Court Opinion

ID: 9965369
Source: CourtListenerOpinion
Date Created: 2024-05-02 15:00:37.270491+00
Date Added: 2024-06-11T08:24:56.074158
License: Public Domain

In the

     United States Court of Appeals
                 For the Seventh Circuit
                       ____________________
Nos. 22-3295 and 23-1943
STOP ILLINOIS HEALTH CARE FRAUD, LLC,
                                                  Plaintiff-Appellee,
                                 v.

ASIF SAYEED, et al.,
                                            Defendants-Appellants.
                       ____________________

        Appeals from the United States District Court for the
            Northern District of Illinois, Eastern Division.
        No. 1:12-cv-09306 — Sharon Johnson Coleman, Judge.
                       ____________________

      ARGUED JANUARY 18, 2024 — DECIDED MAY 2, 2024
                 ____________________

   Before RIPPLE, BRENNAN, and SCUDDER, Circuit Judges.
    SCUDDER, Circuit Judge. This case returns to us from
remand after the district court found the defendants—Asif
Sayeed and three associated healthcare companies—liable for
violating the Anti-Kickback Statute and False Claims Act to
the tune of nearly $6 million. The defendants appeal both the
liability and damages findings, raising several arguments. We
reject all but one, concluding that Sayeed and his companies
knowingly violated the False Claims Act without the
2                                       Nos. 22-3295 & 23-1943

protection of a regulatory safe harbor, that the $6 million
judgment is not constitutionally excessive under the Eighth
Amendment, but that the district court nonetheless erred by
calculating damages based on Medicare claims that may or
may not have been related to the defendants’ kickback
scheme. So we affirm the judgment of liability but reverse in
part to permit the district court to clarify which Medicare
claims, all or some, resulted from the defendants’ illegal
kickback scheme.
                                I
                                A
    Because our prior opinion described the background of
this dispute in substantial detail, only a summary is necessary
here. See Stop Illinois Health Care Fraud, LLC v. Sayeed, 957 F.3d
743 (7th Cir. 2020).
   Asif Sayeed wholly owns a healthcare management
company called Management Principles, Inc., or MPI. That
company manages two smaller ones—Vital Home &
Healthcare and Physician Care Services—that provide home-
based medical services to Medicare recipients in Illinois.
    Sayeed’s companies received a significant amount of their
business from the Healthcare Consortium of Illinois. The
Consortium was a non-governmental organization that con-
tracted with the Illinois Department of Aging in the 2010s to
help coordinate healthcare for low-income seniors. Each week
it sent case managers to seniors’ homes, asked questions
about their health, and recorded their answers on comprehen-
sive questionnaires. The Consortium then evaluated the ques-
tionnaires to identify seniors who needed in-home healthcare
services and referred them to local providers.
Nos. 22-3295 & 23-1943                                        3

    The Healthcare Consortium maintained a list of approved
partner organizations, and it made referrals from that list on
a rotational basis. Upon identifying a medical need requiring
outside assistance, the Consortium referred the case to the
next provider on its list. This approach ensured that no
partner received more referrals than others. Vital and
Physician Care were on the Consortium’s provider list.
    In December 2010 Sayeed devised a scheme to bypass the
Consortium’s referral process by directly soliciting its clients
for additional services. That same month his company MPI
signed a Management Services Agreement with the Consor-
tium. On paper, MPI agreed to pay the Consortium $5,000
monthly in exchange for what the arrangement called “man-
agement services” and “administrative advice and counsel.”
In practice, those terms concealed a different purpose.
    Starting in 2010 the Healthcare Consortium gave MPI full
access to its clients’ healthcare data. Two or three times each
week, MPI employees visited the Consortium, reviewed its
questionnaire forms, and recorded seniors’ contact and med-
ical information. MPI then used that information both to iden-
tify and directly solicit Medicare-eligible seniors who might
want or need additional healthcare services. If any seniors
agreed, MPI forwarded their cases to Vital or Physician Care,
which treated them, billed Medicare, and split the fee with
MPI.
   In exchange for this data access, MPI paid the Consortium
$90,000 over 18 months. The payments stopped sometime
around May 2012, but MPI nonetheless continued to mine the
Consortium’s records for potential solicitation opportunities.
From December 2010 to June 2015, Vital and Physician Care
4                                      Nos. 22-3295 & 23-1943

