United States Court of Appeals,
Eleventh Circuit.
No. 95-8171.
UNITED STATES of America, Plaintiff-Appellee,
v.
John E. CALHOON, Defendant-Appellant.
Oct. 16, 1996.
Appeal from the United States District Court for the Middle District of Georgia. (No. CR-92-12-MAC(DF), Duross Fitzpatrick, Chief Judge.
Before KRAVITCH and BIRCH, Circuit Judges, and SCHWARZER*, Senior District Judge.
SCHWARZER, Senior District Judge:
John E. Calhoon was charged in a 14-count indictment with
violation of 18 U.S.C. § 1001 (false statements) and 18 U.S.C. §
1341 (mail fraud). At trial, the government dismissed two counts.
The jury acquitted on one count and convicted on the remaining
eleven. Each of the eight false statement counts of conviction
charged Calhoon with signing or causing to be signed a Medicare
cost report claiming amounts he knew not to be reimbursable. The
three mail fraud counts of conviction charged him with devising a
scheme to defraud with respect to three of the false cost reports
by use of the mail. Calhoon appeals from the judgment of
conviction. We have jurisdiction under 28 U.S.C. § 1291 and 18
U.S.C. § 3741(a) and affirm.
FACTUAL BACKGROUND
The charges against Calhoon arose out of actions he took while
* Honorable William W Schwarzer, Senior U.S. District Judge for the Northern District of California, sitting by designation. employed by Charter Medical Corporation (CMC), a national hospital
chain headquartered in Macon, Georgia and composed of both
medical/surgical and psychiatric hospitals. Calhoon was
responsible for obtaining Medicare reimbursement for a group of the
psychiatric hospitals belonging to CMC. To obtain reimbursement,
CMC filed cost reports with private insurance companies acting
under contract with the Health Care Financing Administration
(HCFA), the agency within the Department of Health and Human
Services responsible for administering the Medicare program. These
private insurance companies act as fiscal intermediaries to review
and, as necessary, to audit cost reports to determine the amount of
reimbursement to which the provider of Medicare-insured services is
entitled. Calhoon chaired one of two sections at CMC responsible
for filing cost reports with the intermediaries; in that capacity
he supervised a group of accountants who prepared the reports.
To satisfy provider hospitals' cash requirements, the
intermediaries paid CMC periodically throughout the fiscal year for
estimated Medicare costs. At the end of the fiscal year, CMC filed
annual cost reports for each hospital setting out the costs that it
actually incurred. Based upon those cost reports, the
intermediaries determined the correct amount of Medicare
reimbursement for the year and either paid CMC the amount due or
billed it for excess interim payments.
Cost reports filed on behalf of a provider hospital include a
statement of the total costs expended by the hospital for each
category of expense. Some costs included in a cost report are
clearly identifiable as either reimbursable or nonreimbursable. Other costs are subject to dispute. In order for the provider
hospital to preserve its right to challenge any potential
disallowance of an item of cost or part thereof, the provider must
include that item within the cost report. The cost report filing
process requires providers to identify accurately both the nature
and the amount of the costs claimed, thereby permitting the
intermediary to identify and disallow the nonreimbursable costs,
while allowing the provider to preserve on appeal its claim for
those costs which it deems reimbursable. More specifically, on the
settlement page of the cost report, the provider identifies as
presumptively nonreimbursable the cost for which it nonetheless
seeks reimbursement. This is referred to as filing "under
protest." The intermediary then determines which costs are
reimbursable based on the regulations enacted by the Secretary of
Health and Human Services and a set of policy decision/guidelines
called the Provider Reimbursement Manual ("Prov.Reimb.Man.").
Because of the sizeable volume of cost reports submitted to
intermediaries, however, the intermediaries give only some cost
reports a full audit, including a field visit by the intermediary
to the hospital to compare the cost reports with the hospital's
internal records. Other cost reports receive only cursory review.
When presented with a cost report, the intermediary generally does
a preliminary desk audit to determine whether a field audit is
appropriate based on the information presented by the provider.
After an intermediary conducts whatever audit it deems
appropriate, it issues a notice of program reimbursement to the
provider. The provider then has 180 days to negotiate any disputed issue with the intermediary or to file an appeal with an
administrative body known as the Provider Reimbursement Review
Board.
Calhoon's convictions were based on claims in cost reports
filed on behalf of six different CMC hospitals between 1987 and
1989.
DISCUSSION
I. VIOLATION OF SECTIONS 1001 AND 1341
To sustain a conviction for violation of 18 U.S.C. section
1001, the government must prove (1) that a statement was made; (2)
that it was false; (3) that it was material; (4) that it was made
with specific intent; and (5) that it was within the jurisdiction
of an agency of the United States. See United States v. Lawson,
809 F.2d 1514, 1517 (11th Cir.1987). To sustain a conviction for
mail fraud under 18 U.S.C. section 1341, the government must prove
(1) intentional participation in a scheme to defraud a person
(including the government) of money or property; and (2) the use
of the mails in furtherance of the scheme. See United States v.
Smith, 934 F.2d 270, 271 (11th Cir.1991). The government charged
that Calhoon's submissions by mail of the Medicare claims at issue
constituted a scheme to obtain money by virtue of the false
documentary claims. Thus, the mail fraud convictions rest on the
false statement convictions. Calhoon challenges the validity of
these convictions on the grounds that the statements at issue,
i.e., the claims for Medicare reimbursement, were neither false nor
material.
