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United States v. Nagelvoort

United States Court of Appeals, Seventh Circuit

May 12, 2017

United States of America, Plaintiff-Appellee,
Clarence Nagelvoort and Edward J. Novak, Defendants-Appellants.

          Argued December 7, 2016

         Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 13 CR 312 - Matthew F. Kennelly, Judge.

          Before Wood, Chief Judge, Bauer, Circuit Judge, and Shadid, [*] District Judge.

          Bauer, Circuit Judge.

         On March 25, 2015, after a seven-week trial, a jury convicted Edward Novak and Clarence Nagelvoort of knowingly and willfully causing Sacred Heart Hospital in Chicago, Illinois, to offer and pay kickbacks to physicians in return for patient referrals, in violation of 42 U.S.C. § 1320a-7b(b)(2)(A) (Anti-Kickback Statute), and conspiracy to do so in violation of 18 U.S.C. § 371. They now challenge their convictions on a number of grounds. For the reasons that follow, we affirm the convictions.

         I. BACKGROUND

         On March 18, 2014, Novak and Nagelvoort were charged with participating in a scheme by which, from 2001 through 2013, Sacred Heart Hospital paid illegal kickbacks to physicians in exchange for referring patients to the Hospital. During that time, Novak was the owner of Sacred Heart and served as the President and Chief Executive Officer. Between August 2007 and April 2011, Nagelvoort worked as an outside consultant for the Hospital, and at various times during that period, he served as the Hospital's Vice President of Administration and Chief Operating Officer.

         In 2011, federal agents began investigating and securing the cooperation of physicians and other Sacred Heart employees, some of whom began recording conversations with Sacred Heart administrators and physicians. On April 16, 2013, federal agents executed warrants authorizing the search of the Hospital and its administrative and storage facilities.

         At trial, the government presented the audio recordings, testimony from cooperating physicians and staff, and documents gathered in the search as evidence that the Hospital paid kickbacks to physicians by concealing them as payments under various types of contractual arrangements. The government's case focused on four types of agreements: (1) direct personal services contracts; (2) teaching contracts; (3) lease agreements for the use of office space; and (4) agreements to provide physicians with the services of other medical professionals.

         A. Personal Service Agreements With Physicians

         Doctor Jagdish Shah, an oncologist, gained privileges and began seeing patients at Sacred Heart in 2000. At trial, Shah testified that in 2009, after another clinic where he was working closed, he told Novak that he could direct approximately 250 patients to Scared Heart. Novak said he was interested and directed Shah to speak with Nagelvoort about the arrangement. Shah relayed the same information to Nagelvoort, who then said he would speak with Novak. A couple days later, Novak called Shah and told him that there was a contract for him to pick up. Until that point, Shah had not discussed with Novak or Nagelvoort any specific additional services that Shah might provide the Hospital.

         The contract provided that Shah would devote 20 hours per month to developing a cancer screening program and consult on oncology and hematology cases in exchange for a monthly payment of $2, 000. Shah then met with Nagelvoort to explain that he would be unable to devote 20 hours per month to such work. Nagelvoort responded that Shah should "just sign the contract." Shah testified that he understood this to mean that he did not have to do the work required by the contract. It was his understanding that in exchange for $2, 000 per month, he was required only to bring patients to Sacred Heart. Shah and Nagelvoort then signed the contract.

         From July 2009 through January 2012, Shah submitted time sheets to Sacred Heart that showed he performed work and services that he did not actually perform. Shah testified that during that time period, he never spent 20 hours in one month performing any of the duties set forth in the contract. He also submitted time sheets showing time spent on services that were not outlined in the contract. Still, he received $2, 000 every month.

         In April 2012, Doctor Rajiv Kandala entered into an agreement with Sacred Heart to provide education to patients and staff regarding palliative care and hospice services. The contract provided that Kandala would be paid $175 per hour for up to 23 hours of such work per month. He submitted time sheets for the maximum number of hours each month and was paid the monthly maximum amount of $4, 025. Numerous administrators and staff testified that there was no such palliative care educational or screening program at the Hospital. According to these witnesses, Kandala was rarely, if ever, seen at the Hospital. Additionally, some of Kandala's time sheets showed his attendance at meetings that did not occur on the dates recorded.