billed the federal government over $700,000 for services pro-
vided to the Consortium’s clients.
                               B
     In November 2012 a watchdog organization called Stop
Illinois Healthcare Fraud sued Sayeed, MPI, Vital, and
Physician Care in federal court in Chicago. It alleged that
Sayeed and his companies violated the federal Anti-Kickback
Statute, 42 U.S.C. § 1320a-7b, by paying the Consortium with
the intent to induce referrals for medical services. By exten-
sion, the organization also alleged that the defendants vio-
lated the federal False Claims Act, 31 U.S.C. § 3729, when they
requested payments from Medicare for services stemming
from an unlawful referral arrangement.
    The district court held a bench trial in July 2019. At the
close of the plaintiff’s case, the court entered judgment in fa-
vor of the defendants under Federal Rule of Civil Procedure
52(c). The court found that Sayeed and his companies had not
violated the Anti-Kickback Statute or False Claims Act be-
cause they had paid the Consortium with the intent to obtain
information, not patient referrals.
    The plaintiff appealed, challenging the district court’s in-
terpretation of a “referral” as unduly narrow. We agreed, con-
cluding that Congress’s “definition of a referral under the
Anti-Kickback Statute is broad, encapsulating both direct and
indirect means of connecting a patient with a provider.” 957
F.3d at 750. We also observed that the defendants’ conduct—
paying to access medical records that it used to solicit new
clients—qualified as a form of indirect referral giving rise to
an unlawful kickback scheme. So we reversed and remanded
Nos. 22-3295 & 23-1943                                            5

for the district court to determine if the evidence supported
such a file-access theory of referral.
                                 C
   On remand the district court denied the defendants’ re-
newed motion for a directed verdict. The court then held a
second bench trial, during which it received new exhibits and
heard additional testimony from Sayeed.
    Trial concluded with the district court finding the defend-
ants liable under both the Anti-Kickback Statute and False
Claims Act. Applying the legal standards articulated in our
prior opinion, the court concluded that Sayeed had paid the
Consortium with the intent to induce referrals in the form of
patient records and had made false representations to the
government by billing Medicare for resulting services. The
court imposed $5,940,972.16 in damages, which it calculated
by trebling the value of the Medicare claims it deemed false
and then adding a per-claim penalty of $5,500. See 31 U.S.C.
§ 3729(a)(1).
   The defendants now appeal, challenging both the dam-
ages award and the underlying finding of liability.
                                 II
    The Anti-Kickback Statute prohibits “knowingly and will-
fully offer[ing] or pay[ing] any remuneration … to any person
to induce such person [] to refer an individual” for a federally
reimbursable healthcare service. 42 U.S.C. § 1320a-7b(b)(2).
Put most plainly, no one may pay another with the intent to
receive a medical referral in return. See Universal Health Servs.,
Inc. v. United States ex rel. Escobar, 579 U.S. 176, 182 (2016); see
also United States v. Borrasi, 639 F.3d 774, 782 (7th Cir. 2011)
6                                        Nos. 22-3295 & 23-1943

(holding that the intent to induce a referral may be one of
multiple motives).
    A medical provider that bills the federal government for
services performed on unlawfully referred patients may also
be liable under the False Claims Act. Indeed, for its part, the
FCA imposes civil liability on “any person who … knowingly
presents, or causes to be presented, a false or fraudulent claim
for payment or approval.” 31 U.S.C. § 3729(a)(1)(A). Courts
have long recognized that claims for payment submitted to
Medicare and Medicaid can be “false or fraudulent” within
the meaning of the FCA if the claimant violated material laws
or regulations when providing the underlying services. See
Escobar, 579 U.S. at 182 (holding that when a Medicaid claim-
ant “omits its violations of statutory, regulatory, or contrac-
tual requirements, those omissions can be a basis for [FCA]
liability if they render the defendant’s representations mis-
leading”); see also United States ex rel. Gross v. AIDS Rsch. All.-
Chicago, 415 F.3d 601, 604 (7th Cir. 2005).
    In 2010 Congress amended the Anti-Kickback Statute to
make this connection explicit: “[A] claim that includes items
or services resulting from a violation of this section consti-
tutes a false or fraudulent claim for purposes of [the False
Claims Act].” 42 U.S.C. § 1320a-7b(g).
                                A
    The defendants contest the district court’s finding that
they “knowingly and willfully” sought to entice the
Consortium to provide referrals—a required element of
anti-kickback liability. See 42 U.S.C. § 1320a-7b(b)(2). They
insist that the district court improperly evaluated Sayeed’s
state of mind based on what he objectively must have
Nos. 22-3295 & 23-1943                                        7

