Opinion ID: 3063132
Heading Depth: 3
Heading Rank: 1

Heading: Facts and Pre-Trial Proceedings

Text: Angela Denise Isley was hired by Orthoscript, Inc., a durable medical equipment (“DME”) supply company1 located in Alpharetta, Georgia, to manage its billing operations, which included the supervision and instruction of other employees who prepared and submitted claims for payment to insurance companies and Medicare.2 Under the Medicare program, Orthoscript submitted its claims for reimbursement to a Medicare contractor known as a DME Regional Carrier (“DMERC”). In the southeast region (Region C),3 the DMERC was Palmetto Government Benefits Administrators (“Palmetto”), which processed and 1 Specifically, Orthoscript sold orthopedic supplies such as arm slings, wrist splints, and walking boots to patients through their physicians in the southeast region of the United States. Once a physician prescribed and dispensed the supplies, Orthoscript filed claims for payment to insurance companies and Medicare. 2 Isley was also a shareholder in the company. 3 There are three other regions in the United States. 2 adjudicated Medicare claims from Orthoscript and other DME suppliers in the region. The Medicare program used a coding system called the Healthcare Common Procedure Coding System (“HCPCS”), under which the DME items were assigned product codes. When Orthoscript submitted a claim form to request Medicare payment, it was required to accurately identify the actual products dispensed to the patient by using the proper product code. To help the suppliers, Palmetto published a Supplier Manual and other advisories, setting forth Medicare’s rules for submitting claims, and it employed nurse educators to answer coding questions. Additionally, another Medicare contractor, the Statistical Analysis DME Regional Carrier (“SADMERC”), operated a coding help line and website to assist suppliers to correctly code their products on Medicare claim forms. Isley was first indicted on December 29, 2005, along with the owner and CEO of Orthoscript, James Arch Nelson, on thirty-one counts of Medicare fraud; specifically, they were charged with knowingly and willfully assigning incorrect product codes to certain orthopedic supplies in order to generate higher payments from Medicare than were authorized.4 In other words, the Government charged that Isley and Nelson exectued a scheme to file Medicare claims and receive 4 Isley and Nelson were also indicted on six counts of fraud against the Federal Employee Health Benefit Program, a federally funded health care benefit program for federal employees. 3 payment for DME products that were not equivalent to the products actually supplied to the patients. This alleged scheme to defraud Medicare took place from January 1, 1999 to November 30, 2003. On February 9, 2006, Isley filed a Brady motion 5 requesting that the Government produce, for the relevant time period, all medical necessity reviews of claims submitted to Palmetto by Orthoscript and other Region C DME suppliers for the DME product codes at issue in the indictment. Palmetto, as the DMERC, would at times subject a benefits claim to a medical necessity review, asking the DME supplier for detailed information about its claim, including the manufacturer’s picture and description of the item, the manufacturer’s invoice, and the physician’s medical necessity letter and treatment notes. After this review, the DMERC would approve or deny payment. The DMERC’s approval of a claim after a medical necessity review is called an “MNA” (for Medical Necessity Approval).6 According to Isley, the MNAs for the product codes at issue in the indictment would show that the DMERC’s use of the codes was ambiguous, confusing, and misleading. This, in turn, would show Isley’s use of the codes to be 5 Brady v. Maryland, 373 U.S. 83, 83 S. Ct. 1194, 10 L.Ed.2d 215 (1963), “places an affirmative duty upon the [government] to reveal any ‘material’ evidence in its possession that would tend to exculpate a defendant.” Breedlove v. Moore, 279 F.3d 952, 961 (11th Cir. 2002). 6 The majority of benefits claims were processed by the DMERC automatically, that is, without a medical necessity review. If a benefits claim was denied, a DME supplier could appeal. The review of claims on appeal, however, was not as detailed as a medical necessity review. 4 reasonable and indeed expressly sanctioned by the DMERC. According to Isley, the MNAs were necessary to show that she lacked the requisite mens rea to commit fraud and that she was entitled to the defense of entrapment-by-estoppel. The magistrate judge orally granted this motion for production of Brady material at a hearing in February 2006. This ruling was later reversed in part by written order upon the magistrate judge’s conclusion that MNA information pertaining to other DME suppliers was not exculpatory and therefore need not be produced to Isley. Isley appealed, and after oral argument, the district court affirmed this ruling by Order dated September 1, 2006. After the issuance of this ruling, Isley filed a Freedom of Information Act request to Palmetto, seeking its MNAs of all DME suppliers for all product codes in the indictment. Isley sent this same request to the DMERCs in the three other regions as well. When months passed without response, Isley filed an ex parte motion for the issuance of subpoenas duces tecum, through which she requested subpoenas issued to the four DMERCs for the production of MNA information as it related to the claims of all DME suppliers from January 1, 1999 to November 30, 2003 for the product codes at issue in the indictment. While this motion was pending, the Government filed a superseding indictment on February 20, 2007. Nelson was not named in the superseding indictment; he had pled guilty on a lesser charge and agreed to testify against Isley. 5 The superseding indictment charged Isley with 14 counts of health care fraud against Medicare and did not contain some of the product codes at issue in the original indictment.7 These charges involved a time period from January 2001 to December 2003. The superseding indictment added 36 counts of honest services mail fraud,8 in which Isley was charged with using her position of control over the finances of Orthoscript to misappropriate Orthoscript funds. Specifically, Isley wrote checks drawn upon Orthoscript’s bank account to pay her personal expenses charged on her personal credit card.9 Finally, the superseding indictment added three counts of money laundering related to the funds she criminally derived from the healthcare fraud. With respect to Isley’s motion for the issuance of subpoenas duces tecum, the Government argued that Isley had not shown that she had personal knowledge during the relevant time period of how other DME suppliers were billing their products or that she reasonably relied upon the other companies’ MNAs. Further, Isley had not presented any evidence that she herself was confused about the 7 The superseding indictment did not contain charges of fraud against the Federal Employee Health Benefit Program either. 8 The Government dismissed Count Twenty during the trial. 9 The Government had previously announced its intention to present these same allegations as inextricably intertwined, or alternatively, as Rule 404(b) evidence. According to the Government, the evidence of her misappropriation established a motive for Isley to increase the payments made to Orthoscript from Medicare. 6 coding standards.10 Despite these protestations and an earlier ruling that such information was not exculpatory, the district court allowed the issuance of the subpoenas on March 6, 2007. The return date for the production of documents responsive to the subpoenas was April 30, 2007. On that date, the Government filed motions to quash the subpoenas. The matter came before the district court for oral argument on June 25, 2007. At oral argument, Isley argued that MNA information from all four regions was necessary because she relied upon the approvals to inform her decisions with respect to coding and because the evidence could be used to impeach government witnesses who testify that the coding she used was clearly wrong. The United States Attorney’s Office and the non-party governmental DMERC agencies argued that the evidence was irrelevant and non-exculpatory. The district court heard about certain confusion among the various agencies respecting where and in what form the records were housed, as well as how difficult and expensive the production of documents would be. In the end, the district court agreed with Isley that the evidence may be Brady material and placed the burden of producing the information upon the government.11 Consequently, the district court directed the 10 The Government made these same arguments in moving in limine to exclude evidence of other DME suppliers’ Medicare billing practices and experiences with Medicare claims reviews. 11 The district court stated: 7 Government to produce the MNA information of all providers for the relevant codes only from Region C as a “sample” to determine whether the evidence was exculpatory. Following this production, the court ruled that while the evidence may be “relevant to some of the defendant’s possible defenses,” the burden and cost of requiring the Government to produce the other regions’ MNAs outweighed Isley’s need for such cumulative information.