Enterprises Inc. in Santa Monica, California, its regional offices in Fairfax, Virginia and Dallas, Texas, and nine of its 61 psychiatric hospitals throughout the country. Massive searches were conducted at each location, with agents seizing documents by the truckload. As the nationwide searches were being conducted, other agents served grand jury and HHS administrative subpoenas duces tecum on other regional offices and hospitals owned and operated by NME.6

The government's investigation of NME epitomizes a national emphasis on health care fraud that started in the mid-1980s and is now in full swing. In December 1992, National Health Laboratories, Inc. (NHL), a major blood testing laboratory headquartered in California, agreed to pay $110 million in settlement for submitting false claims to the federal government by manipulating doctors into ordering medically unnecessary tests.7 U.S. Attorney William Braniff, in a press release announcing the NHL settlement, emphasized that the government regarded the false claims as an "industry-wide" practice and stated that the government would continue its investigation into other laboratories who may be engaged in similar practices.8

In "Operation Goldpill" conducted during the summer of 1992, the government arrested more than 80 pharmacists who allegedly overcharged for generic drugs and committed other health care fraud violations.9

The Office of Inspector General of HHS claims to have been responsible for over 5000 successful actions involving criminal prosecutions, civil lawsuits, and administrative proceedings since January 1991.10

Great concern for escalating health care costs fuels the federal government's interest in health care fraud prosecutions. The General Accounting Office (GAO) reports that Medicare, the largest payer in the health care system, now consumes one-seventh ($146 billion) of our gross domestic product and covers 35 million beneficiaries. In fiscal year 1993, Medicare processed about 700 million claims. The GAO says that if current trends continue "Medicare expenditures are expected to increase to $259 billion by 1998."11

The government investigations of National Medical Enterprises and National Health Labs are part of a nationwide emphasis on curbing health care fraud. Major players include the FBI, the Office of Inspector General at HHS, the Department of Defense Investigative Service, state Medicaid fraud control units, and state and local law enforcement agencies.12 Joseph L. Ford, head of the FBI's health care fraud investigations, estimates that "fraud in the delivery of health care varies between 3 percent to as high as 15 percent of the total cost of the services provided. The resulting losses are between $20 billion and $105 billion."13

Such estimates of loss, coupled with the high profile investigations of National Health Labs and National Medical Enterprises, have prompted many federal and state prosecutors to give highest priority to health care fraud prosecutions. All areas of the health care delivery system appear to be under scrutiny. Medical laboratories, psychiatric hospitals, medical supply companies, x-ray companies, ambulance companies, home health agencies, purchasing agents for health insurance companies, physicians, podiatrists, pharmacists, dentists, ophthalmologists, optometrists, audiologists, nurses, and nurse's aides are among the recent targets.

Unlike most other white-collar prosecutions, health care fraud cases often involve statutes and regulations specific to the Medicare and Medicaid system with which defense counsel may be unfamiliar. Most problematic are the regulations requiring that providers of health care services who are convicted of "program-related" crimes be excluded from the Medicare and Medicaid reimbursement system for a minimum of five years. A number of attorneys have negotiated diversion or some other first offender alternative that avoids a conviction, only to later discover that Congress has defined "conviction" for purposes of exclusion to include such dispositions.

This article is an introduction to defending clients in health care fraud investigations. It includes:

'Health Care Fraud' Defined
"Health care fraud" has come to mean a myriad of different crimes relating to the submission of claims for reimbursement from Medicaid, Medicare and private insurance companies, and includes illegal payment of referral fees to obtain business, billing for services not performed, billing for services of one type but providing another, billing for name brand prescription drugs but giving the patient generic drugs, billing for services that were not medically necessary, and a host of other violations of complex reimbursement regulations.

Federal Criminal Statutes
The government has relied upon many statutes in its arsenal to prosecute "health care fraud." U.S. Attorneys are not limited to a single statute; instead, they may select from laws regulating the health care industry, such as the Anti-Kickback statute, or a host of general fraud statutes, including the False Claims Act, mail fraud and wire fraud, and many other false statement offenses. Federal prosecutors often add charges of conspiracy, RICO (Racketeer Influenced and Corrupt Organizations Act) violations, money laundering, and obstruction of justice.

The Anti-Kickback Statute
The darling of the prosecution is the federal Anti-Kickback statute. It was enacted as part of the Social Security Act which created the Medicaid and Medicare systems.14 This statute makes it a crime to knowingly and willfully solicit or receive any remuneration, directly or indirectly, in cash or in kind, in return for referring an individual for medical services, or in return for purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made under Medicare or Medicaid. The statute also prohibits offering or paying any remuneration for these items.

