United States v. Bay State Ambulance & Hospital Rental Service, Inc.
1989 WL 42580, 874 F.2d 20, 1989 U.S. App. LEXIS 5874 (1989)
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Rule of Law:
A payment violates the federal Medicare anti-kickback statute if one purpose of the payment is to induce future referrals, even if the payment also serves as compensation for legitimate services. If a payment serves both a legitimate and an improper purpose, it is illegal if the improper purpose was the primary reason for the payment.
Facts:
- John L. Felci, an official at Quincy City Hospital (QCH), was responsible for the daily oversight of the city's ambulance contract, held by Bay State Ambulance, whose president was Michael G. Kotzen.
- In 1982, a QCH CEO ordered Felci to have no decision-making power in future contracts involving Bay State due to an appearance of impropriety after Bay State paid for Felci's trip to a conference.
- Beginning in the summer of 1983, while still employed by QCH, Felci began working as a paid consultant for Bay State. In June 1983, he received a 1983 Buick from a corporation owned by Kotzen.
- In late 1983, QCH started the process to rebid the ambulance contract, and Felci was appointed to the bid review committee. He did not disclose his consulting relationship with Bay State or the car he had received.
- Felci significantly influenced the new contract specifications, adding requirements that favored Bay State, such as a five-year service history and specific computer-generated statistics that he was secretly helping Bay State develop.
- Felci played a central role in drafting bid comparison documents for the committee, which presented Bay State's proposal in highly favorable terms while raising questions about its competitor, Brewster Ambulance Service.
- The bid committee, which included Felci, unanimously voted to recommend Bay State for the new contract. The contract was officially awarded to Bay State on May 23, 1984.
- On May 24, 1984, the day after the contract was signed, Felci received a Mazda automobile from another corporation owned by Kotzen.
Procedural Posture:
- The United States indicted Bay State, Michael G. Kotzen, and John L. Felci in a federal trial court (United States District Court) on charges of conspiracy to commit Medicare fraud and several substantive counts of making and receiving illegal payments.
- A jury found the defendants guilty of the conspiracy count and two substantive counts related to the transfers of a Buick and a Mazda.
- The jury was hung on one substantive count and found the defendants not guilty on six other substantive counts, all of which related to check payments.
- The trial court denied the defendants' post-trial motions and imposed sentences.
- The defendants (appellants) appealed their convictions to the United States Court of Appeals for the First Circuit, with the United States as the appellee.
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Issue:
Does a payment to an individual in a position to recommend Medicare-reimbursable services violate the Medicare anti-kickback statute if the payment's primary purpose is to induce such a recommendation, even if the payment also serves as compensation for legitimate services rendered?
Opinions:
Majority - Bownes, J.
Yes, a payment to an individual in a position to recommend Medicare-reimbursable services violates the Medicare anti-kickback statute if its primary purpose is to induce such a recommendation, even if it also compensates for legitimate services. The court held that the gravamen of Medicare fraud is inducement. Citing United States v. Greber, the court reasoned that the statute targets the 'inducement factor' because the potential for an unnecessary drain on the Medicare system remains even if some service is performed for the money. The statute's use of the broad term 'any remuneration' includes payments for which some professional time was expended. Therefore, the trial court did not err in instructing the jury that it could convict if it found the 'improper purpose is the primary purpose' for the payments. The court also rejected the argument that the statute was unconstitutionally vague, holding that the high scienter requirement of 'knowing and willful' conduct mitigates any vagueness by focusing on the defendant's corrupt intent.
Analysis:
This decision aligns the First Circuit with other circuits, like the Third Circuit in United States v. Greber, in broadly interpreting the Medicare anti-kickback statute. It establishes that a 'fair market value' defense for payments is not absolute; if the primary intent behind the payment is to induce referrals, the payment is illegal. This ruling places a heavy burden on healthcare entities to ensure that any financial relationships with potential referral sources are structured to avoid any appearance of being an inducement. The 'primary purpose' test creates a fact-intensive inquiry for juries, focusing on the subjective intent of the parties rather than solely on the objective value of the services rendered.
