U.S. v. LaHue

• Decision Date: 18 March 1998
• Docket Number: No. 97-20031-02-JWL.,No. 97-20031-01-JWL.,97-20031-01-JWL.,97-20031-02-JWL.
• Citation: 998 F.Supp. 1182
• Parties: UNITED STATES of America, Plaintiff, v. Robert C. LAHUE, d/b/a Robert C. LaHue, D.O. Chtd. d/b/a Blue Valley Medical Group, and Ronald H. LaHue, Defendants.
• Court: U.S. District Court — District of Kansas

998 F.Supp. 1182

UNITED STATES of America, Plaintiff, v. Robert C. LAHUE, d/b/a Robert C. LaHue, D.O. Chtd. d/b/a Blue Valley Medical Group and Ronald H. LaHue, Defendants.

No. 97-20031-01-JWL.

No. 97-20031-02-JWL.

United States District Court, D. Kansas.

March 18, 1998.

Order Denying Reconsideration May 28, 1998.

Tanya J. Treadway, Office of U.S. Attorney, Kansas City, KS, for U.S.

Bruce C. Houdek, James, Millert, Houdek, Tyrl & Maloney, Kansas City, MO, for Robert C. LaHue, Robert C. LaHue, D.O. Chtd. and Blue Valley Medical Group.

Robert C. LaHue, Stillwell, KS, pro se.

James L. Eisenbrandt, Jeffrey D. Morris, Bryan Cave LLP, Overland Park, KS, for Ronald H. LaHue.

Ronald H. LaHue, Leawood, KS, pro se.

MEMORANDUM AND ORDER

LUNGSTRUM, District Judge.

On June 11, 1997, a grand jury returned a sixty-three count indictment charging Drs. Robert C. and Ronald H. LaHue with conspiracy to defraud the federal government, program fraud, money laundering, witness tampering,¹ and conspiracy to submit false Medicare claims. The money laundering counts (counts eleven through sixty-three) were subsequently dismissed at the government's request (Doc. 77).

The matter now comes before the court on the defendants' motion to dismiss counts one through eight, dealing with program fraud (Doc. 80), the defendants' joint motion to sever counts one through eight from count nine (Doc. 78) and Dr. Robert C. LaHue's motion to sever count ten from all other counts (Doc. 79). The court held a hearing on these matters on March 9, 1998, and is now prepared to rule.

For the reasons set forth below, the defendants' motion to dismiss is granted in part and denied in part. The motion is denied as to count one (conspiracy). The motion is granted as to counts two through eight (program fraud). The defendants' motions to sever are denied.

I. Indictment

The indictment alleged that between 1984 and early 1995, the doctors, who are brothers, controlled Blue Valley Medical Group ("BVMG"). BVMG was a group of physicians that provided medical services to patients in nursing homes. Most, if not all, of these patients used funds derived from the federal Medicare program to pay for BVMG services. Dr. Robert LaHue was the president and Dr. Ronald LaHue was vice-president of BVMG.

The indictment alleges in counts one through eight that the defendants entered into a number of different sham "consulting agreements" with various hospitals. Under the agreements, the defendants received annual consulting "fees" from each hospital in amounts ranging from $50,000 to $150,000. The consulting agreements allegedly falsely gave the impression that hospitals paid the doctors for performing certain specified consulting duties. The true purpose of the agreements, the indictment alleges, was to bribe BVMG to refer patients to the hospitals. The defendants allegedly did not render services under the agreements, nor did they intend to. The payments defendants solicited and received under the agreements allegedly do not represent the fair market value for any of the "consulting" services they rendered.

II. Motion to Dismiss

Pursuant to Fed.R.Crim.P. 12(b), the defendants move to dismiss counts one through eight for lack of subject matter jurisdiction. Count one alleges the defendants conspired to commit program fraud or, in the alternative, that they conspired to defraud the United States. See 18 U.S.C. § 371. Counts two through eight allege the defendants committed program fraud. See 18 U.S.C. § 666(a)(1)(B).

A. Standard

In ruling on a motion to dismiss, the court treats the allegations in an indictment as true and construes all facts in the light most favorable to the government. United States v. Burger, 773 F.Supp. 1430, 1433 (D.Kan.1991). The court views the indictment as a whole, with an emphasis on common sense, rather than technicalities. United States v. Mobile Materials, Inc., 871 F.2d 902, 906-07 (10th Cir.), modified on other grounds, 881 F.2d 866 (10th Cir.1989) (en banc). A motion to dismiss an indictment will be denied if the dispute centers on factual questions, as such questions are within the province of the jury. United States v. Kilpatrick, 821 F.2d 1456, 1462 n. 2 (10th Cir.1987), aff'd sub nom. Bank of Nova Scotia v. United States, 487 U.S. 250, 108 S.Ct. 2369, 101 L.Ed.2d 228 (1988).

