Proving Criminal Intent Through Circumstantial Evidence
July 27th, 2022
Contributor: Brandon Mordue
White-collar criminal matters, particularly those involving fraud, often hinge on whether a defendant acted with the requisite intent. Because a jury cannot peer directly inside a defendant's mind, these cases frequently involve prosecutors attempting to prove the issue of wrongful intent via circumstantial evidence. In affirming a number of healthcare fraud convictions, the Sixth Circuit described a variety of indirect evidence that, in its view, would support a factfinder inferring intent to defraud. United States v. Montgomery provides an outline of the types of conduct on which prosecutors focus - and on which juries may convict - in a fraud case.
Montgomery involved defendants who devised custom prescription creams with the aid of a pharmacist who focused on including ingredients for the compound drugs based on the amount of the insurance reimbursement. The defendants negotiated with pharmacies at the outset to receive a cut of the reimbursements for those creams and then convinced their friends and families to order them. As the scheme evolved, the defendants recruited down-level marketers, who received a portion of the reimbursements and brought in new customers, often their own acquaintances and family members. The new customers were told they would pay nothing through their own insurance and some even were promised a payment for requesting the creams, purportedly for participating in a clinical trial that did not exist. Only those individuals with insurance plans that would reimburse without preauthorization for compound drugs were targeted as customers. In two years, insurers paid $35 million dollars in reimbursements. The government charged the defendants with healthcare fraud, mail fraud, wire fraud, money laundering, and violating the anti-kickback statute.
In affirming the convictions, the Sixth Circuit contrasted its reading of the facts against what it viewed as routine healthcare, where "a patient meets with their doctor, the doctor assesses their medical needs, and the doctor prescribes medication if necessary . . . The patient often pays a co-payment when picking up the prescription." By contrast, the defendants began by hiring a pharmacist to "devise compound drug formulas that used the most expensive ingredients." Rather than the customers paying their copays, the defendants offered to pay the customers, telling them that they were part of a clinical trial, which was not true. Then, to further increase profits, the defendants "added medications to customers' order forms that they did not request and sought refills for customers without their consent." There was evidence that a nurse practitioner was paid to sign the prescriptions without meeting the patients, and sometimes the defendants simply forged her signature. When one insurer indicated that it no longer would approve compound medicines without preauthorization after a certain date, the defendants backdated the prescriptions and added additional refills to an earlier period so as to ensure continued reimbursement.
Questionable financial aspects were a recurring theme in the Court's analysis. The Court focused on the sheer price of the medicines, which ran "from $4,000 to $15,000 per cream." One downlink marketer made "$33,000 in commissions for sales she made to one person in just half an hour." In another incident, in order to assuage an unhappy customer who had a copay, one defendant met the customer "in a post office parking lot and gave him $2,000 cash." Elsewhere, the Court highlighted that a family member of a marketer refused to join the scheme because she felt the participants "were making a lot of money quickly and she didn't have a good feeling about it." In the Court's summation, the defendants engaged in a scheme to "extract massive profits from the marketing of medically unnecessary drugs."
Finally, there was evidence of concealment. After the defendants learned they were under investigation, some of the defendants attempted to concoct amongst themselves an explanation for the lack of a clinical trial. Another defendant told a customer, via Snapchat, not to speak to law enforcement. A different defendant talked to a customer who had been contacted by law enforcement, told the customer not to meet with the government agent, and tried to convince the customer that she had spoken to a doctor before getting the medications, even though she had not.
From cash in parking lots to altering prescriptions, the Montgomery case provides a checklist of issues to consider and assess when evaluating a healthcare fraud case. Fraud, the Sixth Circuit explains, "is not defined according to a technical standard. Instead, fraud is measured by its departure from moral uprightness, fundamental honesty, fair play and right dealing in the general and business life of members of society." Members of a jury will bring their own experiences and notions about these subjective concepts with them to trial. The further a business arrangement deviates from a presumed "normal," the greater the profits in relation to the work undertaken, then the higher the potential risk to the defendant, particularly when the underlying dealings involve misrepresentations and efforts at concealment after learning of government scrutiny.
Many cases in the healthcare sphere involve nuance and complexity, set as they are against the backdrop of an elaborate regulatory regime. On appeal, the standard of review for insufficient evidence is "highly deferential" and the Court must ask only whether, "after viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt." This standard of review can result in an appellate opinion laying out a one-sided version of events. The defendants in Montgomery endured an eleven-week trial. It seems quite unlikely counsel for the defense had nothing to say on their clients' behalf and elicited no helpful testimony from any of the witnesses, but the Court's decision does not focus on evidence supporting the defendants. In sum, though the Montgomery decision makes clear the difficulty of many criminal appeals, it also provides a roadmap for trial counsel to plan against the likely elements of the prosecution's fraud case.