U.S. v. Porter

• Decision Date: 21 March 1979
• Docket Number: No. 78-5020,78-5020
• Citation: 591 F.2d 1048
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Delmer PORTER, Kenneth A. Berdick, M.D. and Myron Teitelbaum, M.D., Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1048

591 F.2d 1048

UNITED STATES of America, Plaintiff-Appellee, v. Delmer PORTER, Kenneth A. Berdick, M.D. and Myron

Teitelbaum, M.D., Defendants-Appellants.

No. 78-5020.

United States Court of Appeals, Fifth Circuit.

March 21, 1979.

Barbara L. Suhar, South Miami, Fla., for Porter.

Eugene Heiman, Miami, Fla., for Berdick.

Albert J. Krieger, Miami, Fla., for Teitelbaum.

Jack V. Eskenazi, U. S. Atty., Miami, Fla., James Roland DiFonzo, Atty., Appellate Section, Sidney M. Glazer, Nash W. Schott, Crim. Div., Dept. of Justice, Washington, D. C., for plaintiff-appellee.

Appeals from the United States District Court for the Southern District of Florida.

Before GEWIN, COLEMAN and GOLDBERG, Circuit Judges.

COLEMAN, Circuit Judge.

This criminal prosecution springs from attempts by the government to police a vast, ever-expanding Medicare program. Since the occurrence of the activities treated Accordingly, we reverse the convictions on all counts and remand the case with instructions that the indictment be dismissed.

in this appeal, Congress has amended one statute to more specifically describe what conduct is proscribed. Moreover, the Department of Health, Education and Welfare no longer pays for the services which prompted the indictment of these defendants. After a thorough examination of the record we have been driven to the conclusion that the indictment, in its various counts, failed to charge a crime and that the government failed at trial to prove the commission of any crime denounced by federal statutes.

THE FACTS

This case involves the challenged activities of eight doctors and one laboratory operator in the Miami, Florida, area, a place which has traditionally been a haven for retired persons, many of whom are dependent on the Medicare program in connection with health care. Six of the indicted doctors ¹ pled guilty to receiving kickbacks and bribes in connection with furnishing medical services to Medicare patients, in violation of 42 U.S.C. § 1395nn(b)(1). They were sentenced to a term of probation and fined. The other three defendants, laboratory operator Delmar Porter, Dr. Kenneth A. Berdick, and Dr. Myron Teitelbaum, appellants here, stood trial to a jury and, after a heatedly combative four weeks in the courtroom, were convicted of various counts charging conspiracy to defraud the United States, mail fraud, and either offering or receiving kickbacks or bribes in connection with supplying Medicare services.

The Department of Health, Education and Welfare, as the agency responsible for administering the Medicare program, contracts with various private insurance carriers to perform certain services. In 1973 HEW used Blue Shield to determine reasonable charges for medical services in Florida, to determine eligibility for reimbursement under Medicare, and to pay the Medicare claims originating in that state. These claims were generally submitted on a "Request for Medicare Payment" form (Form 1490), which required a detailed description of the services rendered by the physician to the Medicare beneficiary (patient).

