United States v. Sekhar Rao

In United States v. Rao, 123 F.4th 270 (5th Cir. 2024), the Fifth Circuit affirmed the defendant’s convictions for committing health care fraud against TRICARE, a federal health benefit plan. The court rejected all three of Rao’s arguments on appeal.

Background: Rao and a codefendant were charged with conspiring to commit health care fraud under 18 U.S.C. § 1349, and Rao was also charged with two substantive counts of health care fraud under 18 U.S.C § 1347. Rao was himself a physician, and the charges stemmed from his contract to be a “physician consultant.” In that role, Rao agreed to be paid $50 per billable toxicology or DNA sample that was later analyzed by a laboratory.

As it turned out, however, the toxicology and DNA samples had been collected by a shell company. Its physical location “did not contain any medical exam rooms and was run by an office manager with no medical training or experience.” When patients came in to be tested, the office manager would pay them each a $50 Walmart gift card.

With those samples in hand, the shell company needed a doctor to order the testing so they could submit bills to TRICARE. The company owner testified at Rao’s trial that the owner “consistently sought to deceive doctors, including Rao, about the nature of the … scheme.” In part, he lied about the nature of the medical clinic, and he never disclosed that patients received Walmart gift cards in exchange for providing samples.

Rao got connected with the company after he responded to a job posting. At first, Rao went to the company owner’s house to sign pre-filled requisition forms. Sometimes he would sign 100 or 200 forms in a single visit, and the owner testified that Rao never reviewed any patient medical information before signing the requisition forms. In all, Rao signed more than 1,400 urinalysis tests and more than 200 DNA tests during the two months he worked with the company. Based on those tests, the testing laboratory billed TRICARE about $13 million.

After two months, the company “became concerned that Rao was making too much money because of the pay structure Rao had negotiated.” To solve that problem, they began using a stamp of Rao’s signature so that Rao would not know the “full extent” of the forms containing his signature. Rao had agreed to let them use the stamp, although he may not have known the volume of forms on which the stamp was used.

In the criminal case, Rao’s two substantive charges were based on two TRICARE claims submitted on behalf of the same patient, who was a “repeat” patient of the clinic. In a 6-month span, the laboratory billed TRICARE for thirty different care dates on behalf of that patient. At trial, that patient testified that he had never met or spoken with Rao.

Holding 1: The evidence was sufficient to uphold Rao’s convictions for health care fraud. There was enough evidence for the jury to conclude that Rao’s signature or stamp caused the submission of the two TRICARE claims in question, and there was enough to conclude that “Rao authorized or knew of the use of his stamp to order lab work.”

Rao primarily argued that the Government had failed to prove that he caused the submission of the two TRICARE claims because it never presented the signed requisition forms for those specific tests. Nevertheless, it had introduced TRICARE claims data listing Rao as the referring provider for the two tests, and Rao was still receiving payments from the shell company at the time the tests were ordered.

The court acknowledged that “Rao validly point[ed] to other evidence adduced at trial that could support the conclusion that the TRICARE claims data … [was] unreliable,” but there was also “countervailing evidence.” As the court explained, “[a]lthough the jury could have weighed the evidence differently, there was nonetheless sufficient evidence for a reasonable jury to conclude that the TRICARE claims data … was reliable.”

As for Rao’s knowledge that the clinic was using his signature stamp, there was testimony to that effect from the company’s owner, as well as “signed requisition forms, the signature stamp, and the records of payments made to Rao.” All told, that was enough for the jury to conclude that “Rao knew of an authorized the use of his signature stamp to order tests.”

Holding 2: The district court did not err by excluding evidence that the company owner had assured Rao that the scheme had been approved by an attorney.

Rao conceded on appeal that he could not present a traditional advice-of-counsel defense because he had never personally spoken with an attorney, but he contended that he should have been able to present a “variant of a good-faith defense” based on the statements allegedly made by the company’s owner.

The Fifth Circuit found that Rao failed to clearly demonstrate that the testimony was relevant because he failed to identify any precedent for the type of defense he wanted to mount. He cited only one district court opinion, which was not binding on the Fifth Circuit. Additionally, the district court had considered the issue in a different context. Because district courts have “wide discretion” in assessing the relevance and prejudicial effect of evidence, the decision here was not “clear or obvious legal error.”

Holding 3: The district court did not err in how it calculated loss under the Sentencing Guidelines.

Rao argued that the court should have used “actual loss” instead of “intended loss,” but even if it should have used the latter, the court erred in how it calculated the intended loss.

First, at the time of sentencing, the applicable Guideline, USSG § 2B1.1, did not define “loss,” but commentary to that Guideline did. The commentary defined loss as “the greater of actual loss or intended loss.” § 2B1.1 cmt. n.3(a) (2018). After sentencing, the Fifth Circuit held in another case that Guidelines commentary remains “authoritative unless it violates the Constitution or a federal statute, or is inconsistent with, or a plainly erroneous reading of, that guideline.” Stinson v. United States, 508 U.S. 36, 38 (1993); United States v. Vargas, 74 F.4th 673, 680 (5th Cir. 2023) (en banc) (confirming that Stinson is still controlling).

Second, Rao argued that the district court’s intended loss calculations were too high because it did not credit an affidavit from a physician who had declared that TRICARE “would, and indeed did, only pay the rates established by its publicly available rate schedule.” But in the district court, Rao had only used that testimony to support his argument for a variance from the Guidelines, rather than arguing for a different Guidelines calculation. As a result, the Fifth Circuit reviewed his “reframe[d]” argument for plain error.

In the Fifth Circuit, the amounts billed constitute prima facie evidence of the intended loss amount, but both parties can present additional evidence to suggest that the billed number “either exaggerates or understates the billing party’s intent.” United States v. Isiwele, 635 F.3d 196, 202–03 (5th Cir. 2011). Here, the Government presented the TRICARE billing amounts, but Rao argued that the physician’s declaration and TRICARE’s public payment schedule were sufficient to rebut the Government’s evidence.

The Fifth Circuit disagreed because none of that evidence spoke “directly to whether Rao subjectively knew about TRICARE’s billing practices” (emphasis in original). The court explained that it has repeatedly “upheld district courts’ use of billed amounts to measure intended loss where, as here, the defendants failed to proffer evidence addressing their subjective intent.” Because Rao introduced no evidence concerning his personal knowledge about TRICARE’s reimbursement practices, he failed to rebut the Government’s evidence.