Tuesday, 09/04/07
HCA takes steady approach to reducing debt since sale
Company avoids major asset sales but cuts its costs
By GETAHN WARD
Staff Writer
HCA Inc. hasn't made any bold moves in the nine months since it went private.
It hasn't pared down like it did after its previous leveraged buyout, in the late 1980s. It hasn't sold dozens of hospitals or spun off whole divisions.
But it has kept an eye on costs, reducing the money it spends on marketing and travel, for example, while trying to increase cash flow.
"I don't think there's really been any major surprises one way or the other," said Matt Lawson, high-yield analyst with the credit research firm KDP Investment Advisors in Montpelier, Vt. "They're performing about as you would have expected before the LBO."
HCA's $33 billion sale last November to a group of private equity firms, senior executives and company co-founder Dr. Thomas F. Frist Jr. left the Nashville hospital chain company with $28 billion of debt. In the first half of the year, HCA has said, it reduced that debt by a net of $312 million.
The debt "has required more discipline as far as cost containment, but nothing out of the ordinary," said Dean Diaz, vice president and senior credit officer with Moody's Investor Service.
"Some people would have expected more sales to pay down the debt earlier, but they said assets sales were not part of the strategy," Diaz said. "They've pretty much stuck to what they said."
Chairman and CEO Jack O. Bovender Jr. declined to comment for this story, but in a speechin Junetothe Nashville Health Care Council, he said the nation's largest private hospital chain hasn't made any moves that it wouldn't have made as a publicly traded company.
Sales may be needed
Bovender has said HCA would continue to prune its portfolio where it made sense, although the deal didn't call for selling hospitals.
But Vicki Bryan, a senior high-yield analyst with the bond research firm Gimme Credit in New York, said that without aggressive asset sales it would be difficult for HCA to continue to chip away its debt load.
"The problem with HCA is that the interest cost is so high, it's absorbing an inordinate amount of their cash flow that could be used to pay down debt," she said. "When they get through paying their interest costs and capital expenditures, it leaves very little."
When the company was previously taken private, in 1989, it quickly sold several non-core holdings, including a clinical laboratory unit, a hospital management subsidiary and HCA's 50 percent stake in an insurance business. HCA went public again in 1992.
Today, the company could easily sell several under-performing hospitals to help it reduce debt, Bryan said. "We have found a number of facilities in the portfolio (generally in the coastal Atlantic states and Florida) that appear to perform below par," she said.
HCA is selling a hospital in Miami and sold both of its hospitals in Switzerland, but spokes man Jeff Prescott said it wouldn't discuss other possible sales or acquisitions.
But unless it sells more hospitals, HCA could have trouble paying down its debt, Bryan said. The investors who took the company private in November agreed to assume $11.7 billion of existing debt and borrowed an additional $16 billion to finance the deal.
In its second quarter, HCA paid $361 million more in interest expense than it did in the same period a year earlier.
That helped cut net income by $179 millionin the three months that ended June 30.
Bad debt still an issue
Besides divesting three hospitals, HCA has focused on driving down various operating expenses.
"We're in a difficult environment for (admissions) volume, and bad debt is still an issue for the industry, but the company is very actively managing its cost structure through that difficult industry environment," said Frank Morgan, a health-care analyst at Jefferies & Co. in Nashville.
For the recent second quarter, the amount of revenues HCA sets aside to cover unpaid medical bills rose to 11.2 percent from 10.6 percent last year. Also, overall admissions to its hospitals fell 1.5 percent compared with last year's second quarter.
In the first quarter, HCA reduced spending on marketing, travel and entertainment. In a conference call, Chief Operating Officer Richard Bracken said the company was tightening the belt on outside and image advertising but was continuing its outreach to doctors, whom HCA considers a key source of referral of patients.
During the second quarter, spending on salaries and benefits fell to 39.4 cents of every dollar of revenue from 41 cents a year ago, a change that analysts said reflects either a different mix of patients or changes in staffing levels at hospitals.
Prescott, the HCA spokesman, said that while the company has sold some hospitals, it also has replaced older hospitals in Kansas City and Atlanta with new facilities. At the end of its second quarter, HCA operated 170 hospitals and 107 outpatient surgery centers, compared with 176 hospitals and 92 surgery centers a year earlier.
The sale of two hospitals this year with a third transaction pending is consistent with how HCA has operated in the past, Prescott said. And since the leveraged buyout, donations through the company's foundation have remained consistent, averaging about $7 million a year, he said.
Morgan isn't as concerned about HCA's debt, citing its
9.7 percent increase in second-quarter earnings before interest, taxes, depreciation and amortization among recent positive developments.
He sees opportunities for HCA to refinance part of the debt like it did in February in a move that was expected to save $54 million in annual interest costs on about $12.8 billion of loans used to fund its buyout in November. "Looking at debt to EBITDA, it's a levered company, but the plan is to reduce the leverage over time," Morgan said.
