“Chutzpah” to Appeal a Conviction Where Overwhelming Evidence Established a $31 Million Fraud
“Chutzpah” is Yiddish for “unmitigated gall.” It has been defined as a request for mercy from a defendant convicted of murdering his parents because he is an orphan.
In United States Of America v. Patrick Tonge, Serge Francois, No. 18-11165, United States Court of Appeals, Eleventh Circuit (November 22, 2021) the defendants asserted a series of spurious claims on appeal of their conviction for running a fraudulent conspiracy and scheme to defraud government sponsored health insurance programs. Patrick Tonge and Serge Francois were convicted of federal crimes arising out of their work at Atlantic Pharmacy & Compounding, a Florida pharmacy that collected over thirty-one million dollars in fraudulent claims from federal insurance programs.
The defendants’ convictions, and thus these appeals, begin and end with Atlantic Pharmacy, a pharmaceutical business that manufactured and sold custom medications. Serge Francois opened Atlantic in 2009, owned the business, and was the pharmacist-in-charge. Atlantic’s business operations largely involved non-sterile compounding, specifically the creation of compound prescription creams (“CPCs”) from scratch using various raw materials. Francois hired Patrick Tonge, his former used car dealer and personal trainer, to manage Atlantic’s CPC business, despite Tonge having no pharmaceutical training. In total, Atlantic collected over thirty-one million dollars in claims for CPCs from TRICARE and the Federal Employee Health Benefits Program (“FEHBP”), two federal insurance programs.
The government alleged that Tonge and Francois stole millions of dollars from federal healthcare programs by
- making misrepresentations about Atlantic that allowed the pharmacy to obtain access to federal insurance networks;
- filing fraudulent claims based on invalid CPC prescriptions; and
- paying illegal kickbacks to “marketers” who then paid doctors and patients to fuel Atlantic’s CPC business.
The jury returned a verdict convicting Tonge and Francois of many of the charged offenses while acquitting each defendant of at least some counts.
Atlantic’s Misrepresentations to Gain Admission to a Federal Insurance Networkand Obtain a DEA Registration
TRICARE and the FEHBP contracted with a pharmacy benefit manager, Express Scripts International, to establish a network of healthcare providers for use by the programs’ beneficiaries. Membership in Express Scripts’s network was a requirement for submitting a claim to either TRICARE or the FEHBP. In obtaining these privileges for Atlantic, Francois made substantial misrepresentations to Express Scripts and the DEA. If Francois had been truthful, Express Scripts would never have credentialed Atlantic as an in-network provider, walling it off from TRICARE and FEHBP claims.
Francois also lied during Atlantic’s DEA registration by asserting that his DEA license had never been suspended when in fact, it had been. Were it not for this lie, the DEA would have never granted Atlantic a registration allowing the pharmacy to fill and dispense CPC prescriptions involving controlled substances.
Atlantic’s Fraudulent CPC Business
To receive payment from Express Scripts on any given claim, an in-network pharmacy had to satisfy two requirements: (1) the prescription underlying the claim had to be valid and (2) the patient had to have been charged a co-payment. For a prescription to be valid, a physician had to have examined the patient, the prescription needed to have been medically necessary, and the pharmacy needed to have been licensed in the patient’s home state. Although Francois and Tonge processed, certified, and submitted Atlantic’s CPC claims to Express Scripts, those claims systematically failed to meet either requirement.
Over the life of the business, Atlantic contracted with several different “marketers” to promote its CPCs: DIRIV, PGRX, and RX.
Atlantic’s Attempts to Conceal its Fraud
Perhaps unsurprisingly, many patients contacted Atlantic to try to return medications that they knew nothing about and neither needed nor wanted. To minimize losses from repayment obligations and conceal the number of attempted returns, Francois and Tonge adopted a policy to try to convince reluctant patients to keep their CPCs. Francois directed Tonge and another Atlantic employee, Amanda Lee, to tell patients that their medications were free because Atlantic was not charging any co-payment. Tonge knew that co-payment reduction policies violated federal law because he had written himself an email explaining as much. Francois also lied to investigators during their search of Atlantic’s offices. Tonge deleted emails from an account he used to conduct pharmacy business when it became clear that Atlantic was under suspicion.
