government's memorandum in aid of sentencing€¦ · medicaid, or a private insurer through...

UNITED STATES DISTRICT COURTEASTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

UNITED STATES OF AMERICA, CRIMINAL NO. 11-20468

Plaintiff,Hon. Arthur J. Tarnow

- vs -

D-1 BABUBHAI PATEL,

Defendant.________________________________/

GOVERNMENT'S MEMORANDUM IN AID OF SENTENCING

Babubhai Patel was the mastermind of one of most sweeping health care fraud and drug

distribution schemes ever seen in this jurisdiction. This scheme, which Babubhai Patel devised,

oversaw, and directed, led to the theft of millions of dollars from health insurers and to the illegal

distribution of millions of dosage units of dangerous, addictive drugs. Babubhai Patel

implemented this scheme for his own financial benefit, and was willing to take whatever actions

were necessary to enrich himself, regardless of the effects of those actions on others. The

contempt Babubhai Patel displayed for the law, his subordinates, and his patients is outrageous,

and warrants a severe sanction from this Court. For the reasons set forth in this Sentencing

Memorandum, the United States recommends that the Court: (1) calculate defendant Babubhai

Patel’s Total Offense Level pursuant to the United States Sentencing Guidelines (USSG) at 41;

(2) impose a sentence of 360 months imprisonment, in the middle of the applicable guideline

range; (3) impose a three year term of supervised release, and (4) require the defendant to pay

restitution of $18,955,000, jointly and severally with his co-conspirators.

2:11-cr-20468-AJT-MKM Doc # 634 Filed 12/07/12 Pg 1 of 27 Pg ID 3321

FACTUAL AND PROCEDURAL BACKGROUND

On August 2, 2011, an Indictment was unsealed charging defendant Babubhai Patel with

one count of conspiracy to commit health care fraud (18 U.S.C. § 1349), fourteen substantive

health care fraud counts (18 U.S.C. §§ 1347 and 2), a count of conspiracy to distribute controlled

substances (21 U.S.C. 846), eighteen counts of substantive controlled substances distribution (21

U.S.C. 841(a)(1)), and criminal forfeiture. On August 10, 2012 after a six-week jury trial,

defendant Patel was convicted of both conspiracies, of ten of the fourteen substantive health care

fraud counts, and of fourteen of the eighteen substantive drug distribution counts.

During the course of the trial in the instant case, a number of witnesses – including

Babubhai Patel’s co-conspirators Arpit Patel, Pinakeen Patel, Anish Bhavsar, Hiren Patel, and

Chetan Gujarathi – testified that Babubhai Patel oversaw and directed a broad range of illegal

activities at the pharmacies he owned and controlled. This testimony was corroborated by billing

and prescription data, documents obtained from search warrants executed at the pharmacies, and

perhaps most significantly, through Babubhai Patel’s own words, captured in hundreds of

intercepted telephone calls and consensual audio and video recordings. Without recounting the

proceedings in detail, the government submits that the proofs presented at trial demonstrated the

following.

Babubhai Patel, a pharmacist and businessman, owned and controlled a number of

pharmacies in and around Detroit from approximately 2006 through August, 2011. The exact

number of pharmacies fluctuated from time to time, given Patel’s penchant for changing the

names, addresses, and corporate structures of the pharmacies frequently. However, Babubhai

Patel owned and controlled at least the 26 Michigan pharmacies listed in the Indictment. (See

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Chetan Gujarathi, 7-17-12. TR at 86). Babubhai Patel hired and employed the pharmacists,

claimed the largest share of the profits, and oversaw the operations of each of these pharmacies

during the relevant time period.

Babubhai Patel’s business model at each of these pharmacies was heavily dependent upon

fraud and the illegal distribution of controlled substances. Babubhai Patel and his co-

conspirators arranged for cash kickbacks and other forms of illegal remuneration to be paid to

physicians or referral sources in exchange for those referral sources providing prescriptions for

expensive medications, without regard to medical necessity, that could be billed to Medicare,

Medicaid, or a private insurer through one of the Patel Pharmacies. (See, e.g., Arpit Patel, 7-9-12

TR 34-35, Hiren Patel, 7-27-12 TR 17-19, Anish Bhavsar, 7-16-12, TR 25-33). Physicians

affiliated with Babubhai Patel would also write prescriptions for controlled substances for their

patients, again regardless of medical necessity, which would then be filled at one of the Patel

Pharmacies. These controlled substances were distributed to patients and patient recruiters as a

kickback in exchange for the patients using a Patel Pharmacy. (See, e.g., Arpit Patel, 7-9-12 TR

52-57, Pinakeen Patel, 7-19-12 TR 40-46).

Pharmacists within the Patel Pharmacies, at the direction of Babubhai Patel, would

facilitate the fraud scheme in several significant ways. First, the pharmacists would bill

Medicare, Medicaid, and private insurers for expensive, non-controlled medications which they

had in inventory but never actually dispensed to the patients. (See, e.g., Arpit Patel, 7-9-12, TR

38-39, Pinakeen Patel, 7-19-12, TR 38-40, Anish Bhavsar, 7-16-12, TR 14-21). The surplus of

medications generated through this practice would be returned to wholesalers or sold on the

black market, thereby enabling the Patel organization to maximize its profit on its inventory of

3


medications which were billed for but never dispensed. (See, e.g., Arpit Patel, 7-6-12, TR 13-18,

Chetan Gujarathi, 7-17-12, TR 15-20). During the investigation of this case, law enforcement

seized some 31 boxes containing 1,500 pounds of medications which had been billed but not

dispensed at one safe house – the value of which, when returned, was estimated by Babubhai

Patel to be valued at between $300,000 and $500,000. (See Tyler Parkison, 7-5-12, TR 68-79);

GX 7Y, p. 2, GX 7E, p. 1. In addition, pharmacists would also bill insurers for dispensing

medications that they knew were prescribed outside the course of legitimate medical practice,

thus defrauding insurers by billing for medications regardless of medical necessity. Pharmacists

would further defraud insurers by “shorting” medications by shorting the volume of medications

in a particular vial or bottle, while billing for the full amount of the medications. (See Pinakeen

Patel, 7-19-12, TR 64). All of these fraudulent practices were performed at the explicit direction

of Babubhai Patel, who felt they were necessary for his pharmacies to turn any kind of a profit.