Friday, October 12, 2007
Monday, October 8, 2007
The Successes of the Modern False Claims Act
Posted On: October 7, 2007 by Finch McCranie, LLP
Part 5: The Successes of the Modern False Claims Act--and How They Have Prompted a Wave of State False Claims Acts With Qui Tam Whistleblower Provisions
This is Part 5 of 6 by whistleblower lawyer blog of a detailed article for those wishing to know more about the principal qui tam whistleblower statutes, the federal False Claims Act and the new state False Claims Acts. It is part of a recently published article by whistleblower lawyer blog author Michael A. Sullivan, and this article is reprinted with the permission of the Georgia Bar Journal.
This Part 5 discusses the dramatic successes of the federal False Claims Act since its 1986 Amendments in recovering taxpayers' money wrongfully obtained by fraud and false claims.
IV. The Trend of Recent Recoveries Under the False Claims Act
Over the past two decades since the modern False Claims Act was established through the 1986 Amendments, the federal government’s recoveries of dollars have grown astronomically, especially in health care cases. The Department of Justice statistics [52] tell the story:
In 1987, the government’s recoveries in qui tam cases totaled zero, presumably because the 1986 Amendments had just taken effect; and total recoveries under the False Claims Act were just $86 million. The following year, qui tam and other False Claims Act settlements and judgments began a steady climb upward, exceeding $200 million by 1989, and $300 million by 1991. By 1994, the government’s recoveries broke the $1 billion mark for the first time, with $380 million of that amount attributable to qui tam case recoveries alone.
In 2000, the government recovered more than $1.5 billion, of which $1.2 billion was derived from qui tam actions. In 2001, the government recovered more than $1.7 billion, with almost $1.2 billion of that amount from qui tam cases. With the exception of 2004, in each year since 2000 the government has recovered more than a billion dollars per year under the False Claims Act, and qui tam actions were responsible for the lion’s share of those recoveries. For example, in 2003, government recoveries exceeded $2.2 billion, of which $1.4 billion came from qui tam cases. Similarly, in 2005, of the government’s total recovery of $1.4 billion, $1.1 billion of that amount came from qui tam cases.
In 2006, the Justice Department recovered a record of more than $3.1 billion in settlements and judgments for fraud and false claims. Of this record $3.1 billion in recoveries, 72% came from the health care field; 20% from defense; and 8% from other sources. Health care alone accounted for $2.2 billion in settlements and judgments, which included a $920 million settlement with Tenet Healthcare Corporation, the country’s second-largest hospital chain. Defense procurement fraud amounted to $609 million in recoveries, which included a $565 million settlement with the Boeing Company.
It is interesting that, while defense procurement fraud both inspired the Act and was the largest source of recoveries at the time of the 1986 Amendments, health care cases now lead in recoveries, as health care costs have grown as a percentage of the federal budget. By industry, in 1987 the defense industry was the largest source of cases under the False Claims Act. [53] The health care industry accounted for only 12% of cases under the False Claims Act in 1987; that percentage grew to 54% by 1997. [54]
Many health care fraud cases have addressed over-billing or up-coding, fraudulent cost reporting, billing for services not provided, and failure to furnish the required “quality of care.” [55] The breakdown of the Department of Justice statistics shows that government recoveries in the health care field have grown from less than $2 million in 1988 to more than $1.8 billion in 2003. Although the amounts recovered rise and fall each year, from 2001–2006 government recoveries from the health care field exceeded $1 billion in five out of six years.
The trend has continued in 2007, as the Office of Inspector General of the Department of Health and Human Services recently announced that it expects $2.9 billion in recoveries for Medicare, Medicaid, and other federal health and human services programs for the first half of fiscal year 2007. [56]
In short, the health care industry now consistently accounts for the vast majority of settlements and judgments obtained by the federal government for fraud and false claims.
Footnotes:
52 See Department of Justice statistics reprinted at http://www.taf.org/statistics.htm.
53 SYLVIA, supra note 12, § 2:13, at 63.
54 Id. § 2:14, at 64.
55. Id. § 2:14, at 65.
56. Department of Health and Human Services Office of Inspector General, Semiannual Report to Congress (October 1, 2006-March 31, 2007), at i, available at http://oig.hhs.gov/publications/docs/semiannual/2007/SemiannualFirstHalf07.pdf.
57 Recent significant recoveries under the False Claims Act in the health care industry include the following:
a. Tenet Healthcare Corporation: ($900 million settlement of several lawsuits in 2006 from allegedly improper billing practices), http://www.usdoj.gov/usao/cac/news/pr2006/088.html.
b. Serono, S.A.: ($704 million settlement of several lawsuits in 2005 from allegedly illegal schemes to promote, market, and sell Serostim, an AIDS drug), http://www.usdoj.gov/opa/pr/2005/October/05_civ_545.html.
c. Bristol-Meyers Squibb ($515 million settlement in September 2007 to resolve allegations of illegal drug marketing and pricing),
http://www.usdoj.gov/opa/pr/2007/September/07_civ_782.html.