The use of the Anti-Kickback statute by the Office of Inspector General (OIG) is highlighted by its Semi-Annual Report of March 31, 1993, in which the OIG reported over 500 convictions, judgments and settlements under the statute in recent years.15 The prosecution's use of the statute has been greatly aided by recent court decisions holding that if one purpose of the payment was to induce future referrals, the statute has been violated. In United States v. Greber,16 the court held that, if payments to physicians were intended to induce referrals, the statute was violated even though the payments were also intended to compensate for professional services.17 Greber's "one purpose" test has been adopted by both the Ninth Circuit, United States v. Kats,18 and the First Circuit, United States v. Bay State Ambulance and Hospital Rental Service, Inc.19

Payment of referral fees has been held to constitute a violation of the Anti-Kickback statute in a wide variety of payment arrangements.20 It is not just the payment of a "bribe" or "referral fee" that violates the act. Any offer or payment that constitutes an inducement, including paying more than the fair market value of services to physicians who both refer patients and provide services, violates the statute.21 It is not a defense that the referral fees were not paid out of the federal funds.22 Nor must the payments actually be made; it is enough that the defendant made an "offer" expressing an ability and desire to pay a remuneration coupled with the intent to induce a referral.23

The allegations in the NME case offer a useful example of the manner in which the statute may be applied. Six of the counts in the information involved different NME psychiatric hospitals across the nation, but each essentially alleged that NME had offered to or in fact had paid physicians remuneration to induce referrals. The illegal remuneration was usually provided for in a service contract but took various forms: in some, in addition to a salary, an "incentive bonus" was offered to the physician, based upon the profitability of the respective hospital, which was in turn heavily influenced by the number of admissions, and length of stay of each patient. In other counts, it was alleged that physicians held various positions in hospitals such as Medical Director, Clinical Director or Psychiatric and Special Program Consultant with remuneration offered which was either in excess of the fair market value of the services the physician was obligated to provide or, the physician was not actually required to provide the hours as specified in the contract. The illegal remuneration was not just direct monetary payment, but indirect benefits such as income guarantees, free or reduced office space and free office help, salary help with the physician's employees, or interest free loans.

The remaining count alleged conspiracy by the corporation to violate the Anti-Kickback statute and to defraud certain government agencies by obstructing them in their functions in administering health care funding programs. It was based upon alleged facts which included not only the payment of the incentive bonuses and the payment of remuneration to various doctors in excess of the fair market value for the services to be provided, but upon aggressive corporate actions to develop business which outside the health care industry would be acceptable. These included the corporate policy of establishing marketing, admissions, and profit goals and rewarding employees for meeting them, providing computerized marketing tracking systems, and soliciting and rewarding potential referral sources, including not only doctors, but other professionals such as psychologists, therapists, social workers, school counselors and probation officers.

It also was built upon corporate encouraged hospital policies of rewarding "high admitters" by referring patients back to them or conversely ceasing to refer back to physicians who did not produce a sufficient number of hospital admissions, and various corporate memoranda and meetings discussing methods of generating more referrals. The NME program also included paying non-medical personnel such as employee assistance counselors and crisis hotline services to refer patients to NME hospitals.24

The False Claims Act
Another arrow in the government's quiver is the federal False Claims Act, 18 U.S.C. 287, which proscribes making or presenting claims to the United States, or any agency thereof, knowing that the claims are false, fictitious or fraudulent. The government relied heavily in the National Health Laboratories case on this statute, ultimately reaching a $110 million settlement.25

The government has also relied on the False Claims Act to successfully prosecute the president of a hospital who included personal expenses in the hospital's cost report, used to calculate Medicare payments;26 a medical laboratory that performed tests on automated equipment, but charged for tests done manually, at higher rates;27 a physician for submitting bills for house calls that were not made;28 and a medical equipment supplier who inflated claims by adding nonexistent freight charges.29

The False Claims Act requires proof that the defendant made and presented a false claim, with knowledge that the claim was false. Where the government's evidence fails to show who prepared the paperwork and who submitted it to the government, the evidence is not sufficient to sustain a conviction.30 Thus, in United States v. Brown,31 the Eighth Circuit reversed some of the convictions of a pharmacist where the government failed to show that he was the person who either filled the prescriptions or submitted the false claims. Brown had been charged with filling prescriptions with generic drugs, but billing for brand name drugs at higher costs. The government's evidence showed that he filled a number of prescriptions covered by the indictment, and on those his convictions were affirmed.

The defense of a False Claims Act case requires comprehensive review of complex, often confusing and ambiguous federal regulations governing payment of Medicare or Medicaid claims. A New York physician was recently acquitted on 72 counts in a case in which no one -- including the government -- knew exactly what medical service a particular billing code covered, thus supporting the defendant's contention that he believed his claims were proper and that he did not knowingly and willfully submit false claims.32

Regulations permit physicians to bill for having "supervised" chemotherapy. The government charged the physician with having billed for supervising the chemotherapy when the hospital performed the treatment and the physician was not even present. In his defense, the physician argued that he "supervised" the treatments by prescribing them, reviewing the charts, and monitoring the patient's progress in order to adjust the dosage.

The Second Circuit expressed concern that not even the government's "expert" knew what "supervision" in the billing code meant and opined that it could not "allow the government to ambush a defendant with [such an] ambiguity."33

On five counts, the physician was out of the country and the jury apparently concluded he did not "supervise" the treatments, regardless of the definition of that term. However, after trial, he moved for a new trial because hospital records were discovered showing that he had made arrangements for another physician to cover for him. The court remanded the case to the district court to determine whether a new trial should be ordered.

