Medicare Fraud Sentence that Applied Vulnerable Victims Enhancement Upheld by Third Circuit
By: James W. Kraus
A laboratory sales representative, who had pleaded guilty to using a sham charity to direct unnecessary genetic testing to laboratories in exchange for kickbacks, has lost his bid in the Third Circuit to reduce his 50-month sentence. On Wednesday, the Third Circuit issued an opinion rejecting the argument by Seth Rehfuss that the U.S. District Court for the District of New Jersey should not have applied the vulnerable victim enhancement and two others under the U.S. Sentencing Guidelines in determining his sentence.
Rehfuss had an arrangement with two laboratories in Virginia and California to recruit patients to undergo genetic testing. The testing, which was not recommended by any of the patients’ physicians, was paid for by Medicare. Rehfuss was paid kickbacks by the laboratories for each test performed.
Rehfuss didn’t outwardly recruit for the laboratories. Instead, he held himself out in presentations to elderly citizens as a representative of a charity called the Good Samaritans of America (Good Samaritans). At his change of plea hearing, Rehfuss admitted that the charity was a sham used to gain the trust of potential patients. When making presentations at senior centers about a variety of subjects, Rehfuss would invariably reach the subject of genetic testing and suggest that the members of the audience were at risk for numerous, serious health conditions if they didn’t undergo the testing. Thousands of elderly patients agreed to the testing and samples were sent to one of the two laboratories.
Rehfuss eventually recruited physicians, who never met any of the patients, to execute Medicare approval forms, paying them $2,000 per week for work that took only a couple of hours. The laboratories performed the tests, submitted the reimbursement forms to Medicare, and upon payment would send the kick-backs to Good Samaritans.
The essential facts of the scheme were admitted by Rehfuss when he pleaded guilty to a single healthcare fraud conspiracy count. At sentencing, over Rehfuss’ opposition, the Court granted the Government’s request for three Guidelines enhancements:
- a two-level enhancement for targeting vulnerable victims (U.S.S.G. §3A1.1(b)(1));
- a two-level enhancement for exploiting a charity’s guise for personal gain (U.S.S.G. §2B1.1(b)(9)(A); and
- a four-level enhancement for his leadership role in the offense (U.S.S.G. § 3B1.1(a)).
This resulted in a guideline range of 51 – 63 months being calculated by the District Court, which then, considering all factors, sentenced Rehfuss to 50 months.
Rehfuss acknowledged that the elderly patients counted as victims and that he targeted an elderly population. He argued, however, that the vulnerable victims enhancement didn’t apply because the District Court made no individualized determination and instead generalized that all elderly individuals are vulnerable. The Third Circuit rejected Rehfuss’ argument, laying out 4 reasons supporting this “broad brush” approach:
- Only one of the more than a thousand seniors had to be vulnerable for the enhancement to apply.
- Rehfuss admitted to targeting Medicare participants living in low-income housing.
- He bypassed the victims’ personal doctors.
- His presentation worked by scaring seniors into undergoing his tests.
The Court found that preying on these vulnerabilities ‘made it easier to [perpetrate] the fraud,’ quoting U.S. v. Hawes, 523 F.3d 245, 255 (3d Cir. 2008).
Rehfuss also argued that, even though he used the sham charity as a pretense, the two-point enhancement for misrepresentation regarding a charity did not apply because he did not divert any of the donations received by the charity. Instead, all of his profits came from the laboratory kickbacks. The Court rejected this explaining that the enhancement applies whenever a defendant commits fraud by “misrepresent[ing] that he was conducting an activity wholly on behalf of [a charitable] organization,” quoting U.S. v. Kinney, 211 F.3d 13, 20 (2d Cir. 2000).
The Court also rejected Rehfuss’ argument that the four-level enhancement for status as an “organizer or leader” should not have been applied by the District Court. The Court found several examples in the record demonstrating Rehfuss to be an organizer or leader:
- He wrote the script for, and gave, the presentations at senior centers as the “front man.”
- He admitted that he “was key to designing the [scheme’s] system.”
- He negotiated with the labs for bigger kickbacks.
- He recruited and controlled other participants.
Ultimately the Court, with Circuit Judge Stephanos Bibas writing for the panel, affirmed the District Court’s sentencing decision based on Rehfuss’ use of a sham charity to scare seniors into undergoing needless genetic tests, bypassing their doctors and pocketing Medicare kickbacks. The complete opinion can be found here.