We review de novo whether Calhoon's conduct violated sections 1001 and 1341. See Lawson, 809 F.2d at 1517. We also review de
novo whether there was sufficient evidence to support the
convictions; in so doing, we review the evidence in the light most
favorable to the government, accepting all reasonable inferences
and credibility choices made in the government's favor, to
determine whether a reasonable trier of fact could find that the
evidence established guilt beyond a reasonable doubt. See United
States v. Keller, 916 F.2d 628, 632 (11th Cir.1990), cert. denied,
499 U.S. 978, 111 S.Ct. 1628, 113 L.Ed.2d 724 (1991); United
States v. Gafyczk, 847 F.2d 685, 691-92 (11th Cir.1988).
A. Falsity
Falsity under section 1001 can be established by a false
representation or by the concealment of a material fact. See 18
U.S.C. § 1001 ("Whoever ... falsifies, conceals or covers up by any
trick, scheme, or device a material fact, or makes false,
fictitious or fraudulent statements or representations ... shall be
fined not more than $10,000 or imprisoned not more than five years,
or both."); United States v. Tobon-Builes, 706 F.2d 1092, 1096
(11th Cir.1983) (falsity based on concealment of a material fact).
Calhoon's convictions were based on Medicare claims for three
separate categories of expenses: (1) royalty fees paid to CMCI, a
sister subsidiary, (2) interest paid to CMCI ("CMCI interest"), and
(3) advertising costs claimed under the label of "outreach."
Regarding the claims for royalty fees and CMCI interest, the
government essentially maintains that Calhoon made false
representations by claiming reimbursement for costs that were
nonreimbursable under the applicable Medicare provisions. Calhoon argues, however, that no provisions made these costs clearly
nonreimbursable and claiming them as reimbursable therefore cannot
be a false representation and the basis of criminal liability.
Regarding the advertising costs, the government maintains that by
claiming reimbursement for advertising costs under the term
"outreach," Calhoon concealed the true nature of the costs as
advertising, some of which is reimbursable and some of which is
not. Calhoon argues, however, that "outreach" was a factually
accurate description of the costs and a term accepted by the
industry to describe certain advertising. Thus, he argues,
claiming these costs as outreach cannot constitute falsity. For
the reasons discussed below we conclude that the claims for all
three types of costs were false for purposes of section 1001.
1. The Intercompany Charges: Royalty Fees and CMCI Interest
Linton Newlin, the person responsible for tax planning and
related matters for CMC, testified that he created a Nevada
corporation, CMCI, as a subsidiary of CMC in order to gain various
tax advantages. CMC transferred ownership of the Charter name to
CMCI, and individual hospitals then paid a one-time royalty fee to
CMCI to use the Charter name. Because Charter is a national
corporation, the hospitals benefitted from the use of the name and
because CMCI was incorporated in Nevada where corporations are not
subject to state income tax, CMCI increased its profits through tax
savings.
Besides licensing the Charter name, CMCI obtained funds from
the parent company and loaned the money to the CMC hospitals,
which, in turn, paid back the principal with interest to CMCI. The hospitals took a tax deduction for interest payments to CMCI, and
CMCI paid no state corporate income tax on the interest income.
Newlin testified that actual money was paid by the hospitals to
CMCI on account of both the royalty fees and the CMCI interest.
Calhoon freely admitted both in an investigative interview and
at trial that he believed at all times relevant that the royalty
fees and CMCI interest were presumptively nonreimbursable under the
applicable Medicare provisions. See R.A. Vol. 8, p. 134; R.A.
Vol. 9, pp. 103-04. John Banfield (one of Calhoon's former
subordinates) testified, and the jury accepted, that Calhoon
instructed Banfield to claim for reimbursement the royalty fees and
interest paid to CMCI but to recognize the probable disallowance of
the claims by listing the amounts on reserve cost reports. R.A.
Vol. 7, p. 161; R.A. Vol. 8, pp. 12-13; R.A. Vol. 9, p. 110.
a. Royalty Fees
The government contends that the royalty fees claimed were
nonreimbursable because: (1) they were unrelated to patient care,
see 42 U.S.C. § 1395x(v)(1)(A); 42 C.F.R. § 413.9, and (2) they
were not an actual expense, see 42 U.S.C. § 1395x(v)(1)(A); 42
C.F.R. § 413.17. It argues that the royalty fee amounted to a
franchise fee paid to a related party for the use of the Charter
name. As such, CMC money was simply being moved from one pocket to
another, making the fee nonreimbursable because it was not an
actual expense. See 42 U.S.C. § 1395x(v)(1)(A); 42 C.F.R. §
413.17. The government also argues that providers must accurately
identify the nature and amount of each cost claimed. The cost
reports here did not disclose that the royalty fees were paid to a related company, CMCI.
Calhoon challenges his convictions based on the claims for
royalty fees on the grounds that there are no statutes or
regulations clearly prohibiting reimbursement of the royalty fees,
and that the former policy guideline on reimbursement of royalty
fees was repealed in 1982 and superseded by more general guidelines
that arguably permit reimbursement. See Prov.Reimb.Man., Part 1 §
2133, repealed by Transmittal No. 263 (Mar. 1982);
Prov.Reimb.Man., Part I § 2135. More specifically, Calhoon argues
that the statutory and regulatory standards governing whether a
royalty fee is reimbursable require only that the costs be
"actually incurred" and reasonably related to patient care. See 42
U.S.C. § 1395x(v)(1)(A) (reimbursable costs include "reasonable
cost of any services shall be actually incurred," except "incurred
costs found to be unnecessary in the efficient delivery of needed
health services"); 42 C.F.R. § 413.9 (reimbursements must be based
on costs reasonably related to patient care). Calhoon contends
that the royalty fees at issue were costs actually incurred because
CMCI actually billed the hospitals and the hospitals paid the
royalty fees to CMCI. As to whether the costs were reasonably
related to patient care, Calhoon argues that the issue is open to
debate and that the government failed to produce any evidence
showing that the royalty fees were not related to patient care.
