USA v. Peter Tsai

Filing

OPINION filed : AFFIRMED the district court's judgment, decision not for publication. Raymond M. Kethledge, Circuit Judge (AUTHORING); Helene N. White, Circuit Judge and Andre M. Davis, Circuit Judge for the United States Court of Appeals for the Fourth Circuit.

Case: 15-3655

Document: 29-1

Filed: 06/07/2016

Page: 1

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 16a0299n.06
No. 15-3655

FILED
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
UNITED STATES OF AMERICA,

)
)
)
)
)
)
)
)
)

Plaintiff-Appellee,
v.
PETER TSAI,
Defendant-Appellant.

Jun 07, 2016
DEBORAH S. HUNT, Clerk

ON APPEAL FROM THE
UNITED STATES DISTRICT
COURT FOR THE SOUTHERN
DISTRICT OF OHIO

Before: KETHLEDGE, WHITE, and DAVIS,* Circuit Judges.
KETHLEDGE, Circuit Judge. Peter Tsai pled guilty to smuggling and conspiring to
commit health-care fraud. The district court sentenced him to 78 months in prison. He argues
that the district court improperly pressured him to plead guilty and then imposed an unreasonable
sentence. We affirm the conviction and sentence.
I.
Tsai was born in Taiwan and moved with his family to Bad Axe, Michigan, where his
father ran a successful obstetrics practice and his mother worked as a midwife. By his own
account, he had a happy childhood as a “science and computer geek.”

He attended the

Cranbrook School before receiving a bachelor’s degree from Wesleyan University and a medical
degree from the University of Alabama at Birmingham. He moved to Huntington, West Virginia
for a residency at St. Mary’s Hospital, and settled down as a general practitioner for the
Department of Veterans Affairs.
*

The Honorable Andre M. Davis, Senior Circuit Judge for the United States Court of
Appeals for the Fourth Circuit, sitting by designation.

Case: 15-3655

Document: 29-1

Filed: 06/07/2016

Page: 2

No. 15-3655, United States v. Tsai
There his career began to slide.

Not long after hiring Tsai, the VA fired him for

“unprofessional and improper conduct, misuse of government equipment, waste of time and the
accessing of unauthorized and pornographic websites.” Tsai and his girlfriend, a psychiatric
aide, moved across the Ohio River to start a medical-imaging center in Coal Grove, Ohio. Tsai’s
parents put up $900,000 for a computerized tomography (CT) scanner and assumed a $600,000
mortgage on an office building. The new Watkins-Tsai Imaging Center floundered: Tsai had
trouble showing up to work, and days passed without any patients.
Tsai’s parents intervened. They helped him set up a medical practice, Advanced Family
Medical Center, across the hall from the imaging center. They also moved to Ohio to oversee
operations, and brought in Tsai’s cousin to handle patient billing. Advanced Family took off,
and the imaging center’s fortunes changed for the better. At first, the offices’ stock-in-trade was
the treatment of purportedly arthritic knees:

Tsai would “diagnose” his Advanced Family

patients, including teenagers as young as 15, with osteoarthritis after briefly touching their knees.
Then he would direct them to the imaging center so that the patients could receive injections of
Synvisc (an arthritis medication), guided by unnecessary CT scans of their knees.
After focusing for several years on his patients’ knees, Tsai started diagnosing nearly all
of his patients with piriformis syndrome, a rare condition that causes pain in the lower back and
legs. These diagnoses too would create work for his CT scanner, since piriformis treatments
required a general scan of the patient’s hip and another scan to guide Tsai’s injection of lidocaine
and steroids into the patient. Many of Tsai’s patients returned for repeated steroid injections and
CT scans. One patient received 85 scans over a period of three years. Tsai kept his patients
coming back by making their prescriptions for pain medications contingent on more scans and
injections.

Tsai diagnosed piriformis quickly—usually after a quick touch of the patient’s

—2—

Case: 15-3655

Document: 29-1

Filed: 06/07/2016

Page: 3

No. 15-3655, United States v. Tsai
back—and liberally. An Advanced Family employee testified at trial that Tsai once walked into
the clinic’s waiting room near the end of a workday and went around to each patient, saying
“You need a shot”; “You need a shot”; “You need a shot.” One person in the waiting room at
that time went to the front desk after Tsai told her she needed a shot and said, “I’m not even a
patient here.”
Tsai’s billing practices were no more discreet. He submitted most of his claims to
Medicare under two billing codes, 77011 and 77012, covering different kinds of CT scans. In
September 2009, a federal contractor hired to root out Medicare fraud noticed that Watkins-Tsai
had submitted 96% of all the 77011 claims in the State of Ohio in 2008. In June 2011, agents
from various state and federal agencies obtained a warrant to search Tsai’s clinic and the
imaging center. They seized office records, computer hard drives, and Synvisc boxes bearing
French and Turkish labels, along with empty, discarded Synvisc boxes marked “Approved for
Canada Only.” Investigators eventually concluded that between 2005 and 2011, Tsai and his
parents had billed Medicaid and Medicare for approximately $2 million in unnecessary medical
procedures.

