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| [1] | UNITED STATES COURT OF APPEALS, SEVENTH CIRCUIT |
| [2] | Nos. 77-1276, 79-1161 |
| [3] | 1979.C07.40367 <http://www.versuslaw.com>;
604 F.2d 999 |
| [4] | decided: July 9, 1979. |
| [5] | UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE, v. WILLIAM HANCOCK AND PAUL A. PALOMBI, DEFENDANTS-APPELLANTS. |
| [6] | Appeal from the United States District Court for the Northern District
of Indiana, Fort Wayne Division. Nos. F-Cr-76-77 & F-Cr-76-79 -- Jesse
E. Eschbach, Judge . |
| [7] | Howard S. Siegrist, Southfield, Mich., for defendants-appellants. |
| [8] | Richard L. Kieser, South Bend, Ind., for plaintiff-appellee. |
| [9] | Before Fairchild, Chief Judge, and Cummings and Tone, Circuit Judges. |
| [10] | Author: Per Curiam |
| [11] | These two appeals arise from a series of indictments filed against several
chiropractors for soliciting and receiving kickbacks in Medicare and Medicaid
cases, 42 U.S.C. §§ 1395nn(b)(1) (Medicare) and 1396h(b)(1) (Medicaid) (1972)
(amended 1977).*fn1
In separate proceedings, each defendant entered a plea of nolo contendere
to one count of his indictment and was adjudged guilty as charged. These
appeals have been consolidated because both of these defendants have raised
challenges to the sufficiency of the indictments and the constitutionality
of the statutes.*fn2
We hold that the indictments sufficiently allege the crime of receiving
a kickback under the statutes and that the kickback statutes are not unconstitutionally
vague. |
| [12] | I. |
| [13] | Both defendants contend that their conduct did not constitute a crime.
By pleading Nolo contendere, however, the defendants have admitted the allegations
in the indictments and waived all nonjurisdictional defects in the proceedings,
including all defects in the indictments, other than sufficiency. United
States v. Michigan Carton Co.,
552 F.2d 198
(7th Cir. 1977). Therefore, the issue raised by this contention is whether
the indictments sufficiently allege the crime of receiving a kickback under
§ 1396h(b)(1). |
| [14] | Briefly, the indictments allege the following conduct by the defendants.
Defendants Hancock and Palombi are doctors of chiropractic licensed to practice
in Michigan and Indiana, respectively. Between 1973 and 1975, the defendants
used the services of a certain medical laboratory, Chem-Tech Laboratory
of Fort Wayne, Indiana. The defendants obtained blood and tissue specimens
from their patients and sent the specimens to Chem-Tech for testing. Along
with the specimens, the defendants filled out and submitted test request
forms, including billing information on the patient containing Medicare
or Medicaid recipient numbers where applicable. Chem-Tech then billed the
patient, his insurer, or, pertinent to this case, the state agency handling
Medicare and Medicaid funds. Finally, the indictments allege that the defendants
"did solicit and receive kickbacks from Chem-Tech . . . for referring
Medicare and Medicaid recipients' blood and tissue specimens to Chem-Tech
. . . ." The defendants claim the payments received from Chem-Tech
were legitimate "handling fees" for the actual services of obtaining,
packaging, and sending the samples, and then interpreting the results of
the tests. The indictment labelled the payments "kickbacks" in
violation of § 1396h(b)(1). |
| [15] | The defendants rely on two recent cases construing the terms "kickback"
and "bribe" in §§ 1395nn(b)(1) and 1396h(b)(1). In United States
v. Zacher,
586 F.2d 912
(2d Cir. 1978), the court held that payments charged by a nursing home operator
above the amount reimbursed by Medicaid could not be characterized as bribes
under § 1396h(b)(1). The court reasoned that the terms bribe and kickback
have settled legal definitions which "involve a corrupt payment or
receipt of payment in violation of the duty imposed by Congress on providers
of services to use federal funds only for intended purposes and only in
the approved manner."
586 F.2d at 916.
The court found no corruption or breach of duty in Zacher's receipt of the
payments from private parties. |
| [16] | In the present case, however, the indictments do allege corrupt payments
which were admitted by defendants' pleas. As noted above, the indictments
allege that the defendants received kickbacks "for Referring Medicare
and Medicaid recipients' blood and tissue specimens to Chem-Tech . . ."
