# Petition — Freedlander v. United States

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition
- **Published:** January 1, 1980
- **Citation:** 449 U.S. 952

## Text

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.

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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?

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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

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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.

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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.

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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.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_0183%3A1. Public record. Not legal advice.