Thus, Calhoon argues, his convictions cannot be upheld because the
government failed to sustain its burden of negating any reasonable
interpretation that would make the royalty fees reimbursable and
thereby render the statements in the cost reports factually correct. See, e.g., United States v. Race, 632 F.2d 1114, 1119-21
(4th Cir.1980) (government failed to satisfy its burden of proving
falsity where billings were authorized under a reasonable
interpretation of the terms of the authorizing contract); United
States v. Anderson, 579 F.2d 455, 459-60 (8th Cir.), cert. denied,
439 U.S. 980, 99 S.Ct. 567, 58 L.Ed.2d 651 (1978). Moreover,
Calhoon argues, because there is no definite legal standard making
royalty fees nonreimbursable, his convictions are unconstitutional.
See Dunn v. United States, 442 U.S. 100, 112, 99 S.Ct. 2190, 2197,
60 L.Ed.2d 743 (1979) ("[F]undamental principles of due process ...
mandate that no individual be forced to speculate, at the peril of
indictment, whether his conduct is prohibited.... Thus, ... courts
must decline to impose punishment for actions that are not "plainly
and unmistakably' proscribed.").
(i) Reimbursability
We reject Calhoon's contention that there is no provision
making the royalty fees paid to CMCI clearly nonreimbursable.
Calhoon's arguments focus on whether any provision made the royalty
fees clearly nonreimbursable by virtue of their nature as royalty
fees. The critical fact is, however, that these royalty fees were
paid to CMCI, a company related to the hospitals by common
ownership. CMC, the parent company, owned both the hospitals that
were paying the royalty fees for use of the Charter name and CMCI,
the Nevada subsidiary that owned the Charter name and collected the
royalty fees. Therefore, regardless of whether certain royalty
fees are generally reimbursable, whether the royalty fees here were
reimbursable is governed by 42 C.F.R. § 413.17 which applies to expenses paid to related organizations.1 That regulation provides
in relevant part:
(a) Principle. Except as provided in paragraph (d) of this section, costs applicable to services, facilities, and supplies furnished to the provider by organizations related to the provider by common ownership or control are included in the allowable cost of the organization at the cost to the related organization. However, such cost must not exceed the price of comparable services, facilities, or supplies that could be purchased elsewhere.
. . . . .
(c) Application.... (2) If the provider obtains items of services, facilities, or supplies from an organization, even though it is a separate legal entity, and the organization is owned or controlled by the owner(s) of the provider, in effect the items are obtained from itself. An example would be a corporation building a hospital or a nursing home and then leasing it to another corporation controlled by the owner. Therefore, reimbursable cost should include the costs for these items at the cost to the supplying organization. However, if the price in the open market for comparable services, facilities, or supplies is lower than the cost to the supplier, the allowable cost to the provider may not exceed the market price.
42 C.F.R. § 413.17.
Under this regulation, expenses paid by the hospitals to
CMCI—including the royalty fees at issue here—are reimbursable only
"at the cost to [CMCI], the supplying organization." See 42 C.F.R.
§ 413.17(c). At trial, the government's expert, Bessie Wheeler,
explained that royalty fees paid to a related company solely for
the use of a name would not be an actual expense for the company
1 Calhoon challenges treatment of the hospitals and CMCI as "related organizations" under this regulation. But the regulation clearly provides that organizations are "related" through common ownership, which "exists if an individual or individuals possess significant ownership or equity in the provider and the institution or organization serving the provider." See 42 C.F.R. § 413.17(b)(2). Being commonly owned by CMC, the provider hospitals and CMCI are clearly related organizations within the meaning of the regulation. and, therefore, would not be reimbursable by Medicare. R.A. Vol.
6, p. 106. She explained that, for the fee to be reimbursable, it
would have to be paid in exchange for an actual service that the
related company provided at a real cost. Id. The reimbursable
costs related to the Charter name may have been actual costs of
acquiring and maintaining the Charter trademark. Whether the
royalty fee paid is reimbursable depends in part on whether it
reflected actual cost to CMCI of the acquisition or maintenance of
the Charter name. See 42 C.F.R. § 413.17. If the royalty fees did
not directly reflect such an actual cost, they would not have been
reimbursable. See 42 C.F.R. § 413.17; cf. Prov.Reimb.Man., Part
1, § 1011.5 (Govt.Supp.Br., Ex. 7, p. 20) (policy guideline
illustrating the application of § 413.17 in the context of a rental
expense: where provider leases a facility from a related
organization, costs of ownership of the facility are the allowable
costs, not the rent paid to the lessor by the provider). The
government, having apparently offered no evidence on this issue,
failed to sustain its burden to prove the claim false by virtue of
the nonreimbursable nature of the interest.
(ii) Concealment of a Material Fact
By concealing that the royalty fees were paid to a related
company, however, Calhoon made the claim for reimbursement false.
As stated above, falsity under section 1001 includes concealment of
a material fact. See Tobon-Builes, 706 F.2d at 1096. Falsity
through concealment exists where disclosure of the concealed
information is required by a statute, government regulation, or
form. See id. at 1096; United States v. Hernando Ospina, 798 F.2d 1570, 1578 (11th Cir.1986). 42 C.F.R. § 413.20(d) states that:
(1) The provider must furnish such information to the intermediary as may be necessary to—
(I) Assure proper payment by the program, including the extent to which there is any common ownership or control (as described in § 413.17(b)(2) and (3)) between providers or other organizations, and as may be needed to identify the parties responsible for submitting program cost reports; ....