Investigators also surmised that, to cut costs, Tsai had illegally imported and

administered Synvisc that was not approved for use in the United States.
A federal grand jury indicted Tsai, his parents, and his cousin for health-care fraud and
conspiracy to commit health-care fraud. See 18 U.S.C. §§ 1347, 1349. The grand jury charged
Tsai with additional counts of smuggling and money laundering related to the purchase of the
foreign Synvisc. See 18 U.S.C. §§ 545, 1956(a)(2)(A); 21 U.S.C. § 352. Tsai and the other
defendants pled not guilty and went to trial in August 2014. At trial, the government presented
its case through the testimony of three law-enforcement agents and six former Watkins-Tsai and
Advanced Family employees, including Tsai’s now-ex-girlfriend (and the mother of his three

—3—

Case: 15-3655

Document: 29-1

Filed: 06/07/2016

Page: 4

No. 15-3655, United States v. Tsai
children). These witnesses testified that Tsai did the following: regularly told schedulers at
Watkins-Tsai to hold imaging appointment slots open for new Advanced Family patients whom
Tsai had not yet even examined; ignored warnings from CT technicians and other employees
regarding the health dangers of over-exposing patients, including juvenile patients, to CT
radiation; performed scans and Synvisc injections on both knees of patients who complained of
pain only in one knee; and performed mass “diagnoses” in the waiting room of Advanced
Family.
At the end of the third day of trial, the district court dismissed the jury and asked the
government about the schedule for the rest of its case-in-chief. The government responded that it
planned to call nine more witnesses. The court asked whether there had been “any subsequent
plea negotiations since I last – since we last talked in the courtroom” and whether the
prosecution had “given calculations as to where you believe their clients might be on the
sentencing guidelines[.]” The government and Tsai’s counsel told the court that the parties had
discussed a potential sentencing guidelines range for Tsai. The court then told counsel the
following:
All right. I, of course, can’t get involved in plea negotiations, but
for whatever it’s worth, my impression so far is that, and it’s only
part of the government’s case, but I think the government seems to
have a very good case. That may change, you know, when
defendants, you know, other witnesses or when defendants do
something. But if what I heard is true and it’s not rebutted at all, it
will affect my determinations in sentencing if the defendants are
convicted. Anything further for the day?
The government and counsel for Tsai’s father told the court that they had nothing else to say.
The next day, per an agreement with the government, Tsai pled guilty to two of the
indictment’s four counts against him in exchange for the dismissal of the other two counts.
Under the agreement, the government recommended reducing by two levels Tsai’s sentencing-

—4—

Case: 15-3655

Document: 29-1

Filed: 06/07/2016

Page: 5

No. 15-3655, United States v. Tsai
guidelines offense level in recognition of his acceptance of responsibility for his crimes. See
U.S.S.G. § 3E1.1(a). The plea agreement stipulated that Tsai “is pleading guilty because [Tsai]
is in fact guilty” and that his plea was made “freely and voluntarily” and was “not the result of
force or threats or of promises apart from those set forth” in the agreement. At Tsai’s change-ofplea hearing, the district court asked Tsai whether he was pleading guilty of his “own free will.”
Tsai answered “yes.”
Ten months later, at Tsai’s June 2015 sentencing hearing, Tsai’s counsel discussed his
client’s reasons for pleading guilty midway through trial:
[T]he matter to proceed to trial here was not made for any
unprincipled reason. And it’s not my intention here to argue any
of the evidence that we would have presented and whatnot, but it
became clear at the end of day four, I think, day three or day four,
that the right thing to do was to enter a plea here and that this case
wasn’t going to get any better despite our original hopes. And I
just want you to understand, he understood that, my client did that,
and this trial did come to an end.
And part of the hope of that, Your Honor – I understand
there are issues out there of potential patient harm, not just
financial – but one of the reasons that we stopped the trial was so
that we didn’t go further into this and make things worse.
A few minutes later, the government highlighted how things might have gotten worse for
Tsai if the government had continued to present its case at trial. Specifically, “the case ended
before we really got deep into the [fraudulent] billing issues,” and the jury would have “heard
more about the Synvisc that was bought from Turkey” and about the risks associated with the
administration of improperly labeled Synvisc. The government also emphasized the following:
another point that we hadn’t gotten to in the trial was the steroid
part of it. These were shots that involved steroid injections for the
piriformis, and as Dr. Akbik put in his report and was going to
testify, the highest dose a person is supposed to get in a year,
calendar year, equals about 240 to 350 milligrams per patient per
year. Some patients received between 3,000 and 6,000 milligrams
over a three-year period, so they’re averaging 1- to 2,000