Other False Statement Statutes
The government has used other criminal statutes to prosecute false statements made in claims submitted to Medicaid or Medicare, including 42 U.S.C. 1320a-7b(a),34 1395 and 1396,35 which prohibit knowingly and willfully making or causing to be made any false statement in claims submitted for Medicaid or Medicare; and 18 U.S.C. 1001, which proscribes knowingly and willfully making any false statement to a government agency, and knowingly and willfully falsifying a material fact in connection with any federal program.36

Mail and Wire Fraud
No area of federal criminal fraud prosecution would be complete without reliance by the government on the mail fraud, 18 U.S.C. 1341, and wire fraud, 18 U.S.C. 1342, statutes; health care fraud is no exception. Every health care fraud case necessarily involves a scheme to defraud and the use of either the U.S. mail or computer transmissions to submit claims and receive payment. The government frequently links mail or wire fraud counts with charges under the Anti-Kickback statute, False Claims Act, or another false statement statute.37

Other Criminal Statutes
The government often charges defendants with conspiracy under 18 U.S.C. 371 in health care fraud cases,38 but not to the extent that it does in drug cases. Reliance on the aiding and abetting statute has proven somewhat difficult for the government in health care fraud cases.

In United States v. Kline,39 the court held that it was improper to instruct the jury on the government's aiding and abetting theory under 18 U.S.C. 2, and reversed the defendant's convictions. The defendant was charged with violating the False Claims Act by making and submitting fraudulent claims, but the government was unable to prove that it was the defendant who prepared and submitted the claims. To cure this evidentiary defect, the prosecution tendered and the court gave an instruction that the defendant could be convicted for aiding another employee in submitting the false claims. However, that employee testified that she probably made a mistake in submitting the claims, which she said was easy to do given the complex billing codes.

The aiding and abetting statute, 18 U.S.C. 2, has two parts, the court held. The first requires the existence of a principal who was aided by the defendant; here, the court said, there is no evidence of a principal. The second part of 18 U.S.C. 2 punishes a defendant who causes a criminal act to be done by another; however, the indictment only charged that the defendant "made and presented" the false claims, and the Court held that the government was, therefore, not entitled to the instruction.40

Civil Monetary Fines
Congress has provided for civil monetary penalties as part of the Social Security Act, which governs the Medicare and Medicaid programs.41 Under this statute, persons and organizations or entities who present claims under any federal health care program that the provider knows or should have known are false or fraudulent, are subject to a civil monetary penalty of not more than $2000 for each item or service. In addition, the government is entitled to double the amount claimed for each item or service. Even without a conviction, the provider may be excluded from participation in federal health care programs upon a finding of liability under the statute.42 Under this statute, a provider is estopped from denying the essential elements of the criminal offense of submitting false claims if the person has already been convicted of that offense, thus emphasizing the importance of a "global settlement" if defense counsel is to resolve a health care fraud case.43

Congress has also enacted the Civil False Claims Act, 31 U.S.C. 3729, and has authorized the Attorney General or private persons to file civil actions pursuant to the act.44 A person or entity who knowingly submits false claims, or conspires to do so, is liable under the act for a civil penalty of not less than $5000 and not more than $10,000, plus three times the amount of the damages which the government sustains. The combination of the Civil False Claims Act and the Civil Monetary Penalty provision can result in astounding total penalties, as it did in the NME case which resulted in a civil penalty of $324.2 million.45

In United States v. Halper,46 the Supreme Court held that a penalty of $130,000 under the civil False Claims Act could not be imposed on a defendant who had already been convicted for the same false claims offenses because the government's total amount of overpayment was only $585, making imposition of such a large penalty a second "punishment," in violation of the Double Jeopardy Clause. Halper does not hold that large civil penalties are per se unconstitutional. Rather, the Court held that, as a general rule, penalties equal to twice the actual loss will be approved as liquidated damages. However, the Court recognized that $2000 per claim can constitute "punishment" where the dollar amount of the claims is very small.

Federal law mandates that the Department of Health and Human Services exclude from participation in the Medicaid and Medicare programs, for a minimum period of five years, any person who has been "convicted" of a program-related crime, and permits exclusion for conviction of non-program-related crimes.47 This law is a trap for the unaware! Several excellent criminal defense lawyers have negotiated what appear to be excellent settlements of their client's health care fraud cases, resulting in diversion and first offender programs with no "conviction," only to find that their client is subject to a mandatory exclusion and, therefore, unable to work in the health care field. How can this happen?