d. Schering-Plough Corporation: ($435 million settlement in August 2006, arising from alleged illegal sales in marketing programs for its drugs, with $91 million to settle civil liabilities to the states for losses to state Medicaid programs), http://www.usdoj.gov/usao/ma/Press%20Office%20-%20Press%20Release%20Files/Schering-Plough/press%20release.pdf
e. Saint Barnabas Corporation: ($265 million settlement in 2006 of two lawsuits against the largest healthcare system in New Jersey, Saint Barnabas Corporation, to settle allegations that it defrauded the federal Medicare program), http://www.usdoj.gov/usao/nj/press/files/pdffiles/stba0615rel.pdf.
f. King Pharmaceuticals, Inc.: ($124 million settlement in 2005 of various lawsuits for alleged overcharges in Medicaid program to various federal and state government entities for its drug products),
Part 5: The Successes of the Modern False Claims Act--and How They Have Prompted a Wave of State False Claims Acts With Qui Tam Whistleblower Provisions
This is Part 5 of 6 by whistleblower lawyer blog of a detailed article for those wishing to know more about the principal qui tam whistleblower statutes, the federal False Claims Act and the new state False Claims Acts. It is part of a recently published article by whistleblower lawyer blog author Michael A. Sullivan, and this article is reprinted with the permission of the Georgia Bar Journal.
This Part 5 discusses the dramatic successes of the federal False Claims Act since its 1986 Amendments in recovering taxpayers' money wrongfully obtained by fraud and false claims.
IV. The Trend of Recent Recoveries Under the False Claims Act
Over the past two decades since the modern False Claims Act was established through the 1986 Amendments, the federal government’s recoveries of dollars have grown astronomically, especially in health care cases. The Department of Justice statistics [52] tell the story:
In 1987, the government’s recoveries in qui tam cases totaled zero, presumably because the 1986 Amendments had just taken effect; and total recoveries under the False Claims Act were just $86 million. The following year, qui tam and other False Claims Act settlements and judgments began a steady climb upward, exceeding $200 million by 1989, and $300 million by 1991. By 1994, the government’s recoveries broke the $1 billion mark for the first time, with $380 million of that amount attributable to qui tam case recoveries alone.
In 2000, the government recovered more than $1.5 billion, of which $1.2 billion was derived from qui tam actions. In 2001, the government recovered more than $1.7 billion, with almost $1.2 billion of that amount from qui tam cases. With the exception of 2004, in each year since 2000 the government has recovered more than a billion dollars per year under the False Claims Act, and qui tam actions were responsible for the lion’s share of those recoveries. For example, in 2003, government recoveries exceeded $2.2 billion, of which $1.4 billion came from qui tam cases. Similarly, in 2005, of the government’s total recovery of $1.4 billion, $1.1 billion of that amount came from qui tam cases.
In 2006, the Justice Department recovered a record of more than $3.1 billion in settlements and judgments for fraud and false claims. Of this record $3.1 billion in recoveries, 72% came from the health care field; 20% from defense; and 8% from other sources. Health care alone accounted for $2.2 billion in settlements and judgments, which included a $920 million settlement with Tenet Healthcare Corporation, the country’s second-largest hospital chain. Defense procurement fraud amounted to $609 million in recoveries, which included a $565 million settlement with the Boeing Company.
It is interesting that, while defense procurement fraud both inspired the Act and was the largest source of recoveries at the time of the 1986 Amendments, health care cases now lead in recoveries, as health care costs have grown as a percentage of the federal budget. By industry, in 1987 the defense industry was the largest source of cases under the False Claims Act. [53] The health care industry accounted for only 12% of cases under the False Claims Act in 1987; that percentage grew to 54% by 1997. [54]
Many health care fraud cases have addressed over-billing or up-coding, fraudulent cost reporting, billing for services not provided, and failure to furnish the required “quality of care.” [55] The breakdown of the Department of Justice statistics shows that government recoveries in the health care field have grown from less than $2 million in 1988 to more than $1.8 billion in 2003. Although the amounts recovered rise and fall each year, from 2001–2006 government recoveries from the health care field exceeded $1 billion in five out of six years.
The trend has continued in 2007, as the Office of Inspector General of the Department of Health and Human Services recently announced that it expects $2.9 billion in recoveries for Medicare, Medicaid, and other federal health and human services programs for the first half of fiscal year 2007. [56]
In short, the health care industry now consistently accounts for the vast majority of settlements and judgments obtained by the federal government for fraud and false claims.
Footnotes:
52 See Department of Justice statistics reprinted at http://www.taf.org/statistics.htm.
53 SYLVIA, supra note 12, § 2:13, at 63.
54 Id. § 2:14, at 64.
55. Id. § 2:14, at 65.
56. Department of Health and Human Services Office of Inspector General, Semiannual Report to Congress (October 1, 2006-March 31, 2007), at i, available at http://oig.hhs.gov/publications/docs/semiannual/2007/SemiannualFirstHalf07.pdf.
