2005.04.29 CR1300 The Inspector General vs. Thomas M. Horras and Christine Richards..

I sustain the determination of the Inspector General (I.G.) to impose civil money penalties (CMPs) and assessments on Thomas M. Horras (Horras) and Christine Richards (Richards), and to exclude each from participating in Medicare, Medicaid, and all federal health care programs. The amounts of the CMPs are set out and discussed below. I sustain a seven-year period of exclusion for Horras, and I decide that a one-year period of exclusion is reasonable for Richards.

This case is before me on Horras' July 23, 2002 hearing request and Richards' July 19, 2002 hearing request which contest the I.G.'s imposition of sanctions pursuant to section 1128(a)(1)(A) and (B) of the Social Security Act (Act). By letter dated May 20, 2002, the I.G. notified Horras that he was being excluded from participation in the Medicare, Medicaid, and all federal health care programs for a minimum period of seven years. Additionally, the I.G. notified Horras that she was imposing a CMP in the amount of $38,000, and an assessment of $784,072, because Horras presented or caused to be presented claims for payment to fiscal agents of the Medicare and Medicaid programs for medical or other items or services he knew or should have known were not provided as claimed, or knew or should have known to be false or fraudulent. By letter dated May 20, 2002, the I.G. notified Richards that she was being excluded from participation in the Medicare, Medicaid, and all federal health care programs for a minimum period of five years. Richards was advised by the I.G. of the imposition of a CMP in the amount of $20,000, and an assessment of $100,000, because she presented or caused to be presented claims for payment to Medicare and Medicaid programs for medical or other items or services she knew or should have known were not provided as claimed, or knew or should have known to be false or fraudulent. Both Respondents separately filed timely appeals denying the I.G.'s allegations, challenging the proposed sanctions, and requesting a hearing before an Administrative Law Judge (ALJ).

On August 14, 2002, Horras' case was docketed as C-02-755, and assigned to me for hearing and decision. On August 6, 2002, Richards' case was docketed as C-02-733, and assigned to Judge Anne E. Blair for hearing and decision. Judge Blair convened a prehearing conference with Richards and the I.G. on September 5, 2002; I convened a prehearing conference with Horras and the I.G. on September 18, 2002. During both conference calls, the parties raised the issue of consolidation of the two cases and subsequently submitted written requests for consolidation of the cases of Thomas M. Horras, Docket No. C-02-755, and Christine Richards, Docket No. C-02-733. Judge Blair and I reviewed the parties' requests, and, on October 8, 2002, the parties were issued orders consolidating the hearing requests for Docket Nos. C-02-732 and C-02-755, under Docket No. C-02-755. Judge Blair and I agreed that I would preside over the consolidated case.

The parties concurred that they wished to proceed to hearing on the matter, and on October 23, 2002, I convened a telephone prehearing conference for the purpose of establishing a prehearing schedule.

The parties filed their respective prehearing exchanges, and I held a consolidated hearing in this matter on April 28, 2003 through May 9, 2003 in Iowa.⁽¹⁾ At the completion of the hearing on May 9, 2003, I issued a schedule for the parties to file post-hearing and reply briefs.⁽²⁾ A 3,359 page transcript was prepared and submitted to the parties for review and approval, and no prejudicial transcript errors have been identified. The following I.G. exhibits (I.G. Exs.) were admitted during the hearing: 1-449, 449A, 450-452, 452A, 453-459, and 463-464. Horras submitted one exhibit which was marked as R. Horras (Horras) Ex. 1, and admitted. Richards submitted 49 exhibits which were marked as R. Richards (Richards) Exs.1-35, 36B, 37-48, 50, and were admitted. Sixteen witnesses testified at the hearing on behalf of the I.G., and Horras and Richards each testified on his or her own behalf.

On or about June 2, 2003, the I.G. filed a request to modify the post-hearing briefing schedule. On June 2, 2003, Horras filed his response, and on June 3, 2003, Richards filed her response. On June 23, 2003, I issued my ruling denying the I.G.'s request to modify the post-hearing schedule.

The I.G. filed her post-hearing brief on August 8, 2003, and Respondents filed their respective post-hearing briefs on November 24, 2003. Richards filed a reply brief on December 4, 2003; the I.G. filed her reply brief on January 14, 2004; and Richards filed a sur-reply on February 17, 2004.

At the conclusion of the hearing, and, again, by motion filed February 16, 2004, Horras requested oral argument be scheduled in this matter. In a February 17, 2004 reply brief, Richards also requested that I schedule oral argument in this matter. On March 8, 2003, the I.G. filed her opposition brief to Respondents' requests for oral argument. On March 11, 2004, Respondents Horras and Richards jointly filed a reply to the I.G.'s opposition which reiterated their requests for oral argument. After review of the parties' filings and arguments, I granted Respondents' motion for oral argument, but limited the scope of the argument to one issue: What is the effect on this case of the I.G.'s November 3, 2003 settlement with Hawkeye/Auxi?

On June 4, 2004, the I.G. filed its motion for leave to submit the U.S. Bankruptcy Court's May 3, 2004 prehearing brief on report; and on June 8, 2004, Horras filed his objection. I issued my ruling on July 6, 2004, granting the I.G.'s motion.

Oral argument was held in this matter on July 7, 2004.⁽³⁾ At the conclusion of the oral argument, Horras moved to include in the case record a June 17, 2004 decision by an arbitrator in the case of Thomas Horras v. Hawkeye Health Services, Inc., et al.⁽⁴⁾ The I.G. objected, and I directed the parties to file responsive pleadings in support of their positions; however, I instructed the parties that there was a three-page limit. The I.G. submitted its responsive pleading in an 11-page document. On August 13, 2004, I issued an order informing the parties that I would strike and disregard everything after page 3 of the I.G's August 11, 2004 responsive filing; and I directed that the record in this case be closed on August 13, 2004. On September 9, 2004, I granted Horras' motion to include the arbitrator's June 17, 2004 decision in the case record.

On October 13, 2004, I reopened the case record and requested that the parties provide me with additional briefing on the issue of retroactive application of a statutory amendment, specifically 42 U.S.C. 1395x(v)(8) as outlined in the Balanced Budget Act of 1997 (BBA 1997). The parties complied with the filing schedule, and the record was closed on December 14, 2004. On December 21, 2004, I received Respondent Horras' Motion to Strike which was filed by his counsel on December 14, 2004. The I.G.'s response was received on January 7, 2005, and Respondent Richards did not file a response to the Motion to Strike. By order dated February 1, 2005, I reopened the record, and after review of the parties' written submissions, I issued a ruling denying Respondent Horras' Motion to Strike, and I ordered the record closed as of February 25, 2005.

Respondents have presented their equitable arguments in their prehearing submissions, during the hearing in Iowa, and in their post-hearing submissions. It is well-settled that I cannot consider any arguments derived from notions of equity; however, these arguments have been properly preserved for the record. See Heart Place Hospital, L.P., DAB CR1014 (2003); Salvacion Lee, M.D., DAB CR920 (2002), aff'd DAB No. 1850 (2002).

I base my decision on the complete record which includes the parties' arguments, submissions, all exhibits admitted to the record, and the witness testimony adduced during the hearing.

The governing federal regulations are codified in 42 C.F. R. �� 1003.100 through 1003.135. Guidelines for taking into account the factors set out above, which describe circumstances in connection with those factors which can be mitigating or aggravating, are set forth in 42 C.F.R. �� 1003.106(b) and (c). These regulations provide for a full and fair hearing before an ALJ, implement the provisions of the CMPL, delegate authority from the Secretary of Health and Human Services (Secretary) to the I.G. and her delegates to make determinations regarding the CMPL, and provide for appeals from an ALJ's decision.

The Act does not specifically prescribe who shall conduct hearings, and it does not describe the ambit of an ALJ's authority to hear and decide cases. However, regulations adopted to implement the Act do specifically address elements of the ALJ's hearing and decision authority. I am required to apply these regulations. The regulations provide, at 42 C.F.R. � 1003.111, that if a respondent requests a hearing, the case will be assigned to an ALJ for a hearing and decision. The regulations describe the issues which may be heard and the parties' respective burdens of proof as to those issues. 42 C.F.R. � 1005.15. These regulations neither state nor suggest that the issues which may be considered include questions concerning the lawfulness of the Secretary's delegations of authority or that the ALJ may - or can - invalidate or refuse to follow federal statutes or regulations. 42 C.F.R. � 1005.4(c)(1).

The regulations also specifically describe many of the authorities delegated to the I.G. by the Secretary pursuant to the Act. Those relevant here include authorization for the I.G. to impose penalties, assessments, and exclusions; and implement statutory provisions concerning the amounts of penalties and assessments. 42 C.F.R. �� 1003.102-104. The regulations also establish criteria to be followed by the I.G. in determining the appropriate length of exclusions to be imposed pursuant to the Act. 42 C.F.R. � 1003.107. The regulations empower the I.G. to serve notices of proposed determinations and to represent the Secretary in hearings requested pursuant to the Act. 42 C.F.R. �� 1003.109, 1003.112.

The hearing rights of a person in any case involving CMPs imposed by the Department of Health and Human Services (HHS) are governed by regulations found at 42 C.F.R. Part 1005. A person upon whom a CMP has been imposed can request a hearing before an ALJ of the Departmental Appeals Board (DAB). The ALJ has jurisdiction to determine whether the person should be found liable for a CMP and may affirm, deny, increase, or reduce the proposed penalties or assessments. The person requesting the hearing, the respondent, has the burden of going forward and the burden of persuasion with respect to any affirmative defenses and any mitigating circumstances; and the I.G. has the burden of going forward as well as the burden of persuasion with respect to all other issues. 42 C.F.R. � 1005.15. The burdens of persuasion are to be judged by a preponderance of the evidence. Id.

Having considered the entire record, the arguments and submissions of the parties, and being advised fully herein, I make the following Findings of Fact and Conclusions of Law:

1. I reaffirm each and every prehearing, hearing, and post-hearing ruling regarding the admission of testimony, exhibits, and documents entered into the record, and all rulings on substantive and procedural matters made or announced during the entire course of these proceedings.

2. For purposes of these proceedings, I have taken judicial notice of the statutes and regulations of the Unites States and the State of Iowa; the regulations of the Secretary; and the regulations of the Iowa Medicare and Medicaid programs as they existed at the time of the cause of action in this matter.

3. Section 1128A of the Act authorizes the Secretary to impose a CMP and an assessment against any person who presents or causes to be presented, to an officer, employee or agent of the United States, or of any State agency, a claim for items or services under Medicaid and Medicare which that person knows or should have known was not provided as claimed, including a person who engages in a pattern or practice of presenting or causing to be presented a claim for an item or service that is based on a code that the person knows or should know will result in a greater payment to the person than the code the person who knows or should know is applicable to the item or service actually provided. Act, � 1128A(a)(1)(A).

4. The Act also authorizes the Secretary to impose a CMP and assessment against any person who knowingly presents or causes to be presented to an officer, employee or agent of the Unites States, or of any State agency, a claim for a medical or other item or service under Medicaid and Medicare for which the person knows or should know the claim is false or fraudulent. Act, � 1128(a)(1)(B).

5. The regulation defines "person" to mean an individual, trust or estate, partnership, corporation, professional association or corporation, or other entity, public or private. 42 C.F.R. � 1003.100.

6. In cases where more than one person is determined responsible for presenting or causing to be presented a claim as described in sections 1003.102(a)(1) or (a)(2) of 42 C.F.R., each such person may be held liable for the penalty prescribed, and an assessment may be imposed against any one such person or jointly and severally against two or more such persons, but the aggregate amount of the assessments collected may not exceed the amount that could be assessed if only one person was responsible. 42 C.F.R. � 1003.102(d)(1).

7. A principal is liable for penalties, assessments, and an exclusion for the actions of his or her agent acting within the scope of the agency. Act, � 1128A(k)(1); 42 C.F.R. � 1003.102(d)(5).

8. Before the Secretary can make an adverse determination, the affected individual or individuals must be given written notice and an opportunity for the determination to be made on the record after an administrative hearing. Act, � 1128A(b)(2).

9. The terms "civil monetary penalties" and "civil money penalties" are used interchangeably in the CMPL, and the regulations, and for purposes of this Decision I have treated them as identical.

10. The Act authorizes the Secretary to delegate authority granted under section 1128A of the Act to the I.G. to initiate action. Act, � 1128A(j)(2); see also 59 Fed. Reg. 52,967 (1994).

11. The Act and implementing regulation define the phrase "agency of the United States" to include "any contractor acting as a fiscal intermediary, carrier, or fiscal agent or any other claims processing agent for a federal health care program." Act, � 1128A(i)(3)(B).

12. For claims submitted prior to January 1, 1997, the Act and pertinent regulations provide for the imposition of a penalty of up to $2,000 for each improper item or service and assessments of up to twice the amount improperly claimed. Act, �1128A(a); 42 C.F.R. �� 1003.103(a)(1) and 1003.104(a)(1). The assessment is in lieu of damages sustained by HHS or a State agency due to the wrongful claims. 42 C.F.R. � 1003.104(b).

13. For claims submitted on or after January 1, 1997, the Act provides for the imposition of a penalty of up to $10,000 for each item or service falsely claimed and assessments of up to three times the amount so claimed. Act, � 1128A(a); 42 C.F.R. �� 1003.103(a)(2) and 1003.104(a)(2). The assessment here is also in lieu of damages sustained by HHS or a State agency due to the wrongful claims. 42 C.F.R. � 1003.104(b).

14. Prior to December 1987, the Act provided for imposition of a penalty, assessment, and exclusion against a person who filed a claim for an item or service where that person "knows or has reason to know" that the item or service was not filed as claimed. Act, � 1128A(a). In 1987, Congress enacted the Omnibus Budget Reconciliation Act (OBRA) where the phrase "should know" was substituted for the phrase "has reason to know." Pub. L. 100-203, section 4118(e) (1987).

15. The actions which form the basis of the I.G.'s penalty, assessment and exclusion against both Respondents in this case were presented or caused to be presented after Congress' 1987 enactment of OBRA, therefore, the standard of knowledge that applies to all claims at issue in this case is "knows or should know."

16. In 1996, Congress enacted the Health Insurance Portability and Accountability Act (HIPAA) which clarified the standard of knowledge required for liability to be imposed under the CMPL by adding "knowingly" before "presents." See HIPAA � 231(d), 110 Stat. at 2013; compare 42 U.S.C.A. �1320a-7a (1991) with 42 U.S.C.A. � 1320a-7a (2002 Supp. Pam).

17. The term "knowingly" as used in the Act is defined consistently with the definition set forth in the Civil False Claims Act which states "a person, with respect to information, has actual knowledge of information, acts in deliberate ignorance of the truth or falsity of the information, acts in deliberate ignorance of the truth or falsity of the information, or acts in reckless disregard of the truth or falsity of the information, and that no proof of specific intent to defraud is required. See 42 C.F.R. � 1003.102(e); 31 U.S.C. � 3729(b).

18. In proceedings brought pursuant to the Act, the I.G. has the burden of proving, by a preponderance of the evidence, that a respondent presented or caused to be presented claims for items or services which the respondent knew or should have known were not provided as claimed and/or were false or fraudulent. 42 C.F.R. � 1005.15(b)(2) and (d).

