|||UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
51 F.3d 1390
|||filed: April 6, 1995.
|||THE HANLESTER NETWORK, ET. AL., PLAINTIFFS-APPELLANTS,
DONNA E. SHALALA, SECRETARY OF THE DEPARTMENT OF HEALTH AND HUMAN SERVICES, DEFENDANT-APPELLEE.
|||Appeal from the United States District Court for the Central District
of California. D.C. No. CV 92-4552 LHM. Linda H. McLaughlin, District Judge,
|||Patrick Hooper, Hooker, Landy & Bookman, Los Angeles, California for
all plaintiffs-appellants other than plaintiff-appellant Melvin Huntsinger,
M.D.; Martin Krawiec, Fullerton, California, for plaintiff-appellant Melvin
|||Larry J. Goldberg and John J. Meyer, Inspector General Division, Department
of Health and Human Services, Washington, D.C., for the defendant-appellee.
|||Before: Cecil F. Poole and Stephen Reinhardt, Circuit Judges, and Jack
District Judge. Opinion by Judge Tanner.
|||TANNER, District Judge:
|||Plaintiffs/appellants appeal the district court's grant of summary judgment
in favor of the Secretary, and denial of plaintiffs/appellants motion for
|||The issues presented are whether appellants violated the provisions of
the Medicare-Medicaid anti-kickback statue by (1) offering or paying remuneration
to physician limited partners to induce the referral of program-related
business to limited partnership laboratories, or (2) soliciting or receiving
remuneration "in return for" referrals by virtue of their management
agreement with Smithkline BioScience Laboratories (SKBL), and whether the
Secretary of the Department of Health and Human Services (Secretary) erred
in excluding appellants from Medicare and Medicaid participation for various
periods due to alleged violations of the Medicare/Medicaid anti-kickback
statute, 42 U.S.C. § 1320a-7b(b).
|||In order to resolve these issues, we must determine (1) whether the Secretary
properly interpreted the Medicare/Medicaid anti-kickback statute in the
context of health care joint ventures, (2) whether the statute is unconstitutionally
vague as applied to the facts of this case, and (3) whether appellants knowingly
and willfully committed the acts which are alleged to violate the anti-kickback
statute. We have jurisdiction pursuant to 42 U.S.C. § 1320a-7(f)(1) and
405(g). We AFFIRM in part and REVERSE in part.
|||In 1987, The Hanlester Network (Hanlester), a California general partnership,
was formed. The original general partners in Hanlester were the Hanlester
Corporation, James A. Padova, M.D., Inc., a California medical corporation,
Gene Tasha, and Ned Welsh.*fn1
The Hanlester Corporation owned the majority interest in the Hanlester Network
prior to 1989.
|||Kevin Lewand served as President of Hanlester until January 1989, while
Tasha served as Vice President of Operations, Patricia Hitchcock served
as Hanlester's Vice President of Marketing until November 1988, and Welsh
served as Vice President, Business Development, and a general partner at
Hanlester. Welsh ceased being a general partner or executive in Hanlester
in the summer of 1987. In January 1989, the Hanlester Corporation sold its
interest in the Hanlester Network to Tasha, and was renamed the Keorle Corporation.
|||On April 9, 1987, Hanlester and SKBL entered into a master laboratory
service agreement. In that agreement, SKBL agreed to provide laboratory
management services to all joint venture laboratories in which Hanlester
had an ownership interest.*fn2
Hanlester had exclusive authority to make all management decisions for Placer,
PPCL, and Omni.
|||Between March 1987 and March 1988, Hanlester issued private placement
memoranda offering limited partnership shares in PPCL, Placer, and Omni.
