Health Law Daily Wrap Up, GENERAL HEALTH CARE NEWS—9th Cir.: Healthcare fraud co-conspirator not guilty of stealing an identity he never possessed, (Sep 6, 2024)

By Robert B. Barnett Jr., J.D.

“We emphasize from the start, however,” the Ninth Circuit said, “that the facts presented by this appeal are unusually narrow.”

The Ninth Circuit has vacated an individual’s conviction for aggravated identify theft, involving his role in a massive Medicare and Medicaid fraud scheme, because the jury instruction failed to require that the possession of the means of identification be “at the crux” of the healthcare fraud scheme. The decision came in the wake of the Supreme Court’s intervening decision in Dubin v. United States, 599 U.S. 110 (2023), which held that false use of a patient’s information in a fraudulent billing scheme was not at the crux of what made the overbilling fraudulent. Thus, the individual might have been guilty of various crimes but not of aggravated identify theft. Although the 24-month sentence was thrown out, the individual is still required to serve a 156-month sentence for conspiracy to commit healthcare fraud (U.S. v. Ovsepian, No. 21-55515 (9th Cir. Sept. 3, 2024)).

Background. Manor Medical Imaging, Inc., of Glendale, California, is what is known as a “prescription mill” that generated thousands of prescriptions for expensive anti-psychotic medications that were medically unnecessary. A medical doctor named Kenneth Johnson allowed Manor employees to pose as physicians to issue prescriptions under Johnson’s name. Co-conspirator pharmacists then would fill the prescriptions and bill Medicare of Medi-Cal for the drugs. Manor would then resell the drugs to pharmacies, which would rebill Medicare and Medicaid.

In some instances, Manor employees would recruit low-income, drug-addicted, or mentally ill beneficiaries of Medicare or Medi-Cal to participate in return for a kickback. The beneficiaries would be brought to Manor where each turned over their healthcare program identification cards, at which point they obtained a prescription for a psychological medication. Drivers employed by Manor would transport the beneficiaries to co-conspirator pharmacies where the drivers would ensure that the prescriptions were filled. The drivers took the medications from the beneficiaries, delivered the medications to Manor, provided the cash to the beneficiaries, and dropped them back off at a parking lot or bus stop.

Artak Ovsepian joined Manor as a driver, ultimately becoming manager of the drivers. Although he was initially unaware of the fraudulent conspiracy, he willingly continued in it after learning the truth. When the federal government learned of the conspiracy, Ovsepian was charged with conspiracy to commit healthcare fraud, aggravated identity theft, and various related crimes. Aggravated identity theft, which requires an underlying crime, in this case healthcare fraud, carries a maximum two-year sentence. Although the government originally sought to charge Ovsepian under all three prongs of aggravated identity theft—use, transfer, and possession—it ultimately decided to pursue him only for possession.

At trial, Ovsepian admitted his involvement. He was found guilty and sentenced to 156 months, plus the 24 months for aggravated identity theft. He appealed the decision to the Ninth Circuit, which affirmed. Ovsepian then petitioned for certiorari to the Supreme Court. While the petition was pending, the Supreme Court issued Dubin v. United States, 599 U.S. 110 (2023), which dealt directly with aggravated identity theft. The Court ruled that a prong of aggravated identity theft is violated only when that prong is at the crux of what makes the underlying crime criminal. Where fraud is involved, the Court said, the means of identification must be used in a manner that is fraudulent or deceptive. Thus, its use must include who is involved, not merely how and when the services were provided to the patient.

Following the issuance of Dubin, the Supreme Court granted his petition for certiorari, it vacated the Ninth Circuit decision, and it remanded for further proceedings in light of Dubin.

Aggravated identity theft. Ovsepian’s argument before the Ninth Circuit on remand was that he was innocent of the possession prong of aggravated identity theft. This claim, the Ninth Circuit concluded, forced it to answer a question never previously addressed: When the government has tried and convicted a petitioner under only one prong of a divisible statute, must the petitioner demonstrate actual innocence as to that prong only, or as to all divisible prongs of the statute under which he was indicted? The Ninth Circuit ruled that he is required to demonstrate actual innocence only for the prong for which he was actually tried and convicted.

In reaching that decision, the Ninth Circuit rejected the government’s argument that it could have proved that he guilty under the other two prongs. Tough luck, the appellate court said. If the government could have convicted him under those other prongs, it should have pursued convictions under those prongs. A conviction could not be upheld on the theory that a hypothetical jury would have convicted him had he been tried on those claims. A criminal defendant is entitled to more due process than that. In fact, the government had several options that it did not pursue, including petitioning the trial court after Dubin for permission to present additional testimony. It also could have refiled under the other prongs. Because it pursued none of those options, the government’s case would live or die on the possession prong of the aggravated identity theft charge.

Dubin said that the defendant’s use of the false identity must be “in relation to” a predicate offense, which means that the identification facilitates or furthers the predicate crime in some way. Employing a more restrained interpretation of the phrase “in relation to,” the Ninth Circuit concluded that Ovsepian did not use the patient’s identification in the true sense of the word. The patient named in the indictment was a Vietnamese woman. Ovsepian never met her and never had her identification cards in his possession. In fact, her contact with Manor predated his employment. The Ninth Circuit rejected the government’s argument that Ovsepian “possessed” the cards because her identification information was kept in its records, which Manor kept in case it were ever audited. Because this was all part of the conspiracy, the government argued, Ovsepian met the definition of “possession.”

The Ninth Circuit, however, concluded that Ovsepian was not guilty of aggravated identity theft because the use of the Vietnamese woman’s information was important for “how” and “when” the services were provided but not “who.” In other words, the “who” was not used deceptively. She was the person who allegedly received the services. Thus, the “who” was not at the crux of the criminality, and Ovsepian, regardless of what he was guilty of, was not guilty of aggravated identity theft. Keeping records that included the Vietnamese women’s identification cards was an act that was ancillary to the crime and not at the crux of what made the conduct criminal. Merely facilitating a predicate offense is not enough to qualify as possession of the identification information. By itself, it could not be used to establish Ovsepian’s guilt for the crime charged.

Perhaps other prosecutorial decisions may have led to a different result. Under the narrow confines of this one charge involving one prong and one beneficiary, the Ninth Circuit ruled, he was not guilty.

Jury instructions. Having established that he was probably innocent, the court turned to the jury instructions provided at trial. Under Dubin, the Ninth Circuit ruled, the jury instructions were “substantively defective” because they did not inform the jury that the defendant’s use of another’s identification must be at the crux of the criminality. Dubin required a more precise understanding of “in relation to” than was provided. As a result, the appellate court ruled, Ovsepian was prejudiced, and no reasonable juror could find him guilty of possession.

The Ninth Circuit, therefore, reversed, vacated, and remanded.

The case is No. 21-55515.

Judge: Wardlaw, K.

Attorneys: Bram M. Alden, Office of the U.S. Attorney, for the U.S. Benjamin Lee Coleman (Benjamin L. Coleman Law, PC) for Artak Ovsepian.

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