USA. v. Mackby

• Decision Date: 16 August 2001
• Docket Number: No. 99-15605,99-15605
• Parties: (9th Cir. 2001) UNITED STATES OF AMERICA, Plaintiff-Appellee, v. PETER MACKBY, Defendant-Appellant
• Court: U.S. Court of Appeals — Ninth Circuit

Page 821

261 F.3d 821 (9th Cir. 2001)

UNITED STATES OF AMERICA, Plaintiff-Appellee, v. PETER MACKBY, Defendant-Appellant.

No. 99-15605

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted December 12, 2000

Filed August 16, 2001

[Copyrighted Material Omitted]

[Copyrighted Material Omitted]

COUNSEL: Patric Hooper, Los Angeles, California, for the appellant.

Gail Killefer, Assistant United States Attorney, San Francisco, California, for the appellee.

Appeal from the United States District Court for the Northern District of California, Saundra B. Armstrong, District Judge, Presiding, D.C. No. CV-98-01310-SBA

Before: David R. Thompson, Diarmuid F. O'Scannlain, and A. Wallace Tashima, Circuit Judges.

ORDER

The government's petition for rehearing is granted. The opinion filed March 21, 2001 and published at 243 F.3d 1159 (9th Cir. 2001), is withdrawn. In its stead, the panel substitutes the opinion filed contemporaneously with this order.

OPINION

THOMPSON, Circuit Judge:

Peter Mackby, the owner and managing director of a physical therapy clinic called Asher Clinic, appeals the district court's civil judgment in favor of the United States under the False Claims Act, 31 U.S.C. §§ 3729-3733 (1994). After a three-day bench trial, the district court found that Mackby knowingly caused false claims to be submitted to Medicare between 1992 and 1996 by instructing the clinic's billing company and office manager to use his physician father's Provider Identification Number (PIN) on claim forms to bill for physical therapy services provided at the clinic.

The court awarded the United States a judgment of $729,454.92, based on a $5,000 civil penalty for one Medicare beneficiary claim per patient for each patient for whom Asher Clinic submitted Medicare claims which exceeded the annual monetary limit (111 claims x $5,000 = $555,000), plus treble damages for Medicare overpayments of $58,151.64 ($58,151.64 x 3 = $174,454.92).

We affirm the judgment of the district court as to the violation of the False Claims Act, but remand to the district court for its consideration of whether the statutory penalty and the treble damages awarded are unconstitutionally excessive under the Eighth Amendment.

I.

The Medicare Program is administered by the United States Department of Health and Human Services, through the Health Care Financing Administration (HCFA). Medicare Part A, which is not at issue here, provides hospital insurance benefits to the elderly and disabled. Medicare Part B is a federally subsidized, voluntary insurance program that pays a portion of the cost of certain medical and other health services not covered by the Part A program, including some physical therapy services. Reimbursement for Medicare claims is made by the United States through HCFA. HCFA, in turn, contracts with private insurance carriers to administer and pay claims from the Medicare Trust Fund. In this capacity, the carriers act as fiscal intermediaries on behalf of HCFA. The Medicare fiscal intermediary involved in this case was Blue Shield of California.

Medicare pays for physical therapy services under Part B "when rendered by a physician, by a qualified employee of a physician or physician-directed clinic (whose services are rendered `incident-to' a physician's services), or by a qualified physical therapist in independent practice." Medicare Bulletin (Chico, CA), Mar. 1993, at 22. A "physical therapist in independent practice" (PTIP) is defined in relevant part as one who "render[s] services free from the administrative and professional control of an employer such as a physician, institution, agency, etc." Id. at 23; see also 42 C.F.R. § 410.60(c)(1)(ii) (1996). Medicare caps the amount it will pay a PTIP on behalf of any one Medicare beneficiary in any calendar year. From 1992 through 1993, the limit was $750 per year. From 1994 through 1996, the limit was $900 per year. 42 C.F.R. § 410.60(c)(2)(iii) & (iv) (1996). There is no payment limit on physical therapy services furnished by or under the supervision of a physician or incident to a physician's services.

In 1982, defendant Peter Mackby entered into a partnership with Michael Leary, a licensed physical therapist, for the purposes of owning and operating Asher Clinic in Larkspur, California. During the partnership, Asher Clinic billed Medicare Part B for services provided to Medicare patients by various physical therapists employed by Asher Clinic, using Leary's PIN. Medicare checks were sent to Asher Clinic made payable to Michael Leary, RPT.

In June 1988, Mackby bought Leary's interest in the clinic. He incorporated the business under the name "M1 Enterprises," and became the sole shareholder of the corporation as well as its President, Chief Financial Officer, Treasurer and Secretary. Mackby, a layperson, did not provide any physical therapy or other services to patients.