The purpose of the private placement memoranda was to offer limited partnership
shares in joint venture laboratories. Hanlester marketed limited partnership
shares, and offered investors partnership shares in Omni, Placer, and PPCL
for a minimum three shares at $500 each. On July 27, 1987, SKBL entered
into a laboratory management agreement with PPCL. The agreement required
PPCL to provide the services of a licensed Medical Director, and to pay
SKBL a monthly management fee of $15,000 or 80% of all net cash receipts,
whichever was greater.*fn3
Hanlester and SKBL entered into a laboratory support services agreement
in which Hanlester would set up and service client accounts for PPCL.
|||Subsequently, SKBL executed laboratory management agreements with the
other Hanlester laboratories under which SKBL agreed to supervise their
administrative and operational activities; provide and compensate all staff
to operate them; provide and maintain all lab equipment not already provided
by the labs; and to conduct all billing and collection activities for them.
In accordance with these agreements, 85 to 90% of tests physicians ordered
from the Hanlester labs were performed at SKBL facilities in California.
|||Hanlester was notified by the Investigator General (I.G.) of the Department
of Health and Human Services (DHHS) in December 1989 that he had determined
that the Hanlester respondents (hereafter referred to as appellants) had
violated § 1128B(b)(2) of the Social Security Act (the Act) by offering
and paying remuneration to physician-investors to induce them to refer laboratory
tests to the three Hanlester laboratories. The Hanlester appellants were
also told they had violated § 1128B(b)(1) of the Act by soliciting and receiving
payments from SKBL in return for referrals of lab tests, and that it would
be proposed that all of the appellants be excluded from the Medicare and
state hearth care programs under § 1128(b)(7) for varying periods of time.*fn4
The Hanlester appellants requested a hearing on the proposed exclusions
before an Administrative Law Judge (ALJ).*fn5
An evidentiary hearing was conducted and the ALJ issued his initial decision
March 1, 1991. The ALJ concluded that appellants Hanlester, PPCL, Placer,
and Omni violated § 1128B(b)(2) through the actions of their agent, Patricia
Hitchcock, while Lewand, Tasha, Welsh, Huntsinger and Keorle had not. The
ALJ also concluded that none of the appellants knowingly and willfully solicited
or received any remuneration for referring program-related business in violation
of § 1128B(b)(1) of the Act. The ALJ declined to impose permissive exclusions
from Medicare or Medicaid based on the violations. The I.G. then appealed
to an Appellate Panel of the Departmental Appeals Board (DAB), alleging
error in nine of the ALJ's 227 findings and Conclusions. On September 18,
1991, the DAB reversed all findings excepted to by the I.G., remanded the
matter to the ALJ for further proceedings consistent with its determination
concerning the applicable legal standard, and instructed the ALJ as to the
factors to consider in determining whether an exclusion ought to be imposed.
|||In its March 1992 Decision on Remand, the ALJ found that all nine appellants
had violated § 1128B(b)(2) of the Social Security Act by knowingly and willfully
offering or paying remuneration to physicians to induce them to refer program-related
business. The ALJ also found that all appellants except Welsh and Huntsinger
violated § 1128B(b)(1) by knowingly and willfully soliciting or receiving
remuneration in return for referring program-related business. The ALJ further
concluded that permissive exclusions under § 1128(b)(7) were necessary for
some, but not all appellants.*fn6
|||In the DAB's July 1992 Final Decision, the DAB affirmed the ALJ's findings
and Conclusions with respect to the violations by appellants, but vacated
his decision not to impose exclusions on all appellants. Hanlester appealed
to the district court and moved for summary judgment, and the Secretary
cross-claimed for summary judgment. The district court granted the Secretary's
motion for summary judgment, and denied appellants' motion for summary judgment.
