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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

UNITED STATES OF AMERICA,

Plaintiff,

v.

D-2, NANCY RAZALAN,

D-3, GENEROSA AGUSTIN,

Defendants,

/

Case No. 08-20668 

HON: AVERN COHN

MEMORANDUM AND ORDER

I. Introduction

This is a criminal case. Defendants Nancy Razalan (Razalan) and Generosa

Agustin (Agustin) have plead guilty to making false statements to a federal health care

program in violation of 42 U.S.C. § 1320a-7b(a)(2)(ii). The false statements involved

kickbacks paid by defendants to co-defendant Rebecca Sharp (Sharp) for referrals. 

Razalan’s Rule 11 plea agreement includes the following provisions:

• A guideline range of 30-37 months (with a statutory cap of 12 months),

• A term of supervised release of up to one (1) year,

• A special assessment of $25.00

• A fine of not more than $10,000.00

• Restitution of $225,000.00 payable to the Medicare Trust Fund.

Agustin’s Rule 11 plea agreement includes the following provisions:

• A sentence not to exceed 12 months’ imprisonment
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• A term of supervised release of up to one (1) year,

• A special assessment of $25.00

• A fine of not more than $10,000.00

• Restitution of $80,000.00 payable to the Medicare Trust Fund.

The parties were unable to reach an agreement with respect to additional restitution. 

Particularly, each Rule 11 agreement contains the following provision: 

The parties disagree as to whether the additional following

amounts should be ordered as restitution by the Court and

will litigate this issue prior to sentencing: (1) [ ] in monies

paid to co-defendant Rebecca Sharp’s companies; and (2) 

[ ] in monies paid by Medicare to Defendant for services

billed on behalf of patients acquired from co-defendant

Rebecca Sharp.

Defendants were sentenced on May 13, 2010. However, Orders of Judgment and

Commitment have not been entered due to the parties’ unresolved dispute regarding

additional restitution. The government requests additional restitution pursuant to 42 U.S.C.

§ 1395nn. There is no dispute regarding the amounts defendants received in Medicare

reimbursements or the amounts defendants paid to Sharp in referral fees. Nor is there

dispute that all amounts received in Medicare reimbursements were for medically

necessary services that were in fact rendered by defendants. The parties’ sole dispute is

whether the court has the authority to order restitution of the full amount defendants

received in Medicare reimbursements. With respect to Razalan, the government requests

restitution of (1) $1,988,771 in Medicare reimbursements, (2) $476,240 in referral payments

made to Sharp, and (3) $225,000 agreed to in the Rule 11 plea agreement. With respect

to Agustin, the government requests restitution of (1) $998,475 in Medicare
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The government does not explain why it seeks restitution of the referral

payments that Razalan made to Sharp, but does not seek restitution of the referral

payments that Agustin made to Sharp.

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reimbursements and (2) $80,000 agreed to in the Rule 11 plea agreement.1 As described

below, there is no basis on which the Court can order restitution of all Medicare

reimbursements in these cases.

II. Restitution Under the Sentencing Guidelines

A. The Law

1.

A number of statutes authorize a court to impose restitution as an independent

component of a defendant’s sentence. 18 U.S.C. § 3663A imposes mandatory

restitution in the following cases:

all sentencing proceedings for convictions of, or plea

agreements relating to charges for, any offense

(A) that is – 

(i) a crime of violence, as defined in [18 U.S.C. §] 16;

(ii) an offense against property under [Title 18], or under

section 416(a) of the Controlled Substances Act (21 U.S.C.

856(a)), including any offense committed by fraud or deceit;

or

(iii) an offense describe in [18 U.S.C. §] 1365 (relating to

tampering with consumer products); and

(B) in which an identifiable victim or victims has suffered a

physical injury or pecuniary loss.

In addition, 18 U.S.C. § 3663 states:

The court, when sentencing a defendant convicted of an

offense under [Title 18], section 401, 408(a), 409, 416, 420,

or 422(a) of the Controlled Substances Act . . . (but in no

case shall a participant in an offense under such sections be

considered a victim of such offense under this section), or

section 5124, 46312, or 46504 of title 49, other than an

offense described in section 3663A©, may order . . . that the
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These statutes are 18 U.S.C. §§ 1593 (peonage, slavery, and trafficking in

persons), 2248 (sexual abuse), 2259 (sexual exploitation and other abuse of children),

2264 (domestic violence and stalking) and, 2327 (telemarketing fraud), and 21 U.S.C. §

853(q) (cleanup of clandestine laboratory sites). 

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defendant make restitution to any victim of such offense.

Finally, a number of statutes authorize restitution for specific offenses that are not

relevant to this case.2

 Regardless of the statute on which a court relies, restitution can

only be ordered to a victim of the specific offense for which the defendant convicted or

plead guilty. Hugley v. United States, 495 U.S. 411, 413 (1990) (“We must decide

whether these provisions allow a court to order a defendant tho is charged with multiple

offenses but who is convicted of only one offense to make restitution for losses related

to the other alleged offenses. We hold that the language and structure of the Act make

plain Congress’ intent to authorize an award of restitution only for the loss caused by

the specific conduct that is the basis of the offense of conviction.”). 

