Fischer, Jeffrey v. U.S. (05/15/2000)

By: Kerri Jackson, Medill News Service

Questions presented

Whether Medicare payments to a hospital for services provided to Medicare patients qualify as ""benefits"" to meet the jurisdictional requirements of Title 18, sec. 666 so as to federalize crimes of theft, embezzlement and bribery involving the hospital?

Brief

In 1993, Jeffrey Fischer, president and part-owner of QMC, a hospital consulting firm, arranged for West Volusia Hospital Authority (WVHA), a county agency responsible for operating two county hospitals, to loan $1.2 million to QMC.

Fischer negotiated the loan with Robert Caddick, WVHA's chief financial officer.

To get the loan, Fischer pledged QMC's accounts receivables and offered a $1 million letter of credit from First Asia Development Bank.

Then Fischer allegedly had QMC lend at least $100,000 to a company owned by the First Asia representative who had assisted QMC with the letter of credit. Fischer also allegedly issued a check for $10,000 to the mother of Caddick, the WVHA official who arranged the loan.

Fischer began options trading on behalf of QMC, and allegedly lost about $400,000 of the loan proceeds.

Fischer was charged in federal court under 18 U.S.C. §§ 666, a statute dealing with fraud and bribery involving an organization receiving federal funds. To establish that Fischer had violated the federal statute, the Government had to prove that WVHA received ""benefits in excess of $ 10,000"" under a federal assistance program in a one-year period.

WVHA's director of finance testified that ""most health care organizations collect a majority of their funds from programs that are funded by the federal government,"" and that WVHA had received between $10 to $15 million in Medicare dollars in 1993.

Fischer was convicted by a jury on thirteen counts, including conspiracy, fraud and bribery involving an organization receiving federal funds, mail fraud, wire fraud and money laundering. He was sentenced to 65 months in prison.

In his appeal, Fischer contended that his convictions on two counts under the statute and on a related conspiracy count should be reversed because the Government did not prove that the agency affected by Fischer's wrongdoing ""receives, in any one year period, benefits in excess of $ 10,000 under a Federal program involving a grant, contract, subsidy, loan, guarantee, insurance, or other form of Federal assistance.""

Fischer's attorney cited a district court ruling in United States v. LaHue. In that decision, the court found that funds from Medicare Part B had a ""target recipient,"" a patient older than 65. Doctors and hospitals get paid only when patients give them the Medicare money. According to the judge in LaHue, once the funds from a federal program reach the ""target recipient,"" they cease to be ""benefits"" under a federal assistance program for purposes of the statute.

A unanimous 11th Circuit Court of Appeals rejected this analysis, instead basing its opinion on several factors.

The court found that the ""language of Statute 666(b) also does not require that 'the organization, government, or agency receiving ... benefits' be the 'target recipient' of the federal program at issue. Instead, the language focuses on the source of the 'benefits', requiring that the 'benefits' have been received 'under a Federal program involving a grant, contract, subsidy, loan, guarantee, insurance, or other form of Federal assistance.' ""

Also, Medicare pays a fixed amount for patient services. So, even if the hospital raises rates, they still get paid the same amount for those service from Medicare.

When the 11th Circuit previously looked at this issue, the court determined that ""organizations engaged in purely commercial transactions with the government,"" such as defense contractors, were excluded from the scope of Statute 666(b) because those organizations were not in relationships involving some form of federal assistance.

The court found that Medicare was not a contractual relationship, but one of federal assistance, and upheld Fischer's convictions and sentence.

On Nov. 1, 1999, the U.S. Supreme Court granted certiorari in the case.

On May 15, 2000, the Court, by a 7-2 vote, affirmed, holding that health care providers such as the one defrauded by Fischer receive ""benefits"" within the meaning of the federal fraud and briberty statutes.

Looking to the nature and purposes of Medicare, Justice Anthony Kennedy wrote that Medicare provider payments are ""benefits,"" as that term is used in its ordinary sense, and rejected Fischer's argument that Medicare provides benefits only to the elderly and disabled, not to participating health care organizations.

Justice Clarence Thomas wrote the dissent, in which Justice Antonin Scalia joined.