United States v. Beth Palin
874 F.3d 418
| 4th Cir. | 2017Background
- Beth Palin owned an addiction clinic (MEMC) and a lab; Joseph Webb assisted in operations. The lab ran two urine tests: a cheap "quick-cup" and a costlier "analyzer."
- Referring doctors ordered drug screening generally but did not specify test type or frequency; Palin and Webb set lab procedures deciding test type/frequency.
- Uninsured patients typically received only the quick-cup (cash); insured patients received both quick-cup and the expensive analyzer, and the lab billed insurers (including Medicare) for the analyzer.
- District court found Palin and Webb knowingly ordered and billed for medically unnecessary analyzer tests, concealed that fact from insurers, and thereby executed a scheme to defraud in violation of 18 U.S.C. §§ 1347 and 1349.
- After conviction at a bench trial, defendants argued on post-trial motions and on appeal that the district court failed to apply the correct materiality standard (citing Universal Health Services v. Escobar) and that the misrepresentations were not material; the district court denied relief and the Fourth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument (Gov) | Defendant's Argument (Palin & Webb) | Held |
|---|---|---|---|
| Whether materiality is an element of § 1347 health-care fraud | Materiality is an implicit element of fraud under § 1347, like mail/wire/bank fraud | Materiality not disputed by defendants on appeal but they challenge application | Court: Materiality is an element (Neder framework); any omission to state it below was harmless beyond a reasonable doubt |
| Whether the district court erred by not expressly addressing materiality at bench trial | Even if not expressly stated, record shows district court found facts establishing materiality; harmless error review applies | Universal Health changed materiality standard and under it their misrepresentations were not material because insurers paid similar claims | Court: Harmless error — no reasonable factfinder could conclude insurers would have paid had they known tests were unnecessary; defendants’ Universal Health argument fails on the facts and does not alter the result |
| Effect of Universal Health Services v. Escobar on criminal § 1347 prosecutions | Gov: Universal Health’s description of materiality does not negate materiality here; even under that standard misrepresentations were material | Defendants: Universal Health established a stricter standard (recipient’s actual/likely behavior); insurers’ payments show nonmateriality | Court: Universal Health’s materiality test (effect on likely/actual behavior) does not help defendants; insurers would not have paid if they knew tests were unnecessary |
| Other challenges: indictment specificity, sufficiency of evidence, new-trial request | Gov: Indictment and evidence were adequate; district court properly denied new-trial motion | Defendants: Indictment insufficiently specific; evidence insufficient; requested new trial to present new materiality evidence | Court: Indictment adequate; substantial evidence supports convictions; denial of new trial not an abuse of discretion |
Key Cases Cited
- Neder v. United States, 527 U.S. 1 (1999) (fraud statutes incorporate common-law requirement of materiality)
- Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016) (materiality looks to effect on likely or actual behavior of recipient; payment despite knowledge is strong evidence of nonmateriality)
- United States v. Perry, 757 F.3d 166 (4th Cir. 2014) (§ 1347 scheme can include conduct to conceal or create a false impression)
- Hamling v. United States, 418 U.S. 87 (1974) (indictment must set forth facts and circumstances sufficient to inform accused of the specific offense)