Posted On Tuesday, February 17, 2015
In U.S. v. Babaria, 2014 WL 7399043, the Third Circuit affirmed the sentence imposed on a medical director and manager of a Medicare and Medicaid provider convicted for his role in a kickback scheme. The Third Circuit upheld the two-level upward adjustment in offense level because the defendant abused a position of trust.
The defendant, Dr. Babaria, was a licensed radiologist and the medical director and manager of Orange Community MRI, LLC, an authorized Medicare and Medicaid provider. In 2012, Dr. Babaria pled guilty to one count of making illegal payments in violation of the federal anti-kickback statute, 42 U.S.C. §1320a-7b(b)(2)(A). Dr. Babaria paid physicians for referring patients to his clinic for diagnostic testing, for which he then billed Medicare and Medicaid. He received the kickbacks while at the same time certifying, on behalf of the clinic, that there were none. Dr. Babaria received over $2 million in payments from Medicare and Medicaid for testing that was directly traceable to the kickback scheme. Despite his participation in the fraud, there was no evidence that Dr. Babaria falsified patient records, billed for services that were not medically necessary or otherwise compromised patient care.
At sentencing, a pretrial report recommended that Dr. Babaria receive a two-level adjustment for abuse of a position of trust and a four-level adjustment for an aggravating role in the scheme pursuant to § 3B1.1(a) of the U.S. Sentencing Guidelines, resulting in a recommended sentence of 70 to 87 months in prison. Dr. Babaria objected to the upward adjustment as unwarranted, arguing that the correct sentence should be 37 to 46 months. The United States District Court for the District of New Jersey disagreed and applied both upward adjustments, but also granted a downward variance that resulted in a prison sentence of 46 months, a fine of $25,000, and a three-year term of supervised release. Dr. Babaria was also ordered to forfeit the money that had been paid to the clinic by Medicare and Medicaid. Dr. Babaria appealed the upward adjustments, arguing that he neither occupied nor abused a position of public or private trust.
Acknowledging that it had never before addressed the application of this sentence adjustment in the context of a Medicare or Medicaid kickback scheme, the Third Circuit reasoned that the defendant’s certification to Medicare of compliance with the anti-kickback statute, when coupled with his position as medical director and manager of the facility, justified the increased sentence. Holding that Dr. Babaria occupied a position of trust vis-à-vis Medicare and Medicaid as the medical director and manager of the clinic, the Court explained that Dr. Babaria’s position was unique in that it allowed him to both commit and conceal the fraud. As an authorizing official, Dr. Babaria’s actions were not subject to supervision. Thus, because Dr. Babaria utilized his position to orchestrate the payment of kickbacks and to evade detection, he was an “insider who abused his position, not merely an individual who took advantage of an available opportunity.”
The Third Circuit went on to explain that the district court properly considered Dr. Babaria’s medical license in its abuse of trust analysis, even though he did not need to be a licensed radiologist in order for the clinic to become an authorized Medicare and Medicaid provider. The Court explained there was a likelihood his professional training and license contributed to his ability to obtain his position and to supervise the clinic’s activities as they related to Medicare and Medicaid. The Court also upheld, with little analysis, the district court’s application of the four-level upward adjustment for playing an aggravating role in perpetuating the kickback scheme.
With this decision, the Third Circuit has now openly approved abuse of trust upward enhancements in health care kickback criminal matters. This is significant because it increases sentencing exposure for physicians convicted of Medicare and Medicaid fraud.
Posted On Monday, February 16, 2015
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Last month, the U.S. Sentencing Commission proposed amendments to the federal sentencing guidelines including several important changes which would affect white collar defendants.
“Inflationary” changes to the §2B1.1 loss amounts increase thresholds for offense level enhancement
The first change alters the amounts in the loss table under §2B1.1 – termed “monetary values” – such that they are increased to adjust for inflation. This is part of the Commission’s obligation under a Congressional mandate to consider inflationary adjustments to monetary penalties every four years. This would be an important change because the §2B1.1 loss table has not been adjusted for inflation since it was originally promulgated in 1987. The threshold amounts for enhancements to offense levels will be higher – in some case significantly higher – than current thresholds.