—5—

Case: 15-3655

Document: 29-1

Filed: 06/07/2016

Page: 6

No. 15-3655, United States v. Tsai
milligrams. That’s three to four times what they’re allowed to
have in a year for three straight years, and he would have testified
about the damage that that can cause.
Meanwhile, Tsai’s counsel conceded at sentencing that, “If we take a look at the nature
and circumstance of the offense . . . I think this [presentence report] is actually accurate.” That
report included, among other things, the following conclusion:
Peter Tsai’s patients who were overexposed to radiation due to the
unnecessary CT scans can also be considered victims, as they
trusted their doctor to make decisions for the betterment of their
health; however, he showed a lack of regard for their health due to
the overexposure to radiation.
When the district court sentenced Tsai, it stated that the trial testimony regarding “the
abuse with the [CT] scan, the overuse of the [CT] scan, the ignoring the professionals, the
women who did the CT scans and the nurses who worked there, was extremely concerning. I
sometimes go to bed at night thinking to myself, ‘I wonder how many people are walking around
Coal Grove, Ohio, that have had way too much radiation?’ And yes, it’s speculative, but who
knows when that’s going to have a harmful effect on them.” The court noted that the harm
caused by Tsai’s behavior was not limited to the fraud perpetrated on Medicare and Medicaid:
“in addition to the money in this case, it’s the harm that was done to people, the harm that was
done to the patients, the harm that was done to the employees. That just can’t be overlooked.
And if there ever was a case that should be at the top of the guidelines, this is that case[.]” The
court then sentenced Tsai to 78 months’ imprisonment, which was at the top of his guidelines
range.
Tsai timely appealed.

—6—

Case: 15-3655

Document: 29-1

Filed: 06/07/2016

Page: 7

No. 15-3655, United States v. Tsai
II.
A.
Tsai argues that he was “coerced” into pleading guilty when the district court commented
at the end of the third day of trial that “the government seems to have a very good case.” He
contends that the court’s comments amounted to a violation of Federal Rule of Criminal
Procedure 11(c)(1), which bars courts from participating in discussions between criminal
defendants and the government regarding plea agreements. Tsai never raised this argument in
the district court, so he must show not only that the district court clearly erred, but also that the
alleged error affected his substantial rights. See Fed. R. Crim. P. 11(h); United States v. Ushery,
785 F.3d 210, 221 (6th Cir. 2015).
The government concedes that the district court’s comments regarding plea negotiations
“did not follow best practices.” Gov’t Br. at 45. Even if one assumes that the district court
violated Rule 11, however, Tsai must show that the error affected his substantial rights. And to
do that Tsai must show “a reasonable probability that, but for the error, he would not have
entered the plea.” Ushery, 785 at 221 (quoting United States v. Dominguez-Benitez, 542 U.S. 74,
83 (2004)).
Tsai has not carried his burden here. To the contrary, his counsel’s representations in the
district court show that he entered a plea mid-trial because it appeared the trial would only get
worse for him. As his trial counsel said at sentencing, “it became clear at the end of . . . day
three . . . that the right thing to do was to enter a plea here and that this case wasn’t going to get
any better despite our original hopes.” Entry of a plea mid-trial also spared Tsai from facing the
second half of the government’s case, which would have shown the serious harm that Tsai

—7—

Case: 15-3655

Document: 29-1

Filed: 06/07/2016

Page: 8

No. 15-3655, United States v. Tsai
inflicted on his patients. As Tsai’s counsel acknowledged, “we stopped the trial . . . so that we
didn’t go further into this and make things worse.”
Tsai contends that the timing of his change of plea—the day after the district court’s brief
comments on the merits—indicates that the court’s comments caused him to plead guilty. But
the change of plea also followed a full day of testimony that was devastating to Tsai’s claim of
innocence.

As the district court later commented at sentencing, “I’ve never seen such an

amazing array of witnesses in a case, nurses, technicians, people who had worked there, who all
told exactly the same story. That usually doesn’t happen. [The government] must have beat the
bushes quite a bit to find those folks, because their testimony was extremely compelling.” Tsai
has not shown that his own trial counsel’s explanation for the change of plea can reasonably be
doubted. His claim is without merit.
B.
Tsai argues that the district court’s sentence was procedurally unreasonable.

In

particular, Tsai contends that the court erred when it sentenced him to a prison term at the high
end of his guidelines range based in part upon what Tsai calls the “speculative harm” that he
inflicted on his patients through overexposure to radiation.
When a district court imposes a sentence, it must take into consideration “the nature and
circumstances of the offense” and the “seriousness of the offense.” 18 U.S.C. § 3553(a). Here,
per the sentencing guidelines, the court principally based Tsai’s guidelines range on the
monetary harm his scheme caused the public fisc. But the district court properly concluded that
this monetary loss did not capture the full seriousness of the offense, because Tsai put his
patients’ health at considerable risk by means of unnecessary CT scans and shots. Moreover, at
sentencing, Tsai accepted the findings of the court’s presentencing report, including its

—8—

Case: 15-3655

Document: 29-1

Filed: 06/07/2016

Page: 9

No. 15-3655, United States v. Tsai
conclusion that Tsai “showed a lack of regard” for the health of his patients, “who were
overexposed to radiation due to . . . unnecessary CT scans.” And the trial testimony showed that
Tsai deliberately ignored warnings from his own employees that he was putting his patients’
health in grave danger.

The district court was entirely correct to consider those risks in

sentencing Tsai.
Tsai also argues that his sentence is substantively unreasonable, but through his plea
agreement he waived his right to make that argument.
The district court’s judgment is affirmed.

—9—