U.S. v. Calhoon

• Decision Date: 16 October 1996
• Docket Number: No. 95-8171,95-8171
• Parties: , Medicare & Medicaid Guide P 44,718, 45 Fed. R. Evid. Serv. 1081 UNITED STATES of America, Plaintiff-Appellee, v. John E. CALHOON, Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 518

97 F.3d 518

51 Soc.Sec.Rep.Ser. 740, Medicare & Medicaid Guide

P 44,718,

45 Fed. R. Evid. Serv. 1081

UNITED STATES of America, Plaintiff-Appellee, v. John E. CALHOON, Defendant-Appellant.

No. 95-8171.

United States Court of Appeals, Eleventh Circuit.

Oct. 16, 1996.

John T. Strauss, Covington, GA, for appellant.

Dixie A. Morrow, Asst. U.S. Atty., Macon, GA, for appellee.

Appeal from the United States District Court for the Middle District of Georgia.

Before KRAVITCH and BIRCH, Circuit Judges, and SCHWARZER ^*, Senior District Judge.

SCHWARZER, Senior District Judge:

John E. Calhoon was charged in a 14-count indictment with violation of 18 U.S.C. § 1001 (false statements) and 18 U.S.C. § 1341 (mail fraud). At trial, the government dismissed two counts. The jury acquitted on one count and convicted on the remaining eleven. Each of the eight false statement counts of conviction charged Calhoon with signing or causing to be signed a Medicare cost report claiming amounts he knew not to be reimbursable. The three mail fraud counts of conviction charged him with devising a scheme to defraud with respect to three of the false cost reports by use of the mail. Calhoon appeals from the judgment of conviction. We have jurisdiction under 28 U.S.C. § 1291 and 18 U.S.C. § 3741(a) and affirm.

FACTUAL BACKGROUND

The charges against Calhoon arose out of actions he took while employed by Charter Medical Corporation (CMC), a national hospital chain headquartered in Macon, Georgia and composed of both medical/surgical and psychiatric hospitals. Calhoon was responsible for obtaining Medicare reimbursement for a group of the psychiatric hospitals belonging to CMC. To obtain reimbursement, CMC filed cost reports with private insurance companies acting under contract with the Health Care Financing Administration (HCFA), the agency within the Department of Health and Human Services responsible for administering the Medicare program. These private insurance companies act as fiscal intermediaries to review and, as necessary, to audit cost reports to determine the amount of reimbursement to which the provider of Medicare-insured services is entitled. Calhoon chaired one of two sections at CMC responsible for filing cost reports with the intermediaries; in that capacity he supervised a group of accountants who prepared the reports.

To satisfy provider hospitals' cash requirements, the intermediaries paid CMC periodically throughout the fiscal year for estimated Cost reports filed on behalf of a provider hospital include a statement of the total costs expended by the hospital for each category of expense. Some costs included in a cost report are clearly identifiable as either reimbursable or nonreimbursable. Other costs are subject to dispute. In order for the provider hospital to preserve its right to challenge any potential disallowance of an item of cost or part thereof, the provider must include that item within the cost report. The cost report filing process requires providers to identify accurately both the nature and the amount of the costs claimed, thereby permitting the intermediary to identify and disallow the nonreimbursable costs, while allowing the provider to preserve on appeal its claim for those costs which it deems reimbursable. More specifically, on the settlement page of the cost report, the provider identifies as presumptively nonreimbursable the cost for which it nonetheless seeks reimbursement. This is referred to as filing "under protest." The intermediary then determines which costs are reimbursable based on the regulations enacted by the Secretary of Health and Human Services and a set of policy decision/guidelines called the Provider Reimbursement Manual ("Prov.Reimb.Man.").

Medicare costs. At the end of the fiscal year, CMC filed annual cost reports for each hospital setting out the costs that it actually incurred. Based upon those cost reports, the intermediaries determined the correct amount of Medicare reimbursement for the year and either paid CMC the amount due or billed it for excess interim payments.

Because of the sizeable volume of cost reports submitted to intermediaries, however, the intermediaries give only some cost reports a full audit, including a field visit by the intermediary to the hospital to compare the cost reports with the hospital's internal records. Other cost reports receive only cursory review. When presented with a cost report, the intermediary generally does a preliminary desk audit to determine whether a field audit is appropriate based on the information presented by the provider.

After an intermediary conducts whatever audit it deems appropriate, it issues a notice of program reimbursement to the provider. The provider then has 180 days to negotiate any disputed issue with the intermediary or to file an appeal with an administrative body known as the Provider Reimbursement Review Board.

