Because the federal government already has been fairly compensated, the convicted individual defendants in the Kansas City Medicare kickback case don't have to pay restitution, a federal judge said last week.
The ruling, buried deep within a 46-page, largely procedural opinion, is a major victory not only for the defendants in the case but for any individual healthcare executives targeted in similar prosecutions.
"Our impression is we came out pretty good," said James Wyrsch, attorney for one of the defendants, Dan Anderson. "The judge is saying, 'They have to prove this loss.' That's a significant ruling today."
In April, a 12-member jury in U.S. District Court in Kansas City, Kan., convicted Anderson, the former chief executive officer of Baptist Medical Center in Kansas City, Mo., and three others of criminal Medicare fraud in an alleged patients-for-cash scheme.
Two of the convicted defendants are Robert LaHue, D.O., owner of the Blue Valley Medical Group, and his brother Ronald LaHue, D.O., whom the government said steered nursing home patients to Baptist and other hospitals in exchange for kickbacks disguised as consulting fees.
U.S. District Judge John Lungstrum overturned the conviction of the fourth defendant in the case, Dennis McClatchey, Baptist's former chief operating officer. The government is appealing McClatchey's acquittal.
The sentencing of Anderson and the LaHues is scheduled for Oct. 25. After that, all three are expected to appeal their convictions.
In August and September both the government and the defendants filed motions responding to the pre-sentencing investigative reports compiled by probation officers. Under federal guidelines, judges must follow strict sentencing formulas, adding and subtracting points for various mitigating or incriminating circumstances.
In his Oct. 6 ruling on those motions, Lungstrum took a dim view of the prosecutors' argument that the defendants must pay restitution for the government's claimed losses.
A restitution order must be "based on the amount of loss actually caused by the defendant's offense," he said. The only amount that the government may claim as a loss is "the amount of the bribes or consulting fees for which the respective hospitals submitted Medicare cost reports and received reimbursement from Medicare."
That means the full $150,000 a year in consulting fees that Baptist paid the LaHues doesn't count because Baptist didn't file them for reimbursement on its cost reports.
The court said the only victim in the case, the federal government, suffered losses of $65,716 at Baptist; $147,092 at Bethany Medical Center in Kansas City, Kan.; $1,500 at St. Joseph Medical Center in Wichita, Kan.; and $140,540 at Alexian Brothers Hospital in St. Louis. That was all the respective hospitals put down on their cost reports for consulting fees.
The government didn't pay any more than what was reflected on the cost reports, the judge said.
In 1997 Baptist settled civil allegations stemming from the case for $17.5 million. In 1996, Bethany paid $1.2 million to settle similar allegations. Neither hospital was charged with criminal activity. The other hospitals involved in the consulting arrangement with the LaHues and Blue Valley have not been charged with crimes or paid any civil settlements.