57 Recent significant recoveries under the False Claims Act in the health care industry include the following:
a. Tenet Healthcare Corporation: ($900 million settlement of several lawsuits in 2006 from allegedly improper billing practices), http://www.usdoj.gov/usao/cac/news/pr2006/088.html.
b. Serono, S.A.: ($704 million settlement of several lawsuits in 2005 from allegedly illegal schemes to promote, market, and sell Serostim, an AIDS drug), http://www.usdoj.gov/opa/pr/2005/October/05_civ_545.html.
c. Bristol-Meyers Squibb ($515 million settlement in September 2007 to resolve allegations of illegal drug marketing and pricing),
http://www.usdoj.gov/opa/pr/2007/September/07_civ_782.html.
d. Schering-Plough Corporation: ($435 million settlement in August 2006, arising from alleged illegal sales in marketing programs for its drugs, with $91 million to settle civil liabilities to the states for losses to state Medicaid programs), http://www.usdoj.gov/usao/ma/Press%20Office%20-%20Press%20Release%20Files/Schering-Plough/press%20release.pdf
e. Saint Barnabas Corporation: ($265 million settlement in 2006 of two lawsuits against the largest healthcare system in New Jersey, Saint Barnabas Corporation, to settle allegations that it defrauded the federal Medicare program), http://www.usdoj.gov/usao/nj/press/files/pdffiles/stba0615rel.pdf.
f. King Pharmaceuticals, Inc.: ($124 million settlement in 2005 of various lawsuits for alleged overcharges in Medicaid program to various federal and state government entities for its drug products),
Thursday, October 4, 2007
ROY BLUNT--CORRUPT DOLLARS FOR LAWS
ROY BLUNT-R MISSOURI
1996 ELECTION CYCLE
American Medical Assn $10,000
Ozark National Life $7,500
National Assn of Life Underwriters $6,000
McQueary Brothers Drug Co $5,250
1998 ELECTION CYCLE
Aquila Inc $24,500
American Hospital Assn $12,000
Eli Lilly & Co $11,000
AFLAC Inc $10,000
American Assn of Orthodontists $10,000
American Bankers Assn $10,000
American Medical Assn $10,000
Metropolitan Life $10,000
Philip Morris $10,000
2000 ELECTION CYCLE
Insurance $69,097
Securities & Investment $58,338
Commercial Banks $58,150
Health Professionals $54,050
Pharmaceuticals/Health Products $45,000
2002 ELECTION CYCLE
2002 RACE: MISSOURI DISTRICT 7
Health Professionals $99,848
Pharmaceuticals/Health Products $84,066
Insurance $75,245
Commercial Banks $68,350
Oil & Gas $60,500
Automotive $57,500
Securities & Investment $56,397
Hospitals/Nursing Homes $44,501
2006 RACE: MISSOURI DISTRICT 7
Roy Blunt (R)*
Ameren Corp $20,000
Jones Financial Companies $19,350
Blue Cross/Blue Shield $17,500
Comcast Corp $15,000
General Electric $13,750
Citigroup Inc $13,000
Goldman Sachs $12,600
Time Warner $12,000
American Hospital Assn $11,000
Arvest Bank Group $11,000
AT&T Inc $11,000
Lockheed Martin $11,000
1996 ELECTION CYCLE
American Medical Assn $10,000
Ozark National Life $7,500
National Assn of Life Underwriters $6,000
McQueary Brothers Drug Co $5,250
1998 ELECTION CYCLE
Aquila Inc $24,500
American Hospital Assn $12,000
Eli Lilly & Co $11,000
AFLAC Inc $10,000
American Assn of Orthodontists $10,000
American Bankers Assn $10,000
American Medical Assn $10,000
Metropolitan Life $10,000
Philip Morris $10,000
2000 ELECTION CYCLE
Insurance $69,097
Securities & Investment $58,338
Commercial Banks $58,150
Health Professionals $54,050
Pharmaceuticals/Health Products $45,000
2002 ELECTION CYCLE
2002 RACE: MISSOURI DISTRICT 7
Health Professionals $99,848
Pharmaceuticals/Health Products $84,066
Insurance $75,245
Commercial Banks $68,350
Oil & Gas $60,500
Automotive $57,500
Securities & Investment $56,397
Hospitals/Nursing Homes $44,501
2006 RACE: MISSOURI DISTRICT 7
Roy Blunt (R)*
Ameren Corp $20,000
Jones Financial Companies $19,350
Blue Cross/Blue Shield $17,500
Comcast Corp $15,000
General Electric $13,750
Citigroup Inc $13,000
Goldman Sachs $12,600
Time Warner $12,000
American Hospital Assn $11,000
Arvest Bank Group $11,000
AT&T Inc $11,000
Lockheed Martin $11,000
CORRUPT DOLLARS Politicians for Health Care
JOE BARTON - TEXAS
1996
Communications/Electr $97,000 $73,000 $24,000
Energy & Natural Reso $211,965 $151,165 $60,800
Finance, Insurance & $163,399 $110,349 $53,050
Health $112,800 $89,750 $23,050
2000 RACE TEXAS DISTRICT 6
Electric Utilities $131,590
Oil & Gas $104,600
Lawyers/Law Firms $32,595
Health Professionals $31,029
Pharmaceuticals/Health Products $30,002
2006 RACE TEXAS DISTRICT
Health Professionals $344,950
Electric Utilities $250,500
Pharmaceuticals/Health Products $198,800
1996
Communications/Electr $97,000 $73,000 $24,000
Energy & Natural Reso $211,965 $151,165 $60,800
Finance, Insurance & $163,399 $110,349 $53,050
Health $112,800 $89,750 $23,050
2000 RACE TEXAS DISTRICT 6
Electric Utilities $131,590
Oil & Gas $104,600
Lawyers/Law Firms $32,595
Health Professionals $31,029
Pharmaceuticals/Health Products $30,002
2006 RACE TEXAS DISTRICT
Health Professionals $344,950
Electric Utilities $250,500
Pharmaceuticals/Health Products $198,800
Wednesday, October 3, 2007
The health care fraud statute requires that the defendant “knowingly and willfully executes . . . a scheme” to defraud a health care benefit program.