2.

When there is no statute specifically providing for restitution, it may be imposed

as a condition of supervised release. See 18 U.S.C. § 3553(a)(7). The Sentencing

Guidelines state that “[i]n the case of an identifiable victim, the court shall – (1) enter a

restitution order for the full amount of the victim’s loss . . . .” U.S.S.G. § 5E1.1(a). 

Neither U.S.S.G. § 5E1.1(a) nor 18 U.S.C. § 3553(a)(7) defines victims. However, the

primary statutes regarding restitution define a victim as “a person directly and

proximately harmed as a result of the commission of an offense for which restitution

may be ordered.” 18 U.S.C. §§ 3663(a)(2), 3663A(a)(2). This harm-based definition of

victim is consistent with the Sentencing Guideline’s focus on awarding restitution to
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The government contends that Vaghela was overruled by United States ex rel.

McNutt v. Haleyville Medical Supplies, Inc., 423 F.3d 1256 (11th Cir. 2005). Haleyville

does not mention Vaghela and cannot be interpreted to expressly overrule it. Moreover,

Haleyville is a civil qui tam case arising under the False Claims Act and, as described

below, cannot be applied in a criminal setting.

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Vaghela was convicted under 18 U.S.C. § 371 and 42 U.S.C. § 1320a7b(b)(1)(A).

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compensate for a victim’s loss. Unless an individual or entity suffers a loss or harm, it

cannot be considered a victim. 

In the context of a Medicare fraud case, the government cannot claim a loss

(and, therefore, cannot be a victim) when a defendant was only reimbursed for

legitimate medical services. United States v. Vaghela, 169 F.3d 729, 736 (11th Cir.

1999).3

 In Vaghela, the defendant was convicted of conspiracy to defraud the United

States through participation in an illegal referral scheme and was ordered to repay all

Medicare reimbursements that were related to the illegal referrals as restitution.4 The

Eleventh Circuit vacated the order for restitution because the government failed to prove

the amount of loss. The court held that the government had the burden of proving the

amount of loss and stated:

Thus, unless we are to believe that DHHS received no value

at all for Expendicare’s work, a proposition for which there is

no supporting evidence, we must assume that the loss

suffered by DHHS is an amount equivalent to the amount it

paid to Extendicare in excess of the value of services

rendered. 

Id. In other words, the government cannot claim a loss when it reimbursed a Medicare

provider for services that were actually rendered unless the payment exceeds the value

of the services. 
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B. Analysis

1.

Although they were indicted under both 18 U.S.C. § 371 and 42 U.S.C. § 1320a7b(b)(2)(a), Razalan and Agustin only plead guilty to violating 42 U.S.C. § 1320a7b(a)(2)(ii): Making a False Statement to a Federal Health Care Program. They did not

plead guilty to conspiring to defraud the United States or to paying kickbacks for referrals.

42 U.S.C. § 1320a-7b(a)(2)(ii) is not included in any of the statutes that specifically

authorize a court to order restitution. Accordingly, the Court cannot order restitution as an

independent sentence because it is not authorized by statute. 

Even if restitution were possible under the charges initially included in the indictment,

the government cannot rely on these statutes as a basis for an order of restitution. Even

if Razalan and Agustin did conspire with Sharp to defraud the United States by participating

in an illegal referral scheme, that information was not included in the superceding

informations to which the defendants plead guilty. As the Supreme Court has stated,

restitution cannot be ordered based on a charge that was included in an indictment but was

not a basis for conviction. Because it formed the sole basis of the defendants’ conviction,

the government must rely exclusively on 42 U.S.C. § 1320a-7b(a)(2)(ii) to establish that

restitution is authorized.

2. 

Even without a statutory basis, restitution can form a condition of supervised

release under the Sentencing Guidelines if the government can identify a specific victim

who suffered an actual loss. In this case, it is difficult to consider the Medicare Trust

Fund a victim because there is no evidence of any actual loss. There is no dispute that
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defendants performed all of the services for which they received reimbursement. There

is no dispute that all of the services performed were medically necessary. There is no

assertion of overcharging or hidden fees. In sum, the Medicare Trust Fund would have

made the same payments if the defendants had not made any false statements. 

Without a discrepancy between the amount paid by the Medicare Trust Fund and the

value of the services rendered, there can be no actual loss for purposes of the

Sentencing Guidelines. Therefore, the government is not entitled to an order of

restitution under the Sentencing Guidelines.

III. Restitution under 42 U.S.C. § 1395nn

A.