Babubhai Patel summarized his approach to pharmacy management in an intercepted call with a

novice pharmacist: “If you are strict, you never make money. Not only do you not make money,

you lose it.” See GX 9O, pp. 1-2.

Pharmacists within the Patel organization also used controlled substances as bait to attract

marketers and patients to the Patel Pharmacies. Controlled substances, including oxycodone

(Oxycontin), hydrocodone (Vicodin, Lortab), alprazolam (Xanax), and codeine-infused cough

syrup, were distributed to marketers and patients on a massive scale, and this distribution of

controlled substances was thought to be necessary for the pharmacies to attract business.

Babubhai Patel was an explicit proponent of this view. In an intercepted telephone conversation

with one the pharmacists he employed, attached hereto as Exhibit A, Babubhai Patel and the

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pharmacist discussed a physician they were trying to recruit into the organization. Babubhai

Patel made clear that the physician needed to write controlled substance prescriptions if the

arrangement was going to work: “But if he does not write for controlled, you know, no one will

come.” See Exhibit A, GX 9P, p. 3. Later in the same conversation, Babubhai Patel stated “But

as for patients, I will get them for him . . . but if he does not write Vicodin or Lortab, then it’s

useless, isn’t it?” Id. at p. 4.

One especially blatant manifestation of the fraud and controlled substance distribution

schemes described above came from Babubhai Patel’s relationship with Visiting Doctors of

America (VDA), a group of physicians that purported to provide home visit services. The

testimony and evidence presented at trial established that the relationship between VDA and the

Patel Pharmacies was a fundamentally corrupt one. Marketers, including LaVar Carter, would

recruit patients at soup kitchens and the like, and bring them to a VDA “physician,” who would

perform a cursory examination of the patients. (See Arpit Patel 7-9-12, TR 52-56, LaVar Carter,

7-11-12, TR 23-26). VDA staff would provide blank, pre-signed prescriptions and patient files

to Arpit Patel, an employee of the Patel Pharmacies. (See Arpit Patel, 7-9-12, TR 51-52). Arpit

Patel, who was not a doctor or medical professional of any kind, would fill in the prescriptions

based upon what expensive, non-controlled medications would offer the most profit to the Patel

Pharmacies. (See Arpit Patel, 7-9-12, TR 51-52). These prescriptions would then be used to

support billings to various insurers, but would not be dispensed to the patients, enabling the Patel

Pharmacies to maximize their profit on those medications. (See Arpit Patel 7-9-12, TR 45-46;

Pinakeen Patel, 7-19-12, TR 43-44). Controlled substances would be dispensed to patients and

5


marketers as their payment for participating in the scheme. (See Arpit Patel, 7-9-12, TR 55;

LaVar Carter, 7-11-12, TR 25).

The Patel Pharmacies, as a collective, did a substantial amount of business during their

existence. Over the time frame included in the Indictment, the Patel Pharmacies billed

approximately $37,770,557 to the Medicare Program, approximately $23,134,691 to the

Medicaid Program, and approximately $6,359,872 to the private insurer Blue Cross/Blue Shield

of Michigan. See GX 21B, 22B, 23B. Furthermore, the Patel Pharmacies were major

distributors of controlled substances during this time frame. From January 1, 2009 through July

21, 2011, the Patel Pharmacies distributed approximately 494,640 dosage units of Schedule II

controlled substances (including oxycodone), approximately 4,953,124 dosage units of Schedule

III controlled substances (including hydrocodone), approximately 2,297,055 dosage units of

Schedule IV controlled substances (including alprazolam), and approximately 2,569,768 dosage

units of Schedule V controlled substances. See GX 69. As is set forth in more detail below, a

sizeable portion of this billing and controlled substance distribution was in service of illegal

ends.

GUIDELINE CALCULATION

The United States’s position is that the appropriate Total Offense Level for Babubhai

Patel, pursuant to the USSG, is 41. The United States’ calculation of the Total Offense Level is

as follows:

Offense Group 1, Health Care Fraud

(1) Base Offense Level, § 2B1.1(a)(2): 6

(2) Loss of more than $7,000,000 but less than $20,000,000, § 2B1.1(b)(1): 20

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(3) Sophisticated means, § 2B1.1(b)(10): 2

(4) Leadership role in offense involving more than five participants, § 3B1.1(a): 4

(6) Abuse of position of trust, § 3B1.3: 2

Total Offense Level, Offense Group 1: 34

Offense Group II, Controlled Substance Distribution

(1) More than 3,000 but less than 10,000 KG marijuana equivalents: 34

(2) Leadership role in offense involving more than five participants, § 3B1.1(a): 4

(3) Abuse of position of trust, § 3B1.3: 2

Total Offense Level, Offense Group 2: 40

Combined Total Offense Level, § 3D1.4: 41

The basis for this calculation is set forth below.

