Summary
holding that remuneration in return for patient referrals is conceptually similar to bribery and deprives patients of intangible right of honest services
Summary of this case from North Shore Medical Center, Ltd. v. Evanston Hospital Corp.Opinion
No. 94-00087-01/02-CR-W-6.
January 9, 1995
MEMORANDUM AND ORDER
Defendants stand convicted of seeking and obtaining referral fees for the hospitalization of mental patients, one of whom was a medicare patient and many of whom were covered by health care offered by the Department of Defense (the CHAMPUS system). Defendant Jain is a psychologist and the corporate defendant is his organization, providing service in the Leavenworth, Kansas, community.
Count One was submitted in the alternative, as a conspiracy to violate the medicare statute prohibiting referral fees ( 42 U.S.C. § 1320a-7b(b) (1) (A)) or to defraud the United States by interfering with the operation of the CHAMPUS program. Count Two charges willful violation of the medicare statute prohibiting referral fees. Count Three charges bribery of hospital agents by tendering patients to North Hills Hospital in return for referral fees. Counts Four through Nineteen charge mail fraud. As submitted, the patients were, theoretically, potential victims of the plan to defraud in that taking or soliciting referral fees was allegedly conduct tending to influence Dr. Jain's independent judgment regarding hospitalization of patients.
The payments made, some $40,500, were tendered by the hospital periodically for purported promotional or "marketing" activities which Dr. Jain claims he performed on behalf of the hospital, somewhat surreptitiously, in that he did not publicly identify himself as an agent of the hospital and the payments to him were not disclosed to patients, employees or even to some family members.
The Government's case does not include any proof or contention that patients were inappropriately referred to the hospital. In other words, there was no loss of federal funds shown, and the referral fee system had more potential for harm than actual harm.
Defendants have been vigorously represented, and a considerable number of post-conviction issues have been raised. It now seems clear that I should rule in favor of defendants on the bribery issue, Count Three, and on the major conspiracy to defraud claim (regarding CHAMPUS), under Count One. In other respects I shall rule for the Government.
(A) The Bribery Theory
Count Three, the bribery count, alleges violation of 18 U.S.C. § 666(a)(2), which forbids corruptly giving something of value to any person, with "intent to influence . . . an agent of an organization . . . in connection with any business transaction . . . of such organization. . . ." Defendant Jain contends this simply bars bribery in the ordinary sense, where something is given to an agent personally, intending to influence or subvert the loyalty of the agent in connection with the transaction of business affairs, in this case, the affairs of the hospital. Since the alleged "bribe," the sending of patients to the hospital itself, did not involve giving "anything of value to any person" (as distinguished from the organization), defendant says the statute was not violated. On further consideration of the issue, I agree with defendant's construction of the statute, particularly in the absence of any citations by the Government contrary to the plain meaning of the statutory language.
Unquestionably the standard meaning of bribery is supplying something of value to an official or agent in order to influence the conduct of that person in a manner contrary to the best interests of the principal. Conflict of interest is implicit in bribery claims. While bribery does connote a "voluntary offer to obtain gain" (United States v. Adcock, 558 F.2d 397, 404 (8th Cir. 1977)), it seems invariably to be directed toward influencing conduct of a person having some duty toward another entity. United States v. Bowles, 183 F.Supp. 237, 250 (D. Maine 1958) (citing dictionary). It is an assault on integrity (United States v. Dansker, 537 F.2d 40, 48 (3rd Cir. 1976)), a subversion of loyalty and judgment (United States v. Duvall, 846 F.2d 966, 972 (5th Cir. 1988)). Where there is no conflicting duty of loyalty, as, for example, in paying more than price controls allow, it is a misnomer to characterize the transaction as bribery. Anderson Oldsmobile, Inc. v. Hofferbert, 102 F.Supp. 902, 908 (D. Md. 1952) (Chesnut, D.J.).
In ruling that the Government has failed to establish bribery, in the statutory terms, I do not suggest that defendant Jain may not have been flirting with the criminal law. His conduct, as found by the jury, may have been extortionate (using the Adcock theory that "fear of economic loss" can create pressures resulting in extortion — 558 F.2d at 403) or he might have been charged with soliciting a bribe (seeking payments which the hospital might believe would influence his conduct toward his patients). Neither the Count Three charge nor the method it was presented allows such a result here. There was a failure of proof as to Count Three and a judgment of acquittal will be entered.
