U.S. v. DeSalvo

• Decision Date: 30 November 1994
• Docket Number: No. 93-10686,93-10686
• Citation: 41 F.3d 505
• Parties: Medicare & Medicaid Guide P 42,940 UNITED STATES of America, Plaintiff-Appellee, v. Wendy Miller DeSALVO, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 505

41 F.3d 505

Medicare & Medicaid Guide P 42,940

UNITED STATES of America, Plaintiff-Appellee, v. Wendy Miller DeSALVO, Defendant-Appellant.

No. 93-10686.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Oct. 3, 1994.

Decided Nov. 30, 1994.

Karen L. Landau, San Francisco, CA, for defendant-appellant.

Stephen L. Meagher, Asst. U.S. Atty., San Francisco, CA, for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of California.

Before: PREGERSON and WIGGINS, Circuit Judges, and LEW, District Judge. ^*

LEW, District Judge:

I. Overview

On June 7, 1993 a jury found Appellant, Wendy DeSalvo guilty on eleven counts of an indictment charging conspiracy to defraud the United States and mail fraud. Pursuant to this verdict, on October 27, 1993, District Court Judge D. Lowell Jensen sentenced DeSalvo to 60 months imprisonment and ordered her to pay restitution in the amount of $970,166.75.

DeSalvo's conviction arose out of activities connected with her employment at H.W. Care, Inc. ("HWC"), a business founded by her sister and co-defendant in the case below, Kristina Rowland Brambila. DeSalvo was the Chief Financial Officer of HWC, a business that provided consulting services for medical care providers, essentially consisting of auditing work for hospitals and nursing homes.

As part of the services offered to providers, HWC would perform "lost charge audits," which entailed reviewing provider accounting records to uncover any potential under-billings of the Medicare program. When HWC undertook this service, it would enter into a contingency agreement providing that a portion of any money recovered by the provider from Medicare would be paid to HWC as a fee for its service.

Although the lost charge audits were shown to have been performed for a number of different providers, the grand jury only indicted DeSalvo and Brambila on charges relating to an audit they performed for Regency Hills Convalescent Hospital ("Regency Hills") in May and June of 1990. Pursuant to a plea agreement, Brambila pled guilty to the charges arising out of this audit and testified against DeSalvo at trial.

DeSalvo's indictment included one count of conspiracy to defraud the United States and ten counts of mail fraud. All eleven counts of the indictment related to Medicare bills prepared and submitted by HWC on behalf of Regency Hills. The basis of the Government's allegations was that HWC submitted bills to Medicare for surgical dressings and bandages when the related surgeries had never been performed. These improper Medicare charges allowed Regency Hills to recover payments from Medicare to which it was not entitled. Under their contingency billing arrangement with Regency Hills and other providers, DeSalvo and Brambila profited by taking a percentage as high as 50% of these improper Medicare payments.

DeSalvo and Brambila presented themselves to providers as experts in Medicare billing practices and thus able to identify reimbursable items that the providers' own accounting personnel might have overlooked. Since the lost charge audits were performed on a contingency basis, the service was presented as a no lose proposition for the provider: If no money was recovered from Medicare, the providers would not be obligated to pay HWC.

By early 1991, DeSalvo was no longer working with HWC or her sister, Brambila, and had started her own Medicare billing service called Medical Reimbursement Consultants ("MRC"), which continued to perform lost charge Medicare audits. As part of an ongoing investigation of HWC's prior lost charge audits, federal authorities arranged for a meeting between DeSalvo and purported hospital administrators. At this meeting DeSalvo made a promotional presentation for the lost charge audit services that could be performed by her new business. This presentation was recorded on videotape and used as evidence at DeSalvo's trial.

In the videotaped presentation, DeSalvo claimed to have extensive experience in Medicare billing practices, and she substantially misrepresented the size, success rate and capacity of her business. Moreover, in the presentation DeSalvo described the same contingency fee arrangement for lost charge audits as had been used in HWC's audit of Regency Hills.

At DeSalvo's trial, her videotaped presentation was used as circumstantial subsequent similar acts evidence to show that she knew the claims she submitted to Medicare on behalf of Regency Hills were false. The Government alleged, and the trial court found below, that the promotion given on the videotape was probative evidence of DeSalvo's knowledge that the Medicare claims she submitted for Regency Hills were false. That is, the fact that DeSalvo acknowledged her experience in Medicare billing practices and continued to promote lost charge audits in the course of her own business illustrated that when she previously submitted lost charge audit claims for Regency Hills, she knew they were false.