19. In proceedings brought pursuant to the Act, a respondent has the burden of proving the existence of any mitigating factors (42 C.F.R. � 1005.15(b)(1)); and the I.G. has the burden of proving the existence of any aggravating factors by a preponderance of the evidence. 42 C.F.R. � 1005.15.

20. For liability to be established in this case, the I.G. must prove by a preponderance of the evidence that: (1) the respondent (a "person") (2) "presented or caused to be presented" (3) the Medicare and Medicaid "claims" in issue (4) to the Medicare and/or Medicaid program ("agency") (5) for medical "items or services" when, in fact, (6) these items and services were "not provided as claimed" and/or were false and fraudulent; and (7) the respondent "knew or should have known" that the claims were not provided as claimed and/or were false or fraudulent.

21. The CMPL and implementing regulations contain slightly different language with identical meaning. Under section 1128A(a)(1) of the CMPL, liability attaches when the person "knowingly presents or causes to be presented." Under section 1003.102(a)(1) of the regulations, liability attaches when "the person knew or should have known."

22. Section 1128A(h)(2) of the CMPL and section 1003.101 of 42 C.F.R. define a "claim" as an application for payment submitted for an item or service for which payment may be made under the Medicare and/or Medicaid programs.

23.Section 1128A(h)(3) of the CMPL and section 1003.101 of 42 C.F.R. define an "item or to service" to include any item, device, medical supply or service claimed to have been provided to a patient and listed in an itemized claim for payment, and in the case of a claim based on costs, any entry or omission in a cost report, books of account or other documents supporting the claim. The CMPL and the regulations provide relief for those who might accidentally fall within these provisions. For example, the regulations specify that an ALJ should find it a "mitigating circumstance" where "corrective steps were taken promptly after the error was discovered." 42 C.F.R. � 1003.106(b) (2). Additionally, the regulations specify that other circumstances of a mitigating nature should be taken into account when "the interests of justice" so require. 42 C.F.R. � 1003.106(a)(2)(vii), (5)(ix).

24.The Act and implementing regulations direct the Secretary, or his or her delegate, in determining the amount or scope of any penalty or assessment imposed, to take into account both aggravating and mitigating factors. Act, � 1128A(d); 42 C.F.R. � 1003.106.

25. Factors which may be considered as aggravating or mitigating include: the nature of the claims and the circumstances under which they were presented; the degree of culpability; history of prior offenses; other wrongful conduct; financial condition of the person presenting the claims; and such other matters as justice may require. Act, � 1128A(d); 42 C.F.R. � 1003.106.

26. It should be noted that proof of actual knowledge is considered to be an aggravating factor. 42 C.F.R. � 1003.106(b)(2)(I).

27. If there are substantial or several mitigating circumstances, the aggregate amount of the penalty and assessment should be set at an amount sufficiently below the maximum permitted by law, so as to reflect that fact. 42 C.F.R. � 1003.106(c)(1).

28. If there are substantial or several aggravating circumstances, the aggregate amount of the penalty and assessment should be set at an amount sufficiently close to, or at, the maximum permitted by law, so as to reflect that fact. 42 C.F.R. � 1003.106(c)(2).

29. But for the existence of extraordinary mitigating circumstances, the aggregate amount of the penalty and assessment should never be less than double the approximate amount of damages and costs sustained by the United States, or any State. 42 C.F.R. � 1003.106(c)(3).

30. The regulations require that the amount imposed not be less than the approximate amount required to fully compensate the United States, or any State, for its damages and costs, tangible and intangible, including, but not limited to the costs attributable to the investigation, prosecution and administrative review of the case. 42 C.F.R. � 1003.106(f)(2).

31. Section 1005.4 of 42 C.F.R. outlines an ALJ's authority in hearing these cases; however, an ALJ does not have the authority to review the exercise of discretion by the I.G. to impose a CMP, assessment or exclusion under Part 1003 of the regulations. 42 C.F.R. � 1005.4(c)(7).

32. The regulation implementing exclusions from Medicare and Medicaid states that the I.G. " will exclude the individual or entity from the Medicare program and direct each State agency administering a State health care program to exclude the individual or entity for the same period." 42 C.F.R. � 1001.901(a); see also Act, � 1128A(h).

34. As a guide to providers, the PRM provides interpretation of the reimbursement policies for providers as set forth in the regulations; however, it does not have the full force and effect of the law. 5 U.S.C. � 553 et seq.

35. Respondents had a copy of the PRM available to them at Hawkeye Health Services, Inc.(Hawkeye). See Richard's Ex 36A (copy of 15-1); Hearing Transcript (Tr.) at 2635-36.

36. The regulations afford the I.G. authority to settle any issue or case or to compromise any penalty and assessment. 42 C.F.R. �� 1003.106(f)(3) and 1003.128(b).

37. The I.G. is not equitably estopped or otherwise barred in this case by the settlement agreement with Auxi. Act, � 1128A(f).

38. Under the Act, home health agencies supplying services to Medicare beneficiaries are to be reimbursed the reasonable cost of the services provided. Reasonable costs are defined as the "costs actually incurred, excluding there from any part of incurred costs found to be unnecessary in the efficient delivery of needed health services." Act, � 1861(v)(1)(A). The implementing regulations require that payments to providers must be based on the reasonable cost of services which include "all necessary and proper costs incurred in furnishing the services." 42 C.F.R. � 413.9(a). The regulation defines "necessary and proper costs" as costs "that are appropriate and helpful in developing and maintaining the operation of patient care facilities and activities" and "are usually costs that are common and accepted occurrences in the field of the provider's activity." 42 C.F.R. � 413.9(b)(2)

39. The regulation requires that the determination of reasonable cost of services be "based on cost related to the care of Medicare beneficiaries." 42 C.F.R. � 413.9(c)(3). Reasonable costs can be both direct and indirect costs as well as normal standby costs and include all necessary and proper expenses incurred in furnishing the services, such as administrative costs, maintenance costs, and premium payments for employee health and pension plans. Id.

40. Home health agencies file an annual cost report and monthly claims. 42 C.F.R. Parts 421 and 424. Annual cost reports must be filed within five months of the end of the cost reporting period. Interim payments are paid to a provider prior to an audit based upon the actual costs of providing services as determined by the previous year's costs. 42 C.F.R. Part 413, Subpart E. The cost report serves to reconcile the provider's expenses against the interim payments it has already received for that cost report year and to determine the interim payment rate on a per claim basis for the following year. Id.

41. Upon completion of the fiscal intermediary's (FI's) review of a provider's cost report, a Notice of Program Reimbursement (NPR) is issued to the provider which identifies adjustments made, and identifies the amount of any overpayment and reimbursement owed. 42 C.F.R. � 405.1803.

42. Providers dissatisfied with the NPR determination may, within 180 days, request a hearing before the Provider Reimbursement Review Board (PRRB) if the amount at issue is $10,000 or more. However, a filing of appeal does not stay the FI's recovery of the overpayment. 42 C.F.R. Part 405. To appeal a PRRB decision, a provider may file a civil action in the appropriate federal district court once it has exhausted its administrative remedies. Act, � 1878(f); 42 C.F.R. � 405.1877.

43. If a provider's operating costs include amounts not reimbursable under the Medicare program, or if the provider's operating costs flow from "the provision of luxury items or services, such amounts will not be allowed." 42. C.F.R. 413.9(c)(3). Luxury items or services "substantially in excess of or more expensive than those generally considered necessary for the provision of needed health services" are not Medicare reimbursable under the regulations. Id.

44. Providers are required to maintain sufficient financial records and statistical data for proper determination of costs payable under the Medicare program. They must maintain and provide "accurate cost data and other information capable of verification by qualified auditors and adequate for cost reporting purposes." 42 C.F.R. �� 413.20(a) and (c)(1), and 413.24(a).

45. Home health agencies providing services to Medicaid beneficiaries are reimbursed on a cost basis and are required to file cost reports with the state fiscal agents. The Medicaid cost reports are based upon the audited Medicare cost reports for the same cost report period. Act, � 1901; 42 C.F.R. Ch. IV, Subpart C. Therefore, if unallowable costs have been claimed on the Medicare cost report, the unallowable costs are passed on to the Medicaid cost report.

46. By separate Notices dated May 20, 2003, the I.G. notified Respondents that it proposed to impose sanctions against them including a CMP, assessment and exclusion from program participation based on the submission of cost reports to fiscal agencies for Medicare and Medicaid reimbursement.

47. In the Notices to Respondents, the I.G. identified the covered period as 1995 through 1997.

48. Hawkeye's home office cost reports at issue in these proceedings covered items and services rendered during 1995 through 1997. The 1995 home office cost report was filed on June 7, 1996; the 1996 home office cost report was filed on May 30, 1997; and the 1997 home office cost report was filed on May 21, 1998. Inspector General Post-Hearing Brief (I.G. Post-Hearing Br.) at 4.

49. The Fiscal Year 1995 Medicare and Medicaid branch office cost reports were filed on June 6, 1996 for the following Hawkeye agency offices in Iowa: Knoxville, Iowa City, Humboldt, and Oelwein. The Fiscal Year 1996 Medicare and Medicaid cost reports for Hawkeye agencies were filed as follows: Knoxville (July 9, 1997), Iowa City (July 9, 1997), Humboldt (August 6, 1997), Oelwein (July 18, 1997), Council Bluffs (August 6, 1997), and Sioux City (May 30, 1997). The Fiscal Year 1997 Medicare and Medicaid cost reports for Knoxville, Iowa City, Humboldt, Oelwin, Counsel Bluffs, and Sioux City were filled on May 7 and 8, 1998. Richard's Notice at 2, n.1.

50. Only the home office cost reports presented on Hawkeye's behalf, which hereinafter will be referenced as "Hawkeye cost reports" or "cost reports," are at issue here, and not the branch office cost reports.

51. Hawkeye Health Services, Inc. was a Medicare and Medicaid provider of home health care services during the relevant period at issue in these proceedings. I.G. Prehearing Br. - attachment C at 1.

52. During 1995 through 1997, the Medicare claims at issue in these proceedings were submitted to Wellmark, the Medicare FI for the state of Iowa. See I.G. Prehearing Br. at 2. As the FI for the Medicare program in Iowa, Wellmark acts as the agent of the Secretary, determining the rates and amounts of payment for covered services and processing and paying claims. Act, � 1395u. During the same period of time the Medicaid claims here at issue were submitted to Unisys Corp. and Consultec, Inc., which organizations functioned as the Iowa Medicaid FI. I.G. Prehearing Br. at 2.

53. Subsequent to the issuance of the Notice to Respondents, and during the course of these proceedings, the I.G. elected not to introduce evidence on 10 claims against both Respondents in relation to the Embassy Club category of items or services related to meals and entertainment. The I.G. elected to limit its case and its evidence to unallowable monthly dues portions of these claims. I.G. Prehearing Br. at 5; I.G. Ex. 9D.

54. Additionally, the I.G. elected not to pursue claims against both Respondents for reimbursement for the following items or services for costs on the Medicare and Medicaid cost reports for the period 1995-1997, because the I.G. was unable to tie these claims to the cost reports through the detailed trial balance shown in the general ledgers: (1) 14 claims against Horras for reimbursement for items or services involving the Barnhart & Walker (B&W) marketing program, Lexus SC400, Chevrolet Suburban, and Charitable Donations categories; and 12 claims against Richards involving the Lexus SC400, Chevrolet Suburban, and Charitable Donations categories. I.G. Prehearing Br. at 5; I.G. Ex. 9D.

55. In the reimbursement process, the submission of a claimed item or expense in the annual cost report is essential and required by the regulations, and that process should be understood to be fundamental to the discussion that follows.

1. By Notice dated May 20, 2002, the I.G. notified Horras that it proposed to impose a CMP of $38,000, an assessment of $784,072, and a seven-year period of exclusion. See Horras Notice at 1.

2. The I.G. alleges that Horras presented or caused to be presented 178 claims for payment to Medicare and Medicaid in the amount of $343,279.97 in the Hawkeye cost reports covering fiscal years 1995 though 1997, that were for medical or other items or services that he knew or should have known were false or fraudulent, or not provided as claimed. These claims were for unallowable costs not related to patient care and/or not reasonable costs of operation of Hawkeye. I.G. Prehearing Br. at 5-6, n. 6; Attachment A (attached to I.G. Prehearing Br.).

3. Although the I.G. subsequently modified the number of items or services at issue from 192 improper claims to 178 against Horras, the I.G. did not reduce the proposed sanctions. I.G. Prehearing Br. at 5.

4. On July 23, 2002, Horras filed an answer to the Notice and a timely request for a hearing before an ALJ, pursuant to section 1003.109(b)(2) of the regulations.

5. During all times relevant for this proceeding, Horras was President and Chief Executive Officer (CEO) of Hawkeye. Tr. at 2985.

6. As President and CEO, Horras exercised sole, unilateral, and complete control over policies and procedures regarding how claims would be submitted from Hawkeye.

7. The $132,035.86 in professional fees for business valuation and related expert services paid to Baird, Kurtz, and Dobbins (BKD) was in connection with Horras' divorce and not for the purposes of establishing an Employee Stock Option Plan (ESOP). I.G. Ex. 68, at 1; 89, at 1, 77, 79, 81; 303B at 62; Tr. at 1363-64,1391-92, 1695-97, 1699-1703, 1752-53; see also Brief of Thomas Horras (Horras Post-Hearing Br.) at 17. Such fees are not allowable costs through the Medicare and Medicaid programs. Tr. at 603-04, 1105, 1108-09, 2351-52.

8. Horras had direct first-hand knowledge that these fees were in relation to the business valuation of Hawkeye and related expert services in connection with his divorce. I.G. Ex. 20, at 101; Horras Post-Hearing Br. at 17. Respondent knew that such fees were unallowable costs through the Medicare and Medicaid programs. I.G. Ex. 89, at 1, 77, 79, 81.

9. Horras intentionally intercepted bills from BKD which were addressed to Hawkeye, opened them himself, approved them and gave them to Kasi Wares, accounts payable clerk, to post in Hawkeye's chart of accounts, and to pay. Tr. at 3069-71.

10. Horras acted with reckless disregard of this knowledge when he included or caused to be included $132,035.86 in professional fees for business valuation and related expert services paid to BKD in relation to his divorce in Hawkeye's 1995 an 1996 Medicare and Medicaid cost reports in violation of section 1128A of the Act. See also 42 C.F.R. � 413.9; Iowa Admin. Code � 441-79.1(1)(b).

11. The I.G. has established by a preponderance of the evidence that Horras knowingly presented or caused to be presented claims for professional fees for business valuation and expert witness testimony paid to BKD in connection with his divorce, which he knew or should have known were false or fraudulent.

12. Hawkeye's 1995-1997 cost reports contain $44,678.55 in unallowable costs related to personal use of luxury vehicles which include monthly lease payments, automobile service expenses, and license fees for these vehicles. I.G. Exs. 3A-9D; 137-155; 158-173; 176-177; 179-181; 187-204. Such fees are not allowable costs reimbursable through the Medicare and Medicaid programs. 42 C.F.R. � 413.9(a); HCFA Pub. 15-1 � 2102.3; Tr. at 604-04, 1125, 2359-61.

13. Horras had direct first-hand knowledge that these expenses were for personal use of the luxury vehicles and that such expenses were unallowable costs through the Medicare and Medicaid programs. Tr. at 715-18, 733-36, 1872-73, 1919; I.G. Ex. 16, at 2, 8, 10-20, 21-22.

