To state that the federal RICO statue has long since slipped the bounds of Congress’s original intent is hardly a novel observation. Although the U.S. Attorney’s Manual points out that “the purpose of the RICO statute is ‘the elimination of the infiltration of organized crime and racketeering into legitimate organizations,’” the very same paragraph of the Manual proclaims that “the statute is sufficiently broad to encompass illegal activities relating to any enterprise affecting interstate or foreign commerce.” The varied range of successful federal prosecutions premised on the RICO statute only proves the point, and numerous industries, including health care, have thus come within the statute’s reach. In fact, in a recent article in the United States Attorney’s Bulletin, an official with the Department of Justice’s Organized Crime and Gang Section (which must approve all federal RICO prosecutions) writes about the growing use of the RICO statute to attack coordinated schemes that jeopardize the health care fraud trust fund, discusses specific RICO health care fraud cases brought in the Southern District of Florida and the Southern District of New York, and describes DOJ’s efforts to include more health care offenses as potential RICO predicates.
One recent case, however, invokes the powerful RICO statute in a manner that falls well beyond the “new normal” for health care fraud prosecutions. In the fall of 2012, a grand jury sitting in the Southern District of New York handed up an indictment that charges John Reynolds, the former head of the Hospital for Special Surgery – almost certainly the nation’s most prominent and prestigious orthopedic hospital – with engaging in racketeering. Unlike all other recent cases involving health care racketeering, the Reynolds case does not involve allegations of coordinated efforts to submit fraudulent claims, the abuse of government insurance programs, or the existence of a wide-reaching conspiracy to secure reimbursements for services that were never provided. Instead, the Reynolds case takes what is alleged as a kickback scheme that occurred in the executive suite of a renowned hospital, in violation of the hospital’s code of ethics and compliance polices, and converts it into a striking new form of RICO prosecution.
At least two aspects of the Reynolds prosecution are particularly notable. First, as mentioned, the prosecution of Mr. Reynolds does not involve the type of fraud and false claims that are becoming rather typical in the emerging world of health care RICO. In fact, the indictment against Mr. Reynolds asserts that he used his high-level position at the hospital to conduct three separate kickback schemes between 1996 and 2007 – one involving hospital vendors that wanted to secure future business, one involving kickbacks that were allegedly demanded and obtained from an employee in return for having arranged the payment of that employee’s annual bonus, and a last that involved the alleged receipt of payment as a condition for forming a partnership with a British-based healthcare organization. The predicate acts alleged in the Reynolds RICO case are also unique – rather than the types of mail, wire and insurance fraud that are alleged as predicates in other health care RICO matters, the predicates in the Reynolds case are alleged to include various forms of honest services fraud, and extortion as well.
The second and perhaps even more striking aspect of the Reynolds prosecution involves the “enterprise” that is alleged in the indictment. In order for the elements of a federal RICO prosecution to be satisfied, the government must allege and prove that the defendant was employed by or associated with an “enterprise” that affected interstate or foreign commerce, and that the defendant participated in the conduct of that enterprise’s affairs through a “pattern of racketeering activity.” In other RICO prosecutions that have thus far been brought in the health care field, the RICO enterprise alleged in the indictment has often been an informal association of individuals whose very purpose, according to the government, is to engage in criminal conduct. In the Reynolds case, by contrast, the enterprise alleged in the indictment is not itself a criminal enterprise, but rather is the entirety of the prestigious orthopedic hospital by which Mr. Reynolds was employed.
To be sure, for those who are familiar with the workings of the RICO statute, the fact that the Hospital for Special Surgery is named in the Reynolds indictment as the “enterprise” that was used to carry out a pattern of racketeering activity does not in any way reflect negatively on the hospital itself. To the contrary, in announcing the charges against Mr. Reynolds, United States Attorney Preet Bharara described the hospital as a victim, asserting that the defendant “tarnished the hospital’s reputation and did a disservice to its employees.” Similarly, news articles published upon the announcement of the indictment quoted a spokeswoman for the hospital as stating that the alleged crime “was clearly the act of an individual undermining our overall compliance procedures as well as our ethical standards,” and noted that the hospital had been cooperating with the government’s investigation since 2008. The RICO statute itself also expressly contemplates that the enterprises in RICO offenses may be thoroughly legitimate and honorable institutions, for the definitional provisions in the RICO statute refer to an “enterprise” as not an association of wrongdoers, but rather as including “any individual, partnership, corporation, association, or other legal entity.” Nonetheless, one can only imagine that the government’s decision to identify the hospital itself as the RICO enterprise through which years of illegal activities were conducted produced at least some measure of consternation among those in the hospital who cooperated throughout the many years of the government’s investigation.
How, then, did it comes to this? How did what could be seen as a relatively garden-variety kickback scheme (albeit one allegedly conducted from the executive suite of a prestigious medical institution) end up as a RICO case in which the victim itself is named as the RICO enterprise? And why were the statutes that are usually at the government’s disposal for attacking alleged extortion, kickbacks and corporate corruption supplanted by the application of the sweeping RICO statute? The answer, as can often be the case in the RICO context, lies in the statute of limitations and the passage of time. As the face of the indictment reveals, the only RICO predicates that occurred within the five-year limitations period applicable to most federal crimes were those that related to the alleged kickbacks demanded from the British-based health care organization. But under RICO, as long as the last predicate act in furtherance of the alleged scheme occurred within five years of the date the indictment was handed up, otherwise time-barred offenses can be used as RICO predicates as well. Thus, by pursuing a RICO charge, the government has made up for the seemingly slow pace of its investigation, and has enabled itself to bring in proof of all alleged acts of extortion and kickbacks, rather than just those that occurred after the fall of 2007.
Finally, it is worth noting the mischievous effects of this reliance on RICO to avoid issues with the statute of limitations. For Mr. Reynolds, the result is that rather than merely being charged as an individual who allegedly received kickbacks, he bears the label of an accused racketeer. For the hospital, rather than merely being an alleged victim of the crimes charged (and, by all appearances, a victim that fully cooperated with the government), it is now a victim that the government has also labeled as a RICO enterprise. In light of these most unfortunate consequences, one can only hope that the Reynolds prosecution is anomalous, and that when the government next decides to use RICO in the health care context, it does so based on the specific conduct alleged, rather than as a means to salvage otherwise untimely claims.
To read more from Robert Radick, please visit www.maglaw.com