United States v. Rick A. Kuhlman

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[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

________________________

No. 11-15959

________________________

D.C. Docket No. 1:11-cr-00075-MHS-1

UNITED STATES OF AMERICA,

Plaintiff - Appellant,

versus

RICK A. KUHLMAN,

Defendant - Appellee.

________________________

Appeal from the United States District Court

for the Northern District of Georgia

________________________

(March 8, 2013)

Before HULL, WILSON and ANDERSON, Circuit Judges.

WILSON, Circuit Judge:

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Dr. Rick Kuhlman pleaded guilty to perpetrating a five-year, $3 million

health care fraud scheme. He was sentenced to probation for the “time served”

while out on pre-trial release awaiting his sentence. Although the United States

Sentencing Guidelines set forth a sentencing range of 57 to 71 months of

imprisonment, Kuhlman was able to avoid a custodial sentence by simply paying

the money back and performing community service, including speaking to medical

and nursing students about the perils of health care fraud. Because we agree with

the government that Kuhlman’s sentence is unreasonable, we vacate the sentence

and remand this case back to the district court so that a meaningful sentence may

be imposed.

I. BACKGROUND

A. The Fraudulent Billing Scheme

Kuhlman is a doctor of chiropractic medicine. He owns and operates five

clinics in the Atlanta, Georgia metropolitan area, and one clinic in Nashville,

Tennessee. Beginning in January 2005, Kuhlman embarked on what would be a

five-year scheme, falsely billing health insurance companies for services he knew

were not rendered to his patients.

Normally after treating a patient, Kuhlman would request payment for the

medical services rendered by submitting a claim form directly to the patient’s

health insurance company. The form, known as a “Health Care Financing

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Administration Form 1500” (HCFA 1500), identifies the treatment provided to the

patient. Kuhlman was also required to record, on the same form, the appropriate

“Physician’s Current Procedural Terminology” (CPT Codes). The American

Medical Association publishes CPT Codes as a uniform numerical classification of

the most common treatments performed by physicians and other medical services

providers, including chiropractors. This was the proper procedure.

But Kuhlman did not follow the proper procedure. Instead, Kuhlman

recorded CPT Codes for services he knew were not and would not be rendered to

patients on the recorded dates. He then submitted the false HCFA 1500 forms to

an insurance company for payment. Thereafter, Kuhlman would receive payment

for the treatment he never gave.

During his five-year scheme, at least two insurance companies notified

Kuhlman that his billing practices did not conform to the proper procedure. In

2006, Kuhlman paid Blue Cross Blue Shield $500,000 to settle a string of

contested claims. A few years later, Kuhlman’s billing practices were flagged by

Aetna; Kuhlman again settled, this time paying $70,000 to resolve the disputed

claims. Aetna approached Kuhlman once more in 2009, and at that time, Aetna

determined that Kuhlman’s claims would be subject to pre-payment review.

Kuhlman, however, continued to submit false claims until an FBI agent

approached him in August 2010. It was only after the FBI became involved that

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Kuhlman ceased his improper billing practices. In total, Kuhlman pocketed

$2,944,883 as a result of his fraudulent billing scheme.

B. Procedural History

On February 23, 2011, Kuhlman was charged in a criminal information with

one count of health care fraud in violation of 18 U.S.C. §§ 1347 and 2. A few

weeks later, on March 1, 2011, he pleaded guilty pursuant to a plea agreement. At

the plea hearing, Kuhlman admitted that he did not steal out of need—he was not

in financial trouble and he did not have “creditors breathing down [his] neck

asking for money.” Instead, he “was just pushing the envelope and billing for

[CPT] codes that [his] doctors weren’t doing and once it started and [he] saw that

the insurance companies were going to pay for it [he] just didn’t fix it and [he]

should have.” The court stated: “In other words, you weren’t pressed to do it; you

saw an opportunity to make money. . . . I am just trying to figure out why

somebody like you would get involved in this type of activity when you weren’t

pressed for money and the creditors weren’t pushing you and you weren’t building

a house and gotten behind.” Sentencing was then set for May 23, 2011.