Moreover, the cost report forms specifically ask the provider the
following questions:
A. ARE THERE ANY COSTS INCLUDED ON WORKSHEET A [on which the royalty fees were claimed] WHICH RESULTED FROM TRANSACTIONS WITH RELATED ORGANIZATIONS AS DEFINED IN HCFA PUB 15-I, CHAPTER 10?
B. COSTS INCURRED AND ADJUSTMENTS REQUIRED AS RESULT OF TRANSACTIONS WITH RELATED ORGANIZATIONS:
C. INTERRELATIONSHIP OF PROVIDER TO RELATED ORGANIZATION(S):
The cost report form then specifically notifies the provider that:
THE SECRETARY, BY VIRTUE OF AUTHORITY GRANTED UNDER SECTION 1814(B)(1) OF THE SOCIAL SECURITY ACT, REQUIRES THE PROVIDER TO FURNISH THE INFORMATION REQUESTED ON PART C....
THE INFORMATION WILL BE USED BY THE HEALTH CARE FINANCING ADMINISTRATION AND ITS INTERMEDIARIES IN DETERMINING THAT THE COSTS APPLICABLE TO SERVICES, FACILITIES, AND SUPPLIES FURNISHED BY ORGANIZATIONS RELATED TO THE PROVIDER BY COMMON OWNERSHIP OR CONTROL, REPRESENT REASONABLE COSTS AS DETERMINED UNDER SECTION 1861 OF THE SOCIAL SECURITY ACT.
The relevant cost reports failed to disclose that CMCI was a
related organization and was receiving the royalty fees claimed for
reimbursement. This fact, as discussed above, is critical to the
determination whether the royalty fees could be reimbursable. Its
concealment constitutes falsity for purposes of section 1001.
b. CMCI Interest
The government contends that the CMCI interest payments were
nonreimbursable because they were expenses paid to a related company. See 42 C.F.R. § 413.17 and discussion supra pp. ---- - --
--. The government argues that the interest did not represent
actual costs incurred by CMCI, as required by 42 C.F.R. § 413.17.
The payment of interest, the government argues, was merely movement
of money from one pocket of CMC, the parent corporation, to
another. Calhoon argues, however, that the government at no time
attempted to show that the interest expense did not represent an
actual cost and, therefore, did not bear its burden of proving the
falsity of the statement.
Don Crosset, former head of Charter's Medicare reimbursement
division from 1981 through 1987, testified that the hospitals were
taking out loans for new construction. See R.A. Vol. 7 p. 58. The
actual cash ultimately loaned to the hospitals "was being
generated" by CMC, the parent corporation. Id. CMC then "funded
out [that cash] to the Nevada company," CMCI, and CMCI "in turn,
loaned [the money] to the hospitals." Id. Crosset testified that,
as a result of these transactions, there was a reimbursable cost to
CMC, the parent company. The company policy was for CMC to account
for that cost in claims for the home office expenses. In order to
avoid duplicating costs, CMC had an internal policy that individual
hospitals should not claim the CMCI interest as reimbursable.2 As discussed above, where a provider obtains services,
facilities, or supplies from a related organization, the
reimbursable cost includes only "the costs for these items at the
cost to the supplying organization." 42 C.F.R. § 413.17. In this
2 The government does not contend that the amounts claimed are not reimbursable because the claims are duplicative. case, the supplying organization obtained the money loaned to the
hospital from yet another related organization, the parent company.
See 42 C.F.R. § 413.17(b)(1) ("Related to the provider means that
the provider to a significant extent is associated or affiliated
with or has control of or is controlled by the organization
furnishing the services, facilities, or supplies."); 42 C.F.R. §
413.17(b)(3) ("Control exists if an individual or an organization
has the power, directly or indirectly, significantly to influence
or direct the actions or policies of an organization or
institution."). Whether the interest paid by the hospital to CMCI
is reimbursable depends on whether it reflected the actual cost to
CMC, the related organization that was ultimately the source of the
loan. See 42 C.F.R. § 413.17. If the interest claimed was
actually the amount of interest CMC was paying an outside lender
for the money or the exact income stream foregone by CMC when it
chose to lend the money to a subsidiary rather than to invest it
outside of the enterprise, the CMCI interest may have been
reimbursable. See 42 C.F.R. § 413.17; R.A.Vol. 6, p. 111
(testimony of Wheeler, the government's expert, that whether the
CMCI interest was reimbursable under the regulations pertaining to
related company transactions depended on where the related
organization obtained the money); cf. Prov.Reimb.Man., Part 1, §
1011.5 (described supra p. ----). The government having offered no
evidence about the source of the money obtained by CMC, the cost to
CMC to obtain it, or the aggregate cost of CMC's loaning it to CMCI
and of CMCI's loaning it to the hospital, failed to sustain its
burden of proving that the interest payment was nonreimbursable. Nonetheless, as with the royalty fees, the cost reports the
government introduced demonstrate that Calhoon concealed that the
CMCI interest was an expense paid to a related organization. As
discussed above, this fact was critical to the determination of
whether it could be reimbursable. Its concealment constitutes
falsity for purposes of section 1001. See supra p. ----.