Appellants timely appealed.
|||I. Standard of Review
|||We review the decision of the district court affirming the Secretary's
final decision de novo. Gamer v. Secretary of Health and Human Services,
815 F.2d 1275,
1278 (9th Cir. 1987). Summary judgment is appropriate if, viewing the evidence
in the light most favorable to the non-moving party, there are no genuine
issues of material fact and the moving party is entitled to judgment as
a matter of law. Fed.R.Civ.P. 56(c). We must affirm if the Secretary correctly
applied the law, and the Secretary's findings are supported by substantial
evidence. Brawner v. Secretary of Health and Human Services,
839 F.2d 432,
433 (9th Cir. 1988). In reviewing the evidence, this court must examine
the administrative record as a whole. Davis v. Heckler,
868 F.2d 323,
326 (9th Cir. 1989).
|||This is the first instance in which physician self-referral joint ventures
have been challenged under the Act, and in which the Act has been applied
to arrangements other than kickbacks, bribes, or rebates, as a basis for
excluding persons from participation in Medicare/Medicaid programs.
|||Nothing in the language of the statute itself prohibits joint venture
arrangements. We must, therefore, look to the legislative history, the Act's
purpose and context to determine whether such arrangements violate the statute.
|||Congress, concerned with escalating fraud and abuse in the Medicare-Medicaid
system, amended the misdemeanor anti-kickback statute in 1977 to strengthen
the government's ability to prosecute and punish fraud in the system. Language
was added prohibiting (1) the solicitation or receipt of "any remuneration
(including any kickback, bribe, or rebate) directly or indirectly, overtly
or covertly, in cash or in kind," in return for referrals, and (2)
the offer or payment of such remuneration to "induce" referrals.
Medicare-Medicaid Anti- fraud and Abuse Amendments, Pub. L. No. 95-142,
91 Stat. 1175, 1182 (1977). Congress also upgraded the violation to a felony.*fn7
|||In 1987, Congress consolidated the anti-kickback laws for Medicare and
state health care programs into § 1128B(b) of the Social Security Act, 42
U.S.C. § 1320a-7b. Also through amendment, Congress authorized the exclusion
from Medicare or Medicaid program participation of individuals or entities
found by the Secretary to have committed an act proscribed by § 1128B(b)
of the Act. Medicare and Medicaid Patient and Program Protection Act of
1987, Pub. L. No. 100-93, 101 Stat. 680, 681-682, 689.
|||Both § 1128B(b)(1), which prohibits solicitation or receipt of remuneration
"in return for" the referral of program-related business, and
(b)(2), which proscribes offers or payments of remuneration "to induce"
referrals of program-related business, are implicated here.
|||Proof of Agreement
|||We first address the threshold question of whether proof of an agreement
is required to establish a violation of either subsection of the anti-kickback
|||The courts have not held that proof of an agreement to refer program-related
business is a prerequisite to establishing a violation of § 1128B.
|||The cases which appellants rely on involve interpretations of former bribery
statute 18 U.S.C. § 201. They do not support appellants' contention that
the "in return for" language in § 1128B(b)(1) is contract-type
language which contemplates a quid pro quo, which in turn implies a promise,
contract, or agreement.*fn8
|||In United States v. Strand,
574 F.2d 993,
995 (9th Cir. 1978), this court focused on the mens rea required for a violation
of the bribery statute, defining "corrupt intent" as "incorporating
a concept of the bribe being the prime mover or producer of the official
act." Id. at 996. The court recognized that the inducement to commit
the violation was the bribe, i.e., the quid pro quo. It did not indicate
that the quid pro quo had to take the form of an agreement.
|||Similarly, In United States v. Johnson,
621 F.2d 1073,
1076 (10th Cir. 1980), the focus was again on the inducement factor. The
Tenth Circuit held that to establish the crime of offering a bribe under
§ 201(b)(1), the government must show that the money was knowingly offered
to an official with the intent and expectation that, in exchange for the
money, some act of a public official would be influenced.*fn9
Id. Neither case construed "in return for" as a quid pro quo which
implies a promise, contract or agreement.
|||While admitting that subsection (b)(2) of the anti-kickback statute does
not contain the "in return for" language, appellants contend that
Congress meant the crime of soliciting or receiving remuneration under (b)(1),
and the crime of offering or paying under (b)(2), to have the same elements
for payor and payee. They infer from this that a quid pro quo imposed on
(b)(1) should be applied to (b)(2) as well. See United States v. Bay State
Ambulance & Hospital Rental Srvcs.,
874 F.2d 20,
34 (1st Cir. 1989). Since we reject the proposition that proof of an agreement
is necessary under § 1128B(b)(1), we must reject appellants' argument that
the same requirement is imposed on § 1128B(b)(2).
