116 F.3d 1270 (9th Cir. 1997), 95-50309, United States v. Rutgard

Docket Nº:95-50309.
Citation:116 F.3d 1270
Party Name:UNITED STATES of America, Plaintiff-Appellee, v. Jeffrey Jay RUTGARD, Defendant-Appellant.
Case Date:March 06, 1997
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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116 F.3d 1270 (9th Cir. 1997)

UNITED STATES of America, Plaintiff-Appellee,

v.

Jeffrey Jay RUTGARD, Defendant-Appellant.

No. 95-50309.

United States Court of Appeals, Ninth Circuit.

March 6, 1997

Argued and Submitted Nov. 6, 1996.

As Amended on Grant of Rehearing June 4, 1997.

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Charles M. Sevilla, Cleary & Sevilla, San Diego, CA, for defendant-appellant.

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Bruce R. Castetter, Stephen P. Clark, and Carol C. Lam, Assistant United States Attorneys, San Diego, CA, for plaintiff-appellee.

William F. Gutierrez, Kenney & Markowitz, San Francisco, CA, and Andrew Schlafly, New York City, for amicus Association of American Physicians and Surgeons, Inc.

Appeal from the United States District Court for the Southern District of California, Gordon Thompson, Jr., District Judge, Presiding. D.C. No. CR 94-0408-GT.

Before: GOODWIN, WIGGINS, and NOONAN, Circuit Judges.

NOONAN, Circuit Judge.

Jeffrey Jay Rutgard appeals his conviction of numerous counts of mail fraud on, and false claims to, Medicare, of counts of mail fraud on other insurers, and of transactions in money derived from the frauds. He appeals as well a judgment of forfeiture. He also appeals his sentence, challenging the enhancements and the calculation of loss that led to the imposition of a sentence of 11 1/4 years and an order of restitution of over $16 million embracing virtually the entire proceeds of his practice as an ophthalmologic surgeon between 1988 and April, 1992.

This case, hard fought at trial and on appeal, with a vigorous attack on the sufficiency of evidence supporting conviction and presenting a transcript based on five months of trial, has required this court to determine to what degree a defense of good faith belief in the necessity of medical treatment may be based on disputed expert testimony. It has required this court to decide whether entries made by a physician in his patient's files fall within federal jurisdiction. It has required this court to determine whether proof of particular examples of fraud in billing insurers establishes that the practice is, as a whole, a scheme to defraud. It has required us to decide whether 18 U.S.C. § 1957, the statute forbidding certain bank transfers, is violated if the transfers involve commingled criminal and innocent funds. Holding that a reasonable doubt may be created as to good faith when qualified experts disagree as to medical necessity, that statements in the files are within the jurisdiction of the government when the government as insurer must rely on them to document medical necessity, that fraud in specific cases and in specific kinds of billing does not prove that the whole practice is a fraud, and that proof of violation of § 1957 requires proof of the transfer of particular criminal proceeds, we affirm certain counts of conviction, reverse others, set aside the order of forfeiture, vacate the sentence, and remand for resentencing.

BACKGROUND

The Insurers. Medicare is the federal health insurance program for persons over the age of 65 who meet its qualifications. 42 U.S.C. § 1395o. As Medicare beneficiaries are 65 years of age or older, medical treatment of their eyes is a significant part of Medicare coverage. For example, in 1991, a year involved in this case, it is estimated that 45 percent of the approximately thirty million beneficiaries of Medicare received eye care paid for by Medicare, which processed thirty-five million claims for such care. Leon B. Ellwein, et al., Use of Eye Care Services Among The 1991 Medicare Population, 103 Ophthalmology 1732, 1734 (1996). Cataracts were the most common eye condition, accounting for 41 percent of the patients' visits and 1.2 million cases of surgery. Id. at 1732. The cost was over 12 percent of Medicare's total budget. Id. In 1991 cataract surgery was the largest single outpatient category funded by Medicare. See American Academy of Ophthalmology v. Sullivan, 998 F.2d 377, 379 (6th Cir.1993). The cost demonstrated by these statistics underlines the importance to the government and to taxpayers of honest billing in the practice of ophthalmologists, and they illustrate the prevalence of conditions among those over the age of 65 that necessitate treatment of their eyes.

Medicare pays only for services that are "reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member." 42 U.S.C. § 1395y(a)(1)(A). Participating providers are required to ensure that any services rendered to Medicare recipients are supported by sufficient evidence of medical necessity. 42 U.S.C. § 1320c-5(a)(1).