2. Advertising Expense Claimed as "Outreach"
Four of Calhoon's section 1001 convictions relate to claims
he made for reimbursement of advertising costs. Calhoon filed cost
reports in which he claimed various types of advertising expenses
under the label "outreach." In addition, he created a second set
of books—new general ledgers—which collapsed into one account
labelled "outreach" advertising accounts that appeared separately
in other ledgers. The government maintains that Calhoon
intentionally disguised advertising costs as outreach in order to
mislead the intermediaries and to obstruct their audits. The
government essentially argued falsity under section 1001 based on
concealment of a material fact.
Calhoon, on the other hand, contends that the term "outreach"
accurately describes the advertising and that the term is
recognized in the industry. He therefore argues that claiming
reimbursement for advertising costs under that label could not be
false.
42 C.F.R. § 413.20(d) states that "[t]he provider must furnish
such information to the intermediary as may be necessary to ...
[a]ssure proper payment by the program...." Under the guidelines
in the Manual, certain advertising costs are reimbursable and others are not. See Prov.Reimb.Man. § 2136. The Manual provides
that advertising costs are generally reimbursable if reasonably
related to patient care and primarily designed to advise the public
of the services available through the hospital and to present a
good public image, but not if designed to increase patient census.
See Prov.Reimb.Man. § 2136.1. That certain advertising costs are
presumptively nonreimbursable obligates a provider seeking
reimbursement to identify the costs as "advertising" and to reveal
the nature of the advertising. In addition, 42 C.F.R. § 413.20(a)
requires providers to maintain financial records for proper
determination of reimbursable costs using "[s]tandardized
definitions ... that are widely accepted in the hospital and
related fields...." Thus, Calhoon had a legal duty to disclose
both in the cost reports and in the general ledgers that the costs
claimed were in fact "advertising" costs. Instead, he chose to
call the costs "outreach," thereby concealing the potentially
nonreimbursable nature of the costs.
Wheeler, the government's expert witness, testified that in 22
years' experience with Blue Cross/Blue Shield of South Carolina,
she had never seen the term "outreach" used in Medicare cost
reporting; nor had she ever heard "outreach" as a synonym for
advertising. R.A.Vol. 6, p. 101. Moreover, Calhoon, a former
fiscal intermediary, knew that this term would conceal the nature
of the costs and nonetheless chose to use the label specifically
for that reason. As one of his subordinates testified, Calhoon
admitted that the "outreach" account was created so that there
would be no red flag alerting Medicare auditors to the nonreimbursable advertising expenses. See R.A.Vol. 8, p. 116.
Calhoon similarly told another subordinate that "if just one
intermediary misses an adjustment because it is called outreach,
these general ledgers have served their purpose." See R.A.Vol. 8,
p. 205. The evidence was sufficient to lead a reasonable jury to
conclude beyond a reasonable doubt that, by using the term
outreach, Calhoon concealed the true nature of the advertising
costs claimed for reimbursement, thus establishing falsity under
section 1001.
3. Medicare as a Flexible, Discretionary System
Calhoon also makes a more general argument that claiming
costs for Medicare reimbursement can never give rise to criminal
liability so long as the costs claimed were actually incurred. He
justifies this contention on the grounds (1) that because Medicare
is a flexible and discretionary reimbursement system in which the
administrative guidelines in the Provider Reimbursement Manual give
only presumptive guidance, (2) that the intermediaries' decisions
are only presumptive, and (3) that the denial of reimbursement can
be challenged on appeal. See Shalala v. Guernsey Memorial
Hospital, 514 U.S. ----, ---- - ----, ----, 115 S.Ct. 1232, 1236-
37, 1238-39, 131 L.Ed. 106, 116-17, 119 (1995) (intermediary's
disallowance based on Manual guidelines is presumptive only, and
subject to appeal); Medical Center Hosp. v. Bowen, 839 F.2d 1504,
1512-13 (11th Cir.1988) (same). Calhoon argues that under this
system he is entitled to claim reimbursement for costs that may be
nonreimbursable and, therefore, that doing so can never be a false
statement. While it is true that a provider may submit claims for costs
it knows to be presumptively nonreimbursable, it must do so openly
and honestly, describing them accurately while challenging the
presumption and seeking reimbursement. Nothing less is required if
the Medicare reimbursement system is not to be turned into a cat
and mouse game in which clever providers could, with impunity,
practice fraud on the government. As Wheeler, the government's
expert witness testified, if a provider disagrees with the
intermediary, with the intermediary's past decisions, with the
instructions or guidelines in the Provider Reimbursement Manual, or
with the regulations, the provider must file the cost report "under
protest." See supra p. ----. Calhoon testified that he understood
this system of filing presumptively nonreimbursable costs and that
he, in fact, used this system for other types of costs claimed in
the very cost reports at issue here. Yet he failed to follow this
procedure for the royalty fees, the CMCI interest, or the
advertising costs.
In sum, Calhoon's argument misses the crux of his offense:
the filing of reports intended and designed to deceive and mislead
the auditors for the purpose of obtaining reimbursement of costs
Calhoon knew to be at least presumptively, if not clearly,
nonreimbursable. Available time and resources do not permit audit
of more than a fraction of the cost reports filed. Calhoon's
filing of reports claiming costs that were at least presumptively
nonreimbursable while concealing or disguising their true nature
was a deliberate gamble on the odds that they would not be
questioned. The evidence amply sustains the findings of falsity.
B. Materiality
The trial court, without objection, instructed the jury that
the false statements were material as a matter of law. Following
the trial, the Supreme Court decided United States v. Gaudin, ---
U.S. ----, 115 S.Ct. 2310, 132 L.Ed.2d 444 (1995) holding that
materiality is a jury issue. The Gaudin holding applies
retroactively to this appeal. See Griffith v. Kentucky, 479 U.S.