14. Horras acted with reckless disregard of this knowledge when he included or caused to be included the $44,678.55 in automobile expenses in Hawkeye's 1995-1997 Medicare and Medicaid cost reports.

15. The I.G. has established by a preponderance of the evidence that Horras knowingly presented or caused to be presented claims for automobile expenses for personal use of Hawkeye automobiles which he knew or should have known were false in that they were not as he represented them to be. Horras' conduct was in violation of section 1128A of the Act. See also 42 C.F.R. � 413.9; Iowa Admin. Code � 441-79.1(1)(b).

16. The $1,411 in Embassy Club dues were for Horras' monthly membership dues in a social club which were unallowable costs. I.G. Exs. 17, at 17, 25; 206-233.

17. Horras knew that the monthly dues for the Embassy Club were for a social club, and he should have known that such dues are unallowable costs through the Medicare and Medicaid programs. I.G. Ex. 17, at 17, 25, 30. Horras acted with reckless disregard of this knowledge when he included or caused to be included such costs in Hawkeye's 1995-1997 Medicare and Medicaid cost reports.

18. The I.G. has established by a preponderance of the evidence that Horras knowingly presented or caused to be presented claims for Embassy Club dues for his monthly membership which he should have known were not as claimed.

19. The $514.95 in fees paid to Menninga Pest Control, a pest-exterminating business, for pest control were for services at Horras' private residence. I.G. Ex. 42, at 1-3. Such fees are not allowable costs reimbursable through the Medicare and Medicaid programs. Horras had direct first-hand knowledge that theses services were performed at his private residence, and that such fees are unallowable costs. I.G. Ex. 42, at 4.

20. Horras acted with reckless disregard of this knowledge when he included or caused to be included such costs in Hawkeye's 1995-1997 Medicare and Medicaid cost reports.

21. Horras willfully concealed the true nature of these services when he asked that Menninga include the cost of services to his private residence on the same monthly invoice as services to the Hawkeye office. I.G. Ex. 42, at 4.

22. The I.G. has established by a preponderance of the evidence that Horras knowingly presented or caused to be presented $514.95 in fees paid to Menninga for pest control services performed at his private residence which he knew were false or fraudulent in violation of section 1128A of the Act.

23. The $16,013.54 in charitable donations included in Hawkeye's 1995-1997 Medicare and Medicaid cost reports are unallowable costs. HCFA Pub. 15-1 � 2102.3.

24. Horras had direct first-hand knowledge that the charitable donations were unallowable costs. I.G. Ex 17, at 21; see also HCFA Pub. 15-1 � 2102.3. Horras acted with reckless disregard of this knowledge when he included or caused to be included such costs in Hawkeye's 1995-1997 Medicare and Medicaid cost reports.

25. The I.G. has established by a preponderance of the evidence that Horras knowingly presented or caused to be presented $16,013.54 in charitable donations which he knew or should have known were false or fraudulent, and his actions were in violation of section 1128A of the Act.

26. The $26,937.58 included in Hawkeye's 1997 Medicare and Medicaid cost reports were for professional fees paid for legal and business valuation expenses related to the sale of Hawkeye. Richards Ex. 2, at 5; Tr. at 932, 934-36. Such fees are not allowable costs reimbursable through the Medicare and Medicaid programs.

27. Horras had direct first-hand knowledge that the fees paid for legal and business valuation expenses related to the sale of Hawkeye were not allowable costs through the Medicare and Medicaid programs. I.G. Ex. 83A, at 14. Horras acted with reckless disregard of this knowledge when he included or caused to be included such costs in Hawkeye's 1997 Medicare and Medicaid cost reports.

28. The I.G. has established by a preponderance of the evidence that Horras knowingly presented or caused to be presented $26,937.58 for professional fees paid for legal and business valuation expenses related to the sale of Hawkeye which he knew or should have known were false or fraudulent, and thus his actions are in violation of section 1128A of the Act.

29. The $131,472.24 in professional fees paid to Barnhardt and Walker (B&W) for marketing program fees were to increase patient utilization of Hawkeye services. Tr. at 1092, 1094-05, 2468; I.G. Ex. 10C, at 2. Such fees are not allowable costs reimbursable though the Medicare and Medicaid programs. HCFA Pub. 15-1 � 2136.2.

30. Horras had direct first-hand knowledge that the B&W fees were unallowable costs through the Medicare and Medicaid programs. I.G. Ex. 10C at 1-2; 123; 128, at 47. Horras acted with reckless disregard of this knowledge when he included or caused to be included such costs in Hawkeye's 1995 and 1996 Medicare and Medicaid cost reports.

31. The I.G. has established by a preponderance of the evidence that Horras knowingly presented or caused to be presented claims for marketing program fees of $131,472.24 paid to B&W to increase patient utilization of Hawkeye which he knew or should have known were false, and thus his actions were in violation of section 1128A of the Act. See also 42 C.F.R. � 413.9; Iowa Admin. Code � 441-79.1(1)(b).

32. The $14,472.85 in advertising fees paid to Julie S. Murphy for a flu shot program was to increase patient utilization of Hawkeye services. I.G. Exs. 128, at 40-41, 47;129, at 1, 5; Tr. at 1406,1425-26. Such marketing fees are not allowable costs reimbursable through the Medicare and Medicaid programs. HCFA Pub. 15-1 � 2136.2.

33. Horras had direct first-hand knowledge that the fees paid to Julie S. Murphy were unallowable costs. I.G. Ex. 129, at 1, 5. Horras acted with reckless disregard of this knowledge when he included or caused to be included such costs in Hawkeye's 1995 and 1996 Medicare and Medicaid cost reports.

34. The I.G. has established by a preponderance of the evidence that Horras knowingly presented or caused to be presented claims for advertising fees paid to Julie S. Murphy for a flu shot program to increase patient utilization of Hawkeye which he knew or should have known were false or fraudulent, in violation of section 1128A of the Act.

35. Horras' actions at issue in these proceedings occurred over the course of nearly three years. The evidence also shows that, as early as 1993, Horras was informed that he had been billing incorrectly and was advised to discontinue the incorrect billing, yet he failed to do so.

36. The claims at issue were part of a scheme by Horras, intended systematically to extract reimbursement from Medicare and Medicaid programs to which Hawkeye was not entitled.

37. The scheme was in deliberate contravention of provider reimbursement guidelines and correspondence provided to Horras from the FI via letters and audits.

38. Horras' intentional conduct establishes a high degree of culpability and constitutes an aggravating factor. 42 C.F.R. �1003.106(b)(2).

39. Horras had a duty to verify the truth and accuracy of the claims which were presented to the FI on Hawkeye's behalf for reimbursement.

40. Horras' certification of the submitted cost reports at issue created a duty for Horras to investigate the truth, accuracy, and completeness of the 178 claims submitted on Hawkeye's 1995-1997 cost reports. This duty to investigate renders Horras liable under the CMPL for what a reasonable medical provider having the information of this Respondent in similar circumstances would know had he investigated further.

41. Horras did not act as a reasonable medical provider, and his decision to ignore the legal requirements of the Medicare cost report processing does not excuse him from liability.

42. Horras provided no facts in mitigation of the penalty proposed, nor do I find any.

43. Horras knowingly presented or caused to be presented to Wellmark, Inc., a division of Blue Cross and Blue Shield of Iowa, as agent for Medicare, and to Unisys Corporation and Consultec, Inc., both as agents for Medicaid, 178 claims for medical or other items or services that he knew or should have known were: (1) not provided as claimed; or (2) false or fraudulent, in violation of sections 1128A(a)(1)(A) and (B) of the Act. See also 42 C.F.R. � 413.9; Iowa Admin. Code � 441-79.1(1)(b).

45. Penalties of $38,000 and an assessment of $673,212 against Respondent Horras are appropriate in this case.

1. By Notice dated May 20, 2002, the I.G. notified Richards that it proposed to impose a CMP of $20,000, an assessment of $100,000, and a five-year period of exclusion. See Richards Notice at 1.

2. The I.G. alleges that Richards presented or caused to be presented 112 claims for payment to Medicare and Medicaid in the Hawkeye cost reports covering fiscal years 1995 though 1997 that were for medical or other items or services that she knew or should have known were false or fraudulent or not provided as claimed. These claims were for unallowable costs that were not related to patient care and/or were not reasonable costs of operation of Hawkeye. The 112 claims at issue against Richards are in four categories and represent $89,040.66 in items and services. I.G. Prehearing Br. at 5-6, n.7; and Attachment A.

3. Although the I.G. subsequently modified the number of items or services at issue from 124 improper claims to 112 against Richards, the I.G. did not reduce the proposed sanctions. I.G. Prehearing Br. at 7.

4. On July 19, 2002, Richards filed an answer to the Notice and a request for a timely hearing before an ALJ, pursuant to section 1003.109(b)(2) of 42 C.F.R.

5. During all times relevant for this proceeding, Richards was Director of Finance for Hawkeye on a full-time basis from June 1993 through 1998, except when she was on leave for 43 days. Tr. at 2629, 2676-77, 2796.

6. Subsequent to the merger of Hawkeye into Auxi, which occurred in the spring of 1999, Richards remained an employee for a brief period of time, but with "substantially reduced responsibilities." Richards' July 19, 2002 Hearing Request at 4.

7. Richards is a proper party in these proceedings, and the CMPL authorizes the I.G. to institute administrative proceedings against Richards in this matter. Act, �� 1128A(a)(1)(A) and (B).

8. It was Richards' responsibility to complete Medicare cost reports on behalf of Hawkeye and to submit them to Medicare and Medicare. Richards Post-Hearing Brief (Br.) at 3-4.

9. All cost reports for the relevant time period at issue here were prepared on Hawkeye's behalf from information which Richards placed on the cost reports. Richards Post-Hearing Br. at 3-4.

10. Richards prepared the cost report claims based on instructions she received from Horras and consultants. Tr. at 2947; Richards Post-Hearing Br. at 16, 21.

11. The I.G. has established by a preponderance of the evidence that Richards should have known that costs related to Horras' personal use of Hawkeye automobiles and the luxury portion of the cost of these automobiles were not allowable Medicare expenditures. I.G. Ex. 12.

12. Richards knowingly presented or caused to be presented $44,678.55 in unallowable automobile costs for reimbursement in Hawkeye's 1995-1997 Medicare and Medicaid cost reports in violation of section 1128A of the Act. See also 42 C.F.R. � 413.9; Iowa Admin. Code � 441-79.1(1)(b).

13. The I.G. has established by a preponderance of the evidence that Richards should have known that the costs associated with the Embassy Club dues were false and fraudulent when they were included in Hawkeye's 1995-1997 Medicare and Medicaid cost reports. I.G. Exs. 12; 17; 23, at 2.

14. Richards acted in reckless disregard of this knowledge when she included or caused to be included $1,411 for Embassy Club dues in Hawkeye's 1995-1997 Medicare and Medicaid cost reports in violation of section 1128A of the Act. See also 42 C.F.R. � 413.9; Iowa Admin. Code � 441-79.1(1)(b).

15. The I.G. has established by a preponderance of the evidence that Richards knew that the $16,013.54 in charitable donations included in Hawkeye's 1995-1997 Medicare and Medicaid cost reports were not related to patient care and unallowable costs for reimbursement through the Medicare and Medicaid programs. I.G. Exs. 12; 17, at 2-5; Tr. at 2543.

16. Richards acted with reckless disregard of this knowledge when she knowingly included or caused to be included $16,013.54 for charitable donations in Hawkeye's 1995-1996 Medicare and Medicaid cost reports in violation of section 1128A of the Act. See also 42 C.F.R. � 413.9; Iowa Admin. Code � 441-79.1(1)(b).

17. The I.G. has not proven by a preponderance of the evidence that Richards knew that the Brown, Winnick and Graves (BW&G) fees were related to the sale of Hawkeye; however, I find that Richards should have known that such expenses were unallowable costs and thus she acted with reckless disregard when she presented or caused to be presented invoices for BW&G fees in Hawkeye's 1997 Medicare and Medicaid cost reports. I.G. Exs. 299, at 5; 454, at 6; Tr. at 2883-84.

18. Richards knew that any fees associated with legal and business valuation expenses related to the sale of Hawkeye were unallowable costs based on her admitted knowledge of the Medicare Provider Audit and Reimbursement (PAAR) Department's disallowance of BKD fees in Hawkeye's 1995 cost reports. Tr. at 1917; I.G. Ex. 83A.

19. Richards should have known that the legal and professional fees from BW&G and SMK were related to the sale of Hawkeye. I.G. Exs. 83A; 303B, at 54.

20. Richards acted with reckless disregard when she included or caused to be included $26,937.58 in legal and business valuation fees related to the sale of, or possible sale of, Hawkeye in Hawkeye's 1997 Medicare and Medicaid cost reports in violation of section 1128A of the Act.

21. Richards knew or should have known the relevant rules and regulations of the Medicare and Medicaid programs. She presented or caused to be presented cost reports which included claims for Medicare and Medicaid reimbursement for at least 112 items or services specified in the I.G's Notice. See May 20, 2002 Notice to Richards.

22. The I.G. has established by a preponderance of the evidence that Richards knowingly presented or caused to be presented to Wellmark, Inc., a division of Blue Cross and Blue Shield of Iowa, as agent for Medicare, and to Unisys Corporation and Consultec, Inc., both as agents for Medicaid, 112 claims for medical or other items or services that she knew or should have known were: (1) not provided as claimed; or (2) false or fraudulent, in violation of sections 1128A(a)(1)(A) and (B) of the Act. See also 42 C.F.R. � 413.9; Iowa Admin. Code � 441-79.1(1)(b).

23. The I.G. proved by a preponderance of the evidence that Richards included in Hawkeye's 1995-1997 cost reports substantial sums of money over a lengthy period of time. The expenses included in the cost reports were of several types, and a pattern was proven by a preponderance of the evidence. These are all aggravating factors.

24. Although Richards is culpable for her involvement in submitting improper claims in Hawkeye's 1995-1997 Medicare and Medicaid cost reports, I do not find that she shares the same degree or amount of culpability as Horras. Her degree of culpability is substantially less than that of Respondent Horras.

25. The 1993 and 1994 cost reports filed on behalf of Hawkeye serve as evidence to establish that Richards, in her role as Director of Finance, was aware that the improper claims were unallowable and could lead to further investigation by the government including charges of fraudulent filing. I.G. Exs. 1A, at 10, 20; 2A, at 14, 108; 2B. at 1, 150; 16, at 1, 3-4, 23, 45-54; 17, at 1, 2, 8, 10, 29-30.

26. I find the 1993 and 1994 Hawkeye cost reports evidence of other wrongful conduct engaged in by Richards and consider them aggravating circumstances in determining the appropriateness of the proposed sanctions.

27. I do not find a remedial need under the Act to exclude Richards for five years and find that a CMP in the amount of $20,000 and an assessment of $100,000 are unreasonable. I do find that a CMP in the amount of $2,500 and an assessment of $2,146, for a total of CMP and assessment of $4,646, and a one-year exclusion against Richards are all reasonable.

To better understand the relationship of the entity Hawkeye/Auxi, it is important to provide an overview of Hawkeye Health Services, Inc. (Hawkeye), and its eventual merger with Auxi Health, Inc. (Auxi). In 1986, Horras formed Hawkeye, a home health agency, which he owned and in which he held the position of CEO and President from 1986 through May 8, 1999. Tr. at 2985. Hawkeye obtained a Medicare provider number in March 1987, and a Medicaid provider number thereafter in order to provide home health service to Iowa residents in their homes. Tr. at 2985.

