The opinion of the court was delivered by: Darrah, District Judge.
This matter comes before the Court for ruling after a bench trial on a civil complaint filed by the Government against Defendant, Peter Rogan, alleging violations of the False Claims Act ("FCA"), 31 U.S.C. § 3729, and common-law claims. The Government claims that Rogan individually and in a conspiracy with others violated the FCA by presenting Medicare and Medicaid claims for patients referred to Edgewater Medical Center ("Edgewater") by co-conspirators, Drs. Ravi Barnabas and Andrew Cubria from 1995 to 2000.
The Court has considered the evidence, including the exhibits and the testimony of witnesses, and has further considered the final oral and written arguments, proposed findings of fact and conclusions of law and the authority cited therein submitted by the parties. In evaluating the accuracy and truthfulness of each of the witnesses, the Court considered, among other things: the ability and opportunity the witness had to see, hear, or know the things about which the witness testified; the witness's memory; any interest, bias, or prejudice the witness may have; the witness's intelligence; the manner of the witness while testifying; and the reasonableness of the witness's testimony in light of all the evidence in the case and whether or not and to what extent a witness's testimony was impeached.
Pursuant to Federal Rule of Civil Procedure 52, the Court enters the following Findings of Fact and Conclusions of Law based upon consideration of all admissible evidence and the Court's own assessment of the credibility of the witnesses. To the extent, if any, that Findings of Fact, as stated, may be considered Conclusions of Law, they shall be deemed Conclusions of Law. Similarly, to the extent, if any, that Conclusions of Law, as stated, may be considered Findings of Fact, they shall be deemed Findings of Fact. The Decision section of this Opinion and Order, for purposes of clarity, contains some reference to law and facts. To the extent, if any, that any part of the Decision may be considered Findings of Fact or Conclusions of Law, they shall be so deemed.
Rogan has been involved in the field of healthcare and hospital administration for the past 32 years. He has a Master's Degree in Health Administration from St. Louis University and a Ph.D in Hospital and Health Administration from the University of Iowa. Rogan began his career in 1974, working for Ernst & Whitney, a major accounting and consulting firm, where he became a principal. While at Ernst, Rogan did consulting work for various hospitals in the Chicago area, including Northwestern, Children's Memorial, Michael Reese, and Edgewater. In 1983, Rogan became the CEO of St. Anthony's Hospital in Crown Point, Indiana. In 1986, Rogan left St. Anthony's and formed a company called Interhealth. While at Interhealth, Rogan provided consulting services to Edgewater, a teaching hospital located at 5700 North Ashland Avenue in Chicago, Illinois. Edgewater was in financial trouble at this time, and Rogan provided Edgewater consulting services regarding its financial situation.
In 1989, Rogan created Edgewater Operating Company ("EOC"); and EOC purchased Edgewater for a million dollars in cash and assumed the stated liabilities.
In 1992, Rogan developed a plan to sell Edgewater to a 501(c)(3) organization, a management company (which would be owned, in part, by Rogan) that would manage and administer Edgewater. Rogan would serve ostensibly as a salaried employee of the management company and would serve as the CEO of Edgewater.
In August 1994, EOC was sold to a 501(c)(3) organization, Northside Operating Company. Northside was created purposely-by its parent company, a California-based company called Permian, whose CEO was Scott Gross-for the purchase of EOC. Rogan and the other shareholders of EOC received $31.1 million from the sale of Edgewater. Of the sale proceeds, $9,268,619 retired various financial obligations. Rogan received $17,371,421 as a shareholder; the remaining shareholders were trusts in the name of Rogan's children, who received $4,099,960. The shareholders also received a subordinated note from Northside worth $4,000,000.
After the sale, Braddock Management, L.P. ("Braddock L.P."), a California-based limited partnership, was created to operate Edgewater. Rogan became an "employee" of Braddock L.P. and the CEO of Northside d/b/a Edgewater, pursuant to management contracts between Braddock L.P. and Northside from 1994-2001.*fn1 These contracts provided that Braddock L.P. would act as the exclusive manager of the day-to-day operations of the hospital, which included the submission of claims to Medicare and Medicaid for services rendered to patients, and would supervise and manage all billings, collections, cost reporting, and other financial matters related to the hospital's operation.
Braddock L.P. was compensated pursuant to the management contracts with Edgewater by a monthly fixed-fee payment and a payment based on a percentage of the hospital's "net patient-service revenue." Net patient-service revenue was tied to the number of patient admissions to Edgewater and was essentially a commission-based payment. There was a cap on the total amount of money that could be paid to the management company. Once the cap was met, the management fees would not increase. The capped fee was reached only in 1995 and 1996.