CASE TO PERUSE REGARDING HEALTHCARE FRAUD LAWSUITS........This disappointing Hall decision is primarily concerned with the adequacy of evidence in a health care fraud trial. Buried in some -- terse -- analysis, however, is a troubling erosion of mens rea requirements in fraud cases (with implications for other white-collar fraud cases, such as securities fraud).
Players: Judge Hall authors, Canby and Callahan join.
Facts: Art Dearing was a part-owner of a health care facility with his brother. 2007 WL 276957, *1. Art’s brother ran the place, and had repeated problems with (fraudulent) Medicaid billing. Id. Evidence at trial suggested that Art was aware of these problems, although he wasn’t involved in day-to-day operations and didn’t personally submit for reimbursements. Id. at *1-*2. For example, he allegedly told an employee complaining about fraudulent activity, "loose lips sink ships." The health care fraud statute requires that the defendant “knowingly and willfully executes . . . a scheme” to defraud a health care benefit program. Id. at *3. The trial court, however, instructed the jury that the “intent to defraud” could be shown if the defendant acted “with reckless indifference to the truth or falsity of the statements.” Id. at *4. After conviction, Dearing challenged this instruction (among other issues) on appeal.
Issue(s): “Dearing . . . claims that the district court erred in permitting a jury instruction that allowed a finding of guilt based upon reckless indifference rather than willful intent.” Id. at *4. “Dearing . . . asserts that a second instruction effectively lowered the mens rea requirement from willfulness to recklessness.”
Held: “We hold that the phrasing of this additional instruction was not erroneous and did not effectively relieve the government of its burden of proving that Dearing’s actions were willful. . . .” Id. at *5. “We have repeatedly held that the intent to defraud may be proven through reckless indifference to the truth or falsity of statements.” Id. “[T]he ‘reckless indifference’ instruction that Dearing challenges was tethered to the ‘specific intent to defraud’ element, which the government was required to prove in addition to the first element. Therefore its inclusion did not negate the separate instruction that to convict, the jury had to find that Dearing acted ‘knowingly and willfully.’” Id. (emphasis in original).
Of Note: Buried in Dearing is some bad law for white collar and fraud cases – and it doesn’t help that the analysis isn’t the model of clarity. The specific instruction at issue was a definition of “intent to defraud.” Id. at *4. The contested instruction allowed the government to show “intent to defraud” by proving the defendant acted with “reckless indifference to the truth or falsity of the statements.” Id. Dearing persuasively argued that this means that a defendant who acted with reckless indifference could be convicted of the crime of knowingly and willfully executing a scheme to defraud. In rejecting this argument, Judge Hall relied on a footnote from a prior Ninth Circuit case for the proposition that a “reckless indifference” instruction can support a securities fraud conviction. Id. at *5, quoting United States v. Tarallo, 380 F.3d 1174, 1189 & n.5 (9th Cir. 2004).
Backdating folks, take note: Dearing solidifies a suspect trend in law, that allows the “willful” element to be satisfied by mere reckless indifference in fraud cases (including securities fraud). See Tarralo, 380 F.3d at 1188-89. This doesn’t make sense – willful action, and reckless indifference, are traditionally very different mental states. This deteriorating mens rea trend in fraud cases is fertile ground for a law review article, and cries out for a cert. petition.
How to Use: One thing that saved the conviction in Dearing was that the “reckless indifference” instruction was “tethered” to other instructions requiring higher mens rea showings. Id. at *5. Don’t let the government argue that a “reckless indifference” instruction – standing alone – suffices for a fraud case: in Dearing, the jury could not have relied on reckless indifference alone to find the required mental state, given other instructions that were structured to also require proof of a “specific intent to defraud.” Id.
For Further Reading: We’ve reviewed the oddities of federal mens rea requirements in the Lombera-Valdovinos blog. See blog here. Try to explain this area to a lay person: attempted illegal reentry requires specific intent, but simple illegal reentry has no mens rea requirement. Health care fraud requires the defendant “knowingly and willfully” executed a scheme to defraud – but “reckless indifference” is close enough for a conviction? For an interesting article criticizing the American approach to the concept of mens rea, see Keren Shapira-Ettinger, The Conundrum of Mental States: Substantive Rules and Evidence Combined, 28 Cardozo L. Rev. 2577 (2007).