A. Amount of Intended Loss, Offense Group 1

Pursuant to § 2B1.1 of the USSG., the base offense level in an economic crimes case is

increased by the amount of the actual loss, or, if greater, the amount of the intended loss. USSG §

2B1.1; United States v. Wade, 266 F.3d 574, 586 (6 Cir. 2001). The United States submits thatth

a conservative approximation of intended loss in the instant case is $18.5 million, a figure that

Patel disputes in his objections to the PSR. An intended loss greater than $7 million but less than

$20 million subjects a defendant to a 20 point adjustment under Section 2B1.1 of the USSG.

In determining the amount of intended loss, “a sentencing court need not determine the

amount of loss with precision. A sentencing court need only make a reasonable estimate given

the available information.” United States v. Raithatha, 385 F.3d 1013, 1024 (6 Cir. 2004)th

(internal citations omitted) (vacated and remanded on other grounds, 543 U.S. 1136). So long

7


as the estimated amount of intended loss is supported by a preponderance of the evidence, the

court may use it in determining the appropriate offense level under the Sentencing Guidelines.

See United States v. Martinez, 588 F.3d 301, 326 (6 Cir. 2009). th

The witness testimony, intercepted calls, and documentary evidence presented at trial

established two principal sources of calculable intended loss in this case. The first source comes

from Patel’s corrupt relationship with VDA, and the prescriptions billed for by Patel’s

pharmacies which flowed from that relationship. The second source of intended loss comes from

the overall course of fraudulent conduct Patel set in place, oversaw, and nurtured in his

pharmacies over the course of multiple years. These sources are examined in turn.

Arpit Patel, Pinakeen Patel, and Lavar Carter all testified at length to the comprehensive

fraudulence of VDA as a referral source to the Patel Pharmacies. Arpit Patel’s testimony

established clearly that, as a matter of course, non-controlled medications written on VDA

prescription pads would not be dispensed to patients at the Patel Pharmacies, but would

nonetheless be billed to insurers. (See Arpit Patel, 7-6-12, TR 68-78). Pinakeen Patel likewise

testified that prescriptions from VDA for non-controlled medications would be billed but not

dispensed as a matter of course – though, of course, the oxycontin prescriptions would be

dispensed to the marketers who demanded those prescriptions. (See Pinakeen Patel, 7-19-12 TR

40-46). LaVar Carter testified that he did not obtain non-controlled substances from the Patel

Pharmacist while working with VDA, as he was only interested in drugs which were “profitable

on the street market.” (LaVar Carter, 7-11-12, TR 36).

The testimony of these participants in the VDA scam was corroborated by the testimony

of Dearborn Police Corporal Michael Gracer, who testified about an operation he participated in

8


at one of the Patel Pharmacies. Gracer testified that, after seeing some 25 people milling around

and conducting what appeared to be hand-to-hand drug transactions in the parking lot of

Independent Community Pharmacy, he and his colleagues moved in to search and question the

participants. (See Michael Gracer, 7-10-12, TR 6-12). Gracer found numerous controlled

substances in a van at the scene, but not a single non-controlled substance from the pharmacy for

any of the patients at the scene, all of whom were purportedly VDA patients. (See Michael

Gracer, 7-10-12, TR 19. Government Exhibit 114A illustrated that several of the patients at the

scene had been billed for a variety of expensive, non-controlled drugs, corroborating the

testimony of the cooperators that VDA drugs were billed without being dispensed.

The Patel Pharmacies billed approximately $2,119,677 to the Medicare Program and

approximately $733,109 to the Medicaid Program for prescriptions originating with VDA.

Based on the evidence presented at trial, these billings were 100% fraudulent, and Babubhai

Patel, as the overseer and orchestrator of this scam, should be held accountable for the entirety of

this loss. The amount of loss from VDA totaling approximately $2.9 million, would itself lead to

an 18-point addition to the 6-point base offense level under section 2B1.1 of the Guidelines.

However, the loss associated with VDA is not the entirety of the calculable intended loss

in this case. Indeed, the VDA scheme had entirely run its course by the time the government’s

Title III wiretap had begun in January 2011, and, as the intercepted calls and witness testimony

made clear, the billing-but-not-dispensing scheme continued to run on an exceptionally broad

scale in 2011. Anish Bhavsar, Arpit Patel, Pinakeen Patel, Chetan Gujarathi, and Hiren Patel all

testified that the practice of billing but not dispensing medications was a common method of

operation at the Patel Pharmacies, and that the practice existed independent of the VDA scam.

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(See, e.g. Anish Bhavsar, 7-16-12, TR 20-25, Arpit Patel, 7-9-12, TR 13-15, 108-112, Pinakeen

Patel, 7-19-12, TR 53-61, Chetan Gujarathi, 7-17-12, TR 15-20, Hiren Patel, 7-27-12, TR 8-10).

This testimony was corroborated by the extensive body of intercepted calls introduced in the

case, all of which came after the conclusion of the VDA scheme and many of which

demonstrated that the practice of billing for non-dispensed drugs was of considerable scope. See,

e.g. GX 7O, p. 1 (Brijesh Rawal relaying to Babubhai Patel that he had “thirty to thirty five totes”

of such drugs at his pharmacy), GX 2A, p. 2 (Chetan Gujarathi and Babubhai Patel discussing the

“big chunk” of billed-but undispensed drugs that they hope to return to a wholesaler), GX 2I, p. 2

(Babubhai Patel and Chetan Gujarathi discussing the “thirteen boxes” of billed medications

sitting at Komal Acharya’s residence).

