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Richard Paulus

Other Federal Exonerations for Fraud
On January 4, 2024, a federal judge in Kentucky granted a motion by prosecutors to dismiss the remaining charges against Dr. Richard Paulus, who had been convicted in 2016 of healthcare fraud by billing Medicare, Medicaid, and private insurers for medically unnecessary procedures. His retrial had ended with an acquittal on one count and a hung jury on the other counts in late 2023.

Paulus was an interventional cardiologist at King’s Daughters Medical Center (KDMC) in Ashland who specialized in treating patients with constricted arteries, or stenosis, which restricts the flow of blood and can lead to heart attacks or stroke.

To diagnose stenosis, a patient would have cardiac catheterization, which allows doctors to take an image of the arteries. The image, known as an angiogram, is read to determine the severity of the stenosis. If there is significant constriction, the patient might undergo a second procedure and receive a stent, a small mesh cylinder that keeps the artery open. Generally speaking, most insurers required the blockage to be at least 70 percent before they considered a stent to be medically justified.

Paulus came to Ashland and King’s Daughters in 1992 and built its heart and vascular operations into a juggernaut. Between 2006 and 2013, the government would later say, Paulus and KDMC billed Medicare $1.1 billion for these vascular procedures, more than any other cardiologist in the country. Paulus’s annual pay, tied in part to the number of procedures he performed at the hospital, averaged $2.6 million for 2009-2011.

During this time period, prosecutors and regulators began investigating whether doctors were placing stents in patients who didn’t need them. The high volume of cases from a small hospital in eastern Kentucky did not go unnoticed.

The U.S. Department of Health and Human Services received an anonymous complaint in 2008 that Paulus was defrauding Medicare and Medicaid by performing medically unnecessary procedures. After a medical audit of the angiograms, the government denied reimbursement for seven procedures and continued investigating.

Four years later, in 2012, the Kentucky Board of Medical Licensure received an anonymous complaint with similar allegations. The board conducted its own audit of cases provided by prosecutors investigating Paulus and concluded that Paulus had incorrectly diagnosed patients with severe stenosis that wasn’t apparent from the angiograms.

Paulus, who retired in 2013, disagreed with the findings, but the inquiry ended on November 6, 2014, with Paulus agreeing to voluntarily surrender his medical license.

Earlier that year, King’s Daughters agreed to pay the federal government $40.9 million to resolve complaints that it had submitted false claims for medically unnecessary stents and catheterizations. The government attempted to obtain a settlement with Paulus, but the negotiations fell through.

On September 3, 2015, a federal grand jury in Ashland indicted Paulus on one count of healthcare fraud and 26 counts of making false statements related to health care made between July 2008 and July 31, 2013. Each of the 26 false statement counts represented a patient. The indictment said, “Paulus caused an entry in the medical records of the listed patients that reflected a significant degree of stenosis, then well knowing that the record contained a materially false, fictitious and fraudulent statement and entry, in that the degree of stenosis was substantially less than the amount Paulus recorded.”

Paulus’s trial, in U.S. District Court for the Eastern District of Kentucky, began on September 12, 2016, presided over by Judge David Bunning. Paulus’s legal team was led by Robert Bennett, best-known for representing President Bill Clinton in the Monica Lewinsky scandal. The trial was moved 130 miles west, from Ashland to Covington, after the government said that it would be difficult to find jurors in the Ashland area who didn’t have a connection to Paulus or King’s Daughters. Paulus agreed to the move.

Much of the government’s case was built on the testimony of physicians who had reviewed copies of the angiograms of patients who had received stents. Paulus’s attorneys had moved to exclude the use of these images and related testimony; Paulus had used live angiograms in making his diagnoses, the attorneys argued, while the physicians reviewed copies of the images. In the archiving process, the images had been compressed and downscaled, with a 75 percent reduction in pixels and shades of gray. Paulus’s attorneys said these images were “substantively different” than the originals.

Judge Bunning allowed the use of the stored images. “While the archived angiograms are a lesser quality than the originals Dr. Paulus viewed, the angiograms are not poor quality,” Judge Bunning wrote.

The government’s two main witnesses were Dr. Michael Ragosta, a cardiologist at the University of Virginia, and Dr. David Moliterno, a cardiologist at the University of Kentucky, who had done the audit for the Kentucky Board of Medical Licensure.

Ragosta testified that he reviewed 62 angiograms where Paulus indicated the patient had at least 70 percent blockage. He said his review found that none of the patients had blockage exceeding 40 percent. None needed stents, he said. Similarly, Moliterno testified about the angiograms of six patients whom Paulus said had at least 70 percent blockage. According to Moliterno, none exceeded 50 percent; their stenosis was either “mild” or “trivial.”

The pool of angiograms reviewed by Moliterno and Ragosta overlapped at least once, with a patient known as D.C. Ragosta estimated D.C.’s blockage at 26 percent. Moliterno said it was in the 40-50 percent range. Paulus had recorded the blockage as 75-80 percent.