Congress has defined "conviction" for purposes of mandatory exclusion to include an "individual or entity (who) has entered into participation in a first offender, deferred adjudication, or other arrangement or program where judgment of conviction has been withheld."48 Thus, a physician who pleaded "no contest" in Utah state court pursuant to a first offender plea agreement that resulted in charges being dismissed was nevertheless subject to a mandatory five-year exclusion from the Medicaid and Medicare system because that disposition was a "conviction" under the exclusion statute.49 Similarly, health care professionals have been excluded where prior guilty pleas have been "expunged,"50 where the defendants have entered Alford pleas,51 and where their convictions have been vacated under state statutory schemes.52 Once the conviction has been entered, the health care provider may not challenge it collaterally in administrative exclusion proceedings, claiming that he was not advised of the exclusion consequences of his plea.53

One of the most remarkable aspects of the agreements in the NME case is what appears to be the suspension of the mandatory exclusion provisions.54 Instead, the agreements provide that the corporation dispose of all of its psychiatric and substance abuse facilities and not reacquire any for at least five years. It also provides that certain employees not be rehired or retained on a consultant basis for at least five years. The corporation is to abide by a Corporate Integrity Agreement with the Office of the Inspector General of the Department of Health and Human Services to comply with standards for patient care and compliance with regulations in the facilities retained by NME.55

A recent challenge to the exclusion provisions based on United States v. Halper 56 was rejected by the Eleventh Circuit,57 holding that exclusion from participation is "remedial" rather than "punitive" and thus does not violate the Double Jeopardy Clause.

Settlement And Sentencing Considerations
The exposure of health care professionals to criminal prosecution, civil monetary penalties and administrative exclusion consequences of filing false claims for services and equipment demonstrate the compelling need for defense counsel to negotiate a global settlement in the event the case is resolved without a trial. If the issue of potential exclusion is not included in a plea agreement, counsel must both explain the potential for exclusion to the client and attempt to draft a settlement agreement that avoids or minimizes the client's exposure to exclusion. For example, a guilty plea to a non-program-related offense exposes the client to a permissive, rather than a mandatory, exclusion and may result in a shorter period of exclusion, or perhaps no exclusion at all.

In a global settlement, defense counsel needs to be careful to avoid having the amount of a civil penalty be considered the "loss" for purposes of determining the offense level under the Federal Sentencing Guidelines. Such an issue confronted the Tenth Circuit recently in United States v. Abud-Sanchez.58 The plea agreement provided that the defendant would pay $100,000 to the government "in satisfaction of all civil claims" for the relevant period. However, the parties stipulated that the loss to the government for the fraud and deceit offenses was less than $2000. The district court found the loss to be $100,000 and increased Dr. Abud-Sanchez's base offense level by six levels pursuant to section 2F1.1(b)(1)(G) of the Federal Sentencing Guidelines. The court of appeals reversed the district court because the government has the burden of proving the amount of loss from criminal fraud, and the only evidence of that was the $2000 stipulated figure. The court held that the settlement figure of $100,000 for civil false claims could not be used because it was not proven that the settlement figure represented criminal conduct.

The Sixth Circuit has recently held that it was improper for the district court to enhance a defendant's sentence on Medicaid fraud charges both for role in the offense and more than minimal planning.59 The defendant owned and operated three medical clinics in Detroit through which he submitted numerous claims for unnecessary medical tests to Medicaid. The district court enhanced his sentence by four levels under section 3B1.1(a) for being an organizer and manager of the criminal activity with control over five or more participants, and two levels under section 3F1.1(b)(2) for more than minimal planning. The Sixth Circuit ruled that both enhancements penalized the defendant for the same conduct and that section 3B1.1(a) encompasses more than minimal planning, and vacated the additional two-level adjustment. The Third60 and Eighth61 Circuits have rejected the Sixth Circuit's construction of the guidelines, creating a conflict among the circuits with which defense counsel should be familiar.

Government Investigative Techniques
The recent national focus on health care fraud has brought with it investigative tactics traditionally used in drug and other undercover operations. Over the past several years, federal agents investigating health care fraud have used confidential informants, undercover operatives, consensual tape recorded monitoring of conversations between cooperating individuals and subjects of the investigation, searches of facilities for documents and records, and other "unique and sophisticated proactive investigative techniques," according to Joseph L. Ford of the FBI.62 In addition, the government relies heavily on results of audits conducted as part of the administrative review process, both administrative and grand jury subpoenas for records, and interviews of present and former employees.

Defense Strategy
Both corporate and individual health care professionals often learn of a government investigation from former employees who remain friendly and who notify their former employers after being contacted by government agents. Defense counsel who is retained early has the opportunity to initiate immediately a defense internal investigation and prepare the client for further government action.

A thorough, independent, investigation initiated by the defense is essential in defending a health care fraud case. As a minimum, it should include in-depth interviews of all present and former employees involved in any area relating to the subject of the investigation, and an exhaustive review and analysis of documents both submitted to payers and those that support the claims. If employment records have not yet been produced to the government, defense counsel may be able to interview former employees before they are contacted by government agents, thus giving the attorney the opportunity to inform the former employees of their rights, offer counsel to represent them, emphasize the importance of being factual and not speculating on matters relevant to the inquiry, and encourage them to contact the attorney for further discussions if they are interviewed by the government.

