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From Health Law Daily, October 22, 2014

Return to sender: kickback schemer’s mail fraud appeal denied

By Kathryn S. Beard, JD

The owner of multiple ambulatory surgical centers who pleaded guilty to mail fraud following a decade-long scheme involving physician referral bribes and kickbacks failed in his appeal because actual or intended tangible harm is not an element of the offense of honest-services mail fraud (United States v Nayak, October 20, 2014, Flaum, J).

Background. Raghuveer Nayak owned 10 ambulatory surgical centers in Illinois and Indiana. According to the Federal Bureau of Investigation (FBI), the facilities did not accept patients covered by public health insurance programs, such as Medicare and Medicaid. Rather, they only accepted patients insured by private health insurers, or patients who agreed to pay the entire fees themselves. Private insurers treated Nayak’s facilities as “out-of-network” when paying bills submitted for patient services. In 2012, Nayak was arrested on 19 counts of federal fraud and tax charges alleging that he paid bribes and kickbacks to physicians for patient referrals and filed false federal income tax returns that understated his income.

According to the indictment, Nayak defrauded patients by paying and arranging to pay bribes and kickbacks in the form of cash and other hidden payments to physicians for referrals to the ambulatory surgical centers Nayak owned. The bribes and kickbacks were paid both to induce physicians to begin referring patients and to induce physicians to continue referring patients. Nayak concealed the scheme by making cash payments, disguising the payments as advertising, or disguising the true purpose of the payments through fraudulent agreements and contracts. In 2008, Nayak was interviewed by law enforcement agents; subsequently he took additional steps to hide the scheme by executing fraudulent contracts and warning physicians to not speak with agents about the payments.

Among other crimes, Nayak was charged with honest-services mail fraud in violation of 18 U.S.C. secs. 1341 and 1346. This charge alleged that Nayak intended to defraud and deprive patients of their right to honest services of their patients. Thereafter, Nayak filed a motion to dismiss the mail fraud count based on his belief that the government needed to allege some form of actual or intended harm to the referring physicians’ patients as an element of the crime. The district court denied his motion, finding no such requirement.

Guilty plea. After the district court denied Nayak’s motion to dismiss the mail fraud count, he pleaded guilty to two of the allegations against him: one count of impeding the Internal Revenue Service (IRS) and one count of mail fraud. The mail fraud plea was conditional, which allowed Nayak to appeal the issue of actual or intended harm is an element of mail fraud, and to then withdraw his plea to that count if he prevailed in the appeal. Although Nayak admitted to paying physicians money to refer patients to his facilities with intent to influence their medical motives, he did not intend to cause any physical or monetary harm to medical patients by his cash payments to their physicians.

Mail fraud appeal. Nayak appealed the district court’s decision regarding the necessary elements of mail fraud to the Court of Appeals for the Seventh Circuit. The circuit court found that the statute criminalizes the use of U.S. mail in the service of “any scheme or artifice to defraud.” “Any scheme or artifice to defraud” is defined in the statutes to include not only schemes that deprive victims of money or property, but also those that deprive victims of their intangible right of honest services. According to the circuit court, the statutory language of 18 U.S.C. sec. 1346 that specifically contemplates prosecutions based on the deprivation of intangible rights presents “an insurmountable roadblock” to Nayak’s claim that tangible harm is an essential element of the crime of mail fraud. Under Seventh Circuit precedent, “only bribery or kickbacks” can be used to show honest-services fraud; in this case, Nayak engaged in a “bribe-and-kickback scheme to drum up business for his surgery centers,” and used the U.S. mail to do so. Therefore, his conduct falls squarely within the scope of Section 1346. Nayak’s attempts to distinguish his case failed, and the court found that the mail fraud charge was sufficiently alleged; no showing of tangible fraud to a victim is necessary.

The case number is 14-1404.

Attorneys: Andrianna D. Kastanek, Office of the United States Attorney, for United States of America. Thomas K. McQueen (Dentons U.S. LLP) for Raghuveer Nayak.

Companies: United States of America

MainStory: TopStory FraudNews AntikickbackNews ASCNews EnforcementNews IllinoisNews IndianaNews WisconsinNews

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