HEALTHCARE FRAUD DEFENSE JOURNAL

Prosecution for White Collar Drug Dealing

Laurence Doud is charged with a conspiracy to violate the Controlled Substances Act – drug trafficking – in the Southern District of New York.  Doud is not your typical narcotrafficker.  He is the CEO of a pharmaceutical company.  This is a novel prosecution seeking to pierce the corporate boardrooms and pressure pharmaceutical executives in the fight against the opioid crisis.   

Doud is accused of directing his company, Rochester Drug Co-operative, Inc. (“RDC”) to supply large quantities of opioids to pharmacies that were suspected of dispensing the opioids illegally.  The government alleges that Doud ignored warnings from his compliance department that RDC was selling opioids to pharmacies that were distributing them illegally.  Because Doud is charged with drug trafficking, the government has to prove beyond a reasonable doubt that Doud intentionally and knowingly engaged in this conduct, i.e., the government will have to proof that there was simply no way that Doud did not know that the drugs were being dispensed illegally.   

In a motion to dismiss, Doud argued that he had no way of knowing he could be charged with a narcotics conspiracy for his conduct.  The court rejected this argument, but it could ultimately be a feature of his defense at trial. 

The problem for Doud is that given the magnitude of the opioid crisis, it will be highly likely jurors will have been affected or know of someone who has been affected by this crisis in some form or another.  Furthermore, the opioid crisis and any connection to it has very negative connotations.  Even worse, the government will surely call witnesses in its case that have suffered from opioid addiction.  While an appellate court may find that Doud should not have been charged with drug trafficking, jurors may still choose to convict given the very nature of the offense. 

Conspiracies between physicians and non-physicians

John Kapoor, a former Insys Therapeutics executive, was convicted following a three-month trial.  The executives in that case were charged with using a speaker program to funnel cash and other perks to doctors who wrote many Subsys prescriptions. 

Kapoor is seeking review of the First Circuit’s decision to uphold his conviction.  Kapoor raises an important issue in his petition.  Specifically, Kapoor is asking the court to review whether a non-physician may be convicted of conspiring with physicians to prescribe controlled substances outside of the course of professional practice without regard to the non-physician’s understanding that the physician believed their prescribing to be within the usual course of professional practice.   

There is a split in the circuits concerning whether a physician’s good faith in prescribing controlled substances can be a defense.  The Ninth Circuit holds that a conviction “requires more than proof of a doctor’s intentional failure to adhere to the standards of care.” United States v. Feingold, 454 F.3d 1001, 1011 (9 Cir. 2006). The Ninth Circuit requires jurors to “look into a practitioner’s mind to determine whether he prescribed the pills for what he thought was a medical purpose or whether he was passing out the pills to anyone who asked for them.” Id. at 1008. The First and Seventh Circuits have adopted similar approaches. The Eleventh and Tenth Circuits, on the other hand, have adopted what essentially amounts to a medical malpractice standard, providing that the doctor’s good faith is irrelevant.  Criminal liability is established if the physician acted outside the scope of professional practice.  See United States v. Enmon, 686 Fed. Appx. 769, 773 (11th Cir. 2017); United States v. Khan, 989 F.3d 806, 825 (10th Cir. 2021).  This split is before the United States Supreme Court this term.  Kapoor argues that a related issue is presented in his case – whether non-physicians charged with physicians should have the availability of a good faith defense.  

This is an important issue to watch.  Non-physicians are routinely charged with conspiring with physicians who are alleged to have prescribed outside the course of professional practice.  Moreover, non-physicians are often charged with conspiring with physicians that make medical decisions that are outside the course of professional practice.  There is a fine line between medical malpractice and criminal liability in eyes of many courts.  This is a practice that needs to be scrutinized because non-physicians that do not have the benefit of medical training should not be held criminally liable for bad medical decisions made by physicians. 

Anti-trust enforcement efforts in the health care industry

Over the summer, the Biden administration issued a sweeping executive order aimed at boosting competition across the U.S. economy, including encouraging the Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) to strengthen the 2016 guidance related to “no-poach” and wage-fixing criminal prosecutions.  As early as October 2016, before the Biden administration, the DOJ warned that it was investigating wage-fixing and so called no-poach arrangements between competitors.

