Court vacates $27.9M restitution in comp kickback case

For the second time, the U.S. 9th Circuit Court of Appeals said a Southern California judge failed to consider the fair market value of services provided in ordering restitution or criminal forfeiture in a work comp kickback case.

The appeals court vacated a $27.9 million restitution order against Sam Solakyan on Monday, saying the U.S. District Court for Southern California failed to explain why it didn’t give any credit for the amount insurers would have paid in the absence of the kickback scheme.

The appeals court affirmed the conviction but sent the case back to the trial court in San Diego “to determine whether the total loss amount should be reduced, at least in part, by the cost of reimbursement for medically necessary MRIs the insurers would have incurred had Solakyan acted lawfully.”

The same appeals court in 2019 vacated a $1.3 million criminal forfeiture against a radiologist for the same reason, saying the trial court failed to adequately account for the fair market value of the services provided.

A jury convicted Mr. Solakyan, CEO of several medical imaging companies, including Vital Imaging Inc. in Glendale and San Diego MRI Institute, in July 2021 of one count of conspiracy to commit honest services mail fraud and health care fraud and 11 counts of honest services mail fraud. He was accused of paying kickbacks for patient referrals.

Mr. Solakyan was sentenced to five years and ordered to pay $27.9 million in restitution in January 2022.

The U.S. Attorney’s Office argued that insurers paid $30.1 million to radiology firms owned or controlled by Mr. Solakyan while he was paying for patient referrals. Further, prosecutors said 93% of MRIs performed by Mr. Solakyan’s Vital Imaging were referred by providers who received kickbacks through companies including MedEx Solutions and Providence Scheduling.

Based on the fact that 93% of referrals to Mr. Solakyan’s firm came from other firms already convicted of paying illegal referral fees, prosecutors estimated that 93% of the amount insurers paid him, $27.9 million, was the result of fraud.

For sentencing, however, prosecutors calculated losses between $4.4 million and $14.1 million based on payments for injured workers who received at least four MRIs from one of Mr. Solakyan’s companies. The lower estimate was based on payments made for the fourth and subsequent scans. In comparison, the higher estimate was premised on the theory that all MRIs were medically unnecessary for patients receiving four or more scans.

Mr. Solakyan appealed his conviction, arguing that the honest-services fraud statute does not apply to the doctor-patient relationship and that jury instructions were inadequate, among other things. He also challenged the restitution order.

The appellate court held that the district court did not err in ordering restitution in an amount different from losses the trial court calculated for sentencing. The court said no rule requires that restitution be equal to or less than the losses used for sentencing guidelines.

However, the appeals court said restitution orders must include specific findings that justify the award amount.

“Ordering restitution in the amount which the insurers paid Solakyan’s entities was ‘within statutory bounds,’ but we conclude that the district court abused its discretion in ordering $27,937,175 without making specific findings as to why offsets should not apply,” the court said.

“This court’s actual loss rule requires deducting from the total restitution amount the value of services for which insurers would have paid, absent Solakyan’s fraud,” the court ruled.

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