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U.S. v. NACHAMIE
September 22, 2000
UNITED STATES OF AMERICA
ALAN BARTON NACHAMIE, ET AL., DEFENDANTS.
The opinion of the court was delivered by: Shira A. Scheindlin, United States District Judge.
On May 9, 2000, following a lengthy jury trial, defendants Ghanshyam
Kalani, Kenneth Schrager and Donna Vining (the "defendants") were
convicted of one count of participating in a scheme to defraud Medicare,
in violation of 18 U.S.C. § 1347 and 2, one count of making false
statements in matters involving the Medicare program, in violation of
18 U.S.C. § 1035 and 2, and five counts of submitting false claims to
Medicare, in violation of 42 U.S.C. § 1320a-7b(a)(5) and
18 U.S.C. § 2. In anticipation of their upcoming sentences, the Probation
Department has prepared Presentence Reports ("PSRs") for each defendant.
The Government and each defendant have reviewed the PSRs and filed their
objections, to which the Probation Department has responded.
While there are a number of sentencing issues unique to each defendant,
four issues are common to all: (1) loss calculation; (2) role in the
offense; (3) whether their criminal conduct falls outside the "heartland"
of the fraud sections of the Sentencing Guidelines; and (4)
restitution.*fn1 The parties fully briefed these issues in a series of
letters submitted to the Court between August 1 and September 15, 2000,
and the Court heard oral argument on September 13, 2000. See Transcript
of Oral Argument of September 13, 2000 ("Tr."). Because these disputes
raise relatively complicated issues, I shall address them now so that the
parties may have the benefit of this decision prior to the sentencing.
The defendants, each of whom is a doctor, were indicted together with
six other defendants for their participation in a fraudulent billing
scheme designed to defraud Medicare of millions of dollars. The
background of this prosecution can be found in this Court's prior
opinions. See United States v. Nachamie, et al., 91 F. Supp.2d 552
(S.D.N.Y. 2000) ("Nachamie I"); United States v. Nachamie, et al.,
91 F. Supp.2d 565 (S.D.N.Y. 2000) ("Nachamie II"); United
States v. Nachamie, et al., 101 F. Supp.2d 134
(S.D.N.Y. 2000) ("Nachamie III"). Nonetheless, a brief summary of the
charges on which defendants were convicted is required.*fn2
Count One charged the defendants with conspiring, between 1995 and June
10, 1998, to violate the following laws: 18 U.S.C. § 1035, 1341 and
1347 and 42 U.S.C. § 1320a-7b(a)(2) and 1320a-7b(a)(5). The objects
of the conspiracy included: (1) executing a scheme to defraud the
Medicare program; (2) mailing various documents in furtherance of the
scheme; (3) making false statements in connection with the delivery of
and payment for health care benefits; (4) making false statements in
order to obtain payments from private insurance carriers that
administered the Medicare Program; and (5) presenting false claims to the
Medicare program.*fn3 Kalani was acquitted on the conspiracy charge. The
jury was unable to reach a verdict on this charge with respect to
Schrager or Vining, and the Government has decided not to retry them.
Count Two charged all defendants with participating in a scheme to
defraud Medicare in the same ways and means as described in Count One, in
violation of 18 U.S.C. § 1347 and 2. Each of the defendants was
convicted on Count Two.
Count Three charged Kalani and the non-doctor defendants with making
false statements in matters involving the Medicare program, in violation
of 18 U.S.C. § 1035 and 2. Kalani was convicted of Count Three. Both
Vining and Schrager were convicted of the same charges in Counts Four and
Counts Seven through Eleven charged some of the non- doctor defendants
and Kalani with submitting false claims to Medicare, in violation of
42 U.S.C. § 1320a-7b(a)(5) and 18 U.S.C. § 2. Kalani was convicted
of Counts Seven through Eleven. Both Vining and Schrager were convicted
of the same charges in Counts Twelve through Sixteen and Seventeen
through Twenty-One, respectively.
The Government offered proof at trial that the claims were false in one
or more of the following five ways: (1) the claimed services were never
rendered; (2) different services were rendered than those that were
billed; (3) services were rendered at home but were claimed to have been
rendered in an office; (4) services were rendered by unsupervised
non-doctors, but were claimed to have been rendered by licensed doctors
or by non- doctors under the supervision of a licensed doctor; and (5)
services were rendered on a single date, rather than on the various dates
claimed. The proof at trial established, in general terms, that the
scheme worked in the following manner. Defendants Alan Barton Nachamie
and Lydia Martinez recruited telemarketers, who convinced elderly
Medicare beneficiaries to agree to home visits. The beneficiaries were
told that diagnostic tests would be performed, for the purpose of
identifying those at risk for heart attacks, strokes and Alzheimer's
Disease, as part of a health awareness program under the auspices of
Medicare. Nachamie and Martinez then recruited foreign medical school
graduates ("FMGs"), who were not licensed doctors in the United States,
and physicians' assistants ("PAs") to conduct these home visits. During
these visits, the FMGs took a brief medical history, performed a cursory
examination and administered two basic tests — a cardiac rhythm
test and a Doppler blood circulation test. The FMGs
also obtained the beneficiary's Medicare number.