In addition to their auditing work for Regency Hills, Brambila and DeSalvo were alleged to have been involved in a number of other lost charge audits. In total, Medicare was shown to have paid out nearly $5,000,000 in false claims as a result of their scheme. The audits done for these other providers were shown by the Government to be largely false, and the various providers eventually repaid Medicare for the improper amounts HWC's audits allowed them to recover. These repayments included money retained by the providers as well as the contingency fees paid to HWC. Thus, as a condition of Brambila's plea agreement and as part of DeSalvo's sentence, they were jointly and severally ordered to pay restitution to the providers for profits paid to them under the lost charge audit scheme. This restitution order applied to all improper lost charge audits performed by HWC, not just those performed for Regency Hills on which DeSalvo was convicted.

DeSalvo raises three issues on appeal: (1) whether the District Court abused its discretion in admitting the promotional videotape into evidence in that it was unfairly prejudicial under Rule 403 of the Federal Rules of Evidence, and was not similar subsequent acts evidence under Rule 404(b); (2) whether the District Court erred in ordering restitution in excess of that allowed under the Victim and Witness Protection Act ("VWPA"), 18 U.S.C. Sec. 3663, because it applied the amended version of the Act in effect at the time of sentencing rather than the pre-amendment version in effect at the time the crimes DeSalvo was convicted of occurred; (3) whether the District Court erred in granting restitution by failing to properly consider DeSalvo's ability to pay. In its brief, the Government responds to all three of Appellant's contentions and raises a procedural argument that this Court lacks jurisdiction to review the District Court's orders regarding restitution because DeSalvo's objections to them are being raised for the first time on appeal.

II. Analysis

A. District Court's Admission of Videotape

The first substantive issue presented for review is DeSalvo's contention that the District Court erred in admitting as evidence the promotional videotape she made after leaving HWC, which described her new business and her knowledge and proficiency in performing lost charge audits. DeSalvo claims that this videotape was not similar conduct within the meaning of Rule 404(b) of the Federal Rules of Evidence. In essence, she argues that since the promotional presentation itself was not illegal, it could not have been used as similar acts evidence to imply her previous knowledge that the Medicare claims she was submitting on behalf of Regency Hills were false.

In addition, DeSalvo maintains that the videotape should have been excluded under Rule 403 of the Federal Rules of Evidence because misrepresentations contained within it made the tape more prejudicial to her than it was probative on the issue of her knowledge.

In a written order the District Court specifically dismissed DeSalvo's evidentiary objections. On the Rule 404(b) similar acts objection, the Court found, "In sum, the fact that DeSalvo continued to bill for non-surgical supplies after being accused of fraudulent billing and during the time in which she claimed extensive experience regarding Medicare billing makes it more likely that she knew she was fraudulently billing all along and intended to do so." As to DeSalvo's allegation that the videotape was unfairly prejudicial, the Court found that while such prejudice existed, it was within the scope of prejudice permitted by this Circuit and did not substantially outweigh the tape's probative value.

1. Standard of Review

We review evidentiary questions for an abuse of trial court discretion. United States v. Hill, 953 F.2d 452, 455 (9th Cir.1991); United States v. Catabran, 836 F.2d 453, 456 (9th Cir.1988).

2. Discussion

a. district court's admission of videotape over defendant's

Rule 404(b) character evidence objection.

Rule 404(b) of the Federal Rules of Evidence provides:

Evidence of other crimes, wrongs, or acts is not admissible to prove the character of a person in order to show action in conformity therewith. It may, however, be admissible for other purposes, such as proof of motive, opportunity, intent, preparation, plan, knowledge, identity or absence of mistake or accident....

Fed.R.Evid. 404(b) (emphasis added). This Rule has been interpreted as one of inclusion and generally allows admission of other crimes or acts evidence " 'except where it tends to prove criminal disposition.' " United States v. Ayers, 924 F.2d 1468, 1472-73 (9th Cir.1991) (quoting United States v. Rocha, 553 F.2d 615, 616 (9th Cir.1977)). This Court applies a four-part test to determine the admissibility of evidence under Rule 404(b): (1) there must be a sufficient degree of evidence for the jury to find that the other acts were in fact committed; (2) the...