During its inception, the office was located at Horras' private residence in Knoxville and continued at that location in the basement of Horras' home until 1990 when Hawkeye's main office (or, as it was sometimes called, the "home office") was relocated to a different address in Knoxville. Tr. at 2985-86, 2993, 3084. In 1991, Hawkeye had five full-time and two part-time employees in the Knoxville home office, and Hawkeye's gross revenue at that time was about $1.9 million. Tr. at 2616, 2622. By 1993, Hawkeye had almost 100 employees. Tr. at 2616.

Over the years Hawkeye expanded to several branch offices located throughout Iowa. The Des Moines branch office opened in 1990, and the Nevada branch office opened in 1992.⁽⁷⁾ I.G. Ex. 303B, at 6. The Iowa City, Humbodlt, and DeWitt branch offices began operating in 1994.⁽⁸⁾ Tr. at 2658. In 1995, the Oelwein and Council Bluffs branch offices began operation. I.G. Ex. 3B, at 1, 409; 303B, at 6. The Sioux City branch office's certification date was May 23, 1996. Tr. at 2737; I.G. Exs. 4B, at 357; 128, at 22; 303B, at 6; see also I.G. Prehearing Br. at 29.

Horras and employee Sue Vincent did the billing for Hawkeye during Hawkeye's early years; however, interested in expanding his company and its operations, Horras eventually began searching for a person with experience in preparing home health cost reports. Tr. at 2990-91. In 1987, Don Croghan (Croghan), an employee of the Knoxville, Iowa office of Walter Timmins Company, introduced Horras to Kim Yap (Yap), then a former Medicare auditor on the staff of Walter Timmins Company. Croghan had prepared tax returns for Horras and Horras' first wife, Alda Knight, M.D., of Knoxville, Iowa as early as 1983. Tr. at 2991. Horras hired Yap in 1988 as Hawkeye's Director of Finance, and Yap prepared the Hawkeye home health cost reports beginning in 1987, and for each year through 1994. Tr. at 2992. In June 1993, Yap left his full-time employment with Hawkeye, but continued at Hawkeye as a consultant until 1995 to provide consultation for Medicare and Medicaid cost reports. Tr. at 3120-21.

Richards graduated from Simpson College in Knoxville, Iowa in 1991 with a Bachelor's Degree in Accounting. Tr. at 2611, 2615. On August 5, 1991, Richards was hired by Horras as a part-time employee of Hawkeye. Tr. at 2612. One day later, on August 6, 1991, the Comptroller of Hawkeye resigned, and Richards was promoted to the position of Staff Accountant. Tr. at 2614. Sometime during August, 1991, Richards was promoted to the position of Comptroller at Hawkeye. Tr. at 2869. Richards' immediate supervisor was Yap. Tr. at 2615. Richards' responsibilities as Comptroller included responsibility for the payroll, accounts payable records, and operations, including monthly financial statement preparation. Tr. at 2868.

In June 1993, Richards was promoted to the position of Director of Finance at Hawkeye when Yap left, and Dennis Van Fleet was hired as Comptroller. Tr. at 2629. As Director of Finance, Richards oversaw the department staff, monitored department resources, and ensured the functioning of the department. Tr. at 2892. Richards' responsibilities as Director of Finance included reviewing the general ledger and payroll information; maintaining contact with the fiscal intermediary concerning cost settlements; reviewing all reconciliations and adjustment reports; and preparing annual and interim Medicare and Medicaid cost reports for the home office and all branch offices. Tr. at 2892-93.

Richard Clock became an employee of Hawkeye in March, 1995. His first position with Hawkeye was Director of Managed Care, but he held that position for only a few weeks when his position changed to Director of Operations which entailed oversight of the daily operation of Hawkeye. Tr. at 1347-1350, 1433, 1470. In late 1995, Richard Clock became Vice-President of Operations. Tr. at 1347-1350, 1364, 1433. Although he originally was to supervise Christine Richards, Horras decided that he himself would continue as Richards' immediate supervisor for financial issues and the cost reports at the home office and all the branch offices, and Richard Clock would be Richards' supervisor for daily operations of the branch offices regarding policies and procedures, and the home office for the same. Tr. at 1369, 1385, 1471, 1504; I.G. Ex. 46, at 2.

As the result of Horras' growing interest in selling the company or merging it with a larger organization, in late November of 1997, the initial contact between Hawkeye and Auxi was made. Tr. at 3067. Laurens and Associates, a "specialist" in cost reports, was paid by Auxi to perform an audit of Hawkeye cost reports. Tr. at 3067-68. In 1998, Hawkeye began efforts to merge with Auxi which held a group of similar agencies. Richards Hearing Request at 4. Through a stock sale merger on March 9, 1999, Horras sold Hawkeye to Auxi, and Hawkeye continued as a wholly-owned subsidiary of Auxi As a result of the merger, Horras received $750,000 and 417,734 shares of Auxi, and was retained by Auxi as the President of Hawkeye for a term of three years. See I.G. Ex. 20, at 170-173; I.G. Prehearing Br. at 32. On August 5, 1999, Horras's employment with Auxi was terminated. See I.G. Exs. 20, at 210; 436, at 32; Tr. at 2799.

In August 1997, Susan Vincent, a former employee of Hawkeye, and Dr. Alda Knight, Horras' ex-wife, filed separate complaints with the Medicare FI's anti-fraud unit alleging that Horras was including personal and other unallowable expenses in the Medicare cost reports. I.G. Prehearing Br. at 30; I.G. Ex. 436, at 51, 52. The matter was referred to HHS's Office of Inspector General and was eventually assigned to Special Agent George Ewers (S A Ewers), at which point an investigation was initiated. Based on the allegations, the FI reviewed Hawkeye's cost reports for the years 1990 through 1996 and the audit adjustment reports by PAAR. I.G. Exs. 29-31; 436, at 52.

During this time, PAAR challenged, disallowed, and removed several unallowable expenses that repeatedly appeared on Hawkeye's cost reports. I.G. Exs. 29-31; 436, at 52. The I.G. contends that PAAR provided Hawkeye with written notification for each year during 1990 through 1996 advising of the unallowable expenses with specific regulatory citations and requesting that Hawkeye refrain from including unallowable expenses on subsequent filings. I.G. Exs. 16-18; 436, at 56.

The Secretary has statutory authority to impose a CMP, assessment, or exclusion, however, section 1128A(c)(1) of the Act provides in part that "[t]he Secretary may not initiate an action under this section with respect to any claim, request for payment, or other occurrence described in this section later than six years after the date the claim was presented, the request for payment was made, or the occurrence took place." Thus, the I.G. is time-barred by the six-year statute of limitations set forth in section 1128A(c)(1) of the Act. See also 42 U.S.C. 1320a-7a(c)(1). The statute of limitations has been upheld in federal courts: specifically, the district court in Anthony stated that, pursuant to 1128A(c)(1) of the Act, the Secretary has six years from the underlying act within which to commence an action pursuant to 1128A. United States v. Anthony, 727 F. Supp. 792 (E.D.N.Y. 1989).

In the matter before me, the 1995 cost reports at issue were "presented" to the Medicare FI on June 7, 1996, the date they were filed. I.G. Post-Hearing Br. at 4. The I.G.'s Notice to both Horras and Richards are each dated May 20, 2002, and sent via certified mail on May 22, 2002. I.G. Exs. 448, 449 (Notice); Richards Ex. 42. Thus, the I.G.'s initiation of the actions against both Respondents for cost reports covering the period of 1995 through 1997 falls within the six-year statute of limitations.⁽⁹⁾

In Richards' July 19, 2002 Hearing Request, she raised two issues: (1) under what version of the CMPL does the I.G. claim that she submitted "false or fraudulent" claims; and (2) under what version of the Code of Federal Regulations, or Departmental interpretation thereof, does the I.G. claim that she submitted false or fraudulent claims. I address these preliminary issues next.

[s]hall be subject, in addition to any other penalties that may be prescribed by law, to a civil money penalty of not more than $10,000 for each item or service . . . . In addition, such a person shall be subject to an assessment of not more than 3 times the amount claimed for each such item or service in lieu of damages sustained by the United States or a State agency because of such claim . . . . In addition, the Secretary may make a determination in the same proceeding to exclude the person from participation in the Federal health care programs. . . .

The Medicare and Medicaid Patient and Program Protection Act of 1987 (MMPPPA), Public Law No. 100-93, added section 1128(b)(7) of the Act and amended section 1128A. This statute consolidated many aspects of the Secretary's already-existing exclusion authority into section 1128A of the Act, and also addressed new goals for exclusion under the authority.

Commenters on the proposed rule observed that "if someone successfully defended against imposition of a CMP, then those same defenses should apply to bar the imposition of an exclusion." 57 Fed.Reg. 3298, 3308 (January 29, 1992). The preamble to the final rule responded to this comment with the statement: "We agree. If a respondent successfully defends against imposition of a CMP, we would not then impose an exclusion under � 1001.901 based on the conduct at issue in the CMP case." Id.

Respondents bear the burden of going forward and the burden of persuasion on any defenses or mitigating circumstances. The I.G. has the burden of going forward with the evidence and the burden of persuasion as to all other issues, including the elements of the alleged violation of the Act, and, if such violation is found, the factors related to determining an appropriate/reasonable CMP. 42 C.F.R. � 1005.15(b); 42 C.F.R. � 1003.106(a)(3).

A preponderance of the evidence is the quantum of evidence required. 42 C.F.R. � 1005.15(d). A preponderance of the evidence is:

The governing federal regulations are codified in 42 C.F.R. �� 1003.100 through 1003.135. These regulations provide for a full and fair hearing before an ALJ, implement the provisions of the CMPL, delegate authority from the Secretary to the I.G. to make determinations regarding the CMPL, and provide for appeals from an ALJ's decision.

In the matter before me, the I.G. alleges that both Respondents made false claims on behalf of Hawkeye regarding expenses which were not reimbursable under the Medicare and Medicaid programs. The I.G. proposes to impose a CMP of $38,000, an assessment of $784,072, and a seven-year period of exclusion against Horras. The I.G. also proposes to impose a CMP of $20,000, an assessment of $100,000, and a five-year period of exclusion against Richards. See I.G. Notice at 1. The I.G. alleges that 178 claims allegedly presented by Horras to Medicare and Medicaid for payment by Hawkeye in its costs reports for items or services at issue in this proceeding totaled $343,279.97; and the 112 claims against Richards total $89,040.66. The claims at issue here were contained in Hawkeye's annual home office Medicare and Medicaid cost reports covering the period from January 1, 1995 through December 31, 1997.⁽¹⁰⁾ In its prehearing brief, the I.G. declared that it had elected not to introduce evidence against Horras in 14 claims for reimbursement for items or services involving the B&W marketing program, the Lexus SC400, the Chevrolet Suburban, and Charitable Donations categories "because they could not be tied to the cost reports through the detailed trial balance as shown in the general ledgers." I.G. Prehearing Br. at 5. For the same reason, the I.G. decided not to pursue 12 claims against Richards involving the Lexus SC400, the Chevrolet Suburban, and the Donation categories. Id. Additionally, the I.G. dropped 10 claims against both Respondents related to the meals and entertainment category and elected to introduce only evidence related to the unallowable monthly dues portion of these items. Id. In deciding not to pursue the previously referenced claims, the I.G. did not propose any modification of the amount of the CMP and assessment originally imposed against Respondents Horras and Richards. Id. at 7; also see I.G. Post-Hearing Br. at 3-4; I.G. Ex. 9D.

Prior to considering the merits of the parties' arguments regarding Respondents' culpability, I must first resolve several threshold legal determinations:

By letter dated May 23, 2001, the I.G. notified Auxi that it may be liable under the CMPL based on Hawkeye's submission of false and fraudulent claims for Medicare and Medicaid payment. The notice states that Hawkeye, which by then had become a wholly-owned subsidiary of Auxi, was operating at the time as Auxi. The notice further states that

Hawkeye submitted or caused to be submitted annual cost reports covering the periods of 1994 through 1997 which contained 342 items or services that were not related to patient care and/or were not reasonable and proper costs of operation. See May 23, 2002 Notice to Auxi.

On November 3, 2003, while the proceedings with Respondents in this matter were still pending, the I.G. and Hawkeye Health Services, Inc. d/b/a/ Auxi Health of Iowa, and Auxi Health, Inc. settled the matter for $125,000. The covered conduct of the settlement included cost reports filed for the period from January 1, 1995 through December 31, 1997, for payment for items and services unrelated to patient care in violation of sections 1128A(a)(1)(A) and (B) of the Act and includes the following:

Respondents argue that since the I.G. has separately reached a full and final settlement with Hawkeye/Auxi for all CMPs and assessments arising from the very same issues now before this forum, the I.G. is prohibited from imposing any further CMPs or assessments against either Respondent and, thus, Horras and Richards are released from any further liability in this matter. Respondents requested oral argument, and the I.G. opposed.

I granted Respondents' request for oral argument to specifically address the effect on this case of the I.G's. November 3, 2003 settlement with Auxi. Oral argument was held telephonically on July 7, 2004.

The I.G. admits that the agreement with Auxi covers the same conduct at issue with both Respondents in this matter, and the agreement represents a compromise based upon the I.G.'s individualized determination of Auxi's appropriate degree of culpability but, as asserted by the I.G., is not a full and final settlement of the I.G.'s claims against Respondents. I.G. Post-Hearing Reply Br. at 25.

Respondents have presented in their written submissions and at oral argument several common law tort theories as the basis for Auxi's liability, among which are included the doctrine of respondeat superior, unjust enrichment, principal/agent relationship, vicarious liability, and the successor-in-interest principal. The parties have fully briefed these theories and discussed them at the oral argument, so I need not repeat them in detail here.

I find that the statute and regulations are clear on their faces and that Respondents' arguments are inapplicable in this matter. I find that the CMPL at 1128A(a)(1)(A) and (B) allows a cause of action to lie against both the entity that presented an improper claim and any person who caused the presentment of such claim. The I.G. has the authority to enforce the provisions of the CMPL not only against Auxi,⁽¹¹⁾ but against the individual Respondents Horras and Richards in this matter. The I.G.'s authority is based on and is derived from statutory language and from the specific terms of section 1003.102(d)(1) of 42. C.F.R. Common law precepts, and specifically the common law principles of settlement and release of principle/agent, are not applicable here. In cases where more than one person has been determined responsible for presenting or causing to be presented a claim as described in sections 1003.102(a)(1) or (a)(2) of 42 C.F.R., each such person may be held liable for the penalty prescribed, and an assessment may be imposed against any one such person or jointly and severally against two or more such persons, but the aggregate amount of the assessments collected may not exceed the amount that could be assessed if only one person was responsible. 42 C.F.R. � 1003.102(d)(1). The definition of "person" under the CMPL includes not only natural persons, but also includes organizations, agencies or any other entities. Act, � 1128A(a)(1).

