Petition — Freedlander v. United States

IN THE SUPREME COURT

OF THE

UNITED STATES

DoNALD FREEDLANDER,

Petitioner,

-VS-

Unrrep STATES OF AMERICA,

Respondent.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

i‘ Neil H. Fink

1500 Buhl Bldg.

Detroit, Michigan 48226

Telephone: (313) 963-1700

AMERICAN PRINTING COMPANY

125 WEALTHY STREET, S.E., GRAND RAPIDS, MICHIGAN 49503 — (616) 458-5326

1200 WEST FORT STREET, DETROIT, MICHIGAN 48226 — (313) 963-9310

QUESTION PRESENTED

Does payment of a portion of a lawful fee received by a

laboratory in connection with furnishing Medicaid services

to doctors who referred specimens and provided assistance

to said laboratory constitute a ‘‘kickback”™ within the

meaning of 42 USC §1396h(b)(1) and is the pre-1977 version

of said statute unconstitutionally vague and inadequate tc

warn a defendant that his conduct is prohibited?

TABLE OF CONTENTS

Co ey By). es en eee

Oe 6 ck saws skates ee ee ean dee aie

INDEX OF AUTHORITIES

Cases: Page

Ladner v United States, 358 US 169 (1958)......... 6, Il

Morisette v United States, 342 US 246 (1952) ...... 5

Ornelas v United States, 236 F2d 392 (9th Cir, 1956) 1]

Smith v United States, 360 US 1 (1959) ............ 6, Il

United States v Halseth, 342 US 277 (1952) ........ 1]

United States v Hancock, 604 F2d 999

CPs GE ba 0 Gi vse lyn ae suede Mea ees 9, 10, II

United States v Porter, 591 F2d 1048

oO Be a 2 Perr er rrr. ha i Oo

United States v Stewart, 311 US 60 (1940) ......... 5

United States v Weingarden, 468 F Supp 410 (ED

A IN 6 3hs-s neat ed OER OT RE ¥, 2, 4 338

United States v Zacher, 486 F2d 912

ES SP e's s oN oda ebsa <eesnwne Seasiad 6, 8, 9, Il

Statutes:

ee a Oe Es his wa eb Kea Chae ede aa ene Vv

ee ee SE opine ba haa ed eed eee 4,7

Se Gi © TIPE eee ccaetyesccesins 7, 1, 4.6% 3

Miscellaneous:

H. R. Rep No. 95-393 (11), 95th Cong. Ist Sess. 53

(1977), reprinted in [1977] U.S. Code Cong. & Ad-

See: THOS OS Fiera DROS 6 ict heecsbevvacecasteses 7

iv

IN THE SUPREME COURT

OF THE

UNITED STATES

No.

DoNALD FREEDLANDER,

Petitioner,

-VS-

Unitep STATES OF AMERICA,

Respondent.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

Donald Freedlander,by and through his attorney Neil H.

Fink, petitions herein for a Writ of Certiorari to review the

decision of the United States Court of Appeals for the Sixth

Circuit affirming his conviction for violation of 42 USC

§1396h(b)(1), filed June 16, 1980.

Vv

OPINIONS BELOW

By an unpublished opinion dated March 16, 1979, the

United States District Court for the Eastern District of

Michigan denied defendants’ motions to dismiss the

charges. The District Court’s subsequent opinion denying

defendant’s motion for rehearing is reported as United

States v Weingarden, 468 F Supp 410 (E.D.Mich 1979). The

Opinion of the Sixth Circuit Court of Appeals filed June 16,

1980, affirming the District Court’s opinions and the

Petitioner’s conviction is reprinted in full as Appendix A

hereto. That Opinion has not, as of this writing, been

published.

JURISDICTION

The Opinion and Order appealed from was filed June 16,

1980. The jurisdiction of this court is invoked under 28 USC

§1254(1).

STATUTORY PROVISION INVOLVED

United States Code, Title 42 §1936h(b)(1), prior to 1977

amendment, provides:

(b) Whoever furnishes items or services to an

individual for which payment is or may be made in

whole or in part out of the Federal funds under a

State plan approved under this title [42 USCS

§§1396-1396d, 1396f-1396i] and who solicits, offers,

or receives any—

(1) kickback or bribe in connection with the

furnishing of such items or services or the

making or receipt of such payment,

* * * *

shall be guilty of a misdemeanor and upon

conviction, thereof shall be fined not more than

$10,000 or imprisoned for not more than one year, or

both.

l

STATEMENT OF THE CASE

Defendant-Appellant, DONALD FREEDLANDER,

D.O., was indicted on September 21, 1978, along with

twelve co-defendants, in a 37-count Indictment, charging

various violations of 18 USC §1962 and 18 USC §1341. A

follow-up Information was subsequently filed, charging the

Defendant-Appellant, along with four other defendant

doctors, with receiving kickbacks in connection with

furnishing medical services to Medicaid patients in violation

of 42 USC §1396h(b)(1).

The pertinent portion of the Amended Follow-Up

Information charging Dr. Freedlander, reads as follows:

[T]he Government contends Donald Freedlander,

D.O. received monetary payments from an entity

related to Titan Laboratories, Inc., namely M.A.

Delaney, Inc., principally to induce Donald

Freedlander, D.O. to send his laboratory work to

Titan Laboratories, Inc. In addition, it was agreed

that Donald Freedlander would perform the

following services: (1) to form and assist in the

formation of J.K.F., Inc., as described in Indictment

Number 78-80689, and (2) to encourage other

doctors to send their laboratory work to Titan

Laboratories, Inc., as described in Indictment

Number 78-80689. The claims filed by Titan

Laboratories, Inc., were in accordance with the

Medicaid statutes and regulations and the monies

received by Titan Laboratories, Inc., were those to

which Titan Laboratories, Inc. was entitled. That is,

when Titan Laboratories, Inc. was asking for

payment for specific blood work, that blood work

had been done and that the billing for that blood

work was in accordance with Medicaid statutes and

regulations.

Paragraphs 18 through 21 of the Indictment indicate that

the formation of J.K.F., Inc. was originally proposed by

officers and employees of Titan Laboratories, Inc. as a

2

means for a group of doctors to obtain an interest in the

laboratory. Dr. Freedlander played an active role in

assisting in the formation of J.K.F., Inc. and in encouraging

other doctors to send their laboratory work to Titan

Laboratories. He was among the group of doctors who

incorporated as J.K.F. for the purpose of purchasing forty

percent of the stock of Titan Laboratories. The stock was

to be purchased for $75,000.00, which was to be built up in

an escrow account held on behalf of J.K.F. by Joseph

Donnelly, the attorney for the corporation. The doctors

associated with J.K.F. sent their laboratory business to

Titan and Titan paid a sum equal to ten percent of the total

monthly billings of the J.K.F. doctors into the escrow

account held by Donnelly. At the point in time when the

J.K.F. escrow account had reached $60,000.00, the member

doctors decided to pay the last $15,000.00 out of their own

money in order te effectuate the purchase early, and they

subsequently received and divided 40% of the Titan stock.

Numerous pretrial motions to dismiss the Indictment

and/or Information were filed or joined by Dr. Freedlander.

On March 16, 1979, the Honorable Cornelia Kennedy filed

a written Opinion and Order denying one defendant's

Motion to Dismiss the Indictment and Information, which

incorporated by reference all other defendants’ motions to

dismiss.