believed rather than what he actually thought. That approach,
the defendants press, violates the longstanding principle that
FCA liability turns on a defendant’s subjective intent—a
principle the Supreme Court most recently acknowledged in
United States ex rel. Schutte v. SuperValu Inc., 143 S. Ct. 1391
(2023).
    The defendants misread the district court’s finding. The
court found that Sayeed “knowingly and willfully induced
HCI to provide referrals … in exchange for a $5,000 monthly
fee.” To arrive at that determination, the court did not limit
itself to what an objectively reasonable person in Sayeed’s po-
sition might have believed. To the contrary, the district court
took care to ground its analysis in Sayeed’s subjective mental
state, pointing to portions of his trial testimony where he
explained his intent to mine the Consortium’s client
healthcare data for solicitation opportunities.
    Nothing about the district court’s analysis conflicts with
Schutte. The Supreme Court in Schutte neither heightened nor
altered the FCA’s requirement that a defendant must subjec-
tively know a claim to be false. The Court simply held that a
defendant who harbors such a subjective belief cannot avoid
liability by arguing that reasonable minds might disagree. See
143 S. Ct. at 1395. That holding does not help Sayeed. Indeed,
it makes it harder—not easier—for him to avoid FCA liability.
The defendants’ reliance on Schutte is misplaced.
    At its bottom, then, Sayeed’s argument amounts to noth-
ing more than a plea to relitigate the question of intent. We
decline the invitation. Fraudulent intent is a factual finding
subject to reversal only if we are “left with the definite and
firm conviction that a mistake has been committed.” Freeland
v. Enodis Corp., 540 F.3d 721, 733 (7th Cir. 2008) (quoting
8                                       Nos. 22-3295 & 23-1943

Anderson v. City of Bessemer City, 470 U.S. 564, 573 (1985)). Our
review of the record belies any such conviction. Sayeed testi-
fied at trial that he had spent over three decades in the
healthcare industry and knew full well that it was “illegal to
buy protected health information.” The district court commit-
ted no error in finding that he and the other defendants know-
ingly and willfully violated the Anti-Kickback Statute and, by
extension, the False Claims Act.
                               B
    Sayeed next asks us to reverse the liability finding because
his conduct qualified for a regulatory safe harbor in 42 C.F.R.
§ 1001.952(d). That provision establishes that payments made
pursuant to certain types of personal-services and manage-
ment contracts do not violate the Anti-Kickback Statute.
Sayeed contends that MPI’s contract with the Consortium
falls within that safe harbor and therefore cannot form the
 basis for his liability. We disagree.
   Under § 1001.952(d), a contract must satisfy six require-
ments to qualify for the protection of the safe harbor. We need
not catalog each because MPI’s contract with the Consortium
unquestionably fails the second requirement: any qualifying
contract must “cover[] all of the services the agent provides to
the principal for the term of the agreement and specif[y] the
services to be provided.” Id. § 1001.952(d)(1)(ii).
    The defendants’ agreement neither “covered” nor “speci-
fied” all the services that the Consortium provided to MPI.
Sayeed explicitly acknowledged as much during his trial tes-
timony, stating that his agreement with the Consortium per-
mitted MPI to access its medical records and directly solicit
clients. The written contract made no reference to such data
Nos. 22-3295 & 23-1943                                              9

