No Harm, No Foul When Instruction Error Favorable to Defendant

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Podiatrist Jailed for Participation in Kickback Scheme Prescribing Compounded Medications Solely to Obtain Kickbacks

Dr. Alap Shah was convicted of participating in a Kickback scheme where he was paid for prescribing expensive compounded medications in United States Of America v. Alap Shah, No. 19-12319, United States Court Of Appeals For The Eleventh Circuit (November 24, 2020). He appealed the conviction based on what he and the government admitted was an erroneous instruction to the jury.

At the request of the government, the district court instructed the jury that Dr. Alap Shah violated the statute prohibiting kickbacks if one reason he accepted the payment was because it was in return for writing prescriptions. In his written briefs on appeal, Shah argued that the district court erred and should have instructed the jury that the government was required to prove that his main or only reason for accepting the payment was because it was made in return for writing prescriptions.

Both parties agreed at oral argument that the jury instruction was erroneous and that the statute requires no proof of the defendant’s motivation for accepting the illegal payment, so long as he accepts the kickback knowingly and willfully. The Issue presented to the Eleventh Circuit was whether the instruction prejudiced Shah.

BACKGROUND

Dr. Alap Shah was a podiatrist in Columbus, Georgia. He sometimes prescribed compounded medicines to his patients. Compounded medicines are custom-formulated drugs that can vary from off-the-shelf drugs in strength, delivery method, or combinations. For example, a compounded medicine might be a cream that combines three pain-reducing drugs ordinarily produced in pill form at a lower strength than available off the shelf. Specialized pharmacies produce compounded medicines, which are much more expensive than off-the-shelf prescription medications. A single tube of a compounded cream can cost $15,000 or more.

Shah and about 20 others participated in a kickback conspiracy that involved writing prescriptions for compounded drugs. Each of them faxed prescriptions for compounded drugs to a company called PGRx Group, which in turn directed a compounding pharmacy to fill the prescriptions. The pharmacy paid PGRx Group a kickback, usually around 50 percent of its profits, for each prescription PGRx Group referred to it. PGRx Group passed part of that kickback on to the prescribing doctor.

Shah received his share of the profits as a flat monthly payment of $5,000. PGRx Group disguised the nature of the payments by hiring the doctors to be “medical directors,” by calling the payments speaker fees for promoting PGRx Group and compounded drugs at professional events, and by routing payments to the prescribing doctors’ family members or employees.

Shah joined the conspiracy in May 2014 after being recruited by its masterminds, Paul Meek and Gary Small. Meek and Small offered him $5,000 each month for his participation.  Shah corrected a typo in the contract  from PGRx before signing it. The contract provided Shah’s duties as a medical director included performing on-site supervision and training, management, and administrative responsibilities. And the contract required PGRx Group to provide Shah with office space in its facility. Shah performed none of his duties under the contract. he did not even know where PGRx Group was located. And PGRx Group never provided him with office space. Regardless, PGRx Group always paid Shah $5,000 a month.

Shah prescribed compounded medications far more often after he signed the contracts with PGRx Group than before he signed the contract. At trial, Shah nevertheless insisted that he never wrote a prescription that a patient did not need.

Tricare, a federal program for members of the military and their families, paid for many of the prescriptions Shah wrote. It reimbursed at a higher rate than other insurance companies.  Shah continued in this role until around May 2015, when Tricare made the conspiracy less profitable by instituting a prior-authorization requirement for compounded drugs. All told, he received checks from PGRx Group totaling $55,350.43. The prescriptions he wrote during the conspiracy cost Tricare more than a million dollars.

Shah’s closing argument focused on mens rea and the good-faith defense. He began by telling the jury that “[t]he case is about whether Dr. Shah acted willfully.” The jury convicted Shah. The district court sentenced him to 36 months of incarceration on each count, to run concurrently, and ordered him to pay $55,340 in restitution.

DISCUSSION

The statute on which he was convicted says nothing about the defendant’s motivation for accepting the payment. The text does not require proof of a defendant’s “purposes in soliciting or receiving” a payment. The statute’s key phrase—”remuneration . . . in return for [writing Tricare prescriptions]”—says nothing about the reasons the defendant accepted the payment. The Eleventh Circuit found no reason to stretch that phrase into a description of the defendant’s mental state. Congress specified the necessary mental state by requiring that the defendant must accept the payment “knowingly and willfully.”

To act “corruptly” means to act knowingly and dishonestly for a wrongful purpose. In the same way, the phrase “in return for” speaks to the nature of the payment, not Shah’s reasons for accepting it.The payor crime, which prohibits “knowingly and willfully offer[ing] or pay[ing] any remuneration . . . to induce” the same set of enumerated activities, prohibits payments that are meant by the payor to induce one of the enumerated actions. Motive matters for the payor crime even though it does not for the Dr. Shah’s payee crime.

The district court erred by instructing the jury that the government had to prove Shah accepted the payments at least in part because they were made in return for the prescriptions he wrote. No such proof was required. The government met its burden of proving beyond a reasonable doubt that the error did not harm Shah. The erroneous instruction required the government to prove more than the statute required, so if anything, the error worked to Shah’s advantage.

The district court correctly instructed the jury about the burden the government bore in proving willfulness. And it correctly instructed the jury that Shah committed no crime if he accepted the payments in good faith.

Shah’s own closing argument focused on the mens rea requirements and the good-faith instruction. Adding an unnecessary “one purpose” instruction could not have prejudiced Shah by detracting from the otherwise correct willfulness and good-faith instructions. In the absence of any prejudice to Shah, the conviction was affirmed.

ZALMA OPINION

This is a classic case of a convicted criminal claiming that his conviction should be reversed because of an erroneous instruction. The problem for Dr. Shah was that the erroneous instruction placed a higher burden on the prosecution than a correct instruction. The jury convicted him because the government proved his criminal conduct beyond a reasonable doubt even though the erroneous instruction made the job of proving the crime more difficult. No harm, no foul, go directly to jail and do not collect $200.00.


© 2020 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 52 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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