Medicare Fraud Sentence that Applied Vulnerable Victims Enhancement Upheld by Third Circuit

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.

Conducting Investigations During A Pandemic: The New Normal

Unfortunately fraud, waste, abuse, and of course, criminal activity do not take a vacation during a pandemic.  In fact, targets and methods of fraudsters can and will evolve much like a virus.  When the normal checks and balances that have been put in place by compliance, general counsel, security, internal audit, and other mechanisms that keep Corporate America safe are shuttered at home, criminal activity will increase.  Obviously, with travel bans and advisories – domestically and abroad – traditional investigations using standard time-honored interviewing techniques cannot proceed.  However, there are a number of things that can be done to preserve the investigative trail until robust measures can be put back in place to conduct an appropriate investigation.

Modified Procedures

Most defalcations can be detected through the normal means of analysis of emails, text messages, and electronic signatures.  It is important to be in touch with your clients’ IT departments and internal audit staff to be able to preserve evidence until such time as in-person investigation can occur.  There are a number of other things than can be done remotely to determine whether or not problematic anomalies are occurring or have occurred.  Things that may be secondary in the normal investigative check list now become primary.  Electronic communications, swipe-in logs and surveillance videos need to be reviewed and preserved. Phone interviews are certainly better than no interview at all, but utilizing video conferencing of witnesses who may have relevant information is the preferred method to assess affect, attitude, and potential deception of a witness.

Subjects of Investigation

There is a critical distinction to observe in conducting an investigation in the midst of a pandemic.  Wrongdoers thrive both on the underlying medical crisis, as well as the vulnerabilities created by the reaction to the medical crisis.  Beginning with the medical crisis itself, creative fraudsters will sell fake vaccines, remedies, and attempt to swindle naïve and generous people into donating to fake charities.  In recent days, United States Attorneys, the FBI, the U.S. Secret Service, and States’ Attorneys General from across the nation have warned the public that they are increasing their vigilance in this area.  Law enforcement realizes that with crises come those who wish to take advantage.  They will use all tools in their legal tool bag to hold fraudsters accountable – that includes not only criminal charges, but also civil actions under consumer protection laws and false claims acts. Even more prevalent will be scammers preying on the lack of well honed procedural safeguards during a time of crisis.  Internal controls are more difficult to maintain when a large percentage of our population is working remotely, distracted or not working at all.  For example, perhaps a company routinely requires two managers to authorize expenditures over a certain monetary threshold, but no one is around to sign off.  Perhaps a corporation that normally requires employees in their accounting department to take a week of vacation at a time can no longer afford to do so.  One employee may be left to control all entries into the company’s ledgers for months on end.  These situations and many others are ripe for exploitation by the unscrupulous.

Stay Strong In Tough Times

Critical to surviving business interruptions and would-be criminals during a pandemic are creativity and a heightened sense of vigilance.  Investigators must think outside the box and use all available tools to access data until such time as on-the-ground interviews and traditional investigation methods may resume.  It is similarly important to maintain as many internal controls and protective procedures as possible even when a business, educational institution, accounting firm, law firm, medical facility, or financial firm is not operating on its regular schedule.  Owners, operators, and their counsel must be ever mindful of the tactics of would-be fraudsters. Pietragallo Gordon Alfano Bosick & Raspanti, LLP and its team of highly qualified and experienced attorneys continue to work around the clock during this pandemic to serve their clients.  We remain available 24/7 from remote locations to assist in any crisis that might arise. We invite you to view our Internal Investigations team page for more information or to reach an attorney directly.