Appeared in the National Law Journal
April 8, 2002

Computation of criminal sentences under federal law relies on a scoring system that considers a variety of factors including the nature of the offense, its severity and complexity and the defendant’s relative role.

The scoring system, known as the United States Sentencing Guidelines, was created to promote uniformity and predictability. The United States Sentencing Commission updates the guidelines every year, based on input from practitioners, judges and other stakeholders in the criminal justice system. The 2001 United States Sentencing Guidelines Manual adopts several amendments certain to affect sentence calculations in health care fraud cases. Some of these amendments comprise the “Economic Crimes Package,” a series of significant changes to fraud and larceny guidelines promulgated by the United States Sentencing Commission. The package became effective on Nov. 1, 2001.

The new edition of the guidelines stiffens sentences for higher-loss white-collar offenses, and implements several Application Notes amendments that seek to promote uniformity in loss calculation for comparable economic offenses. Beyond the Economic Crimes Package, the new guidelines moderate penalties for money-laundering convictions arising out of underlying fraud offenses.

Integration of economic crimes sentencing
The most obvious change under the new guidelines is the integration of all economic crimes into a single guideline section. Guideline Section 2B1.1 now covers all offenses previously treated under Section 2B1.1 (Theft), 2B1.3 (Property Destruction) and 2F1.1 (Fraud). Although former sections 2B1.1 and 2F1.1 cross-referenced each other on a number of issues, the Sentencing Commission responded to serious concern from practitioners that separate loss tables and enhancement schemes risked disparate results for similar crimes. To address that concern, the new guidelines now have a single loss table at 2B1.1(b)(1).

The loss curve resulting under the new table departs significantly from earlier versions of the sentencing guidelines. Sentencing outcomes at the lower reaches of the loss table are slightly more lenient, while outcomes in the middle and upper ranges of the guidelines are significantly more severe.

The new guidelines remove the two-level increase for “more than minimal planning” that applied for those schemes whose complexity exceeded the simplest form of a crime. Under the new guidelines, this enhancement is eliminated along with the alternative two-level enhancement for a scheme to defraud more than one victim.

The deletion of the enhancements results from a concern that the “more than minimal planning” increases potentially overlapped with the enhancement for use of “sophisticated means” at 2F1.1. The Sentencing Commission has also noted that the elimination of the “more than minimal planning” provision will end the frequent need for judicial fact-finding on the application of this enhancement. A portion of the increase in loss score for higher-loss cases replaces the “more than minimal planning” enhancement, which in any event applied more commonly in higher-loss cases. The remainder of the increase in the loss score reflects the Sentencing Commission’s intention to bring about an overall increase in sentences for more serious economic crimes.

Many changes of note in sentence outcomes
The new guidelines alter both the quality and quantity of sentencing in virtually all ranges of the guidelines.

Higher losses, up to $ 70,000 — as opposed to $ 40,000 under the old guidelines — now qualify for treatment under zones B and C of the sentencing chart that allow alternatives to outright incarceration such as split, intermittent or noncustodial sentences.

For defendants in the highest loss ranges, the new guidelines can add 30% to 50% more time onto a sentence. For example, a defendant in a case with a loss of $ 2.5 million or more — assuming the simplest application of sentencing factors, it gets even worse otherwise — faces a sentence range of 51 to 63 months under the new guidelines as opposed to 37 to 46 months before. In other words, the net increase in minimum sentence at this level is 14 months, or 38%, over the old guidelines.

Even defendants in the midranges, up to $ 2.5 million, face substantially greater risks. Slightly higher minimum sentences in the mid-range may significantly affect the nature of the sentence a white-collar defendant serves. Under Bureau of Prisons rules, defendants sentenced to terms of 36 months are eligible, depending on other relevant factors, for immediate placement in a minimum-security facility.

In contrast, defendants sentenced to longer terms are, with rare exception, required to begin their sentences in higher-security facilities.

As part of its aim to streamline and equalize sentencing for economic crimes, new Section 2B1.1 contains a revised definition of loss that integrates the separate definitions from the earlier fraud and theft guidelines.

Under new Section 2B1.1, “loss” is now defined as “the greater of actual loss or intended loss.” While the new definition essentially integrates all the elements of the old fraud guideline, it does significantly expand one area of loss. “Actual loss” now means “the reasonably foreseeable harm that resulted from the offense,” as opposed to the “value of the money, property or services taken.” Previously, consequential damages were limited. Under the new scheme, loss calculations can include consequential damages in every economic crime case.

