Gov’t Esformes Victory Still Misses Tricky Fraud Target

By Carolina Bolado

Law360 (April 8, 2019, 10:01 PM EDT) — The guilty verdict for Miami nursing home mogul Philip Esformes lacked any substantive health care fraud charges, even after the government consistently billed the case as the largest health care fraud case in history, a stinging example of how difficult it can be to secure such a conviction.

A Florida federal jury on Friday found Esformes guilty of paying and receiving kickbacks, money laundering, bribery and obstruction of justice after a hotly contested two-month trial in Miami but failed to reach a decision on six counts, including one of conspiracy to commit health care fraud and wire fraud. It was the only health care fraud count left in the case and the only one in which jurors were required to find that Esformes intended to defraud the government.

Though experts called the verdict a decided win for the government, the lack of a health care fraud conviction could affect both how much forfeiture prosecutors can seek and what kind of sentence Esformes will receive.

“It’s not the country’s largest health care fraud case at the end of the day,” said Melissa Jampol, a former federal prosecutor who now does white collar defense in health care at Epstein Becker Green. “It’s a conviction, and there are health care-ish things. But this seems more like a money laundering and bribery case.”

Prosecutors accused Esformes of fraudulently receiving $450 million from Medicare and Medicaid through his South Florida network of facilities for services that were provided because of bribes, were not needed, or were never provided. They say he personally pocketed $38 million through a network of 256 bank accounts.

By the time jurors were sent to deliberate, only one of the health care fraud counts remained; the other two were dismissed just after the government rested its case. U.S. District Judge Robert Scola had expressed consternation over prosecutors’ two examples in the indictment to show that Esformes had caused the submission of false and fraudulent claims to Medicare; both related to a patient who was shown during testimony to have lived at an assisted living facility that was not owned by Esformes at the time.

Jampol called this a “cautionary tale” to prosecutors regarding the health care fraud statute, which she said is poorly worded and a difficult one to charge. Even when jurors, like those in the Esformes case, find a defendant guilty of a fraud’s component parts, they could have difficulty reaching a verdict on fraud itself.

“The mens rea to commit this crime is ‘knowingly and willfully,’ which is the highest standard in the law,” she said. “That’s exactly where defense attorneys go very often. Because a defendant could be negligent, but that’s not willful.”

But as she and other attorneys noted, even if the willfulness requirement for health care fraud is difficult to meet, there are other ways the government can nab defendants. In the Esformes case, that was primarily on bribery and money laundering charges.

“This is just another example of the government being careful in bringing different types of charges in order to obtain a conviction and in order to protect any conviction on appeal if there are problems with certain charges later,” said David Chaiken, a former federal prosecutor and now white collar attorney at Troutman Sanders LLP. “Given the number and variety of charges, it’s also a good example of how difficult it can be to actually go to trial against the DOJ.”

And though the government did not get Esformes on conspiracy to commit health care fraud, a court can, during sentencing, hold a defendant responsible for a broader conspiracy if the defendant was convicted on substantive charges, according to Chaiken. He said that when it comes to sentencing, the standard is “preponderance of the evidence,” not “beyond a reasonable doubt.”

“This often comes as a surprise to those unfamiliar with the federal system, but sentencing courts can hold defendants responsible for conduct that they were acquitted of by a jury,” Chaiken said. “In this instance, you don’t have an outright acquittal, just a deadlocked jury, so it’s an even worse position for the defendant to be in. As a defense lawyer, you try to make hay over this, and maybe there’s something they can say on appeal, but overall it’s not going to be hugely significant to the government, the trial court, or to an appellate court.”

The lack of a fraud conviction does make the government’s bid for forfeiture — which was presented to jurors on Monday — more difficult. Without a guilty verdict on health care fraud, the government cannot recoup the money paid out by Medicare and Medicaid for services.

But attorneys pointed out that the forfeiture provisions of the federal money laundering statute are robust and could help the government get the $38 million it is seeking from Esformes’ assets. Chaiken added that the standard used during a forfeiture trial is also the civil one of preponderance of the evidence, which is easier to prove.

For defense attorneys around the country, the case against Esformes is an indication that the government is targeting more sophisticated actors in the health care arena, according to O’Melveny & Myers LLP’s Benjamin Singer, former chief of the Department of Justice’s health care fraud unit.

“This is probably one of the cases that has really reached into a more sophisticated type of actor in the health care area,” Singer said. “The more sophisticated the individual is, the more difficult it is for the government, but I think this case shows the government believes it can go after anybody. It has the tools to find crime even by sophisticated actors.”

Sarah M. Hall of Thompson Hine LLP, who also worked in the DOJ’s fraud unit, noted the $15.4 million civil settlement Esformes and other associates paid in 2006 and said attorneys should advise their clients that a prior civil settlement does not make them immune to later criminal charges.

“The lesson for defense attorneys here is it may start out as a civil matter, but be aware they may be looking under the surface, and it has the potential to get bigger,” she said.

The government is represented by James V. Hayes, Elizabeth Young and Allan Medina of the U.S. Department of Justice’s Fraud Section.

Esformes is represented by Howard M. Srebnick, Roy Black, Jacqueline Perczek and Rossana Arteaga-Gomez of Black Srebnick Kornspan & Stumpf PA, Marissel Descalzo of Tache Bronis Christianson & Descalzo PA, and Bradley Horenstein of The Horenstein Firm PA.

The case is U.S. v. Esformes et al., case number 1:16-cr-20549, in the U.S. District Court for the Southern District of Florida.

–Additional reporting by Nathan Hale. Editing by Brian Baresch and Aaron Pelc.