U.S. v. Levin

• Citation: 973 F.2d 463
• Decision Date: 04 November 1992
• Docket Number: No. 91-5034,91-5034
• Parties: , Medicare & Medicaid Guide P 40,461 UNITED STATES of America, Plaintiff-Appellant, v. Richard D. LEVIN; Richard D. Levin, M.D., P.S.C., Inc.; Paul H. Sorg, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

Page 463

973 F.2d 463

38 Soc.Sec.Rep.Ser. 465, Medicare & Medicaid Guide

P 40,461

UNITED STATES of America, Plaintiff-Appellant, v. Richard D. LEVIN; Richard D. Levin, M.D., P.S.C., Inc.;

Paul H. Sorg, Defendants-Appellees.

No. 91-5034.

United States Court of Appeals,

Sixth Circuit.

Argued Sept. 13, 1991.

Decided Aug. 7, 1992.

Rehearing and Rehearing En Banc

Denied Nov. 4, 1992.

Louis DeFalaise, U.S. Atty., Office of U.S. Atty., Lexington, Ky., Frederick A. Stine, V, Asst. U.S. Atty., Office of U.S. Atty., Covington, Ky., Sean Connelly (argued and briefed), U.S. Dept. of Justice, Civ. Div., Washington, D.C., for plaintiff-appellant U.S.

Glenn V. Whitaker (argued and briefed), Vorys, Sater, Seymour & Pease, Cincinnati, Ohio, for defendant-appellee Richard D. Levin.

Thomas R. Smith (briefed), Cincinnati, Ohio, for defendant-appellee Richard D. Levin, M.D., P.S.C., Inc.

Charles G. Heyd (argued and briefed), Bauer, Morelli & Heyd, Cincinnati, Ohio, for defendant-appellee Paul H. Sorg.

Before: KEITH and MARTIN, Circuit Judges, and KRUPANSKY, Senior Circuit Judge.

KRUPANSKY, Senior Circuit Judge.

This is an appeal from a decision of the United States District Court for the Eastern District of Kentucky dismissing all but 15 counts of a 560-count indictment against the appellees herein with prejudice. The last 15 counts of the indictment were dismissed without prejudice. Defendants-appellees Richard D. Levin, M.D., P.S.C., Inc. (the "Eye Institute") and Richard D. Levin, an individual, had been charged with multiple violations of 42 U.S.C. § 1395nn(b)(1)(B) (1983) (Medicare fraud); 18 U.S.C. § 287 (false claims); 18 U.S.C. § 1341 (mail fraud); and 18 U.S.C. § 1001 (false statements). Defendant-appellee Paul H. Sorg, an employee of the Eye Institute, was charged only in those counts alleging violations of 42 U.S.C. § 1395nn (Medicare fraud). The government has conceded that the false claims and mail fraud counts are legally dependent upon the Medicare fraud counts.

The predicate for the criminal charges against the appellees under 42 U.S.C. § 1395nn was a merchandising campaign created for the manufacturers of intraocular lenses (IOL), which are inserted into the eye during cataract surgery to replace a removed diseased lens. The promotion was conducted in conjunction with various cooperating surgical supply companies. The targets of the promotion were medical doctors, primarily ophthalmologists, hospitals and surgical centers engaged in treating cataracts and performing surgical cataract implants.

The sales concept, once having been approved by the Department of Health and Human Services (HHS), Health Care Financing Administration (HCFA) and its duly designated carriers, i.e. Medicare, Blue Cross/Blue Shield, Prudential Insurance Co., et al., was actively inaugurated and aggressively implemented by a significant number of major IOL manufacturers and participating surgical supply companies through their representatives and sales personnel. In the instant case, the involved IOL manufacturers were American Medical Optics Co. (AMO) and Ipotex. The participating surgical supply company was Crocker Fels Corporation.

The thrust of the sales promotion, with minor variations, was essentially the same throughout the industry. The nucleus of the plan was an arrangement characterized as "bundling" which consisted of offering a free gift or premium in the form of disposable viscosurgical supplies such as plastic boots, gloves, gowns, masks, sutures, Healon syringes, and surgical knives consumed during a cataract surgery or a credit for the value of the premium with the purchase of each IOL. In the instant case, the value of the free premium disposable viscosurgical kit consumed during a single cataract surgical procedure was $97.50. The reasonable and customary charge by a provider hospital, surgical center, ophthalmologist and those similarly situated for an IOL was fixed by HCFA or its designated health care insurance carrier. A provider was entitled to reimbursement from Medicare or other designated health care carrier for the approved reasonable and customary cost of the IOL. In the instant case, the HCFA approved reasonable and customary charge for an AMO lens was $390.00. With the purchase of every AMO lens, the purchaser would receive free disposable viscosurgical supplies valued at $97.50 from Crocker Fels Corporation or a credit in that amount against future purchases of such disposable surgical supplies consumed during a single cataract surgical implant.