In preparation for sentencing, the probation office drafted a Presentence

Investigation Report, which calculated a base offense level of six, pursuant to

U.S.S.G. § 2B1.1. Kuhlman qualified for an 18-level enhancement pursuant to

U.S.S.G. § 2B1.1(b)(1)(J) because the loss amount was more than $2,500,000. In

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addition, because Kuhlman derived more than $1,000,000 in gross receipts from

one or more financial institutions—Aetna, Blue Cross Blue Shield, and United

Healthcare—the offense level was increased two levels pursuant to U.S.S.G.

§ 2B1.1(b)(14)(A). Since Kuhlman abused his position of trust with the insurance

companies by billing them for services that were not rendered, the offense level

was increased by two levels pursuant to U.S.S.G. § 3B1.3. Kuhlman, however,

was entitled to a two-level reduction for acceptance of responsibility under

U.S.S.G. § 3E1.1(a) and an additional one-level reduction under U.S.S.G.

§ 3E1.1(b) for assisting in the investigation by timely notifying authorities of his

intention to plead guilty.

After these adjustments, Kuhlman’s total offense level amounted to 25, with

a criminal history category of one and zero criminal history points. Based on these

numbers, the Sentencing Guidelines advised a range of 57 to 71 months’

imprisonment. As part of the plea agreement, however, the government ultimately

recommended a sentence of 36 months’ imprisonment, which was effectively a

five-level downward variance. See U.S.S.G. § 5A.

On May 23, 2011, the parties appeared ready for sentencing. A few days

before sentencing, Kuhlman paid $2,944,883 in full restitution. Impressed, the

district judge remarked that Kuhlman was the first defendant that the judge could

recall who made such a large restitution payment prior to sentencing.

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The district court then proceeded to discuss the rising costs of incarceration,

citing a recent Georgia state commission formed to explore alternatives to prison

for nonviolent criminals. The court alluded to the fact that Kuhlman needed some

extra time to “pay off his fine and support his family.” In addition, if given extra

time before sentencing, Kuhlman could, “and should, perform public service.” The

court then sua sponte continued the sentencing hearing for six months. In the eyes

of the court, the continuance would provide “a more complete picture of

[Kuhlman] and how he handle[d] this postponement time before sentencing.”

Next, the court repeated its concerns over the rising costs of prison and

suggested that a continuance would save “the court . . . at least $10,000 by not

incarcerating [Kuhlman] during this period.” The court also noted that it had

ordered a similar continuance for a “budding rock star,” which had yielded positive

results. During that six month continuance, the “budding rock star” made

“hundreds of visits to young people” and had a positive impact on the community.

The district court continued, “[t]he case was finally concluded to the satisfaction of

all parties who were initially skeptical as to whether the defendant was being

sufficiently punished for his wrongdoing.” Kuhlman, the district court believed,

could benefit from a similar opportunity.

The government objected, concerned that a continuance would allow

Kuhlman to go right back to work and right back to his old routine of filing false

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claims with insurance companies. Kuhlman, for obvious reasons, did not object to

the continuance.

Over the next several months, Kuhlman heeded the district judge’s advice.

Between May 23, 2011, and the time of Kuhlman’s continued sentencing hearing

on November 15, 2011, Kuhlman logged 391 hours of community service. 1 He

visited various medical, nursing, and chiropractic schools and gave presentations

on health care insurance fraud. He also provided 18 days of free chiropractic

services at homeless shelters across Atlanta and painted a gym at an elementary

school. And, as previously stated, Kuhlman had paid back the full amount he

stole—$2,944,883—prior to the initial May 23, 2011 sentencing hearing.

At the second sentencing hearing on November 15, 2011, the district court

lauded Kuhlman’s work during his six-month continuance. In light of Kuhlman’s

full restitution payment, his community service, and the rising costs of

incarceration, the district court sentenced Kuhlman to probation for the “time

served” while awaiting his sentence. In doing so, the district court varied

downward 20 levels.

II. STANDARD OF REVIEW

1

To log 391 hours of community service during his six-month continuance, Kuhlman

would have had to complete roughly two hours of service per day, including Saturdays and

Sundays.