Steven Kalar, Senior Litigator N.D. Cal. FPD. Website at www.ndcalfpd.org
.
Players: Judge Hall authors, Canby and Callahan join.
Facts: Art Dearing was a part-owner of a health care facility with his brother. 2007 WL 276957, *1. Art’s brother ran the place, and had repeated problems with (fraudulent) Medicaid billing. Id. Evidence at trial suggested that Art was aware of these problems, although he wasn’t involved in day-to-day operations and didn’t personally submit for reimbursements. Id. at *1-*2. For example, he allegedly told an employee complaining about fraudulent activity, "loose lips sink ships." The health care fraud statute requires that the defendant “knowingly and willfully executes . . . a scheme” to defraud a health care benefit program. Id. at *3. The trial court, however, instructed the jury that the “intent to defraud” could be shown if the defendant acted “with reckless indifference to the truth or falsity of the statements.” Id. at *4. After conviction, Dearing challenged this instruction (among other issues) on appeal.
Issue(s): “Dearing . . . claims that the district court erred in permitting a jury instruction that allowed a finding of guilt based upon reckless indifference rather than willful intent.” Id. at *4. “Dearing . . . asserts that a second instruction effectively lowered the mens rea requirement from willfulness to recklessness.”
Held: “We hold that the phrasing of this additional instruction was not erroneous and did not effectively relieve the government of its burden of proving that Dearing’s actions were willful. . . .” Id. at *5. “We have repeatedly held that the intent to defraud may be proven through reckless indifference to the truth or falsity of statements.” Id. “[T]he ‘reckless indifference’ instruction that Dearing challenges was tethered to the ‘specific intent to defraud’ element, which the government was required to prove in addition to the first element. Therefore its inclusion did not negate the separate instruction that to convict, the jury had to find that Dearing acted ‘knowingly and willfully.’” Id. (emphasis in original).
Of Note: Buried in Dearing is some bad law for white collar and fraud cases – and it doesn’t help that the analysis isn’t the model of clarity. The specific instruction at issue was a definition of “intent to defraud.” Id. at *4. The contested instruction allowed the government to show “intent to defraud” by proving the defendant acted with “reckless indifference to the truth or falsity of the statements.” Id. Dearing persuasively argued that this means that a defendant who acted with reckless indifference could be convicted of the crime of knowingly and willfully executing a scheme to defraud. In rejecting this argument, Judge Hall relied on a footnote from a prior Ninth Circuit case for the proposition that a “reckless indifference” instruction can support a securities fraud conviction. Id. at *5, quoting United States v. Tarallo, 380 F.3d 1174, 1189 & n.5 (9th Cir. 2004).
Backdating folks, take note: Dearing solidifies a suspect trend in law, that allows the “willful” element to be satisfied by mere reckless indifference in fraud cases (including securities fraud). See Tarralo, 380 F.3d at 1188-89. This doesn’t make sense – willful action, and reckless indifference, are traditionally very different mental states. This deteriorating mens rea trend in fraud cases is fertile ground for a law review article, and cries out for a cert. petition.
How to Use: One thing that saved the conviction in Dearing was that the “reckless indifference” instruction was “tethered” to other instructions requiring higher mens rea showings. Id. at *5. Don’t let the government argue that a “reckless indifference” instruction – standing alone – suffices for a fraud case: in Dearing, the jury could not have relied on reckless indifference alone to find the required mental state, given other instructions that were structured to also require proof of a “specific intent to defraud.” Id.
For Further Reading: We’ve reviewed the oddities of federal mens rea requirements in the Lombera-Valdovinos blog. See blog here. Try to explain this area to a lay person: attempted illegal reentry requires specific intent, but simple illegal reentry has no mens rea requirement. Health care fraud requires the defendant “knowingly and willfully” executed a scheme to defraud – but “reckless indifference” is close enough for a conviction? For an interesting article criticizing the American approach to the concept of mens rea, see Keren Shapira-Ettinger, The Conundrum of Mental States: Substantive Rules and Evidence Combined, 28 Cardozo L. Rev. 2577 (2007).
Steven Kalar, Senior Litigator N.D. Cal. FPD. Website at www.ndcalfpd.org
.
DEFENDANTS SENTENCED FOR HEALTH CARE FRAUD
LAWFUEL - The Legal Newswire - R. Alexander Acosta, United States Attorney for the Southern District of Florida, and Jonathan I. Solomon, Special Agent in Charge, Federal Bureau of Investigation, Miami Field Office, announced the September 27, 2007 sentencing of defendant Boris Royzen on healthcare fraud charges.
United States District Court Judge Marcia G. Cooke sentenced Royzen to a term of 40 months in prison, followed by 3 years of supervised release. He was also ordered to forfeit property and pay restitution in the amount of $1.8 million.
