United States District Court, W.D. Virginia, Abingdon Division
Janine M. Myatt, Special Assistant United States Attorney, and Zachary T. Lee, Assistant United States Attorney, Abingdon, Virginia, for United States; Michael J. Khouri, Khouri Law Firm, Irvine, California, for Defendant Beth Palin; Nancy C. Dickenson, Assistant Federal Public Defender, Abingdon, Virginia, for Defendant Joseph D. Webb; Edward G. Stout, Curcio & Stout, Bristol, Virginia, for Defendant Mary Elizabeth Curtiss.
JAMES P. JONES UNITED STATES DISTRICT JUDGE.
In this criminal case, in which the defendants are accused of health care fraud and paying and receiving kickbacks, the defendants waived their right to a jury trial and with the consent of the government, the case was tried before the court. This opinion sets forth the findings of fact and conclusions of law supporting my verdicts.
I. Background and Charges.
The Indictment in this case charges the defendants with participating in a conspiracy between May 1, 2009, to April 30, 2012, to defraud Medicare, TennCare,  Virginia Medicaid, and private insurance companies by ordering, completing, and billing for medically unnecessary urine drug screens in violation of 18 U.S.C. § 1347, and paying and receiving illegal remunerations, or kickbacks, in violation of 42 U.S.C. § 1320a-7b(b)(1)(A) and (b)(2)(A). The Indictment’s key allegations are described in detail in my earlier opinion denying the defendants’ Motion to Dismiss. United States v. Palin, No. 1:14CR00023, 2015 WL 6134128, at *1-4 (W.D. Va. Oct. 16, 2015). Count One charges all three defendants, as principals, aiders, and abetters, with health care fraud under 18 U.S.C. §§ 2, 1347. Count Two charges all three defendants with conspiracy to commit health care fraud under 18 U.S.C. § 1349. Count Three charges defendant Mary Elizabeth Curtiss, a physician, with receiving illegal remunerations under 42 U.S.C. § 1320a-7b(b)(1)(A), and Count Four charges defendants Beth Palin and Joseph D. Webb with paying illegal remunerations under 42 U.S.C. § 1320a-7b(b)(2)(A).
The nonjury trial began on Monday, February 4, 2016, and lasted approximately six and a half days. The government called 36 witnesses and introduced 161 exhibits. On April 7, 2016, I reconvened the parties for the purpose of announcing my verdict in open court.
II. Findings of Fact.
The following are the court’s findings of fact. In determining the credibility of the witnesses, I have taken into account the rationality and internal consistency of the witnesses’ testimony, the extent of detail and coherent nature of the testimony, the manner of testifying by the witnesses, and the degree to which the subject testimony is consistent or inconsistent with the other evidence in the case. Moreover, I have drawn such reasonable inferences from the credible direct and circumstantial evidence as is permitted by reason and common sense.
1. Ownership of Bristol Laboratories, LLC (“Bristol Labs”) was in Palin’s name, but Webb, her husband, was directly involved in its operation. The ostensible business of Bristol Labs was to conduct drug screens of patient urine samples ordered by physicians. Most of the physicians who ordered urine drug screens from Bristol Labs were addiction medicine practitioners.
2. Palin made the final business decisions for Bristol Labs. Webb performed marketing tasks and served as a liaison between employees and Palin.
3. Charles K. Wagner, M.D., was an addiction medicine practitioner who opened an office in 2009 next to Bristol Labs in Bristol, Virginia. The Indictment charges Dr. Wagner as a coconspirator, but he died before the Indictment was returned and is not a defendant.
4. In his practice, Dr. Wagner prescribed Subutex (buprenorphine hydrochloride) and Suboxone (buprenorphine hydrochloride and naloxone hydrochloride) for treatment of opioid dependency.