Respondents' liability, if any, is based upon their own individual conduct in relation to the claims presented for reimbursement to the Medicare and Medicaid programs. I find that the I.G.'s settlement with Auxi is within the statutory authority afforded it at section 1128A(f) of the Act. Thus, Auxi's choice and the I.G.'s choice to settle the case between themselves does not relieve Respondents from liability for penalties and assessments. Auxi is liable as the corporate successor to Hawkeye and the statute indicates that a corporate entity constitutes a "person within reach of the statute." Act, � 1128A(a); 42 C.F.R. � 1003.101. The CMPL and implementing regulations not only permit the imposition of one penalty and assessment against a principal and an agent for fraudulent conduct: the regulation at 42 C.F.R. �1003.102(d)(1) provides that if more than one person is responsible for presenting or causing the presentment of a false and fraudulent claim, then each person may be held liable for the penalty.

During oral argument, Richards referred to the legislative history of the CMPL citing: "The purpose of this amendment . . . is to incorporate common law principles of respondeat superior into the Civil Monetary Penalty Authority." Oral Argument Tr. at 42. Richards further argued that the regulations "parrot the statute" and "give no further guidance." Id.

Respondeat superior is a common law doctrine "whereby a master is liable for his servant's torts committed in the course and scope of his employment." See Restatement of Agency, � 219. As I noted at the hearing in this matter, the doctrine of respondeat superior does not operate to shield an employee from liability, rather it extends liability for conduct by an agent or employee to the corporate entity. See also Jackson Marine Corp. v. Blue Fox, 845 F.2d 1307 (5^th Cir. 1988) ("Although established rules of respondeat superior operate to impute fault up the employment hierarchy, these rules do not operate in the inverse to impute fault down the employment hierarchy."). Considering the doctrine of respondeat superior, the Departmental Appeals Board (Board) has aptly stated, "[i]t is not a doctrine intended to protect employees." Sentinel Medical Laboratories, Inc., DAB No. 1762 (2001). The Board further noted, as I have above, that the I.G.'s actions are not derived from common law tort principals but rather from an act of Congress. Id. Even if the principle of respondeat superior were applicable, it still would offer no relief to Respondents in the face of a federal statute which specifically provides for the I.G.'s authority. It is well-settled that congressional enactments take precedence over principles of common law, which obviously includes the principle of respondeat superior. I see no reason to reach a different conclusion here.

Therefore, I find that the November 3, 2003 settlement with Hawkeye/Auxi was not a "full and final settlement" for all CMPs and assessments arising from the very same issues now before me. Horras and Richards are not released from any further liability in this matter and the I.G. is not prohibited from imposing any further CMPs or assessments against either Respondent.

It is well-recognized that the CMPL is remedial and not punitive. The intended purpose of the CMP remedy is to deter persons from presenting improper claims; the purpose of imposing an assessment is to make the government whole for its costs and any damages resulting from such improper acts; and the purpose of the exclusion from federal programs is to protect program integrity. See H.R. Rep. No. 97-158, 97^th Cong., 1^st Sess. Vol. III, 329; Preamble to 42 C.F.R. (48 Fed. Reg. 38,827-38,836 (1983)).

Although I find that the I.G.'s settlement with Hawkeye/Auxi does not extinguish the I.G.'s further claims against Respondents, Respondents are correct in asserting that it does limit the I.G.'s recovery. As Respondents assert, the relevant regulation at 42 C.F.R. � 1003.102(d)(1) provides, in pertinent part, that "the aggregate amount of the assessments collected may not exceed the amount that could be assessed if only one such person was responsible."

As I have explained above, the I.G.'s settlement of certain claims with Auxi does not bar the I.G.'s continued pursuit here of those claims against Horras and Richards. The settlement does, however, have an effect on the total sum of the assessments which the I.G. may claim, and requires a brief discussion of how that effect may operate in practical dollars-and-cents terms.

The settlement has been seen to have the effect of reducing the exposure of Horras and Richards: their total exposure to assessments has been reduced by the amount of assessment agreed to by Auxi and the I.G. Before the settlement, the I.G. sought special assessments totaling $884,072: $784,072 from Horras and $100,000 from Richards. The settlement of $125,000 had the effect of reducing the remaining exposure to a maximum of $759,072. But if this reduction appears in the abstract to represent the upward limit of any potential total award of special assessments in the I.G.'s favor here, then a significant remaining question emerges: can the limit be applied only in the abstract to the undivided total potential assessment, or should it be divided and assigned between Horras and Richards? And, if it is to be divided and assigned, should that process be pro rata on the basis of the original amount, or pro rata and calculated according to other objective factors in this case, or should the process be similar to a pro tanto credit to one or the other of the two Respondents?

The settlement documents available to me shed no light on the objectives or motivations of the I.G. in concluding the settlement, at least insofar as the I.G.'s intentions or expectations about which Respondent should benefit from the reduction of the total assessment amount. Auxi's objectives or motivations on the point are no clearer. For obvious reasons, neither Horras nor Richards were invited to express their views on the point during the negotiations between Auxi and the I.G. It is at least conceivable that neither Auxi nor the I.G. considered the point at all until it arose in the present context. And it is far from clear to me that my analysis should be guided only by the intentions of those parties, even if they could be known. The one thing that is clear is this: the settlement was negotiated during the long period that this case has been sub judice, and none of the parties to that negotiation could then have known how this case would be decided.

That observation leads to the conclusion that the settlement could not have depended upon how I might rule, either on the underlying correctness of some or all of the I.G.'s case on its merits, or as to the presence or absence of mitigating or aggravating factors in the Respondents' actions. Thus no pro rata division of the limit, and no pro tanto assignment of it to one or the other of the Respondents, can have been intended or expected as a result of the settlement. It falls, then, to me to decide how the settlement's benefit should be applied, and I believe that the fairest and most reasonable method is to divide the reduction between the Respondents pro rata, based on the relationship between the settlement amount and the sum of the assessments sought by the I.G. in these proceedings.

As noted above, the total of the special assessments sought here is $884,072. The settlement amount is $125,000, a sum which represents approximately 14.14% of that total. I believe that reason and fairness require that the upper limit of the assessments claimed, and imposed by the terms of the Decision, against each Respondent be reduced by the same proportion, 14.14%. Horras benefits by a reduction of $110,860, which limits his assessment exposure to $673,212. Richards benefits by a reduction of $354, which limits her assessment exposure to $2,146.

The Balanced Budge Act of 1997 (BBA 1997), section 4320, amended section 1861(v) of the Act, to include the addition of subsection (8). The intent of this amendment was to prohibit unnecessary and wasteful Medicare payments for certain items. The relevant part of this subsection provides:

However, a June 1998 transmittal from HCFA states that the new provisions outlined in section 4320 of the Act were for costs incurred by providers on or after January 1, 1998. See I.G. Ex. 10A which is a copy of Transmittal No. 404, HCFA, dated June 1998. Transmittal No. 404 was sent to providers to inform them that:

The one-page transmittal states: "NEW IMPLEMENTING INSTRUCTION-EFFECTIVE DATE: For costs incurred on or after January 1, 1998." I.G. Ex. 10A.

Because this amendment was not enacted until 1997, with an effective date in 1998, and some of the actions which the I.G. uses as a basis for its proposed imposition of sanctions against Respondents occurred with cost categories for cost reports for 1995-1997, filed between 1996-1998, Respondents have raised claims that the retroactive application of the BBA 1997 statutory amendment to the specific cost categories is inappropriate in this case. The referenced categories include: (1) cost of gifts or donations; (2) cost of entertainment, including tickets to sporting and other entertainment events; and (3) cost of personal use of motor vehicles.⁽¹²⁾ This is a matter of obvious importance, and its emergence required careful attention in the context set out immediately following.

On October 13, 2004, I reopened the case record in this matter and requested additional briefing from the parties specifically to address whether: (1) the I.G. was attempting to apply the BBA 1997 amendment retroactively to Respondent Horras and Respondent Richards's conduct in this case, including the 1993 and 1994 alleged unallowable claims used by the I.G. as aggravating circumstances even though the actions, specific to the three cost categories in question, which are the basis for the imposition of the CMPL occurred before enactment; (2) the BBA 1997 amendment was procedural or substantive legislation; (3) the basis for Respondents' liability existed prior to the passage of the amendment, so that Respondents were on notice that their acts were unlawful at the time they committed them; and (4) the retroactive application of the BBA 1997 amendment would upset vested rights or interfere with settled expectations that guided Respondents' conduct. The parties submitted their responsive filings, and I carefully have considered their arguments. After having done so, I conclude and find that the BBA 1997 statutory amendment to section 1861(v) of the Act served to codify existing Medicare reimbursement policy regarding the three cost categories at issue, and, therefore, was procedural in nature and did not invalidate any vested rights or interfere with any settled expectations that guided Respondents' conduct.

In my review I considered the meaning of the pertinent statutory provision as well as related provisions, relevant legislative history, the effective date of the statute, case law interpretations, and implementing regulations and policy issuances. There is no explicit statement of Congressional intent to retroactively apply the BBA 1997 amendment to conduct which occurred prior to the effective date of the statute, here 1998. However, I looked to the October 9, 1997 testimony of Michael F. Mangano, then Principal Deputy Inspector General for HHS, at a hearing before the House Committee on Ways and Means, Subcommittee on Health, addressing the BBA 1997 statutory exclusion from the definition of "reasonable cost" payments for costs not related to patient care including entertainment, gifts, donations, and personal use of automobiles. Mr. Mangano testified that the inclusion of this new provision "addressed problems encountered repeatedly in OIG audits and investigations." See 1997 WL 626972 (F.D.C.H.). I also reference a July 26, 1993 correspondence from the FI Auditor which was addressed to Horras and discusses the audit of Hawkweye's December 31, 1991 cost report. The letter advises Horras that he included "personal expenses" in several different administrative and expense accounts in the cost report and that "[t]hese are unallowable costs and have been removed in the December 31, 1991 audit," and further advised Horras that the practice of including these items is "very strongly discouraged" and "could lead to a fraud investigation."⁽¹³⁾ The letter further states that "repeat adjustments or recommendations could be considered Medicare Program Abuse" and "referral to the U.S. Attorney for consideration of criminal and/or civil prosecution" could result. I.G. Ex. 17, at 2-5. Clearly, contrary to Richards' assertion, there existed a basis for liability prior to the BBA 1997 statutory amendment to the Act. See Richards' Memorandum of Law and Facts in Response to Order Reopening Record at 5.

Congress knows how to limit to immediate applicability the effect of new legislation if it so desires. For instance, in the "Program Fraud Civil Remedies Act of 1986," Congress specifically provided that "it was to apply to any claim made, presented, or submitted after the statute's effective date." Moreover, in the "Anti-Kickback Enforcement Act of 1986," Congress provided that the Act should apply to that conduct described as prohibited if it occurred after the date of enactment. Similarly, amendments to the False Claims Act (applicable solely to Department of Defense contracts) were specifically made applicable to claims submitted after the date of its enactment. See Department of Defense Authorization Act, 1986, Pub.L. 99-145, 99 Stat. 583 (1985). I conclude that Congress chose not to limit the applicability of the BBA 1997 statutory amendment.

I base my findings and conclusions on this point on the record before me and the strong national interest in protecting the integrity of the Medicare and Medicaid programs, as well as on the fact that the BBA 1997 statutory amendment did not prohibit conduct which had previously been lawful. Accordingly, application of the subsequent legislation is justified on the ground that it clarified an ambiguity or filled a gap in interpretation of the Act, and I do not find that application of this amendment to the issues in this case would result in a "manifest injustice" to Respondents.

Having resolved these threshold issues, I proceed to address the substantive merits of this case. The issue of liability in this case for each Respondent subsumes two questions. First, did Respondents present or cause to be presented false claims for Medicare and Medicaid reimbursement? Secondly, should Respondents have known, or did Respondents know or have reason to know, that the claims were false? I conclude from the evidence that the claims presented by Respondents were false. I conclude further that these false claims were a manifestation of a scheme by Horras to do aggressive cost reporting and obtain money from the Medicare and Medicaid programs which Hawkeye was not entitled to receive. I also conclude that Richards knew or should have known that the claims were false.

There are no perfect models from which to draw guidance in addressing many issues in this case. The chronology of the legislation involved and the dependent sequence in which the applicable regulations came into effect have presented the parties and me with topics for serious debate; statutes and regulations that in abstract terms seem plain enough become arcane and sometimes nearly contradictory when applied to the skein of facts of this litigation; problems related to the parties' wishes to add material to the post-hearing evidentiary record have required the reopening of that record; significant parallel activity in both federal and state forums by persons and business entities related to this case have obliged me to solicit the parties' supplemental briefing or informal expressions of position on the effect of these developments. The record of this litigation was substantial when proceedings closed in Iowa nearly two years ago--but the record has grown still greater since then. The underlying reason for that growth in the record can be found in my view of how best to proceed into this terra nova: The best course has seemed to me to require asking the parties' views on novel questions as they emerged, and to demand that offered them the opportunity to express those views fully.

Some fundamental guideposts do exist, however. Beginning with Dean G. Hume, D.O., DAB CR40 (1989), ALJs and the Board itself have interpreted section 1128A of the Act and have outlined the purpose and intent of its CMP and assessment provisions. The standard referred to elsewhere as the "know or should know" or "knew or should have known" standard has been developed through those cases, and I have applied it here. I believe that the preamble to the regulations which implement the enforcement authority set out in section 1128A squarely supports the notion that "should know" or "should have known" includes a filing made with negligent disregard of its accuracy. See 48 Fed. Reg. 38,827, 38,831 (1983). See also Restatement of Torts (2d ed.) at section 12. And I have evaluated each Respondent's conduct in the context of his or her education, skill, and experience, and in terms of her or his relationship with other parties and witnesses. George A. Kern, M.D., DAB CR12 (1987).

All home health agencies (HHAs) are required to submit cost reports on a fiscal year basis; for Hawkeye its cost reports covered the time period from January 1 through December 31 of any given year. In order to determine the amount due a provider, the cost report compares three figures and Medicare will pay the lower of the provider's costs which are based on cost limits and charges. If a provider does not file a cost report within five months after close of its fiscal year end, this results in additional interest charges if at the finalization of the cost report an overpayment is due back to Medicare. Once received, the FI reviews and then processes a Tentative Settlement; at this stage adjustments can be made prior to calculating the settlement amount. From several months up to a year from the filing of the cost report, PAAR will begin its audit process which could entail a desk audit or an onsite audit. During this process, PAAR requests information to support the costs included on the cost report, although PAAR will not review all the costs, only those in certain categories depending on the scope of the audit. PAAR will then determine the allowability of various costs and complete an Audit Adjustment Report (AAR) which outlines any adjustments to the cost report. The AAR is sent to the provider who can then submit additional documentation. When adjustments are agreed to (or the provider opts to appeal the adjustment), the final adjustments are made and a new cost report is calculated - this is then sent to the provider. I.G. Exs. 442; 443.

Home office costs are not directly reimbursed by the Medicare program since the home office is not a direct provider itself, rather, its main function is to furnish centralized management and administrative services. To the extent the home office furnishes services related to patient care to a provider, the reasonable costs of such services may be included in the provider's cost report and reimbursed as part of the provider's costs. I.G. Ex. 444, at 1. Thus, when a provider's home office submits a cost report to the FI, it is audited and finalized as those of the HHA branch offices except a home office does not directly receive any reimbursement from Medicare. The amount of cost incurred by the home office is allocated to each of the HHA branch office cost reports based on a percent to total method. So, Medicare through the HHA branch office cost reports reimburses the costs incurred by the home office. Id.

