Health Insurance Fraud – Conviction Affirmed

Health Insurance Fraud – Conviction Affirmed

Health Insurance Fraud is rampant. Most people convicted of health insurance fraud are doctors and other health care providers. Where most of the money goes, however, is to people taking advantage of free or subsidized health care benefits when they are not entitled to receive the benefits because there is no investigation into the veracity of the application for benefits.

In United States v. Russell, 12-1315 (1st Cir. 08/26/2013) [enhanced version available to lexis.com subscribers], Rodney L. Russell applied for and received government subsidized health care coverage for several years. Although Russell was working under the table during those years, he claimed on his renewal applications that he had no income to report. After a government investigation, indictment, and multi-day trial, a jury convicted Russell of making false statements in connection with the payment of health care benefits. On appeal, Russell attacks his conviction on multiple grounds.

BACKGROUND

Shortly after losing his job and accompanying health insurance in 2006, Russell applied for subsidized health insurance coverage through the Dirigo Health Agency’s DirigoChoice Health Program (“Dirigo”). In 2003, the Maine legislature created Dirigo Health Agency to expand access to health insurance coverage for Maine citizens who cannot otherwise afford it. Dirigo negotiates competitive rates and benefit packages with private insurance carriers. Through the DirigoChoice Program (“Dirigo Choice”), the agency also subsidizes insurance premiums for Maine citizens whose income level falls below 300% of the federal poverty level. The subsidy must be renewed every twelve months.

To qualify for the subsidy, applicants must fill out two applications: an insurance application to the insurance carrier and a subsidy application to Dirigo. The applicant certifies the subsidy application and submits supporting documentation, such as income tax returns and proof of income. The primary determinants of subsidy eligibility are income and household size.

In 2006, after losing his job as a stockbroker and financial advisor at the retirement investment firm Commonwealth Financial Network d/b/a Brown Company, and his accompanying health insurance, Russell applied for and received subsidized health insurance coverage through Dirigo Choice. Russell, applying for the benefit, reported a lack of income and signed a verification clause on the application which read in pertinent part: “I understand the questions on this form. All statements and answers I have given are true and complete. The Dirigo Health Agency . . . may check information submitted on this form . . . . I understand it’s a crime to knowingly provide false, incomplete, or misleading information on this form and that I could be charged with perjury.”

Relying on the information in Russell’s application, in November 2007, Dirigo awarded him an 80% subsidy three years running. Russell received a subsidy based on his representations on each application that he had no income to report and that he was unemployed, but neither turned out to be true. He had in fact been working for his high school friend, Malcolm French, all along.

The Trial

At trial, the government presented evidence that Russell, after losing his job at the Brown Company in 2006, started working in some capacity for French. French owns several businesses including: Cold Stream Contracting, a gravel and construction business; Malcolm French Professional Forestry, which cuts trees, hauls wood, and performs other forestry services; Malcolm French Logging; and a garage in Enfield (now in LaGrange), Maine.

The jury heard testimony from French employees that they had seen Russell working in French’s office. In addition to the testimony of French’s employees, Russell’s ex-wife, Julie Plummer, testified that Russell wore work boots, worked late, and complained about working hard and doing backbreaking work. Jerald Davis, an employee of Griffin Greenhouse Supplies in Maine, which sells greenhouse and nursery supplies, recalled speaking to Russell around a dozen times both in person and by telephone about purchasing supplies for Cold Stream Contracting. Davis remembered Russell in particular because he always paid for his purchases, such as $9,000-$11,000 worth of soil and multiple bags of fertilizer, using cash placed in Ziploc bags.

The government introduced evidence that French had been paying Russell in cash and Russell, in turn, paid his bills in cash.

Between 2007 and 2009, Russell paid $500 in monthly household bills and several thousand dollars for his daughter’s college tuition in cash. As for Russell’s rent, with the exception of a February 2007 payment, evidence at trial also showed his rent got paid with cash or money orders.

The defense’s theory, as indicated by closing arguments, was that there was no proof Russell ever received cash from French, or that Russell was even employed by French. Russell, according to the defense, got by every day by living on cash gifts and loans from family and friends and reducing his daily expenses.

After a four-day trial, the jury found Russell guilty.