Rogan had a direct financial interest in maximizing the management fees Braddock L.P. earned from Edgewater as Rogan and his family effectively owned and controlled Braddock L.P. between 1995 and at least March 2000. Rogan's ownership interest was concealed through an elaborate scheme of inter-locking financial entities owned by Rogan, Rogan's children, and other entities owned by Rogan as follows. In 1994, Braddock L.P. was controlled by a general partnership with Waldo Point Management ("Waldo"). Beginning in 1995, Rogan was the president of Waldo Point Management. Rogan also had a special proxy and power of attorney from Waldo Point's sole shareholder, Scott Gross (who was also the CEO of Permian, Northside's parent company), which provided for the effective transfer of control of Braddock L.P. to Rogan as of August 17, 1994. Rogan also had an option to purchase all of Waldo's shares from Gross at any time.*fn2
Bainbridge L.P.'s limited partner was Boulevard Management, L.P. In 1995, Rogan, through Boulevard Management, L.P., another entity owned by Rogan, purchased a 99 percent limited-partnership interest in a company called Braddock Management, Inc. ("Braddock, Inc.") (which should be distinguished from the Braddock Management, L.P. that managed Edgewater). In October 1998, Rogan became the president of Braddock, Inc., f/k/a Waldo Point Management and became the general partner of Braddock L.P. Rogan and his children's trusts owned 100 percent of the shares of Braddock, Inc., f/k/a Waldo Point Management. Later, Bainbridge Management, Inc., f/k/a Braddock, Inc., f/k/a Waldo Point Management (as distinct from Bainbridge Management, L.P.) became the general partner of Braddock L.P. Rogan was the president, secretary, and director of Bainbridge, Inc. The sole shareholder of Bainbridge, Inc. was the Peter Rogan Revocable Trust, of which Rogan was the trustee. This partnership structure remained in effect until at least 2001.
Rogan's purchase of the limited partnership interest in Braddock, Inc. entitled Rogan and his children to 99 percent of the management fees that Braddock L.P. earned at Edgewater. Between 1995-2000, Braddock L.P.'s distribution to Rogan and his family totaled over $9.5 million. Over the years, Rogan assigned shares of his limited partnership interest in Braddock to trusts located in the United States and Belize for the benefit of his children. As of July 1997, 90 percent of the profits from Braddock L.P. flowed to Rogan's children's domestic and Belizean trusts. As of July 6, 1999, Rogan, his children's domestic and Belizean trusts, and entities owned by Rogan and his family were receiving at least 99 percent of Braddock L.P.'s partnership distributions. An entity owned by Rogan's family, Boulevard Investors of Belize, retained its 99 percent share in Braddock L.P. (later d/b/a Bainbridge L.P.) through at least March 2000.
Rogan further concealed his financial interest in Braddock L.P. and Edgewater when he was CEO of Edgewater. On June 11, 1996, Edgewater's auditors, Ernst and Young, sent Rogan a letter, requesting information on Edgewater's relationship with Braddock L.P. The letter asked Rogan to provide written representation of, among other things, Braddock L.P.'s "ultimate ownership." In a July 9, 1996 letter responding to Ernst and Young's query, Rogan represented that "no officer, director or employee of Permian, Vista, or Northside or related entity has any ownership, control, or financial interest in Primus, Braddock, or any entity related to Primus or Braddock."*fn3 Rogan was the Chief Executive Officer of Northside (d/b/a/ Edgewater) at the time he represented that no "officer" of Northside had any ownership interest in Braddock L.P. In a separate letter sent on July 22, 1996, Rogan represented that information concerning Braddock L.P.'s ultimate ownership/ beneficial interest was "not available." A partnership that Rogan owned and controlled, Boulevard Management, L.P., owned 99 percent of Braddock L.P. at the time Rogan answered the letters.
Further, at trial, Rogan initially testified falsely as to his interest in Braddock L.P., stating that he sold his interest in Braddock L.P. by 1996, for $5,000,000. Rogan also denied knowing anything about the trusts that his personal attorney had set up for Rogan's three children in Belize but later acknowledged that, as of a certain point, 90 percent of Braddock's profits were flowing to his children's domestic and Belizean trusts. Rogan also denied having had the option to purchase the general-partnership interest (1 percent of the total interest) in Braddock, Inc. from Gross at any time, despite documentary evidence showing that he held that interest.
In addition to the management fees, during his tenure as CEO, Rogan received a salary and bonuses from Braddock L.P., the cost of which were passed through to the hospital. In 1996, Rogan received a salary of $183,336 and a bonus of $100,000 from Braddock L.P. All of Edgewater's senior management were Braddock L.P. employees from approximately 1995 to 2000. Compensation for these Braddock L.P.'s Edgewater-based employees-including salaries, bonuses, and fringe benefits-was reimbursed by Edgewater separately. Therefore, management fees paid to Braddock L.P. were distributed entirely to Braddock L.P.'s owners and were not used to compensate Braddock L.P.'s hospital-based employees.