Defendants were introduced and urged to participate in the sales campaign by Dale Schaefer, a manufacturer's representative for AMO. Pursuant to typical sales arrangements that prevailed throughout the industry, appellees received disposable surgical supplies valued at $97.50, or a credit for that amount against future purchases of those items from Crocker Fels with each lens purchased from AMO for the HCFA approved reasonable and customary price of $390.00. Crocker Fels was reimbursed in that amount by the lens manufacturer, one of which, in the instant case was AMO. Generally, the cost of the disposable surgical supplies consumed during a surgical cataract implant exceeded $97.50.

At no time did defendants' backcharge to Medicare or other HCFA designated health care insurance carrier exceed the HCFA reasonable and customary approved manufacturer's price per IOL, in the instant case, $390.00 per AMO lens.

Preliminary to soliciting the participation of the professional medical community targeted for the sales promotion, certain IOL manufacturers sought and received approval of the proposal from the HCFA. In a series of official letters from HCFA "reimbursement specialists", the proposed sales inducement campaign was sanctioned. Scott Levine, a reimbursement specialist for HCFA on December 10, 1985 stated that:

The customers of Pharmacia do not violate any HCFA regulation when they purchase a Viscolens (TM) or Viscosurgery Pack, as long as they do not charge HCFA or the beneficiary any more for the Viscolens or the Viscosurgery Pack than they previously charged for the IOL alone. That is, the physician should not charge for the items they received at no additional charge.

HCFA issued another similar letter on September 23, 1986, wherein it considered its approval of the suggested IOL inducement sales program as a public policy announcement:

[W]e believe that we have an obligation to the public to provide our opinion as to the propriety of certain charging arrangements. We have become aware that many different types of inducements are being used in the IOL supply industry, including the leasing of equipment at below market or otherwise subsidized rates in return for the purchase of IOLs, or the supply with the IOL of other additional items. At this time, we regard all such sales inducements in the same category for reimbursement purposes, that is, as long as the inducement is related to the item, and as long as there is no additional charge to the beneficiary of HCFA for the item, device or service, then there is no issue of reimbursement abuse.

In yet another letter, HCFA in addressing the question of free surgical supplies to induce the purchase of IOLs said:

To our knowledge, you would not be violating any HCFA reimbursement regulation by marketing the Viscolens (TM)/Viscosurgery (TM) Pack.

In addition, in our opinion, customers of Pharmacia would not be violating any HCFA reimbursement regulation by purchasing such a package. However, we would strongly advise any such customers not to charge a beneficiary or HCFA any more for the package than they had previously charged for the IOL alone.

Although defendants initiated no inquiry of their own concerning the legality of the sale campaign, it is apparent that HCFA approval of the "bundling arrangement" was circulated throughout the targeted professional medical community by manufacturers' representatives and sales personnel.

During the hearing on defendants' Federal Rule of Criminal Procedure 12(b) pretrial motion to dismiss, the district court in assessing the undisputed extrinsic evidence with the Assistant United States Attorneys Fred A. Stine (Stine) and David Grise made the following observations:

THE COURT: Technically, the government can't be estopped, but I guess the rules don't call for summary judgment in a criminal case, but if this is your evidence, it would be a directed verdict at the end, and I don't know why I have to sit through two or three weeks while you put on what we know the evidence will be. There doesn't seem to be a dispute of the facts in this case. It's an unusual criminal case in that sense.

to which Stine responded:

MR. STINE: Therefore, probably no dispute of the facts in terms of the mechanics of the thing and where the money went. There probably aren't.

THE COURT: I think you've rendered--put it two ways. I think you rendered the statute ambiguous by the government's condoning its agent to issue these opinions, or to put it another way with these opinions being issued, it's impossible to prove criminal intent.

In sum, the district court concluded from the undisputed extrinsic evidence, initially introduced during the court's pretrial hearing addressing the defendants' 12(b) motion to dismiss the indictment, including the HCFA letters, that the sales inducements did not constitute criminal activity in violation of § 1395nn(b)(1)(B), and that the defendants and those similarly situated could not, as a matter of law, have formulated the necessary intent to participate in a criminal act in violation of § 1395nn(b)(1)(B).

The assignment of error confronting this appellate review was initially resolved by the United States Supreme Court in Raley v. State of Ohio, 360 U.S. 423, 79 S.Ct. 1257, 3 L.Ed.2d 1344 (1959). In that action defendants had been convicted for refusing to answer certain questions before the "Unamerican Activities Commission of the State of Ohio"...