|||When interpreting statutes, the starting point is the language of the
statute itself. Ardestani v. INS, 502 U.S. 129,
112 S. Ct. 515,
116 L. Ed. 2d 496
(1991). There is no reference to an agreement in the statute. "When
a statute speaks with clarity to an issue[,] judicial inquiry into the statute's
meaning, in all but the most extraordinary circumstances, is finished."
Estate of Cowart v. Nicklos Drilling Co.,
120 L. Ed. 2d 379,
112 S. Ct. 2589,
2594 (1992). Canons of statutory construction, such as the Rule of Lenity,
are employed only where "reasonable doubt persists about a statute's
intended scope even after resort to 'the language, and structure, legislative
history and motivating policies' of the statute." Moskal v. United
498 U.S. 103,
111 S. Ct. 461,
112 L. Ed. 2d 449
(1990), (quoting Bifulco v. United States,
447 U.S. 381,
65 L. Ed. 2d 205,
100 S. Ct. 2247
|||There is no basis in the statute, case law or legislative history to require
an agreement to refer program-related business.*fn10
|||Appellants claim that the statute does not give fair warning of the standards
by which their conduct is to be Judged.*fn11
|||The Supreme Court has stated that a "criminal statute must be sufficiently
definite to give notice of the required conduct to one who would avoid its
penalties." Boyce Motor Lines, Inc. v. United States,
342 U.S. 337,
72 S. Ct. 329,
96 L. Ed. 367
|||In Village of Hoffman Estates v. The Flipside,
455 U.S. 489,
71 L. Ed. 2d 362,
102 S. Ct. 1186,
(1982), the court enumerated four factors affecting a vagueness inquiry,
including whether or not the statute at issue (1) involved only economic
regulation, (2) contained only civil, not criminal penalties, (3) contained
a scienter requirement, which might mitigate any vagueness, and (4) threatened
any constitutionally protected rights. Id. at 498-99.
|||These factors militate against finding the anti-kickback statute void
for vagueness. The statute regulates only economic conduct. It chills no
constitutional rights. While the statute allows for criminal penalties,
it requires "knowing and willful" conduct, a requirement which
mitigates any vagueness in the statute. Bay State Ambulance,
874 F.2d at 32-33.
|||In cases construing earlier versions of the anti-kickback statute, the
courts held that the statute was not unconstitutionally vague.*fn12
The current version of the statute gives us even greater guidance, having
been amended in 1977 to clarify the scope of the statute. The statute gives
fair warning of what is prohibited and is not unconstitutionally vague.
|||Offer or Payment to Induce Referrals
|||The Secretary claims that appellants knowingly and willfully engaged in
conduct which violated the anti-kickback laws. We address the subsection
(b)(2) violation first.
|||In order to find a violation of § 1128B(b)(2) of the Social Security Act
(42 U.S.C. § 1320a-7b(b)(2)), we must conclude that appellants knowingly
and willfully offered or paid remuneration to induce referrals of program-related
|||Congress introduced the broad term "remuneration" in the 1977
amendment of the statute to clarify the types of financial arrangements
and conduct to be classified as illegal under Medicare and Medicaid. H.R.
Rep. No. 95-393, Pt. II, 95th Cong., 1st Sess. 53 reprinted in 1977 U.S.C.C.A.N.
3039, 3056. The phrase "any remuneration" was intended to broaden
the reach of the law which previously referred only to kickbacks, bribes,
|||Appellants argue that the term "induce" is synonymous with "to
encourage", and that encouragement is not prohibited by the statute.
Appellants are correct that mere encouragement would not violate the statute.