This phenomenon is known as “inter-observer variability,” and Paulus’s defense team pushed the witnesses to acknowledge that a difference of opinion didn’t constitute fraud. Ragosta said that “borderline blockages” can be hard to assess. Moliterno testified that it would not “be unusual for cardiologists to disagree over a wide range of stenosis,” but claimed that Dr. Paulus’s interpretations fell “way outside” of the range of inter-observer variability.

Several other doctors, including some who worked with Paulus at King’s Daughters, also testified that they observed instances where patients received stents that the physicians believed weren’t required based on their review of the angiograms. In addition, the government introduced the Kentucky medical board settlement into evidence, as well as financial records detailing some of the wealth Paulus had accumulated while at King’s Daughters. Several patients also testified about complications they had suffered after the procedures.

In Paulus’s defense, his attorneys presented their own expert testimony from physicians who said that Paulus had properly diagnosed blockage in his patients. In addition, several patients whose cases had been marked for alleged fraud testified about their symptoms prior to treatment and the relief they felt after receiving a stent.

Paulus took the stand in his own defense. He testified that his diagnoses were proper and that his decisions to perform catheterizations and insert stents were based on extensive discussions with patients about their symptoms and health history. During cross-examination, Paulus explained his system of assessing constriction. When he wrote “70 percent,” Paulus said, what he meant was stenosis of 70 percent by area rather than by diameter. He said this methodology, which he agreed was not a well-established standard, accounted for the discrepancy between his assessments and those by the government’s witnesses. “If it’s a concentric stenosis, and I write down 75 percent, that would be a 50 percent diameter reduction,” he said.

Prior to the end of the trial, the government dismissed 11 of the misleading healthcare statement charges. Jurors began deliberating on October 24, 2016, and told Judge Bunning on October 27 that they had reached a verdict on 10 of the remaining 16 charges but were deadlocked on the others. Judge Bunning gave the jury what is known as an “Allen charge,” urging its members to keep deliberating. The next day, the jury returned its verdict, convicting Paulus on the fraud charge and 10 of the misleading statement charges.

Judge Bunning set Paulus’s date of sentencing for April 25, 2017.

Before the jury’s verdict, Paulus had moved for a judgment of acquittal. After the verdict, he moved for a new trial. In these filings, his attorneys said there was insufficient evidence to support fraudulent intent. Even the government’s witnesses had said that different cardiologists might report different findings from the same angiograms, the motions said, and Paulus’s purported misreading of his patients’ angiograms could have been the result of mistakes or even malpractice, neither of which was a crime.

The motions also said that Judge Bunning had erred in admitting the use of the archived angiograms.

“The government cardiologists, of course, were looking at altered angiograms and not the original angiograms viewed by Dr. Paulus, and the government’s own imaging expert admitted that the alteration could make a difference,” the motion for a new trial said. “None of the government’s cardiologists spoke with the patients, examined the patients, or spoke with the emergency room or referring doctors. A jury cannot return a guilty verdict based on speculation or a guess.”

The federal government pushed back. It said Paulus had created his own methodology diagnosing stenosis, “a system that conveniently resulted in the Defendant recording a percent stenosis that is considered significant by other cardiologists and the insurers that pay for these procedures.”

On March 17, 2017, Judge Bunning granted Paulus’s motions for acquittal and a new trial based on insufficient evidence. He said that the government had not clearly shown Paulus committed fraud or made false statements, nor had it presented enough substantial circumstantial evidence of a scheme to enrich Paulus and the hospital.

“When it comes to angiography, there is more than meets the eye,” Judge Bunning wrote. Later in his opinion, he wrote, “The expert testimony and angiogram evidence at trial failed to prove that [the] degree of stenosis is an objectively verifiable fact subject to proof or disproof. Instead, the evidence in this case established that degree of stenosis is a subjective medical opinion, incapable of confirmation or contradiction.” The ruling also said the archived angiograms were properly admitted into evidence.

The federal government appealed. On June 25, 2018, the Sixth U.S. Circuit Court of Appeals reinstated the convictions. “The degree of stenosis is a fact capable of proof or disproof,” the appellate court said. “A doctor who deliberately inflates the blockage he sees on an angiogram has told a lie; if he does so to bill a more expensive procedure, then he has also committed fraud.”

On December 14, 2018, as the government was preparing its sentencing memorandum, an assistant prosecutor filed a motion asking Judge Bunning to resolve a long-running discovery issue.

Years earlier, in 2011, the federal government had subpoenaed records from King’s Daughters as part of its investigation into unnecessary cardiac procedures. In response, the hospital conducted a review of 1,049 procedures performed by Paulus. That review identified 75 patients—about 7 percent—with blockages below 30 percent. Later, the hospital refunded the government $1.1 million for these unnecessary procedures. In a letter to the U.S. Attorney’s Office dated November 18, 2013, the hospital said it wasn’t waiving any attorney-client privileges regarding this review.