The first indictment came in December 2020 in the Eastern District of Texas – United States v. Neeraj Jindal and John Rodgers, Case No. 20-cr-00358.  The DOJ charged two Texas businessmen with participating in a price-fixing conspiracy aimed at lowering the rates paid for physical therapists and their assistants.  The defendants were also charged with obstructing an FTC proceeding stemming from statements made to regulators during the investigation stage.  The defendants filed a motion to dismiss arguing that there was no precedent for bringing criminal charges over a wage fixing agreement, which was denied at the end of November.  This case is set for trial in April 2022.

The second indictment came in January 2021 in the Northern District of Texas – United States v. Surgical Care Affiliates, LLC, et al, Case No. 21-cr-00011.  The Indictment accuses Surgical Care, a unit of United Health Group, of devising separate agreements with two health care companies not to solicit each other’s senior level employees.  The Surgical Care case is the first publicly filed criminal case regarding so-called “no poach” agreements.  Surgical Care has been aggressively litigating the case.  It filed a motion to dismiss, which remains undecided.  Surgical Care also recently filed motions seeking Brady information, a bill of particulars, and requesting a James hearing.  Surgical Care sought, among other items, a list of “targeted” employees, a definition of “senior level employees”, and a list of unindicted co-conspirators.  Surgical Care wanted a James hearing on the admissibility of co-conspirator statements.  The government opposed the request arguing that Surgical Care is simply seeking an early preview of the government’s case and that it has already produced a great deal of documents to Surgical Care with a detailed index.

In Las Vegas, Nevada, on March 30, 2021, a grand jury returned a one count indictment charging VDA OC, LLC and a former manager, Ryan Hee, for conspiring with an unnamed competitor company to allocate employee nurses and to fix those nurses’ wages, in violation of the Sherman Act.  The case is United States v. Hee, Case No. 21-cr-00098.  The Indictment alleges that agreements were entered into for the provision of healthcare staffing services that allocated nurses and fixed the wages of those nurses. According to the indictment, the co-conspirators agreed not to hire each other’s nurses through conversations and other communications. The conversations included agreements to refuse further wage increases and agreements not to recruit or hire co-conspirator’s nurses.  VDA OC, LLC and Hee have filed motions to dismiss the Indictment arguing that the conduct charged was not illegal and that if it was they did not have notice of same.  The motion is pending.

Finally, in July 2021, the DOJ indicted DaVita, an operator of kidney dialysis centers, and its former CEO of colluding with competitors on agreements not to recruit one another’s senior level employees.  One competitor was Surgical Care.  The case against DaVita was filed in the District Court of Colorado and has received a great deal of attention.  Like Surgical Care and VDA OC, LLC, DaVita filed a motion to dismiss arguing that the conduct charged was not illegal.

In responding to the motions to dismiss filed, the DOJ generally argues that no-poach deals should be considered one of the three types of conduct courts have identified as per se antitrust violations: price fixing, market allocution, and bid-rigging.  The DOJ further argues that agreements to divide up the workforce should be no different from divvying up a market.

The U.S. Chamber of Commerce is supportive of Surgical Care and DaVita going as far as filing an amicus brief in both cases blasting the DOJ stating that classifying these no-poaching agreements as per se illegal violates the separation of powers and cannot provide the fair notice required by due process.  The Chamber also argued defendants lacked fair notice required to know that conduct was illegal because no court had declared non-solicitation agreements to be per se illegal.

All four cases are gearing up for trial, which is a clear indication that legal counsel for the individuals and entities have analyzed the evidence and law and believe acquittals are more than a mere possibility.

Regardless, the DOJ has dedicated a great deal of resources to this area of enforcement, so all those operating in the health care industry and other industries should tread carefully in reaching any agreements with competitors that may implicate the DOJ’s initiatives to eradicate out no-poach agreements and wage-fixing.

News and notes

Happy New Year! I am back after taking a break to recuperate from a 9-week health care fraud trial in the Southern District of Florida.