DISCUSSION

In charging the jury, the district court described the elements of making a false statement in connection with a health care benefit program. The district court instructed that the government had to prove beyond a reasonable doubt six elements. On materiality, the court instructed the jury that “[a] material fact or matter is one that has a natural tendency to influence or be capable of influencing the decision of the decisionmaker to whom it was addressed.”

The Ninth Circuit recently tackled this issue head-on in United States v. Ajoku, 718 F.3d 882 (9th Cir. 2013) [enhanced version available to lexis.com subscribers], and rejected the argument that Russell makes before us – that the willfulness element of the statute requires knowledge of unlawfulness. In Ajoku, the court explained that willfulness, in the context of false statement crimes is defined as “deliberately and with knowledge”; proving the defendant knew making the false statement was illegal is not required. Such an interpretation of the definition of willfulness, the court observed, is consistent with the traditional rule that “ignorance of the law is no defense.”

Because the district court here properly instructed the jury that the government need only prove that the defendant’s statements were false and that the defendant knew they were false, the First Circuit Court of Appeal found no error.

Materiality

Russell’s next challenge concerns the materiality of his alleged misrepresentations to Dirigo on his 2008 and 2009 subsidy applications and certifications.

A false statement is material if it has a natural tendency to influence, or is capable of influencing, the decision of the decisionmaking body to which it was addressed. The jury here could have reasonably concluded that Russell’s statements had a natural tendency to influence Dirigo’s decision to award him subsidized health care, and thus were material, even if Dirigo did not actually rely on those statements. The jury learned that Dirigo does not employ investigators to verify statements made by applicants on subsidy applications and that the agency therefore has to rely on applicants’ statements in determining eligibility. The agency requires the applicant to sign a certification to help it ensure that all the representations made by the applicant are true. Russell was awarded a $7,500 subsidy in 2008, and a $4,100 subsidy in October 2009, based on his representation in his application that he was neither employed nor receiving income. He signed the accompanying certifications attesting to the truthfulness of his statements in those applications.

The No Harm No Foul Defense

During closing arguments, defense counsel argued that Russell’s statements could not have been material to Dirigo’s decision because he would have qualified for a subsidy even if he had accurately reported his income. The government, on the other hand, urged that materiality turns on whether the false statements have a natural tendency to influence or are capable of influencing the decisionmaker. Whether Russell’s statements were material was ultimately a question for the jury. But the record clearly supports a finding that Russell received income in the amount he reported, plus some additional sums that he did not disclose. Had he forthrightly stated on his application that he had unspecified amounts of undocumented cash income above the precise amounts he reported, it is reasonable to believe that Dirigo might well have determined that he failed to meet his burden of proving eligibility.

The evidence of Russell’s guilt was strong, including the renewal subsidy applications indicating Russell was not employed or receiving any income and the witnesses who testified that Russell was seen working in some capacity for French during that time.

ZALMA OPINION

Because Dirigo, an agency of the state of Maine funded by the U.S. Government, relies totally on the representations of the applicant for health insurance subsidy, the temptation to commit fraud is great and the chances of getting caught are slim since they admittedly do no investigation and rely on the honesty and good faith of the applicant. Russell took advantage of the system and profited from it. He was fairly convicted and had the unmitigated gall to appeal on what the First Circuit found to be specious grounds. His prosecution was a rare event caused by his greed and use of bags full of cash.

    By Barry Zalma, Attorney and Consultant

Reprinted with Permission from Zalma on Insurance, (c) 2013, Barry Zalma.

Barry Zalma, Esq., CFE, is a California attorney who limits his practice to consultation regarding insurance coverage, insurance claims handling, insurance bad faith and fraud and acting as a mediator or arbitrator on insurance disputes. Mr. Zalma serves as a consultant and expert almost equally for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. He recently published the e-books, "Zalma on Rescission in California - 2013"; "Random Thoughts on Insurance" containing posts from this blog; "Zalma on Insurance;" "Murder and Insurance Don't Mix;" “Heads I Win, Tails You Lose — 2011,” “Zalma on Diminution in Value Damages,” “Arson for Profit” and “Zalma on California Claims Regulations,” and others that are available at Zalma Books.

Mr. Zalma can be contacted at Barry Zalma or zalma@zalma.com, and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma’s Insurance Fraud Letter.

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