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United States v. Halper

decided: December 11, 1978.

UNITED STATES OF AMERICA, APPELLEE,
v.
IRWIN HALPER, DEFENDANT-APPELLANT.



Appeal from two judgments of conviction entered in the United States District Court for the Southern District of New York, William C. Conner, Judge. The appellant was convicted under one indictment charging various forms of Medicaid fraud, in violation of 18 U.S.C. §§ 287, 1001, 1341 and 2, and under another indictment charging him with filing a false and fraudulent income tax return, in violation of 26 U.S.C. § 7201. The district court granted a government motion to try the two indictments together. The Court of Appeals held that the indictments were improperly joined under Fed. R. Crim. P. 13, reversed the judgments of conviction and remanded for new and separate trials.

Before Oakes, Gurfein and Meskill, Circuit Judges.

Author: Meskill

On February 23, 1977, Irwin Halper was indicted on sixty-eight counts of making and causing to be made false claims against the United States, 18 U.S.C. §§ 287 and 2; sixty-eight counts of making and causing to be made false, fictitious and fraudulent statements to the United States Department of Health, Education and Welfare, 18 U.S.C. §§ 1001 and 2; and three counts of using the mails in furtherance of a scheme to defraud the City and State of New York, 18 U.S.C. §§ 1341 and 2. This indictment focused on certain invoices for laboratory tests submitted during 1973 and 1974, and will be called the "Medicaid fraud indictment." Eight months later, on November 18, 1977, a different grand jury returned another indictment against Halper, this one charging him with attempting to evade personal income tax liability for the calendar year 1974 by filing a false and fraudulent income tax return, 26 U.S.C. § 7201. This second indictment will be called the "income tax evasion indictment." On March 6, 1978, Judge William C. Conner of the United States District Court for the Southern District of New York granted, over the appellant's objection,*fn1 a government motion to try together these two indictments; trial began that same day. After a ten-day trial, and after considering a substantial number of exhibits and documents, the jury returned verdicts of guilty on all counts except two of the Medicaid fraud counts. Judgments of conviction were entered on May 3.*fn2 Because we hold that the two indictments were improperly joined under Fed.R.Crim.P. 13, we reverse the judgments of conviction and remand for new, and separate, trials.

THE MEDICAID FRAUD INDICTMENT

In 1953 Irwin Halper became the sole owner of Professional Diagnostic Laboratories ("PDL"), a medical laboratory located in the Bronx. The bulk of PDL's business was originally from physicians who were serving private patients, but in 1968 PDL began to participate in the Medicaid program. Soon, a major portion of PDL's business was devoted to performing clinical laboratory tests ordered by doctors treating patients eligible for Medicaid benefits.*fn3 The Medicaid fraud indictment charged, and the jury obviously believed, that Halper administered PDL in such a way as to defraud the Medicaid program. The gist of the government's charge was that Halper caused PDL to submit fraudulent claims for reimbursement for allegedly, but not actually, performed microbiological tests.

Two different procedures are involved: "culture" tests and "sensitivity" tests. Physicians treating Medicaid patients submit various specimens to PDL for laboratory analysis. Each specimen is accompanied by an invoice identifying the patient, indicating the diagnosis, and designating the specific test or tests to be performed by the laboratory. A culture test consists of taking the submitted specimens and "incubating" them in a nutrient medium to see if abnormal bacteria or pathogens are present. If the culture test is "positive," I. e., if the test shows that abnormal bacteria or pathogens are present, then a sensitivity test is performed. This test consists of dropping on the culture tiny discs containing various antibiotics to determine the specific antibiotic to which the bacteria or pathogens are sensitive. The resulting information is then relayed to the physician who, in turn, can prescribe the correct antibiotic for treating the patient from whom the specimen came. As might be expected, a physician ordering a culture and sensitivity test would want the laboratory first to determine whether a culture test is positive or negative, and second, if the culture test is positive, to perform a sensitivity test. As might also be expected, if a culture test proved to be negative, a physician would not want a sensitivity test to be performed. It is at precisely this point that PDL's testing and billing practices seem to have gone astray.

Although the path of Medicaid reimbursement is a relatively tangled one, the schedule of billing fees is reasonably straightforward. There are two billing categories that are directly relevant to this appeal. Billing Code L004 covers culture tests alone, and the designated fee for such a test is $4.80. Billing Code L006 covers culture And sensitivity tests (up to ten antibiotic discs), and the fee for the combined test is $8.00. The Medicaid fraud indictment charged, and the government presented evidence tending to show, that between 1968 and 1971 Halper trained his clerical employees to bill Medicaid for whatever tests a physician ordered, without regard to whether the tests were actually required or actually performed. The effects of this training, so the charge goes, lasted well into the 1970's, with Halper continuing to supervise PDL's billing procedures and failing to correct them.*fn4

For example, if a physician ordered a culture and sensitivity test, PDL would invariably charge Medicaid $8.00 under Billing Code L006 even when the culture test proved negative.*fn5 In addition, when a physician ordered only a culture test, PDL's clerical personnel added the notation "/s" or "/sens" after the word "culture," thus making it appear that the doctor had ordered both. PDL would then charge Medicaid $8.00 under Billing Code L006 even though the sensitivity test had been neither ordered nor performed. All of the invoices submitted to Medicaid were either signed by Halper personally or, on his instructions, signed in his name by PDL personnel. Over a period of years PDL submitted L006 reimbursement claims on 99.6 percent of the specimens submitted to PDL for culture and sensitivity tests. The government presented evidence that, at least in the New York City area, only 20 percent of the specimens submitted to laboratories for culture and sensitivity tests developed positive cultures, thus requiring further testing for sensitivity.