The Medicare cost report settlement process requires that claimed costs be reviewed by the intermediary audit staff to ensure that Medicare reimburses only costs which are both reasonable in amount and necessary to the overall production of the medically necessary health care services the provider furnished Medicare beneficiaries. This settlement process results in the disallowance, i.e., the nonrecognition by Medicare, of costs not related to patient care and any unreasonable amount of otherwise allowable costs. I.G. Ex. 444, at 1.

In order for a provider to preserve its right to challenge any potential disallowance of an item or cost, or part thereof, the provider must include the challenged item on the settlement page of the cost report. HCFA Pub. 15.2 �� 115, 115.1. This process is referred to as filing "under protest." and allows the FI an opportunity to determine which costs are reimbursable. Id. However, the cost report filing process requires the provider to identify accurately the nature of the amount of the costs claimed, provide supportive documentation, and clearly disclose the fact that it is an unallowable cost. This then affords the FI an opportunity to identify the unallowable costs while also allowing the provider an opportunity to preserve on appeal its claim for the costs it challenges as reimbursable. Id. at �� 115.2, 115.3; see also United States v. Calhoon, 93 F3d 518, 523 (11^th Cir. 1996) (The court faulted Calhoon for filing cost reports that were presumptively non-reimbursable while disguising the true nature of the claims at issue).

With this overview, I now address the alleged culpability of each Respondent separately.

The I.G. alleges that while acting as President and CEO of Hawkeye, Horras violated section 1128A of the Act and its implementing federal regulations when he presented, to fiscal agents for the Medicare and Medicaid programs, 178 claims for cost report years 1995-1997 for reimbursement for medical or other items or services that he knew or should have known were not provided as claimed or that he knew or should have known were false or fraudulent.⁽¹⁴⁾ Act, � 1128A(a)(1)(A) and (B); I.G. Post Hearing Br. at 2. The I.G. further alleges that these claims were all for unallowable costs that were not related to patient care and/or were not reasonable costs of operation of Hawkeye. Id. The I.G. further states that Horras signed and certified as "true" and "accurate" each of the cost reports submitted to the Medicare FI for the time period at issue; and that the claims at issue against Horras for items or services in the Hawkeye cost reports covering the 1995-1997 period that were not related to patient care, were not reasonable and proper costs of operation, or were otherwise not allowable. I.G. Post-Hearing Br. at 3.

The I.G. directs me to section 2100 of the PRM which states that all payments to providers must be based on the reasonable cost of services and be related to the care of beneficiaries. Reasonable costs include all necessary and proper costs incurred in rendering services. Implicit in the intention that actual costs be paid to the extent they are reasonable is the expectation that the provider will seek to minimize its costs and that its actual costs do not exceed what a prudent and cost conscious buyer pays for a given item or service. HCFA Pub. 15-1 � 2102.1. The I.G. also directs me to section 2101.3 of the PRM stating that from 1987 through 1998, various examples of costs not related to patient care were added; these include gifts, donations, sports tickets, and personal mileage. But, claims the I.G., "the definition of 'costs not related to patient care' remained substantially the same from at least 1988 through the present." I.G. Post-Hearing Br. at 23. The 178 items or services which are the basis of Horras' alleged liability encompass eight separate categories claimed on the cost reports and include:

There have been a few CMPL cases previously before the DAB which interpret section 1128A of the Act and outline the purpose and intent of the CMP and assessment provisions. In those cases the standard of knowledge required for liability to attach is that a respondent "know or should know" that the representation is not as claimed. The "know" or "knew" standard indicates that a respondent had the requisite degree of awareness to constitute conscious knowledge. Thus, for a respondent to be found liable under the "know" or "knew" standard would require that they have conscious knowledge of a fact (or subjective knowledge). See Dean G. Hume, D.O., DAB CR40, at 18-21; see also HIPAA � 231(d), 110 Stat. at 2014.

As stated in the case of Corazon C. Hobbs, the "should know" standard encompasses the duty to inquire (the duty to ascertain the truth and accuracy of a claim) exists at all times and does not require any special circumstances to bring attention to the duty. Corazon C. Hobbs, DAB CR57 (1989).

I am also guided by the preamble to the regulations promulgated by HHS for implementing the enforcement authority outlined in section 1128A of the Act, which states: "[t]he statute sweeps within its ambit not only the knowing, but the negligent . . . ." 48 Fed. Reg. 38,827, 38,831 (1983). Thus, the phrase "knows or should know" in the CMPL encompasses a spectrum of knowledge where liability attaches on one end when a respondent files a false or misleading statement with actual knowledge and on the other end where a respondent files false or misleading statement in a negligent manner. The Restatement of Torts states:

Restatement of Torts (2d), � 12. Thus, a respondent should be judged in terms of his degree of education, skill, experience, and in terms of his relation to others. See George A. Kern, M.D., DAB CR12 (1987).

In enacting the "should know" amendment in 1987, Congress indicated in the legislative history that the legislation was a clarification of the existing standard and that the "should know" standard of knowledge placed on Medicaid and Medicare providers the duty to ascertain the truth and accuracy of claims submitted by them:

In this case, the I.G. must prove each of the requisite elements of liability set forth in the CMPL and regulations for each "item or service" listed on each "claim" that the I.G. alleges to be improper. Act, � 1128A(a)(1)(A) and (B); 42 C.F.R. � 1003.102. Liability will not attach under the CMPL and the regulations unless the I.G. establishes liability by a preponderance of the evidence. Act, � 1128A; 42 C.F.R. �� 1003.102, 1003.114(a).To determine if the I.G. has met its burden, I examine each of the eight cost categories separately.

In 1995, Yap, then Director of Finance at Hawkeye, contacted Scott Pilgrim (Pilgrim), a manager with the accounting firm of BKD in Tulsa, Oklahoma.⁽¹⁵⁾ Yap notified Pilgrim that Horras was interesting in having a business valuation performed for the purpose of establishing an ESOP. Tr. at 1142, 3008-09; see also I.G. Ex. 36, at 1. Pilgrim then met with Horras in person in January 1995 for the purpose of discussing BKD's performing the business valuation of Hawkeye for an ESOP.⁽¹⁶⁾ Tr. at 1143-44. Pilgrim testified that he was accompanied by Scott Vaughn (Vaughn), a partner at BKD. Tr. at 1143; I.G. Ex. 36, at 1. At this meeting, Horras informed Pilgrim that he was also in the process of a divorce. A discussion ensued regarding the use of the final Hawkeye business valuation as an element in the property settlement that was expected to accompany Horras' divorce. Tr. at 1145, 3010. Pilgrim additionally testified that while he was in Iowa in 1995, he also spoke with Ron Reiper, Horras' divorce attorney, about using the Hawkeye valuation for use as evidence in the divorce proceeding. Tr. at 1145-46. In February 1995, when Pilgrim left employment at BKD, Horras contacted Vaughn who became involved in the Hawkeye business valuation project. Tr. at 1178. Vaughn then traveled to Iowa with Scott Sallee (Sallee), also a partner at BKD,⁽¹⁷⁾ for an in-person meeting with Horras. Tr. at 1178. Sallee became the primary BKD contact-person for Horras after Pilgrim left BKD in February 1995. Tr. at 1178; 1123, 1231-32,1694; I.G. Ex. 35, at 3. Chris Murphy, a junior staff consultant with BKD, also assisted with the business valuation.⁽¹⁸⁾ Tr. at 1214.

A January 12, 1995 letter of engagement⁽¹⁹⁾ to Pilgrim from Ron Reiper reads:

Hawkeye's 1995 and 1996 Medicare and Medicaid cost reports included $132,035.86 in professional fees paid to BKD. I.G. Exs. 3A-7B; 9D; 50-67; see also Tr. at 805-07, 809, 859-67. The I.G. maintains that these fees were for a business valuation of Hawkeye in connection with the divorce proceedings involving Horras and his estranged wife. The I.G. asserts that the BKD professional fees and costs incurred in connection with the divorce were not a business expense, but were personal costs for the dissolution of Horras' marriage and not allowable under the Medicare reimbursement system because they were: (1) not costs related to patient care; and (2) not common or accepted occurrences in the field of Hawkeye's activity of providing home health care services. I.G. Post-Hearing Br. at 65; Tr. at 603-04, 1105, 1108-09, 2351-52. The I.G. argues that these fees were not incurred, as Horras asserts, for purposes of establishing an ESOP. I.G. Post-Hearing Br. at 67.

According to testimony from Vaughn, the Hawkeye business valuation project's duration was early 1995 to mid-1996. Tr. at 1177-79. Sallee was in charge of the invoices from BKD in connection with the business valuation project in 1995 and 1996. Tr. at 1233, 1248; I.G. Ex. 36, at 1. Sallee testified that he scheduled a meeting with Horras in order to discuss the development of the ESOP plan on behalf of Hawkeye. Tr. at 1695-97. At that meeting Horras told Sallee that the ESOP plans had been "tabled." Id. Based on that information, Sallee concluded that the business valuation was not intended for the development of an ESOP plan on behalf of Hawkeye. Tr. at 1753. Sallee further testified that he performed the business valuation for the purpose of the divorce. Tr. at 1703. In fact, no ESOP had been established at Hawkeye. I.G. Ex. 303B, at 62; Tr. at 1391-92, 1699-1703. Vaughn testified that he understood that the business valuation was not in connection with the ESOP. Tr. at 1179, 1199, 1211; I.G. Ex. 35, at 1. Dick Clock, then Director of Operations, testified that the purpose of the BKD valuation "was to evaluate the company for Mr. Horras' personal reasons . . . in the divorce of his former wife." Tr. 1363-64.

In his defense, Horras asserts that he relied on Pilgrim who advised him that the costs of the services "would be properly paid by Hawkeye as a business expense and could also be included as a Medicare allowable expense on Hawkeye's cost reports." Horras Post-Hearing Br. at 17. Horras also claims that he relied on the advice of a "multitude of professionals and expert consultants," specifically, he placed reliance on the advice of his attorney, Ron Reiper, who advised him that the BKD bills "were a proper business expense of Hawkeye and could be paid by Hawkeye" and that "Hawkeye's auditors and tax preparers concurred with this advice." Horras Post-Hearing Br. at 17. In his brief, Horras concedes that the "BKD fees largely related to preparing a favorable valuation for Mr. Horras for direct use in his divorce." Id. He further states that the inclusion of these costs in Hawkeye's 1995 and 1996 Medicare cost reports "was reasonable and done in good faith." Id.

I have examined an internal memorandum from Yap to Horras, dated August 5, 1992, which begins by declaring that Hawkeye "is now a million-dollar business; and the future points toward a substantial growth in the next few years." I.G. Ex. 440. However, the memo stressed the need for "cash to fund our growth, and without bank financing, reinvestment and cut backs to hold our cash position, we will stagnate and even go insolvent." Under a section titled "Appeals, Review and Investigation," Id. Yap frankly expressed his concern regarding a possible audit by the FI. Yap reported to Horras that from their own internal "100% audit . . . we found bills that have been padded." Yap went on to warn Horras that "[m]anipulating and bending the Medicare guideline to our advantage is customary practice, but padding the bill is fraudulent." Id.

Additionally, several preliminary drafts of the final BKD valuation report, as well as the final report itself, contained the following statement: "It is our understanding that this appraisal will be used in determining an appropriate value for the 100% control shares of the Company held by your client, Mr. Thomas M. Horras, in connection with a dissolution of marriage. As such, it should be used for no other purpose." I.G. Exs. 89, at 1, 77, 79, 81.

Sallee was asked why the invoices for BKD for the first several months of their engagement with Hawkeye stated specifically, "Valuation of agency for Medicare purposes." Tr. at 1752. Sallee responded that "[w]hen Mr. Pilgrim started it may have been for Medicare purposes. Later on it became very apparent that it wasn't anything other than the divorce." Id. Sallee testified further:

Horras testified as to the procedures he established for the receipt of incoming mail at Hawkeye:

It is clear that the sole purpose of the BKD business valuation was for Horras' divorce proceedings. According to his own testimony, Horras intentionally intercepted the mail and directed Ms. Wares as to how to code the incoming invoices. A $10,000 retainer check from Hawkeye to BKD was coded as a Medicare cost, and Ms. Wares wrote a note at the bottom of the check which reads: "[i]nstructed by Tom Horras to type a check to the above company [BKD] for $10,000 and to code it as Medicare reimbursement consulting." I.G. Exs. 41, at 2; 51, at 3; see also I.G. Ex. 20, at 248.

A person "knows" that an item or service is not provided as claimed within the meaning of the Act when he or she knows that the information that he or she is placing or causing to be placed on a claim is untrue. Thuong Vo. M.D. and Nga Thieu Du, DAB CR38 (1989). It is not necessary for a respondent to personally make a false claim in order to satisfy the "knows" test, all that is necessary to satisfy the test is that a respondent issue instructions concerning the preparation of claims which he or she knows will result in the inclusion of false information in the claims.

Horras fails to provide any evidence to support his assertions that a portion of BKD billings were for services provided by that firm for, or related to, Medicare consulting or cost report preparation for Hawkeye. I.G. Exs. 34, at 5-6; 35, at 2. Moreover, his assertions and testimony at hearing are not supported by the testimony of any of his consultants and former employees, and, in many important respects, were contradicted by these persons, all of whom had direct knowledge of the situations and facts involved. Tr. at 1179, 1199, 1211, 1703, 1754, 1363-64. Even if Horras' assertions had not been directly contradicted, his assertions that he was ignorant of the Medicare reimbursement system strain the limits of credulity. I cannot accept that the President and CEO of such a large business was ignorant of the manner in which he claimed the reimbursement which accounted for a large percentage of his business. Furthermore, his claims of ignorance or uncertainty were belied by other testimony he and his former employees and consultants gave which showed he was keenly aware of his business' cash flow, operating expenses, and ultimate profit margin. Hawkeye was, during the times at issue, a large HHA with aspirations to even greater growth. Its lifeblood was its income from federally-funded health care programs. It is simply impossible as a matter of law for businesses and individuals in that position to avoid the responsibility to keep themselves at least minimally informed of their duties and responsibilities in connection with those programs. See Cary Health and Rehabilitation, DAB No. 1771 (2001); The Heritage Center, DAB CR1219 (2004).

Based on the parties' arguments and the documentary and evidentiary evidence presented, I find and conclude that: (1) the $132,035.86 in professional fees for business valuation and related expert services paid to BKD were in connection with Respondent Horras' divorce; (2) such fees are not allowable costs reimbursable through the Medicare and Medicaid programs; (3) Respondent Horras had direct first-hand knowledge that these fees were in relation to the business valuation of Hawkeye and related expert services in connection with his divorce; (4) Respondent knew that such fees were unallowable costs through the Medicare and Medicaid programs; and (5) Respondent acted with reckless disregard of this knowledge when he included or caused to be included such costs in Hawkeye's 1995 and 1996 Medicare and Medicaid cost reports.

I therefore find and conclude that the I.G. has established by a preponderance of the evidence that Horras knowingly presented or caused to be presented claims for professional fees for business valuation and expert witness testimony paid to BKD in connection with his divorce which he knew or should have known, were false or fraudulent.

See HCFA Pub. 15-1 � 2136.2 (Rev. 267 - issued 09/92); Richards Ex. 36A, at 209.

