United States v. CalhoonUnited States v. Calhoon
- Reporters:
- ,
- Before:
- Kravitch, Birch, William W Schwarzer
SCHWARZER, Senior District Judge:
John E. Calhoon was charged in a 14-count indictment with violation of
FACTUAL BACKGROUND
The charges against Calhoon arose out of actions he took while
To satisfy provider hospitals’ cash requirements, the intermediaries paid CMC periodically throughout the fiscal year for estimated Medicare costs. At the end of the fiscal year, CMC filed annual cost reports for each hospital setting out the costs that it actually incurred. Based upon those cost reports, the intermediaries determined the correct amount of Medicare reimbursement for the year and either paid CMC the amount due or billed it for excess interim payments.
Cost reports filed on behalf of a provider hospital include a statement of the total costs expended by the hospital for each category of expense. Some costs included in a cost report are clearly identifiable as either reimbursable or nonreimbursable.
Because of the sizeable volume of cost reports submitted to intermediaries, however, the intermediaries give only some cost reports a full audit, including a field visit by the intermediary to the hospital to compare the cost reports with the hospital‘s internal records. Other cost reports receive only cursory review. When presented with a cost report, the intermediary generally does a preliminary desk audit to determine whether a field audit is appropriate based on the information presented by the provider.
After an intermediary conducts whatever audit it deems appropriate, it issues a notice of program reimbursement to the prоvider. The provider then has 180 days to negotiate any disputed
Calhoon‘s convictions were based on claims in cost reports filed on behalf of six different CMC hospitals between 1987 and 1989.
DISCUSSION
I. VIOLATION OF SECTIONS 1001 AND 1341
To sustain a conviction for violation of
We review de novo whether Calhoon‘s conduct violated sections
A. Falsity
Falsity under section 1001 can be established by a false representation or by the concealment of a material fact. See
1. The Intercompany Charges: Royalty Fees and CMCI Interest
Linton Newlin, the person responsible for tax planning and related matters for CMC, testified that he created a Nevada corporation, CMCI, as a subsidiary of CMC in order to gain variоus tax advantages. CMC transferred ownership of the Charter name to CMCI, and individual hospitals then paid a one-time royalty fee to CMCI to use the Charter name. Because Charter is a national corporation, the hospitals benefitted from the use of the name and because CMCI was incorporated in Nevada where corporations are not subject to state income tax, CMCI increased its profits through tax savings.
Besides licensing the Charter name, CMCI obtained funds from the parent company and loaned the money to the CMC hospitals, which, in turn, paid back the principal with interest to CMCI. The
Calhoon freely admitted both in an investigative interview and at trial that he believed at all times relevant that the royalty fees and CMCI interest were presumptively nonreimbursable under the applicable Medicare provisions. See R.A. Vol. 8, p. 134; R.A. Vol. 9, pp. 103-04. John Banfield (one of Calhoon‘s former subordinates) testified, and the jury accepted, that Calhoon instructed Banfield to claim for reimbursement the royalty fees and interest paid to CMCI but to recognize the probable disallowance of the claims by listing the amounts on reserve cost reports. R.A. Vol. 7, p. 161; R.A. Vol. 8, pp. 12-13; R.A. Vol. 9, p. 110.
a. Royalty Fees
The government contends that the royalty fees claimed were nonreimbursable because: (1) they were unrelated to patient care, see
Calhoon challenges his convictions based on the claims for royalty fees on the grounds that there are no statutes or regulations clearly prohibiting reimbursement of the royalty fees, and that the former policy guideline on reimbursement of royalty fees was repealed in 1982 and superseded by more general guidelines that arguably permit reimbursement. See Prov.Reimb.Man., Part 1 § 2133, repealed by Transmittal No. 263 (Mar. 1982); Prov.Reimb.Man., Part I § 2135. More specifically, Calhoon argues that the statutory and regulatory standards governing whether a royаlty fee is reimbursable require only that the costs be “actually incurred” and reasonably related to patient care. See
(i) Reimbursability
We reject Calhoon‘s contention that there is no provision making the royalty fees paid to CMCI clearly nonreimbursable. Calhoon‘s arguments focus on whether any provision made the royalty fees clearly nonreimbursable by virtue of their nature as royalty fees. The critical fact is, however, that these royalty fees were paid to CMCI, a company related to the hospitals by common ownership. CMC, the parent company, owned both the hospitals that were paying the royalty fees for use of the Charter name and CMCI, the Nevada subsidiary that owned the Charter name and collected the royalty fees. Therefore, regardless of whether certain royalty fees are generally reimbursable, whether the royalty fees here were reimbursable is governed by
(a) Principle. Except as provided in paragraph (d) of this section, costs applicable to services, facilities, and supplies furnished to the provider by organizations related to the provider by common ownership or control are included in the allowable cost of the organization at the cost to the related organization. However, such cost must not exceed the price of comparable services, facilities, or supplies that could be purchased elsewhere.