314, 328, 107 S.Ct. 708, 716, 93 L.Ed.2d 649 (1987).
We review assertions of error not objected to at trial for
plain error. See Fed.R.Crim.P. 52(b); United States v. Olano, 507
U.S. 725, 732-34, 113 S.Ct. 1770, 1776-78, 123 L.Ed.2d 508 (1993).
This is true even where, as here, error arose only by virtue of a
later Supreme Court decision. See United States v. Kramer, 73 F.3d
1067, 1074 (11th Cir.1996). Under plain error review, reversal for
unobjected-to error is permitted, though not required, where the
error is both (1) plain and (2) affects substantial rights. Olano,
507 U.S. at 732-36, 113 S.Ct. at 1776-79; Kramer, 73 F.3d at 1074.
The failure to submit the question of materiality to the jury is
plain error. Kramer, 73 F.3d at 1074. Therefore, we need only
address the question whether Calhoon's substantial rights were
affected, i.e., whether the failure to submit the issue of
materiality to the jury affected the outcome of his trial. See id.
at 1075. We conclude that it could not have affected the outcome
because there is no reasonable argument that the statements at
issue here were not material.
"To satisfy the element of materiality, it is enough if the statements had a "natural tendency to influence, or be capable of
affecting or influencing a government function.' " United States
v. Diaz, 690 F.2d 1352, 1357 (11th Cir.1982) (quoting United States
v. Markham, 537 F.2d 187, 196 (5th Cir.1976), cert. denied, 429
U.S. 1041, 97 S.Ct. 739, 50 L.Ed.2d 752 (1977)). We have explained
that:
The Government does not have to show actual reliance on the false statements. A statement can be material even if it is ignored or never read by the agency receiving the misstatement. False statements must simply have the capacity to impair or pervert the functioning of a government agency.
Diaz, 690 F.2d at 1357 (citing United States v. Lichenstein, 610
F.2d 1272, 1278 (5th Cir.), cert. denied sub nom. Bella v. United
States, 447 U.S. 907, 100 S.Ct. 2991, 64 L.Ed.2d 856 (1980)).
Calhoon argues that whether the costs he claimed were
reimbursable was debatable and that he therefore had the right to
claim them on the cost report. Under the regulatory review
process, the intermediary conducts an independent investigation and
determines the reimbursability of the costs. If the intermediary
determines the costs are nonreimbursable, the provider is denied
payment. Essentially, Calhoon argues that because there is an
intermediate step—the audit—his claims did not have the capacity to
influence the government. But this ignores that the intermediaries
necessarily rely on the information provided in the cost report to
make their reimbursability determinations, and it ignores the
reality of limited audit capability. See R.A.Vol. 6, pp. 70-71.
The cost reports were sufficient to persuade the intermediary to
authorize reimbursement without further investigation. They,
therefore, had the capacity " "to impair or pervert the functioning of a government agency' " by misleading the intermediaries. See
Diaz, 690 F.2d at 1357 (citing Lichenstein, 610 F.2d at 1278).
Moreover, it makes no difference that the initial review for
reimbursement is done by the intermediary as opposed to the
government agency itself. The intermediaries are acting under
contract with the Department of Health and Human Services, which
relies, at least in part, on the intermediaries' determination as
to reimbursability of the costs.
II. SENTENCING ISSUES
A. Guideline Computation
Calhoon argues that the district court erred in determining
that he is responsible for $31,000 in intended losses pursuant to
U.S.S.G. § 2F1.1(b)(1). He contends that only actual loss is
relevant and that the Medicare program sustained none.
Section 2F1.1(b)(1) of the United States Sentencing
Guidelines requires that the offense levels be adjusted upward
based on the loss attributable to the defendant. Loss "need not be
determined with precision. The court need only make a reasonable
estimate of the loss, given the available information." U.S.S.G.
§ 2B1.1, comment. (n. 3) (1988); see U.S.S.G. § 2F1.1, comment.
(n. 7) (1988) (referring to § 2B1.1). This court reviews district
court loss calculations for clear error. United States v.
Menichino, 989 F.2d 438, 440 (11th Cir.1993).
At sentencing, the government argued that Calhoon should be
held responsible for attempting to defraud the Medicare program of
$1,596,365. R.A.Vol. 11, p. 22. The government arrived at this
figure through a complex series of calculations based on the Medicare regulations. Calhoon argued that the government sustained
no actual loss and that no loss was intended. R.A.Vol. 11, pp.
189-90. He admitted, however, that suspect entries on the cost
reports had a potential "reimbursement effect" of approximately
$31,000. R.A.Vol. 11, pp. 69, 139. Both parties presented
witnesses and other evidence in support of their contentions at the
day-long sentencing hearing. The sentencing court, noting that it
had "as many questions at the end of the day as [it] had at the
beginning," rejected the government's figure and imposed sentence
based on the $31,000 figure suggested by Calhoon. R.A.Vol. 11, p.
193. We find no error.
Calhoon's assertion that he should be held responsible only
for actual loss is without merit. The Sentencing Guidelines
recognize that attempted or intended loss is a valid measure of
culpability. U.S.S.G. § 2F1.1, comment. (n. 7) (1988); United
States v. Shriver, 967 F.2d 572, 574 (11th Cir.1992). Calhoon's
reliance on United States v. Wilson, 993 F.2d 214 (11th Cir.1993),
is misplaced. In Wilson, this court held that incidental or
consequential loss is not relevant for purposes of sentencing. Id.
at 217. Wilson did not hold that actual loss need always be
calculated; nor did it hold thatintended loss is an inappropriate
measure of loss. At sentencing, Calhoon admitted that, if the
disputed claims had not been intercepted by an auditor, the claims
could have netted CMC an additional $31,000 in reimbursements.
