By Robert B. Barnett Jr., J.D.
The Seventh Circuit confirmed felony convictions of a Chicago hospital’s owner/CEO and its COO for violating the federal Anti-Kickback Statute (AKS) (42 U.S.C. §1320a-7b(b)) for their roles in devising various schemes to covertly pay kickbacks to physicians in return for patient referrals. The appellate court rejected the two hospital administrators’ contentions that insufficient evidence existed to support their convictions, that the trial court erroneously permitted statements made after one of the administrators withdrew from the conspiracy to be used against him, and that the AKS was rendered unconstitutionally vague by a poor jury instruction (U.S. v. Nagelvoort, May 12, 2017, Bauer, W.).
Scheme and convictions. The kickback schemes occurred between 2001 and 2013. Beginning in 2011, physicians and other employees of Sacred Heart Hospital (Sacred Heart) cooperated with federal agents in recording various conversations and obtaining other evidence. After the hospital’s closure, the administrators were indicted and charged with several counts of conspiracy and violation of the AKS, and were convicted on all but one charge. They appealed their convictions on three grounds: (1) insufficient evidence to convict, (2) improper use of co-conspirator statements, and (3) a constitutionally vague jury instruction.
Insufficient evidence. At trial, evidence was presented to show that the administrators’ actions surrounding the kickbacks involved four types of agreements: (1) direct personal services contracts; (2) teaching contracts; (3) lease agreements for the use of office space; and (4) agreements to provide physicians with the services of other medical professionals, such as physician assistants. The administrators challenged the sufficiency of the evidence to support a conviction.
The evidence presented at trial, the Seventh Circuit said, was sufficient to find that both administrators knowingly and willfully violated the AKS. For example, one of the doctors who signed the personal services contract testified that he understood that he was to provide referrals without being expected to do any of the work stated in the contract. A conversation was also recorded in which the COO said that they needed to keep a doctor happy because "we need his patients over here." In addition, one of the physicians signed to a teaching contract testified that he had no teaching duties because other physicians were already teaching residents as part of their normal duties. Yet another physician testified that he understood that he was being compensated under the teaching contract in return for bringing surgical cases to the hospital. Testimony was also provided that the lease agreement was a "quid pro quo" for referrals; otherwise, the witness said, the lease made no sense. As a result, ample evidence existed for the jury to conclude that they were guilty.
In addition, the administrators attempted to avail themselves of the AKS’s safe harbors, which exempt rental agreements and personal services contracts that meet certain requirements. Sufficient evidence existed, however, that a reasonable jury could conclude that the agreements that the physicians signed "took into account the referrals that the doctors would make to Sacred Heart," which, as a result, meant that the safe harbors did not apply to these agreements and contracts.
Co-conspirator’s statements after withdrawal. The COO contended on appeal that the court erred when it allowed the jury to hear statements from his co-conspirators after he withdrew from the conspiracy. In some judicial circuits, ending a relationship with a co-conspirator, such as quitting a job, would be sufficient to establish withdrawal from a conspiracy and render the subsequent statements inadmissible against him. In the Seventh Circuit, however, more is required than ending a relationship: the co-conspirator must also take the additional step of disavowing the conspiracy and its criminal objectives. The COO simply quit his job without disavowing, so the trial court was correct in concluding that the COO never adequately withdrew from the conspiracy and in permitting the statements others made after he quit to be used against him.
Constitutional vagueness. The COO also contended that the AKS was unconstitutionally vague as it applied to him because the trial court erred in giving a jury instruction that he was guilty if "any part or purpose" of hospital payment was used to induce referrals. As a result, he argued, the Statute was rendered vague because innocent, legitimate business arrangements could be criminalized. Under his interpretation, a person was guilty only if the payments were made "primarily" as inducements. The appellate court rejected this argument, however, joining the Third, Fifth, Ninth, and Tenth Circuits in concluding that a payment violated the Anti-Kickback Statute if any part of it compensated past referrals or induced future referrals. Thus, the court’s jury instruction was not in error.
The cases are Nos. 15-2766 and 15-2821.
Attorneys: Debra Riggs Bonamici, Office of the U.S. Attorney, for the United States. Terence H. Campbell (Cotsirilos, Tighe, Streicker, Poulos & Campbell, LLP) for Clarence Naglevoort.
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