Finally, Nachamie recruited licensed doctors, including the defendants,
to "supervise" the FMGs and PAs and review patient charts. The doctors
rarely, if ever, met with the Medicare beneficiaries or the FMGs.
Instead, Nachamie, Martinez and others provided the doctors with patient
charts that included a brief medical history, the results of the simple
tests performed during the perfunctory home visit, and "Encounter Forms"
indicating the tests or services to be billed to Medicare. The doctors
then signed the Encounter Forms as the ordering physicians, even though
they had never examined the patients or personally supervised the FMGs.
In fact, the tests were "ordered" by clerical workers, who checked the
boxes on the Encounter Forms at random.
The Encounter Forms were sent to defendant Jose Hernandez and other
billers, who submitted claims to Medicare by mail and electronically. The
billing was done under the provider numbers of doctors and professional
corporations, and Medicare providers sent checks to the doctors or
professional corporations after processing the claims. At Nachamie's
direction, the doctors deposited the checks, keeping 22% of the funds and
writing checks for the remaining portion to Nachamie's corporations. Over
ten (10) million dollars was billed to Medicare as a result of this
What follows are examples of services that were not performed or
services that were billed in place of those that were performed: (1)
billing for an "event recorder," which permits the monitoring and
recording of the heart rhythm 24 hours a day for up to 30 days when, in
reality, the patient received a one-to-two minute cardiac rhythm test;
(2) billing for extensive Duplex blood circulation scans when, in
reality, the patient received a less expensive Doppler blood circulation
test; and (3) billing for echocardiograms and stress tests when, in
reality, no such tests were given or were improperly given.
The evidence offered at trial included several facts that potentially
mitigate the role played by the doctors in this scheme. First, the
doctors initially were recruited through advertisements in respected
newspapers. Second, signatures of the doctors were occasionally forged.
Third, the Encounter Forms signed by the doctors contained codes rather
than descriptions of the actual medical procedures. Fourth, the billers
occasionally submitted bills to Medicare before the doctors signed the
Encounter Forms. Fifth, the doctors often signed Encounter Forms before
the codes and procedures were added. Sixth, Nachamie told a potential
investor that the doctors had to be changed frequently to avoid detection
by Medicare and that he was looking to recruit dumb, naive doctors.
Both the Government and the defendants agree that the fraud guideline
governs the offense level calculation. See United States Sentencing
Guidelines ("U.S.S.G.") § 2F1.1. This guideline sets a base offense
level of six (6), which is enhanced by the amount of loss. See U.S.S.G.
§ 2F1.1(b)(1). The Government argues that the amount of loss should
be based on the intended loss — here, the full amount billed to
Medicare under a defendant's Medicare provider number. The defendants, in
turn, argue that the amount of loss should be based on the actual loss
sustained by Medicare as a result of the use of that doctor's provider
number. In each case, the choice between the two approaches would result
in a difference of two levels — from a ten-level to an eight-level
adjustment for Schrager and Vining and from a nine-level to a seven-level
adjustment for Kalani. See Tr. at 24-25, 31, 37-38. Two Application Notes
to § 2F1.1 are particularly important for analyzing this issue.
Application Note 8 states in relevant part:
Valuation of loss is discussed in the Commentary to §
2B1.1 (Larceny, Embezzlement, and Other Forms of Theft).
As in theft cases, loss is the value of the money,
property, or services unlawfully taken; it does not, for
example, include interest the victim could have earned on
such funds had the offense not occurred. Consistent with
the provisions of § 2X1.1 (Attempt, Solicitation, or
Conspiracy), if an intended loss that the defendant was
attempting to inflict can be determined, this figure will
be used if it is greater than the actual loss.
U.S.S.G. § 2F1.1, Application Note 8 (emphasis added).
Application Note 9 states in full:
For the purposes of subsection (b)(1), the loss need not
be determined with precision. The court need only make
a reasonable estimate of the loss, given the available
information. This estimate, for example, may be based on
the approximate number of victims and an estimate of the
average loss to each victim, or on more general factors,
such as the nature and duration of the fraud and the
revenues generated by similar operations. The offender's
gain from committing the fraud is an alternative estimate
that ordinarily will underestimate the loss.