However, the term "induce" is not defined simply by reference
to influence or encouragement.
|||The term "induce" has been defined as follows: to bring on or
about, to affect, cause, to influence to an act or course of conduct, lead
by persuasion or reasoning, incite by motives, prevail on. Black's Law Dictionary,
697 (6th ed. 1990).
|||The Secretary determined that the phrase "to induce" in § 1128B(b)(2)
of the Act connotes "an intent to exercise influence over the reason
or judgment of another in an effort to cause the referral of program-related
business". We agree with this interpretation. We now look to the conduct
of the parties to determine whether the statute was violated.
|||The I.G. argued that appellants unlawfully induced referrals in the way
in which they marketed the limited partnerships.*fn14
|||At the time appellants entered into the management agreements, these types
of arrangements were fairly common. Health care joint ventures such as that
entered into by appellants were not per se unlawful. The evidence shows
that Hanlester desired to comply with the law and structured its business
operation in a manner which it believed to be lawful. There is ample evidence
that appellants intended to encourage limited partners to refer business
to the joint venture laboratories. The appellants offered physicians the
opportunity to profit indirectly from referrals when they could not profit
directly. Potential partners were told that the success of the limited partnerships
depended on referrals from the limited partners. While substantial cash
distributions were made to limited partners by the joint venture labs, dividends
were paid to limited partners based on each individual's ownership share
of profits, and not on the volume of their referrals. Payments were made
to limited partners whether or not they referred business to the joint venture
|||The fact that a large number of referrals resulted in the potential for
a high return on investment, or that the practical effect of low referral
rates was failure for the labs, is insufficient to prove that appellants
offered or paid remuneration to induce referrals. The conduct of Patricia
Hitchcock, however, is another matter.
|||Hanlester told prospective limited partners of the joint venture labs
that the private placement memoranda issued for the limited partnerships
were the only sales material which could be used in connection with the
sale of shares. In spite of this, Ms. Hitchcock implied that eligibility
to purchase shares depended on an agreement to refer program-related business;
told prospective limited partners that the number of shares they would be
permitted to purchase in PPCL, Omni, and Placer would depend on the volume
of business that they referred to the labs; and stated that partners who
did not refer business would be pressured to leave the partnerships. Hitchcock
also told potential investors that the partners' return on their investment
would be virtually guaranteed. Hitchcock's representations to limited partners
constitutes offers of payment to induce referrals of program-related business.
|||The ALJ found that Patricia Hitchcock, acting as an agent of the Hanlester
Network and the joint venture laboratories, violated section 1128B(b)(2),
and held the Hanlester Network, PPCL, Omni, and Placer liable for her acts
on the theory of respondeat superior.*fn15
|||In order to prove that appellants violated the anti-kickback statute,
the government must also prove that appellants' conduct was knowing and
willful. 42 U.S.C. § 1320a-7b.*fn16
|||The Scienter Requirement
|||Appellants argue that under the rationale of United States v. Dahlstrom,
713 F.2d 1423,
1427 (9th Cir. 1983), their conduct cannot be knowing and willful. In Dahlstrom,
this court held that a defendant could not be found to have acted willfully
where the interpretation of a statute was "highly debatable" as
applied to defendant's conduct. Id. at 1428 (court held the legality of
a tax shelter program advocated by defendants was completely unsettled by
any clearly relevant precedent). This is not such a case.
|||However, the Dahlstrom court also held that "willful" requires
proof of a specific intent to do something which the law forbids. The Supreme
Court has defined "Willfully" as "a voluntary, intentional
violation of a known legal duty". United States v. Pomponio,
429 U.S. 10,
50 L. Ed. 2d 12,
97 S. Ct. 22
(1976) (per curiam). Most recently, the Supreme Court has ruled that to
establish willfulness, the Government must prove that defendants knew their
conduct was unlawful. Ratzlaf v. United States,
126 L. Ed. 2d 615,
114 S. Ct. 655,
657 (1994). The Supreme Court in Ratzlaf interpreted the term "willfulness"
in the context of § 5322 and its related code sections. The Court held that
willfulness requires both knowledge of the reporting requirement, and specific
intent to commit the crime [of structuring].*fn17
|||We construe "knowingly and willfully" in § 1128B(b)(2) of the
anti-kickback statute as requiring appellants to (1) know that § 1128B prohibits
offering or paying remuneration to induce referrals, and (2) engage in prohibited
conduct with the specific intent to disobey the law.
