Third Circuit Affirms Abuse Of Trust Sentencing Enhancement For Physician In Medicare Kickback Scheme

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.