. . . . .
(c) Application.... (2) If the provider obtains items of services, facilities, or supplies from an organization, even though it is a separate legal entity, and the organization is owned or controlled by the owner(s) of the provider, in effect the items are obtained from itself. An example would be a corporation building a hospital or a nursing home and then leasing it to another corporation controlled by the owner. Therefore, reimbursable cost should include the costs fоr these items at the cost to the supplying organization. However, if the price in the open market for comparable services, facilities, or supplies is lower than the cost to the supplier, the allowable cost to the provider may not exceed the market price.
Under this regulation, expenses paid by the hospitals to CMCI—including the royalty fees at issue here—are reimbursable only “at the cost to [CMCI], the supplying organization.” See
(ii) Concealment of a Material Fact
By concealing that the royalty fees were paid to a related company, however, Calhoon made the claim for reimbursement false. As stated above, falsity under section 1001 includes concealment of a material fact. See Tobon-Builes, 706 F.2d at 1096. Falsity through concealment exists where disclosure of the concealed information is required by a statute, government regulation, or form. See id. at 1096; United States v. Hernando Ospina, 798 F.2d 1570, 1578 (11th Cir.1986).
(1) The provider must furnish such information to the intermediary as may be necessary to—
(I) Assure proper payment by the program, including the extent to which there is any common ownership or control (as described in § 413.17(b)(2) and (3)) between providers or other organizations, and as may be needed to identify the parties responsible for submitting program cost reports; ....
Moreover, the cоst report forms specifically ask the provider the following questions:
A. ARE THERE ANY COSTS INCLUDED ON WORKSHEET A [on which the royalty fees were claimed] WHICH RESULTED FROM TRANSACTIONS WITH RELATED ORGANIZATIONS AS DEFINED IN HCFA PUB 15-I, CHAPTER 10?
B. COSTS INCURRED AND ADJUSTMENTS REQUIRED AS RESULT OF TRANSACTIONS WITH RELATED ORGANIZATIONS:
C. INTERRELATIONSHIP OF PROVIDER TO RELATED ORGANIZATION(S):
The cost report form then specifically notifies the provider that:
THE SECRETARY, BY VIRTUE OF AUTHORITY GRANTED UNDER SECTION 1814(B)(1) OF THE SOCIAL SECURITY ACT, REQUIRES THE PROVIDER TO FURNISH THE INFORMATION REQUESTED ON PART C....
THE INFORMATION WILL BE USED BY THE HEALTH CARE FINANCING ADMINISTRATION AND ITS INTERMEDIARIES IN DETERMINING THAT THE COSTS APPLICABLE TO SERVICES, FACILITIES, AND SUPPLIES FURNISHED BY ORGANIZATIONS RELATED TO THE PROVIDER BY COMMON OWNERSHIP OR CONTROL, REPRESENT REASONABLE COSTS AS DETERMINED UNDER SECTION 1861 OF THE SOCIAL SECURITY ACT.
The relevant cost reports failed to disclose that CMCI was a related organization and was receiving the royalty fees claimed for reimbursement. This fact, as discussed above, is critical to the determination whether the royalty fees could be reimbursable. Its concealment constitutes falsity for purposes of section 1001.
b. CMCI Interest
The government contends that the CMCI interest payments were nonreimbursable because they were expenses paid to a related
Don Crosset, former head of Charter‘s Medicare reimbursement division from 1981 through 1987, testified that the hospitals were taking out loans for new construction. See R.A. Vol. 7 p. 58. The actual cash ultimately loaned to the hospitals “was being generated” by CMC, the parent corporation. Id. CMC then “funded out [that cash] to the Nevada company,” CMCI, and CMCI “in turn, loaned [the money] to the hospitals.” Id. Crosset testified that, as a result of these transactions, there was a reimbursable cost to CMC, the parent company. The company policy was for CMC to account for that cost in claims for the home office exрenses. In order to avoid duplicating costs, CMC had an internal policy that individual hospitals should not claim the CMCI interest as reimbursable.2
As discussed above, where a provider obtains services, facilities, or supplies from a related organization, the reimbursable cost includes only ”the costs for these items at the cost to the supplying organization.”