After he assumed sole control of the clinic, Mackby instructed Medicom, the clinic's billing service, to substitute the PIN of his father, M. Judson Mackby, M.D. (Dr. Mackby), for Leary's PIN on Asher Clinic's Medicare Part B claims. Mackby also told Maridy Barnett, the clinic's office manager, to use his father's PIN in billing third-party payers, including Medicare.

The court found that Dr. Mackby did not know that his PIN was being used by Asher Clinic to bill Medicare for physical therapy services. It is undisputed that Dr. Mackby never provided medical services at or for Asher Clinic, never referred any patients to the clinic and was never involved with the care or treatment of its patients. A little over a year after M1 Enterprises became the owner of Asher Clinic, Dr. Mackby became the corporation's Secretary. Before then, he had no affiliation with the clinic.

Approximately twenty percent of Asher Clinic's patients were Medicare patients. From 1988, when Mackby's corporation became sole owner of the clinic, until 1996, Asher Clinic submitted claims to Medicare for physical therapy services using Dr. Mackby's PIN. That PIN was placed in boxes 24k and 33 of HCFA 1500, the Medicare claim form used to request reimbursement. Medicare reimbursement checks were made payable to "M. Judson Mackby, M.D." and sent to the Asher Clinic address. Asher Clinic used a rubber endorsement stamp containing Dr. Mackby's name to endorse and deposit Medicare payments to its bank account. The Explanation of Medicare Benefits ("EOMBs") sent by Medicare to its beneficiaries identified Dr. Mackby as the rendering provider of the services. EOMBs, Medicare Bulletins and Medicare audit inquiries were sent to Asher Clinic and addressed to Dr. Mackby as well.

The district court found that Mackby's testimony that he relied on the advice of a lawyer in using his father's PIN was not credible. The court further found that because Dr. Mackby's PIN was placed in boxes 24k and 33 of the reimbursement form, Medicare was led to believe that Dr. Mackby was providing the physical therapy services for which Asher Clinic was billing, or at the very least that such services were rendered "incident to" his supervision.

In March 1996, Medicare wrote to Dr. Mackby using the Asher Clinic address and requested medical records for purposes of an audit. The district court found that shortly thereafter, Mackby expended considerable effort to have Asher Clinic meet the conditions of Medicare Part A eligibility as a "rehabilitation agency," which required the clinic to take on additional administrative expenses. The clinic was surveyed by Medicare in July 1996 and accepted as a rehabilitation agency in September of that year. Thereafter, Asher Clinic no longer billed for its physical therapy services under Medicare Part B, but instead billed for such services under Part A as a "rehabilitation agency."

M1 Enterprises sold Asher Clinic in May 1997 for $1,675,000. The complaint in this case was filed in March 1998, the bench trial ended with a judgment entered in March 1999, and this appeal followed. Mackby challenges his liability and the amount of the district court's money judgment. We discuss each in turn.

II.

To establish a cause of action under the False Claims Act (FCA), 31 U.S.C. § 3729(a)(1), the government must prove three elements: (1) a "false or fraudulent " claim; (2) which was presented, or caused to be presented, by the defendant to the United States for payment or approval; (3) with knowledge that the claim was false. 31 U.S.C. § 3729(a)(1) (1994).

A. Falsity of Claim

The parties do not dispute that a claim for Medicare payment is a "claim" under the FCA. See United States ex rel Aflatooni v. Kitsap Physicians Servs., 163 F.3d 516 (9th Cir. 1999). The FCA does not define what types of claims are "false." However, a claim may be false even if the services billed were actually provided, if the purported provider did not actually render or supervise the service. See Peterson v. Weinberger, 508 F.2d 45, 52 (5th Cir. 1975) (holding that a defendant was liable under the FCA although services billed to Medicare were performed by qualified people, where the claim forms falsely certified that the defendant was the provider); S. Rep. No. 99-345, at 9 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5274 (citing Peterson to support the proposition that a false claim for Medicare reimbursement is actionable).

According to the Medicare fiscal intermediary's bulletins, and as found by the district court, box 24k on the HCFA-1500 form is to be filled in with the assigned PIN for the performing physician or supplier. Medicare Special Notice (Medicare Publications, San Francisco, CA), Aug. 1995, at 5; Medicare Bulletin (Chico, CA), Mar. 1993, at 18. Box 33 is for the PIN of the billing entity, which can be either an individual or group, and is labeled "Physician's, Supplier's Billing Name, Address, ZIP Code & Phone #; PIN #, GRP #. " Medicare Special Notice (Medicare Publications, San Francisco, CA), Aug. 1995, at 6; Medicare...