Rogan served as the CEO of Edgewater from 1994 until the Fall of 1997, when he relinquished the title of CEO;*fn4 but he actually maintained control of Edgewater thereafter. Rogan had a very "hands-on" approach and was a "micromanager" regarding issues that influenced revenue, particularly recruiting primary care physicians and patient admissions and in finance matters (billing and collecting). Rogan regularly discussed physician-recruiting with Roger Ehmen, the Vice President of Medical Staff Development, Marketing, and Public Relations. Rogan knew that hospital contracts with primary care physicians, such as internists or family practitioners, generally coordinate the overall care of the patient and decide where their patients are to be hospitalized. Rogan believed that a contract between Edgewater and these physicians was an effective tool for recruiting physicians to practice at Edgewater and, hence, increase patient admissions and revenue. In contrast to these factors that drove revenue, Rogan had a very "hands-off" approach in matters involving quality assurance and improvement and was not particularly involved in marketing activity.
Ehmen joined Edgewater in 1977 as the Director of Medical Records, became Edgewater's Director of Medical Administration in 1982, and the Vice President of Medical Staff Development, Marketing, and Public Relations in 1989. Ehmen had no authority to execute physician contracts for Edgewater and consulted with Rogan for all major decisions on physician recruiting and proposed physician contracts. Ehmen also had no authority to authorize other hospital payments to physicians. Rogan's signature was required for all hospital disbursements to physicians other than those paid pursuant to a contract with the hospital.
Rogan regularly reviewed physician-patient admission statistics and discussed the statistics with Ehmen. Rogan also received and reviewed with Ehmen weekly "flash" reports that contained information related to the inpatient census, the number of patient admissions on a daily basis.
Henry Zeisel served as Edgewater's controller between 1994 and 1997, became Vice President of Finance in 1997, and Senior Vice President of Finance and Chief Financial Officer at Edgewater in 1998 until 2001. He met with Rogan two to three times per week, and Rogan would regularly have questions about the weekly reports. These reports included admissions information, how much cash Edgewater had received and paid to vendors, and payroll data. Rogan was Zeisel's direct supervisor at all times, and Zeisel reported directly to Rogan on all financial matters from 1994 through at least 2000.
In the early 1990s, while at Edgewater, Rogan entered into a conspiracy with Ehmen and Drs. Barnabas, Cubria, and others to provide kickbacks and engage in improper financial relationships in return for patient referrals. This conspiracy, in turn, generated patient admissions, which resulted in substantial profits to Rogan. The conspiracy was evident in the early 1990s, although the Government's claims are based on Medicare and Medicaid claims by Barnabas and Cubria submitted from 1995 to 2000.
Barnabas had completed a residency in internal medicine at Edgewater in 1985 and entered private practice in the late 1980s. By the early 1990s, Barnabas seldom referred patients to Edgewater and referred patients to Methodist Hospital and Illinois Masonic Hospital, both competitors of Edgewater. Ehmen had unsuccessfully tried to recruit Barnabas to Edgewater.
In 1993, Barnabas approached Ehmen and suggested that Ehmen recruit a surgeon named Dr. Antonio Ramos, whose patients Barnabas had been treating at another hospital. Ramos agreed to refer patients to Edgewater but informed Ehmen that he (Ramos) wanted Edgewater to assist with his malpractice premiums, possibly by including Ramos on Edgewater's own insurance policy. Ehmen reported this to Rogan. Ultimately, Rogan agreed to pay Ramos $75,000 per year as a "Hispanic physician liaison" to induce Ramos to refer patients to Edgewater. Prior to creating this position for Ramos, Rogan had never identified or discussed the need for such a position at Edgewater. Ramos immediately began admitting upwards of 20 to 30 patients a month to Edgewater.