2. Advertising Expense Claimed as “Outreach”
Four of Calhoon‘s section 1001 convictions relate to claims he made for reimbursement of advertising costs. Calhoon filed cost reports in which he claimed various types of advertising expenses under the label of “outreach.” In addition, he created a second set of books—new gеneral ledgers—which collapsed into one account labelled “outreach” advertising accounts that appeared separately in other ledgers. The government maintains that Calhoon intentionally disguised advertising costs as outreach in order to mislead the intermediaries and to obstruct their audits. The government essentially argued falsity under section 1001 based on concealment of a material fact.
Calhoon, on the other hand, contends that the term “outreach” accurately describes the advertising and that the term is recognized in the industry. He therefore argues that claiming reimbursement for advertising costs under that label could not be false.
Wheeler, the government‘s expert witness, testified that in 22 years’ experience with Blue Cross/Blue Shield of South Carolina, she had never seen the term “outreach” used in Medicare cost reporting; nor had she ever heard “outreach” as a synonym for advertising. R.A. Vol. 6, p. 101. Moreover, Calhoon, a former fiscal intermediary, knew that this term would conceal the nature of the costs and nonetheless chose to use the label specifically for that reason. As one of his subordinates testified, Calhoon admitted that the “outreach” account was created so that there would be no red flag alerting Medicare auditors to the
3. Medicare as a Flexible, Discretionary System
Calhoon also makes a more general argument that claiming costs for Medicare reimbursement can never give rise to criminal liability so long as the costs claimed were actually incurred. He justifies this contention on the grounds (1) that because Medicare is a flexible and discretionary reimbursement system in which the administrative guidelines in the Provider Reimbursement Manual give only presumptive guidance, (2) that the intermediaries’ decisions are only presumрtive, and (3) that the denial of reimbursement can be challenged on appeal. See Shalala v. Guernsey Memorial Hospital, 514 U.S. 87, 115 S.Ct. 1232, 1236-37, 1238-39, 131 L.Ed.2d 106, 116-17, 119 (1995) (intermediary‘s disallowance based on Manual guidelines is presumptive only, and subject to appeal); Medical Center Hosp. v. Bowen, 839 F.2d 1504, 1512-13 (11th Cir.1988) (same). Calhoon argues that under this system he is entitled to claim reimbursement for costs that may be nonreimbursable and, therefore, that doing so can never be a false statement.
In sum, Calhoon‘s argument misses the crux of his offense: the filing of reports intended and designed to deceive and mislead the auditors for the purpose of obtaining reimbursement of costs Calhoon knew to be at least presumptively, if not clearly, nonreimbursable. Available time and resources do not permit audit of more than a fraction of the cost reports filed. Calhoon‘s filing of reports claiming costs that were at least presumptively nonreimbursablе while concealing or disguising their true nature was a deliberate gamble on the odds that they would not be questioned.
B. Materiality
The trial court, without objection, instructed the jury that the false statements were material as a matter of law. Following the trial, the Supreme Court decided United States v. Gaudin, 515 U.S. 506, 115 S.Ct. 2310, 132 L.Ed.2d 444 (1995) holding that materiality is a jury issue. The Gaudin holding applies retroactively to this appeal. See Griffith v. Kentucky, 479 U.S. 314, 328, 107 S.Ct. 708, 716, 93 L.Ed.2d 649 (1987).
We review assertions of error not objected to at trial for plain error. See
“To satisfy the element of materiality, it is enough if the
The Government does not have to show actual reliance on the false statements. A statement can be material even if it is ignored or never read by the agency receiving the misstatement. False statements must simply have the capacity to impair or pervert the functioning of a government agency.
Diaz, 690 F.2d at 1357 (citing United States v. Lichenstein, 610 F.2d 1272, 1278 (5th Cir.), cert. denied sub nom. Bella v. United States, 447 U.S. 907, 100 S.Ct. 2991, 64 L.Ed.2d 856 (1980)).
Calhoon argues that whether the costs he claimed were reimbursable was debatable and that he therefore had the right to claim them on the cost report. Under the regulatory review process, the intermediary conducts an independent investigation and determines the reimbursability of the costs. If the intermediary determines the costs are nonreimbursable, the provider is denied payment. Essentially, Calhoon argues that because there is an intermediate step—the audit—his claims did not have the capacity to influence the government. But this ignores that the intermediaries necessarily rely on the information provided in the cost report to make their reimbursability determinations, and it ignores the reality of limited audit capability. See R.A. Vol. 6, pp. 70-71. The cost reports were sufficient to persuade the intermediary to authorize reimbursement without further investigation. They, therefore, had the capacity ” “to impair or pervert the functioning
Moreover, it makes no difference that the initial review for reimbursement is done by the intermediary as opposed to the governmеnt agency itself. The intermediaries are acting under contract with the Department of Health and Human Services, which relies, at least in part, on the intermediaries’ determination as to reimbursability of the costs.