mining or client solicitation, rendering it ineligible for safe-
harbor protection under § 1001.952(d).
   We affirm the district court’s finding of liability as to all
defendants.
                                 III
   The defendants separately challenge the district court’s
damages award, arguing that it is constitutionally excessive
under the Eighth Amendment and improperly divorced from
the actual loss incurred by the government. We address each
argument in turn, after first outlining the statutory basis for
the district court’s damages calculation.
                                 A
    The False Claims Act requires violators to pay three times
the total loss sustained by the government “because of” their
false claim(s). 31 U.S.C. § 3729(a)(1). The FCA further imposes
a civil penalty between $5,000 and $10,000 for each claim,
adjusted for inflation. See id.; see also Vermont Agency of Nat.
Res. v. United States ex rel. Stevens, 529 U.S. 765, 769 (2000) (stat-
ing that the penalty applies to each discrete payment claim
submitted in the course of a fraud scheme). Given the date of
Sayeed’s offense conduct, his inflation-adjusted penalty range
was $5,500–$11,000. See 31 U.S.C. § 3729(a)(1); 28 C.F.R.
§ 85.3(13).
    The district court approached the damages analysis by
first determining the number and amount of false claims that
the defendants submitted to the government. To do so, it re-
lied heavily on a spreadsheet that listed 673 requests for
Medicare payment submitted by the defendants Vital and
Physician Care between December 13, 2010 and June 3, 2015.
The defendants produced this spreadsheet—referred to as
10                                       Nos. 22-3295 & 23-1943

Plaintiff’s Exhibit 9 at trial—in response to an interrogatory
that asked for a full breakdown of the Medicare claims they
submitted for services provided to clients of the Consortium.
    The district court found that every claim included on the
plaintiff’s spreadsheet was false, reasoning that each was sub-
mitted after the date on which MPI began mining Consortium
data. It then tripled the total claim amounts listed on the
spreadsheet and applied the minimum $5,500 per-claim pen-
alty required under the FCA. That led the court to impose
$3,174,821.58, jointly and severally, against Sayeed, MPI, and
Vital—and $2,766,150.58, jointly and severally, against
Sayeed, MPI, and Physician Care.
                                B
   The defendants attack the nearly $6 million judgment as
unconstitutionally excessive under the Eighth Amendment.
We view it differently.
    The Excessive Fines Clause of the Eighth Amendment
“limits the government's power to extract payments … as
punishment for some offense.” Austin v. United States, 509 U.S.
602, 609–10 (1993) (cleaned up). “[C]ivil sanctions can consti-
tute punishment, and therefore are subject to the limitations
of the Excessive Fines Clause, if they serve, at least in part,
retributive or deterrent purposes.” Towers v. City of Chicago,
173 F.3d 619, 624 (7th Cir. 1999) (citing Austin, 509 U.S. at 610).
“[P]urely remedial sanctions are not subject to Eighth
Amendment scrutiny.” Grashoff v. Adams, 65 F.4th 910, 916
(7th Cir. 2023).
    Our court has not resolved whether the Eighth Amend-
ment applies to civil penalties under the FCA. In United States
v. Rogan, 517 F.3d 449 (7th Cir. 2008), we voiced skepticism,
Nos. 22-3295 & 23-1943                                        11

observing that punitive damages—to which the FCA’s tre-
bling provision is often compared—are not “fines” under the
Eighth Amendment and that FCA liability does not constitute
criminal punishment for purposes of the Double Jeopardy
Clause. Id. at 453–54 (citing Browning-Ferris Indus. of Vermont,
Inc. v. Kelco Disposal, Inc., 492 U.S. 257 (1989) and Hudson v.
United States, 522 U.S. 93 (1997)).
    This case does not require us to resolve whether a civil
damages award under the FCA constitutes “punishment”
within the meaning of the Eighth Amendment. Even if we
reached that issue and agreed with the defendants, the fines
levied against them would not be unconstitutionally
excessive.
   To violate the Excessive Fines Clause, a penalty must be
“grossly disproportional to the gravity of the defendant’s of-
fense.” United States v. Bajakajian, 524 U.S. 321, 334 (1998). In
evaluating proportionality, we focus on four factors:
       (1) the essence of the offense and its relation to
       other criminal activity; (2) whether the defend-
       ant fit into the class of persons for whom the
       statute was principally designed; (3) the maxi-
       mum sentence and fine that could have been im-
       posed; and (4) the nature of the harm caused by
       the defendant’s conduct.
United States v. Malewicka, 664 F.3d 1099, 1104 (7th Cir. 2011)
(citing Bajakajian, 524 U.S. at 337–39).
    The $6 million judgment entered by the district court eas-
ily satisfies the proportionality test. Sayeed and his compa-
nies defrauded the federal government for years, seizing a
disproportionate share of Medicare funds by concealing
12                                      Nos. 22-3295 & 23-1943

