AMARILLO, TX – After a lengthy trial in South Florida, Minal Patel (owner of a genetic testing lab) was convicted of fraud. The Federal Judge will hand down the sentence in the near future. In determining Patel’s punishment, the Court will consider arguments from Patel … and arguments from the United States Department of Justice (“DOJ”). The DOJ’s argument is contained in the Sentencing Memorandum (“Memorandum”) that the DOJ submits to the Court.

Set out below are excerpts from the Memorandum. As can be seen, the DOJ wants the Court to “throw the book” at Patel and sentence him to life. A DOJ request for life imprisonment in a white-collar criminal case is relatively rare. But here, in the eyes of the DOJ, the actions of Patel were so egregious that the DOJ believes that life in prison is warranted.

After quoting from the Memorandum, I will discuss multiple lessons DME suppliers can learn from the Patel criminal case.

United States’ Sentencing Memorandum

The United States of America…submits this Sentencing Memorandum in advance of the sentencing of defendant Minal Patel (“Defendant” or “Patel”). Defendant’s egregious conduct as the architect of one of the largest genetic testing schemes ever brought to trial warrants a substantial prison sentence.

Patel masterminded a scheme that preyed on cancer survivors, elderly patients, and people afraid of getting cancer to steal tens of millions of dollars from a critical social safety net. Patel recruited and bribed patient brokers, directed and approved their use of deceptive marketing ploys, encouraged the use of telemedicine companies he knew were rubber stamps, and took steps to conceal the fraud and make it appear legitimate. Patel signed Medicare enrollment forms and supplied the key ingredient to make this scheme profitable: the ability to bill Medicare. Patel’s motives were not to help patients, but rather to use patients to help himself. Patel billed over $463 million to Medicare and Medicare Advantage (of which approximately $187 million was paid), and Patel laundered the proceeds of this fraud to personally profit to the tune of $21 million.

The total adjusted offense level (43) speaks to the severity of the offense. In fashioning a sentence from these guidelines, the United States urges the Court to consider the seriousness of this offense, the need to deter this Defendant and others who believe they are above the law, the need to curb health care fraud in South Florida and nationwide, and the need to promote respect for the law. In the face of overwhelming evidence, Patel continues to deny his guilt. Instead, Patel blames the employees who reported to him and the cadre of patient brokers he assembled to do his bidding. Patel flouted the law at every turn – indeed, he tried to bend the law in his favor by lying to his compliance lawyers to obtain modicum of cover for his scheme. Now, having been convicted of all counts, the law provides no cover. Instead, the law provides a means for the Court to fashion a sentence that reflects the seriousness of Patel’s offenses, guards the rule of law, and – critical in a case of this magnitude – deters this Defendant and others from committing crimes that target vulnerable patients and jeopardize public programs.

In light of all of this, the United States submits that a just sentence for this Defendant should be measured in decades, not merely months or years.

As co-conspirator Senthil Ramamurthy testified, “whoever controls the billing is at the top of the pyramid. If you know the numbers and you know how to bill, you’re the one who gets the money, and you choose who to work with …

Patel hired patient brokers who were paid a percentage of what Medicare reimbursed for every claim they referred. This was a kickback in exchange for referring patients to LabSolutions … [Shawn] Griner [an employee of Patel’s company] used a call center staffed by telemarketers with no medical training who called beneficiaries to persuade them to accept a genetic test.

Patel also approved of the use of telemedicine to increase the volume of doctors’ orders referred. Telemedicine was “an exercise in box checking … [Marc] Sporn [who ran the call center] showed Patel his “marketing portal, how it worked, and also the doctor’s portal” … Sporn showed Patel “how the [doctors’] orders were pushed over,” and pre-populated before the doctor even received it …

Patel attempted to conceal the kickbacks and his knowledge of direct, manipulative marketing to patients by using contracts that falsely stated that marketers were engaged in legitimate marketing to physicians’ offices.

Under the United States’ and Probation’s proposed guidelines calculation, the offense level is 49, which adjusts to 43 (the highest offense level recognized in the sentencing table). The guideline sentence at this offense level is life in prison.

The United States further recommends that the Court order restitution, which is mandatory. In this case, restitution totals $187,369,693.38, the amount paid to LabSolutions during the conspiracy based on the fraudulent conduct.