II. SENTENCING ISSUES
A. Guideline Computation
Calhoon argues that the district court erred in determining that he is responsible for $31,000 in intended losses pursuant to U.S.S.G. § 2F1.1(b)(1). He contends that only actual loss is relevant and that the Medicare program sustained none.
Section 2F1.1(b)(1) of the United States Sentencing Guidelines requires that the offense levels be adjusted upward based on the loss attributable to the defendant. Loss “need not be determined with precision. The court need only make a reasonable estimate of the loss, given the available information.” U.S.S.G. § 2B1.1, comment. (n. 3) (1988); see U.S.S.G. § 2F1.1, comment. (n. 7) (1988) (referring to § 2B1.1). This court reviews district court loss calculations for clear error. United States v. Menichino, 989 F.2d 438, 440 (11th Cir.1993).
At sentencing, the government argued that Calhoon should bе held responsible for attempting to defraud the Medicare program of $1,596,365. R.A. Vol. 11, p. 22. The government arrived at this figure through a complex series of calculations based on the
Calhoon‘s assertion that he should be held responsible only for actual loss is withоut merit. The Sentencing Guidelines recognize that attempted or intended loss is a valid measure of culpability. U.S.S.G. § 2F1.1, comment. (n. 7) (1988); United States v. Shriver, 967 F.2d 572, 574 (11th Cir.1992). Calhoon‘s reliance on United States v. Wilson, 993 F.2d 214 (11th Cir.1993), is misplaced. In Wilson, this court held that incidental or consequential loss is not relevant for purposes of sentencing. Id. at 217. Wilson did not hold that actual loss need always be calculated; nor did it hold that intended loss is an inappropriate measure of loss. At sentencing, Calhoon admitted that, if the disputed claims had not been intercepted by an auditor, the claims could have netted CMC an additional $31,000 in reimbursements. That admission is sufficient to establish that, in making the false statements, he intended that the government suffer a loss in that amount. Cf. Shriver, 967 F.2d at 574.
Calhoon argues that the district court‘s refusal to grant an adjustment for acceptance of responsibility amounted to a penalty for exercise of his Sixth Amendment right to trial by jury. The government argues that the district court‘s decision was not clearly erroneоus and that Calhoon‘s constitutional rights were not infringed.
A defendant bears the burden of showing that he is entitled to an acceptance of responsibility reduction. United States v. Anderson, 23 F.3d 368 (11th Cir.1994). Even a defendant who pleads guilty is not entitled to a sentencing reduction for acceptance of responsibility as a matter of right. United States v. Anderson, 23 F.3d at 369; see United States v. Cruz, 946 F.2d 122, 126 (11th Cir.1991). “[A]cceptance of responsibility” is a “multi-faceted concept,” which considers
among other things, the offender‘s recognition of the wrongfulness of his conduct, his remorse for the harmful consequences of that conduct, and his willingness to turn away from that conduct in the future.
United States v. Scroggins, 880 F.2d 1204, 1215 (11th Cir.1989), cert. denied, 494 U.S. 1083, 110 S.Ct. 1816, 108 L.Ed.2d 946 (1990). This court reviews district court findings regarding acceptance of responsibility for clear error. United States v. Carroll, 6 F.3d 735, 739 (11th Cir.1993) cert. denied sub nom. Jessee v. United States, 510 U.S. 1183, 114 S.Ct. 1231, 127 L.Ed.2d 576 (1994).
At sentencing, Calhoon argued that he should be given credit for acceptance of responsibility because he had cooperated fully with authorities and had not denied any of the alleged overt acts.
Nor does such a denial violate Calhoon‘s constitutional rights. As this court has previously recognized, a reward in the form of an adjustment for acceptance of responsibility for those who plead guilty “does not equate with punishing one who does not follow such a course.” United States v. Castillo-Valencia, 917 F.2d 494, 501 (11th Cir.1990), cert. denied sub nom. Pulido-Gomez v. United States, 499 U.S. 925, 111 S.Ct. 3120, 113 L.Ed.2d 253 (1991); see also Carroll, 6 F.3d at 739-40 (Fifth Amendment right not to testify not infringed by failure to grant adjustment for acceptance of responsibility).
III. OTHER ISSUES
Calhoon raises a number of other issues, all of which are meritless. We address each briefly below.