Although the indictment concerned only the practices just described,*fn6 the government was allowed to introduce evidence of a variety of other PDL activities which, at least in the government's estimation, was useful to the determination of whether Halper had committed the crimes charged. For example, the government showed that PDL was able to perform blood chemistry tests as well as culture and sensitivity tests, and could do so either manually or by means of what is known as an automated "SMA-12" analysis.*fn7 At the time, a laboratory was entitled to charge $10.00 for the automated analysis but $28.60 for comparable manual tests.*fn8 The government presented evidence that when a doctor requested an SMA-12 test, PDL charged Medicaid not $10.00 but $28.60, as if the tests had been performed manually rather than mechanically. Along these same lines, the government introduced evidence showing that in 1972 various Blue Cross officials questioned Halper regarding PDL's practice of charging Medicare (not Medicaid) patients for blood tests at the higher manual rate instead of the lower automated rate.*fn9 Halper apparently agreed to charge Medicare patients the same amount that he would charge his private patients. The government also introduced evidence that Halper told his clerical staff to add "Drawing of Blood" and other similar notations to invoices accompanying blood specimens that Halper had picked up at various clinics throughout the City. Medicaid was charged an additional $1.00 on invoices bearing these notations. The Medicaid fee schedule allowed for such charges only when the blood was actually drawn at the laboratory doing the billing; very little blood was drawn at the PDL premises.*fn10

The government also introduced evidence that PDL would on occasion add a diagnosis to an invoice which otherwise lacked one, thus preventing the invoice from being rejected by the City. So, for example, the notation "Diabetes Mellitus" would be added, as would "thyroid" or "anemia" or "rule out thyroid" or "T-4." A medical auditor from the New York City Department of Health, Dr. Howard Katz, testified that he had questioned Halper about this practice and that Halper had denied knowing of or participating in the addition of diagnoses. There were other apparent billing irregularities with regard to which the government was allowed to introduce evidence. Thus, Violet Jacobson, also from the City's laboratory audit unit, explained that she had instructed Halper to modify PDL's practice of re-submitting claims which had previously been rejected by the City on the ground that the tests performed had not been warranted by the diagnosis. Halper apparently failed to do so. Finally, the government introduced evidence related to Halper's giving PDL clerical employees permission to sign his name on his behalf on the invoices submitted to the City. Although the government was unable to show that some statute or regulation required that only Halper sign the invoices, the government did show that Halper had been told by the City Department of Health that he should be the one to sign the invoices.

THE INCOME TAX EVASION INDICTMENT

On November 18, 1977, Halper was again indicted by a different grand jury and for quite a different crime. This indictment charged that Halper attempted to evade almost.$19,000 in personal income tax by filing a false and fraudulent individual income tax return on behalf of himself and his wife, in violation of 26 U.S.C. § 7201.*fn11 The gist of the government's case under this indictment was that eleven checks, drawn by the City either to PDL or to Halper and totaling $43,172.36, had been endorsed by Halper and either cashed or deposited in his personal bank accounts, and that that money was not reported by Halper as income on his 1974 return.

Halper retained an accountant named Benjamin Meisel in 1970. Meisel was responsible for doing the business accounting for PDL and for preparing Halper's federal income tax returns for the years 1971 through 1974; he was not given the responsibility for doing Halper's personal accounting. Because PDL was owned solely by Halper, its income and expenses were reported on a Schedule C form which was in turn appended to Halper's personal income tax return. Meisel determined PDL's taxable income by keeping track of the PDL business account, through which all PDL receipts and disbursements travelled. The government alleged that, other than some interest on savings accounts, Halper did not advise Meisel of personal income that was not registered in the PDL account, nor, according to the government, did Halper allow Meisel to examine personal checking accounts held by the Halpers. Halper disputed this, claiming that he showed Meisel his personal bank statements and that he had no intent to withhold information from Meisel; he also claimed that he told Meisel specifically of the eleven checks. Meisel testified that he questioned the Halpers about non-PDL income, but that he was not informed of the money represented by the eleven checks. A few days before the 1974 tax return was due, Meisel sent to Halper the prepared return, showing a taxable income of $147,521 and a tax due of $37,248.

Halper was apparently astonished by the amount of tax due; he paid Meisel for his services and sought a "second opinion," retaining the David J. Internoscia Company to redo his return. John McGoff, one of Internoscia's staff accountants, worked on Halper's return and succeeded in reducing Halper's tax liability by approximately $8,000. The government alleged that Halper failed to tell McGoff of the money represented by the eleven checks. Lawrence Leicht, an Internal Revenue Service agent, testified that $43,172.36, representing the ...


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