Many of Patel’s co-conspirators and others convicted in laboratory fraud schemes have received significant jail sentences. In many of those cases, the defendants pled guilty, cooperated (with some already receiving credit for cooperation), and had loss amounts and total offense levels far below Patel’s.

In determining how much weight to give to [the issue of deterrence – to keep others from committing similar offenses], the Court can consider the Defendant’s “complete lack of remorse and unwillingness to accept responsibility … Indeed, throughout the trial and still in his post-conviction pleadings, Defendant casts blame on others (chiefly his lawyers, his lab directors, and his employees).

The Memorandum is a veritable textbook of valuable lessons to be learned by DME suppliers…and for that matter, by all health care providers.

Lesson No. 1 – High Dollar Amount of Claims Will be Scrutinized
There is a time-tested axiom that governmental agencies follow when looking at potential white-collar crime: “Follow the money.” When a DME supplier submits claims for a large amount of money, the supplier will be looked at by a CMS contractor (e.g., UPIC) … and perhaps up the food chain by CMS, the DOJ and the Office of Inspector General (“OIG”). This is particularly true if the claims are entirely (or primarily) for one type of product/service. And this is true if the DME supplier’s claims submissions resemble a hockey stick (i.e., a large increase over a short period of time).

If a DME supplier is submitting a large dollar amount of claims, particularly for one type of product/service, the supplier needs to know that its claims submissions will be scrutinized. And the supplier needs to be confident that its “house is in order.”

Lesson No. 2 – Be Honest with Your Attorneys
If an attorney advises a DME supplier that a particular activity is legally compliant, and if the supplier follows the attorney’s advice, and then if the DOJ subsequently asserts that the activity is fraudulent, then the DME supplier may be able to assist the “advice of counsel” defense. That is, the supplier may contend that it did not have fraudulent intent because it only did what its attorney advised the supplier to do.

The “advice of counsel” defense is only valid if the DME supplier is transparent/honest with its attorney. It is not uncommon for a health care provider to only disclose to an attorney information that will generate an approval (positive opinion) from the attorney…when if the attorney understood the full scope of the provider’s activities, the attorney may have advised against the activity. Apparently, this is what happened in the Patel case. It appears that Patel misled his attorneys in order to receive the “Good Housekeeping Seal of Approval.” And then when the DOJ started investigating Patel, he blamed his attorneys.

Lesson No. 3 – Once the Walls Start Crumbling, You Have no Friends
Self-preservation is one of the highest forms (if not the highest form) of human emotion. This is particularly true when it comes to white-collar criminal investigations. There is an old saying that prosecutors like to use: “The first one on the bus gets the best seat.” When multiple individuals, who participated in a fraudulent arrangement, are investigated, it is likely that the lower rung individuals will “flip” on the boss. This means that the lower rung individuals will cooperate with the DOJ and testify against their boss…in exchange for a reduced sentence. This is what happened in the Patel case.

If the CEO of a DME supplier instigates a business model that is fraudulent, and if implementation of the model is by employees, the CEO is delusional if he believes that his employees will never turn on him. Again, self-preservation is a strong emotion.

Lesson No. 4 – Unless Certain Requirements Are Met, Do Not Pay People/Organizations for Generating Patients
The federal anti-kickback statute (“AKS”) is very broad. It states that a DME supplier cannot provide anything of value to a person/entity in exchange for the person/entity (i) referring a patient for a product/service covered by a federal health care program (“FHCP”), (ii) “arranging for” the referral of an FHCP patient, or (iii) recommending the purchase of a product/service payable by an FHCP.

The AKS has a number of “safe harbors.” A safe harbor is a hypothetical fact situation such that if an arrangement fits into that fact situation, then the arrangement does not violate the AKS. If an arrangement does not comply with a safe harbor, it does not mean that the arrangement violates the AKS. Rather, it means that the arrangement needs to be carefully analyzed under the language of the AKS, court decisions and other published guidance.

The Employee Safe Harbor allows a DME supplier to compensate a bona fide W2 employee for marketing services. The Employee Safe Harbor does not apply to a 1099 independent contractor marketing rep. If a DME supplier desires to compensate a 1099 independent contractor marketing rep for generating patients for the supplier, the arrangement needs to comply with the Personal Services and Management Contracts Safe Harbor. Among other requirements, (i) the parties must sign a written contract with a term of at least one year, (ii) the methodology for compensating the rep must be fixed one year in advance, and (iii) the compensation must be the fair market value (“FMV”) equivalent of the rep’s services.