(emphasis added). Thus, the element of corruption is found in this allegation
that the defendants received payments in return for their decision to send
specimens to Chem-Tech. The potential for increased costs to the Medicare-Medicaid
system and misapplication of federal funds is plain, where payments for
the exercise of such judgments are added to the legitimate costs of the
transaction. We agree with the court in Zacher that these are among the
evils Congress sought to prevent by enacting the kickback statutes and conclude
that the indictments in this case adequately allege the crime of receiving
kickbacks which Congress sought to proscribe in §§ 1395nn(b)(1) and 1396h(b)(1). |
| [17] | The defendants also rely on United States v. Porter,
591 F.2d 1048
(5th Cir. 1979), which involved a scheme quite similar to the one here.
The Fifth Circuit held that the payments in that case were not bribes or
kickbacks. One major distinction between Porter and this case is that Porter
was an appeal after a trial in which the government introduced its evidence
in support of the indictment there. The Porter court found no evidence of
corruption or breach of any duty imposed upon the defendants by statute
or regulation. Here, in contrast, we review only the sufficiency of the
indictments themselves. And we have already concluded that the indictments
allege corruption which the defendants admitted by their pleas. |
| [18] | The court in Porter also construed the term kickback to mean "the
secret return to An earlier possessor of part of a sum received." (Emphasis
in original.)
591 F.2d at 1054.
We cannot agree that the term kickback is limited to a return of funds to
an earlier possessor. The term is commonly used and understood to include
"a percentage payment . . . for granting assistance by one in a position
to open up or control a source of income," Webster's Third New International
Dictionary (1966), and we think it was used in the statute to include such
a payment. Here, of course, the defendants were able to open up or control
the payment of federal funds to Chem-Tech by sending Medicare or Medicaid
patients' tissue specimens to Chem-Tech; and the indictment alleges that
they were paid for doing so. To the extent our conclusions are inconsistent
with the Porter case, we decline to follow it.*fn3 |
| [19] | II. |
| [20] | Both defendants also contend that § 1396h(b)(1) is unconstitutional because
it is vague and because it omits intent as an element of the crime. The
defendants' vagueness argument seems to focus on the use of the term kickback
to define the crime. As explained in Part I, we believe that the term kickback
has a commonly understood meaning. Therefore, the statute gave the defendants
fair notice that their conduct was forbidden. See Papachristou v. City of
Jacksonville,
405 U.S. 156,
162,
92 S. Ct. 839,
31 L. Ed. 2d 110
(1972). |
| [21] | Our earlier discussion is dispositive of the defendants' intent argument
as well. The term kickback requires that the payment be received for a corrupt
purpose, here, in return for referring specimens to Chem-Tech. This requirement
of corruption is a sufficient requirement of mental culpability to withstand
constitutional attack, especially in the context of Congress' regulation
of the expenditure of enormous sums of federal funds under the Medicare
and Medicaid programs. See Morissette v. United States,
342 U.S. 246,
72 S. Ct. 240,
96 L. Ed. 288
(1952). |
| [22] | For the reasons stated here and in the accompanying unpublished order,
Hancock's conviction is affirmed; the district court's order denying Palombi's
motion to vacate his conviction is also affirmed. |
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| Opinion Footnotes | |
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| [23] | *fn1 The operative
language of §§ 1395nn(b)(1) and 1396h(b)(1) is identical. The 1972 version
of § 1396h(b)(1) read:
(b) Whoever furnishes items or services to an individual for which payment
is or may be made in whole or in part out of Federal funds under a State
plan approved under this subchapter and who solicits, offers, or receives
any (1) kickback or bribe in connection with the furnishing of such items
or services or the making or receipt of such payment . . . shall be guilty
of a misdemeanor. . . . |
| [24] | *fn2 Defendant William
Hancock also raises several issues not raised by defendant Paul Palombi.
Since Hancock's separate issues are governed by settled rules of law, they
do not meet our criteria for publication and are being decided in an unpublished
order. See Circuit Rule 35. |
| [25] | *fn3 This opinion
has been circulated among all judges of this court in regular active service.
No judge favored a rehearing In banc on the question of the interpretation
of "kickback." |
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