Defense Victory In Criminal Healthcare Fraud Trial

Case was one of the Department of Justice’s first attempts to bring criminal charges in order to enforce Medicare’s “incident to” and “anti-markup” regulations

On November 30, 2015, after a five-week criminal healthcare fraud trial in the US District Court for the Eastern District of Virginia, a unanimous jury acquitted a prominent Washington, DC-area surgeon of all charges in case number 1:14-cr-278.

In August 2014, the US Attorney’s Office for the Eastern District of Virginia brought a 60-count indictment charging the surgeon with healthcare fraud under 18 U.S.C. § 1347, aggravated identity theft under 18 U.S.C. § 1028A, and obstruction of justice under 18 U.S.C. § 1503, based on conduct occurring between 2009 and 2012. The case was assigned to US District Judge Gerald Bruce Lee in the Alexandria Division.

In October 2014, after motions in limine were granted in favor of the defendant, the prosecution indefinitely delayed the proceedings by taking a pretrial appeal to the US Court of Appeals for the Fourth Circuit. In 2015, following the appeal, the prosecution obtained a superseding indictment that dropped ten fraud counts and the obstruction of justice charge.

Trial commenced in October 2015 and featured hundreds of exhibits and testimony by three dozen witnesses, including three physician experts. At the close of all the evidence, the trial judge granted the defense’s Rule 29 motion for acquittal on all six counts of aggravated identity theft. At that time, the prosecution also dismissed multiple fraud counts, after the defense team’s cross-examination of the FBI case agent had revealed that the prosecution failed to review relevant exculpatory evidence before bringing the charges.

The jury then deliberated on the remaining 41 counts that charged the surgeon with executing a scheme to defraud Medicare, Tricare, and several private healthcare insurers. These counts of healthcare fraud alleged improper billing for (1) unnecessary surgeries to remove skin cancer; (2) services performed by medical assistants “incident to” the surgeon’s services (see 42 C.F.R. § 410.26), which were billed under the surgeon’s provider number instead of the supervising practitioner’s number; and (3) consultation services by an independent contractor physician, which were billed at amounts higher than supposedly permitted under the “anti-markup” statute related to diagnostic testing (see 42 U.S.C. § 1395u(n); see also 42 C.F.R. § 414.50).

The trial was one of the US Department of Justice’s first attempts to bring criminal charges in order to enforce its interpretations of Medicare’s “incident to” and “anti-markup” regulations. Notably, at trial, the prosecution objected to evidence that in October 2015, Medicare finalized new revisions to its “incident-to” regulations in order to clarify the very provisions that the prosecution was arguing were not ambiguous. As of January 1, 2016, Medicare’s regulations will now explicitly require, for the first time, that “incident to” services must be billed using the supervising physician’s provider number. Additionally, the prosecution failed to acknowledge that when a physician bills solely for another physician’s services, such as a pathology consultation, it is ambiguous whether those bills are subject to Medicare’s “anti-markup” statute, which applies only to bills that charge for “diagnostic tests” under Section 1861(s)(3) of the Social Security Act, and which does not address “physicians’ services” (including “consultation”) under Section 1861(s)(1) and 1861(q) of the Act.

At trial, the prosecution also claimed that the surgeon falsely diagnosed elderly patients with cancer so that he could perform unnecessary surgery. Evidence also revealed that during trial preparation, FBI agents told patients that they did not have cancer and that they were “victims” of fraud. At trial, however, an expert pathologist from the University of Chicago’s medical school explained to the jury that these patients had cancer, and that the non-cancer diagnoses offered by the government’s witnesses were incorrect and, in some instances, “unreasonable.”

The trial court also made several notable rulings on legal questions that the Fourth Circuit has not yet squarely answered. In particular, the trial court ruled that under the aggravated identity theft statute, a physician does not impermissibly “use” his patients’ personal identification information when he bills their healthcare insurers for services that he actually performed. Additionally, the court granted the defense’s motion to instruct the jury that the healthcare fraud statute’s use of the word “willfully” requires the government to prove that the defendant acted “with the specific intent to do something the law forbids, that is, with the bad purpose to disobey or to disregard the law.” In giving that instruction, the trial court joined several other Courts of Appeals that have already adopted this interpretation of the statute.