Although the Commission is considering two methods of adjusting for inflation, both increase the monetary values by at least 1.34, a multiplier derived from the Bureau of Labor Statistics’ Consumer Price Index, and then round up by one of two methods. One option rounds up using a statutory rounding method used to adjust civil monetary penalties while the second option rounds up to higher, “rounder” numbers at more regular intervals for loss amounts above $95,000. As a result, under either method, the new loss amounts would be the same for intervals under $95,000 but different for intervals above $95,000.
For example, a loss amount of $70,000 presently increases the offense level by 8 points; however, under both options under consideration, only a loss amount of $95,000 and higher would trigger the 8-level increase. Likewise, where a loss amount of $1 million currently increases the offense level by 16 points, only loss amounts of $1.35 million or $1.5 million, respectively, would trigger the 16-level increase under the two options.
Clearly, under either scenario, white collar defendants will benefit in comparison to the current fraud guidelines. Given that the “inflationary adjustments” are based on the technical premise of inflation and required by Congress, it’s likely that this amendment will ultimately be approved by Congress.
Revisions to §2B1.1 enhancements
The Commission is also contemplating changes to §2B1.1 including the provisions relating to the definition of “intended loss” and the enhancements for sophisticated means and victims’ financial status.
1. Intended loss redefined
Regarding intended loss, the Commission is weighing a proposal that the guidelines should be revised to better reflect a defendant’s intent when determining the loss amount. Appellate courts presently differ as to whether they require a subjective or objective analysis. The Second, Third, Fifth, and Tenth Circuits have held that a subjective inquiry is required but the First and Seventh circuits support an objective approach.
The first of the Commission’s two competing options would redefine intended loss to include the pecuniary harm that the defendant purposely sought to inflict as well as the defendant’s overall purpose, as inferred from all available facts. The second option is similar to the first but also includes the pecuniary harm that any other participant sought to inflict in instances where the defendant is accountable under relevant conduct for another participant.
2. Victim impact enhancement
The Commission is also considering an enhancement in cases where the offense resulted in “substantial financial hardship” to one or more victims. The Commission is considering a two, three, or four level enhancement under that provision. The commentary under §2B1.1 would define “substantial financial hardship” and allow the court to consider factors including whether the offense resulted in the victim become insolvent, filing for bankruptcy, relocating to a less expensive home, being erroneously arrested or denied a job, etc.
3. “Sophisticated means” curtailed
As for the “sophisticated means” enhancement under §2B1.1, the Commission is contemplating whether to limit its application to only the defendant’s conduct rather the offense as a whole. The current guidelines allow for a two-level enhancement regardless of whether the defendant’s conduct impacted the fraud’s sophistication.
The Commission is also considering whether the purportedly “sophisticated means” should be compared to only similar frauds or only frauds that fall under §2B1.1. Prevailing case law allows the offense conduct to be compared to all fraud falling under §2B1.1. The proposed amendment would increase the offense level by two levels where “the offense otherwise involved sophisticated means and the defendant engaged in or caused the conduct constituting sophisticated means.”
Changes to non-economic sentencing guidelines
The Commission’s proposed amendments also include changes to non-white collar guidelines, including those for drug offenses. This year’s amendments include a request for comment on the treatment of “flavored drugs” which are colored, packaged or flavored to appeal to children. The Commission received reports that drugs are flavored to make them taste like candy and marketed in smaller amounts such that they are cheaper and more accessible to children.
The proposed amendments also seek to incorporate new statutory penalties given that hydrocodone is now a Schedule II controlled substance. As a result of that change, the Commission’s proposed amendments would remove references to “Schedule III hydrocodone” from §2D1.2, including the drug quantity table, while also giving hydrocodone a new marijuana equivalency.
The full text of the proposed amendments – 88 pages long but ironically termed the “reader-friendly version” – can be found here.
