U.S. v. Suba, 95-9408

Decision Date09 January 1998
Docket NumberNo. 95-9408,95-9408
PartiesMedicare & Medicaid Guide P 45,974, 11 Fla. L. Weekly Fed. C 965 UNITED STATES of America, Plaintiff-Appellee, v. David W. SUBA, Managed Risk Services, Dennis J. Kelly, Defendants-Appellants.
CourtU.S. Court of Appeals — Eleventh Circuit

Richard E. Allen, Augusta, GA, James Davis Hyder, Jr., Paine, McElreath & Hyder, Augusta, GA, for Suba and Managed Risk Services.

Celeste T. Jones, Robert L. Widener, McNair & Sanford, P.A., Columbia, SC, for Kelly.

Harry D. Dixon, U.S. Atty., Savannah, GA, Vicki S. Marani, U.S. Dept. of Justice, Crim. Div., Appellate Section, Washington, DC, for Plaintiff-Appellee.

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

Before BARKETT, Circuit Judge, HILL, Senior Circuit Judge, and HOWARD *, Senior District Judge.

HILL, Senior Circuit Judge:

Jointly tried and convicted by a jury in a complex Medicare fraud scheme, Appellants Dennis J. Kelly, David W. Suba, and Managed Risk Services, Inc. (Managed Risk) appeal their convictions and sentences on a number of grounds, including insufficiency of the evidence, trial court error in denying Kelly's requested jury charges and motion for a new trial, and sentencing, restitution, and forfeiture errors. 1 We reverse Kelly's conviction only as to Counts 131 and 132 for insufficient evidence and remand his case for re-sentencing in accordance with this opinion. In all other respects, we affirm Kelly's conviction and the convictions and sentences of Suba and Managed Risk.

I. PROCEDURAL BACKGROUND

Together, Kelly, Suba, and Managed Risk were convicted of one count of conspiracy to defraud the United States and to commit offenses against the United States, in violation of 18 U.S.C. § 371 (Count 1); forty-five counts of mail fraud, in violation of 18 U.S.C. § 1341 (Counts 36-78, 100-111); and twenty-seven counts of money laundering, in violation of 18 U.S.C. § 1956 (Counts 79-105). Separately, Kelly was convicted of four additional counts of mail fraud (Counts 112-115); six counts of embezzlement from an employee benefit fund, in violation of 18 U.S.C. § 664 (Counts 116-121); eleven additional counts of money laundering (Counts 106-109, 122-123, 125-128, 132); one count of bank fraud, in violation of 18 U.S.C. § 1344 (Count 131); and nineteen counts of making false statements, in violation of 18 U.S.C. § 1001 (Counts 11-26, 30-32). 2 Kelly was sentenced to 151 months' imprisonment followed by three years' supervised release. He was ordered to pay a $75,000 fine, $710,118 in restitution, and to forfeit $934,856.02 under a consent order for criminal forfeiture, 18 U.S.C. § 982 (Count 133). The jury found Suba guilty of all counts charged. He was sentenced to ninety-seven months' imprisonment followed by three years' supervised release. Managed Risk was found guilty of all counts charged. It was placed on five years' probation and ordered to pay a $250,000 fine. Suba and Managed Risk were ordered to pay $710,118 in restitution and to forfeit $390,000 pursuant to the consent order. Both Kelly and Suba are currently incarcerated.

II. FACTUAL BACKGROUND
A. Factual Diagram

The underlying facts of this case are complex and have been reconstructed from numerous and sometimes tedious paper trails throughout the record. At first, the scheme appears sophisticated. In fact, however, it is really quite simple. Home health care agencies are licensed by Medicare. 3 Medicare is administered by the United States Department of Health and Human Services (HHS). HHS contracts with insurance companies (fiscal intermediaries) to distribute Medicare funds. 4 The fiscal intermediary pays the Medicare funding to providers of medical care, in this case, home health care agencies. Medicare covers the reasonable cost of direct patient care and reasonable and necessary overhead expenses. 5 Appellants allegedly established certain overhead expenses, appearing genuine, but in fact, neither reasonable or necessary. These expenses were reimbursed by Medicare. The reimbursed funds allegedly found their way into Appellants' pockets. 6

The following is a pictorial diagram 7 of the interrelationships of the participants in the sequence of events leading up to the indictment:

NOTE: OPINION CONTAINS TABLE OR OTHER DATA THAT IS NOT VIEWABLE

B. The Medicare Conspirators Charged 8
1. Healthmaster, Garrison & Master Health

Healthmaster, Inc. (Healthmaster) was a large, yet privately owned, home health care company based in Augusta, Georgia. 9 Jeannette G. Garrison was its chief executive officer and sole shareholder. 10 Healthmaster provided in-home nursing care for eligible persons with illnesses and disabilities. Approximately 92% of Healthmaster's revenues were derived from providing in-home nursing care to Medicare eligible patients. The balance was reimbursed by Medicaid and private insurance.

