Opinion ID: 727292
Heading Depth: 4
Heading Rank: 2

Heading: Advertising Expense Claimed as Outreach

Text: 45 Four of Calhoon's section 1001 convictions relate to claims he made for reimbursement of advertising costs. Calhoon filed cost reports in which he claimed various types of advertising expenses under the label outreach. In addition, he created a second set of books--new general ledgers--which collapsed into one account labelled outreach advertising accounts that appeared separately in other ledgers. The government maintains that Calhoon intentionally disguised advertising costs as outreach in order to mislead the intermediaries and to obstruct their audits. The government essentially argued falsity under section 1001 based on concealment of a material fact. 46 Calhoon, on the other hand, contends that the term outreach accurately describes the advertising and that the term is recognized in the industry. He therefore argues that claiming reimbursement for advertising costs under that label could not be false. 47 42 C.F.R. § 413.20(d) states that [t]he provider must furnish such information to the intermediary as may be necessary to ... [a]ssure proper payment by the program.... Under the guidelines in the Manual, certain advertising costs are reimbursable and others are not. See Prov.Reimb.Man. § 2136. The Manual provides that advertising costs are generally reimbursable if reasonably related to patient care and primarily designed to advise the public of the services available through the hospital and to present a good public image, but not if designed to increase patient census. See Prov.Reimb.Man. § 2136.1. That certain advertising costs are presumptively nonreimbursable obligates a provider seeking reimbursement to identify the costs as advertising and to reveal the nature of the advertising. In addition, 42 C.F.R. § 413.20(a) requires providers to maintain financial records for proper determination of reimbursable costs using [s]tandardized definitions ... that are widely accepted in the hospital and related fields.... Thus, Calhoon had a legal duty to disclose both in the cost reports and in the general ledgers that the costs claimed were in fact advertising costs. Instead, he chose to call the costs outreach, thereby concealing the potentially nonreimbursable nature of the costs. 48 Wheeler, the government's expert witness, testified that in 22 years' experience with Blue Cross/Blue Shield of South Carolina, she had never seen the term outreach used in Medicare cost reporting; nor had she ever heard outreach as a synonym for advertising. R.A.Vol. 6, p. 101. Moreover, Calhoon, a former fiscal intermediary, knew that this term would conceal the nature of the costs and nonetheless chose to use the label specifically for that reason. As one of his subordinates testified, Calhoon admitted that the outreach account was created so that there would be no red flag alerting Medicare auditors to the nonreimbursable advertising expenses. See R.A.Vol. 8, p. 116. Calhoon similarly told another subordinate that if just one intermediary misses an adjustment because it is called outreach, these general ledgers have served their purpose. See R.A.Vol. 8, p. 205. The evidence was sufficient to lead a reasonable jury to conclude beyond a reasonable doubt that, by using the term outreach, Calhoon concealed the true nature of the advertising costs claimed for reimbursement, thus establishing falsity under section 1001. 49