Originally Published by:  Amy Fehn and American Health Lawyers Association

Date:  July 1, 2014

The Eleventh Circuit Court of Appeals, in the recent case of United States of America vs. George D. Houser,  rejected the defendant’s arguments that his conviction under the federal health care fraud statute for the submission of claims based on “worthless services” to Medicare and Medicaid should be reversed.

Following a four-week bench trial, the District Court judge in the Northern District of Georgia found Houser guilty of one count of conspiring with his wife to commit health care fraud, in violation of 18 U.S.C. Section 1349, of eight counts of payroll tax fraud, in violation of 26 U.S.C. Section 7202, and of two counts of failure to timely file income tax returns, in violation of 26 U.S.C. Section 7203. The district court sentenced Houser to 240 months’ imprisonment (120 months, the statutory maximum, for the health care fraud conspiracy) and ordered him to pay nearly $7 million in restitution to Medicare and Medicaid and more than $870,000 to the Internal Revenue Service.

The health care fraud conspiracy was based on allegations that Houser did not provide vital services in the three nursing facilities that he controlled. Allegations included lack of heat, necessary medications, and supplies such as adult diapers, wound care items, and diabetic monitoring supplies. Evidence also was presented at the trial court to show that some residents were not able to have dialysis because of lack of transportation.

The District Court found that Houser’s facilities submitted false or fraudulent claims to Medicare and Georgia Medicaid “for services that were worthless in that they were not provided or rendered, were deficient, inadequate, substandard, and did not promote the maintenance or enhancement of the quality of life of the residents of the Nursing Facilities, and were of a quality that failed to meet professionally recognized standards of health care.”

The court ordered $6,742,807.88 in restitution to Medicare and Medicaid, concluding that approximately 20% to 25% of the services Houser provided under these programs were “worthless.”

On appeal, Houser maintained that the District Court erred in employing a “worthless services” theory in evaluating his guilt under the federal health care fraud statute, claiming that the concept of “worthless services” derives from civil suits brought under the False Claims Act. Houser argued that applying the worthless services concept into the federal health care fraud statute rendered the statute unconstitutionally vague because of the difficulty in “determining at what point health care services have crossed the line from merely bad to criminally worthless . . . .”

The court determined that Houser was not prosecuted solely on the basis of the deficient nature of some of the services, but rather was prosecuted for both deficient services and failure to provide required services. Therefore, this case did not require the court to “draw the proverbial line in the sand for purposes of determining when clearly substandard services become ‘worthless.'”

The court noted, by way of example, that Houser did not provide necessary medications, supplies, laboratory services, transportation for dialysis, or physical therapy. Houser argued that because these services are bundled, the failure to provide a single, necessary service could not be the basis for a conviction. Houser claimed this approach was mandated by three civil false claims cases: United States ex rel. Sanchez-Smith v. AHS Tulsa Regional Medical Center, LLC, 754 F. Supp.2d 1270 (N.D. Okla.); United States ex rel. Swan v. Covenant Care, Inc., 279 F. Supp.2d 1212 (E.D. Cal. 2002); and Chesbrough v. VPA, P.C., 655 F.3d 461 (6th Cir.2011). The court ruled not only that it was not bound to follow these cases, but also distinguished the instant case because the services at issue were not merely substandard or partially provided, but that patients went entirely without certain statutory mandated services such as physical therapy, medication, dialysis, and wound care. In addition, the court noted that Houser was not “simply’gross[ly] negligen[t]’ in the provision of required services,” but rather that he exhibited “an intentional disregard of those requirements.”

*We would like to thank Fraud and Abuse Enforcement Committee members Amy K. Fehn (Fehn Robichaud & Colagiovanni PLLC, Troy, MI) and Peter N. Katz (Berkeley Research Group LLC, New York, NY) for respectively authoring and reviewing this email alert.

Link to United States of America vs. George D. Houser: