U.S. v. White

492 F.3d 380

UNITED STATES of America, Plaintiff-Appellee, v. Richard B. WHITE; Michael A. Suhadolnik, Defendants-Appellants.

No. 05-3403.

No. 05-3442.

No. 06-3239.

No. 06-3240.

United States Court of Appeals, Sixth Circuit.

Argued: January 31, 2007.

Decided and Filed: June 11, 2007.

Rehearing Denied July 5, 2007.^*

ARGUED:

Jon A. Van Steenis, Daigle, Fisse & Kessenich, Madisonville, Louisiana, Amy B. Cleary, Federal Public Defender's Office, Cleveland, Ohio, for Appellants. James C. Lynch, Assistant United States Attorney, Cleveland, Ohio, for Appellee.

ON BRIEF:

Jon A. Van Steenis, Daigle, Fisse & Kessenich, Madisonville, Louisiana, Amy B. Cleary, Federal Public Defender's Office, Cleveland, Ohio, Jaime P. Serrat, Cleveland, Ohio, for Appellants. James C. Lynch, Assistant United States Attorney, Cleveland, Ohio, for Appellee.

Before: NORRIS, COLE, and CLAY, Circuit Judges.

CLAY, J., delivered the opinion of the court, in which COLE, J., joined. NORRIS, J. (pp. 419-20), delivered a separate opinion concurring in part and dissenting in part.

OPINION

CLAY, Circuit Judge.

Defendant Richard B. White appeals his conviction for fourteen separate criminal counts, his sentence of 90-months imprisonment, $7,290,202 in restitution, and two years of supervised release, as well as the district court's order denying his motion for new trial. Defendant Michael A. Suhadolnik appeals his related conviction for one count of wire fraud, as well as the district court's order denying his motion for new trial. For the reasons that follow, we AFFIRM Defendants' convictions; VACATE the district court's order denying Defendants' motions for new trial and REMAND for an evidentiary hearing; and VACATE Defendant White's sentence and REMAND for resentencing.

BACKGROUND

A. The Medicare Program

This case arises from a complex scheme to defraud Medicare by violating the Medicare "related party" rule. Accordingly, we repeat below a helpful overview of the Medicare program to set the scene before exploring the procedural and substantive facts of this case.¹

The Medicare program is codified in Title XVIII of the Social Security Act, 42 U.S.C. § 1395 et seq., which establishes a federally-funded health insurance program for the elderly and disabled. The United States Department of Health and Human Services ("HHS") runs Medicare. HHS has delegated the operation of Medicare to its component entity, the Health Care Financing Administration ("HCFA") [recently renamed the Centers for Medicare and Medicaid Services ("CMS")].

HCFA contracts with experienced insurance carriers in various regions of the country to act for HHS in reviewing, processing, and paying Medicare claims. These insurance carriers are called Fiscal Intermediaries ("FI"). Thus, the Fiscal Intermediary acts as the agent of HHS for purposes of auditing claims for reimbursement and administering payments.

Medicare is divided into two parts, Medicare Part A and Medicare Part B. Part A of the Medicare statute authorizes direct payment for covered hospital services to a hospital or other providers of health services. In essence, a provider of services does not bill eligible patients under Medicare for covered services. Rather, the provider is reimbursed by the government for its reasonable costs in providing services (or the customary charges for those services if the customary charges are lower). Medicare Part B is primarily medical insurance which helps pay for doctors and outpatient services.

Providers under Medicare Part A may include: hospitals providing hospital services; home health agencies providing skilled nursing services to "home-bound" patients; and community mental health centers providing psychiatric services under the Medicare Partial Hospitalization Program. All Medicare providers must execute a written agreement with HCFA agreeing to comply with all Medicare laws and regulations.

Once certified as a Medicare provider, such provider may make claims for reimbursement of its costs of operation in providing necessary services. Providers may receive payments on such claims based upon a pre-determined percentage of costs associated with the provider's costs. Claims may be based upon a daily rate of costs per patient or an hourly rate of costs per patient. New providers submit estimates of future costs, and thereafter, the cost report filed by the providers is used to estimate future costs. Medicare reimbursement payments are made on a continuing basis throughout the year based upon claims filed by the provider and are called "interim payments." Annually, the provider must file a Provider Cost Report with the Fiscal Intermediary to permit the Intermediary to audit the claimed costs and determine whether the costs claimed are proper. Once adjustments are made, the FI determines whether the provider has been overpaid or underpaid for the costs allowable for the year.