Subsequent to the decision in United States v Porter,

591 F2d 1048 (Sth Cir, 1979) issued by the United States

Court of Appeals for the Fifth Circuit on March 21, 1979,

the defendants orally moved for rehearing of their motions

to dismiss. The Trial Court issued a written Opinion and

Order on April 3, 1979, refusing to follow the Porter

decision and denying the motion for rehearing. U.S. v

Weingarden, 468 F Supp 410 (ED Mich 1969).

On April 10, 1979, Dr. Freedlander entered a plea of

guilty to counts 17 through 21 of the Information as

amended. Each count charged a separate check made

payable to Dr. Freedlander, drawn on the account of M.A.

Delaney, Inc. on a specific date.

3

Dr. Freedlander admitted, as a factual basis for his plea

of guilty, that he received the monetary payments from

M.A. Delaney, Inc. in return for his active aid in the

formation of J.K.F., Inc. and his subsequent

encouragement of other physicians to send their laboratory

work to Titan Laboratories, Inc., in addition to his

continuing to send all oi his own lab work to Titan.

The defendant’s disagreement with the Trial Court’s

view of the applicable law and his intention to appeal the

question of whether the Information stated an offense was

indicated both at the time of his plea and later in the

Motion in Arrest of Judgment, which was filed on his behalf

and denied by the Court on April 24, 1979.

Petitioner appealed his conviction and sentence to the

Sixth Circuit Court of Appeals as a matter of right. On June

6, 1980, a panel of that Court affirmed his conviction.

4

REASONS FOR GRANTING THE WRIT

THE SIXTH CIRCUIT COURT OF APPEALS’ DECISION

UPHOLDING THE CONSTITUTIONALITY OF THE PRE-

1977 VERSION OF 42 USC §1396h(b) (1) AND OF THE

SUFFICIENCY OF THE INFORMATION FILED IN THE

INSTANT CASE IS IN DIRECT CONFLICT WITH THE

DECISIONS OF OTHER COURTS OF APPEALS ON THE

SAME MATTER AND IMPROPERLY EXPANDS THE

SCOPE OF SAID STATUTE AND DEPRIVES THE DE-

FENDANT OF HIS RIGHT TO BE WARNED THAT HIS

CONDUCT WAS PROHIBITED BY SAID STATUTE.

It is, and has always been, the position of the Petitioner

that the information filed in this case did not state an

offense under 42 USC §1396h(b) (1) and that the pre-1977

version of said statute was unconstitutionally vague. He

nonetheless entered a plea of guilty subsequent to the

district court’s two opinions rejecting the defendant’s

position and the recent appellate law he cited, and

upholding the sufficiency of the Information and the statute.

US v Weingarden, supra. Since Petitioner indicated his

intent to appeal at the time of his plea and subsequently

filed a Motion in Arrest of Judgment pursuant to FRCP 34,

raising jurisdictional defects, his right to appeal was not

waived by the guilty plea. Thus, the Sixth Circuit Court of

Appeals was presented with a question of first impression

dealing generally with the scope and validity of the pre-1977

version of 42 USC §1396h(b) (1), and specifically with the

definition of kickbacks as used therein.

Both the legislative history and the case law interpreting

the term ‘‘kickback’’ within the context of this statute are

relatively sparse. Nonetheless, both the district court and

appellate court in this case had the advantage of the recent

decision rendered by the United States Court of Appeals for

the Fifth Circuit in US v Porter, 591 F2d 1048 (Sth Cir,

1979). The Porter Court dealt precisely with the term

**kickback”’ within the context of 42 USC §1395nn(b), which

deals with the Medicare rather than the Medicaid program,

but is otherwise of identical language and legislative history

5

as the statute to be construed in the instant case. In that

case, doctors referred their blood specimens from Medicare

patients to manual laboratories which received a

substantially higher rate of reimbursement for Medicare

than automated laboratories, and in return paid the doctors

“handling fees’’ of up to $35.00 per specimen. These

handling fees were often paid to the doctors through

dummy corporations which were set up solely for this

purpose. The Court in Porter held that payments by a

laboratory which received lawful fees under the Medicare

program and shared such fees with doctors who had

referred their specimens to the laboratories did not

constitute ‘“‘bribes or kickbacks’’ within the meaning of the

statute.

In reaching the decision and defining ‘‘kickbacks’’

within the context of the statute, the Fifth Circuit Court of

Appeals took note of several basic axioms of judicial

construction, all of which are equally applicable to the case

at bar. Noting that this was a case of first impression,

where the terms ‘‘kickback”’’ and ‘“‘bribe’’ were not defined

within the statute, and there being no accumulated

jurisprudence on the actual meaning, the Court followed the

assumption that Congress used these words as they are

commonly understood. See, United States v Stewart, 311

US 60, 63, 61 SCt 102, 85 LEd 40 (1940). In finding such

ordinary meaning of the terms, the Court looked to similar

statutes, common law and common sense, and took note of

the following language of Justice Jackson in Morissette v

United States, 342 US 246, 72 SCt 240, 96 LEd 288 (1952):

‘*Where Congress borrows terms of art in which are

accumulated the legal tradition and meaning of

centuries of practice, it presumably knows and

adopts the cluster of ideas that were attached to

each borrowed word in the body of learning from

which it was taken and the meaning its use will

convey to the judicial mind unless otherwise

instructed. In such case, absence of contrary

direction may be taken as satisfaction with widely

6

accepted definitions, not as a departure from them.”

342 US at 263, 72 SCt at 250.

Moreover, following the holding in Smith v United

States, 360 US 1, 79 SCt 991, 3 LEd 2d 1041 (1959), the

statute was construed strictly against the prosecution and in

favor of the accused. In accordance with the policy of

lenity, any doubt as to whether the defendant’s conduct

was prescribed was resolved in favor of the accused.

Ladner v United States, 358 US 169, 1978, 79 SCt 209, 3

LEd 2d 199 (1958).

With the above principles in mind, the Porter Court

went on to define ‘‘kickback’’ within the ‘‘ordinary

parlance’’ as the “secret return to an earlier possessor of

part of the sum received’’ (591 F2d at 1054; emphasis in

original).

The Fifth Circuit Court of Appeals in Porter cited with

approval the Second Circuit’s decision in United States v

Zacher, 486 F2d 912 (2nd Cir, 1978), which interpreted the

terms ‘‘kickbacks’’ and ‘‘bribes’’ within the meaning of 42

USC §1396h(b) (1) as “‘involv[ing] a corrupt payment or

receipt of payment in violation of the duty imposed by

Congress on providers of services to use Federal funds only

for intended purposes and only in the approved manner.”

586 F2d at 916, quoted in 591 F2d at 1054. The Second

Circuit Court of Appeals’ survey of the jurisprudence of

said terms resulted in the conclusion that ‘‘courts have

consistently understood the word ‘bribe’ to encompass acts

that re malum in se because they entail either a breach of

trust or duty or the corrupt selling of what our society

deems not to be legitimately for sale .. . it is this element

of corruption that distinguishes a bribe from a legitimate

payment for services.’’ 586 F2d at 916.