         Between April 2012 and March 2013, Chief Operating Officer Anthony Puorro had numerous conversations with Kandala and Novak regarding Kandala's patient admission numbers. On at least three occasions, Puorro noted that Kandala's admission numbers were down and asked Kandala if he could increase the number of patients he sent to Sacred Heart. In February 2013, after discussing Kandala's declining numbers, Novak suggested to Puorro that they take Kandala out and talk to him because "we need his patients over here."

         B. Teaching Contracts

         Doctor William Noorlag was the Director of Sacred Heart's Podiatric Residency Program from 1999 to 2010. In 2001, Novak told Noorlag that he wanted to create paid teaching positions for podiatrists as a way to bring more podiatric patients to the Hospital. Noorlag testified that prior to creating these teaching contracts, the attending podiatrists at Sacred Heart already taught the residents as part of their regular duties, without any additional compensation. According to Noorlag, the attending physicians did not perform duties that justified additional teaching salaries. He also testified that in 2008 or 2009, Novak instructed him that there must be evaluations and other paperwork to justify the contracts, and explained, "If I go down for this, you're going down with me."

         In late 2001, Sacred Heart entered into a teaching contract with Doctor Richard Weiss. At trial, Weiss testified that when he first met with Novak to discuss a teaching contract, it was Weiss' understanding that Sacred Heart would be compensating him for bringing surgical cases to the Hospital. There was no discussion at that meeting of Weiss' qualifications or any details of the residency program. Weiss and Novak eventually signed a contract, under which Weiss would receive $2, 000 per month for teaching and performing various other services related to the residency program. From 2002 through 2008, Weiss received his monthly salary from Sacred Heart, but performed none of the services listed in the teaching contract. Instead, he simply allowed residents to observe his surgeries in the same manner he had done, without additional compensation, before signing the contract.

         In November 2006, Novak signed a contract with Doctor Shanin Moshiri, which contained the same duties as Weiss' contract, and stated that Moshiri would be the "Director of External Office Rotations" for the residency program. Noorlag, the Director of the program, testified that he did not consider Moshiri to hold that position and that another podiatrist was, in fact, in charge of arranging external rotations for the residents. Like Weiss, Moshiri was paid $2, 000 per month under the contract. According to Noorlag, Moshiri did not perform the duties outlined in his contract and his instruction of residents was limited to allowing them to observe and participate in surgical procedures. Additionally, records showed that other attending podiatrists who were not compensated under teaching contracts had significantly more contact with residents than Moshiri did.

         In May 2010, Nagelvoort drafted a teaching contract for Doctor Subir Maitra, which mirrored the contracts for Weiss and Moshiri. Under the contract, Sacred Heart would pay Maitra $2, 000 per month to serve as a faculty member of the Hospital's "Medical Student Program." At this time, there was already a medical student program at the Hospital, which was run by an outside organization called Affiliated Institute for Medical Education (AIME). This organization independently paid physicians to allow medical students to rotate with them. Maitra received his teaching compensation from Sacred Heart, not AIME.

          Students who rotated with Maitra were to record their time in a logbook, which Maitra was then required to sign. Nagelvoort directed his assistant to maintain this logbook. At Maitra's request, he was allowed to sign blank log sheets, which were to be filled in later by the students. By June 2012, students stopped recording their time altogether, but Maitra's signature continued to appear on blank logs. Sacred Heart continued to pay Maitra under the contract through April 2013. During a meeting with Puorro in February 2013, Puorro told Maitra that Novak wanted to know how many patients Maitra was referring to the Hospital. Maitra responded: "Every month, I'm bringing at least three to four insurance cases .... He should be giving me more [money], a little bit." There was no discussion during that meeting of any of Maitra's teaching duties under his contract.

         C. Lease Agreement

         In March 2004, Novak signed a lease to rent space from Doctor Percy Conrad May, Jr. at the May Medical Center. Sacred Heart agreed to pay $5, 000 per month to rent three exam rooms, the clinic's pharmacy, and its waiting area. In December 2009, Nagelvoort signed an addendum to this lease, lowering the monthly payment to $2, 000, with no changes to the other terms. At trial, Noorlag testified that in 2006, Ed Lorgeree, the Chief Operating Officer, explained to him that this lease was established so that May would refer podiatry patients to Sacred Heart. In April 2012, during a recorded conversation, Chief Financial Officer, Roy Payawal noted that when the rent was $5, 000, "we were getting five or six referrals a month, " but when the rent was reduced, May's referrals "dried up." In September 2012, prior to his coopera- tion, Puorro was recorded stating: "[May]'s getting 2, 000 dollars a month .... ...

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