Boris Royzen and his wife Eva Royzen were among twenty-one (21) defendants charged in a thirty-three (33) count Indictment charging twenty-one (21) individuals, including doctors, chiropractors, massage therapists, an office manager, and four (4) medical clinics, Vista Mar Medical Rehab Corp., Plantation Medical Recovery Center, Inc., Romana Medical, Inc., and Dial Medical Rehab, Inc., with health care fraud.
Eva Royzen was previously sentenced to a three year term of probation and ordered to forfeit property and pay restitution in the amount of $1.8 million. The medical clinics were ordered to pay restitution as follows: Vista Mar $70,674.08; Romana Medical $20,641.85; Plantation Medical Recovery $31,292.75; and Dial Medical $13,818.06.
According to the indictment and court records, from November 2003 through July 2005, the defendants conspired to commit health care fraud by submitting fraudulent health insurance claim forms to insurance companies for services that were not medically necessary and/or were not rendered. The fraudulent claims were submitted under personal injury protection (PIP) provisions for alleged victims of automobile accidents. Boris Royzen and Dmitry Rakovsky paid runners to solicit victims and alleged victims of automobile accidents to become patients of the clinics. In addition, Boris Royzen and Dmitry Rakovsky caused fraudulent applications to be filed with the State of Florida, which falsely stated that the defendant clinics were 100% owned by licensed medical practitioners when, in fact, the medical practitioners named on the applications were employees of the clinics.
The Indictment lists 30 private insurance companies, including State Farm, GEICO, AllState, Ocean Harbor Insurance, Liberty Mutual, MetLife, Direct, Progressive, Federated Insurance and United Auto Insurance, to which the defendants submitted fraudulent claims. The defendant medical clinics received over $2.5 million in insurance payments as a result of the fraudulent activity.
Mr. Acosta commended the investigative efforts of the Federal Bureau of Investigation and also expressed appreciation for the assistance provided by the National Insurance Crime Bureau (NICB), the Florida Department of Financial Services, and the Sunny Isles Beach Police Department. In addition, Mr. Acosta commended the support of all of the insurance companies involved in this investigation, including the Gainsco Company, Ocean Harbor Insurance, GEICO, State Farm, Liberty Mutual, MetLife, Direct, United Auto Insurance, and Federated Insurance. This case was handled by Assistant United States Attorneys Jennifer Keene and Laurence Bardfeld and Senior Litigation Counsel William T. Clabault, Fraud Section, Criminal Division, Department of Justice.
A copy of this press release may be found on the website of the United States Attorney's Office for the Southern District of Florida at www.usdoj.gov/usao/fls. Related court documents and information may be found on the website of the District Court for the Southern District of Florida at www.flsd.uscourts.gov or on http://pacer.flsd.uscourts.gov.
United States District Court Judge Marcia G. Cooke sentenced Royzen to a term of 40 months in prison, followed by 3 years of supervised release. He was also ordered to forfeit property and pay restitution in the amount of $1.8 million.
Boris Royzen and his wife Eva Royzen were among twenty-one (21) defendants charged in a thirty-three (33) count Indictment charging twenty-one (21) individuals, including doctors, chiropractors, massage therapists, an office manager, and four (4) medical clinics, Vista Mar Medical Rehab Corp., Plantation Medical Recovery Center, Inc., Romana Medical, Inc., and Dial Medical Rehab, Inc., with health care fraud.
Eva Royzen was previously sentenced to a three year term of probation and ordered to forfeit property and pay restitution in the amount of $1.8 million. The medical clinics were ordered to pay restitution as follows: Vista Mar $70,674.08; Romana Medical $20,641.85; Plantation Medical Recovery $31,292.75; and Dial Medical $13,818.06.
According to the indictment and court records, from November 2003 through July 2005, the defendants conspired to commit health care fraud by submitting fraudulent health insurance claim forms to insurance companies for services that were not medically necessary and/or were not rendered. The fraudulent claims were submitted under personal injury protection (PIP) provisions for alleged victims of automobile accidents. Boris Royzen and Dmitry Rakovsky paid runners to solicit victims and alleged victims of automobile accidents to become patients of the clinics. In addition, Boris Royzen and Dmitry Rakovsky caused fraudulent applications to be filed with the State of Florida, which falsely stated that the defendant clinics were 100% owned by licensed medical practitioners when, in fact, the medical practitioners named on the applications were employees of the clinics.
The Indictment lists 30 private insurance companies, including State Farm, GEICO, AllState, Ocean Harbor Insurance, Liberty Mutual, MetLife, Direct, Progressive, Federated Insurance and United Auto Insurance, to which the defendants submitted fraudulent claims. The defendant medical clinics received over $2.5 million in insurance payments as a result of the fraudulent activity.
Mr. Acosta commended the investigative efforts of the Federal Bureau of Investigation and also expressed appreciation for the assistance provided by the National Insurance Crime Bureau (NICB), the Florida Department of Financial Services, and the Sunny Isles Beach Police Department. In addition, Mr. Acosta commended the support of all of the insurance companies involved in this investigation, including the Gainsco Company, Ocean Harbor Insurance, GEICO, State Farm, Liberty Mutual, MetLife, Direct, United Auto Insurance, and Federated Insurance. This case was handled by Assistant United States Attorneys Jennifer Keene and Laurence Bardfeld and Senior Litigation Counsel William T. Clabault, Fraud Section, Criminal Division, Department of Justice.