In the Patel case, none of the above requirement were met. Patel’s lab paid 1099 independent contractor “patient brokers” and such payments did not adhere to the requirements of the Personal Services and Management Contracts safe harbor.

Lesson No. 5 – Be Wary of Telehealth Companies

Telehealth is a good thing. It is here to stay and it will continue to become an increasing part of our lives. But like the internet, telehealth can be both good and bad.

A litmus test regarding whether a telehealth company is legitimate or a sham is to determine who is paying for the telehealth physician’s encounter with the patient. Remember what I said at the beginning of this article regarding “follow the money.”

If the patient…or the patient’s insurer … or the patient’s employer … is paying for the telehealth encounter, then this is an important factor pointing to the legitimacy of the telehealth company. On the other hand, if the original source of the money (that ends up in the telehealth physician’s pocket) comes from the DME supplier, then this is indicative of a fraudulent arrangement.

This is how so many DME suppliers got into trouble with Operation Brace Yourself: the DME supplier would pay the lead generation company … the lead generation company would pay the telehealth company … the telehealth company would pay the telehealth physician…the telehealth physician would write the order for the back brace … the order would go to the DME supplier that started the whole process … and the supplier would bill Medicare. Stripping everything away, it was the DME supplier that was paying the telehealth physician.

Lesson No. 6 – Ignore Your Brain and Trust Your Stomach
How did Patel not think this was going to end poorly? Let’s say that a DME supplier looks at a potential arrangement that will potentially generate a great deal of money for the supplier. Assume that the CEO of a DME supplier rationalizes the arrangement in his mind … but the potential arrangement makes his stomach hurt. The CEO needs to ignore his brain and trust his stomach. We are all capable of intellectually rationalizing dishonest decisions. But our stomach never lies …

Lesson No. 7 – Don’t Go to Trial With the DOJ
In almost all cases, by the time a federal grand jury indicts a person, the DOJ has more than enough evidence to obtain a conviction. When white collar criminal cases go to trial, the conviction rate is greater than 90%. And so if a criminal defendant goes to trial, it is a very risky roll of the dice.

This is what happened to Patel. He rolled the dice by going to trial. He lost. And now he is looking at potential life in prison. Perhaps Patel had no choice but to go to trial. Perhaps the evidence against him was so condemning that the DOJ did not make an attractive plea offer. Perhaps Patel concluded that he had nothing to lose by going to trial.

However, in most cases, it is best for the defendant to be “one of the first persons on the bus” and enter into a plea agreement that will result in a reduced sentence.

A potential criminal defendant should do all that he can to avoid an indictment in the first place. Once an indictment is issued, the DOJ is publicly making a statement that the defendant is a “bad guy” and needs to be punished. Once a person is indicted, it is hard for the DOJ to “walk the allegations back” and go easy on the defendant.

If a person knows that he is a potential target of a criminal investigation, the best course of action is for the person’s attorney to immediately engage in conversations with the DOJ.

• If the potential defendant is lucky, perhaps the DOJ will move the person from the “target” category and into the “subject” or “witness” category. If the potential defendant is moved into one of these latter two categories, the risk of an indictment is reduced.
• If the potential defendant is lucky, perhaps the DOJ will be open to entering into a civil settlement … as opposed to a criminal plea.
• If the DOJ insists on a criminal plea, then because the DOJ has not made a public statement about the potential defendant by asking the grand jury to issue an indictment, the DOJ has breathing room to negotiate a criminal plea that is less serious. Such a plea will be pursuant to an Information, as opposed to an indictment.

Lesson No. 8 – Substance Over Form
“If it looks like a duck … and it walks like a duck … and if it sound like a duck … then it is a duck.” According to the DOJ, Patel attempted to “paper over” the fraudulent business model by executing contracts that, on their face, appeared to be legitimate. The DOJ and the jury saw through this ruse.

The lesson for DME suppliers is that if they enter into contracts that are legally compliant on their face, the underlying implementation of the contracts needs to be consistent with the terms of the contracts.

As the old Charles Schwann commercial said: “You can put lipstick on a pig … but it is still a pig.”

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, PC, a law firm with a national health care practice based in Texas. He represents pharmacies, infusion companies, HME companies, manufacturers and other health care providers throughout the United States. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization and can be reached at (806) 345-6320 or [email protected].