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Loss amount upheld in Medicare fraud appeal but restitution and fine reversed

In U.S. v Bane, the defendant was convicted of committing federal Medicare fraud and raised three challenges on appeal: 1) his sentencing guidelines calculation, 2) the district court’s calculation of his restitution amount, and 3) the fine. Bane owned companies that provided Medicare patients with durable medical equipment including portable oxygen. Medicare only reimburses the equipment provider if the provider ensures the oxygen is medically necessary and requires that the provider send the patients to an independent laboratory for a “pulse oximetry” test, a non-evasive means of testing oxygen levels in blood. Instead of referring the patients to an independent lab, the defendant had the testing done at his own lab and directed employees to falsely represent they used independent labs and billed as if independent labs performed the exams.

The district court calculated the guidelines loss amount based on the amount of money the defendant billed Medicare for the oxygen equipment, which gave the defendant a 20-level increase because the amount billed exceeded $ 7 million. But the district court found that the oxygen was medically necessary for 80-90% of the patients, and the defendant argued that the dollar amount should be reduced accordingly. The court of appeals disagreed. Applying the special rule in guidelines Application Note 3(F)(v)(III), which states that “in a case involving a scheme in which…goods for which regulatory approval by a government agency was required but not obtained…loss shall include the amount paid for the property, services, or goods transferred…with no credit provided for the value of those items or services,” the majority held that the defendant should not receive credit for the value of oxygen given to patients even if the oxygen was medically necessary.

The court found the sophisticated enhancement was correctly imposed. The court rejected the defendant’s argument that his offense was not sophisticated because it involved a simple misstatement that an independent lab conducted the pulse oximetry test in order to qualify for Medicare reimbursement. The court found the offense met the guidelines commentary the defined sophisticated as “especially complex or especially intricate conduct pertaining to the execution or concealment of an offense.” The defendant created multiple corporations that appeared to be independent labs, created a paper trail to mask the fraud, and involved repetitive conduct designed to execute the fraud and evade detection.

The appeals court did reverse the restitution order and ruled the amount of restitution should be offset by the amount of medically necessary services that were actually provided. The victims who paid for the medically necessary oxygen paid no more than they would have paid if the tests had been performed by an independent entity. Restitution is not intended to provide a windfall for crime victims; it is only intended to ensure that victims are made whole for their loss. On remand the defendant must offer evidence to show what goods or services he offered were medically necessary.

The court of appeals reversed the $ 3 million fine. Under the statute the fine imposed could be a maximum of $250,000 for each felony conviction. Because the defendant was convicted of ten counts the maximum would be $2.5 million. Alternatively, the maximum fine could be not more than twice the amount of gross gain or gross loss from the offense. Here, the court calculated the fine to be twice the $ 7 million loss resulting from the offense. For this reason, the court imposed the higher fine at $3 million. But this was not a jury finding. Applying Apprendi, the court found the maximum authorized fine was 2.5 million based on the jury’s verdict and a higher fine violated the defendant’s Sixth amendment jury-trial guarantee.

In the dissent, Judge Jordan believes the majority misapplied Application Note 3(F)(v)(III). He believed that Application Note 3(E)(i) “Credits Against Loss” should apply because 80 – 90% of the patients had a need for the portable oxygen, citing U.S. v. Medina.