B. Discussion

1. Background

Defendants contend that counts one through eight should be dismissed because the program fraud statute does not reach the conduct alleged in the indictment.² The program fraud statute provides as follows:

(a) Whoever, if the circumstance described in subsection (b) of this section exists—

(1) being an agent of an organization, or of a State, local, or Indian tribal government, or any agency thereof—

(A) embezzles, steals, obtains by fraud, or otherwise without authority knowingly converts to the use of any person other than the rightful owner or intentionally misapplies, property that—

(i) is valued at $5,000 or more, and

(i) is owned by, or is under the care, custody, or control of such organization, government, or agency; or,

(B) corruptly solicits or demands for the benefit of any person, or accepts or agrees to accept, anything of value from any person, intending to be influenced or rewarded in connection with any business, transaction, or series of transactions of such organization ... involving anything of value of $5,000 or more...

shall be fined under this title, imprisoned not more than 10 years, or both.

(b) The circumstance referred to in subsection (a) of this section is that the organization, government, or agency receives, in any one year period, benefits in excess of $10,000 under a Federal Program involving a grant, contract, subsidy, loan, guarantee, insurance, or other form of Federal assistance.

18 U.S.C. § 666.

Defendants argue that their ultimate receipt, in payment for medical services, of money whose origin is from Medicare Part B funds does not make them recipients of "benefits in excess of $10,000 under a Federal program involving a grant, contract, subsidy, loan, guarantee, insurance, or other form of Federal assistance" as contemplated by the statute.³ Specifically, defendants argue that Medicare patients are the true recipients of federal program funds—not Medicare providers. The excellent explanation of Medicare in Garelick v. Sullivan, 987 F.2d 913, 914-15 (2d Cir.1993) provides the proper framework for defendants' arguments:

Medicare is the federal medical insurance program for disabled persons and those 65 and older. See 42 U.S.C. § 1395, et seq. The Medicare program is composed of two parts, A and B. Part A provides insurance for the cost of hospitalization and related services, and is funded out of Social Security taxes. See id. at §§ 1395c-1395i-4. Part B, the exclusive focus of [the court here,] is a voluntary program that provides Medicare beneficiaries with supplemental benefits. See id. at §§ 1395j-1395w-4. Part B beneficiaries pay monthly premiums that, along with federal government contributions, are remitted to the Federal Supplementary Medical Insurance Trust Fund. See id. at § 1395t. The Department of Health and Human Services has responsibility for administering the program, and contracts with private insurance carriers who evaluate and pay Part B claims out of the Trust Fund. See id. at § 1395u.

If the carrier finds that a claim is reimbursable, Medicare pays 80% of the Medicare-defined allowed or "reasonable" charge for the claim. See id. at § 13951(a)(1); see also 42 C.F.R. § 405.501, et seq. The beneficiary is responsible for a "copayment" of the remaining 20% of the allowed charge.

Part B provides physicians with two payment options. They Can choose to "accept assignment," which means that they [get permission from their patients to] bill Medicare directly for their services and [agree to] accept the allowed charge as full payment, receiving 80% from Medicare and 20% from the beneficiary. See 42 U.S.C. § 1395u(b)(3)(B)(ii). Alternatively, a physician may choose to bill the patient directly for 100% of [his or her] charge, with Medicare reimbursing the patient for 80% of the Medicare reasonable charge. See id. at §§ 13951(a)(1), 1395u(b)(3)(B)(i). A physician who does not accept assignment may charge [his or] her patient in excess of the Medicare allowed charge, a practice called "balance billing."

In recent years, Congress has enacted a series of statutes designed to discourage and limit balance billing and encourage physicians to accept assignment. The Deficit Reduction Act of 1984 ("DEFRA") created the "Participating Physicians Program," requiring physicians to decide on an annual basis whether to enter into "participation agreements." During the term of a participation agreement, a participating physician agrees to accept assignment for all items and services [he or] she provides under Part B and is precluded from balance billing. See id. at § 1395u(h)(1). Under DEFRA, a non-participating physician retained the option of accepting or refusing assignment in individual cases. However, DEFRA provided incentives for physicians to enter into participation agreements. For example, the statute temporarily froze the fees non-participating physicians could charge Medicare patients. See id. at § 1395u(j)(1)(A); Pennsylvania Medical Soc'y v. Marconis, 942 F.2d 842, 844 (3d Cir.1991).

The Omnibus Budget Reconciliation Act of 1986 ("OBRA-86") lifted the DEFRA freeze on non-participating physician fees, substituting a system of "maximum allowable actual charges" ("MAACs") for services. See 42 U.S.C. § 1395u(j)(1)(B)(i). MAACs were initially based upon physicians' actual charges for the quarter beginning on April 1, 1984. See id. at § 1395u(j)(1)(C)(iv) Under OBRA-86, non-participating physicians were not permitted to charge Part B beneficiaries in excess of MAAC rates, unless their annual average fees fell below levels set forth in the statute. See Omnibus Budget...