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Under the statute, the Secretary of Health and Human Services regulates the administration of the program with regulations now totalling over 1,600 pages. The agent of Medicare in Southern California is Transamerica Occidental Life Insurance Company.

CHAMPUS is the federal health insurance program for Department of Defense employees. Like Medicare, CHAMPUS pays only for medically necessary services and supplies. 32 C.F.R. § 199.4(a)(1)(i). The CHAMPUS insurance carrier is Foundation Health.

The Railroad Retirement Health Insurance Program is the federal health insurance program for retired railroad workers administered by the Railroad Retirement Board. Travelers Insurance Company serves as the insurance carrier. The Railroad Retirement plan follows the same rules and regulations as Medicare.

Blue Cross of Southern California and Aetna are insurers not connected with the government.

Jeffrey Jay Rutgard. Dr. Rutgard, the defendant, was born in Chicago, Illinois, in 1951. His father was a physician. He attended the College of Medicine of the University of Illinois. He also enrolled in the university's graduate school where he was a James Scholar. On the basis of his proficiency in these schools he skipped internship and moved directly to a three-year residency in ophthalmology at the Medical School of the University of Iowa. In 1981 he came from this residency to practice in San Diego, California.

In 1982 he secured his own medical practice by the purchase of Dr. Amos Root's in San Diego. Four years later he bought Dr. John Bickerton's in La Jolla and thereafter had two offices. In 1989 he opened as well an ambulatory surgery center in La Jolla. His practice flourished. He kept an extraordinary schedule of working 6 1/2 days per week, 16 hours a day, with trips to medical meetings but without vacations. He also made a great deal of money. From 1988 through May, 1992 he received from Medicare (80% of his practice) over $15 1/2 million.

His skill as a surgeon was recognized. The success of his practice he attributed in large measure to word-of-mouth recommendation by satisfied patients. Dr. Bickerton and several other ophthalmologists sent members of their families to him for surgery. Members of the staff who were government witnesses at trial had only praise for his surgical abilities.

Rutgard was also an active promoter of his practice. One-third of his practice he estimated came from his "community relations" program. He employed staff to hold free screening at senior citizen centers and nursing and retirement homes and, although without professional qualifications, to diagnose cataract and eyelid problems, suggesting Rutgard as the doctor who could cure them. Vans arranged by Rutgard brought this kind of clientele to his clinics for further examination. Members of his staff, including the van drivers and the receptionist, were paid bonuses or qualified for raises by the number of the persons they successfully recruited to have surgery by him. In pursuit of these rewards some staff would tell strangers wearing glasses whom they saw in a supermarket that they should see Dr. Rutgard.

Rutgard approved his office manager, George Butera, setting "quantifiable goals" for the practice. For example, for 1991, the quantifiable goals were as follows:

Cataract surgeries--1230 (up 30 from 1990)

R.K.S. (Radial keratotomy surgeries)--240 (up from 144 in 1990)

YAG laser surgeries--1,080 (up from 816 in 1990)

Ptosis surgeries--720 (up from 480 in 1990)

The quantifiable goals for 1992 were increased in each category. For example, the goal for YAGs was increased to 1,175 and for ptosis surgeries to 960.

Rutgard was not shy about self-promotion. Staff was instructed to say, "Doctor is the best eye doctor in San Diego." Staff was told to tell patients, "The Lord guides his

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work and skills." Rutgard was rebuked by the American College of Eye Surgeons for putting out a resume stating that he was a fellow rather than a member of that college. He was criticized in 1991 by the chairman of the ethics committee of the American Academy of Ophthalmology for an advertisement stating that he was "board-certified" by this academy, which does not do such certification. He gave patients Cataracts And Implants. A Guide For Patients And Their Families. The front, inside and back covers all showed him as the co-author of the book with Dr. Phillip C. Hoopes, and the book was dedicated by the two authors to their wives. In fact only Dr. Hoopes was the author, and Rutgard's name appeared as author because he paid Hoopes to have his name displayed as author.

PROCEEDINGS

How Rutgard became the subject of a federal investigation is not part of the record in this case. On March 24, 1994 a 217-count indictment against Rutgard was returned by a federal grand jury. The district court scheduled trial for June. On May 4, the court declared the case complex and reset the trial for August. On June 8, the court re-set the trial date for October 4 and admonished counsel that the date was firm.

At the arraignment Rutgard was represented by Richard "Racehorse" Haynes, a member of the Texas bar...

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