Application of the definitions ennumerated in Zacher to

the facts in US v Porter, supra, led to the Porter Court's

determination that ‘‘the receipt of the money by the labs in

no way violated the law.’’ The Fifth Circuit went on to

7

reject the government's contention that the sharing of

lawful fees received by the laboratory with the doctor who

had referred the specimen to the lab was a violation of 42

USC §1395Snn(b); stating that:

““[t}here was no outstanding restriction on what the

lab could do with the money once it received it.”

591 F2d at 1054.

Petitioner's argument that the Information did not

sufficiently charge an offense is also strengthened by

reference io the subsequent history of the statute, as noted

in United States v Porter, supra. Dr. Freedlander pled

guilty to the 1972 version of 42 USC §1396h(b) (1). Both that

provision and 42 USC §1395nn(b) were amended by

Congress in 1977. Not only were the penalties increased,

but the wording of the statutes made the description of the

crime much more specific. Porter cites the legislative

history of that amendment for the fact that Congress and

many United States attorneys believed ‘‘that the existing

language of these penalty statutes is unclear and needs

clarification.”” H.R. Rep. No. 95-393(11), 95th Cong., Ist

Session 53 (1977), reprinted in [1977] U.S. Cong. & Admin.

New, pp. 3039, 3055.

Thus, the Court concluded:

“If the meaning of the 1972 version of 42 USC

§1395nn(b) was not clear and precise to the Congress

and to the United States Attorneys charged with

enforcing the law, then we are hard put to say, with

that degree of confidence required in a criminal

conviction, that these defendants were given clear

warning by that statute that their conduct was

prohibited by it, thus amounting to a criminal act.”

591 F2d at 1054.

8

The facts in Porter could not possibly be closer to those

present in the case at bar. The charges against Dr.

Freedlander arise in connection with payments made to him

by a laboratory to which he submitted his blood specimens

which were covered under Medicaid. As in Porter, the

defendant-appellant herein was often paid through a third

party corporation, rather than directly by the laboratory.

Further, the Information specifically states that:

‘*‘The claims filed by Titan Laboratories, Inc., were

in accordance with th* Medicaid statutes and

regulations, and the monies received by Titan

Laboratories, Inc., were those to which Titan

Laboratories, Inc. were entitled.’’

Thus, applying the rationale used in Porter, once the

laboratory had received this lawful fee they were not

restricted in how they disposed of it, and the mere sharing

of such a fee with the doctor does not constitute an offense.

In addition, the payment scheme charged in the case at

bar does not allege any ‘‘return to an earlier possessor’’ as

would be necessary to charge a ‘‘kickback"’ as that term is

defined in United States v Porter, supra, nor are there any

allegations of ‘‘corrupt payments’? which would allege a

‘*kickback’’ within the interpretation applied by the Second

Circuit in United States v Zacher, supra. Yet, despite the

direct applicability of Porter and the absence of any

applicable case law to the contrary, the district judge

refused a rehearing of defendant’s motions to dismiss

immediately subsequent to the issvence of the Porter

decision. The district court’s opinion, published as US v

Weingarden, 468 F Supp 410 (Ed Mich, 1979), consisted of

numerous definitions of the term ‘‘kickback"’ as used within

the context of statutes other than the one at issue. While

the definitions cited by the tria! court were significantly

broader than the ‘‘kickback”’ definition set forth in Porter,

it is crucial to note that not one of the cases relied on by

the trial court defined the term ‘“‘kickback’’ within the

context of a criminal statute.

9

The only other Court of Appeals that has yet had the

Opportunity to construe the ‘‘kickback”’ statutes is the

Seventh Circuit in its recent opinion in United States v

Hancock, 604 F2d 999 (7th Cir, 1979). There the defendant

doctors were charged with kickback violations under 42

USC 1396h(b)(1) for payments labeled ‘‘handling fees’’

which they received from the laboratory to which they

referred their Medicare and Medicaid recipients blood and

tissue specimens. Both defendants entered a plea of nolo

contendere to one count, and on appeal raised the

contention that the indictment did not sufficiently allege the

crime of receiving a kickback under §1396h(b)(1).

While the Seventh Circuit adopted the Zacher definition

of ‘‘kickbacks’’ as involving ‘‘corrupt payments’’, the

convictions in Hancock were affirmed on the Court's

finding that the indictments did allege ‘‘corrupt payments”’

and such payments were admitted by the defendants pleas

to those indictments.

The Sixth Circuit’s opinion in the instant case is of little

help in resolving the apparent conflict and defining the

scope of the statute, since it totally fails to deal

substantively with the issues.

Over 75% of the Court of Appeals majority opinion

consists of a verbatim reiteration of the counts of the

Information pled to by each of the five defendants, as well

as the factual basis of the plea offered by each defendant.

The Court seems to miss the point that it is the sufficiency

of the /nformation not the sufficiency of the plea that is at

issue here.

The Court’s actual decision on the issue consists of a

choice from among the decision offered by the two previous

Court of Appeals decisions and the ready-made opinion of

the district court in this matter, rather than any independent

analyses of the law.

‘‘We agree with the definition of ‘kickbacks’ adopted

and applied by the Seventh Circuit in United States

10

v Hancock, 604 F2d 699 (7th Cir. 1978). We follow

that decision in affirming the decision of the district

court that appellants have entered pleas of guilty

under an Information charging them with violations

of a valid statute which made their conduct a

criminal offense. The record demonstrates to our

satisfaction that the payments which the appellants

admitted receiving were ‘kickbacks’ within the

meaning of the statute.

‘“‘We choose to follow the Seventh Circuit in

Hancock, rather than United States v Porter, 591

F2d 1048 (Sth Cir. 1979). The reasons for this

conclusion are stated well by Judge Kennedy in her

published opinion. 468 F Supp at 412-15.

‘‘Appellants contend that they did not ‘furnish’ the

services in connection with which they received

payments, and that the Information does not charge

an offense. These and all other contentions made by

appellants have been considered and found to be

without merit’’ Slip opinion, p. 17.

Petitioner submits that the Sixth Circuit decision is

incorrect for a variety of reasons. The Court’s strong

reliance on United States v Hancock, supra, is misplaced

since although the petitioner herein did enter a plea rather

than proceeding to trial, the Information to which he pled

did not allege any corrupt payments as found in # .ncock.

Moreover, the instant Information specifically stated that

the claims were filed by the laboratory in accordance with

the Medicaid statute and that the monies received were

those to which it was entitled. In addition, the Information

to which Dr. Freedlander pled recognized the fact that the

payments he received from the laboratory were not merely

in return for sending his laboratory work there, but also in

payment for his services in assisting in the formation of

J.K.F., Inc., and encouraging other doctors to send their

laboratory work to Titan Laboratories, Inc.

The Appellate Court's adoption of the district court’s

opinion in the case at bar ignores the fact that the cases and

definitions cited in said opinion were not controlling in the

context of a criminal statute and hence inapplicable to the

case at bar.

The Sixth Circuit’s ‘“‘choice’’ of the broader definition of

**kickback’’ enunciated in Judge Kennedy’s opinion and in

the Court’s interpretation of the Seventh Circuit’s Hancock

opinion rather than the definitions set out by the Second

Circuit in Zacher and the Fifth Circuit in Porter constitutes

a clear vioiation of the most fundamental rules of statutory

construction—that criminal statutes are to be strictly

construed in favor of the defendant and will not be enlarged

by implicatio or intendment. Smith v United States, 360 US

1 (1959); Ladner v United States, 358 US 169 (1958). Taken

one step further, the strict construction rule provides: ‘‘if

[statutory] words are capable of two constructions, that

more favorable to [the accused] prevails.’’ Ornelas v United

States, 236 F2d 392 (9th Cir, 1956), citing United States v

Resnick 299 US 207 (1936) and United States v Halseth,

342 US 277 (1952). Under such principles the Porter and

Zacher definitions must prevail.