In late 1993, Rogan, through Ehmen, agreed to offer Barnabas a contract with Edgewater that would pay him $60,000 annually, purportedly for joining the teaching faculty at Edgewater. The compensation was considerably more than Edgewater paid its teaching faculty, who were generally paid between $2,000 and $3,000 monthly. Barnabas did not want to perform teaching duties. As an alternative, Barnabas suggested a "physician-recruiting" contract for the same $60,000 annual salary. Barnabas had previously had a physician-recruiting contract at Illinois Masonic Hospital, which paid him $25,000 annually. Rogan, through Ehmen, agreed to provide Barnabas with a physician-recruiting contract in November of 1993, which paid Barnabas $60,000 annually. Ehmen mistakenly gave Barnabas a standard Edgewater teaching contract, which Barnabas mistakenly signed. Several weeks later, Barnabas discovered the error and asked Ehmen to correct it; this was not done, and Barnabas continued to be paid under a teaching contract for the entire term of the original contract, from November 1993 through October 1994. On November 1, 1994, Barnabas's "teaching contract" with Edgewater was renewed in a one-paragraph contract addendum that incorporated Barnabas's earlier contract by reference. This renewed contract was presented to Edgewater's Board of Directors in November 1994 as a teaching contract. Barnabas was paid under the renewed teaching contract from November 1, 1994 through October 31, 1995, although Barnabas never taught at Edgewater and was never a part of the teaching faculty. Between November 1, 1993 and October 31, 1995, Barnabas performed some services (an estimated four to five hours per week, but not performed pursuant to a written contract) as a physician recruiter but none related to teaching for Edgewater. Barnabas was paid by Edgewater throughout 1995 until November for teaching services he did not perform. On November 1, 1995, Barnabas entered into a contract with Edgewater that changed his duties to those of physician recruiter. The contract required him to work 600 hours annually on physician-recruiting activities in exchange for annual compensation totaling $60,000 through October 31, 1996. Rogan approved this contract. Barnabas did not work 600 hours, or any significant part thereof, on physician-recruiting activities during the contract period. In November of 1996, Barnabas renewed his physician-recruiting contract with Rogan's approval and signature. The renewed contract ran through the end of June, 1997 and paid compensation of $5,000 per month. The contract required Barnabas to work 33.33 hours per month on physician-recruiting activities. Barnabas did not work the 33.33 hours per month on physician-recruiting activities between November 1, 1996 and June 30, 1997. In July 1997, Barnabas renewed his physician-recruiting contract with Edgewater. The renewed contract paid $36,000 annually for recruiting services and required 30 hours of work on a monthly basis. Barnabas received another contract in July 1997 to serve as the medical director of the "Elderly in Distress" ("EID") program. This contract compensated Barnabas $24,000 annually in exchange for a requirement of 13.33 hours of work on a monthly basis. Barnabas's recruiting contract and the EID contract, when combined, paid Barnabas the same $60,000 annually that he had received under his earlier recruiting and so-called teaching contracts. Rogan intended all of these contracts and payments to Barnabas to induce Barnabas to refer, and reward him for referring patients to Edgewater from 1995 through 1998. Barnabas did not work the requisite number of hours nor materially perform under either his EID or his recruiting contracts, nor did he perform any teaching services during these years. During this period, Rogan never inquired as to whether Barnabas was working the requisite number of hours under his contracts; yet, Rogan regularly discussed Barnabas's patient referrals with Ehmen.
Barnabas stopped practicing at Edgewater in late 1998 and did not renew his contracts with Edgewater; he then stopped referring patients there.
Dr. Sheshiqiri Rao was an anesthesiologist and former family practitioner. In late 1996, Rao asked Barnabas to assist him in obtaining a contract to manage Edgewater's anesthesia services. Anesthesiologists do not usually refer patients to hospitals; however, Rao told both Ehmen and Barnabas that through his relationships with primary care physicians and patient recruiters, Rao could provide patient admissions to Edgewater if he were to be awarded a contract for anesthesia services. Ehmen told this to Rogan.
Rogan met with Rao and Barnabas at a Chicago restaurant. At this meeting, Rao told Rogan that he controlled a substantial base of patients that could be referred to Edgewater if Rao received the anesthesia contract. After this meeting with Rao and Barnabas, Rogan directed Ehmen to obtain a contract with Rao's group.
Edgewater then entered into a contract with Rao's corporation, signed February 28, 1997, but effective April 1, 1997, which stated it was for administering and providing Edgewater's anesthesia services. The contract paid Rao's corporation a total of $15,000 per month; $10,000 of this amount purported to be for Rao's services as the sole provider of Edgewater's anesthesia services, and $5,000 of which ostensibly compensated Rao for administrative responsibilities associated with the provision of anesthesia at Edgewater. Actually, the contract was intended to induce and reward Rao for referring patients to Edgewater.
Beginning in March 1997 and continuing through approximately June 1998, Rao referred patients to Edgewater. Rao had no admitting privileges at Edgewater; therefore, Rao's patients were admitted under Barnabas's name. A code was developed, at Rogan's direction, in order to track these referrals and appeared on Edgewater's daily physician statistics reports after Barnabas's name to designate the patients admitted from Rao's sources and enable Rogan to track these admissions. One of these codes was "Barnabas RKO"; the "RKO" stood for "Rao-Kumar Organization."
Rao told Cubria, a cardiologist who practiced at Edgewater, that Rao was being paid to bring patients to Edgewater. Cubria and Rogan discussed Rao's referrals while referring to a physician statistics sheet that contained the "RKO" code. Cubria served as the cardiac consultant for many of Rao's referrals, and his name often appeared on the physician statistics sheets for Rao's patients, under designations such as "Barnabas/Cubria RKO." During the course of Rao's contract, Rogan directed Ehmen to change RKO to a more generic-sounding code to disguise the purpose of the code. The use of the code "Barnabas APN" began in November 1997 to track Rao's patients.