It is likely impossible to quantify with precision the loss to insurers, public and private,

from the scheme Babubhai Patel carried out through his pharmacies. Perhaps the best marker

we have of Babubhai Patel's own intentions concerning the desired scope of the fraudulent

conduct come from a call intercepted with Pinakeen Patel, introduced at trial as GX 4B. In the

call, attached hereto as Exhibit B, Babubhai Patel instructed Pinakeen Patel that his profit should

equal 25% of the billings at Pinakeen Patel's pharmacy, stating "If you can't make 25%, it's not

worth it to be in." This figure appears, from the context of the call, to be the target profit margin

Babubhai Patel set for all of his pharmacies, not just for Pinakeen Patel's:

Twenty-Five percent should happen, so you must give extra attention to reach 25, 30percent, I am explaining this to Narendra and also explaining to Dhawal also, that to keepeverything with you, and you must see completely, that where we are.

Exhibit B, GX 4B, p. 2 Babubhai Patel went on to explain that Pinakeen Patel should engage in

illegal practices to meet this 25% profit margin, stating "You got money in Highland Park, why

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did you get, because we did it properly, right?" Id., p. 3. Highland Park was a pharmacy where

Pinakeen Patel had previously worked, which Pinakeen Patel testified was almost entirely

illegitimate ("80-90 percent improper."). (Pinakeen Patel, 7-19-12, TR 48). The obvious import

of Babubhai Patel’s reference to Highland Park in the intercepted call is that he was demanding

Pinakeen Patel perform fraudulent billings in order to achieve the minimum acceptable 25%

profit at the pharmacy. This intercepted call serves as a remarkably clear statement of Babubhai

Patel's goals and the means by which he expected those goals to be reached. Babubhai Patel

believed that any pharmacy he ran needs to generate a 25% profit to be worth the effort, and to

achieve that goal, the pharmacies needed to commit systematic fraud.

This call, the other calls introduced as evidence in the case, and the testimony of

numerous witnesses all lead inexorably to the conclusion that fraudulent conduct was shown,

time and time again, to be central to the operations of Babubhai Patel's pharmacies. A projection

that 25% of the billings at those pharmacies were fraudulent is a conservative, but appropriate,

measure of the intended loss attributable to Babubhai Patel in this case.

Therefore, the best estimate of the loss Babubhai Patel intended to cause insurers in this

case is 100% of the VDA billings plus 25% of the non-VDA billings at the Patel Pharmacies.

Using that methodology, Babubhai Patel caused approximately $11,032,397 in false and

fraudulent claims to be submitted to the Medicare program, approximately $6,333,504 in false

and fraudulent claims to be submitted to the Medicaid program, and approximately $1,589,968 to

be submitted to Blue Cross/Blue Shield of Michigan, for a total intended loss figure of

$18,955,869. This results in a twenty-point enhancement to the six point base offense level

11


under Section 2B1.1 of the Sentencing Guidelines, as the loss is less than $20,000,000 but

greater than $7,000,000.

B. Sophisticated Means, Offense Group 1

The USSG provides for a two-level enhancement for offense involving “sophisticated

means,” under Section 2B1.1(b)() of the Guidelines. The language of the Guideline section

provides that the enhancement is warranted “if the offense otherwise involved sophisticated

means,” suggesting that the nature of the offense, as opposed to the specific actions of the

offender, are the relevant factor in determining the applicability of the enhancement. USSG §

2B1.1(b)(10) (emphasis added). There is no requirement, per the Guidelines, that each of a

defendant’s actions be sophisticated in order for the enhancement to apply; it is “sufficient if the

totality of the scheme was sophisticated.” United States v. Goodwin, 241 Fed. Appx. 685, 686

(11 Cir. 2007); see also United States v. Finck, 407 F.3d 908, 915 (8 Cir. 2005) (“Repetitiveth th

and coordinated conduct, though no one step is particularly complicated, can be a sophisticated

scheme.”).

The Patel scheme was nothing if not sophisticated, and Babubhai Patel was the chief

architect of its complexity. Babubhai Patel sat at the apex of a sprawling business empire,

overseeing the operations of over 20 pharmacies, all of which were nominally owned by an ever-

shifting cast of straw owners and shell corporations. Babubhai Patel himself directed an

elaborate series of ruses to ensure that medications which had been billed but not dispensed

could be stored and returned to wholesalers without attracting notice. The intercepted calls

between Babubhai Patel and Chetan Gujarathi concerning surreptitious returns of billed but not

dispensed medications, which Gujarathi testified about at length, reflect the remarkably complex

12


methods that were integral to the scheme's success. (See Chetan Gujarathi, 7-17-12, TR 20-92).

The level of thinking and organization that went into billing the medications, hiding them,

moving them into the appropriate accounts, and returning the medications unnoticed is nothing

short of mind-boggling.

Furthermore, in addition to his own conduct, it is clear that the overall scheme which

Patel oversaw was highly sophisticated. The VDA operation is a prime example. Under

Babubhai Patel’s general supervision, Arpit Patel, the Patel pharmacists, and a series of

marketers coordinated and organized a wholly fraudulent means of distributing controlled

substances and billing for drugs the patients never received. The mechanics of carrying out this

scheme were extraordinary -- patients had to be recruited, paid, brought to a VDA physician,

brought to a pharmacy, medical records falsified, fraudulent prescriptions obtained, prepared, and

billed, all without attracting scrutiny. These individuals engaged in this conduct over and over

again – precisely the sort of “repeated and coordinated conduct” the sophisticated means

enhancement is intended to reach. The array of conduct in which Patel and his co-conspirators

participated render the instant case far more sophisticated than a typical fraudulent scheme, and

therefore Patel should be held accountable for an for a two-point adjustment pursuant to USSG §

2B1.1(b)(10).