One example of how this expanded definition may affect health care fraud would be its possible application in the increasingly common quality-of-care cases. The government may now argue that a defendant be sentenced not only based on the amounts he received for sub-standard care, but also on any amounts paid for the patient to receive proper care from a second provider or to correct any harm caused by the substandard care. Under previous versions of the sentencing guidelines, defendants were explicitly entitled to credit against loss only in cases involving misrepresentation of value, product substitution and loan application fraud. In these situations, the loss calculation would be reduced by any value that was actually realized by the victim of the offense. See United States Sentencing Guidelines, 2000, Section 2F1.1. App. Notes 8 (a)-(c). Application Note 2(E) in the 2001 guidelines redefine “credit against loss” for money or property returned prior to the detection of the offense by the victim or a government agency, and, in loan fraud cases involving collateral, any amounts the victim has realized through the sale of the collateral. Otherwise, the new guidelines do away with other credits.

By adding another incentive for voluntary disclosure of fraudulent conduct, the credit for return of moneys obtained by fraud may affect some health care cases. The credit is unlikely to affect a broad range of health care fraud cases because the current reality is that providers who participate in Department of Health and Human Services’ office of inspector general’s Voluntary Disclosure Program are often able to avoid criminal prosecution.

Moreover, recent pronouncements by the Centers for Medicare and Medicaid Services (CMS) suggest that providers will no longer simply be able to return overpayments without CMS or an intermediary first reviewing the nature of the overpayment. Still, this guideline may provide significant mitigation of sentence in those infrequent situations where the government elects to prosecute a disclosing provider.

In addition to the changes under the Economic Crimes Package, the 2001 guidelines also include changes to the money-laundering guidelines which can significantly improve outcomes for those convicted of money laundering arising out of the reinvestment of fraud proceeds.

Originally designed to punish those convicted of concealing the proceeds of drug trafficking and organized crime, computation of the money-laundering offense level under previous versions of the guidelines began with a base level 20 or 23 for money laundering, or a base level 17 for engaging in monetary transactions with the proceeds of criminal activity. In cases where the laundered funds exceeded $ 100,000, the guidelines increased the sentence score using the monetary loss table at Section 2S1.1.

In fraud cases, the sentencing scheme often leads to money-laundering sentences that far exceeded the sentence for the underlying fraud. An illustrative example is that of a provider convicted of billing $ 6 million for unnecessary services, and then investing the proceeds in a mutual fund.

Such a defendant would receive a fraud-guideline score (assuming only a “more than minimal planning” enhancement) of 21, corresponding to a sentence range of 37 to 46 months, but would net a monetary transactions score of 27 corresponding to a sentence range of 70 to 87 months, double the fraud sentence even where the ill-gotten funds were invested with no motive of concealment.

The 2001 guidelines undertake to draw a distinction between narcotics crimes and crimes of violence on the one hand and property crimes on the other. The base offense level is now presumptively defined as “the offense level for the underlying offense,” if the defendant is also liable for the underlying offense and that offense level can be determined. The specific offense

characteristics now add a six-level increase applicable only to certain violent crimes and narcotics crimes, and also add either one point for a defendant convicted of transacting the proceeds of illegal activity, two points for a defendant convicted of money laundering and four points for a defendant engaged in a money-laundering business. In the scenario described above, the same health care fraud defendant would net a fraud score of 24 and a money-laundering score of 25. While the defendant is punished more severely than before for the underlying fraud, a money-laundering conviction no longer jackpots the sentence.

Section 1B1.11 of the sentencing guidelines requires application of the guidelines in effect at the time of sentencing, unless application of such guidelines would violate the ex post facto. Given the substantial differences in sentence that can result from application of the 2001 guidelines as opposed to earlier versions, practitioners should be vigilant for situations in which application of the current guidelines would be inappropriate for their clients. Such a determination requires careful analysis.

Although in some respects the new guidelines were designed to promote uniformity in sentencing, they also aim to provide stricter sentencing in cases involving higher dollar loss, such as many health care fraud cases. By enhancing penalties for serious white collar offenses and expanding the definition of loss, the new guidelines create enhanced risks for those facing prosecution. At the same time, however, the money-laundering guidelines may mean that certain fraud defendants are still better off with the 2001 version.