|||Liability of the Hanlester Network and Joint Venture Labs
|||Patricia Hitchcock's representations to limited partners exceeded the
parameters of the private placement memorandum issued by the Hanlester Network.
Her actions reflect both knowledge that her conduct was unlawful, and a
specific intent to disobey the law. Her conduct was knowing and willful.
|||Because Hitchcock was acting as an agent for Hanlester and the join venture
labs, these corporate entities may be held vicariously liable for her actions.
See Boise Dodge v. U.S.,
406 F.2d 771
(9th Cir. 1969) (a corporation through its agents may be convicted of a
crime requiring knowledge and willfulness). Moreover, the fact that Hitchcock
acted contrary to the corporations' stated policy does not absolve them
of liability. See, United States v. Beusch,
596 F.2d 871
(9th Cir. 1979) (Finding that a corporation may be liable for acts of its
employees done contrary to express instructions and policies.) "Merely
stating or publishing [ ] instructions and policies without diligently enforcing
them is not enough to place the acts of an employee who violates them outside
the scope of his employment." Id. at 878. The ALJ determined that Hanlester
and the joint venture labs permitted Hitchcock to engage in conduct violative
of § 1128B within the scope of her employment. Thus, the Secretary's finding
that Respondents Hanlester, Placer, Omni and PPCL "knowingly and willfully"
violated § 1128B(b)(2) through the conduct of their agent, Ms. Hitchcock,
is supported by substantial evidence in the record.
|||Vicarious liability, however, does not extend to the partners individually.
United States v. A & P Trucking Co.,
358 U.S. 121,
3 L. Ed. 2d 165,
79 S. Ct. 203
|||We find that Appellants Tasha, Welsh, Huntsinger, Keorle, and Lewand did
not knowingly and willfully violate subsection (b)(2) of the anti-kickback
|||There is no evidence that Lewand, Tasha, Welsh, Huntsinger or Keorle either
directed or approved of the unauthorized representations made by Patricia
Hitchcock in any way. In fact, Ms. Hitchcock's actions were contrary to
|||The I.G. did not prove that any of the individual appellants conditioned
the purchase of shares on an agreement to order tests; or that they conditioned
the number of shares sold on the amount of business that the physicians
agreed to refer; or authorized the ouster of partners who failed to refer
business. Therefore, these appellants are not personally liable for the
unlawful conduct of Hanlester, PPCL, Omni, and Placer, which resulted from
Ms. Hitchcock's unlawful acts. To the extent that the Secretary now contends
that appellants' conduct was unlawful, any illegality was not intentional.
|||We now consider whether appellants violated § 1128B(b)(1).
|||Solicitation or Receipt of Remuneration in Return for Referrals
|||Subsection (b)(1) prohibits the receipt of remuneration in return for
|||The Secretary characterized the joint venture labs as "sham"
operations which served as mere conduits for the payment of monies to physicians
in return for the referral of tests from the labs to SKBL.*fn20
|||The anti-kickback statute proscribes solicitation or receipt of remuneration
directly or indirectly, overtly or covertly, in cash or in kind.
|||In Bay State Ambulance,
874 F.2d 20,
the court held that "remuneration" encompasses both sums for which
no actual service was performed, and sums for which some service was performed.