C. Leadership Role in Conspiracy Involving More Than Five Participants, OffenseGroups 1 and 2

Pursuant to USSG § 3B1.1(b), a defendant may have his Total Offense Level increased

by 4 levels if the defendant “was an organizer or leader of a criminal activity that involved five or

more participants or was otherwise extensive . . . .” USSG § 3B1.1(b). The Application Notes

13


state that when considering whether to enhance a sentence based on an aggravating role, the court

should consider factors including:

the exercise of decision making authority; the nature of participation in the commissionof the offense; the recruitment of accomplices; the claimed right to a larger share of thefruits of the crime; the degree of participation in planning or organizing the offense; thenature and scope of the illegal activity; and the degree of control and authority exercisedover others.”

USSG 3B1.1, App. Note 4. In order for a supervisory role enhancement to apply, it is not

necessary that each of these requirements be met. See United States v. Alepin, 296 Fed Appx.

509, 514 (6 Cir. 2008). Rather, the key issue is the defendant’s “relative responsibility.” Id. th

Babubhai Patel was the unquestioned organizer and leader of this enterprise. Every co-

conspirator identified him as the owner and person in charge of the Patel Pharmacies. He

claimed the largest share of the profits, made all of the critical managerial decisions, and

dominated the enterprise absolutely. Both the health care fraud and drug distribution

conspiracies were conducted under Babubhai Patel’s complete management and control. The

scope of the conspiracies was vast, involving many more than five participants,

Given these facts, Patel is should be assessed a 4-level increase in his offense level based

on his aggravating role. This increase should be directed to both Offense Group 1 and Offense

Group 2.

D. Abuse of Position of Trust, Offense Groups 1 and 2

Pursuant to USSG, § 3B1.3, a two-level enhancement applies if the defendant “abused a

position of public or private trust, or used a special skill, in a manner that significantly facilitated

the commitment or concealment of the offense.” USSG § 3B1.3. The guideline text states that

the enhancement may be applied in addition to an adjustment under § 3B1.1 (aggravating role) if

14


it is based upon abuse of position of trust; if based upon use of a special skill, it may not be

employed in addition to an aggravating role enhancement. The application notes define “public

or private trust” as “a position of public or private trust characterized by professional or

managerial discretion (i.e. substantial discretionary judgment that is ordinarily given considerable

deference).” USSG § 3B1.3, Note 1.

Defendant Babubhai Patel was a licensed pharmacist who employed many other licensed

pharmacists and personally oversaw the submission of thousands upon thousands of false claims

to the Medicare, Medicaid, and private insurance programs. Medical professionals, such as

pharmacists, occupy a position of trust with respect to insurance providers, and medical

professionals who defraud their insurers may be liable under Section 3B1.3 for abusing that trust.

See, e.g., United States v. Hogenboom, 209 F.3d 665, 671 (7 Cir. 2000) (“Medical serviceth

providers occupy positions of trust with respect to private or public insurers (such as Medicare)

within the meaning of guideline § 3B1.3. Medicare providers such as Dr. Hoogenboom enjoy

significant discretion and consequently a lack of supervision in determining the type and quality

of services that are necessary and appropriate for their patients. This forces Medicare to depend,

to a significant extent, on a presumption of honesty when dealing with statements received from

medical professionals.”). Every Circuit that has addressed this topic with respect to physicians

has held that these professionals do indeed occupy a position of trust vis a vis health insurers.

See, e.g., United States v. Liss, 265 F.3d 1220, 1229 (11 Cir. 2001); United States v. Nishona,th

156 F.3d 318, 321 (2d ir. 1998); United States v. Adam, 70 F.3d 776, 782 (4 Cir. 1995). th

Pharmacists, like physicians, are medical professionals, and like physicians, are relied upon to

exercise their professional discretion to insure the integrity of the claims submitted to insurers.

15


The principles articulated in the cases above apply with equal force to licensed pharmacists such

as Babubhai Patel.

Furthermore, pharmacists enjoy a position of trust with respect to the public, which

expects those in the profession to serve as gatekeepers with respect to the distribution of

controlled medications. See, e.g., Am. Pharm. Ass'n, Code of Ethics for Pharmacists, at ¶ 7 (“The

primary obligation of a pharmacist is to individual patients. However, the obligations of a

pharmacist may at times extend beyond the individual to the community and society. In these

situations, the pharmacist recognizes the responsibilities that accompany these obligations and

acts accordingly.”) The government presented evidence at trial of the substantial professional

obligations pharmacists bear in the form of testimony by William Drake, D. Pharm.

The insurers in this case relied upon the Patel Pharmacists to exercise their professional

judgment and discretion with integrity, and the public depended on those pharmacists to act

consistently with their professional obligations in dispensing controlled substances. Babubhai

Patel and the pharmacists working for him obviously did no such thing, and grossly abused the

trust placed in them by insurers and the public. The two-point enhancement for abuse of a

position of trust under 3B1.3 should apply to this defendant, in both offense groups.