Some news and notes to start 2022:

  1. Following the COVID-19 Omicron variant surge over the holidays, Big Law is postponing the return to office indefinitely. Quinn Emanuel and Mintz Levin are just two of many firms delaying their return to office plans.  Many speculate that the continued delays will result in a permanent hybrid (office and home based) workplace.
  2. Trial of Elizabeth Holmes ends in conviction. Holmes is accused of defrauding investors and patients with false claims that she had blood testing machines that could conduct a full range of tests with only a few drops of blood.  Following 14 weeks of testimony, the jury deliberated for 7 days.  The jury convicted Holmes of 3 counts of wire fraud and 1 conspiracy count.  The jury found Holmes not guilty on 3 fraud counts and 1 conspiracy count related to defrauding patients.  The jury was deadlocked on 3 wire fraud counts.  The verdict suggest the jurors split the baby, which often happens after long trials.  Now, the real question is whether Holmes will cooperate with the government in order to mitigate her sentence.  Holmes’ co-defendant, Sunny Balwani, was charged in the same Indictment as Holmes.  Balwani sought and was granted a severance from Holmes because Holmes was expected to (and did) accuse Balwani of mental and emotional abuse during her trial.  The severance might work against Balwani and favor the government.
  3. Trial of Ghislaine Maxwell ends in conviction. Jury convicted Ghislaine Maxwell of federal sex trafficking for helping Jeffrey Epstein recruit and sexually assault teen girls.  Maxwell was convicted of 5 out of 6 charges.  Because the federal government is investigating others connected to Epstein, Maxwell, like Holmes, has the opportunity to mitigate a long prison sentence by cooperating.  However, a deal will require Maxwell to admit guilt.  Maxwell’s family has already made clear to various media outlets that Maxwell will maintain her innocence and will not cut a deal.  See Maxwell Will Not Reveal Names.

 

Sentencing guidelines

On September 15, Stefan He Qin, was sentenced to 90 months in prison for a Ponzi scheme that caused over $54 million in losses to investors. Qin pled guilty to one count of securities fraud and admitted to embezzling nearly $90 million from his cryptocurrency hedge fund. Qin then attempted to steal millions from his secondary fund to repay investors. The case is United States v. Stefan He Qin, Case No. 21-cr-00025 (S.D.N.Y.). Judge Valerie Caproni departed from the recommended sentence of 186-234 months, stating that “a guidelines sentence would be draconian.”  

Qin was extremely young (25 years old), a first-time offender, and suffers from severe mental and emotional health issues, so the 90 months still seems to be too much.  However, the variance and the statements made by Judge Caproni at sentencing are worth noting in the future when a client is facing overwhelming guidelines due to large loss numbers.

Exciting news!

I will be a guest blogger over at the Southern District of Florida Blog each Thursday. HERE is the announcement.

Looking forward to this.  Hope you will enjoy the blogging.

Fifth Circuit rules in favor of attorney client privilege

The Fifth Circuit created a new avenue to protect privileged materials in Harbor Healthcare Systems LP v. United States – Federal Rule of Civil Procedure 41(g).

Harbor Healthcare Systems (“Harbor Healthcare”) was the subject of two qui tam investigations.  Following responses to several Civil Investigative Demands, the Department of Justice executed a search warrant at Harbor Healthcare’s offices.  The search warrant was broad, and agents seized over 3 terabytes of electronic records in addition to paper documents.  Among the items seized was the computer of Harbor Healthcare’s compliance officer.  Harbor Healthcare advised the government that a wealth of privileged materials were contained on the compliance officer’s computer.  The government created a filter team to review the documents for privilege, but never alerted the magistrate that privileged materials were seized.

When the government failed to confer with Harbor Healthcare attorneys to discuss a taint team protocol, Harbor Healthcare filed a motion under Rule 41(g) seeking the return of the privileged materials. The government moved to dismiss the motion on the grounds that it was untimely.  While the parties litigated the Rule 41(g) motion and the government’s motion to dismiss, Harbor Healthcare learned that the government had already reviewed and transferred several privileged items to the civil and criminal investigative teams.  The district court ultimately granted the government’s motion to dismiss.