5. Buprenorphine hydrochloride (“buprenorphine”) treats withdrawal from opioids by occupying receptors in the brain. A normal non-drug user’s brain has relatively few of these receptors, and approximately 50-75% of the receptors are ordinarily occupied by endorphins produced by the human body. The brain of a person who is using opioids has many more receptors, and the receptors are occupied by those drugs. The full occupation of all of the receptors can cause the person to stop breathing, often resulting in death by overdose. Once a person has become physically dependent on opioids, the body cannot make enough endorphins to occupy the receptors. If the person stops taking the opiates or opioids, the receptors become unoccupied, causing the patient to experience physical withdrawal effects. When experiencing withdrawal, a person can suffer from flu-like symptoms, diarrhea, and other unpleasant effects. Buprenorphine occupies the receptors and stops or prevents the physical withdrawal symptoms without creating the kind of high caused by opioid use. As a patient’s treatment progresses, the goal is to eventually taper the use of buprenorphine and, ultimately, to wean the patient from buprenorphine entirely.
6. The naloxone hydrochloride (“naloxone”) contained in Suboxone is a reversal agent that prevents users from experiencing a high if they take the medication other than as prescribed. Because Subutex does not contain naloxone, it is more subject to diversion and abuse than Suboxone. Therefore, prescription of Subutex is generally appropriate only if the patient is pregnant or allergic to naloxone.
7. Dr. Wagner required his patients to submit to weekly urine drug screens. The purpose of these tests was to make sure that the patients were taking the prescribed Suboxone or Subutex, rather than diverting it, and were not taking other commonly abused drugs.
8. Initially, Dr. Wagner ordered that all of his patients’ urine samples be tested at Bristol Labs on a machine called an analyzer. After about six months, Palin informed Dr. Wagner that Bristol Labs would no longer test uninsured patients’ samples on the analyzer because Bristol Labs was not likely to receive payment for those tests.
9. Bristol Labs began administering so-called “quick-cup” urine tests to self-pay patients, for which the patients were required to pay $25 in cash at the time of the test. The quick-cup consisted of a plastic cup with a built-in indicator that, when the cup was filled with urine, immediately showed whether the patient’s urine contained metabolites of certain drugs. The quick-cup test was a qualitative test that showed only the presence or absence of a drug in the urine. The quick-cup test did not indicate the quantity of a substance in the urine; in other words, it was not a quantitative test.
10. Dr. Wagner’s patients would go to Bristol Labs with an order form for a urine drug screen, go into the bathroom and pass urine into a cup, and give it to a Bristol Labs employee. If the patient had health insurance, the Bristol Labs employee would test the sample on the analyzer machine. If the patient did not have health insurance, the patient would be required to pay $25, and the patient’s sample would be subjected to the quick-cup test.
11. Dr. Wagner’s patients could write on the order form any prescription medications they were taking. Many of the patients wrote that they were taking benzodiazepines, which could interact dangerously with the Suboxone or Subutex that Dr. Wagner was prescribing to them.
12. Bristol Labs used the analyzer to test the samples of insured patients for 15 drugs of abuse.
13. Bristol Labs then sent the remainder of the insured patient’s urine sample to Forensic Laboratories (“Forensic Labs”), a high complexity laboratory located in Denver, Colorado, for confirmation testing. The testing done at Forensic Labs was more sophisticated than the testing performed by Bristol Labs. Both tests were quantitative tests, but the Forensic Labs test employed a different methodology.
14. The confirmation testing by Forensic Labs was done regardless of whether the results obtained at Bristol Labs were positive or negative for any banned substances. If the initial Bristol Labs analyzer test was positive for a substance, and the insured patient admitted to having taken that substance, the sample was still sent for confirmation testing, even though the patient did not dispute the results of the analyzer test.
15. Patients were expected to test positive for buprenorphine, the active ingredient in Suboxone and Subutex, which had been prescribed to them for their addiction treatment. Even when the analyzer test was positive for buprenorphine, the insured patient’s sample was still sent to Forensic Labs for confirmation testing.
16. Bristol Labs would send the patient’s remaining urine sample to Forensic Labs by overnight delivery.
17. The defendants in this case were not affiliated in any way with Forensic Labs and did not receive any payment for tests performed by Forensic Labs.
18. Forensic Labs billed patients’ insurers directly for the confirmation testing. Bristol Labs did not bill insurers for tests performed at Forensic Labs.