Prosecutions under the statute involved herein and

under companion statutes have begun very recently, yet are

becoming quite proliforous. The proper interpretation and

scope of the law presents a question of first impression to

the courts confronted with it and the clear conflict of

decisions emerging from those Courts of Appeals who have

ruled on said statute creates the untenable situations where

the question of whether a person’s conduct constitutes a

violation of a federal criminal statute is dependent upon

which portion of the country said conduct occurs in.

This Court has not yet addressed the problem of the

scope and validity of the pre-1977 version of 42 USC

§1936h(b) (1).

Such a ruling is desperately needed to guide the lower

12

courts in the proper interpretation and application of the

law and to warn the people of this country whether or not

their conduct is in violation of a federal criminal statute.

The case at bar presents an appropriate vehicle through

which to promulgate such a ruling.

CONCLUSION

For these reasons the Court should issue a Writ of

Certiorari to the Sixth Circuit Court of Appeals, that it

might review the substantial question herein posed.

Respectfully submitted,

NEIL H. FINK

Attorney for Petitioner

1500 Buhl Building

Detroit, Michigan 48226

Telephone: (313) 963-1700

DATED: July 11, 1980

APPENDIX

la

Nos. 79-5222-24, 79-5269-70

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

f-App APPEAL from the

V. United States District

Court for the Eastern

RICHARD TAPERT, Harvey GOLDEN, [|

District of Michigan.

GERALD WEINGARDEN, DONALD

FREEDLANDER and RoBert GAsH,

Defendants-Appellants.

Decided and Filed June 16, 1980.

Before: Weick and Jones, Circuit Judges, and PHiups,

Senior Circuit Judge.

Pups, Senior Circuit Judge, delivered the opinion of the

Court, in which Weick, Circuit Judge, joined. Jones, (pp.

18-20) filed a separate concurring opinion.

Puuirs, Senior Circuit Judge. These are consolidated

appeals by five Detroit osteopathic physicians who were con-

victed of receiving kickbacks for sending urine and blood

samples of their patients to Titan Laboratories (Titan) for

analysis. All five of the physicians were enrolled in the Medi-

care and Medicaid programs and the charges for the labora-

tory analysis were paid to Titan out of Medicare and Medicaid

funds. The district court held that the payments violated

2a

2 United States v. Tapert, et al. Nos. 79-5222-24, 79-5269-70

the original version of 42 U.S.C. § 1936h(b),’ which was in

effect during the years involved in this case. In 1977 Congress

amended the statute so as to remove any possible doubt that

conduct such as that involved in the present case violates

the Act.?

The principal issues on this appeal are whether the infor-

mation under which appellants were convicted charges a vio-

(b) Whoever furnishes items or services to an individual for

which payment is or may be made in whole or in part out of

Federal funds under a State plan approved under this title

[42 USCS §8§ 1396-1396d, 1396f-1396i] and who solicits, offers,

or receives any —

(1) kickback or bribe in connection with the furnish-

ing of such items or services or the making or receipt

of such payment, or

(2) rebate of any fee or charge for referring any such

individual to another person for the furnishing of such

items or services

shall be guilty of ‘a misdemeanor and upon conviction thereof

shall be fined not more than $10,000 or imprisoned for not

more than one year, or both.

2The amended § 1396h(b) (1) is as follows:

(b)(1) Whoever solicits or receives any remuneration (in-

cluding any kickback, bribe, or rebate) directly or indirectly,

overtly or covertly, in cash or in kind—

(A) in return for referring an individual to a person

for the furnishing or arranging for the furnishing of any

item or service for which payment may be made in whole

or in part under this subchapter, or

(B) in return for purchasing, leasing, ordering, or ar-

ranging for or recommending purchasing, leasing, or or-

dering any good, facility, service, or item for which pay-

ment may be made in whole or in part under this sub-

chapter,

shall be guilty of a felony and upon conviction thereof, shall

be fined not more than $25,000 or imprisoned for not more than

five years, or both.

(2) Whoever offers or pays any remuneration (including any

kickback, bribe, or rebate) directly or indirectly, overtly or

covertly, in cash or in kind to any person to induce such

person—

(A) to refer an individual to a person for the furnish-

ing or arranging for the furnishing of any item or service

for which payment may be made in whole or in part under

this subchapter, or

(B) to purchase, lease, order, or arrange for or recom-

mend purchasing, leasing, or ordering any good, facility,

3a

Nos. 79-5222-24, 79-5269-70 United States v. Tapert, et al. 3

lation of the pre-1977 version of 42 U.S.C. § 1396h(b)(1)

(note one), and whether the statute is unconstitutional for

vagueness. Then Chief District Judge Cornelia Kennedy, now

a judge of this court, ruled that the payments to the doctors

were kickbacks, that the information charges a violation of the

statute and that the statute is not invalid for vagueness. We

affirm.

I

Apparently Titan initiated the arrangement for the kick-

backs, by having its representative contact one of the

physicians.* In return for payments from Titan or one of

its affiliates, the physician agreed to send his patients’ speci-

mens to Titan and to encourage his colleagues to do the same.

Other physicians entered into similar agreements, which Titan

described as “consulting” arrangements. This pattern of

activity began in April 1974 and continued until January 1978.

Beginning in 1976, the physicians began depositing their

Titan checks in an escrow fund for the purpose of acquiring

an interest in Titan. The fund was administered by J.K.F.

Inc., a corporation set up by the physicians to hold the Titan

ns

service, or item for which payment may be made in whole

or in part under this subchapter,

shall be guilty of a felony and upon conviction thereof, shall

be fined not more than $05,000 or imprisoned for not more

than five years, or both.

(3) Paragraphs (1) and (2) shall not apply to—

(A) a discount or other reduction in price obtained by

a provider of services or other entity under this subchap-

ter if the reduction in price is properly disclosed and ap-

alg egg d reflected in the costs claimed or charges made

y the provider or entity under this subchapter; and

(B) any amount paid by an employer to an employee

(who has a bona fide employment relationship with such

employer) for employment in the provision of covered

items or services.

3 See United States v. Shermetaro, —— F.2d -——— (No. 79-5148,

6th Cir. 1980), in which this court affirmed the conviction of one

of the parties to this scheme under 18 U.S.C. § 371 for conspiracy

to defraud the United States by obstructing the collection of income

taxes from Titan Laboratories.

4a

4 United States v. Tapert, et al. Nos. 79-5222-24, 79-5269-70

stock they proposed to buy. When the escrow fund reached

$60,000, the physicians contributed an additional $15,000 and

J.K.F. Inc. acquired a 40 per cent interest in Titan.

On September 21, 1978, a federal grand jury returned a

37 count indictment against appellants, five other individuals

and three Michigan corporations. On February 2, 1979, the

Government filed a 42 count follow-up information charging

appellants with soliciting and receiving Medicare and Medicaid

kickbacks from Titan and associated entities. The informa-

tion thereafter was amended. The version under which ap-

pellants were convicted is referred to in the record as the

Amended Follow-Up Information.