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We review the reasonableness of a sentence under an abuse of discretion

standard. Gall v. United States, 552 U.S. 38, 41, 128 S. Ct. 586, 591 (2007).

“That familiar standard allows a range of choice for the district court, so long as

that choice does not constitute a clear error of judgment.” United States v. Irey,

612 F.3d 1160, 1189 (11th Cir. 2010) (en banc) (internal quotation marks omitted).

We have explained that, under the abuse of discretion standard of review, “there

will be occasions in which we affirm the district court even though we would have

gone the other way.” Id. (internal quotation marks omitted). The burden of

establishing unreasonableness lies with the party challenging the sentence. United

States v. Talley, 431 F.3d 784, 788 (11th Cir. 2005) (per curiam). Here, the

government appeals Kuhlman’s sentence; thus, the government carries the burden

of demonstrating that Kuhlman’s sentence is unreasonable.

III. DISCUSSION

A. Reasonableness of Sentence

When reviewing the reasonableness of a sentence, our task is two-fold. We

will first

ensure that the district court committed no significant procedural

error, such as failing to calculate (or improperly calculating) the

Guidelines range, treating the Guidelines as mandatory, failing to

consider the § 3553(a) factors, selecting a sentence based on clearly

erroneous facts, or failing to adequately explain the chosen sentence—

including an explanation for any deviation from the Guidelines range.

Gall, 552 U.S. at 51, 128 S. Ct. at 597.

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In explaining the sentence, the district court should set forth enough

information to satisfy the reviewing court of the fact that it has considered the

parties’ arguments and has a reasoned basis for making its decision, see United

States v. Rita, 551 U.S. 338, 356, 127 S. Ct. 2456, 2468 (2007), but “nothing . . .

requires the district court to state on the record that it has explicitly considered

each of the § 3553(a) factors or to discuss each of the § 3553(a) factors.” United

States v. Scott, 426 F.3d 1324, 1329 (11th Cir. 2005). If the district court varies

from the Guidelines range, it must offer a justification sufficient to support the

degree of the variance. See Irey, 612 F.3d at 1187.

After we determine that the district court’s sentencing decision is

procedurally sound, we next review the substantive reasonableness of the sentence

for abuse of discretion. Gall, 552 U.S. at 51, 128 S. Ct. at 597. We have held that

[a] district court abuses its discretion when it (1) fails to afford

consideration to relevant factors that were due significant weight,

(2) gives significant weight to an improper or irrelevant factor, or

(3) commits a clear error of judgment in considering the proper

factors. As for the third way that discretion can be abused, a district

court commits a clear error of judgment when it considers the proper

factors but balances them unreasonably.

Irey, 612 F.3d at 1189 (citations and internal quotation marks omitted).

A district court’s unjustified reliance on a single factor “may be a symptom

of an unreasonable sentence.” United States v. Pugh, 515 F.3d 1179, 1191 (11th

Cir. 2008). However, significant reliance on a single factor does not necessarily

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render a sentence unreasonable. Id. at 1192; see Gall, 552 U.S. at 57, 128 S. Ct. at

600 (holding that a district court did not commit reversible error simply because it

“attached great weight” to one factor). We have held that “[t]he weight to be

accorded any given § 3553(a) factor is a matter committed to the sound discretion

of the district court, and we will not substitute our judgment in weighing the

relevant factors.” United States v. Amedeo, 487 F.3d 823, 832 (11th Cir. 2007)

(alterations and internal quotation marks omitted).

When reviewing a sentence for reasonableness, we also evaluate whether the

sentence imposed by the district court fails to achieve the purposes of sentencing

under 18 U.S.C. § 3553(a). Talley, 431 F.3d at 788. “In order to determine

whether that has occurred, we are required to make the sentencing calculus

ourselves and to review each step the district court took in making it.” Irey, 612

F.3d at 1189 (alteration and internal quotation marks omitted). In reviewing the

reasonableness of a sentence, we consider the totality of the facts and

circumstances. Pugh, 515 F.3d at 1190.

