Opinion ID: 2967751
Heading Depth: 3
Heading Rank: 4

Heading: The Fraud Loss Calculation (Ms. Bolden)

Text: Ms. Bolden next contends that the court clearly erred in calculating her fraud loss. Pursuant to § 2F1.1(b)(1) of the 1994 Guidelines, a sentencing court is obliged to increase, on a graduated basis, the offense level of a defendant convicted of fraud, depending on the amount of loss resulting from the fraud scheme. Ms. Bolden challenges the inclusion in her fraud loss of: (1) her salary and that of a physician assistant, (2) the Aequitron Invoices, and (3) costs included on the Cost Reports for which supporting invoices could not be found.
Ms. Bolden first maintains that the court erred in including her salary and the salary of a physician assistant, Frank Dickerson, in her fraud loss calculation. She contends that Dickerson’s salary was a proper direct cost of Emerald Health and, in the alternative, that there is no evidence connecting her to the improper classification of his salary or showing that the misclassification was deliberate.37 At trial, a Medicaid investigator and a Medicaid auditor each testified that only those salaries directly related to patient care are proper direct costs on the Cost Reports. Thus, administrative salaries, such as Ms. Bolden’s, are reportable on the Cost Reports only as indirect costs. Additionally, the compensation of physicians and physician assistants are separately reimbursed by Medicaid and are not includable on the Cost Reports. According to the Medicaid auditor, a physician assistant, such as Dickerson, should have bill[ed] the Medicaid program directly. As such, the court did not err in deciding that Dickerson’s salary was an improper direct cost on the 1993 and 1994 Cost Reports. There was also an ample basis for the court’s findings that Ms. Bolden was responsible for the misclassification of Dickerson’s salary and that the misclassification was deliberate. First, she was responsible for the management of Emerald Health, including classification of 37 As pointed out earlier, supra Part II.A, unlike with indirect costs, where each facility receives a flat rate per Medicaid patient, Medicaid reimburses nursing facilities for the actual amount spent on direct costs, i.e., patient-related expenses. UNITED STATES v. BOLDEN 41 its expenses and preparation of the Cost Reports. Emerald Health also listed Dickerson on those Reports as its Director of Nursing, rather than as a physician assistant, to conceal the misclassification of his salary as a direct cost. Finally, there was evidence that Ms. Bolden was responsible for the misclassification of other employees’ salaries, thus permitting the sentencing court to infer that she was responsible for the improper classification of Dickerson’s salary.38 In these circumstances, the court did not err by including Dickerson’s misclassified salary in Ms. Bolden’s fraud loss calculation. Ms. Bolden also challenges the inclusion of her own salary in her fraud loss calculation. She contends that, although she performed administrative duties as Emerald Health’s Director of Operations, she also served as Supervisor of its Ventilator Unit. Moreover, because the salary of this Supervisor is properly a direct cost, she asserts that her full salary was not includable in her fraud loss calculation. In support of this contention, Ms. Bolden relies on the testimony of Emerald Health’s former Medicaid auditor, who testified that the job description of the Supervisor would support an argument that the portion of her salary for that position was properly a direct cost. However, Ms. Bolden offered no evidence that her actual duties in the Ventilator Unit involved any direct patient care. Indeed, according to the Medicaid investigator, absent a study to ascertain how much time Ms. Bolden dedicated to administrative work compared to how much she spent on direct patient care, it was improper to classify any portion of her salary as a direct cost. Significantly, the reclassification of Ms. Bolden’s salary occurred 38 For example, Ms. Bolden was responsible for the mis-classification of the salary of Lori Gann, who held an administrative position in the business office, as a direct cost on the 1993 and 1994 Cost Reports. In March of 1994, while preparing the 1993 Cost Report, Ms. Bolden reclassified Gann as a medical records clerk, although her duties at Emerald Health remained unchanged. Unlike an administrative position, the salary of a medical records clerk is properly included as a direct cost. Ms. Bolden then gave Gann two name tags — one for the business office and one that identified her as a medical records clerk — and told Gann to wear the Medical Records name tag whenever State employees [are] in the facility. 42 UNITED STATES v. BOLDEN in March of 1994, when she was preparing the 1993 Cost Report and attempting to find ways to avoid another large repayment to Medicaid.39 In these circumstances, it was entirely proper to include Ms. Bolden’s entire salary in her fraud loss calculation.