Tonge and Francois challenge their convictions on a number of grounds, some raised by both defendants and some only by Francois.
The court concluded that Counts One through Thirteen were sufficient as a matter of law because it used language nearly identical the anti-kickback statute almost word for word. In addition, Counts Fifteen through Nineteen charted relevant information for each Count, including the approximate date and amount of the charged kickback payments. Therefore, the indictment was legally sufficient and that the district court did not abuse its discretion by declining to grant Francois’s motion to dismiss.
Because none of the challenged remarks were misconduct and the district court properly addressed Francois’s witness intimidation allegations, the district court did not plainly err.
Even if the prosecution’s remarks had been improper, they would not have been reversible error because they did not prejudice Francois’s substantial rights. On balance, three isolated remarks, largely cumulative of other properly admitted evidence, cannot be said to have “permeated the entire atmosphere” of a lengthy jury trial on plain error review.
The Jury Instructions
The district court’s jury instruction accurately conveyed the requisite criminal state of mind under the U.S. Courts’ healthcare fraud precedents. The district court did not abuse its discretion in denying Tonge and Francois’s proposed modifications to the pattern jury instruction.
Sufficiency of the Evidence
Because the government presented overwhelming evidence that both defendants were knowing and willful participants in a complex scheme to defraud federal insurance programs by paying healthcare kickbacks the court concluded the evidence at trial was more than sufficient.
Circumstantial evidence alone can prove agreement, including where the circumstances surrounding a person’s presence at the scene of conspiratorial activity are so obvious that knowledge of its character can fairly be attributed to him and the defendant commits acts in furtherance of the conspiracy.
Each claim to TRICARE or the FEHBP had to satisfy three requirements:
- the claim had to come from an in-network pharmacy;
- the beneficiary had to be charged a co-payment; and
- the underlying prescription had to be valid, meaning that the prescribing physician must have examined the patient, the prescription must have been medically necessary, and the patient must have received the prescription in a state where the pharmacy was licensed to do business.
Although none of Atlantic’s CPC claims satisfied these requirements, Francois and Tonge’s misrepresentations enabled it to collect over thirty-one million dollars in claims based on fraudulent prescriptions. Throughout their time at Atlantic, Tonge and Francois took numerous steps to minimize their losses and conceal their fraud. Atlantic implemented a policy to convince troubled patients that they should keep the medications Atlantic had sent them by waiving mandatory co-payments. Tonge knew that this practice was illegal and made a written record memorializing that knowledge but participated in the scheme regardless.
Despite the defendants’ attempts at concealment, the fraud at Atlantic was open and obvious.
Multiple employees understood that something was rotten in South Florida, and at least one pharmacist quit rather than be party to what he viewed as obviously criminal conduct. Finally, Francois testified that he did not know that the claims were false or that Atlantic was paying kickbacks. The jury was within its rights to disbelieve his testimony as to both assertions. The jury received sufficient evidence to convict Tonge and Francois on each of the challenged counts.
Perhaps because, for years, the defendants defrauded the government for amounts exceeding $32 million they had the funds to appeal their convictions. However, the Eleventh Circuit saw the appeal to be nothing more than “chutzpah” and disposed of the multiple charges of error with alacrity. It is essential that these conspirators who take advantage of innocent people entitled to TRICARE and Medicare benefits to prevent the defendants to profit from their crime. Their conviction was affirmed and they will, hopefully, serve their full sentences and make restitution to the government.
© 2021 – 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 54 years in the insurance business.
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He is available at http://www.zalma.com and email@example.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 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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