Judge Kennedy denied the motions of appellants to dis-

miss the indictments. Thereafter, in a published opinion, she

denied their motions for a rehearing. United States v. Wein-

garden, 468 F.Supp. 410 (E.D. Mich. 1979). In this opinion

Judge Kennedy held that the pre-1977 version 42 U.S.C.

§ 1396h(b)(1) prohibited the conduct charged in the infor-

mation, and that the challenged statute was sufficiently clear

to give to appellants adequate notice that their alleged con-

duct was illegal.

Thereafter, under a plea bargaining agreement, each of

the appellants entered a plea of guilty to certain counts of

the information applicable to him. The Government approved

dismissal of the indictment.

Il

Prior to their guilty pleas, the appellants gave notice that

they intended to appeal the ruling of the district court on

the applicability of § 1396h(b)(1). To preserve the issue for

appeal, they moved for arrest of judgment under Fed. R.

Crim. P. 34 on the ground that the statute did not apply to

their conduct and the district court, therefore, had no juris-

diction to accept their guilty pleas. This is the procedure

approved by this court in United States v. Heller, 579 F.2d

Sa

Nos. 79-5222-24, 79-5269-70 United States v. Tapert, et al. 5

990, 992-93, and n. 1 (6th Cir. 1978). See also North Carolina

v. Alford, 400 U.S. 25, 37-38 (1970); United States v. Cox,

464 F.2d 927, $41 (6th Cir. 1972). The Government concedes

that the alleged defects raised by appellants are jurisdictional

and not waived by their guilty pleas. Consequently the legal

issue is properly before this court.

Ill

Dr. Gerald Weingarden entered a plea of guilty to Counts

three through seven of the amended follow-up information,

which are as follows:

On or about the dates listed below, in the Eastern

District of Michigan, Gerald Weingarden, D.O., having

obtained services from Titan Laboratories, Inc., for which

payment was to be made in part out of federal funds

under a state plan approved under Title XIX of the Social

Security Act, did knowingly and wilfully solicit and

receive kickback payments from Titan Laboratories, Inc.,

Spartan Laboratories, Inc., and M. A. Delaney, Inc., as

detailed below in connection with the furnishing of the

aforesaid services, each payment being a separate count

of this indictment.

To wit, the Government contends Gerald Weingarden,

received monetary payments labelled “consulting fees”

from an entity related to Titan Laboratories, Inc., namely

Spartan Laboratories, Inc., principally to induce the de-

fendant to send his laboratory work to Titan. In addi-

tion, it was agreed that the defendant would perform the

following services: (1) to form andaassist in the forma-

tion of J.K.F., Inc., as described in indictment Number

78-80689, and (2) to encourage other doctors to send

their laboratory work to Titan, as described in Indictment

Number 78-80689.

Gerald Weingarden visited Titan Laboratories, Inc.,

from time to time, in connection with the performance of

the above-described services.

6a

6 United States v. Tapert, et al. Nos. 79-5222-24, 79-5269-70

The claims filed by Titan Laboratories, Inc., were in

accordance with the Medicaid statutes and regulations,

and the monies received by Titan Laboratories, Inc., were

those to which Titan Laboratories, Inc., was entitled.

That is, when Titan Laboratories, Inc., was asking for

payment for specific blood work, that blood work had

been done, and that the billing for that blood work was

in accordance with medicaid statutes and regulations.

Approximate Date Amount of Source of

Count of Payment Money Payment

3 October 27, 1976 $1,000 Spartan Laboratories, Inc.

4 November 22,1976 $1,000 Spartan Laboratories, Inc.

5 December 28,1976 $1,000 Spartan Laboratories, Inc.

6 = March 1, 1977 $1,000 Spartan Laboratories, Inc.

7 March 1, 1977 $1,000 Spartan Laboratories, Inc.

All in violation of Title 42, U.S.C., Section 1396h(b) (1).

At his Rule 11 sentencing hearing, Dr. Weingarden admitted

that he had committed the acts charged in the information.

Dr. Harvey Golden entered a plea of guilty to counts 11

through 15 of the Information, which charged as follows:

On or about the dates listed below, in the Eastern

District of Michigan, Harvey Golden, D.O., having ob-

tained services from Titan Laboratories, Inc., for which

payment was to be made in part out of federal funds

under a state plan approved under Title XIX of the Social

Security Act, did knowingly and wilfully solicit and

receive kickback payments from Titan Laboratories, Inc.,

and Media Technology, Inc., as detailed below in con-

nection with the furnishing of the aforesaid services,

each payment being a separate count of this indictment.

To wit, Harvey O. Golden D.O., received monetary

payments from Titan Laboratories, Inc., in exchange for

referring his laboratory work to Titan Laboratories, Inc.

The claims filed by Titan Laboratories, Inc., were in

accordance with the Medicaid statutes and regulations,

and the monies received by Titan Laboratories, Inc., were

Ta

Nos. 79-5222-24, 79-5269-70 United States v. Tapert, et al. 7

those to which Titan Laboratories, Inc., were entitled.

That is, when Titan Laboratories, Inc., was asking for

payment for specific blood work, that blood work had

been done, and that the billing for that blood work was

in accordance with Medicaid statutes and regulations.

Approximate Date Amount of Source of

Count of Payment Money Payment

11 May 27, 1974 $850 Titan Laboratories, Inc.

12 August 8, 1974 $900 Media Technology, Inc.

13. September 3, 1974 $1,500 Titan Laboratories, Inc.

14 October 24, 1974 $1,000 Titan Laboratories, Inc.

15 December 6, 1974 $1,500 Titan Laboratories, Inc.

All in violation of Title 42, U.S.C., Section 1396h(b) (1).

At his Rule 11 sentencing hearing, Dr. Golden testified as

follows:

THE COURT: Knowing those things, how do you

wish to plead at this time to Counts 11, 12, 13, 14, 15?

DEFENDANT GOLDEN: Guilty, your Honor.

THE COURT: Will you tell me in your own words

what it is that you did do that causes you to plead guilty?

DEFENDANT GOLDEN: Part of my motives I

stated, perhaps an equal amount of my motives were

for the inducement of monetary gain.

THE COURT: In other words, to receive payment

from Titan for sending work to Titan?

DEFENDANT GOLDEN: Yes.

THE COURT: And some of that work at least was

Medicare and Medicaid work?

DEFENDANT GOLDEN: Yes, your Honor.

THE COURT: Would that be true for all of the

periods involved here, May 27, 1974, through December

6, 1974?

DEFENDANT GOLDEN: Yes, your Honor.

-

Dr. Donald Freedlander entered a plea of guilty to counts

17 through 21 of the Information, which charged as follows:

8a

8 United States v. Tapert, et al. Nos. 79-5222-24, 79-5269-70

On or about the dates listed below, in the Eastern

District of Michigan, Donald Freedlander, D.O., having

obtained services from Titan Laboratories, Inc., for which

payment was to be made in part out of federal funds under

a state plan approved under Title XIX of the Social

Security Act, did knowingly and wilfully solicit and

receive kickback payments from Titan Laboratories, Inc.,

and M. A. Delaney, Inc., as detailed below in connec-

tion with the furnishing of the aforesaid services, each

payment being a separate count of this indictment.