F. Drug Quantity, Offense Group 2

From January 1, 2009 through August 2, 2011, the Patel Pharmacies were responsible for

the distribution of approximately 494,000 dosage units of Schedule II controlled substances (such

as oxycodone), approximately 4.9 million dosage units of schedule III controlled substances

(such as hydrocodone), approximately 2.2 million dosage units of schedule IV controlled

16


substances (such as alprazolam), and approximately 2.5 million dosage units of Schedule V

controlled substances (such as codeine-infused cough syrup). The evidence presented at trial

showed that Babubhai Patel believed that the illegal distribution of controlled substances was

integral to the financial success of the pharmacies; the question becomes one of quantifying the

medications improperly diverted for the purposes of the sentencing guidelines.

The VDA scam was a central locus for the illegal distribution of controlled substances.

The government submits that Babubhai Patel should be held accountable for the entirety of the

controlled medications distributed through prescriptions from VDA, as VDA’s relationship with

the Patel Pharmacies was entirely fraudulent. Through the VDA scheme, Babubhai Patel and his

co-conspirators distributed approximately 473,000 dosage units of Schedule III hydrocodone and

approximately 153,000 dosage units of Schedule IV alprazolam. In addition, through VDA, the

Patel Pharmacies distributed some 12,691 dosage units of the Schedule II drug Oxycontin, and it

is this Oxycontin which drives the sentencing guideline calculation for Offense Group 2.

Babubhai Patel was acquitted of participating in a scheme to illegally distribute Schedule

II medications; however, the government seeks to include the quantity of Oxycontin 80 mg

distributed as part of the VDA scheme as relevant conduct in establishing his guideline level. It

is well established that acquitted conduct may be used at sentencing to enhance a defendant’s

offense level. See, e.g., United States v. Watts, 519 U.S. 148, 149 (1997); United States v. Lloyd,

10 F.3d 1197, 1221 (6 Cir. 1993). The Sixth Circuit has long held that a “district court mayth

consider acquitted conduct in determining a defendant's offense level under the Sentencing

Guidelines if the government has proved by a preponderance that relevant, acquitted conduct has

occurred.” United States v. Comer, 93 F.3d 1271, 1278 (6 Cir. 1996). th

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In the instant case, the government submits that it established by well more than a

preponderance of the evidence that VDA was an entirely fraudulent enterprise, and that Babubhai

Patel should be held accountable for the diversion of all controlled substances, including

Oxycontin, distributed as a part of that scheme. Pinakeen Patel and Arpit Patel both testified that

Schedule II controlled substances were distributed out of Highland Park Pharmacy as part of the

VDA scheme, and VDA prescriptions for Oxycontin from that pharmacy were introduced as

evidence at trial. (See Pinakeen Patel, 7-19-12, TR 41-49; Arpit Patel, 7-19-12, TR 41-46); GX

49G. Pinakeen Patel testified that he was explicitly directed by Babubhai Patel to distribute

Oxycontin as part of the VDA scheme. (See Pinakeen Patel, 7-19-12, TR 40-41). Pinakeen

Patel’s successor at Highland Park Pharmacy, Ashwini Sharma, was convicted at trial of the

illegal distribution of Schedule II drugs, and the evidence supporting this conviction all came

from VDA prescriptions presented in the government’s case. Babubhai Patel’s pharmacies

distributed more than 490,000 dosage units of Schedule II medications – the government is only

seeking to hold Patel accountable for the 12,691 dosage units of Oxycontin distributed as part of

the VDA scam, a specific fraudulent scheme Babubhai Patel orchestrated. The 12,691 dosage

units equate to a marijuana equivalency is 6,802 kg, which equates to a level 34 under section

2D1.1 of the Guidelines.

The remaining controlled substances distributed as part of both the VDA and broader

schemes do not increase the offense level beyond 34 for this group. Assuming a conservative

25% rate of illegal distribution of the remaining controlled substances, based upon the same

analysis as was set forth in the intended loss area, we come to a total of approximately 1.6

million dosage units of hydrocodone; 701,000 dosage units of alprazolam, and 642,000 dosage

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units of codeine-infused cough syrup. The guidelines set forth that the combined weight of all of

these medications shall not exceed 999.99 kg of marijuana. See USSG 2D1.1(D). Babubhai

Patel reaches this cap, but it does not have the effect of increasing his offense level, as 999 plus

6,802 does not exceed the 10,000 pounds of marijuana equivalents necessary to increase the

offense level to 36. Therefore, the appropriate offense level based on drug quantity is 34.

G. Grouping of Offense Levels

Based on the above, the Total Offense Level for Offense Group 1 is 34, and the Total

Offense Level of Offense Group 2 is 40. There is therefore a 6-level difference between the two

Offense Groups, which results in a one-level adjustment pursuant to Section 3D1.4 of the

Guidelines. Babubhai Patel’s Total Offense Level should therefore be calculated at 41. Given

the absence of any criminal history, the guideline range is 324-405 months imprisonment.

SENTENCING FACTORS

Title 18, United States Code, Section 3553(a), sets forth a number of factors that the

Court shall consider in sentencing defendant Babubhai Patel. Factors pertinent to the instant

offense are discussed below, numbered as they are in Section 3553(a).

(1) The nature and circumstances of the offense and the history and characteristicsof the defendant.

(A) Nature and circumstances of the offense

The nature and circumstances of the offenses at issue here are exceptionally serious.

Babubhai Patel was the mastermind of an enormous and sophisticated criminal enterprise.