In the exercise of professional judgment, physicians may determine that tests for the presence of various diseases should be performed on blood samples taken from the patient. Typically, the doctor, or a member of his staff, draws the blood from the patient, separates the blood cells from the serum, labels and identifies the specimen, and sends it to an independent laboratory for analysis. The doctor then arrives at a diagnosis from the test results. These laboratories, not a part of the doctor's office, have arisen in response to a demand for such services, and they are most common in urban areas. The testimony at trial indicated that there are basically two types of laboratories which perform these blood tests the manual and the automated. The former is a laboratory which has a number of different machines, each of which is designed to perform only one test at a time. The latter has one expensive machine capable of simultaneously performing an entire battery of tests. In general, automated laboratories perform the tests faster and at a lower unit cost than manual laboratories, but there seems to be a difference of opinion concerning the quality of the results, with perhaps a concensus leaning toward the automated labs. It would appear from the record that doctors were under no rule, regulation, or other compulsion to choose one type of laboratory in preference to another and were free to exercise their professional judgment in making a choice. In many areas there is only one laboratory reasonably available, so doctors in such areas have no option but to send their blood samples to that laboratory. In other areas, such as Miami, several laboratories offer Assuming that the services performed are substantially equal in quality, it would ordinarily be assumed that these labs would compete on the basis of price and that the lower-priced services of the automated labs would soon drive the manual labs out of business. This, however, was not the case in the Miami area. Blue Shield regularly reimbursed on Medicare claim forms filed by both manual and automated laboratories and paid the higher rates for services performed by manual labs. Testimony at trial indicated that during 1973-74, an automated lab which performed a battery of blood tests called an "SMA-20" would receive a Medicare reimbursement of $35, whereas a manual lab would receive $214 for the same service. Because it takes a certain amount of time for a doctor to draw a blood sample, label it, and analyze the tests results, Medicare permitted physicians to bill directly for their services related to these blood tests. The amount which Medicare paid for such services was apparently somewhat low and during the indictment period was always less than $6. Rather than bill Medicare directly and accept these sums, each of the eight doctor defendants in this case sent blood samples to the manual lab operated by Porter, who paid the doctors up to $35 for each blood sample sent to the lab. The doctors claim that these payments represent legitimate "handling fees", but the government chooses to refer to them, variously, as bribes, kickbacks, or rebates, and contends that the offer and acceptance of such payments were criminal acts. The correctness of this contention is, of course, the crucial issue in this case.

these services and compete for the business of the local physicians.

Porter was the key figure in these operations. He had been employed in the lab business for 16 years, first by Universal Medical Laboratories and then by Damon Laboratories. In 1973 Porter left Damon and established Southeastern Medical Laboratories (SML), a manual lab, with the financial assistance of Dr. David Thornburgh, who had also been employed by Damon but who was not indicted by the grand jury. Sometime later, Porter established a second manual lab in Miami, "Laboratories of Florida" (LOF), in which Dr. Teitelbaum held 60% Of the stock in trust for his children. Porter and Thornburgh were familiar with a procedure pioneered by Damon called the AdServ concept, under which doctors would be paid a handling fee by a third party, AdServ, for submitting blood specimens from Medicare beneficiaries and would accept lab work for non-Medicare patients at a reduced price or at cost. Under this arrangement, therefore, the doctors profited and non-Medicare patients were subsidized by the Medicare program. The AdServ concept apparently enjoyed enormous popularity and was employed by physicians throughout the country.

Because the originators of the AdServ concept thought it essential that physicians be paid by a third party and not by the lab, it was necessary to set up a dummy corporation. Defendants Scheiner, Lipman, and Connolly owned 60% Of the SML stock, and Lipman arranged to have his brother, an attorney, set up a corporation known as Medical Administrative Services (MAS of Mississippi). That corporation operated until the spring of 1974, when its functions were taken over by a Florida corporation, also named Medical Administrative Services (MAS of Florida). The record reveals that the only function of these two corporations was to act as a conduit to handle the money from the labs to the doctors. The labs sent money to the dummy corporations, which then issued checks to the doctors who had submitted the blood specimens of Medicare patients to the labs. Each of the defendant doctors utilized one or both of these two labs.

For example, Dr. Teitelbaum switched in 1973 from National Health Laboratories (National), an automated lab, to SML and LOF. Trial testimony indicated that National, which did not offer a handling fee to doctors, charged $7 for an SMA-12 battery of blood tests. LOF charged $100 for the same series of analyses. Teitelbaum sometimes received his laboratory "handling fees" directly from Porter, and on occasion these fees were in addition to what he During the period 1973-75, SML and LOF received over $400,000 in Medicare payments. The labs, either directly or through the dummy corporations, paid over $73,000 in fees to the eight defendant doctors. Berdick received over $11,000; Teitelbaum, over $24,000.

received as a result of directly billings his patients.

In early 1974, after defendant Lipman, whose office in Miami issued the MAS of Mississippi checks, told Porter that he had been advised by an attorney that MAS of Mississippi was "unethical and possibly illegal", and that he did not want to participate any longer, MAS of Florida began to pay the doctors who submitted Medicare patients' blood specimens to SML and LOF. This arrangement continued until October 1974, when the labs switched to paying handling fees for Medicare patients by a credits system. At that time, bills for private, non-Medicare patients' analyses were reduced by an amount which corresponded to the amount of the "handling fee" paid by the laboratory on...