The volume of Rao's referrals was quite high in the early months of Rao's anesthesia contract and; Rogan knew of and discussed the volume of Rao's referrals with Ehmen and Cubria. If Rao's referral numbers were low in a given month, Rogan would direct Ehmen to talk to Rao and Barnabas and demand that Rao increase his referral volume. Ehmen did this on several occasions.
Rao controlled potential inpatients through his relationships with several patient recruiters and at least one primary care physician, Dr. Kumar Kaliana (Kumar was part of the RKO code discussed above). Rao paid his recruiters and sources of referrals to Edgewater. After Rao began referring patients to Edgewater, Ehmen became aware that Rao was paying Kumar monthly in exchange for Kumar's patient referrals. Ehmen informed Rogan of this fact. Rogan replied, "What Dr. Rao does with his own money is his business." Rogan never informed anyone, including Edgewater's health law attorney, that Rao was paying Kumar for patient referrals to Edgewater.
At a dinner meeting with Rao, Barnabas, and Rogan, Rao told Rogan that Rao had sources that could supply 30 to 35 patients per month to Edgewater through Edgewater's detoxification program through a company called Florascribe. Rao told Ehmen (who later told Rogan) that Florascribe was owned by Rao's wife. Rogan agreed to a preliminary arrangement with Florascribe, whereby Rao would refer detox patients to Edgewater and Rogan could assess whether the volume of referrals was consistent with Rao's claims. Prior to entering into a contract, Florascribe was paid $14,000 per month during the preliminary trial period, which ran from approximately May 1997 through September 1997. These payments were ostensibly made to compensate Florascribe for "administrative marketing for the detox program." However, Edgewater was, at that time, also paying another company, Special Care, for the same detox marketing services.
Because the trial period was successful in bringing patients to Edgewater, Rogan approved a contract with Florascribe, effective October 1, 1997, ostensibly to provide detox marketing services to Edgewater. However, the amount paid to Rao pursuant to the contract was in excess of the fair market value; and there was no substantial performance by Rao or Florascribe of the contract terms. The payments were made to Rao to induce him to refer patients to Edgewater.
Rogan terminated Florascribe's contract with Edgewater in early 1998 because Rao's detox patient admissions were below expectations. Rogan was also unhappy with the level of admissions resulting from Rao's referrals and directed Edgewater to stop paying Rao under his anesthesia contract in June of 1998. Even though Edgewater was no longer paying Rao the $15,000 per month, Rao was still expected to provide anesthesia services to the hospital, for which Rao could submit professional billings.
Cubria was a licensed cardiologist who referred patients to Edgewater. In 1979, Cubria was recruited to practice at Edgewater by a fellow Cuban-American physician. Cubria was employed by Edgewater as a staff cardiologist until the mid-1980s. Cubria resigned from his position as Director of Cardiology at Edgewater shortly after Rogan took over the hospital and entered private practice. In the mid-1980s, Cubria began shifting his practice away from Edgewater and to Illinois Masonic Hospital and was performing most of his inpatient work there when Rogan took over Edgewater.
In the early-1990s, Cubria was a member of a professional group, Northside Physicians and Surgeons. Cubria and other members of Northside Physicians and Surgeons had office space scattered around the Edgewater professional building. Northside Physicians and Surgeons approached Rogan about construction so that the member doctors could have their offices in the same suite. The sixth floor of the Edgewater professional building was so constructed to accommodate the group, and the cost of the construction was to be included in the rent paid by the physicians. However, Northside Physicians and Surgeons broke up in late 1993 or early 1994, leaving only Cubria and one other physician in the suite. Rogan told Cubria that Edgewater would waive Cubria's part of the build-out fee if Cubria agreed to keep his patients at Edgewater and refer his patients to Edgewater. Cubria accepted Rogan's offer, and Cubria estimated the value of the build-out at $40,000, less the rent paid at the time of the dissolution of the physicians' group.
In 1995, Cubria did not have a contract for teaching at Edgewater, nor did he do any teaching at Edgewater. Nevertheless, in 1995, Cubria received payments from Edgewater for teaching or for participation in a teaching-service program, including monthly payments in the amount of $3,000, plus a teaching-service bonus, all authorized by Rogan.