Pursuant to § 3553(a), the sentencing court must impose a sentence

sufficient, but not greater than necessary, to reflect the seriousness of the offense,

promote respect for the law, provide just punishment for the offense, deter criminal

conduct, protect the public from future crimes of the defendant, and provide the

defendant with needed educational or vocational training or medical care. 18

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U.S.C. § 3553(a)(2). The sentencing court must also consider the following factors

in determining a particular sentence: the nature and circumstances of the offense

and the history and characteristics of the defendant, the kinds of sentences

available, the Guidelines range, the pertinent policy statements of the Sentencing

Commission, the need to avoid unwarranted sentencing disparities, and the need to

provide restitution to victims. 18 U.S.C. § 3553(a)(1), (3)–(7). In reviewing the

court’s application of these factors, we will vacate a sentence

if, but only if, we are left with the definite and firm conviction that the

district court committed a clear error of judgment in weighing the

§ 3553(a) factors by arriving at a sentence that lies outside the range

of reasonable sentences dictated by the facts of the case.

Irey, 612 F.3d at 1190 (internal quotation marks omitted).

B. Kuhlman’s Sentence

The government argues that Kuhlman’s sentence is procedurally and

substantively unreasonable. As a preliminary matter, we note that the district court

fulfilled its procedural obligations when sentencing Kuhlman to probation for time

served. Neither party disputes that Kuhlman’s advisory Guidelines range was

calculated accurately at 57 to 71 months. Rather, the government argues that it

was procedurally unreasonable for the district court to disregard the importance of

general deterrence, and to conclude that a 20-level variance was justified under the

Guidelines.

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When sentencing a defendant, the district court is not required to “state on

the record that it has explicitly considered each of the § 3553(a) factors or to

discuss each of the § 3553(a) factors.” Scott, 426 F.3d at 1329. Here, the district

court cited several § 3553(a) factors as the basis for varying Kuhlman’s sentence

below the Guidelines range. As such, Kuhlman’s sentence is procedurally

reasonable.

We cannot conclude, however, that Kuhlman’s sentence is substantively

reasonable. He stole nearly $3 million and “did not receive so much as a slap on

the wrist—it was more like a soft pat.” United States v. Crisp, 454 F.3d 1285, 1291

(11th Cir. 2006). To arrive at a sentence of probation for “time served” while out

on pre-trial release, the district court varied downward by 57 months from the

bottom of the advisory Guidelines range. Such a sentence fails to achieve an

important goal of sentencing in a white-collar crime prosecution: the need for

general deterrence. The Guidelines specifically state that a sentence should

provide “adequate deterrence to criminal conduct.” 18 U.S.C. § 3553(a)(2)(B).

We are hard-pressed to see how a non-custodial sentence serves the goal of general

deterrence.

Insurance companies must rely on the honesty and integrity of medical

practitioners in making diagnoses and billing for their services. And as the

government indicated at oral argument, deterrence is an important factor in the

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sentencing calculus because health care fraud is so rampant that the government

lacks the resources to reach it all. Thus, when the government obtains a conviction

in a health care fraud prosecution, one of the primary objectives of the sentence is

to send a message to other health care providers that billing fraud is a serious crime

that carries with it a correspondingly serious punishment.

In awarding Kuhlman probation for the time he served while out on pre-trial

release, the district court disregarded the importance of delivering such a message.

In fact, Kuhlman’s sentence sends the opposite message—it encourages rather than

discourages health care providers from engaging in the commission of health care

fraud because they might conclude that the only penalties they will face if they are

caught are disgorgement and community service. We do not mean to imply that

probation can never be an option available to a court in fashioning a reasonable

sentence in a white-collar crime case. But not here. That is especially so

considering the totality of the circumstances, including Kuhlman’s prior history,

the nature of the offense, and the extent that the sentence varies from the advisory

Guidelines.

In United States v. Livesay, we vacated as “patently unreasonable” a

sentence of five years’ probation for a participant in a billion-dollar fraud scheme,

holding that only a “meaningful period of incarceration” would fulfill the goals of

sentencing under § 3553(a). 587 F.3d 1274, 1278–79 (11th Cir. 2009). We also

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specifically addressed the need for adequate deterrence, stating that “it is difficult

to imagine a would-be white-collar criminal being deterred from stealing millions

of dollars from his company by the threat of a purely probationary sentence,

regardless of how much probation that person received.” Id. at 1279. The same

rationale applies in this case: “The threat of spending time on probation simply

does not, and cannot, provide the same level of deterrence as can the threat of

incarceration in a federal penitentiary for a meaningful period of time.” Id.