(B) The Alleged Conspiracy to Defraud CHAMPUS
Defendants have submitted a citation which, in my judgment, defeats the Government's conspiracy case, as it relates to the CHAMPUS patients. In United States v. Porter, 591 F.2d 1048 (5th Cir. 1979), a well-reasoned opinion overturned a conviction of doctors who obtained kickbacks from laboratories on medicare testing. The doctors used the laboratories capable of manual testing of blood samples, in preference to those using automated testing at lower cost. The kickback system apparently caused or influenced the choice of laboratories. No financial loss by the Government was claimed, however, and the case had been submitted as a conspiracy which defrauded the Government of "its right to have the medicare program conducted honestly and fairly." 591 F.2d at 1056. Although an ethical violation was assumed, the case was not prosecuted as a conspiracy to violate federal law, but only as a conspiracy to defraud.
If the interference with the medicare program in Porter could not be categorized as fraudulent, I cannot conclude that the interference with the operation of the CHAMPUS program was fraudulent in the sense used in Count One.
Porter has been accepted as sound law, but distinguishable, in United States v. Barker Steel Co., Inc., 985 F.2d 1123, 1130-1 (1st Cir. 1993). See also United States v. Minarik, 875 F.2d 1186, 1191 (6th Cir. 1989) (Porter applies where there is no "positive obstruction" of a governmental program). The Eighth Circuit decision in United States v. Anderson, 579 F.2d 455 (8th Cir. 1978), is also quite different from the case at bar. The jury in Anderson was warranted in concluding that there was an "intended effect of defrauding the federal government." 579 F.2d at 458.
It may be observed that Chief Judge (now Justice) Breyer observed in Barker Steel that "`do good, shun evil'" is not appropriate criminal law statutory wording. 985 F.2d at 1137 (concurring). This seems consistent with the Porter ruling that it requires excessive stretching of the conspiracy-to-defraud prohibition to apply it to the sort of misconduct that occurred there, which is reasonably similar in nature to that proved here.
In the present case, apparently unlike Anderson but precisely like Porter, there was a single ultimate issue of planned misconduct submitted to the jury, the so-called kickback or referral fee agreement. Instruction F, One, b. Although the instruction was undesirably wordy, the allegedly illegal plan was sharply focused. The submission was thus narrower than the various possibilities considered in the Report and Recommendation on Motion to Dismiss (Doc. 38), pp. 10-13, and summarized in Government's proposed Instruction 20, One, (c).
Because the conviction on Count One may have been based on the unsound CHAMPUS conspiracy theory rather than the alternate medicare conspiracy theory, it will need to be vacated — presumably for retrial, if desired, or dismissal because it could not result in punishment beyond that allowed by Count Two.
(C) Fraud-on-Patients Theory
Counts Four through Nineteen, alleging mail fraud, though pleaded in the alternative, were submitted on a theory that patients were allegedly defrauded. This submission was necessary, in light of my conclusion that Porter precludes submission of a theory of defrauding CHAMPUS. Defendants argue, without citation, that common sense precludes a finding of fraud on patients, in the absence of any proof that any patient was hospitalized inappropriately. The Government's response, likewise submitted without citation of authority, simply asserts that fraud is shown because "the payment of money for the referral of patients is improper and interferes with the exercise of independent and unbiased professional judgment owed to patients." (Consolidated Response, page 18).Somewhat more accurately, the indictment alleges that "the solicitation or receipt of kickbacks . . . encourages fraud. . . ." (Consolidated Response, page 10, quoting from ¶ 11 of the Indictment). We have here, therefore, simply potential danger of some tangible injury, that is, subjecting patients to unnecessary hospitalization, and running up unnecessary expenses.
Prior to an amendment to the mail fraud statutes in 1988, the proof in this case would have been insufficient, under McNally v. United States, 483 U.S. 350 (1987), requiring proof of a plan to deprive a victim of some property interest. As amended, however, in 18 U.S.C. § 1346, a scheme to defraud may be one to deprive another of the "intangible right of honest services." In the present case, defendants were soliciting and receiving payments from the hospital which the jury concluded were in the nature of referral fees. It may be inferred that such fees were designed to influence Dr. Jain's hospitalization recommendations for patients who were entitled to receive professional advice untainted by selfish interests. The referral fees were conceptually similar to bribes.