Pursuant to its statutory authority, the Secretary of HHS has promulgated regulations, codified at 42 C.F.R. § 413, governing the reimbursement of health care providers for reasonable costs. In addition, the Secretary has published interpretations of the governing statute and regulations in the Provider Reimbursement Manual in order to assist these providers as well as the Fiscal Intermediaries in understanding how the government applies this regulatory framework.

The Medicare reimbursement program is structured around the concept of allowable "reasonable costs." "Reasonable costs" are the costs actually incurred by the provider, and excludes any costs found to be unnecessary in the efficient delivery of needed health services. 42 U.S.C. § 1395x(v)(1)(A). Providers are expected by Medicare regulations to minimize costs and not pay any more than what a "prudent buyer" would pay for goods or services.

To prevent unnecessary costs from being claimed, when goods or services are purchased from a party related to the provider, Medicare regulations only permit reimbursement to a provider of the actual costs incurred by that "related party." Thus, a "related party" cannot make a profit from a transaction with a Medicare provider. A "related party" is defined as including a situation where the provider, to a significant extent, has control or is controlled by the organization furnishing the services, facilities, or supplies. Control exists if an individual or an organization has the power, directly or indirectly, to significantly influence or direct the actions or policies of an organization. 42 C.F.R. § 413.17.

Providers are required to identify any costs attributable to a "related party" on the annual Cost Report and elsewhere to permit the Fiscal Intermediary to determine whether there are any "related party" costs which might be adjusted. 42 C.F.R. § 413.20. In addition, with the filing of the cost report, an officer or administrator of the provider must give written responses to a questionnaire that asks, among other things, whether the provider or the management personnel are associated with related organizations and, if so, to identify such related organizations.

(Pl.'s Br. at 14-17)

B. Procedural Facts

Defendants Richard B. White ("Defendant White" or "White") and Michael A Suhadolnik ("Defendant Suhadolnik" or "Suhadolnik"), along with other defendants not involved in this appeal,² were indicted on January 8, 2003 on fourteen charges, including (1) Conspiracy to Commit Medicare Fraud (Count 1), (2) Scheme to Defraud the Medicare Program (Counts 2 through 4), (3) Use of a False Document (Count 5), (4) Money Laundering Conspiracy (Count 6), (5) Money Laundering (Counts 7 through 13), and (6) Wire Fraud (Count 14).

Prior to trial, Defendants requested a list of the expert witnesses the government planned to call, along with a description of their opinions and the bases therefor. The government responded three weeks after the deadline with a list of intended witnesses and one potential witness, but no information about the opinions to be rendered. Defendants then brought motions in limine to exclude the expert testimony alleging the government had failed to comply with Federal Rule of Criminal Procedure 16's notice requirements. The district court ruled off the record and permitted the government to call the identified individuals at trial. In doing so, the district court stated that the witnesses "weren't experts per se, [but] they were people who worked in the [Medicare] industry," as well as fact witnesses. (J.A. at 909)

A jury trial of the charges against Defendants White and Suhadolnik commenced on March 15, 2004. During the trial, the government put forth the testimony of witnesses who discussed their understanding of concepts contained in the Medicare statutes and regulations as they pertained to the case. The government called Luz Reyes ("Reyes"), an audit reimbursement supervisor for one of Medicare's fiscal intermediaries.³ Reyes testified to her understanding of various terms used in the Medicare Provider Reimbursement Manual ("PRM"), including "cost-related organization," "related," and "control." (J.A. at 1194-97) The government additionally called several other Medicare auditors who had worked on cost reports for Defendant-affiliated companies to testify to their understanding of Medicare concepts, including Cynthia MacDonald, Stephen Shields and David Eve. The defense called a Certified Fraud Examiner, Eva Jo Sparks ("Sparks"), at trial. Sparks had reviewed the government's documents and testified that the Medicare auditors reviewing the case against Defendant White's company, Montrose Management ("Montrose"), did not make a determination that Montrose was a "related party" under Medicare. Sparks further put forth her conclusion that Montrose, in fact, was not a "related party."

On March 30, 2004, the jury found Defendant White guilty on all counts. Subsequently, the district court sentenced White to sixty months imprisonment on Counts 1 and 5, ninety months imprisonment on...