A. Count Four Conviction: 100 Percent of Advertising Costs Were Reimbursed
“A document is false when made or used, if it is untrue and is then known to be untrue by the person making or using it.” Eleventh Circuit Pattern Jury Instructions, Criminal Cases, Offense Instruction 29 (1985); see United States v. Anderson, 579 F.2d 455 (8th Cir.1987). What made the claim for outreach false was that it concealed a material fact—the nature of the costs as advertising costs, which may or may not have been reimbursable. Calhoon, therefore, made a false statement the moment “outreach” was claimed in the cost report and supported by a general ledger reflecting the same. That the costs were ultimately reimbursed does not make the statement true when made.
As to materiality, section 1001 does not require proof that the statement actually misled the government; the false statement need only “have the capacity to impair or pervert the functioning of a government agency.” Diaz, 690 F.2d at 1357 (citing Lichenstein, 610 F.2d at 1278).
B. TEFRA and LCC Limitations
Two types of limitations set a ceiling on Medicare reimbursement. One is the “LCC” limitation: A provider may be reimbursed only for the lower of either actual costs or the charges for the services. The other was imposed by the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). Under TEFRA, a target
Calhoon argues that the TEFRA target rates applied to the cost reports relevant to all counts other than 2, 12, and 13. He points out that, although he did not self-disallow the royalty fees, CMCI interest, or advertising costs on the statement of total costs made in the cost reports, the total allowable costs without those disputed claims exceeded the TEFRA target amоunt. Because of the TEFRA cap, Calhoon argues, the government could not have been misled and his statements were, therefore, immaterial. The government responds that the TEFRA limitation could only have affected counts 6, 7, and 14 and that the TEFRA ceiling can be protested so as to permit increased reimbursement.
So far as we can tell from the record, the TEFRA limitation did not specifically bar reimbursement for any of the claimed nonreimbursable costs; all the cost reports are therefore material. In any event, the existence of the ceiling does not exculpate Calhoon from having made false reports.
C. Count Five: Calhoon Not “Official” Supervisor
Calhoon also argues that the conviction on count 5 must be reversed because, at the time this report was filed, he had not yet become reimbursement manager, and therefore, he could not have been
D. Deliberate Ignorance Instruction
Calhoon argues that the “deliberate ignorance” charge was unsupported by the evidence and, therefore, should not have been given to the jury. In determining whether sufficient evidence supported a jury charge, we review the evidence in the light most favorable to the government. Glasser v. United States, 315 U.S. 60, 80, 62 S.Ct. 457, 469-70, 86 L.Ed. 680 (1942).
Calhoon testified at trial that he knew royalty fees were not reimbursable but that he simply had not noticed they were included in a cost report because of his role as a hands-off manager. On this evidence, the jury could properly be instructed that he deliberatеly avoided knowledge of the specifics of reports. See United States v. Langford, 946 F.2d 798, 801-02 (11th Cir.1991), cert. denied, 503 U.S. 960, 112 S.Ct. 1562, 118 L.Ed.2d 208 (1992). Moreover, the evidence shows that Calhoon actually instructed his subordinates to claim the nonreimbursable costs. In view of the evidence of his direct involvement, it is difficult to see how the instruction could have been prejudicial.
E. Admission of Opinion Testimony on Outreach/Advertising
William E. Hoffman, Jr., former Senior Manager and Director of Appeals at CMC, testified that he had told Calhoon that he did
Calhoon cites United States v. Race, 632 F.2d 1114 (4th Cir.1980) in support of his argument. In Race, the falsity of the statements that served as the basis for a section 1001 conviction depended upon the interpretation of terms of a contract. The court held that expert testimony оn the meaning of the contract terms was superfluous and improper. Race, 632 F.2d at 1119-20.
Calhoon apparently cites Race for the proposition that the testimony here was erroneously admitted because it constituted
On whether the probative value was outweighed by an unfair prejudice, this court defers to the discretion of the trial court. United States v. Elkins, 885 F.2d 775, 784 (11th Cir.1989), cert. denied, 494 U.S. 1005, 110 S.Ct. 1300, 108 L.Ed.2d 477 (1990). We will reverse the trial court‘s decision to admit the testimony only if it were clearly an abuse of discretion. We find none here. The trial court instructed the jury regarding the limited purpose for which the testimony was offered. Moreover, in light of our conclusion that collapsing the advertising accounts into one category called “outreach” resulted in a false statement, we see no unfair prejudice that could have come from the challenged testimony.
Finally, Calhoon challenges the district court‘s denial of both his motion for a nеw trial and his motion for a directed verdict and acquittal. The foregoing discussion disposes of the merits of those challenges. The evidence was clearly sufficient to sustain Calhoon‘s convictions, so the trial court did not err in denying Calhoon‘s motions.
The judgment is AFFIRMED.