unlawful kickbacks. See Malewicka, 664 F.3d at 1104 (empha-
sizing that a fraud scheme was “extensive” and “required sig-
nificant planning” when upholding a damages award under
the Excessive Fines Clause). In doing so, the defendants
extracted undue gains from the Medicare program, required
the government to “spend time and resources investigating
[the] fraud,” and “undermine[d] the integrity of the fund and
the public’s faith in the state’s ability to administer it effi-
ciently and fairly.” Grashoff, 65 F.4th at 920. Their conduct dif-
fered sharply from that in Bajakajian, where the Supreme
Court reversed a fine as unconstitutionally excessive because
“[t]here was no fraud on the United States” or “loss to the
public fisc.” 524 U.S. at 339.
    By any measure, Sayeed’s actions “affected more than just
[him]self and the government.” Malewicka, 664 F.3d at 1104.
The defendants accessed the private health information of
hundreds of vulnerable seniors in Illinois without their
permission and exploited their records for profit through
unsolicited marketing calls. These harms, which are not
explicitly captured in the FCA’s loss calculation, further sup-
port the district court’s damages award. By no means was this
victimless fraud.
    The challenged fine, while high in absolute terms, also
falls squarely within the boundaries set by Congress.
Decisions “about the appropriate punishment for an offense
belong in the first instance to the legislature.” Bajakajian, 524
U.S. at 336. Indeed, the law recognizes “a strong presumption
of constitutionality where the value of a forfeiture falls within
the fine range prescribed by Congress.” Malewicka, 664 F.3d at
1106. Such a range “reflect[s] the considered legislative
Nos. 22-3295 & 23-1943                                     13

judgment as to what is excessive, and a court should be hesi-
tant to substitute its opinion for that of the people.” Id.
    The district court respected Congress’s assessment of the
severity of the defendants’ offense conduct by faithfully ap-
plying the damages formula in 31 U.S.C. § 3729(a). In fact,
$6 million reflected the lowest amount permitted under the
FCA, given the number and amount of false claims that the
district court found that the defendants submitted to the
Medicare program. The court ultimately decided to impose
the lowest per-claim penalty available under the statute, even
though the FCA permitted up to double that amount.
    Put more bluntly, the defendants could have fared much
worse given the seriousness and persistence of their fraudu-
lent scheme. In Bajakajian, the Supreme Court emphasized
that the defendant’s false claims were “unrelated to any other
crime” and described that fact as “highly relevant to the de-
termination of the gravity of [his] offense.” 524 U.S. at 337
n.12. Not so here. At the time of Sayeed’s offense, the
Anti-Kickback Statute imposed both civil fines and criminal
sentences—up to five years’ incarceration and potential per-
manent exclusion from federal healthcare programs. See 42
U.S.C. §§ 1320a-7(b)(7), 1320a-7b (2003). Though the defend-
ants never faced a federal indictment, the criminal sanctions
available for their conduct provide “relevant evidence of leg-
islative judgments about the seriousness of the offense” that
inform our Eighth Amendment analysis. See Grashoff, 65 F.4th
at 919. Given the gravity of the defendants’ kickback
scheme—as reflected by Congress’s decision to prescribe
criminal penalties for such conduct—we do not consider the
district court’s damages award to be constitutionally
excessive.
14                                       Nos. 22-3295 & 23-1943

                                C
    Next comes defendants’ narrower challenge to the amount
of damages. Setting constitutional considerations aside, they
argue that the district court erred by characterizing the gov-
ernment’s loss as the sum of all Medicare claims included in
the plaintiffs’ loss spreadsheet—whether or not the claims ac-
tually resulted from their illegal kickback scheme. On appeal
the defendants insist that the Consortium continued to law-
fully refer patients to MPI while the company mined its
data—and that some of the claims on that spreadsheet
(Exhibit 9 at trial)—derived from those lawful referrals. Dur-
ing oral argument, counsel for the defendants even went so
far as to claim that every claim included on Exhibit 9 derives
from a standard referral rather than from data mining. If
either proposition is true, then the district court’s loss calcu-
lation would be overinclusive.
    Recall that the Anti-Kickback Statute provides that “a
claim that includes items or services resulting from a violation
of this section constitutes a false or fraudulent claim” for pur-
poses of the False Claims Act. 42 U.S.C. § 1320a-7b(g) (empha-
sis added). The phrase “resulting from” requires that there be
some causal nexus between the allegedly false claims and the
underlying kickback violation. It is not enough to show that a
defendant both engaged in unlawful kickbacks and submit-
ted false claims. The latter must “result[] from” the former.
This means that, at a minimum, every claim that forms the
basis of FCA liability must be false by virtue of the fact that the
claims are for services that were referred in violation of the
Anti-Kickback Statute.
    Courts have articulated this causation requirement in
different terms. The Sixth Circuit, for instance, has interpreted
Nos. 22-3295 & 23-1943                                          15

