Many Medicare fraud schemes have been identified across the country in recent years. A recent Fifth Circuit Court of Appeals case, U.S. v. St. John, dealt with an elaborate scheme to use home health care services to submit fraudulent Medicare claims. Ultimately, the Fifth Circuit affirmed the defendants’ conviction.
Two types of Medicare service providers are relevant here: home-health agencies (HHAs) and physician house-call (PHC) companies. HHAs provide home health care to Medicaid beneficiaries confined to the home, otherwise labeled “homebound.” A beneficiary is considered homebound if his or her condition: (1) keeps the beneficiary from leaving home without aid; (2) makes leaving home require considerable and taxing effort; and (3) causes a physician to recommend that the beneficiary does not leave the home.
Similarly, PHC companies provide primary care and certify patients as homebound. A physician certifies a Medicare beneficiary as homebound through use of the CMS-485 Form and then normally refers that patient to an HHA for care. PHC companies must spend 30 minutes or more on a patient’s Care Plan Oversight (CPO) to receive Medicare reimbursement for the physician’s services. Additionally, a nurse or physician assistant may perform a CPO under the signing physician’s supervision.
In St. John, the defendants—a father and son—owned a PHC company named “A Medical.” The company’s fraudulent scheme centered on their unique relationship with HHAs; rather than A Medical classifying patients as homebound then referring them to HHAs, HHAs referred patients to A Medical in return for A Medical’s “near-certain” homebound certification. This process increased the company’s patient volume, which led to higher reimbursements under Medicaid for provided services. In addition, the company submitted claims for CPOs without fulfilling the thirty minute time requirement.
The defendants were convicted of conspiracies to commit health care fraud and thirteen counts of health care fraud. The district court found that the defendants’ intended loss to Medicare was about $11.2 million with an actual loss to Medicare over $9.6 million. The father was ordered to pay about $9.6 million in restitution while the son was ordered to pay $8.6 million. The defendants’ appealed the conviction to the Fifth Circuit.
The Fifth Circuit decided whether the intracorporate conspiracy doctrine applied to criminal conspiracy cases. Theintracorporate conspiracy doctrine states that an agent’s acts are those of the corporation and that corporations cannot conspire with themselves. The doctrine’s purpose was to enable corporations to “[pool] resources to achieve social benefits” and “require a corporation to bear the costs of its business enterprise” against tort liability.
The Fifth Circuit held that the intracorporate conspiracy doctrine did not apply to criminal cases. The court reasoned that extending the rule to criminal cases would not serve either purpose for the doctrine’s use in civil cases. Further, conspiracy liability is designed to limit “group danger,” which a group within a corporation naturally creates.
The second issue was whether the defendant’s “willful” Medicare fraud requires the defendant had actual knowledge of the violated provision. Normally, ignorance of a law is not a legitimate defense to a criminal charge. However, the Supreme Court provided an exception for complex and technical statutes where a person’s “apparently innocent conduct” is criminalized. The health care fraud statute provides “a person need not have actual knowledge of this section or specific intent to commit a violation of this section.”
The Fifth Circuit held that the jury instruction for “willfully” should not require actual knowledge. The court reasoned that the statute’s plain language dismisses the need for actual knowledge. Therefore, the statute’s complexity cannot support an ignorance defense.
Thirdly, the Fifth Circuit decided whether the intended and actual loss calculations properly included the HHA Medicare claims and whether those calculations should be reduced by the legitimate services A Medical provided. Conduct causing financial loss relevant to the “common scheme” of the fraud charged may be included in intended and actual loss calculations. The defendants bear the burden of proving the amount of legitimate services when separating legitimate services from fraudulent conduct “is not reasonably practicable.”
The Fifth Circuit affirmed the court’s calculations, holding that the HHA Medicare claims were properly included as losses. The Fifth Circuit reasoned that the HHA claims were relevant conduct because they were a part of the company’s scheme to make fraudulent claims to the federal government. Next, the court held that the district court did not err in reducing the calculated losses by the legitimate services provided since the company’s fraudulent conduct was too pervasive to be reasonably practicable to separate it from legitimate services provided.
Lastly, the Fifth Circuit decided whether restitution damages could only be based on allegations explicitly mentioned in the indictment. Under the Mandatory Victims Restitution Act, restitutions are limited “to the actual loss directly and proximately caused by the defendant’s offense of conviction.” The actions alleged in the indictment define the underlying scheme to defraud the government. Further, the government may award restitution damages pursuant to a fraudulent scheme. Since it requires proof of a fraudulent scheme, a health care fraud conviction can support broad restitution awards.
The Fifth Circuit again affirmed, holding that the restitution award properly included loss pursuant to the company’s fraud scheme though the loss was not specifically mentioned in the indictment. The court reasoned that the HHA Medicare claims were an integral part of A Medical’s scheme to defraud the government. Further, the indictment references the exact conduct that the defendants claim was omitted: certifying patients as homebound to make them available for home health services. Thus, A Medical certified the patients knowing that the HHAs would then make fraudulent claims.
Overall, United States v. St. John provides useful insight into the complexity of Medicare fraud. Further, it illustrates how monetary motivations may lead to unethical corporate behavior. But the Affordable Care Act, through HHS, has increased efforts to stop health care fraud. After all, fraudulent claims drive up health care costs—something theUnited States certainly does not need.
Tobin Klusty is a second year law student at DePaul University College of Law. Tobin is a fellow of the Jaharis Health Law Institute at DePaul; a case brief staff member on the Institute’s online publication, E-Pulse; and a staff writer on the DePaul Health Care Law Journal. His research focuses on the intersection of health care and civil rights. Tobin will be competing as a member of the DePaul National Trial Team in Spring 2016.