A copy of this press release may be found on the website of the United States Attorney's Office for the Southern District of Florida at www.usdoj.gov/usao/fls. Related court documents and information may be found on the website of the District Court for the Southern District of Florida at www.flsd.uscourts.gov or on http://pacer.flsd.uscourts.gov.
Tuesday, October 2, 2007
Does the CORRUPTION EVER STOP?
Sen. Claire McCaskill, D-Mo, once again, will bring SUNSHINE to more corruption running rampantwithin this GOVERNMENT that is suppose to be for ALL THE PEOPLE!
Hopefully other members of the full Senate will be able to see Julie Meyers for what she really is, inept, unqualified, and most importantly danger to our national security.
WASHINGTON (AP) — A Senate panel voted Wednesday to allow Julie Myers to keep her senior post at the Homeland Security Department, with most lawmakers saying she had eased earlier concerns about her qualifications.
President Bush first installed Myers nearly two years ago, while the Senate was in recess, after it became clear she might not win confirmation. Senate Democrats had complained that Myers lacked experience to be assistant secretary in charge of the massive Immigration and Customs Enforcement agency.
Her nomination also raised questions about political favoritism. She is the niece of Air Force Gen. Richard B. Myers, the former chairman of the Joint Chiefs of Staff, and is married to John Wood, former chief of staff to Homeland Security Secretary Michael Chertoff.
Sen. Joe Lieberman, chairman of the Senate Homeland Security Committee, said interviews with dozens of government officials and advocacy groups show that Myers has become an effective manager.
“She is described by co-workers and others as a talented executive with a strong work ethic and good management abilities,” said Lieberman, who had opposed Myers in 2005. “I look forward to continuing work with her to tackle ICE’s many difficult problems.”
The only dissent came Sen. Claire McCaskill, D-Mo., who complained that Myers has not shown enough interest in tracking how many employers are prosecuted for hiring illegal immigrants.
McCaskill has spent weeks asking the agency to reveal the number of employers who have faced legal action for hiring illegal workers. But Myers has said law enforcement statistics do not break out records that way.
Late Tuesday night, the agency finally sent McCaskill a list of all 716 people charged with immigration violations in the most recent fiscal year. McCaskill claims the list will show the Bush administration has not seriously pursued employers who break the law.
“All you have to do is glance at the list and you do not get a good feeling that employers are being held accountable,” McCaskill said.
At a hearing earlier this month, Myers told senators she has made progress in improving the immigration agency’s financial woes, boosted enforcement against illegal immigrants who commit crimes and increased the amount of criminal fines and forfeitures against employers who hire illegal workers.
The full Senate is expected to vote on Myers’ nomination in the next few weeks. Her recess appointment expires at year’s end.
Hopefully other members of the full Senate will be able to see Julie Meyers for what she really is, inept, unqualified, and most importantly danger to our national security.
WASHINGTON (AP) — A Senate panel voted Wednesday to allow Julie Myers to keep her senior post at the Homeland Security Department, with most lawmakers saying she had eased earlier concerns about her qualifications.
President Bush first installed Myers nearly two years ago, while the Senate was in recess, after it became clear she might not win confirmation. Senate Democrats had complained that Myers lacked experience to be assistant secretary in charge of the massive Immigration and Customs Enforcement agency.
Her nomination also raised questions about political favoritism. She is the niece of Air Force Gen. Richard B. Myers, the former chairman of the Joint Chiefs of Staff, and is married to John Wood, former chief of staff to Homeland Security Secretary Michael Chertoff.
Sen. Joe Lieberman, chairman of the Senate Homeland Security Committee, said interviews with dozens of government officials and advocacy groups show that Myers has become an effective manager.
“She is described by co-workers and others as a talented executive with a strong work ethic and good management abilities,” said Lieberman, who had opposed Myers in 2005. “I look forward to continuing work with her to tackle ICE’s many difficult problems.”
The only dissent came Sen. Claire McCaskill, D-Mo., who complained that Myers has not shown enough interest in tracking how many employers are prosecuted for hiring illegal immigrants.
McCaskill has spent weeks asking the agency to reveal the number of employers who have faced legal action for hiring illegal workers. But Myers has said law enforcement statistics do not break out records that way.
Late Tuesday night, the agency finally sent McCaskill a list of all 716 people charged with immigration violations in the most recent fiscal year. McCaskill claims the list will show the Bush administration has not seriously pursued employers who break the law.
“All you have to do is glance at the list and you do not get a good feeling that employers are being held accountable,” McCaskill said.
At a hearing earlier this month, Myers told senators she has made progress in improving the immigration agency’s financial woes, boosted enforcement against illegal immigrants who commit crimes and increased the amount of criminal fines and forfeitures against employers who hire illegal workers.
The full Senate is expected to vote on Myers’ nomination in the next few weeks. Her recess appointment expires at year’s end.
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