Cubria was also awarded a contract to read EKGs. Cubria and other cardiologists were paid between $1,500 and $2,000 per month for reading EKGs. Cubria spoke to Rogan directly about the EKG-reading contracts and informed Rogan that the salary should be raised to $6,000 per month and that, if not, Cubria would move his patients to a different hospital. Rogan approved the increased salary and, in January of 1995, personally signed Cubria's EKG-reading contract in the amount of $6,000 per month, which required 600 hours of work annually of Cubria, for a total payment of $72,000. However, Cubria and the other cardiologists only read EKGs one out of every four weeks, or approximately 13 weeks per year. Cubria read EKGs only approximately one hour per day during the thirteen weeks, or approximately 91 hours per year, an hourly rate of $720 per hour. According to a survey used by Edgewater in 1996, the fair market hourly rate for a physician's services under a hospital contract was between $100 and $150 per hour. Cubria's EKG-reading contract was renewed every year that he was at Edgewater, and remained in place from 1995 to 2000. Neither Rogan nor anyone at his direction inquired of Cubria whether he was actually spending 600 hours per year reading EKGs pursuant to the contracts.
Edgewater created a code called Cubria SP to track the number of Spanish-speaking patients that Cubria admitted. The admissions under this and other programs were recorded on a Physician Statistics Report that was distributed monthly to Rogan. Cubria frequently spoke with Rogan about the various codes on the Physician Statistics Report, particularly pointing out his admissions under several of the codes-Cubria SP, Cubria Andrew H, Barnabas/Cubria SP, Ojea/Cubria SP, and Tandeter/Cubria SP-for purposes of expanding Cubria's Hispanic patient admissions. Rogan and Cubria also spoke about the Barnabas/Cubria RKO code; and in those conversations, Rogan knew the patients referred under this code were coming via Rao from Kumar's South Side Clinic.
In 1995, Cubria was considering moving his patients from Edgewater to Illinois Masonic Hospital because, in part, Edgewater was in poor physical condition. Though the catheterization laboratory had been replaced, the new cath lab malfunctioned frequently. To persuade Cubria to keep his practice at Edgewater, Rogan agreed that Edgewater would loan Cubria $84,000 ostensibly for Cubria to hire a Spanish-speaking cardiologist named Dr. Juan Diaz. Cubria negotiated the terms of the loan directly with Rogan, and Ehmen was not involved in these discussions. The terms of the loan required Cubria to hire Diaz by April 27, 1996. However, Cubria never hired Diaz, nor any other Spanish-speaking cardiologist, but continued to receive payments from the loan despite being in default for failing to hire Diaz. Other than the payment for June 1996, the installment payments to Cubria were made. Cubria did not repay the principal and interest in a lump sum by March 31, 1997, as required by a promissory note he executed.
In addition to the $84,000 loan, in 1996, Rogan authorized and signed two additional contracts. Dr. Goldstein, a non-Spanish-speaking cardiologist, eventually joined Cubria's practice. Rogan authorized two contracts to Cubria to offset Goldstein's salary. Cubria and Rogan signed both a teaching contract and a medical-directorship contract, which combined for an annual payment of $72,000 to Cubria. Cubria also continued receiving loan payments during the terms of these two contracts. Cubria and Rogan discussed that the contracts would ensure that Cubria and Goldstein's patients would remain at Edgewater. Cubria did not substantially perform all of the duties required under the medical-directorship contract.
Rogan arranged for and authorized another loan to Cubria in the amount of $150,000 in April 1997. This loan was designed to cover Cubria's attorney's fees relating to Cubria's divorce and Cubria's tax obligations. Sometime thereafter, Cubria and Rogan discussed repayment of both the earlier $84,000 loan and the $150,000 loan. Rogan requested Cubria to pay back approximately half of the total amount. To assist Cubria to repay this amount, Rogan paid $80,000 for a feasibility study for a Spanish Institute of Cardiology. Rogan never asked Cubria the number of hours that the project would take nor required a written contract. One of the primary purposes of the feasibility study was to determine if Edgewater should pay for television advertising of Cubria's practice. Edgewater had previously paid for advertising for Cubria; Cubria wanted Edgewater to pay for more. Ehmen was not involved in the agreement between Rogan and Cubria for the feasibility study.
Cubria had little or no experience in conducting a feasibility study. Most of the work on the project was done by Ehmen and an Edgewater employee named Mary Wilbur. Drafts of the feasibility study were produced; however, those drafts were the result of work performed by them. Cubria was issued the first payment for the feasibility study in the amount of $50,000 on June 13, 1997. Rogan authorized and approved the payment, and another payment of $30,000, despite never inquiring of Cubria how many hours of work he had performed on the project.
Rogan signed and authorized an exclusive option agreement for Edgewater to purchase Cubria's practice in July of 1997 and paid $60,000 for the option. The option was executed after Rogan had been informed by his attorneys that it would be illegal for the hospital to pay for advertising for a physician employed by the hospital. Edgewater ultimately did not purchase Cubria's practice; and Rogan advised Cubria, on or about November 20, 1997, not to sell his practice because that might require detailed accountings of time in ways that Cubria was not accustomed. Later, in 2000, Rogan arranged to pay Cubria $5,000, again ostensibly in connection with the possible purchase of Cubria's practice. Cubria was never requested to repay this $5,000.