Almost all health care fraud cases involve numerous potential targets or defendants. Some are providers of services, such as physicians, nurses, pharmacists or dentists; others are accountants, business managers or others involved in the billing process. Defense counsel must attempt to identify as soon as possible the persons who are the focus of the government's investigation and assist in securing legal counsel for them. Many corporations have indemnification provisions in their by-laws or charters requiring them to provide legal representation to present or former employees accused of misconduct or exposed to civil liability as a result of acts or omissions during the course of their employment. Other corporations and individual health care providers will voluntarily undertake to pay legal expenses of employees who become targets, or whom the government wants to interview.

Defense counsel should consider the merits of retaining "pool counsel" to represent present and former employees who are not targets of the investigation, but who request the assistance of an attorney if they are to be interviewed by government agents. Pool counsel can represent these individuals if no conflict of interest exists, but must be alert to potential conflicts which could require retention of another attorney to represent a particular employee. Each target, or likely target, should have separate counsel. Defense counsel who enters the case very early in the investigative stages may be able to secure counsel for each potential target on behalf of the corporation or primary target, thus developing a cohesive team to respond to the prosecution.

Whether a joint defense agreement should be formalized in writing depends, to a considerable extent, upon the number of defense attorneys involved and their experience in working together, as well as on the law in the state or federal district in which the case is being investigated. Such an agreement is essential, even if verbal, to facilitate the exchange of information and to prepare compatible defense strategies.

A review of billing records to determine a client's exposure to criminal, civil or administrative liability often requires the assistance of an outside accounting firm experienced in such audits. Many of the nation's top Certified Public Accounting (CPA) firms now have specialized health care fraud audit units that conduct internal reviews to identify problems in billing for health care services. Outside auditors should be retained by defense counsel to insulate their results from discovery under the attorney work product privilege. Once the report has been completed, defense counsel needs to limit disclosure of it to preserve the privilege. If counsel represents a corporation, disclosure should be limited to the most senior members of the client.

Defense counsel must also review voluminous internal records, memoranda, correspondence, reports, financial data and other documents of the client to determine the client's exposure to criminal prosecution. These records may be critical to show either intent or lack of intent in submitting false claims. Whether the client simply made a mistake, or misinterpreted a complex and confusing regulation, may be revealed in internal documents of the client. Aware of the importance of such records, the government routinely issues either administrative or grand jury subpoenas requiring production of all such documents, or, as in the case of National Medical Enterprises, conducts massive searches to secure the records.

Our clients are often their own worst enemies. Defense counsel must caution the client about obstruction of justice and witness tampering statutes which would expose the client to prosecution even if no substantive violations have occurred. The head of the state Medicaid Fraud Control Unit in Oregon recently reported that a favorite tactic of the unit is to issue a subpoena for records and then secretly seize the trash on a daily basis for the next 30 days to see what is discarded and develop a case of obstruction.63 Clients need to be cautioned about such investigative techniques and, especially in the case of corporations, about the need to instruct employees on proper procedures to follow.

Corporate, institutional and organizational clients need to develop policies and procedures for responding to government health care fraud investigations. As a minimum, these policies and procedures should include a protocol for dealing with searches by government agents, procedures for production of documents upon request or pursuant to subpoenas, communications to present and former employees, retention of attorneys to represent present or former employees who become targets or who the government wants to interview, and policies and procedures for document retention during the investigation.

Employees of the corporation or individual health care professional should receive instruction in writing on what to do if contacted by government agents or if a search occurs. Employees need to know what to say, who to call or contact, and what to do if government agents attempt to discourage following the procedures. Corporations are often reluctant to inform large numbers of employees that a government investigation is underway, and defense counsel must therefore work with corporate in-house counsel and top executives to balance the corporate business objectives with preparation for potential governmental action that could seriously harm the corporation if its employees are not informed and trained in procedures to be followed.

Employees of the health care provider should be immediately instructed on procedures to follow if government agents request corporate records. It is not unusual for health care providers to receive requests, often in person, for access to and copies of records by administrative agencies which routinely monitor, survey and inspect all providers with whom they do business. These include auditors from private insurance companies, surveyors from the state board of health, auditors from the state agency or insurance company which administers the Medicaid system in that state, federal auditors from the Health Care Financing Administration (HCFA) which administers the Medicare program, and other private and public certification or regulatory agencies. Employees may not appreciate the importance of what appears to them to be a routine request for documents, and may simply provide them without making separate copies for defense counsel, or without even making a notation of the documents produced and the person or agency to whom they were given. That information may be invaluable to defense counsel in determining the focus of the government's investigation, and the agencies involved. Defense counsel needs to work closely with the client's health care attorneys to be certain that any procedures developed do not jeopardize the client's participation in Medicaid and Medicare programs, or violate contracts with private insurance companies. For example, the refusal to grant immediate access to records can result in exclusion from the Medicaid and Medicare programs.64

If a search occurs, the client needs to be prepared to take steps to protect attorney-client privileged documents from seizure. Defense counsel can often negotiate with the Assistant United States Attorney (AUSA) or local prosecutor to have defense counsel and corporate representatives remove such documents that are believed to be privileged and have them sealed and delivered to the magistrate who issued the search warrant pending resolution of the privilege issue. Defense counsel should have motions, memoranda and orders prepared in advance to present to the magistrate or judge who issues the search warrant in the event that prosecutors are unwilling to agree to defense counsel's removal of privileged documents.