On appeal, the Fifth Circuit found that the government had failed to respect Harbor Healthcare’s privacy rights during the taint team’s search and review of the privileged materials.  Particularly, the Court found that the government showed a callous disregard for Harbor Healthcare’s rights by failing to “seek express prior authorization from the issuing magistrate judge for the seizure of attorney-client privileged materials,” despite knowing that the searches would result in the seizure of attorney-client privileged materials.  The Court further held that the government had disregarded Harbor Healthcare’s privacy rights by failing to return and/or destroy materials identified as privileged.  In addition, the Court found that the government’s retention of privileged documents for over 4 years caused an ongoing injury even though the government provided Harbor Healthcare with copies of the documents.  The Court explained that the government’s retention of the documents caused a continued intrusion of privacy, which could not be cured by providing copies.

The Harbor Healthcare opinion paves the way for new protocols for the government when seeking a search warrant from a magistrate.  In fact, the case provides that the government should inform the magistrate when it knows that the intended search will, or is likely to, result in the seizure of privileged materials.  Failure to seek such judicial preauthorization may result in a court ordering the return of records seized.

In light of this ruling, defense practitioners should consider whether it is appropriate to seek relief under Rule 41(g) when the search of a client’s premises results in the seizure of privileged materials.

The opinion can be found HERE.

Happy to announce the release of The State of Criminal Justice 2021

Edited by Mark E Wojcik

Now available at: https://americanbar.org/products/inv/book/415804170/

This publication examines and reports on the major issues, trends and significant changes in the criminal justice system. The 2021 edition contains chapters focusing on specific aspects of the criminal justice field, with summaries of all of the adopted official ABA policies passed in 2020-2021 that address criminal justice issues.

I proudly authored the Chapter on Trending Topics in Criminal Defense.

District Court reverses conviction due to Brady violation.

The United States District Court in the Middle District of Tennessee reversed a murder conviction and granted a new trial in the case of United States v. Maurice Burks, 2021 WL 2209334, due to the prosecutor’s failure to disclose Brady evidence prior to trial.

The Burks case was tried over 25 days where 85 witnesses testified, and more than 1,200 documents were introduced into evidence.  Most of the evidence at trial was tied to Burks’ five co-defendants’ involvement in the Gangster Disciples – a criminal organization.  The co-defendants were charged with a RICO conspiracy among other things.

Burks was charged with the murder of Malcolm Wright.  The government’s key evidence was a .45 caliber gun that was recovered. The government presented three witnesses against Burks, but the star witness was Danyon Dowlen a/k/a Danger Dan. Dowlen testified that Burks used a .45 caliber gun to murder Wright, thus, linking Burks to the murder weapon.

However, Dowlen was a less than credible witness with many motives to lie and garner favor with the government. Particularly, Dowlen was facing his own murder charge at the time of his testimony.  In fact, in its opinion reversing Burks’ conviction, the District Court noted that “having had the opportunity to watch the manner, tone, facial expression and over all tenor of Dowlen’s testimony” it was apparent that “Dowlen would say whatever he thought the Government needed, or wanted, to hear.”

After the trial, while the parties litigated and appealed an initial motion for new trial, which was granted, and a second motion for new trial, which was denied, the government disclosed a Report of Investigation (“ROI”) for the first time.  The ROI memorialized a pre-trial interview of Dowlen where he tells two agents and the lead prosecutor that Burks may have used a .40 or .45 caliber gun to murder Wright.  The type of weapon was a central feature of the government’s case.  The government claimed it inadvertently failed to disclose the ROI, and Burks moved for a new trial claiming that the ROI was Brady evidence that should have been disclosed.

The District Court agreed and granted Burks’ motion due to the prosecutor’s Brady violation.  In its opinion, the Court noted that it had a role as the thirteenth juror to judge the credibility of the witnesses and the weight of the evidence to ensure there is not a miscarriage of justice.  The Court found that if the ROI had been disclosed timely, the result at trial would have been different.

