## Facts

- The City of Quincy, Massachusetts awarded an ambulance services contract involving a city-owned hospital that provided Medicare-reimbursable care.
- Bay State Ambulance and Hospital Rental Service, Inc. provided ambulance services; Michael G. Kotzen was its president and sole shareholder.
- John L. Felci, a hospital operations official, had influence over the ambulance contract relationship.
- The government alleged Bay State and Kotzen gave Felci valuable benefits, including automobiles and checks, to secure and maintain the ambulance arrangement.
- Defendants were charged under the federal Medicare anti-kickback statute (then codified at 42 U.S.C. § 1395nn) with: (1) conspiracy to pay kickbacks to induce referrals/arrangements for Medicare-reimbursable services, and (2) multiple substantive unlawful-remuneration counts involving cars and checks.
- A jury convicted all defendants on the conspiracy count and two substantive counts involving a Buick and a Mazda; the jury hung on one check count and acquitted on several other check counts.
- At trial, the government introduced a written “outline of projects” prepared by Felci for Bay State’s in-house counsel; Felci objected based on attorney–client and joint-defense privilege claims.

## Issues

1. Whether the cars and payments constituted unlawful “remuneration” intended to induce referrals or arrangements for Medicare-reimbursable services under the anti-kickback statute.
2. Whether the anti-kickback statute was unconstitutionally vague as applied, including the meaning of “remuneration” and the “knowingly and willfully” requirement.
3. Whether the statute required proof that the alleged kickback payments were made directly from Medicare reimbursement funds.
4. Whether admitting Felci’s “outline of projects” violated attorney–client privilege or a joint-defense/common-interest privilege.
5. Whether the evidence and jury instructions sufficiently supported findings of inducement and willfulness.

## Decision

- The First Circuit affirmed the convictions of Bay State, Kotzen, and Felci.
- The court held the evidence supported a finding that the benefits were provided primarily as inducements connected to Medicare-reimbursable services, not merely legitimate compensation.
- The court rejected the argument that the statute applies only when kickbacks are funded by Medicare dollars; it is enough that the induced items or services may be paid for in whole or part by Medicare.
- The court rejected the vagueness challenge, relying in part on the statute’s “knowing and willful” scienter requirement and the clarity of the inducement-based prohibition.
- The court held Felci’s “outline of projects” was not privileged because Felci did not establish an attorney–client relationship with Bay State’s counsel or a qualifying joint-defense/common-interest arrangement.

## Legal Principles

- Anti-kickback liability turns on the purpose of the remuneration; payments violate the statute when a primary purpose is to induce or reward referrals or arrangements for services reimbursable by Medicare.
- Mixed-motive or partially legitimate transactions can still be criminal if inducement is a significant or primary purpose.
- The anti-kickback statute does not require that kickback money originate from Medicare funds; the relevant link is that the referred/arranged service may be reimbursed by Medicare.
- A “knowing and willful” scienter element narrows the statute’s reach and helps defeat vagueness challenges where defendants intentionally engage in prohibited inducement conduct.
- Attorney–client and joint-defense/common-interest privilege require a sufficient showing of a qualifying confidential relationship and reasonable expectations of confidentiality; a non-client cannot claim privilege absent that showing.

## Conclusion

The First Circuit upheld convictions for conspiracy and unlawful remuneration under the Medicare anti-kickback statute, holding that the government may prove illegality by showing an inducing purpose tied to Medicare-reimbursable services without tracing payments to Medicare funds, and that privilege does not bar admission of communications where no attorney–client or joint-defense relationship is established.


United States v. Bay State Ambulance & Hosp. Rental Serv., Inc., 874 F.2d 20 (1st Cir. 1989)