Document retention can be a particularly troublesome issue for large corporations under scrutiny by federal investigators. The sheer volume of daily paperwork often necessitates that employees routinely discard unneeded documents, including incoming mail, internal memoranda, copies of correspondence, notes, and other miscellaneous written documents generated by the corporation. Unfortunately, it may be impossible to determine in advance what issues are under investigation by the government; consequently, defense counsel may be unable to determine which documents may be relevant to the issues being investigated, and the destruction of any potentially relevant documents risks discarding materials essential to the defense of the corporation, in addition to allegations of obstruction of justice. Since health care fraud investigations often last for many months, and sometimes years, document retention issues can become formidable problems for large corporate clients. In some instances, defense counsel may be successful in reaching agreement with the AUSA or local prosecutor on procedures to follow that preserve documents relevant to the investigation, but permit the client to discard others.

Corporate clients can pose another potential problem for defense counsel. It is not always easy to identify the "client." Is the "client" the president who contacted and retained defense counsel, and with whom the attorney communicates daily? Or is the client the board of directors, with whom the attorney may have never spoken? What if defense counsel's internal investigation develops evidence of fraud committed by high-ranking corporate officers, but without knowledge of the board and other high-ranking officers? Worse yet, what if the culprits are the corporate officials who retained and who are communicating daily with defense counsel? Equally important is resolution of disagreements among corporate officers as to the procedures that should be followed. Who makes the decisions in the event of such a disagreement? Defense counsel who is unfamiliar with representing corporate clients in litigation needs to be particularly alert to these potential areas of conflict.

These issues should be identified early in the attorney-client relationship so the corporate identity is clearly established and procedures are developed to minimize the risk of apparent conflicts. Probably the most effective, though somewhat cumbersome, procedure is to have defense counsel retained by the board of directors and report to a subcommittee of the board composed of directors who are not employees or officers of the corporation. That rarely occurs, however, and more often defense counsel is retained by and reports to the president, in-house counsel, or some other high-level executive, all of whom could become individual targets.

Defense counsel also needs to develop procedures for communication with individual targets who are current employees of the corporation and who are represented by separate attorneys. The attorney for the corporation needs to discuss, often daily, many issues with top corporate officers; if they are individual targets, their private attorneys may resist ex parte communications. A joint defense agreement or some similar arrangement may be essential both to facilitate communication and preserve that communication under the attorney-client privilege.

Trial Issues
The trial of a health care fraud case may involve legal and factual issues unique to the particular statute involved, and other evidentiary or legal issues with which defense counsel must become knowledgeable. As mentioned earlier, whether the "one purpose" test is the legal standard to be applied under the Anti-Kickback statute, whether complex Medicaid and Medicare regulations are subject to constitutional attack to determine if one can be held criminally responsible for violating them, and whether a defendant may be convicted of aiding and abetting the submission of a false claim, are all issues subject to challenge and litigation at trial. Jury instructions and motions for judgments of acquittal, in particular, are fertile soil for defense counsel to raise these issues, both to increase the likelihood of winning at trial, and to preserve error for appeal.

The government's use of statistical sampling is one of the evidentiary issues confronting defense counsel in the trial of a health care fraud case. In many reported cases, the government has used statistical sampling and extrapolation as part of audits to determine overpayments of Medicaid, Medicare and private insurance to health care providers.65 The government uses this method to project the amount of loss or overpayment from a small sample calculated to be representative of the entire payments during the relevant period. Defense counsel should consider filing a motion in advance of trial to discover the use of this type of evidence,66 and, where the government indicates an intent to offer it, defense counsel should file a motion in limine before trial to exclude such evidence and ask for an evidentiary hearing to determine its admissibility. A statistical sampling expert retained by the defense to review the government's methodology will be needed to testify at a pretrial hearing to demonstrate the fallacies in the proffered evidence if defense counsel is to have any chance in excluding the evidence.

Health care fraud cases offer criminal defense attorneys a challenge in an exciting and developing area of the law, and one that is here to stay. As health care expenditures continue to rise, public attention will focus increasingly on curbing fraud. Criminal defense attorneys unfamiliar with the health care fraud need to devote substantial time to educating themselves to be prepared for such cases.

1. Plea Agreement, U.S. v. NME Psychiatric Hospitals, Inc., No.CR94-0268 submitted to the U.S. District Court, District of Columbia, June 29, 1994 [hereinafter Plea Agreement]; [Civil and Administrative] Settlement Agreement, entered into between the United States of America, acting through the Department of Justice, the United States Attorney for the District of Columbia on behalf of The Office of Personnel Management ("OPM"), the Office of Inspector General of the Department of Health and Human Services ("OIG-HAS") on behalf of the Department of Health and Human Services ("HHS"), and the Office of Civilian Health and Medical Program of the Uniformed Services ("OCHAMPUS") on behalf of the Civilian Health and Medical Program of the Uniformed Services ("CHAMPUS") on the one side, and National Medical Enterprises, Inc., ("NME") on the other, U.S. v. NME Psychiatric Hospitals, Inc., No. CR94-0268 submitted to the U.S. District Court, District of Columbia, June 29, 1994 [hereinafter Settlement Agreement].