The I.G. states that Hawkeye's 1995 and 1996 cost reports contain $107,215.64 in advertising costs of which 86.1% were related to fees paid to B&W, a marketing firm, for the CAREREADY Program and that such fees are not allowable costs which are reimbursable through the Medicare and Medicaid programs. I.G. Post-Hearing Br. at 75-76; see also I.G. Exs. 3A-7B; 9D; 93-110. According to the I.G., these costs were determined unallowable because the goal of the CAREREADY program was to "extend beyond Hawkeye's current patient base and increase Medicare patient utilization of Hawkeye services by sending various promotional materials, such as newsletters, brochures, videotapes, and mouse pads, to a target audience of 9,361 non-patients out of a total of 10,866 recipients." (emphasis in original). I.G. Post-Hearing Br. at 76; see also Tr. at 1407-09, 1411-13, 1418-21, 1515-16; I.G. Exs. 112; 115; 116; 119; 121; 128, at 24-25, 40-41, 47.

According to the I.G., Hawkeye billed the Medicare and Medicaid programs for marketing expenses designed to increase Hawkeye's patient base. To be allowable, advertising costs must be common and accepted occurrences in the provider's activity, and both the content of the advertising material and distribution of the material must be considered in determining allowability under section 2136 of the PRM. According to the I.G.'s expert witness from CMS, Ms. Hetrick, "general information regarding the services that are provided is not a solicitation of patients." Tr. at 2468. For example, a brochure provided to a patient would be allowable if the content basically provided information regarding the providers' hours of operation, telephone number of the agency, and contact numbers in case of an emergency. Tr. at 1092, 1094-05. If brochures inform of a provider's services and are distributed to referral sources through professional contact, then these would be considered unallowable advertising costs. Tr. at 2468; I.G. Ex. 10C, at 2.

The I.G. cites a Newsline bulletin from the Iowa Medicare FI, issued April 1, 1996, to providers which provides guidance on advertising costs. The bulletin states: "[t]here are several types of advertising that are allowable if related to patient care and reasonable." I.G. Ex. 10C, at 2. The bulletin advises providers that unallowable advertising costs should be "self-disallowed on your Medicare cost report to avoid misrepresentation of cost." I.G. Ex. 10C, at 1. The bulletin informs providers of unallowable marketing solicitations which include: (1) the cost of toll free "800" numbers used in advertisements or yellow page listings; (2) the cost of promotional items such as pens, magnets or calendars; and (3) costs of brochures distributed to the general public that contain information of general interest of the health of the community, such as a brochure containing information regarding the warning signs of cancer that is distributed to the general public. I.G. Ex. 10C, at 2. Additionally, the bulletin advises that:

The I.G. asserts that the 1996 bulletin was issued to providers at least two months prior to Hawkeye's submission of the 1995 cost reports. I.G. Post-Hearing Br. at 77.

In 1995, Hawkeye retained B&W, a home health care consulting firm that specializes in patient education and communications to implement the CAREREADY Program. I.G. Ex. 117, at 1. A letter from B&W to BKD, dated June 3, 1997, provides a description of the services B&W claims it was engaged to perform and an explanation of the program:

As Hawkeye was challenging the FI's disallowance of its advertising costs, on March 21, 1997, B&W addressed a letter to Dick Clock which stated: "for possible use with your FI." and included a rationale statement which would assist Hawkeye in their explanation regarding the services B&W was retained to provide to Hawkeye. The rationale statement explains that the services B&W provided should be considered allowable costs as the CAREREADY Program has been used across the United States for many years by HHAs and that other FIs have allowed the costs since it is: (1) patient education, (2) promotes a good image of our agency, (3) adheres to the prudent buyer rules, and (4) is not solicitation, but encourages wellness which promotes compliance, and decreases utilization. I.G. Ex. 117, at 2. The rational statement indicates that the CAREREADY goals are the promotion of patient compliance and wellness related issues. According to the rationale statement, the brochure in question is distributed in each patient admission packet and explains home health care and the services which Hawkeye provides. Id.

In 1997 the FI audited Hawkeye's 1995 cost report in which B&W fees were included. A June 3, 1997 letter from Gary D. Walker, Senior Vice President at B&W, addressed to Chris Murphy at BKD talks about the breakdown of Hawkeye's database in relation to this audit:

B&W provided both Horras and Clock periodic status reports of the exact number of members in the CAREREADY program membership datalist of the database for each of the Hawkeye field offices. The May 10, 1996 status report provides the following information as to database membership:

52	BLOOD PRESSURE
697	EMPLOYEES
667	FLU SHOT
47	MEDICALLY FRAGILE PAST PATIENTS
246	MEDICALLY FRAGILE PATIENTS
8,425	NON PATIENTS
170	PAST PATIENTS
562	PATIENTS
10, 866	TOTAL MEMBERS

I.G. Exs. 112 (dated May 10, 1996); see also I.G. Exs. 115 (dated December 5, 1996); 116 (dated February 13, 1997); 119 (dated April 1, 1997); and 121 (dated May 9, 1997); Tr. at 1098-1103, 1131-32, 2472, 2474, 2477-87.

From April 1996 through April 1997, total membership of the CAREREADY Program exceeded 10,000 individuals and during this same time period Hawkeye had less than 2,000 past and present patients and employees. I.G. Ex. 112.

July 14, 1997 letter from Gary D. Walker, Senior Vice President at B&W to Dick Clock states:

Horras claims that the related billings were not false because the program is a "wellness newsletter which is very common in the health care industry." Horras Post-Hearing Br. at 18. However, Ms. Hetrick, the I.G.'s expert witness, testified that she has not known any FI that has allowed costs associated with the CAREREADY program and that HCFA had determined in 1994 that this program was not an allowable Medicare expense and instructed FIs to not pay any costs associated with this program. Tr. at 2479-80.

Horras also claims that he relied on the advice of Gary Walk who assured him that "the expense of their program had been allowed by fiscal intermediaries in other parts of the country." Tr. at 3019. However, Dick Clock's testimony contradicts Horras' assertions when Dick Clock stated that B&W services were engaged to "attract more patients." Tr. at 1416.

The I.G. asserts that "the bright-line test" for determining whether the Medicare program will reimburse costs associated with advertising lies in the concept of "targeting non-patients." I.G. Post-Hearing Reply Br. at 10. According to the I.G., Hawkeye's 1996 Business Plan and other internal memoranda show that the focus of the B&W advertising program was for the solicitation of non-patients to use Hawkeye's home health services. Id. at 83-86, 130-145, 149-54. The I.G. asserts further that this program was to assist Hawkeye in reaching its goal of home health care market domination, and, argues the I.G., B&W advertising costs were not for the purpose of circulating a "wellness newsletter." I.G. Post-Hearing Br. at 10. In his defense, Horras claims that the referenced newsletter was "not a mailer to the general public, but it did go out to patients, their families, employees, clinics hospitals, those who requested it at health fairs or flu shot sites, and perhaps others." Horras Post-Hearing Br. at 10.

During the hearing, Ms. Munk and Ms. Hetrick both testified that advertising to the general public is considered a form of patient solicitation which is not allowable as a Medicare and Medicaid cost. Tr. at 1098, 2469. According to Ms. Hetrick, "whether or not the material is a solicitation of new business" distinguishes an advertising material from being either an allowable cost or not. Tr. at 2466. One has to look at distribution, according to Ms. Hetrick, and if the advertising materials are disseminated to non-patients in the general public, then the cost is not allowable.⁽²⁰⁾ Tr. at 628, 777-78, 1094-95, 1101-03, 1131-32, 2469, 2472.

The I.G. further contends that in addition to the brochures, Hawkeye, through the CAREREADY Program, distributed mouse pads and videos as promotional materials. Since the mouse pad does not include Hawkeye's hours of operation, contact numbers, or patient education, the I.G. concludes that the pad is promotional. I.G. Post-Hearing Br. at 80-81. The I.G. points out that the mouse pad at issue states: "Serving the entire State of Iowa, which, according to the I.G., "epitomizes" Horras' mission. I.G. Post-Hearing Br. at 80-81; I. G. Ex 449A (photo copy of mouse pad).

A fax transmittal from BKD, dated March 27, 1997, is addressed to Christine Richards and includes: (1) the "intermediary manual excerpts related to advertising;" (2) the definition of allowable advertising costs as outlined in section 2136.1 of the PRM; and (3) section 2136.2 of the PRM listing unallowable advertising costs. I.G. Ex. 118. This document was sent to Horras to assist him in justifying B&W fees as allowable advertising cost reimbursable through the Medicare and Medicaid programs. Id.

In spite of Horras' claims that Gary Walker assured him that the costs would be allowable, the June 3, 1997 letter authored by Gary Walker to BKD addresses target population of the CAREREADY Program and its overall allowability: "I have seen other providers try this with some success, and others who met with no success." I.G. Ex 122, at 1. It is clear from the communications between B&W, BKD and Horras that there was question as to the allowability by the FI of the costs of this program.

The July 14, 1997 letter referenced earlier in this section from Gary Walker to Dick Clock is clear on its face that the intent of the program was to increase patient utilization by cross-selling private pay services to existing Hawkeye patients. I.G. Ex. 125, at 1.

Both Horras and Yap attended seminars specifically addressing Medicare's allowability of marketing expenses. Tr. at 1874-75. At these seminars information was provided to assist providers to distinguish between solicitation of patients and public awareness. In his testimony Yap claims that it was not a "fuzzy or gray area" because the HIM-15 is clear that "[i]f what you do is considered to increase your patient load, then it's not an allowable expense, it's considered solicitation of patients." Id. Moreover, the FI had previously disallowed advertising fees in Hawkeye's 1991 cost report aimed at increasing patient utilization. I.G. Exs. 16, at 31;17, at 11; Tr. at 724-28, 736.

Horras has not proffered evidence to successfully rebut the documentary and testimonial evidence which establishes that he knew or should have known that the costs associated with B&W CAREREADY program were unallowable costs when they were included on Hawkeye's 1995 and 1996 Medicare and Medicaid cost reports. As Horras has admitted, the advertising material in question was sent to patients, but also to non-patients ( i.e., their families, employees, and whomever requested it at health fairs or flu shot sites). Horras Post-Hearing Br. at 18.

According to expert testimony which provided an interpretation of the reimbursement policies, procedures and bulletins disseminated to providers, and my review of the documentary evidence presented which include memoranda from B&W to Hawkeye management itself, I find that the advertising materials disseminated by the CAREREADY program were part of a marketing initiative by Hawkeye aimed at increasing its patient base and, as such, do not meet the Medicare and Medicaid requirements for allowable advertising costs. Tr. at 1098-1103, 1131-32, 2472, 2474, 2477-87. I conclude that Horras knew or should have known that these costs were not to be included in Hawkeye's 1995 and 1996 cost reports. I find that Horras recklessly disregarded information from his own consultants and billed the Medicare and Medicare programs.

Based on the parties' arguments and the documentary and testimonial evidence presented, I find that: (1) the $131,472.24 in professional fees paid to B&W were for a marketing program to increase patient utilization of Hawkeye; (2) such fees are not allowable costs reimbursable through the Medicare and Medicaid programs; (3) Respondent had direct first-hand knowledge that these fees were for services related to a marketing program to increase patient utilization of Hawkeye; (4) Respondent knew that such fees were unallowable costs through the Medicare and Medicaid programs; and (5) Respondent acted with reckless disregard of this knowledge when he included or caused to be included such costs in Hawkeye's 1995 and 1996 Medicare and Medicaid cost reports.

I therefore conclude that the I.G. has established by a preponderance of the evidence that Horras knowingly presented or caused to be presented claims for marketing program fees paid to B&W to increase patient utilization of Hawkeye which he knew or should have known were false.

Hawkeye retained Julie S. Murphy to run its flu shot program because to her prior similar experience. Horras Post-Hearing Br. at 19. Hawkeye's 1997 cost reports included $14, 472.85 in fees and costs paid to Julie S. Murphy. I.G. Ex. 131. The I.G claims that costs associated with this flu shot program are an extension of Hawkeye's 1996 Business Plan and were intended to solicit new patients through use of an advertising campaign targeted at non-patients. The I.G. further claims that such marketing costs to non-patients are unallowable under Medicare reimbursement rules and regulations. I.G. Post-Hearing Br. at 89-91; see also 130-145, 149-54.

Horras asserts that these costs should be allowable under Medicare reimbursement rules and regulations because flu shot programs are encouraged by HHS, and Hawkeye "followed that encouragement." Horras Post-Hearing Br. at 19. Horras claims that there is a discrepancy in the I.G.'s witnesses' testimony where Ms. Hetrick testified that the costs of administering a flu shot program were allowable, yet other witnesses stated that it was improper advertising as it was designed to increase patient utilization. Horras Post-Hearing Br. at 19.

It is obvious that the program in question includes direct mailing to flu shot recipients with the goal of also doubling the number of flu shots given in 1996.

Clock testified at hearing that the Julie S. Murphy flu shot program was part of Hawkeye's overall effort to increase patient utilization as part of its long-range business plans. Tr. at 1406, 1425-26; I.G. Exs. 128, at 40-41, 47; 129, at 5. The I.G. argues that since Horras specifically approved the program then he knew or should have known that the costs associated with the Julie Murphy flu shot program and included in Hawkeye's 1997 Medicare and Medicaid cost reports were not allowable. I.G. Post-Hearing Br. at 91.

Based on the documentary and testimonial evidence, I find that the Julie S. Murphy flu shot program was part of a marketing initiative by Hawkeye aimed at increasing its patient-based and, as such, does not meet the Medicare and Medicaid requirements of an allowable advertising cost. Horras has not proferred evidence to rebut the conclusion that he knew or should have known that the costs associated with the Julie S. Murphy flu shot program were false and fraudulent when they were included on Hawkeye's 1997 Medicare and Medicaid cost reports. I conclude that Horras knew or should have known that these costs were not to be included in Hawkeye's 1997 Medicare and Medicaid cost report, and the inclusion of such costs was fraudulent.

Based on the parties' arguments, and the documentary and testimonial evidence presented, I find that: (1) the $14,472.85 in advertising fees paid to Julie S. Murphy for a flu shot program was to increase patient utilization of Hawkeye services; (2) such fees are not allowable costs reimbursable through the Medicare and Medicaid programs; (3) Respondent knew that such fees were unallowable reimbursable costs through the Medicare and Medicaid Program; and (4) Respondent acted with reckless disregard of this knowledge when he included or caused to be included such costs in Hawkeye's 1997 Medicare and Medicaid cost reports.

I therefore conclude that the I.G. has established by a preponderance of the evidence that Horras knowingly presented or caused to be presented claims for advertising fees paid to Julie S. Murphy for a flu shot program to increase patient utilization of Hawkeye which he knew or should have known, were false or fraudulent.

The I.G. contends that Hawkeye's 1995, 1996, and 1997 cost reports contain $44,678.55 in unallowable costs related to personal use of luxury vehicles which include a Lexus SC400 and a customized Chevrolet Suburban.⁽²¹⁾ I.G. Exs. 3A-9D; 137-203. The payments and expenses category at issue are for monthly lease payments, automobile service expenses, and license fees for these vehicles. I.G. Exs. 138-155; 158-173; 176-177; 179-181; 187-204. The I.G. claims Horras knew that these were unallowable costs when he submitted them as the FI had previously disallowed this category of costs in Hawkeye's 1990 and 1991 cost reports. I.G. Exs. 16, at 3-4, 23, 45-54; Ex. 17, at 1-2, 8-10, 29-30. The I.G. claims that Horras engaged in cost report fraud when he included costs related to his personal use of Hawkeye automobiles and the luxury portion of the cost of those automobiles on Hawkeye's cost reports. I.G. Post-Hearing Br. at 91-105.