Rogan authorized a television advertising program designed to market Cubria and Cubria's practice because Cubria said he would move his patients from Edgewater if television advertising was not provided. The television commercials were aired; and two-thirds featured Cubria's name and face, promoted Cubria's practice, and displayed his office phone number. Later, the advertised telephone number was changed to a Edgewater telephone; and callers would be directed to Cubria's office for cardiac matters. When the phone was not answered at Edgewater, the calls would be transferred directly to Cubria's office.
After Cubria's teaching and medical-directorship contracts ended in January 1998, Rogan then authorized a cardiac-rehabilitation contract for Cubria, effective February 1, 1998, which provided for compensation in the amount of $48,000 per year. The contract required Cubria to work 20 hours per month; Cubria performed the contract duties for only four or five hours per month; and Rogan was aware that Cubria was not performing the hours required under the contract. Ehmen told Rogan that Cubria did not do the amount of work required by the contract.
Cubria and Rogan also negotiated and signed a medical-consulting contract, effective August 1, 1999, by which Braddock L.P. would pay Cubria in the amount of $24,000 per year. Ehmen played no role in the negotiation or execution of the consulting contract. The contract was extended to July 31, 2002, at which time Cubria received another $60,000. In total, Cubria received $84,000 under this consulting contract.
When Cubria learned that he was under investigation by the FBI, he requested money from Rogan for legal fees; Rogan gave $9,800 to a Dr. Lopez, who, in turn gave the money to Cubria.
Cubria received payment from Edgewater for inflated EKG contracts, medical-directorship and consulting contracts, loans "re-paid" to Edgewater through devices like the "feasibility study," and for television advertising programs to publicize Cubria's practice. Rogan intended all of these contracts and payments to Cubria to induce Cubria to refer, and reward him for referring, patients to Edgewater from 1994 through 2000.
Rogan's Concealment of his Fraudulent Conduct at Edgewater
In August 1998, after these payments under the anaesthesia contract were terminated, Rao asked Barnabas to set up a meeting with Rogan. Rogan agreed; and a meeting was held with Rao, Barnabas and Rogan in August 1998 in Rogan's office. Rao was cooperating with the Government at the time and wore a recording device to this meeting. Prior to this meeting, several individuals at Edgewater observed unusual behavior by Rao, including Rao's asking people to repeat particular statements and trying to put words into people's mouths during conversations. Before the meeting, Rogan told Ehmen that he felt it was "odd" that Rao and Barnabas were so aggressively trying to meet with him and that he "smelled a rat" and would be on his guard in his meeting with Rao and Barnabas.
At the meeting, Rao explicitly and blatantly discussed his kickbacks to Kumar and threatened Rogan that Kumar may go to the authorities if Rogan didn't provide checks to Rao for Rao to use to pay Kumar. Barnabas was shocked at the blatant manner in which Rao discussed the scheme and made these threats, as illegal payoffs were not typically discussed in such an obvious manner. Rogan responded with self-serving statements denying any involvement in the patient-referral scheme. Rogan was aware, during this meeting, that Rao may have been attempting to obtain incriminating statements. Rogan spoke to Ehmen after the meeting and urged Ehmen to be "very careful" in his dealings with Rao and Barnabas.
In January of 1999, Ehmen learned from his wife that agents from the FBI had visited his home. Ehmen then so advised Rogan, who told Ehmen not to talk to the FBI without first talking to an attorney. Rogan, through Edgewater and/or Braddock L.P., retained the law firm of Jones, Day to represent Ehmen in connection with the FBI investigation.
By 2000, Rogan knew that at least one Edgewater physician had worn a recording device as a part of the FBI investigation. In June 2000, Rogan, Ehmen, and Ben Armstrong, an employee of Grant Hospital, met at Chicago's Ritz-Carlton hotel for a business meeting over lunch. After Armstrong left, Rogan invited Ehmen to take a steam bath with him and observed Ehmen as he undressed to determine if Ehmen was wearing a recording device. During the steam bath, Rogan suggested that Ehmen should accept any blame arising out of an investigation to prevent the people at Edgewater from suffering. Rogan then told Ehmen that he (Rogan) would take care of Ehmen and Ehmen's family forever if Ehmen did not implicate Rogan in the fraud.
Rogan met with Ehmen on numerous other occasions when Rogan would speak about innocuous, ordinary, everyday subjects, while passing Ehmen handwritten notes about the FBI investigation. In the notes, Rogan restated that Ehmen and his family would be taken care of forever if Ehmen would refuse to implicate Rogan and told Ehmen not to discuss this with his attorney. At their last meeting, Rogan passed Ehmen notes in the same manner, directing Ehmen to characterize himself to the Government as a "loose cannon" or "renegade employee," accept full responsibility and say that Rogan had no knowledge of illegal conduct at Edgewater. Rogan retrieved the notes after Ehmen read them. Ehmen was indicted shortly thereafter, in May 2001, in connection with the fraud at Edgewater.