That admission is sufficient to establish that, in making the false
statements, he intended that the government suffer a loss in that
amount. Cf. Shriver, 967 F.2d at 574. B. Acceptance of Responsibility
Calhoon argues that the district court's refusal to grant an
adjustment for acceptance of responsibility amounted to a penalty
for exercise of his Sixth Amendment right to trial by jury. The
government argues that the district court's decision was not
clearly erroneous and that Calhoon's constitutional rights were not
infringed.
A defendant bears the burden of showing that he is entitled
to an acceptance of responsibility reduction. United States v.
Anderson, 23 F.3d 368 (11th Cir.1994). Even a defendant who pleads
guilty is not entitled to a sentencing reduction for acceptance of
responsibility as a matter of right. United States v. Anderson, 23
F.3d at 369; see United States v. Cruz, 946 F.2d 122, 126 (11th
Cir.1991). "[A]cceptance of responsibility" is a "multi-faceted
concept," which considers
among other things, the offender's recognition of the wrongfulness of his conduct, his remorse for the harmful consequences of that conduct, and his willingness to turn away from that conduct in the future.
United States v. Scroggins, 880 F.2d 1204, 1215 (11th Cir.1989),
cert. denied, 494 U.S. 1083, 110 S.Ct. 1816, 108 L.Ed.2d 946
(1990). This court reviews district court findings regarding
acceptance of responsibility for clear error. United States v.
Carroll, 6 F.3d 735, 739 (11th Cir.1993) cert. denied sub nom.
Jessee v. United States, 510 U.S. 1183, 114 S.Ct. 1231, 127 L.Ed.2d
576 (1994).
At sentencing, Calhoon argued that he should be given credit
for acceptance of responsibility because he had cooperated fully
with authorities and had not denied any of the alleged overt acts. R.A.Vol. 11, pp. 4-6; PSI Addendum. He also argued that the
denial of an adjustment would infringe his right to trial by jury.
Id. The district court determined that Calhoon was not entitled to
a reduction for acceptance of responsibility because he had not
accepted responsibility at all. The court expressed its unease
about awarding Calhoon credit for accepting responsibility,
pointing out that the guidelines anticipate remorse and
acknowledgment of wrongdoing. R.A.Vol. 11, p. 170. The court
offered Calhoon an opportunity to accept responsibility before the
sentence was imposed, but Calhoon declined to do so. Because, at
sentencing, Calhoon maintained that the acts underlying his
conviction were not improper, the court did not err in denying
adjustment for acceptance of responsibility.
Nor does such a denial violate Calhoon's constitutional
rights. As this court has previously recognized, a reward in the
form of an adjustment for acceptance of responsibility for those
who plead guilty "does not equate with punishing one who does not
follow such a course." United States v. Castillo-Valencia, 917
F.2d 494, 501 (11th Cir.1990), cert. denied sub nom. Pulido-Gomez
v. United States, 499 U.S. 925, 111 S.Ct. 3120, 113 L.Ed.2d 253
(1991); see also Carroll, 6 F.3d at 739-40) (Fifth Amendment right
not to testify not infringed by failure to grant adjustment for
acceptance of responsibility).
III. OTHER ISSUES
Calhoon raises a number of other issues, all of which are
meritless. We address each briefly below.
A. Count Four Conviction: 100 Percent of Advertising Costs Were Reimbursed Calhoon argues that the conviction on count four must be
reversed because the outreach costs claimed were actually
reimbursed. But the fact of reimbursement affects neither the
falsity nor the materiality of the statement in the cost report
claiming advertising costs as outreach.
"A document is false when made or used, if it is untrue and is
then known to be untrue by the person making or using it."
Eleventh Circuit Pattern Jury Instructions, Criminal Cases, Offense
Instruction 29 (1985); see United States v. Anderson, 579 F.2d 455
(8th Cir.1987). What made the claim for outreach false was that it
concealed a material fact—the nature of the costs as advertising
costs, which may or may not have been reimbursable. Calhoon,
therefore, made a false statement the moment "outreach" was claimed
in the cost report and supported by a general ledger reflecting the
same. That the costs were ultimately reimbursed does not make the
statement true when made.
As to materiality, section 1001 does not require proof that
the statement actually misled the government; the false statement
need only "have the capacity to impair or pervert the functioning
of a government agency." Diaz, 690 F.2d at 1357 (citing
Lichenstein, 610 F.2d at 1278).
B. TEFRA and LCC Limitations
Two types of limitations set a ceiling on Medicare
reimbursement. One is the "LCC" limitation: A provider may be
reimbursed only for the lower of either actual costs or the charges
for the services. The other was imposed by the Tax Equity and
Fiscal Responsibility Act of 1982 (TEFRA). Under TEFRA, a target amount is determined according to a hospital's cost reporting
"base" period, usually the first 12-month reporting period of its
history. The target amount is set by taking the hospital's base
year, determining the cost per Medicare case, and capping future
claims based on the base cost. R.A.Vol. 7, p. 37. The provider
generally is not reimbursed for costs exceeding the TEFRA target
amount.
Calhoon argues that the TEFRA target rates applied to the cost
reports relevant to all counts other than 2, 12, and 13. He points
out that, although he did not self-disallow the royalty fees, CMCI
interest, or advertising costs on the statement of total costs made
in the cost reports, the total allowable costs without those
disputed claims exceeded the TEFRA target amount. Because of the
TEFRA cap, Calhoon argues, the government could not have been
misled and his statements were, therefore, immaterial. The
government responds that the TEFRA limitation could only have
affected counts 6, 7, and 14 and that the TEFRA ceiling can be
protested so as to permit increased reimbursement.