§ 1320a-7b(g) to require but-for causality—a showing that a
defendant would not have submitted a payment claim had he
not engaged in an unlawful kickback. See United States ex rel.
Martin v. Hathaway, 63 F.4th 1043, 1054–55 (6th Cir. 2023). The
Third Circuit, on the other hand, has adopted a more permis-
sive reading, concluding that a plaintiff need only demon-
strate that a defendant “sought reimbursement for medical
care that was provided in violation of the Anti-Kickback
Statute.” See United States ex rel. Greenfield v. Medco Health
Sols., Inc., 880 F.3d 89, 98 (3d Cir. 2018); see also United States
ex rel. Kester v. Novartis Pharmas. Corp., 41 F. Supp. 3d 323, 332–
35 (S.D.N.Y. 2014) (rejecting the but-for causation standard).
    This case does not require us to determine whether
§ 1320a-7b(g) requires a showing of but-for causality or some-
thing less. If Sayeed and his companies provided services to
clients of the Consortium after MPI signed the data-mining
agreement—and if the Consortium never referred those cli-
ents to the defendants through its standard rotational sys-
tem—then even the strictest causal test would be satisfied.
Any such services would necessarily result from the kickback
scheme because, without mining the Consortium’s data, the
defendants would not have provided services to those
patients. If, on the other hand, the defendants provided ser-
vices to patients that the Consortium assigned to the defend-
ants through its ordinary-course referral process, then Medi-
care claims for those services would bear no causal connection
to the data-mining scheme.
    All that remains, then, is whether the Consortium offi-
cially assigned any of the patients who appear on the loss
spreadsheet to Vital or Physician Care through its standard
rotational-referral process.
16                                     Nos. 22-3295 & 23-1943

    Our review of the district court’s explanation for its dam-
ages award leaves us uncertain regarding which, if any, of the
patients included on the loss spreadsheet were rotationally
referred to the defendants. The district court approached the
damages question more broadly by concluding that all Medi-
care claims submitted by the defendants for services provided
to Consortium clients after December 1, 2010 (the effective
date of the data-mining agreement) were necessarily false
—regardless of whether they resulted from rotational refer-
rals. The district court stated that “even if some referrals
stemmed from the ordinary referral process … every claim
submitted to the government after defendants began provid-
ing [the Consortium] with payments violated the False
Claims Act” because “MPI had a unique relationship with
[the Consortium] that pervaded every referral sent.” That
broad suggestion—that every claim for payment following an
anti-kickback violation is automatically false regardless of its
origin—is inconsistent with § 1320a-7b(g)’s directive that a
false claim must “result[] from” an unlawful kickback.
    In the final analysis, the record before us shows that the
district court took great care in post-remand proceedings to
ensure that it reached a liability finding consistent with the
broad scope of referrals prohibited by the Anti-Kickback Stat-
ute. But we are not able to determine with confidence whether
any of the services represented in the plaintiff’s loss spread-
sheet were provided to patients lawfully referred to the de-
fendants by the Consortium. We therefore cannot be confi-
dent that Sayeed’s challenge to the $6 million judgment lacks
merit. Our only choice in these circumstances is to return the
case to the district court.
Nos. 22-3295 & 23-1943                                     17

                             IV
    For these reasons, we AFFIRM in part and VACATE in
part, issuing a limited remand solely as to the question of
which claims, if any, on the loss spreadsheet (Exhibit 9) were
for services provided to patients that the Consortium offi-
cially referred to either Vital or Physician Care through its
standard rotational-referral system. Any such claims—and
only such claims—must be excluded from the spreadsheet
when calculating the damages sustained by the government
under 31 U.S.C. § 3729(a)(1).