Babubhai Patel’s perverse business philosophy led to his organization’s looting of millions of

dollars from public and private health care programs, as well as to the illegal diversion of

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millions of dosage units of dangerous, addictive controlled substances. The scope of the fraud

and controlled substance schemes is astonishing, as are the values that animated it. Pharmacies

play a key role in our health care delivery system, and when operated responsibly, are of great

value to the health of their patients and the well-being of the broader community. Babubhai

Patel’s conduct demonstrates plainly that he had no interest in such considerations. The Patel

Pharmacies were not in business to help patients – they were in business to steal money. The

amoral operating philosophy of the Patel Pharmacies came directly from the top of the

organization, in the person of Babubhai Patel himself.

Babubhai Patel’s status as a licensed pharmacist makes his direction of this conspiracy

especially egregious, particularly with respect to the risk of patient harm. Babubhai Patel knew

full well of the dangers of the various controlled substances his pharmacies were distributing, yet

he was nonetheless willing to use those substances as bait to lure patients and marketers into the

scheme. As a trained medical professional, he also knew full well of the role physicians play in

our health care system, and of the need for their medical judgment to be free of corrupting

influence. Yet he nonetheless bribed physicians over and over again, and demanded in exchange

that they write prescriptions based on Babubhai Patel’s financial interests, knowing that these

bribes led to the prescription of medications that were unnecessary. Patel’s callous disregard of

the physical harm his schemes could cause others is striking; for a medical professional, it is

nothing short of appalling. Patel’s crimes are remarkably serious ones. The government submits

that a period of incarceration of 360 months, in the middle of the applicable guidelines range, is

necessary in order for the sentence to be commensurate with the seriousness of the crimes

Babubhai Patel masterminded.

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(B) The history and characteristics of the defendant

Defendant Patel is 50 years old, and is a U.S. citizen originally from the Gujarat State in

India. Babubhai Patel is a man of some education and accomplishment, speaking at least three

languages, and having obtained a bachelor’s degree and pharmacy license here in the United

States. Furthermore, Babubhai Patel is possessed of substantial ambition, drive, and

organizational ability. One does not start and operate a large chain of independent pharmacies,

employing tens if not hundreds of people, and billing over $60 million to various insurers

without being a vigorous, disciplined, and capable organizer and businessman. Babubhai Patel’s

intellectual and organizational strengths could have been of great value to the community; the

fact that Patel chose instead to employ his considerable talents to build a criminal organization is

a serious indictment of his values, and should be considered by this Court when fashioning a

sentence.

In addition, in the course of the trial of this case, the government introduced substantial

evidence shedding light on Babubhai Patel’s character. That character, to put it plainly, is

outrageous. The exhibits and testimony introduced in this case reveal Babubhai Patel displaying

a grasping greed, a complete disregard for the law, a profound racism, and a bullying and

deceitful approach to subordinates and business associates. However, again, perhaps the most

striking feature of Babubhai Patel’s character to emerge from the evidence is his callous

disregard of the consequences of his actions on the community. As an example, in the

intercepted call attached as Exhibit A, Babubhai Patel discussed a physician that the Patel

organization controlled, and told a pharmacist: “The main thing is, and then if they are for Oxy

etcetera, don’t worry, go ahead and fill them up, no problem in that, since the doctor is ours . . . If

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the patients have narcotic and all that, then no problem, you know? If the doctor is ours, then

there is no worry.” Exhibit A, GX 9P, p. 5. As this call shows, illegally distributing a dangerous,

addictive drug like Oxycontin is of no concern to Patel, so long as he has a doctor on the payroll

who can theoretically justify the prescriptions. In another intercepted call not played at trial but

attached hereto as Exhibit C, Babubhai Patel can be heard laughing hysterically over a patient’s

death by overdose. These two calls encapsulate the contemptuous disregard Babubhai Patel has

for the harmful effects of his criminal actions on both his pharmacies’ patients and the

community as a whole.

Greed is one thing. Callous indifference to patients’s lives is another thing entirely.

Babubhai Patel is an egregious man who has lived an egregious life. A realistic assessment of

Babubhai Patel’s character finds little to admire and much to condemn. The Court should take

this fact into account in imposing sentence in this case.

(2) The need for the sentence imposed (A) to reflect the seriousness of the offense, to promote respect for the law, and to provide just punishment for the offense; (B) toafford adequate deterrence; C. to protect the pubic from further crimes of thedefendant; and (D) to provide defendant with appropriate education or vocationaltraining.

Defendant Patel’s punishment should take into account not only the vast scope and

seriousness of his criminal conduct, which are described above, but also the need to deter future

criminals from stealing from health insurers and illegally distributing controlled substances.

Health care fraud is a substantial problem nationwide, and has recently been the subject of

sustained public discussion and debate. The National Health Care Anti-Fraud Association, an

organization composed of both public and private health insurers and regulators, conservatively

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estimates that 3% of all health care spending in the United States is lost due to fraud. Given that

the U.S. health care system accounted for approximately $2.6 trillion for 2010, the most recent

year for which figures are available, health care fraud cost our economy an estimated $78 billion

in that year. Furthermore, health care fraud is both a major national problem and a major local

one. Since 2009, over 174 individuals have been indicted in the Eastern District of Michigan in

connection with a number of Medicare fraud schemes, placing this district among the nation’s

leaders in the number of health care fraud indictments returned within that time frame. These

facts reflect the pervasiveness of this particular type of fraud both nationally and within this

jurisdiction, and highlight the need to deter future wrongdoers from engaging in this type of

crime.