The Burks case is interesting not only because a new trial was granted, but also because of the Court’s description of its role as the thirteenth juror.

“Everyone knew” evidence is not sufficient to convict

The Fifth Circuit Court of Appeals has reversed the defendant’s conviction in United States v. Jonathan Nora, 988 F.3d 823 (5th Cir. Feb. 24, 2021) – a case wherein Nora was convicted of conspiracy to commit health care fraud, payment of illegal kickbacks, and aiding and abetting health care fraud.

The government had indicted 23 individuals in connection with a scheme involving Abide Home Health Care Services, Inc., a home health agency.  Many co-defendants pleaded guilty prior to trial, including Abide’s owner, Lisa Crinel.  Crinel was one of the government’s star witnesses at trial.  Nora and five co-defendants stood for trial.

According to the allegations, Abide employed four physicians aw house doctors who referred patients to Abide for home healthcare services.  Another employee, Paula Jones, processed Medicare billing for Abide.  Nora was an office manager.

The case against Nora focused on his job duties, including scheduling nurse visits, physician appointments, and processing vouchers for referral payments.  The government further alleged that Nora’s job duties, coupled with testimony from a co-defendant that “everyone in the office knew” there was fraud, was sufficient to convict.

The government alleged that Abide billed Medicare for home healthcare services for beneficiaries who did not need such services, but who had been fraudulently certified to receive them.  The government also alleged Abide paid physicians, directly or indirectly, to refer patients.  The government alleged Abide disguised the payments as compensation for services.

During her testimony, Crinel explained that Nora worked for Abide as an office manager, up through the date the government executed a number of search warrants. In this role, Nora coordinated new patient intake and admissions.  His tasks included fielding calls, verifying insurance coverage, assigning nurses to conduct evaluations and make home health visits, and helping with data entry.

Nora also contacted potential patients identified by recruiters to ascertain their interest and eligibility for home healthcare services.  If a patient expressed interest in home health services, but her doctor did not approve it, Nora would inform the patient that she would have to see a different physician to obtain approval.  If the patient remained interested in Abide’s services notwithstanding her own doctor’s recommendation, Nora would offer to assign the patient to one of Abide’s house doctors for a separate evaluation of her eligibility.

Nora’s responsibilities entangled him in various aspects of the kickback scheme.  First, Nora connected prospective patients with the “house doctors” who referred patients to Abide for home health services.  The government alleged that this made Nora complicit in the scheme.  The government also alleged that Nora processed the patient referral payments, which it characterized as illegal kickbacks.

All five defendants were convicted and appealed, but Nora appealed separately.

In his appeal, Nora argued that his convictions were not supported by sufficient evidence.  The Fifth Circuit agreed, finding the evidence presented at trial did not prove that Nora understood Abide’s various practices and schemes to be fraudulent or unlawful, and thus there was insufficient evidence to conclude that Nora acted with “bad purpose” in carrying out his responsibilities at Abide.

The Fifth Circuit concluded that, even under the court’s extremely deferential review of jury verdicts, there was insufficient evidence put forth at trial for a rational juror to conclude beyond a reasonable doubt that the defendant acted with the knowledge that his conduct was unlawful.  The court further found that the government had failed to prove the defendant acted “willfully” with respect to each count.  The court vacated the defendant’s sentence.

The court further noted that while one witness testified that “everyone” knew about the home health services scheme, she provided no other details.  The court could not determine whether everyone in the office knew about the practice, or whether everyone knew the practice violated Medicare regulations.  The court acknowledged that the practice of providing services while not billing Medicare was inherently suspicious.  However, even if a reasonable person in Nora’s shoes should have known (or at least suspected) that this practice was unlawful, the court reasoned that would only make Nora guilty of negligently participating in a fraud.  It did not prove that Nora acted “willfully” in facilitating the practice or the fraud.

The opinion can be found HERE

ABOUT THE AUTHOR

I represent doctors, hospitals, skilled nursing facilities, pharmacies, and other health care providers, during government investigations and defend them in qui tam (whistle-blower) actions. I also regularly counsel companies from a variety of industries on the adoption and operation of their compliance programs and related due diligence issues.

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