To wit, the Government contends Donald Freedlander,

D.O., received monetary payments from an entity related

to Titan Laboratories, Inc., namely M. A. Delaney, Inc.,

principally to induce Donald Freedlander, D.O., to send

his laboratory work to Titan Laboratories, Inc. In addi-

tion, it was agreed that Donald Freedlander would per-

form the following services:

(1) to form and assist in the formation of J.K.F., Inc.,

as described in Indictment Number 78-80689, and (2)

to encourage other doctors to send their laboratory work

to Titan Laboratories, Inc., as described in Indictment

Number 78-80689.

The claims filed by Titan Laboratories. Inc., were in

accordance with the Medicaid statutes and regulations,

and the monies received by Titan Laboratories, Inc.,

were those to which Titan Laboratories, Inc., were en-

titled.

That is, when Titan Laboratories, Inc., was asking for

payment for specific blood work, that blood work had

been done, and that the billing for that blood work was

in accordance with Medicaid statutes and regulations.

Approximate Date Amount of Source of

Count of Payment Money Payment

17 August 23, 1976 $200 M. A. Delaney, Inc.

18 August 23, 1976 $200 M. A. Delaney, Inc.

19 September 7, 1976 $200 M. A. Delaney, Inc.

20 September 10, 1976 $200 M. A. Delaney, Inc.

21 September 15, 1976 $200 M. A. Delaney, Inc.

All in violation of Title 42, U.S.C., Section 1396h(b)(1).

9a

Nos. 79-5222-24, 79-5269-70 United States v. Tapert, et al. 9

At his Rule 11 sentencing hearing, Dr. Freedlander testified

as follows:

THE COURT: Will you tell me what it was that

you did on or about the dates mentioned that causes

you to plead guilty? What did you do on or about

August 23rd, 1976, with regard to these checks apparently

from M. A. Delaney, Inc.?

DEFENDANT FREEDLANDER: These checks were

received by me, yes, your Honor, they were received by

me.

THE COURT: You received the checks described in

Counts 17, 18, 19, 20, 21?

DEFENDANT FREEDLANDER: Yes, I did, your

Honor.

THE COURT: From M. A. Delaney?

DEFENDANT FREEDLANDER: Yes, I did.

THE COURT: And did you have some relationship

at least with Titan Laboratories as stated in the infor-

mation?

DEFENDANT FREEDLANDER: Yes, I did, your

Honor.

THE COURT: And did that include some kind of

business involving Medicare and Medicaid?

DEFENDANT FREEDLANDER: Right.

THE COURT: In other words, this was business with

Titan Laboratories that included some business relating

to Medicare and Medicaid samples?

DEFENDANT FREEDLANDER: Yes, your Honor.

THE COURT: Did you receive these payments for

sending work to Titan Laboratories?

DEFENDANT FREEDLANDER: Yes, I did, your

Honor.

THE COURT: Did you perform any services for

these companies, M. A. Delaney and Titan Lab?

DEFENDANT FREEDLANDER: Yes, I did, your

Honor, I helped with the formation and was of assistance

to the J.K.F. Corporation.

°

10a

“————~10 United States v. Tapert, et al. Nos. 79-5222-24, 79-5269-70

THE COURT: You have said something about,

among other things, and that was kind of confusing to

me, except for setting up J.K.F. Corporation, did you

provide any other services to Titan Laboratories?

DEFENDANT FREEDLANDER: Yes, among other

things, I encouraged other physicians to send their work

to the laboratory. |

THE COURT: In other words, there may not be a

factual basis for this plea other than the statement that

you in fact performed services besides sending business

to Titan Lab?

MR. FINK: I think under the general intent statute,

I don’t think there has to be a dominant purpose, your

Honor. He has indicated that that was one of the things

he received consideration for.

THE COURT: As long as it is clear, and I am not

so sure it is clear from the statement, was one of the

reasons that you received these payments from Titan

Lab, or frdin M. A. Delaney, Inc., because you were

sending your lab business to Titan Laboratories, was that

one of the reasons?

DEFENDANT FREEDLANDER: In the total, yes,

it was. It was part of it. It was one of the reasons.

THE COURT: In view of the fact it uses the word

wilfully and that there were other considerations, I think

we should at least really know what he does wish to plead

guilty. I have a little problem with the factual basis

under his statement. Maybe I can ask him this question.

Was the referral of business to Titan Laboratories a

substantial or significant reason?

DR. FREEDLANDER: They were among the rea-

sons, you know, a combination as to the rest of it, why,

I received the compensation, yes, your Honor.

THE COURT: I am still trying to find out if it

was significant at all or was it just minor?

DEFENDANT FREEDLANDER: Well, when I say

significant, your Honor, there are several components

involved. Is this more strongly than this one or that

lla

Nos. 79-5222-24, 79-5269-70 United States v. Tapert, et al. 11

one, as the case may be, as I say, I did give my blood

work to the laboratory, I did help assist them, I did help

in getting other doctors referred to them, and with the

combination of everything I don’t know where to put

the weight on each one as to compensation, but all were

done by me, that is true, and I did receive the compensa-

tion.

MR. FINK: Your Honor, the 1952 cases that you are

familiar with, the Interstate travel in aid of racketeering

cases, which are specific intent crimes, which I don’t

think this is, do not require the dominant purpose to

be the travel, it can be a co-equal purpose.

THE COURT: Is he going to say it was co-equal

with the other things?

DEFENDANT FREEDLANDER: With the other

things, yes.

._THE COURT: As long as we get something that

was co-equal with other services of recruiting doctors and

helping to form this other corporation, the three of them

would be co-equal?

DEFENDANT FREEDLANDER: Yes, your Honor.

THE COURT: I think that that is sufficient for that.

THE COURT: I think I should ascertain that.

Did you, in fact, submit blood samples to Titan Labor-

atories?

DEFENDANT FREEDLANDER: That I did, your

Honor. e

THE COURT: And they were. from Medicare and

Medicaid patients?

DEFENDANT FREEDLANDER: Yes, they were.

MR. ROSEN: That’s sufficient.

THE COURT: I think T asked that but maybe not so

directly.

MR. ROSEN: I have nothing further.

THE COURT: And that was during the time period

of these checks that were received from M. A. Delaney?

12a

12 United States v. Tapert, et al. Nos. 79-5222-24, 79-5269-70

DEFENDANT FREEDLANDER: Yes, they were,

your Honor.

THE COURT: And the payments from M. A. De-

laney were for the three purposes: One because you

sent your lab work to Titan; two, because they indicated

tests; and, three, you were supplying other doctors to

send their work to J.K.F. and/or others?

DEFENDANT FREEDLANDER: Yes, your Honor.

THE COURT: And you did what you did know-

ingly?

DEFENDANT FREEDLANDER: Yes, I did, your

Honor.

THE COURT: Having discussed these matters this

afternoon, do you still wish to plead guilty to Counts

17, 18, 19, 20 and 21?

DEFENDANT FREEDLANDER: Yes, I do.

Dr. Richard Tapert entered a plea of guilty to counts 27

through 31 of the Information, which charged as follows:

On or about the dates listed below, in the Eastern

District of Michigan, Richard Tapert, D.O., having ob-

tained services from Titan Laboratories, Inc., for which

payment was to be made in part out of federal funds

under a state plan approved under Title XIX of the Social

Security Act, did knowingly and wilfully solicit and

receive kickback payments from Titan Laboratories, Inc.,

and Associated Physicians Services Co., as detailed below

in connection with the furnishing of the aforesaid

services, each payment being a separate count of this

indictment.