So far as we can tell from the record, the TEFRA limitation
did not specifically bar reimbursement for any of the claimed
nonreimbursable costs; all the cost reports are therefore
material. In any event, the existence of the ceiling does not
exculpate Calhoon from having made false reports.
C. Count Five: Calhoon Not "Official" Supervisor
Calhoon also argues that the conviction on count 5 must be
reversed because, at the time this report was filed, he had not yet
become reimbursement manager, and therefore, he could not have been responsible for the relevant cost report or have "caused" it to be
filed. However, the evidence shows that Parker, the person who
submitted the report, was "instructed and advised" by Calhoon and
that he considered Calhoon his supervisor. That evidence is
sufficient to establish that Calhoon "caused" the falsity as
alleged in the indictment.
D. Deliberate Ignorance Instruction
Calhoon argues that the "deliberate ignorance" charge was
unsupported by the evidence and, therefore, should not have been
given to the jury. In determining whether sufficient evidence
supported a jury charge, we review the evidence in the light most
favorable to the government. Glasser v. United States, 315 U.S.
60, 80, 62 S.Ct. 457, 469-70, 86 L.Ed. 680 (1942).
Calhoon testified at trial that he knew royalty fees were not
reimbursable but that he simply had not noticed they were included
in a cost report because of his role as a hands-off manager. On
this evidence, the jury could properly be instructed that he
deliberately avoided knowledge of the specifics of reports. See
United States v. Langford, 946 F.2d 798, 801-02 (11th Cir.1991),
cert. denied, 503 U.S. 960, 112 S.Ct. 1562, 118 L.Ed.2d 208 (1992).
Moreover, the evidence shows that Calhoon actually instructed his
subordinates to claim the nonreimbursable costs. In view of the
evidence of his direct involvement, it is difficult to see how the
instruction could have been prejudicial.
E. Admission of Opinion Testimony on Outreach/Advertising
William E. Hoffman, Jr., former Senior Manager and Director
of Appeals at CMC, testified that he had told Calhoon that he did not think that it was proper to collapse all advertising accounts
into a single account called "outreach" both because not all
advertising was outreach and because collapsing the advertising
into a single account did not specifically identify the
reimbursable outreach costs. Hoffman testified that Calhoon
disagreed. They therefore discussed the matter with Richard
Shackelford, an attorney who handled CMC's appellate matters when
outside counsel was required. Hoffman asked Shackelford his
opinion as to whether it was appropriate to file the collapsed
ledgers. At trial, Calhoon's counsel objected to Hoffman's
testifying about Shackelford's answer on the ground that it was
hearsay. After hearing argument from both parties on the matter,
the district court overruled the objection, permitting Hoffman to
testify that Shackelford said that they should absolutely not be
filing the collapsed general ledgers. Calhoon challenges the
admission of Shackelford's statements on the grounds that it was
hearsay and irrelevant and that any relevance it did have was
outweighed by danger of unfair prejudice. See Fed.R.Evid. 402,
403, 801, 802.
Calhoon cites United States v. Race, 632 F.2d 1114 (4th
Cir.1980) in support of his argument. In Race, the falsity of the
statements that served as the basis for a section 1001 conviction
depended upon the interpretation of terms of a contract. The court
held that expert testimony on the meaning of the contract terms was
superfluous and improper. Race, 632 F.2d at 1119-20.
Calhoon apparently cites Race for the proposition that the
testimony here was erroneously admitted because it constituted expert testimony on the meaning of the Medicare regulations in
relation to whether claiming the advertising costs as "outreach"
was unlawful. However, the government offered Hoffman's testimony
about Shackelford's statements not for the truth of Shackelford's
statements, but to prove that Calhoon was on notice that there was
reason to question the propriety of his actions. Therefore, the
testimony was not hearsay and was relevant to whether Calhoon had
knowingly filed false claims. See Fed.R.Evid. 801(c); United
States v. Gold, 743 F.2d 800, 817-18 (11th Cir.1984), cert. denied,
469 U.S. 1217, 105 S.Ct. 1196, 84 L.Ed.2d 341 (1985) (where former
employees testified that they had put their superiors on notice
that there was reason to question whether the company's billing
practices were in compliance with the law, court held the testimony
relevant because it established that the conspirators had reason to
know that their activities were illegal).
On whether the probative value was outweighed by an unfair
prejudice, this court defers to the discretion of the trial court.
United States v. Elkins, 885 F.2d 775, 784 (11th Cir.1989), cert.
denied, 494 U.S. 1005, 110 S.Ct. 1300, 108 L.Ed.2d 477 (1990). We
will reverse the trial court's decision to admit the testimony only
if it were clearly an abuse of discretion. We find none here. The
trial court instructed the jury regarding the limited purpose for
which the testimony was offered. Moreover, in light of our
conclusion that collapsing the advertising accounts into one
category called "outreach" resulted in a false statement, we see no
unfair prejudice that could have come from the challenged
testimony. F. Denials of Motions for New Trial and for Directed Verdict and Acquittal
Finally, Calhoon challenges the district court's denial of
both his motion for a new trial and his motion for a directed
verdict and acquittal. The foregoing discussion disposes of the
merits of those challenges. The evidence was clearly sufficient to
sustain Calhoon's convictions, so the trial court did not err in
denying Calhoon's motions.
The judgment is AFFIRMED.