U.S.S.G. § 2F1.1, Application Note 9 (emphasis added).
There is little doubt that the Government bears the burden of proving:
(1) defendant intended to inflict the loss; and (2) the amount of the
intended loss. See United States v. Jacobs, 117 F.3d 82, 96 (2d Cir.
1997) (presuming that Government bears burden of showing that the
defendant "attempted to inflict the loss") (quotation marks and citation
omitted); see also United States v. Say, 923 F. Supp. 611, 613-14 (D.Vt.
1995) ("Because an offense level enhancement is sought, the Government
bears the burden of proving by a preponderance of the evidence that Say
attempted to inflict a loss totalling the aggregate credit limit of the
cards."). Relying on the recent Supreme Court case of Apprendi v. New
Jersey, 120 S.Ct. 2348 (2000), defendants argue that the Government must
meet an enhanced burden of proof because the loss calculation has a
significant impact on the sentence and the jury was not asked to decide
the amount of loss. Defendants urge that the Government must prove the
amount of the intended loss beyond a reasonable doubt.
Defendants' argument is without support. Apprendi dealt with a
sentencing enhancement that increased the potential sentence beyond the
statutory maximum. See id. at 2362-63 ("Other than the fact of a prior
conviction, any fact that increases the penalty for a crime beyond the
prescribed statutory maximum must be submitted to a jury, and proved
beyond a reasonable doubt."); see also Jones v. United States,
526 U.S. 227, 243 n. 6 (1999) ("[U]nder the Due Process Clause of the Fifth
Amendment and the notice and jury trial guarantees of the Sixth
Amendment, any fact (other than a prior conviction) that increases the
maximum penalty for a crime must be charged in an indictment, submitted
to a jury, and proven beyond a reasonable doubt."); United States v.
Rebmann, No. 98-6386, 2000 WL 1209271, at *3 (6th Cir. Aug. 28, 2000)
("Our duty, in light of this clear dictate from the Court, is to examine
whether the sentencing factor in this case was a factual determination,
and whether that determination increased the maximum penalty for the
crime charged in the indictment."). In United States v. Gigante,
94 F.3d 53 (2d Cir. 1996), the Second Circuit addressed the burdens of proof
in the context of adjustments and departures. The court held that when
considering adjustments and departures, particularly "multiple upward
adjustments," a court may apply a heightened standard of proof. See id.
at 56 ("Where a higher standard, appropriate to a substantially enhanced
sentence range, is not met, the court should depart downwardly.")
(emphasis added). Here,
setting the offense level by applying the fraud
guideline is neither an adjustment nor a departure. In addition, the
offense level determined by using an intended loss figure will not result
in a substantial enhancement or in a sentence beyond the statutory
maximum. For these reasons, the Government need only prove defendants'
intent and the amount of intended loss by a preponderance of the
Defendants argue that the loss they intended to inflict*fn4 cannot be
determined for the following reasons: (1) they did not prepare the bills
that were submitted to Medicare and were unaware of billing practices
such as resubmitting paid bills; (2) they were unfamiliar with the
procedure codes used by the Medicare providers in the remittance
statements; (3) no one intended Medicare to pay the amounts billed; and
(4) it is impossible to determine when they formed the criminal intent to
defraud Medicare. See Letter of August 7, 2000 from Schrager's attorney
to the United States Probation Department ("Schrager 8/7 Let.") at 3-6;
Letter of September 11, 2000 from Schrager's attorney to the Court
("Schrager 9/11 Let."); Letter of September 1, 2000 from Vining's
attorney to the Court ("Vining 9/1 Let.") at 4-5; Letter of August 8,
2000 from Kalani's attorney to the United States Probation Department
("Kalani 8/8 Let.") at 4-6; Letter of August 31, 2000 from Kalani's
attorney to the Court ("Kalani 8/31 Let.") at 1-6; Letter of September
11, 2000 from Kalani's attorney to the Court ("Kalani 9/11 Let.") at 1-4;
Letter of September 15, 2000 from Kalani's attorney to the Court ("Kalani
9/15 Let.") at 1-2; see also Tr. at 9-10, 21-29, 30-32. In addition, at
least one defendant argues that the proof at trial revealed:
bills were submitted using the doctors' Medicare numbers
without first obtaining their signatures on the
supporting documentation . . . the supporting
documentation was signed by a different doctor than the
one whose Medicare number was used to submit the bill
. . . [and] the doctors' signatures were forged [on some
forms]. . . . ...