US v. Beth Palin & Joseph Webb (No. 16-4522, No. 16-4540)
Palin owned Mountain Empire Medical Care (“MEMC”), an addiction medicine clinic, and Bristol Laboratories (“the Lab”), which processed urine drug tests ordered by doctors. The Lab performed two types of urine tests: the basic, inexpensive “quick-cup” test and a more sophisticated, more expensive “analyzer” test. Referring doctors did not specify the type of test that was needed in any given case. Palin and Webb made that decision, instituting procedures in which insured patients were treated differently than uninsured patients. Uninsured patients paid cash and received the “quick-cup” test. Insured patients received both the “quick-cup” and the more expensive “analyzer” test. The Lab billed insurers for the sophisticated test. As a result, both Palin and Webb were charged with health care fraud and conspiracy to engage in health care fraud.
After a bench trial, the district court found Palin and Webb “knowingly and willfully executed a scheme to defraud health care benefit programs” in violation of §§ 1347 and 1349. The court found that performing additional, weekly, expensive tests for insured patients was not medically necessary; that insurers have rules prohibiting providers from submitting claims for unnecessary tests; and that Palin and Webb knew the additional tests were unnecessary but hid that fact when billing the insurers.
Palin and Webb moved for judgments of acquittal or, in the alternative, for a new trial, relying in part on Universal Health Services, Inc. v. United States ex rel. Escobar, — U.S. —, 136 S. Ct. 1989 (2016), which issued after the district court had found them guilty. They argued that Universal Health changed the materiality standard applicable to health care fraud under § 1347 and, under the new standard, their asserted misrepresentations were not material. On appeal, the Defendants further assert that because they billed insurers for the more sophisticated tests, and because the insurers regularly paid those claims despite knowing the type of test and the frequency of testing (weekly), it follows that “no material misrepresentations existed.” The Fourth Circuit rejects this argument, stating: “insurers would not have paid for the sophisticated tests had they known those tests were unnecessary. In contrast to the example discussed in Universal Health, the insurers here did not reimburse claims despite knowing Palin and Webb sought payment for tests that Palin and Webb knew were not medically necessary.”
The Fourth Circuit further holds that the district court did not abuse its discretion in refusing to order a new trial after the publication of Universal Health. Rather than granting a new trial after learning of the decision in Universal Health, the district court issued a second written opinion in which it found that the defendants’ misrepresentations were material. The Fourth Circuit notes that “the court’s holding that the misrepresentations at issue were material is amply supported by an extensive record.”
The Fourth Circuit also dispenses with the defendants’ challenges to the indictment and to the sufficiency of the evidence presented at trial.