In December 2000, Rogan met with Cubria in Rogan's office and again spoke about innocuous topics, while writing Cubria notes related to the FBI investigation. The first note Rogan wrote said that Cubria needed to hire a criminal lawyer. After reading the note, Cubria asked Rogan, "What are you talking about?" Rogan put his finger to his lips to urge Cubria to be quiet and then pointed around the office, indicating a concern that there might have been recording devices present. Rogan passed several other notes to Cubria in the same manner. One of the notes informed Cubria that both Cubria and the hospital were being investigated by the authorities. Another of Rogan's notes directed Cubria to destroy his computer. A final note urged Cubria not to disclose Rogan's advice and conduct at this meeting to anyone, including Cubria's lawyer, because Rogan's conduct could be construed as obstruction of justice. After the meeting was over, Cubria and Rogan left the office together. Rogan destroyed the notes that he had passed Cubria by placing them in the shredder located outside of Rogan's office behind his secretary's work station.
Ehmen and Cubria never discussed Rogan's practice of passing written notes regarding the Government investigation of the hospital while speaking about unrelated matters.
In 2000, Rogan was aware that Edgewater had received several federal grand jury subpoenas pursuant to the ongoing federal investigation of Edgewater. Rogan was aware that the subpoenas sought, among other things, information relating to Rogan's compensation from Edgewater. On August 10, 2000, after receiving these subpoenas, Rogan directed a document-destruction service to destroy twenty boxes of documents taken from Braddock L.P.'s offices. Rogan cannot recall whether documents and materials relating to Braddock L.P.'s finances were among the documents destroyed at this time.
Criminal Convictions Arising Out of Activities at Edgewater
On May 17, 2001, a federal grand jury indicted Bainbridge Management, L.P. (f/k/a/ Braddock L.P.), Ehmen, Barnabas, Kumar, and Rao for, among other things, "devising and participating in a scheme to defraud health care providers and to obtain money and property by means of false and fraudulent pretenses and to deprive certain individuals of the intangible right of the defendant[s'] honest services in violation of 18 U.S.C. §§ 1341 and 1347." United States v. Bainbridge Management, et al., No. 01 CR 469, (N.D.Ill.). On October 4, 2001, the United States filed a superseding indictment against Bainbridge and added Cubria as a defendant.
On May 24, 2001, Rao pled guilty to Count Fifty-Seven of the indictment, concerning racketeering pursuant to 18 U.S.C. § 1962. On May 24, 2001, Kumar pled guilty to Counts One and Nine of the indictment, concerning the acceptance of kickback payments for the admission of patients and the submission of false claims to Medicare and Medicaid. On October 1, 2001, Ehmen and Barnabas pled guilty to Count Fifty-Seven of the indictment, concerning racketeering pursuant to 18 U.S.C. § 1962. On November 28, 2001, Ehmen was sentenced to 78 months of incarceration. On the same day, Barnabas was sentenced to 52 months of incarceration. On February 8, 2002, Cubria pled guilty to Count Fifty-Seven of the indictment, concerning racketeering pursuant to 18 U.S.C. § 1962. Cubria was sentenced to 151 months of incarceration. On January 15, 2003, Braddock Management L.P. pled guilty to Count One of the Second Superseding Information, concerning healthcare fraud, pursuant to 18 U.S.C. § 1347, and was ordered to pay $2.9 million in restitution.
Edgewater closed its doors and ceased doing business in December 2001.
Submission of Medicare and Medicaid Claims
Edgewater treated Medicare and Medicaid patients, and sought and obtained reimbursement from the Medicare and Illinois Medicaid programs. Hospitals, including Edgewater, during the relevant time period, were paid by Medicare on an interim basis for services rendered. To submit claims for specific Medicare patients, the hospital completed and electronically sent form "UB-92" (also known as form "HCFA-1450"). The UB-92 form required each hospital to use a unique provider number, which identified the hospital as the place where services were rendered. The UB-92 form also identified the attending physician by placing the physician's Universal Provider Identification Number (UPIN) in Boxes 82 and 83 of the UB-92 form.*fn5 The Center for Medicare and Medicaid Services ("CMS") maintained those electronic claims in the National Claims History, the agency's official repository of adjudicated claims.
In addition, CMS required that hospitals, including Edgewater, submit an annual cost report. The cost reports were the final "claim" that a provider submitted to the Medicare program for services rendered to Medicare beneficiaries. After the end of each hospital's fiscal year, the hospital filed its cost report with its designated Medicare fiscal intermediary, stating the amount of reimbursement the provider believed it was due for the year. See 42 U.S.C. § 1395g(a); 42 C.F.R. § 413.20. See also ...