2. Plea Agreement, supra note 1 at 1-2.

3. 42 U.S.C. 1320a-7b(b)(2).

4. 42 U.S.C. 1320a-7.

5. Press release, issued by the Department of Justice, June 29, 1994 at 4.

6. Rhonda L. Rundle, National Medical Facilities Raided By U.S. Agents, Wall St. J., Aug. 27, 1993, at A3.

7. Press Release, issued by U.S. Attorney, San Diego, CA and Settlement Agreement, submitted to U.S. District Court, Southern District of California, Dec. 18, 1992, [1993-1 Transfer Binder] Medicare & Medicaid Guide (CCH) 40,975.

8. Id. at 34,085.

9. Rundle, supra note 6, at A4.

10. OIG, Semi-Annual Report, April. 1, 1993--Sept. 30, 1993, [1994- 1 Transfer Binder] Medicare & Medicaid Guide (CCH) 42,009; OIG, Semi-Annual Report, Oct. 1, 1992 -- March 31, 1993, [1993-2 Transfer Binder] Medicare & Medicaid Guide (CCH) 41,474; OIG, Semi-Annual Report, April 1, 1992 -- Sept. 30, 1992, [1993-1 Transfer Binder] Medicare & Medicaid Guide (CCH) 40,321; OIG Semi-Annual Report, April 1, 1991 -- September 30, 1991, [1992-1 Transfer Binder] Medicare & Medicaid Guide (CCH) 39,816.

11. GAO, Report, No. GAO/T-HRD-94-59, Nov. 1993. Subject: "Adequate Funding and Better Oversight Needed to Protect Benefit Dollars" [1993-2 Transfer Binder] Medicare and Medicaid Guide (CCH) 41,786 at 37,985.

12. Joseph L. Ford, Investigating A National Problem Through A Global Strategy: Combatting The Crime Plaguing The Health Care System, Fed. Bar News & J., Jan. 1993, at 66; See also [1993-1 Transfer Binder] Medicare & Medicaid Guide (CCH) 40,975.

13. Ford, supra, Note 12.

14. 42 U.S.C. 1320a-7b(b).

15. OIG, Semi-Annual Report, Oct. 1, 1992--March 31, 1993, [1993-2 Transfer Binder] Medicare & Medicaid Guide (CCH) 41,474.

16. 760 F.2d 68 (3rd Cir.), cert. denied, 474 U.S. 988 (1985).

17. Greber involved the predecessor statute, 42 U.S.C. 1395nn(b), which was repealed and reenacted in modified but substantially identical form as 42 U.S.C. 1320a-7b(b).

18. 871 F.2d 105 (9th Cir. 1989).

19. 874 F.2d 20 (1st Cir. 1989).

20. See, e.g. United States v. Universal Trade and Industries, Inc., 695 F.2d 1151 (9th Cir. 1983); United States v. Perlstein, 632 F.2d 661 (6th Cir. 1980); cert denied, 449 U.S. 1084 (1981); United States v. Ruttenberg, 625 F.2d 173 (7th Cir. 1980).

21. United States v. Lipkis, 770 F.2d 1447 (9th Cir. 1985).

22. United States v. Ruttenberg,supra, n.17.

23. United States v. Duz-Mor Diagnostic Laboratory, Inc., 650 F.2d 223 (9th Cir. 1981). In Duz-Mor, FBI undercover agents posed as representatives of a group of investors planning to purchase a number of nursing homes. The agents secretly tape-recorded conversations in which the defendants offered to pay remuneration as an inducement for the referral of medical services that were reimbursable from Medicare.

24. Government's Statement of Facts in Support of Plea Agreement, U.S., v. NME Psychiatric Hospitals, Inc., No. CR94-0268, submitted to U.S. District Court, District of Columbia, June 29, 1994.

25. Press Release, supra, n.7.

26. United States v. Smith, 523 F.2d 771 (5th Cir. 1975), cert. denied, 429 U.S. 817 (1976), reh. denied, 429 U.S. 987 (1976).

27. United States v. Precision Medical Laboratories, 593 F.2d 434 (2nd Cir. 1978).

28. United States v. Blazewicz, 459 F.2d 442 (6th Cir. 1972).

29. United States v. Huber, 603 F.2d 387 (2nd Cir. 1979), cert. denied, 445 U.S. 927 (1980).

30. United States v. Kline, 922 F.2d 610 (10th Cir. 1990).

31. 763 F.2d 984 (8th Cir. 1985). Brown involved a prosecution under 42 U.S.C. 1396h(a)(1)(i), which prohibits knowingly or willfully making or causing to be made any false statement or representation of a material fact in submitting an application for payment under a state Medicaid plan.