42 U.S.C. § 1395nn is a civil statute that prohibits a physician from making

referrals to entities in which it has a financial interest. 42 U.S.C. § 1395nn(a)(1). A

financial interest is defined broadly to include “a compensation agreement . . . between

the physician . . . and the entity.” Id. § 1395nn(a)(2)(B). Thus a kickback scheme in

which an entity provides a referral fee to a physician would constitute a violation of the

statute. As a sanction, the statute provides that “[n]o payment may be made under this

subchapter for a designated health service which is provided in violation of

subsection(a)(1) of this section. Several courts have required restitution of all Medicare

reimbursements received in violation of 42 § 1395nn(a)(1), regardless of whether or not

the reimbursements were for services actually rendered. E.g., United States v. Rogan,

517 F.3d 449 (7th Cir. 2008) (False Claims Act suit against hospital administrator

involving kickback scheme); United States ex rel. McNutt v. Haleyville Medical Supplies,

Inc., 423 F.3d 1256 (11th Cir. 2007) (qui tam action under the False Claims Act against
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owners of medical service company involving kickback scheme); United States ex rel.

Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899 (5th Cir. 1997) (qui tam

action under the False Claims Act against health care provider involving kickback

scheme). 

B.

The government’s Sentencing Memorandum Regarding Restitution seeks

restitution of all reimbursements that Razalan and Agustin obtained from the Medicare

Trust Fund that are tainted by the kickback scheme described in the Rule 11

agreement. Despite the fact that Razalan and Agustin only plead guilty to making false

statements under 42 U.S.C. § 1320a-7b(a)(2)(ii), the government relies on the selfreferral statute, 42 U.S.C. § 1395nn, as a basis for restitution. Despite their similarities,

the anti-kickback statute and self-referral statute have several important distinctions:

First, the self-referral ban applies only to physicians, while

the anti-kickback statutes are aimed at curbing

overutilization and improper financial consideration by all

types of health care providers and suppliers of medical

goods and services. . . . Third, t]he self-referral law is a civil

statute which includes no criminal provisions, unlike the antikickback law, which contains criminal prohibitions. Finally,

the self-referral law contains an express prohibition against

submitting a claim for reimbursement of services rendered in

violations of its provisions, while the anti-kickback law

contains no analogous provision.

Dayna Bowen Matthew, Tainted Prosecution of Tainted Claims: The Law, Economics,

and Ethics of Fighting Medical Fraud under the False Claims Act?, 78 IND. L.J. 525, 554

(2001). Due to these differences, restitution of all Medicare reimbursements is not

appropriate as a part of defendants’ sentences.

First, 42 U.S.C. § 1320a-7b does not prohibit submission of a claim for
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reimbursement of services rendered in violation of its provisions. Had Congress had

the desire to prohibit submission of such claims, it could have done so. Razalan and

Agustin were only charged under 42 U.S.C. § 1320a-7b and only plead guilty to violating

that statute. Because it does not prohibit the submission of a claim for reimbursement

of services rendered, there is no reason to order restitution under 42 U.S.C. § 1320a7b.

Second, as noted above, the self-referral statute is not a criminal statute. It is a

civil statute and is most commonly enforced through the False Claims Act. All of the

cases cited by the government are civil cases arising under the False Claims Act. The

government has not identified any criminal cases awarding restitution under the selfreferral statute and the Court is not aware of any. Given the dearth of authority 

supporting the application of the self-referral statute in criminal cases, the Court is not

willing do so. If the government believes that it is entitled to restitution of all

reimbursements from the Medicare Trust Fund, it can file an action under the False

Claims Act.

Third, the self-referral statute only prohibits self-referral by physicians. While a

non-physician may be required to pay restitution under the statute, it must be on the

basis of an improper referral by a physician. E.g., Rogan, 517 F.3d 449; Haleyville

Medical Supplies, Inc., 423 F.3d 1256; Columbia/HCA Healthcare Corp., 125 F.3d 899. 

In this case, there is no evidence establishing that any physicians engaged in prohibited

self-referrals. The indictment alleged that Razalan and Agustin entered into referral

agreements with Sharp. None of these individuals is a physician. The government has

not alleged that the physicians employed by Sharp received remuneration for the
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referrals and Razalan and Agustin have made no such admissions. Even if criminal

restitution under the self-referral statute were proper, it would not be appropriate in this

case because the government has not established that the statute was violated. 

IV. Conclusion

Razalan and Agustin plead guilty to violating 42 U.S.C. § 1320a-7b(a)(2)(ii) and

must be sentenced accordingly. The statute has no provision for restitution. Under the

Sentencing Guidelines restitution is limited to the government’s actual loss, which has

not been established in this case. Restitution cannot be ordered under 42 U.S.C. §

1395nn because it is a civil statute and defendants’ liability under the statute has not

been established.

The Court will enter an Order of Judgment and Commitment for each defendant

which reflects the sentence imposed on May 13, 2010. Restitution will be limited to the

amounts agreed to in the defendants’ Rule 11 Plea Agreements. 

SO ORDERED.

Dated: May 26, 2010 S/Avern Cohn 

AVERN COHN

UNITED STATES DISTRICT JUDGE

I hereby certify that a copy of the foregoing document was mailed to the attorneys of

record on this date, May 26, 2010, by electronic and/or ordinary mail.

 S/Julie Owens 

Case Manager, (313) 234-5160