We also find the reasoning in United States v. Martin analogous to the case

before us. 455 F.3d 1227 (11th Cir. 2006). In Martin, we vacated a seven-day

sentence for another participant in a billion-dollar securities fraud, criticizing the

sentence as “shockingly short” and “wildly disproportionate” to the seriousness of

the offense, even though the defendant’s cooperation with the government was

“extraordinary.” Id. at 1238–39. We also noted that “the Congress that adopted

the § 3553 sentencing factors emphasized the critical deterrent value of

imprisoning serious white[-]collar criminals, even where those criminals might

themselves be unlikely to commit another offense.” Id. at 1240. We stated that

“[b]ecause economic and fraud-based crimes are more rational, cool and calculated

than sudden crimes of passion or opportunity, these crimes are prime candidates

for general deterrence.” Id. (internal quotation marks omitted). Our basis for this

determination was that “[d]efendants in white[-] collar crimes often calculate the

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financial gain and risk of loss, and white[-]collar crime therefore can be affected

and reduced with serious punishment.” Id.

Our decision in United States v. Crisp sings a similar tune. 454 F.3d at

1287, 1290. There, we vacated as “outside the range of reasonableness” a sentence

of five hours’ imprisonment for bank fraud, even though the defendant had

provided substantial assistance that was crucial to the prosecution of his co-

defendant. Id. Specifically, we determined that the district court’s “single-

minded[]” goal of restitution as the basis for imposing such a short sentence—

grounded in the reasoning that the defendant would be more able to pay restitution

if he were free—was an “unreasonable approach [that] produced an unreasonable

sentence.” Id. at 1291–92.

In an effort to differentiate his case from Livesay, Martin, and Crisp,

Kuhlman argues that each of those cases involved more money or more egregious

fraud. We need not dwell, however, on the dollar amount of those schemes,

because the criminal motive in each case was the same as the motive here—greed.

Kuhlman knowingly and methodically stole millions of dollars from

insurance companies over a period of several years. The district court’s sentence

does not reflect the seriousness and extent of the crime, nor does it promote respect

for the law, provide just punishment, or adequately deter other similarly inclined

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health care providers. We therefore find the sentence to be substantively

unreasonable, and an abuse of the district court’s discretion.

The Sentencing Guidelines authorize no special sentencing discounts on

account of economic or social status. And we are not the first circuit to recognize

that sentences like Kuhlman’s are typically unavailable to defendants of lesser

means who are convicted of economic crimes. In a recent decision, the Sixth

Circuit flatly rejected a district court’s reliance on the defendant’s “chosen

profession and status in the community,” holding that such factors were “decidedly

inappropriate to form the basis of such a large downward variance.” United States

v. Peppel,— F.3d —, 2013 WL 561352, at *11 (6th Cir. Feb. 15, 2013) (vacating

seven-day sentence for CEO who participated in an $18 million fraud scheme,

which carried a Guidelines range of 97 to 121 months of imprisonment). So too

here. Like the Seventh Circuit, we encourage our district court colleagues to keep

in mind that

[b]usiness criminals are not to be treated more leniently than members

of the “criminal class” just by virtue of being regularly employed or

otherwise productively engaged in lawful economic activity. It is

natural for judges, drawn as they (as we) are from the middle or

upper-middle class, to sympathize with criminals drawn from the

same class. But in this instance we must fight our nature. Criminals

who have the education and training that enables people to make a

decent living without resorting to crime are more rather than less

culpable than their desperately poor and deprived brethren in crime.

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United States v. Stefonek, 179 F.3d 1030, 1038 (7th Cir. 1999) (internal citation

omitted).

Accordingly, we vacate Kuhlman’s sentence and remand for resentencing so

that the district court may be permitted to impose a reasonable sentence.

VACATED and REMANDED.

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