Beginning in 1988 it seems fair to refer to bribery as a per se violation of the mail fraud statute. United States v. Mittel-staedt, 31 F.3d 1208, 1220 (2d Cir. 1994). It is no longer necessary to show financial impact. Perhaps it remains open to defendant Jain to claim the Government must show he "remained bought," and that his thought processes were actually influenced by the availability of referral fees. Such a construction would, however, defeat the purpose of the 1988 amendment, except in rare cases where there may be admissions regarding a defendant's thoughts, or express promises that payments will produce certain results.
In the present case, where Dr. Jain denied receiving money in the nature of referral fees, I believe the jury was entitled to conclude not only that referral fees were received but that their solicitation and receipt was pursuant to a plan to create a conflict of interest, thus depriving patients of the "the intangible right of honest services," even though tangible losses cannot be established.
The motions for judgments of acquittal on Counts Four through Nineteen will therefore be denied.
(D) Other Issues
Defendants present additional post-trial issues that have been considered, but in my judgment require no analysis in this ruling. Mention will be made, however, of the defendants' contention that knowledge of illegality must be found by the jury in all instances in this case where willfulness is at issue. These include the referral fee conspiracy charged in Count One, and in the medicare referral fee charge in Count Two. The instruction on willfulness, M, requires only that defendant Jain acted "unjustifiably and wrongfully" in taking prohibited referral fees, and knew that his conduct should be so characterized.
Willfulness in that sense was adequately established by the testimony of Dr. Jain and his brother, on the hypothesis, challenged by Dr. Jain, that his financial arrangements amounted to taking referral fees.
The case on which defendants principally rely, Ratzlaf v. United States, 114 S.Ct. 655 (1994), must, in my judgment, be confined to its own context, the "structuring" of cash deposits to avoid reporting requirements. The Ratzlaf opinion accepts the proposition that willfulness is a "`word of many meanings,'" even though it sometimes requires knowledge of unlawfulness. The majority opinion notes that structuring of financial transactions is so frequently done legitimately, simply to avoid undesired consequences, so that it should be treated as innocent conduct, absent knowledge of a legal prohibition. It will not be presumed that Congress intended to leave to juries whether ordinary tax avoidance, for example, should be treated as somehow wrongful. It is perhaps arguable that referral fees are so commonly untainted that Congress must be presumed to have intended that the Government prove knowledge of illegality. I doubt the soundness of that view, and believe financial structuring to be unlike referral fees, as a general proposition.
If I was correct in rejecting the special scienter requirement urged by defendants, I do not understand that they challenge the wording of Instruction No. M, which imposes a serious burden of proof on the Government. It may be worth noting, however, that the instruction was somewhat jerry-built, using the terminology of "unjustifiable" and "wrongful" appearing in ¶ 30.05 of Devitt, Blackmar and O'Malley, Federal Jury Practice and Instructions, vol. 2, Fourth Edition, while stiffening the terminology to change a disjunctive to a conjunctive, and adding the requirement of knowledge of the improper aspect of the transaction. It is my recollection that neither party objected to the wording, ifRatzlaf does not apply.
It may also be mentioned, for appellate understanding, that the parties did not ask instruction on a matter dealt with in testimony, whether referral fees are prohibited by Department of Defense regulations. The jury did inquire on that issue, and no advice was given with respect to the Government's theory of regulation violation. If pressed, I probably would have expressed an opinion that the regulations do not prohibit referral fees, at least in the absence of proof of unnecessary referrals, based on my understanding of the regulatory wording.
Referral fee arrangements doubtless present a serious potential for fraudulent overcharges to the CHAMPUS system, and there was an aspect of deceptive concealment of referral fees in this case, but the Government argues that all referral fees, whether or not disclosed and whether or not financially harmful to the Government, are deemed fraudulent under 32 CFR §§ 199.2(b) or 199.9(c)(12) or (13). I cannot satisfy myself that this is so.
The debatable violation of regulations was immaterial, because defendant Jain conceded that such fee arrangements would be "unjustifiable" and "wrongful" as a matter of professional ethics, and therefore, in my opinion, qualifying for willful misconduct, prohibited by statute, under Count Two. It is therefore
ORDERED that a judgment of acquittal be entered on Count Three, that the conviction on Count One be vacated, and that the defendants' post-trial motions be otherwise denied.
Sentencing will be scheduled on Counts Two and Four through Nineteen.