After Paulus’s indictment, the hospital sought to prevent federal prosecutors from using this information in the criminal trial because of the harm the hospital might suffer in defending itself in civil malpractice cases. On August 24, 2016, Judge Bunning met with prosecutors and attorneys for the hospital. The defense wasn’t present. The government argued for the release of this information. Without ruling on the privilege issue, the judge said the letter wasn’t exculpatory and didn’t need to be disclosed. He also said he would revisit the issue at sentencing, as the government might use this information in determining losses.

On January 2, 2019, after the prosecutor’s motion, Judge Bunning ordered the government to release the hospital’s letter to Paulus’s attorneys, under seal.

Two months later, on February 25, 2019, Paulus filed a motion for a new trial, asserting that the government, in complying with Judge Bunning’s order, had withheld exculpatory evidence. The motion said that although Paulus’s attorneys were aware of the 75 cases flagged in the audit, they didn’t know they were part of a larger sample. Prosecutors had recognized the exculpatory value of this evidence and pushed unsuccessfully for its disclosure. Judge Bunning, according to the defense motion, had misunderstood the evidence and believed it was inculpatory not exculpatory.

The motion also said that the ex parte hearing violated Paulus’s Sixth Amendment right to counsel, because his attorneys were not part of the discussions.

On April 18, 2019, Judge Bunning denied Paulus’s motion for a new trial. He said that Paulus’s attorneys knew the “essential facts” contained in the hospital’s letter and that in any event, the information was inculpatory. He also said that Paulus had suffered no harm based on his exclusion from the hearing. “The Court reasonably believed that no party would gain a procedural, substantive, or tactical advantage,” Judge Bunning wrote.

Less than a month later, on May 3, 2019, Judge Bunning sentenced Paulus to five years in federal prison and ordered him to pay $1.2 million in restitution. Paulus reported to prison on June 24, 2019.

His attorneys appealed the April 2019 ruling. On March 5, 2020, the Sixth Circuit ordered a new trial. It said Judge Bunning had made substantial errors, beginning with the private meeting, that resulted in denying Paulus access to important evidence.

“When a court rules on important issues without hearing from the defense, it takes the risk of making erroneous decisions that will unfairly disadvantage the defendant,” the court wrote. “That’s exactly what happened here. First, the district court ruled that the [letter] was inadmissible. The parties agree that was wrong. Second, the district court determined that because the letter was inadmissible, it couldn’t be Brady material. That is flatly wrong. Third, the district court ordered the government and [the hospital] not to disclose the [letter] to Paulus. That was wrong too.”

Paulus was released from prison that day. Both sides began preparing for a retrial in 2023.

Prior to trial, Judge Bunning granted motions by Paulus’s attorneys to exclude several pieces of evidence, including: Paulus’s testimony from the first trial; complaints against Paulus made to Medicare and a licensing board; his brokerage statement; emails from the hospital about Paulus’s volume of cases; and a peer analysis that compared his work against the other hospitals.

He also excluded certain pattern-related testimony by Ragosta and Moliterno, after the government disclosed that it had provided a non-representative sample to these cardiologists for their review.

“The procedures presented for review were already deemed problematic by other reviewers who had, presumably, not ‘flagged’ the procedures which they found acceptable,” he wrote. “The deck was stacked against defendant in the guise of a representative sample. This is textbook cherry-picking.”

The retrial began in mid-November 2023, again at the federal courthouse in Covington. Bennett died on September 10, 2023, and Hilary LoCicero, Bennett’s partner who had worked with him on the case for years, led the defense.

On December 13, after five days of deliberation, the jury told Judge Bunning that it had reached a verdict of not guilty on one of the 11 remaining charges and was deadlocked on the others. The judge declared a mistrial later that day.

Three weeks later, on January 3, 2024, the U.S. Attorney’s Office filed a motion to dismiss. “Given the complexity and length of both trials, the Court’s exclusion of meaningful evidence of the defendant’s intent, and the significant resources required of the United States, the defense, and the judiciary, the United States will not seek to try the defendant a third time,” the motion said.

Judge Bunning granted the motion on January 4, 2024.

“Dr. Paulus was improperly accused by the government,” LoCicero said. “He dedicated his life to helping sick patients and he always acted in their best interests. There was substantial evidence at trial that established this. Essentially, the case boiled down to legitimate disagreements between experts in a complicated field of medicine. The government’s attempt to criminalize such disagreements among doctors was unjustified.”

– Ken Otterbourg

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Posting Date: 1/16/2024
Last Updated: 1/16/2024
Most Serious Crime:Fraud
Additional Convictions:Other Nonviolent Felony
Reported Crime Date:2013
Sentence:5 years
Age at the date of reported crime:66
Contributing Factors:False or Misleading Forensic Evidence
Did DNA evidence contribute to the exoneration?:No