Calhoon's convictions were based on claims in cost reports filed on behalf of six different CMC hospitals between 1987 and 1989.

DISCUSSION

I. VIOLATION OF SECTIONS 1001 AND 1341

To sustain a conviction for violation of 18 U.S.C. section 1001, the government must prove (1) that a statement was made; (2) that it was false; (3) that it was material; (4) that it was made with specific intent; and (5) that it was within the jurisdiction of an agency of the United States. See United States v. Lawson, 809 F.2d 1514, 1517 (11th Cir.1987). To sustain a conviction for mail fraud under 18 U.S.C. section 1341, the government must prove (1) intentional participation in a scheme to defraud a person (including the government) of money or property; and (2) the use of the mails in furtherance of the scheme. See United States v. Smith, 934 F.2d 270, 271 (11th Cir.1991). The government charged that Calhoon's submissions by mail of the Medicare claims at issue constituted a scheme to obtain money by virtue of the false documentary claims. Thus, the mail fraud convictions rest on the false statement convictions. Calhoon challenges the validity of these convictions on the grounds that the statements at issue, i.e., the claims for Medicare reimbursement, were neither false nor material.

We review de novo whether Calhoon's conduct violated sections 1001 and 1341. See Lawson, 809 F.2d at 1517. We also review de novo whether there was sufficient evidence to support the convictions; in so doing, we review the evidence in the light most favorable to the government, accepting all reasonable inferences and credibility choices made in the government's favor, to determine whether a reasonable trier of fact could find that the evidence established guilt beyond a reasonable doubt. See United States v. Keller, 916 F.2d 628, 632 (11th Cir.1990), cert. denied, 499 U.S. 978, 111 S.Ct. 1628, 113 L.Ed.2d 724 (1991); United States v. Gafyczk, 847 F.2d 685, 691-92 (11th Cir.1988).

A. Falsity

Falsity under section 1001 can be established by a false representation or by the concealment of a material fact. See 18 U.S.C. § 1001 ("Whoever ... falsifies, conceals or covers up by any trick, scheme, or device a material fact, or makes false, fictitious or fraudulent statements or representations ... shall be fined not more than $10,000 or imprisoned not more than five years, or both."); United States v. Tobon-Builes, 706 F.2d 1092, 1096 (11th Cir.1983) (falsity based on concealment of a material fact). Calhoon's convictions were based on Medicare claims for three separate categories of expenses: (1) royalty fees paid to CMCI, a sister subsidiary, (2) interest paid to CMCI ("CMCI interest"), and (3) advertising costs claimed under the label of "outreach." Regarding the claims for royalty fees and CMCI interest, the government essentially maintains that Calhoon made false representations by claiming reimbursement for costs that were nonreimbursable under the applicable Medicare provisions. Calhoon argues, however, that no provisions made these costs clearly nonreimbursable and claiming them as reimbursable therefore cannot be a false representation and the basis of criminal liability. Regarding the advertising costs, the government maintains that by claiming reimbursement for advertising costs under the term "outreach," Calhoon concealed the true nature of the costs as advertising, some of which is reimbursable and some of which is not. Calhoon argues, however, that "outreach" was a factually accurate description of the costs and a term accepted by the industry to describe certain advertising. Thus, he argues, claiming these costs as outreach cannot constitute falsity. For the reasons discussed below we conclude that the claims for all three types of costs were false for purposes of section 1001.

1. The Intercompany Charges: Royalty Fees and CMCI Interest

Linton Newlin, the person responsible for tax planning and related matters for CMC, testified that he created a Nevada corporation, CMCI, as a subsidiary of CMC in order to gain various tax advantages. CMC transferred ownership of the Charter name to CMCI, and individual hospitals then paid a one-time royalty fee to CMCI to use the Charter name. Because Charter is a national corporation, the hospitals benefitted from the use of the name and because CMCI was incorporated in Nevada where corporations are not subject to state income tax, CMCI increased its profits through tax savings.

Besides licensing the Charter name, CMCI obtained funds from the parent company and loaned the money to the CMC hospitals, which, in turn, paid back the principal with interest to CMCI. The hospitals took a tax deduction for interest payments to CMCI, and CMCI paid no state corporate income tax on the interest income. Newlin testified that actual money was paid by the hospitals to CMCI on account of both the royalty fees and the CMCI interest.

Calhoon freely admitted both in an investigative interview and at trial that he believed at all times relevant that the royalty fees and CMCI...