Id. at 30.
|||The master laboratory services agreement between Hanlester and SKBL specified
that PPCL, Omni, and Placer were required to provide facilities and equipment
necessary for the operation of the clinical labs, and to repair and maintain
lab space and pay utility charges. SKBL had a duty to staff, operate, and
supervise the labs, and to conduct all billing and collection activities
on their behalf. SKBL was to receive a fee of 76 percent of the laboratories'
net revenues. The appellants received 24 percent of net revenues.
|||There is no question that appellants received substantial economic benefit
from their relationship with SKBL. In addition to a net profit, appellants
received benefits in the form of (1) SKBL's assumption of the operating
risks and management responsibilities for the laboratories and appellants'
corresponding relief from those duties, (2) SKBL's payment of anticipated
receipts in advance, and (3) the use of SKBL's name and reputation as an
enticement for enlisting potential limited partners.
|||The management services agreement between SKBL and appellants reflects
a relatively common practice in the clinical laboratory field. There is
no evidence that appellants intended to conceal payments from SKBL to physicians
in return for referrals.
|||The Hanlester appellants believed their conduct to be lawful. The evidence
shows that no payments were made to appellants, and that payments actually
flowed from PPCL, Omni, and Placer to SKBL in the form of fees for its management
|||The I.G. did not prove that any of the appellants intentionally solicited
or received remuneration from SKBL in return for referrals. Therefore, the
Secretary's finding that appellants "knowingly and willfully"
solicited and received remuneration in return for referrals is not supported
by substantial evidence.
|||Permissive Program Exclusions
|||The Secretary's authority to impose a civil remedy against parties who
violate § 1128B(b) derives from § 1128(b)(7), which applies to "any
individual or entity" whom the Secretary determines has committed an
act described in § 1128B.
|||The remedial purpose of § 1128(b) is to enable the Secretary to protect
federally-funded health care programs and their beneficiaries and recipients
from future conduct which is or might be harmful. Social Security Act, section
|||There is no evidence that Hanlester, PPCL, Omni, or Placer caused harm
to the Medicare or Medicaid programs. Because liability is strictly vicarious,
emanating totally from the conduct of Ms. Hitchcock, any untrustworthiness
on the part of the Hanlester appellants which existed while Hitchcock represented
them ceased to exist once Hitchcock left the employ of Hanlester. Exclusion
of these appellants is therefore unnecessary to meet the remedial purposes
of the Act.*fn21
|||Since we find that Lewand, Tasha, Huntsinger, Keorle and Welsh did not
violate either subsection of § 1128B, no remedial purpose would be served
by excluding these appellants. Based on the foregoing, we AFFIRM the Secretary's
Conclusion that appellants Hanlester, Omni, Placer and PPCL violated subsection
(b)(2) of § 1128B. We REVERSE the Secretary's Conclusion that any of appellants
violated subsection (b)(1) of § 1128B, and REVERSE the imposition of permissive
exclusions on appellants.
Honorable Jack E. Tanner, Senior United States District Judge for the Western
District of Washington, sitting by designation.
in this case (Respondents below) are: The Hanlester Network (Hanlester);
the Keorle Corporation (Keorle); Pacific Physicians Clinical Laboratory
(PPCL); Omni Physicians Clinical Laboratory, Ltd. (Omni); Placer Physicians
Clinical Laboratory, Ltd. (Placer); Kevin Lewand, Gene Tasha, Melvin L.
Huntsinger, M.D., and Ned Welsh.
had an interest in Respondents Omni, Placer and PPCL.
subsequently entered into the same fee arrangement with Omni and Placer.
§ 1128(b)(7) of the Social Security Act, 42 U.S.C. § 1320a-7(b), authorizes
permissive exclusions from Medicare (Title XVIII of the Act) and several
"State health care programs" including Medicaid (Title XIX of
the Act) for any individual or entity which violates §§ 1128B(b) of the
Hitchcock is not a party to this lawsuit.
exclusions were imposed for Lewand, Tasha, Welsh, Huntsinger, and Keorle.
previous amendments made it a misdemeanor to solicit, offer, or receive
a "kickback, bribe, or rebate" in connection with furnishing covered
services or referring a patient to a provider of those services. Social
Security Amendments of 1972, Pub. L. No. 92-603, § 242(b), (c), 86 Stat.
to an amendment in 1986, former 18 U.S.C. § 201(c)(3) made it a crime for
a public official to "corruptly" accept anything of value "in
return for being induced to do or omit to do" any act in violation
of his official duty.