32. United States v. Siddiqi, 959 F.2d 1167 (2nd Cir. 1992).

33. 959 F.2d at 1173.

34. 42 U.S.C. 1320a-7b was formerly 42 USC 1396(h), and was renumbered by Congress in 1987 amendments. See 4 Medicare & Medicaid Guide (CCH) 17,385.

35. See United States v. Lipkis, 770 F.2d 1447 (9th Cir. 1985)(prosecutions under 42 U.S.C. 1395nn); United States v. Ruttenberg, supra Note 17 (prosecution under 42 U.S.C. 1396h(b)(1); and United States v. Alexander, 748 F.2d 185 (4th Cir. 1984) cert. denied, 472 U.S. 1027 (1985) appeal after remand 789 F.2d 1046 (4th Cir. 1986) (prosecution under 42 U.S.C. 1396k).

36. See United States v. Siddiqi, supra, Note 32.

37. See United States v. Siddiqi, supra, Note 32 (2nd Cir. 1992)(mail fraud charged in indictment also charging violations of False Claims Act and 18 U.S.C. 1001); United States v. Alexander, supra, Note 35 (mail fraud charged with charges under False Claims Act and statute prohibiting false statements relating to Medicaid program, 42 U.S.C. 1396k); and United States v. Simon, 510 F.Supp. 232 (E.D. Pa. 1981)(mail fraud charged with violation of 18 U.S.C. 1001); but see United States v. Collins, 596 F.2d 166 (6th Cir. 1979)(defendant charged with nine counts of mail fraud and no other offenses).

38. See United States v. Kats, 871 F.2d 105 (9th Cir. 1989); and United States v. Gold, 743 F.2d 800 (11th Cir. 1984), cert. denied, 469 U.S. 1217 (1985).

39. 922 F.2d 610 (10th Cir. 1990).

40. The court noted that in United States v. Montoya, 716 F.2d 1340 (10th Cir. 1983), it had held that such an instruction was proper, but in that case, an element of causation was present.

41. 42 U.S.C. 1320a-7a.

42. 42 U.S.C. 1320-7(b)(6).

43. 42 U.S.C. 1320a-7a(c)(3).

44. 31 U.S.C. 3730

45. Settlement Agreement, supra n.1 at 5.

46. 490 U.S. 435 (1989).

47. 42 U.S.C. 1320a-7.

48. 42 U.S.C. 1320a-7(i).

49.Travers v. Sullivan, 791 F.Supp. 1471 (E.D. Wash. 1992), aff'd sub nom., Travers v. Shalala, 20 F.3d 993 (1994)

50. See Salinas v. The Inspector General, HHS Department Appeals Board, ALJ Dec. No. C-72, Apr. 12, 1989, [1990 Transfer Binder] Medicare & Medicaid Guide (CCH) 38,341.

51. Under an Alford plea, an individual enters a plea of guilty, although maintaining innocence. The administrative law judge ruled that, upon acceptance of the plea by the court, a "conviction" occurred requiring mandatory exclusion. Baisley v. Inspector General, HHS Department Appeals Board, ALJ Dec. No. C-276, Apr. 26, 1990, [1991 Transfer Binder] Medicare & Medicaid Guide (CCH) 39,191.

52. See Zamora v. The Inspector General, HHS Department Appeals Board, Civil Remedies Division, Appellate Docket No. 89-100, Dec. No. 1104, Appeal from ALJ Doc. No. C-74, Sept. 25, 1989, [1990 Transfer Binder] Medicare & Medicaid Guide (CCH) 38,342.

53. See Edwards v. The Inspector General, HHS Department Appeals Board, Civil Remedies Division, Dec. No. CR278, July 28, 1993, [1993-2 Transfer Binder] Medicare & Medicaid Guide (CCH) 41,712.

54. Settlement Agreement, supra note 1 at 8.

55. Plea Agreement, supra note 1 at 12-13.

56. 90 U.S. 435 (1989)(holding that the Double Jeopardy Clause is violated when a defendant, punished in a criminal prosecution, is penalized by a subsequent punitive civil sanction).

57. Manocchio v. Kusserow, 961 F.2d 1539 (11th Cir. 1992).

58. 973 F.2d 835 (10th Cir. 1992).

59. United States v. Romano, 970 F.2d 164 (6th Cir. 1992).

60. United States v. Wong, 3 F.3d 667 (3d Cir. 1993).

61. United States v. Willis, 997 F.2d 407 (8th Cir. 1993).

62. Ford, supra n.12.

63. Presentation at the ABA Health Care Fraud Seminar, Santa Monica, California, 1993.

64. 42 U.S.C. 1320a-7(b)(12).

65. See Ratanasen v. State of California, Department of Health Services, 11 F.3d 1467 (9th Cir. 1993) and cases cited therein.

66. An amendment in 1993 to the Federal Rules Of Criminal Procedure now requires the government, upon a defendant's request, to disclose to the defendant a written summary of the testimony of any expert the government intends to call in its case in chief at trial. Rule 16(a)(1)(E), F. R. Crim. P.

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