Medicare guidelines provide reimbursement to Healthmaster for costs of direct patient care and reasonable and necessary overhead expenses. 11 Reimbursements claimed by Healthmaster were submitted on cost reports to Aetna Life and Casualty Insurance Company (Aetna), the fiscal intermediary for HHS, who apparently did not discover any improper submissions. The cost reports required Healthmaster to declare whether or not its business transactions, such as purchasing supplies or services, were conducted with companies to whom it was "related." 12 Master Health Plan, Inc. (Master Health), Garrison's health maintenance organization (HMO), as a wholly owned subsidiary of Healthmaster, was a related company under Medicare guidelines.

2. Kelly, Suba & Managed Risk

Kelly was a certified public accountant and chief financial officer and vice-president of Healthmaster, second in command to Garrison. Kelly was also the trustee for Healthmaster's self-insured worker's compensation trust fund. In 1990, upon Kelly's recommendation, Garrison hired Suba as Healthmaster's insurance risk manager to reduce the worker's compensation claims and injuries of Healthmaster's three thousand employees.

That same year, Kelly and Suba formed their own company, Managed Risk, ostensibly to provide risk management for self-insured worker's compensation and health insurance funds. Suba owned twenty-four percent of Managed Risk and served as its president. Mrs. Kelly owned twenty-four percent. Majority ownership (fifty-two percent) was owned by two trusts controlled by Garrison and Kelly for the benefit of the Garrison children. Managed Risk operated out of Healthmaster's Augusta corporate offices yet it maintained a mailing (post office box) address in Atlanta. Business cards for Managed Risk listed an Atlanta answering service telephone number as its business number. Healthmaster was Managed Risk's primary client.

C. The Components of the Conspiracy
1. The Conspiracy Itself (Count 1)

The indictment charged that Garrison, Kelly, Suba, Healthmaster, Master Health and Managed Risk conspired together to defraud the United States through its Medicare program by fraudulently obtaining Medicare reimbursement for many different categories of items. Garrison was charged with Healthmaster's submission of cost reports that fraudulently sought reimbursement for her political contributions; for the wages of Healthmaster ghost employees (actually working at non-Medicare reimbursed companies); and for many of her own personal expenses. Garrison pleaded guilty to conspiracy and nine counts of making false statements. See note 8 supra. Count 1 of the indictment also charged Appellants with non-disclosure of related companies; with fraudulently obtaining workers compensation insurance premiums payable to Managed Risk from Preferred Care companies and fraudulently distributed to Managed Risk shareholders; with embezzling money from an employee benefit plan; and with concealing the source of the fraudulently obtained funds.

2. The Preferred Care (PCC) Allegations (Counts 36-109)

The Preferred Care allegations are touted to be the centerpiece of the Government's case. The allegations originate with Healthmaster's application for state (Georgia) approval of its self-insured worker's compensation program. Initially Healthmaster's application was rejected on the grounds of insufficient funds necessary to satisfy the State of Georgia's required two-to-one asset-to-liability ratio. Thereafter, to supplement its assets, Healthmaster listed as its workers' compensation program affiliate, the Preferred Care Companies (Preferred Care or PCC), a Garrison-owned holding company, and reapplied for self-insurance. See note 10 supra. Now armed with adequate assets to ensure payment of claims, the State of Georgia granted Healthmaster's re-application to self-insure, upon the condition that it post a $500,000 bond. Healthmaster posted the bond. Kelly was the principal signatory on the second application. The re-application pledged to pay workers' compensation claims out from an irrevocable trust funded upon an actuarial basis (the Augusta WC account described below).

The Government alleges that Kelly, Suba and Managed Risk abused Healthmaster's affiliation with Preferred Care by illegally converting (for their own use) premiums intended for the benefit of Preferred Care employees. By so doing, Medicare was also defrauded. The scheme was accomplished, the Government contends, as follows: Kelly established a trust account at the Trust Company Bank in Augusta (the Augusta WC account). 13 Healthmaster administered its self-insured workers' compensation program through the Augusta WC account. From May 1990, through March 1993, Preferred Care was billed for and paid $1,420,237 in workers' compensation premiums. However, the Preferred Care checks were not mailed to or deposited in the Augusta WC account as pledged. Instead, the Preferred Care checks were mailed to Managed Risk's Atlanta post office box. Elizabeth Siegler, a Preferred Care employee, testified...

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