Nine Defendants, One Acquittal: Aggressive Federal Prosecution Puts Medical Marketing in the Crosshairs

In United States of America v. Michael Alan Beauchamp, et al., the federal government brought to jury trial nine individuals affiliated with Forest Park Medical Center in Dallas on criminal charges related to health care fraud. The 2019 trial concluded with seven guilty verdicts, one defendant as to whom the jury was unable to reach a verdict, and only one acquittal, of Dr. William Daniel “Nick” Nicholson, the sole defendant represented by Winston & Strawn. Two years later the remaining defendants in the case were collectively sentenced to a staggering 75 years in prison and judgment entered against them for over approximately $83 million in restitution, fines and penalties.  How did Winston’s Tom Melsheimer, Scott Thomas, and Grant Schmidt obtain this favorable outcome for Dr. Nicholson in a trial where the convicted defendants were sentenced with such staggering terms and penalties, and, in the case of the doctors among them, the loss of their medical licenses?

Forest Park Recruits Doctors and Their Patients

Forest Park Medical Center was a physician-owned hospital in Dallas. It was not part of any insurance networks and did not accept patients whose procedures were paid for through federally-funded programs such as Medicare or Medicaid. Forest Park’s business model relied instead on billing private insurers who provided generous reimbursement for out-of-network doctors and facilities. The higher co‑insurance payments that patients would otherwise have paid for the out-of-network procedures performed at Forest Park were offset by patient discounts which were not identified as such to the private insurers. According to the government’s theory, doctors were illegally incentivized to perform surgeries at Forest Park for these privately-insured patients by means of arrangements formally characterized as consulting fees or “marketing money.”

The Travel Act Federalizes State Bribery Laws

The federal government routinely subjects health care fraud involving federally-funded health insurance programs to criminal enforcement. This includes enforcement of bribery and anti-kickback statues against “pay for patients” arrangements between doctors and medical facilities for services reimbursed through Medicare, Medicaid, or TRICARE. However, arrangements covering services reimbursed through private insurers have traditionally been understood to fall under state criminal statutes. But states rarely enforce these statutes in the health care arena, tempting aggressive medical professionals to take a calculated risk.

In prosecuting the Forest Park defendants, the federal government argued that the Travel Act, a 1960s federal criminal statute originally intended to federalize state bribery laws in the context of organized crime, similarly federalizes those state laws in the context of health care fraud involving interstate commerce, including services paid for by out-of-state private insurers. While this novel application of the Travel Act will almost certainly be challenged on appeal of the Forest Park guilty verdicts, the successful action against the seven Forest Park medical professionals convicted in Federal District Court represents a significantly more aggressive federal stance at a time when both medical facilities and physicians are facing unprecedented commercialization pressures.

Winston & Strawn Defends Dr. Nicholson

The government initially indicted 21 individuals affiliated with Forest Park. Of those, 10 pled guilty prior to trial, charges were dropped against one, and one received a separate trial. The remaining nine individuals were tried together. In addition to Dr. Nicholson, these included four other doctors, a nurse, an administrator, and the hospital’s managing partner.

The successful defense of Dr. Nicholson in such a legally and procedurally complex trial required multiple considerations and strategies. It was important to distinguish the facts and the arguments helpful to Dr. Nicholson’s defense from those applicable to other, differently situated defendants. This involved intensive fact-gathering by Tom and his team at Winston & Strawn, including partner Scott Thomas. Critically, they were able to show that the frequency and types of procedures performed by Dr. Nicholson at Forest Park did not vary substantially during the period of the marketing program and after it stopped, and thus that those payments did not influence his choice of hospital for his patients. These compelling but often technical facts were presented in a clear and focused manner to a lay jury.

It was also important that the Winston & Strawn team encouraged the jury to consider Dr. Nicholson’s facts on their own merits without imputing culpability to the other defendants or otherwise making comparative arguments that the other defendants could seek to turn to their advantage. Therefore, although Dr. Nicholson was the only defendant represented by Winston & Strawn, the Winston & Strawn team played a leadership role in trying to keep the total defense as cohesive as possible, providing advice and support to other defendants where appropriate. The team played this role strictly behind the scenes, so as not to take a leading role in front of the jury as to anyone but Dr. Nicholson.

Dr. Nicholson himself played a crucial role throughout the process. He was willing to expend both the resources and the time and attention necessary to obtain justice for himself, in the form of acquittal on all charges. It is axiomatic that lawyers have an obligation to zealously defend their clients, and that the Winston & Strawn team did so in this case; Dr. Nicholson’s participation further demonstrates the positive role a similarly engaged client can play in obtaining a favorable outcome.

Getting to “No”: Doctors and Health Care Facilities Reconsider Their Options

Prior to Beauchamp, many health care facilities first determined the types of marketing arrangements they wished to enter into with doctors, and then sought permissible means of structuring them. Generally, this involved avoiding reimbursement through federally funded programs such as Medicare, Medicaid, and TRICARE, on the one hand, and assuming that state-level enforcement would continue to be weak or non-existent, on the other. Some health care facilities and doctors, including at Forest Park, had previously obtained legal advice, understood to be reliable at the time, that these marketing arrangements were lawful, further bolstering their confidence that they were effectively navigating around potential areas of liability.

The guilty verdicts in Beauchamp upend these long-held assumptions. Federalizing state bribery and anti-kickback laws through application of the Travel Act makes any minimal enforcement at the state level irrelevant, and applying the Travel Act broadly to interstate commerce in the form of payments by private insurers makes ineffective the tactic of excluding reimbursements through federally-funded programs. Moreover, the consequences of conviction include both lengthy prison sentences and, where applicable, loss of medical license. Therefore, health care facilities and doctors should subject both existing and future marketing arrangements to rigorous and conservative legal review, with a view to determining the limits of what they may do rather than structuring a vehicle for what they want to do. As the federal government’s strategy in Beauchamp may not be its last attempt to narrow acceptable commercial activity within health care, what is accepted as permissible in practice by facilities and doctors today may be grounds for criminal prosecution tomorrow.