To wit, Richard Tapert, D.O., received monetary pay-

ments from an entity related to Titan Laboratories, Inc.,

namely Associated Physicians Services Company, in ex-

change for referring his laboratory work to Titan Labora-

tories, Inc. The claims filed by Titan Laboratories, Inc.,

were in accordance with the Medicaid statutes and regu-

lations and the monies received by Titan Laboratories,

Inc., were those to which Titan Laboratories, Inc., was

l3a

Nos. 79-5222-24, 79-5269-70 United States v. Tapert, et al. 13

)

entitled. That is, when Titan Laboratories, was asking

for payment for specific blood work was in accordance

with Medicaid statutes and regulations.

Approximate Date Amount of Source of

Count of Payment Money Payment

27 =June 24, 1975 $200 Associated Physicians

Services, Co.

28 August 12, 1975 $200 Associated Physicians

Services, Co.

29 September 9, 1975 $500 Associated Physicians

Services, Co.

30 October 17, 1975 $200 Associated Physicians

Services, Co.

31 December 10, 1975 $200 Associated Physicians

Services, Co.

All in violation of Title 42, U.S.C., Section 1396h(b) (1).

At his Rule 11 sentencing hearing, Dr. Tapert testified as

follows:

THE COURT: How do you plead to counts 27

through 31?

THE DEFENDANT: I plead guilty.

THE COURT: Will you tell me what it was that

you did do that causes you to plead guilty to those

counts?

THE DEFENDANT: I accepted monetary payments

from Associated Physicians Service Company in exchange

for referring my laboratory work to Titan Laboratory.

THE COURT: And did you do that knowingly?

THE DEFENDANT: Yes, I did.

THE COURT: Are there any other questions the

Government would like me to ask?

MR. ROSEN: Maybe your Honor could inquire as

to the taking of blood samples from Medicare-Medicaid

patients.

THE COURT: Yes, during this period of time that

these payments were made, was some of the work that

you were referring to Titan Laboratory or Associated

Physicians Medicare and Medicaid work?

l4a

14 United States v. Tapert, et al. Nos. 79-5222-24, 79-5269-70

THE DEFENDANT: Yes.

THE COURT: For Medicare and Medicaid patente!

THE DEFENDANT: That is correct.

THE COURT: And would that be true during the

period of each of these payments

THE DEFENDANT: Yes.

THE COURT: Any other questions, Mr. Rosen

MR. ROSEN: No, your Honor.

THE COURT: Have you had plenty of time to dis-

cuss this matter with your attorney?

THE DEFENDANT: Yes, I have.

THE COURT: And he has explained to you what it

is the Government has to prove to prove you guilty?

THE DEFENDANT: Yes.

THE COURT: And you understand also that this is

a final disposition insofar as this Court is concerned,

that this plea of guilty, if the Court accepts it, it will

not set aside the plea of guilty should an appeal be

unsuccessful on the legal issues, do you understand?

THE DEFENDANT: I understand.

THE COURT: Having discussed these matters this

afternoon, do you still wish to plead guilty to these

counts?

THE DEFENDANT: Yes, I do.

Dr. Robert Gash entered a plea of guilty to count 36 of

the Information, which charged as follows:

On or about the dates listed below, in the Eastern

District of Michigan, Robert Gash, D.O., having obtained

services from Titan Laboratories, Inc., for which pay-

ment was to be made in part out of federal funds under

a state plan approved under Title XIX of the Social

Security Act, did knowingly and wilfully solicit and

receive kickback payments from Titan Laboratories, Inc.,

and Associated Physicians Services, Co., as detailed

below in connection with the furnishing of the aforesaid

services, each payment being a separate count of this

indictment.

lSa

Nos. 79-5222-24, 79-5269-70 United States v. Tapert, et al. 15

To wit, Robert Gash, D.O., received monetary pay-

ments from an entity related to Titan Laboratories, Inc.,

namely Associated Physicians Services Company, in ex-

change for referring his laboratory work to Titan Labora-

tories, Inc. The claims filed by Titan were in accordance

with the Medicaid statutes and regulations and the

monies received by Titan Laboratories, Inc., was entitled.

That is, when Titan Laboratories, Inc., was asking for

payment for specific blood work was in accordance with

Medicaid statutes and regulations.

Approximate Date Amount of Source of

Count of Payment Money Payment

36 August 11, 1975 $200 Associated Physicians

Services, Co.

All in violation of Title 42, U.S.C., Section 1396h(b) (1).

In his Rule 11 sentencing hearing, Dr. Gash testified as

follows:

THE COURT: Will you tell me what you did on

or about August 11, 1975 that causes you to plead guilty?

DEFENDANT GASH: On or about August 11, 1975,

I received a check for $200.00 from Associated Physicians

Services, Inc., for submission of lab work to Titan La-

boratories.

THE COURT: To Titan Laboratories?

DEFENDANT GASH: Yes.

THE COURT: And was some of that lab work at

least lab work under both Medicare and Medicaid?

DEFENDANT GASH: I would have to assume so.

I really don’t know that, your Honor.

THE COURT: But ordinarily there would be some

within the work that you would submit within a month?

DEFENDANT GASH: I would say so, yes.

THE COURT: Does the Government have some evi-

dence that some of this was?

MR. ROSEN: Yes, it does, your Honor.

THE COURT: Are there any other questions you

would like to ask?

l6a

16 United States v. Tapert, et al. Nos. 79-5222-24, 79-5269-70

MR. ROSEN: No, your Honor.

THE COURT: Having discussed this matter this

afternoon, do you still wish to plead guilty to Count 36?

DEFENDANT GASH: Yes, your Honor.

IV

In asserting that the statute was not sufficiently broad prior

to the 1977 amendment to make their activities a criminal

offense, and that the statute under which they were convicted

is invalid for vagueness, appellants rely strongly upon the

fact that Congress found it necessary to enact the 1977

amendment.

An amendment to an existing statute is not an acknowledg-

ment by Congress that the original statute is invalid. It is

a common and customary legislative procedure to enact

amendments strengthening and clarifying existing laws.

The report of the House Committee on Ways and Means

contains the following statement on the purpose of the 1977

amendment:

Your committee bill would modify the penalty pro-

visions in existing law which relate to those persons pro-

viding services under medicare and medicaid.

Existing law provides specific penalties under the

medicare and medicaid programs for certain practices

that long have been regarded by professional organiza-

tions as unethical, which are unlawful in some jurisdic

tions, and which contribute significantly to cost of the

programs. Such practices as the submission of false

claims, or the soliciting, offering. or acceptance _f kick-

backs or bribes, including rebates or [sic] a portion of

fees or charges for patient referrals, are misdemeanors

under present law...

Recent hearing and reports, however, indicate that

such penalties have not proved adequate deterrents

against illegal practices by some individuals who provide

services under medicare and medicaid. In addition,

these misdemeanor penalties appear inconsistent with

17a

Nos. 79-5222-24, 79-5269-70 United States v. Tapert, et al. 17

existing Federal criminal code sanctions which make

similar actions punishable as felonies. Also, it has been

brought to the attention of the committee by the U.S.

Attorney's offices which have utilized these Social Se-

curity Act sanctions in the prosecution of medicare and

medicaid fraud cases that the existing language of these

penalty statutes is unclear and needs clarification.

