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Fraud and False Claims

10th Circuit Affirms Fraud Conviction of Hospital Administrator - U.S. v. McClatchey, 217 F.3d 823, 2000 CJ C.A.R. 3386 (10th Cir.(Kan.) Jun 13, 2000) 

This is the first appeal to be decided from the criminal conviction of physicians and hospital administrators at Baptist Hospital in Kansas City last year. Most of the health law bar followed this case closely because the U.S. Attorney also indicted and tried the hospital's lawyers. (The judge dismissed charges against the lawyers before the case was sent to the jury but after jeopardy attached so the government could not appeal their dismissal.) McClatchy, who was chief operating officer of the hospital, was convicted of one count of conspiracy and one count of violating the Medicare Antikickback Act (the "Act"). The district court granted McClatchey's motion for acquittal on both charges because it concluded there was insufficient evidence from which a reasonable jury could find McClatchey had a specific intent to violate the Act. Additionally, the district court ruled in the alternative that McClatchey would be entitled to a new trial based on prejudicial variances between the indictment and the case presented to the jury. The government appealed both the grant of acquittal and the order granting a new trial if the appeals court reversed. On appeal, McClatchy also objected to the jury instruction on the standard for determining whether a payment to physicians is a bribe to induce referrals, arguing that the court should have instructed the jury that could not find defendant guilty unless the sole purpose of the payment was to induce referrals.

The jury found that the defendants conspired in a scheme to sell hospitals batches of nursing home patients. The defendant physicians were the medical directors of a very large number of nursing homes. They solicited payments from hospitals to refer nursing home patients needing hospitalization to them. While the hospital tried to shelter this with a sham contract for services, it was established that the defendant physicians did not provide the services. (The government did not bring charges against the physicians for their billing for nursing home services for vastly more patients than could be reasonably cared for.) The judge was unfamiliar with the underlying law and did his best to give the defendants all benefit of the doubt in his evidentiary rulings and jury instructions. This greatly weakened the defendant's case on appeal.

The 10th Circuit first established that it owes no deference to the trial judge when reviewing the grant of an acquittal in the face of a jury verdict of guilty. It then found that the government had presented sufficient evidence to support the jury's verdict and dismissed the acquittal and the order for a new trial. The defendant, who has continued to work at this job as a high level MCO administrator and has had his criminal defense paid by his employer, is thus subject to immediate imprisonment. The court then reviewed the judge's instruction on standard for inducing referrals:

"In order to sustain its burden of proof against the hospital executives for the crime of violating the Anti- Kickback statute, the government must prove beyond a reasonable doubt that the defendant under consideration offered or paid remuneration with the specific criminal intent "to induce" referrals. To offer or pay remuneration to induce referrals means to offer or pay remuneration with the intent to gain influence over the reason or judgment of a person making referral decisions. The intent to gain such influence must, at least in part, have been the reason the remuneration was offered or paid."

"On the other hand, defendants Anderson, Keel, and McClatchey cannot be convicted merely because they hoped or expected or believed that referrals may ensue from remuneration that was designed wholly for other purposes. Likewise, mere oral encouragement to refer patients or the mere creation of an attractive place to which patients can be referred does not violate the law. There must be an offer or payment of remuneration to induce, as I have just defined it. "

The court looked to the three circuits who have reviewed this standard: United States v. Davis, 132 F.3d 1092, 1094 (5th Cir. 1998); United States v. Kats, 871 F.2d 105, 108 (9th Cir. 1989); United States v. Greber, 760 F.2d 68, 71-72 (3d Cir. 1985). These circuits used the "one purpose" test, which the 10th Circuit adopted, and which ". . . holds that a person who offers or pays remuneration to another person violates the Act so long as one purpose of the offer or payment is to induce Medicare or Medicaid patient referrals." The court found that the district court accurately informed the jury of the applicable law so that McClatchey is not entitled to a new trial based on the jury instructions.

This is a very important case for all lawyers involved with compliance and fraud and abuse. In addition to the topics reviewed, the case includes a useful information for white collar crime defense lawyers.


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