§ 201(b) made it a crime to "corruptly" offer or give anything
of value with intent to induce or influence an official act.
Appellants also rely on McCormick v. United States,
500 U.S. 257,
111 S. Ct. 1807,
114 L. Ed. 2d 307
(1991), involving a Hobbs Act violation. In McCormick, the Supreme Court
was construing the definition of "extortion", not the phrase "in
return for" as Appellants claim. While requiring a quid pro quo in
the form of an explicit promise in the context of the receipt of campaign
contributions in return for sponsoring legislation, the Court stressed it
was "not deciding whether a quid pro quo requirement exists in other
contexts." Id. at 1817, n.10.
Appellants claim that vagueness is inherent in the statute because of "uncertainty"
resulting from "interpretations" supposedly issued by HHS in the
early 1980's, correspondence from the OIG to the author of the Stark Bill
regarding the task of drawing clear lines of demarcation between lawful
and unlawful acts," and the adoption of "safe harbor" regulations.
See United States v. Perlstein,
632 F.2d 661
(6th Cir. 1980), and United States v. Tapert,
625 F.2d 111
(6th Cir. 1980), interpreting 42 U.S.C. § 1396h(b)(1) of the Social Security
The relevant portions of § 1128B(b)(2) read:
(2) whoever knowingly and willfully offers or pays any remuneration (including
any kickback, bribe, or rebate) directly or indirectly, overtly or covertly,
in cash or in kind to any person to induce such person - (B) to purchase,
lease, order or arrange for or recommend purchasing, leasing, or ordering
any good, facility, service, or item for which payment may be made in
whole or in part under [Medicare or Medicaid], shall be guilty of a felony
. . .
The marketing strategy was to enlist physician investors who were in a position
to refer substantial quantities of tests to joint venture labs.
In the 1991 Decision, the ALJ found that Hanlester and the joint venture
labs permitted Ms. Hitchcock to engage in conduct within the scope of her
agency relationship which violated § 1128B(b)(2). Because this liability
was essentially vicarious, the ALJ decided not to impose any exclusions
on the individual plaintiffs. (ALJ Decision '91, at 297).
The legislative history demonstrates that Congress, by use of the phrase
"knowingly and willfully" to describe the type of conduct prohibited
under the anti-kickback laws, intended to shield from prosecution only those
whose conduct "while improper, was inadvertent." H.R. No. 96-1167,
96th Cong., 2d Sess. 59 (1980).
Ratzlaf was convicted of structuring financial transactions to avoid currency
reporting requirements under the anti-structuring provisions of the Money
Laundering Control Act of 1986, 31 U.S.C. § 5324. The Supreme Court held
that to establish that defendant willfully violated the anti-structuring
law, the government must prove defendant acted with knowledge that his conduct
was unlawful. Id. at 657.
Appellants told physicians that under California law, it would be illegal
to offer or pay consideration to a physician to induce or compensate that
physician to refer patients to a laboratory.
The relevant text of section § 1128B(b)(1) states:
(1) whoever knowingly and willfully solicits or receives any remuneration
(including any kickback, bribe, or rebate) directly or indirectly, overtly
or covertly, in cash or in kind - (B) in return for purchasing, leasing,
ordering, or arranging for or recommending purchasing, leasing, or ordering
any good, facility, service, or item for which payment may be made in
whole or in part under [Medicare or Medicaid], shall be guilty of a felony.
The Secretary determined that the Hanlester appellants solicited and received
from SKBL substantial economic benefits in return for channelling a referral
stream of tests to SKBL.
This may be a moot point, since the joint venture labs are already out of
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