Your committee’s bill would strengthen the penalty

provisions in existing law which relate to persons pro-

viding services under medicare and medicaid . . .

In addition, the bill would clarify and restructure those

provisions in existing law which define the types of

financial arrangements and conduct to be classified as

illegal under medicare and medicaid. (Emphasis added. )

H.R. Rep. No. 95-393(I1), 95th Cong., Ist Sess. reprinted

in (1977) U.S. Code Cong. & Ad. News 3039, 3055.

We agree with the definition of “kickbacks” adopted and

applied by the Seventh Circuit in United States v. Hancock,

604 F.2d 699 (7th Cir. 1978). We follow that decision in

affirming the decision of the district court that appellants

have entered pleas of guilty under an Information charging

them with violations of a valid statute which made their

conduct a criminal offense. The record demonstrates to our

satisfaction that the payments which the appellants admitted

receiving were “kickbacks” within the meaning of the statute.

We choose to follow the Seventh Circuit in Hancock, rather

than United States v. Porter, 591 F.2d 1048 (5th Cir. 1979).

The reasons for this conclusion are stated well by Judge

Kennedy in her published opinion. 468 F.Supp. at 412-15.

Appellants contend that they did not “furnish” the services

in connection with which they received payments, and that

the Information does not charge an offense. These and all

other contentions made by appellants have been considered

and found to be without merit.

The convictions are affirmed.

I8a

18 United States v. Tapert, et al. Nos. 79-5222-24, 79-5269-70

Jones, Circuit Judge, concurring. I agree that the term

“kickback” should be defined to include “a percentage pay-

ment for granting assistance by one in a position to open

up or control a source of income.” United States v. Hancock,

604 F.2d 999, 1002 (7th Cir. 1978). The United States has

an important interest in securing the honest administration of

federally funded programs. United States v. Thompson, 366

F.2d 167 (6th Cir.), cert. denied, 385 U.S. 973 (1966). I

write separately to discuss a substantial issue of first impres-

sion concerning the construction of 42 U.S.C. § 1396h (b) (1)

(1972): Is a physician, who provides services to medicaid

patients and who receives illegal kickbacks from laboratories

for the referral of those patients, for which referrals federal

funds do not reimburse the doctor or the laboratory, a person

who “furnishes items or services to an individual for which

payment is or may be made in whole or part out of Federal

funds .. . and who . . . receives any (1) kickback .. . in

connection with the furnishing of such items or services . . .?”

I concur with the majority’s affirmative answer.

The language of the amended informations and the guilty

pleas, as thoroughly reported in the majority opinion, define

the facts of the case.' The defendants were charged with and

pleaded guilty to receiving payments in various forms from a

laboratory for patient referrals. The informations allege that

the defendants “obtained services” from a laboratory, for

which services medicaid would pay in part, and that the

1 According to my construction of §1396h (b)(1), the amended

informations do state an offense. In his zeal to uphold the guilty

pleas, the Assistant United States Attorney argued seriously that

this Court should consider the amended informations to have been

informally amended by oral argument and by his response to the

defendants’ motion to dismiss the informations. Further, he con-

tended that the district court had implicitly granted leave for this

informal second amendment. The Government’s position is not sup-

ported in the record and is an attempt to play “fast and loose” with

the established rules of criminal procedure and principles of due

process. Such overly zealous advocacy should be tempered. In

heer respects, the Assistant United States Attorney prepared a fine

rief.

19a

Nos. 79-5222-24, 79-5269-70 United States v. Tapert, et al. 19

defendants received kickbacks in connection with these

services. Consequently, the relevant services for which fed-

eral funds were paid are the tests performed by the laboratory.

The record also establishes that the defendants were reim-

bursed by medicaid for their treatment of the same patients

referred to the laboratories.

The facts raise two questions of statutory interpretation:

1) did the physicians “furnish” the laboratory services; and

2) were the kickbacks paid “in connection with” the laboratory

services rather than just the patient referrals? Defendants

argue that they did not “furnish” the laboratory services,

since the laboratory actually performed the tests. They point

out that their services were reimbursed separately from the

laboratory tests. Second, they argue that the kickbacks were

paid “in connection with” the patient referrals rather than any

service for which medicaid funds were paid. They declare

that the kickbacks did not affect their treatment of patients

or the laboratory’s performance of tests.

It is fair to say that physicians in Michigan in 1976-1977

furnished the laboratory services to their patients. The

physicians took the specimens and sent them to a laboratory.

A laboratory could act only on orders from the physicians.

Mich. Comp. Laws Ann. §§ 325.81(b), 325.89(b), repealed

by Mich. Comp. Laws Ann. § 333.20501 et seq. (1978); cf.

42 C.F.R. § 405.1316(e) (Medicare regulations). The labora-

tory could report the test results only to the physicians, unless

they instructed otherwise. Mich. Adm. Code R. 325.2353(2)

(Rule 53); cf. 42 C.F.R. § 405.1316(g) (Medicare regula-

tions). The physicians bore the responsibility of interpreting

the test data. In short, the physicians did everything but

actually perform the clinical tests. Under these circumstances,

by interpreting the word “furnish” according to its common

usage to mean “supply or provide”, I would hold that the

physicians did “furnish” the laboratory services.

The physicians received the kickbacks “in connection with”

the laboratorv services. The statute is satisfied if there is

20a

20 United States v. Tapert, ct al. Nos. 79-5222-24, 79-5269-70

a logical relationship between the kickbacks and the services

for which federal funds were paid. In our case, the kickbacks

were an agreed part of the performance of the laboratory

services. The relationship between the physicians and the

laboratory was formed around the payment of the kick-

backs. The physicians chose to refer patients to a specific

laboratory because of the negotiated kickback payments. The

phrase “in connection with” has a sufficiently broad meaning

in common parlance to conclude that the kickbacks were

received “in connection with” the laboratory services.

The legislative history bolsters my interpretation of § 1396h

(b) (1) as enacted in 1972. Congress intended to prohibit

in the administration of the Medicaid program any practices

which were unethical or were proscribed by state law. H. R.

Rep. No. 92-231, 92d Cong., 2d Sess., reprinted in [1972]

U.S. Code Cong. & Ad. News 4989, 5007, 5093, 5308. The

physicians’ receipt of kickbacks for patient referrals to the

laboratory is forbidden by both Section 21 of the Code of

Ethics of the Michigan Association of Osteopathic Physicians

and Surgeons and by state statute, Mich. Comp. Laws Ann.

§ 445.162. Similarly, a laboratory is prohibited from soliciting

business by paying kickbacks. Mich. Comp. Laws Ann.

§ 333.20525(c) (1978). Since the language of the statute

permits, § 1396h (b) (1) should be interpreted to effectuate

congressional intent. Barrett v. United States, 423 U.S. 212

(1976); United States v. Tarter, 522 F.2d 520 (6th Cir. 1975).

The ordinary meaning of the statutory language and the

1972 legislative history compel the conclusion that the

physicians’ receipt of kickbacks under the circumstances in

this case is a violation of § 1396h (b) (1).

Finally, because the ordinary meaning of the plain language

of § 1396h (b) (1) would have notified the defendants that

their conduct was unlawful, the statute is not unconstitution-

ally vague. United States v. Hancock, 604 F.2d at 1002.

Accordingly. T concur with the opinion and judgment of the

majority.