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U.S. v. NACHAMIE

September 22, 2000

UNITED STATES OF AMERICA
V.
ALAN BARTON NACHAMIE, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Shira A. Scheindlin, United States District Judge.

    OPINION AND ORDER

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.

I. BACKGROUND

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

A. The Charges

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 Five, respectively.

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.

B. The Proof

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 conspiracy.

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.

II. DISCUSSION

A. Loss Calculation

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 evidence.

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]. . . . ...

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