19. Bristol Labs was a moderate complexity clinical testing laboratory and could not perform the kind of confirmation testing done by Forensic Labs.Bristol Labs eventually purchased a machine that would allow it to qualify as a high complexity laboratory and to perform its own confirmation testing. However, it never began doing its own confirmation testing because it lost most of its business after the execution of a federal search warrant, before it had obtained a high complexity certification.
20. Dr. Wagner’s referral of urine drug tests was the top source of income for Bristol Labs.
21. Dr. Wagner eventually moved to Louisiana. There was a period of time during which he was not living in the Bristol area but his practice was still open and operating. During that time, he initially came to the practice weekly, but he visited less and less as time went on. Dr. Wagner eventually moved his Bristol, Virginia, practice to a different location in adjacent Bristol, Tennessee, not in the immediate vicinity of Bristol Labs. Dr. Wagner’s practice ultimately closed, and he is now deceased.
22. Palin and Webb were interested in purchasing Dr. Wagner’s practice, but he decided not to sell it.
23. Palin and Webb then decided to establish a medical practice to generate business for Bristol Labs. Initially, Palin and Webb opened an addiction treatment clinic called MedPath, which was located in Bristol, Virginia, but it was short-lived due to licensing or permitting issues. Shortly thereafter, Palin and Webb founded Mtn. Empire Medical Care LLC (“MEMC”), an addiction medicine clinic located in Gate City, Virginia.
24. Palin was listed as the sole owner of MEMC, but Webb was heavily involved in its operations, primarily seeking to obtain new patients.
25. MEMC hired Dr. Curtiss and Aaron Miller, M.D., both on a part-time basis, to provide addiction medicine services to patients at MEMC.
26. Dr. Miller began working for MEMC near the end of MEMC’s operations and worked there for a short period of time. Dr. Miller saw only four patients and worked a total of only 17.5 hours for MEMC.
27. Like Dr. Wagner’s patients, the patients of MEMC were required to submit to weekly urine drug tests.
28. Palin and Webb decided that drug screens of MEMC patients would be tested by Bristol Labs. Palin owned both MEMC and Bristol Labs. Dr. Curtiss and Dr. Miller did not control where urine drug screens were sent for testing.
29. All of the patients of MEMC were given a quick-cup test every week, regardless of whether the patients were insured or uninsured.
30. Rather than sending patients to Bristol Labs, urine samples were collected and quick-cup tests were performed on site at MEMC. The samples were then sent to Bristol Labs.
31. Most of the uninsured patients’ samples were simply kept at Bristol Labs and not subjected to further testing, while most of the insured patients’ samples were subjected to further testing. In general, an uninsured patient’s urine sample was tested only once, via the quick-cup test, while an insured patient’s sample was tested three times, first the quick-cup test, then the Bristol Labs analyzer, and finally confirmation testing at Forensic Labs.
32. Dr. Curtiss and Dr. Miller signed their names to blank Physician’s Order forms and allowed Bristol Labs employees to complete the forms ordering the laboratory tests. Palin and a Bristol Labs technician trained Bristol Labs employees on how to complete the pre-signed order forms. By signing the blank order form, Dr. Miller assumed the clinic and Bristol Labs would follow their ordinary procedures for drug screening patients.
33. If an uninsured patient disputed the results of the quick-cup test, the sample could be tested on the analyzer and then sent to Forensic Labs for confirmation testing. On approximately five occasions, a sample from one of Dr. Wagner’s uninsured patients was sent for confirmation testing because the patient disputed the results of the Bristol Labs analyzer test. If the confirmation test results showed that the analyzer test had been wrong, Bristol Labs paid for the confirmation testing. If the confirmation test results were the same as the Bristol Labs analyzer test, the uninsured patient was responsible for the cost of the confirmation test. On approximately three occasions, Dr. Curtiss requested that a sample of an uninsured patient be sent for confirmation testing, either because the patient disputed the results of the quick-cup test or there was something unusual about the sample.
34. There were a few insured patients who refused the analyzer test because they did not want to use their insurance, for fear of alerting their employer that they had a substance abuse problem. Those patients elected to be tested with the quick-cup test only.
35. The turnaround time for testing done at Bristol Labs was 24 hours. The turnaround time for testing done at Forensic Labs was 48 ...