Ms. Bolden also maintains that the sentencing court miscalculated her fraud loss by including nearly $200,000 attributable to Emerald Health’s transactions with Aequitron. This sum resulted from the triple-expensing of a $64,000 Aequitron invoice originally issued for a ventilator equipment purchase. The court included the tripleexpensing in Ms. Bolden’s fraud loss calculation, and she contends it did so erroneously.40 Ms. Bolden asserts that the triple-expensing of the Aequitron invoice was simply an accounting error. She also maintains that, even if it was fraudulent, there is no direct evidence tying her to it. In the absence of direct evidence, however, there was ample circumstantial evidence justifying the court’s finding that it was a fraudulent act rather than a mistake. Importantly, there was evidence tying Ms. Bolden to the duplication of other Aequitron invoices. In addition, she knew how the Medicaid cost reporting system operated, she controlled Emerald Health’s finances, she possessed the authority to classify expenses, and she was motivated to avoid another significant Emerald Health repayment to Medicaid. As such, the court did not err in including the triple-expensed Aequitron invoice in Ms. Bolden’s fraud loss calculation. 39 From 1990 through 1992, Emerald Health’s actual direct patientrelated costs were substantially less than the prospective direct cost payments it received from Medicaid. Accordingly, Emerald Health was required to reimburse Medicaid the respective sums of $138,687, $102,501, and $318,695, for those years. 40 The $64,000 Aequitron purchase was actually entered six times on Emerald Health’s accounting ledger. Three of those entries, however, were subsequently corrected, leaving three entries on the ledger and on the 1994 Cost Report. UNITED STATES v. BOLDEN 43
Ms. Bolden’s final contention on her fraud loss calculation relates to the inclusion of approximately $170,000 in costs billed to Medicaid by Emerald Health for which vendors’ invoices could not be located (the Missing Invoice Costs). She asserts that the Government failed to establish by a preponderance of the evidence that the Missing Invoice Costs were fraudulent. See United States v. Harris, 882 F.2d 902, 907 (4th Cir. 1989). As explained below, the sentencing court erred in its inclusion of the Missing Invoice Costs in Ms. Bolden’s fraud loss calculation. During the investigation of Emerald Health, the Medicaid investigator conducted an extensive audit, comparing the costs specified on the Cost Reports with those listed on Emerald Health’s cash disbursement journal, its bank records, and its invoices from service and supply companies. Even though the cash disbursement journal and the bank records were supportive of the Cost Reports, the investigator concluded that the Missing Invoice Costs were fraudulent because he could not find supporting invoices for them. The Missing Invoice Costs were accordingly included in the PSR’s fraud loss calculation for Ms. Bolden. Prior to the sentencing hearing, Ms. Bolden objected to the inclusion of the Missing Invoice Costs in her fraud loss calculation, asserting that they were treated as fictitious even though Emerald Health’s cash disbursement journal and bank records reflected those costs as having been paid to more than twenty vendors. The Government made no effort to contact the vendors to verify its position on the Missing Invoice Costs, and Ms. Bolden filed affidavits from several of the vendors, indicating that at least part of those costs were valid. She also produced an affidavit of a former Emerald Health employee, indicating that he had ordered supplies from certain of the vendors during 1993 and 1994. At trial, the Medicaid investigator acknowledged that the bank records in connection with the Missing Invoice Costs appeared to be accurate. Finally, Ms. Bolden contended that, although the invoices relating to the Missing Invoice Costs had been misplaced, they were legitimate. Indeed, several Emerald Health employees testified at trial that Emerald Health’s business operations were disorganized and subject to poor bookkeeping. 44 UNITED STATES v. BOLDEN In response, the Government did not dispute Ms. Bolden’s affidavits, and it acknowledged in its Sentencing Memorandum that the evidence connecting [Ms. Bolden] to the fraudulent overstatement of [the Missing Invoice Costs] is less than compelling. It failed to produce any testimony that the Missing Invoice Costs were fraudulent, and its primary position was that Ms. Bolden had the motive and (as Emerald Health’s Director of Operations) the opportunity to fabricate those costs. At the sentencing hearing, the Government asserted that the issue on the Missing Invoice Costs was for the Court to decide based on the facts and circumstances. It chose not to make any further argument on the issue, and the court overruled Ms. Bolden’s objection. In sum, the Government’s evidence on the Missing Invoice Costs consisted of the opinion of a single witness, who admitted that the documentation underlying those costs appeared to be legitimate. It failed to produce further evidence, and it admitted that its evidence on this issue was less than compelling. Ms. Bolden, on the other hand, came forward with an explanation of why the Missing Invoice Costs were legitimate, and she produced affidavits corroborating, to some extent, her position. In these circumstances, we conclude that the court erred in including those costs in Ms. Bolden’s fraud loss.