Prescription drug abuse is also a major problem in the United States. The National

Institutes of Health estimated that, as of 2010, there were 5.1 million users of painkillers for non-

medical purposes in this county, or nearly 2% of the nation’s population. Unintentional drug

overdose deaths for opioid analgesics, such as Oxycontin and Vicodin, totaled approximately

12,000 in 2008, a number considerably higher than the number of overdose deaths for cocaine

and heroin combined. The problem is also acute locally. In a July 2011 article, the Detroit Free

Press quoted a state health official noting that deaths in Michigan from prescription drug

overdoses exceeded those from cocaine and heroin combined, confirming that local trends mirror

the national ones. See Anstett, Patricia, Prescription Drug Deaths Soar in State, Detroit Free

Press, July 11, 2011. As these facts suggest, the diversion of these highly potent drugs are an

enormous social problem, and there is plainly a need to deter criminals from promoting and

profiting from this dangerous trend.

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Of particular relevance to the concept of deterrence in the instant case is Patel’s status as

the mastermind of a huge and lucrative scheme. Organizations such as Patel’s do not spring up

organically; they require disciplined, sophisticated management and oversight. A 360 month

sentence would have a particularly significant deterrent effect with respect to the (fortunately

small) number of criminals capable of creating criminal organizations with the reach and scope

of the one Patel created. Such a sentence would send the laudable message that individuals

engaged in enormous fraud will pay an enormous price for their criminal actions.

Furthermore, several of the victims in this case, specifically the Medicare and Medicaid

programs, are public trusts. The programs, funded by taxpayers at the federal and state levels, are

intended to provide health insurance for the elderly, the disabled, and the poor. Many Medicare

and Medicaid beneficiaries are among the most physically and economically vulnerable members

of our society. Every dollar that Patel stole from these programs is a dollar that could have been

used to provide valuable services to the elderly, the poor, and the disabled. Medicare and

Medicaid fraud have real and tangible consequences, and Patel’s conduct in this case represents

an egregious fleecing of these important public institutions. The Court’s sentence should reflect

the scope and seriousness of this offense, and the need to promote respect for the criminal fraud

laws in the Eastern District of Michigan.

(3) The kinds of sentences available

Under 18 U.S.C. §§ 1349 and 1347, the maximum sentence is ten years imprisonment.

Under 21U.S.C. § 846 and 841(a)(1) the maximum sentence is ten years imprisonment.

Therefore, given that Patel was convicted of one count of conspiracy to commit health care fraud,

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ten counts of substantive health care fraud, one count of conspiracy to distribute controlled

substances, and fourteen counts of distributing controlled substances, Patel faces a statutory

maximum of 260 years of imprisonment.

(4) The sentencing range established by the United States Sentencing Guidelines

The government’s position on the appropriate sentencing range is set forth in the

“Guideline Calculation” section above.

(5) Any pertinent policy statement issued by the USSC

While the United States is unaware of any pertinent policy statement issued by the USSC,

the government notes that the recently enacted Affordable Care Act does provide recent evidence

of Congressional intent in this area of the law. The ACA specifically provides for increased

sentences for health care fraud offenses, and further requires the United States Sentencing

Commission to “ensure that the Federal Sentencing Guidelines and policy statements- (i) reflect the

serious harms associated with health care fraud and the need for aggressive and appropriate law

enforcement action to prevent such fraud; and (ii) provide increased penalties for persons convicted

of health care fraud offenses in appropriate circumstances.” Id. at § 10606(a)(3). These

recommendations have been integrated into the most recent version of the Sentencing Guidelines,

and took effect on November 1, 2011.

Under the new law, Babubhai Patel’s offense level in Offense Group 1would increase by

three points, reflecting the new Guidelines’ enhanced penalties for health care fraud with over

$7,000,000 in intended loss. See USSG 2B1.1(b)(8) (2012). This would lead, pursuant to the

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grouping required under section 3D1.4, to a one-point increase in Babubhai Patel’s Total Offense

Level, resulting in a guidelines range of 360-Life imprisonment.

(6) The need to avoid unwarranted sentencing disparities among defendants with

similar records

Babubhai Patel, as the scheme’s mastermind, does not have any co-defendants who are at

all analogous to him in terms of their role in the scheme. A 360-month period of incarceration,

in the middle of the applicable guideline range, would not be disparate for Patel given the

specific circumstances of this case.

RECOMMENDATION

Defendant Patel was the organizer, overseer, and mastermind of a massive health care

fraud and drug distribution scheme. Patel’s actions led to the submission of nearly $20 million in

fraudulent claims submitted to various health care insurance programs program, as well as to the

illegal distribution of millions of doses of prescription drugs. Patel’s punishment should take

into consideration the egregiousness and scope of his criminal conduct and the need to deter the

rampant health care fraud and drug distribution problems, both nationwide and in this district.

Patel’s sentence should specifically take into account the need to deter others aspiring to organize

and oversee similar criminal organizations, and should send a clear message that such activity

carries a huge potential penalty.

Based upon those considerations, the United States respectfully moves this court for a

sentence of 360 months, reflecting the middle of the appropriate guidelines range of 324-410

months in prison. The United States also requests that the Court impose a three year term of

supervised release and require the defendant to pay restitution of $18,955,000, jointly and

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severally with his co-defendants.

Respectfully Submitted,

BARBARA L. MCQUADE

UNITED STATES ATTORNEY

/s/ John K. Neal

JOHN K. NEAL

Assistant United States Attorney

211 W. Fort Street, Suite 2001

Detroit, MI 48226

(313) 226-9644

CERTIFICATE OF SERVICE

I hereby certify that on December 7, 2012, I caused a copy of the foregoing to be servedon all counsel of record using the Court’s ECF filing system.

/s/ John K. Neal

John K. Neal

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