Horras states that during the three years of reporting at issue, it was Hawkeye's practice to submit a mileage log which identified his business usage of vehicles leased by Hawkeye. July 23, 2002 Hearing Request at 5. Additionally, Horras claims that the issue is a lack of proper documentation of his personal use of these vehicles. Horras Post-Hearing Br. at 18-19. Horras states that each year the auditors adjusted the costs on the cost report and that this was a normal part of doing business with Medicare. Horras Post-Hearing Br. at 19. Horras further states:

I disagree. A provider is responsible to remove or otherwise identify all unallowable costs in the cost report. Evidence clearly shows that Horras did not do this on cost reports in spite of repeatedly being instructed by the PAAR auditors, the Medicare FI, his employees, and Hawkeye consultants. Tr. at 1179, 1199, 1211, 1363-64, 1703, 1754.

Personal use of a company vehicle is neither a proper and necessary cost in operating a HHA, nor is it a cost related to patient care. See 42 C.F.R. � 413.9 (which defines necessary and proper costs); HCFA Pub. 15-1 � 2102.3 (which identifies "[c]ost of travel incurred in connection with non-patient care related purposes as a cost related to patient care.") The definition of "costs not related to patient care" has been consistent since 1987 to present and this definition has been included in HCFA Pub. 15-1 � 2102.3. See I.G. Exs. 10A, at 3-4 (dated January 1987); 5, 8-9 (dated December 1993), 10, 12-13 (dated July 1996); 15, 17-18 (dated June 1998); 10A, at 18 (personal use of motor vehicles). As discussed earlier in this Decision where I addressed the impact of the BBA 1997 amendment on the issues in this case, the addition of "personal use of motor vehicles" in the HCFA Pub. 15-1 in June 1998 was intended as a clarification of existing requirements and did not indicate that these costs were either allowable or reimbursable prior to January 1, 1998. HCFA Pub. 15-1 � 2102.3, Transmittal No. 404 (June 1998).⁽²²⁾

An internal memo from Yap to Horras, dated August 5, 1992, references Hawkeye being "a million-dollar business" and that the future points to substantial growth in next few years. I.G. Ex. 440, at 2. In regards to surprise audits and maintaining time studies to properly document personal mileage use for Hawkeye automobiles, Yap writes "[a]s you know, our 1991 audit and 1992 home office cost reporting proposal hinges on the time studies. If an audit is performed now, we will be collapsed. I have been on your case for the time studies; and I know it is hard, but we need them kept current." Id. The memo goes on to say that "[t]he van and car lease will be an issue with Medicare, now that you are bound by the time studies. Two vehicles for the CEO is not prudent and we do not have the mileage to back it up." Id.

The evidence establishes that Horras knew that costs related to personal use of motor vehicles were not allowed. The I.G. presented evidence that Horras had this knowledge as early as 1991, when PAAR auditors instructed him that personal car expenses were being removed from the 1990 cost reports for Hawkeye.⁽²³⁾ I.G. Ex. 16, at 1-4, 23; 17, at 1, 2, 8, 10.

I find that: (1) the $44,678.55 in automobile expenses included unallowable expenses related to personal mileage for the Lexus SC400 and Chevrolet Suburban; (2) such fees are not allowable costs reimbursable through the Medicare and Medicaid programs; (3) Respondent had direct first-hand knowledge that these expenses were for personal use of the Lexus SC400 and Chevrolet Suburban; (4) Respondent knew that such expense were unallowable costs through the Medicare and Medicaid programs; and (5) Respondent acted with reckless disregard of this knowledge when he included or caused to be included such costs in Hawkeye's 1995, 1996, and 1997 Medicare and Medicaid cost reports.

I therefore conclude that the I.G. has established by a preponderance of the evidence that Horras knowingly presented or caused to be presented claims for automobile expenses for personal use of Hawkeye automobiles which he knew or should have known were false.

The I.G. states that in Hawkeye's 1995, 1996, and 1997 cost reports, Horras knowingly presented or caused to be presented $1,411 for Embassy Club dues which, according to the I.G., is a social club and thus an unallowable cost.⁽²⁴⁾ I.G. Exs. 206-33.

Horras states that he used the Embassy Club for business functions, board meetings, employee appreciation functions, etc and that it was his reasonable belief that these costs were properly identified and allocated on the cost reports in accordance with "the teaching of the reimbursement guidelines in effect for the periods in question." See July 23, 2002 Hearing Request at 5. Except for its "theoretical status as a social club," Horras states that believed the expenses to be allowable. Horras Post-Hearing Br. 20. However, in his testimony regarding his membership at the Embassy Club, Horras testified that "Auxi would not allow that as a perk." Tr. at 3283.

On August 10, 1990, Hawkeye passed a board resolution authorizing the purchase of a membership in the Embassy Club for Horras. I.G. Ex. 212. The resolution specifically states that "such membership would be desirable and beneficial to this Company in that it would provide a place for entertaining visitors, customers, members of the press, and the like, thereby increasing the Company's goodwill, improving its public relations and increasing its business . . . as a step to maintain and increase the Company's business." Id. The resolution was signed by Horras as Secretary of Hawkeye. Id.

Based on prior audits, and the fact that a 1993 PAAR audit had removed the dues from Hawkeye's 1991 cost reports, I find that Horras knew that the Embassy Club dues were unallowable costs. I.G. Ex. 17, at 17, 25. A December 31, 1991 hand-written notation from the PAAR auditor of which a copy was provided to Horras indicates:

This cost appears to be aimed at increasing patient utilization which is a unallowable expense. The other meal on the Embassy Club membership is for a meal in which the provider was recruiting a Speech Pathologist.

Since the auditor was unable to determine what portion of the Embassy Club meals were for patient recruitment and which were for employee recruitment, PAAR removed both costs. Id. Moreover, a letter from the FI addressed to Horras dated July 26, 1993, states that "[t]he provider includes personal expenses of the Administrator in several different A&G expense accounts. These are unallowable costs and have been removed in the December 31, 1991 audit. This practice could lead to a fraud investigation and is very strongly discouraged." I.G. Ex. 17, at 3. The evidence demonstrates that Horras knew prior to July 1993 that the Embassy Club dues were unallowable costs. He knew that these expenses were not previously allowed and had been advised by the FI of the potential consequences of his inclusion of these costs in Hawkeye's cost report. However, he continued to approve and certify these costs for inclusion in the annual cost reports.

The HCFA Pub. 15-1 � 2138.3 provides that organizations classified in the social category of which "[t]heir objectives and functions cannot be considered reasonably related to the care of beneficiaries" and thus costs associated with the membership in social clubs are non-reimbursable. In 1993, a PAAR auditor determined that membership dues for the Embassy Club are considered social, and I see no reason for me to conclude differently. I.G. Ex. 17, at 17, 25.

Horras has not proffered evidence to rebut the conclusion that he knew that the costs associated with the Embassy Club dues were false and fraudulent when they were included on Hawkeye's 1995, 1996 and 1997 Medicare and Medicaid cost reports. The evidence establishes that Horras knowingly presented unallowable costs for Embassy Club dues on Hawkeye's 1995, 1996, and 1997 cost reports in violation of section 1128A of the Act. See also 42 C.F.R. � 413.9; Iowa Admin. Code � 441-79.1(1)(b).

I find that: (1) the $1,411 in Embassy Club dues was for Respondent's monthly membership in a social club; (2) such fees are not allowable costs reimbursable through the Medicare and Medicaid programs; (3) Respondent knew that these fees were for the Embassy Club dues which is a social club; (4) Respondent should have known that such fees were unallowable reimbursable costs through the Medicare and Medicaid programs; and (5) Respondent acted with reckless disregard of this knowledge when he included or caused to be included such costs in Hawkeye's 1995, 1996, and 1997 Medicare and Medicaid cost reports.

I therefore conclude that the I.G. has established by a preponderance of the evidence that Horras knowingly presented or cause to be presented claims for Embassy Club monthly membership dues which he should have known were not as claimed.

The I.G. has met her burden in proving that Horras presented or caused to be presented fees paid to Menninga Pest Control for pest control services provided to his private residence. I conclude that these costs were not necessary and proper costs incurred in providing services to program beneficiaries. I base my conclusion on both documentary and testimonial evidence as follows.

Beginning in January 1989, Menninga Pest Control began providing pest control services to both Horras' personal residence and to Hawkeye on a monthly basis.⁽²⁵⁾ I.G. Ex. 42, at 1-3. The evidence shows that the bills for these services were paid from the Hawkeye checking account. Id. The owner of Menninga Pest Control, Judi Menninga, provided a four-page sworn statement, dated April 5, 1999, which states that "[t]he Hawkeye check covered the services we provided at his business and at his residence." I.G. Ex. 42, at 3. Ms. Menninga estimates that the residence cost was about twenty-five percent of the cost. Id. at 4. Ms. Menninga further states that "I don't remember if [Horras] instructed us to do this verbally or in writing." Id.

Horras states that the services provided to his personal residence were provided free by the prior owner of Menninga Pest Control. Horras Post-Hearing Br. at 20. However, Horras provides no evidence to support this claim and I find that Judi Menninga's sworn statement is credible and serves to contradict Horras' affirmations. Moreover, the evidence shows that Horras intentionally attempted to conceal the pest control services to his private residence when he requested that Menninga submit one monthly invoice under Hawkeye's name. He subsequently approved these expenses; they were paid for from Hawkeye funds, and presented and certified by Horras in the 1995, 1996, and 1997 cost reports for Hawkeye.

Horras has not proffered evidence to rebut the conclusion that he knew that the unallowable costs associated with the pest control services provided to his private residence were false and fraudulent when they were included on Hawkeye's 1995 and 1996, and 1997 Medicare and Medicaid cost reports. The evidence overwhelmingly proves that Horras knowingly presented the unallowable pest control services expenses in the amount of $514.96,⁽²⁶⁾ for services to his private residence, and his actions are in violation of section 1128A of the Act; see also 42 C.F.R. � 413.9 and Iowa Admin. Code � 441-79.1(1)(b).

I find that: (1) the $514.95 in fees paid to Menninga Pest Control were for pest control services at Respondent's private residence; (2) such fees are not allowable costs reimbursable through the Medicare and Medicaid programs; (3) Respondent had direct first-hand knowledge that these services were performed at his private residence; (4) Respondent knew that pest control services to one's private residence are not a reimbursable through the Medicare and Medicaid programs; (5) Respondent willfully concealed the true nature of these services when he asked that Menninga include the cost of services to his private residence on the same invoice as services to the Hawkeye office; (6) Respondent instructed Hawkeye employees to pay the monthly Menninga Pest Control invoices with checks from Hawkeye funds; and (7) Respondent acted with reckless disregard of this knowledge when he included or caused to be included such costs in Hawkeye's 1995, 1996, and 1997 Medicare and Medicaid cost reports.

I therefore conclude that the I.G. has established by a preponderance of the evidence that Horras knowingly presented or caused to be presented claims for fees paid to Menninga for pest control services performed at his private residence which he knew were false or fraudulent, and his action are in violation of section 1128A of the Act.

The I.G. has established by a preponderance of the evidence that Horras knowingly presented $16,013.54 in donations which are considered unallowable costs for reimbursement through the Medicare and Medicaid programs. These costs include donations to the University of Iowa Facilities Project, University of Iowa Champions Club, Iowa Special Olympics, March of Dimes and other local societies and schools. I.G. Exs. 268-295. The charitable donations at issue include:

Horras maintains that during 1995-1997 it was Hawkweye's practice to include charitable donations on its cost reports. He argues that the I.G. "only cites to a statutory change, effective January 1, 1998, that made charitable donations non-reimbursable." July 23, 2002 Hearing Request at 5. Horras states that he stopped including these expenditures after the law changed. Horras Post-Hearing Br. at 21.

Section 2102.3 of the PRM informs providers that donations are not related to patient care and therefore are not allowable. See I.G. Ex. 10A, at 5 (Transmittal No 375 dated December 1993); Richards Ex. 36A, at 11 (where it is marked that the transmittal was received at Hawkeye). Transmittal No. 375 provides instruction as to costs not related to patient care, and "charitable donations" are listed as such a cost.

I have already discussed how the BBA 1997 amendment only serves to codify pre-existing reimbursement requirements. See section VI(B) of this Decision. Although many, and perhaps all, of the beneficiaries of Horras' generosity are fine and worthy causes, they are not allowable costs and Horras had been advised of this as early as July 1993. See I.G. Ex. 17, at 21 (adjustment notation from PAAR auditor removing charitable donations form 1991 Hawkeye cost report). I find that Horras has not proffered evidence to rebut the conclusion that he knowingly presented or caused to be presented unallowable costs for donations in Hawkeye's 1995 and 1996 Medicare and Medicaid cost reports.

Based on the parties' arguments, and the documentary and testimonial evidence presented, I find that: (1) the $16,013.54 in Hawkeye's 1995-1997 Medicare and Medicaid cost reports include charitable donations to the University of Iowa Facilities Project, University of Iowa Champions Club, Iowa Special Olympics, March of Dimes and other local societies and schools; (2) such charitable donations are not allowable costs reimbursable through the Medicare and Medicaid programs; (3) Respondent had first-hand knowledge that these expenses were for charitable donations; (4) Respondent knew or should have known that section 2101.3 of the PRM specifically precludes reimbursement for charitable donations as they are not costs related to patient care; (5) Respondent knew or should have known that charitable donations were not allowable costs through the Medicare and Medicaid Program; and (6) Respondent acted with reckless disregard of this knowledge when he included or caused to be included such costs in Hawkeye's 1995, 1996, and 1997 Medicare and Medicaid cost reports.

I therefore conclude that the I.G. has established by a preponderance of the evidence that Horras knowingly presented or caused to be presented claims for charitable donations which he knew or should have known were false or fraudulent, and his actions are in violation of section 1128A of the Act.

Section 2176 of the PRM provides that "legal fees and related costs incurred in the sale of the facilities . . . are not allowable." I.G. Ex. 10 E; Richards Ex. 36A. The I.G. claims that Hawkeye's 1997 cost reports included $26,937.58⁽²⁷⁾ in unallowable professional fees and costs for a business valuation of Hawkeye and legal fees incurred in connection with the sale of Hawkeye to Auxi. I.G. Post-Hearing Br. at 117. The I.G. states further that these professional fees and costs are not related to patient care, and are not necessary for the operations of Hawkeye. I.G. Post-Hearing Br. at 117; see also 42 C.F.R. �� 413.9(a), (b)(2) and (c)(3); HCFA Pub. 15-1 �� 2101.3, 2176. Ms. Munk, the I.G.'s expert witness from the Medicare FI, testified that costs incurred by a provider which relate to the sale or possible sale of the provider's business are not allowable under Section 2176 of the PRM, and that such costs are also not related to patient care. Tr. at 636-37, 758, 1118-19, 2369. Ms. Hetrick, the I.G.'s expert witness from CMS, also testified that such costs were not related to patient care, and thus unallowable. Tr. at 2368, 2510-11.

As to the legal and business valuation fees paid to BW&G, Horras asserts that " Bruce Graves is an attorney who performed various legal work for Hawkeye," and that "[h]e billed all his work together." Horras Post-Hearing Br. at 21. Horras further asserts that "the bills appear to relate to basic corporate issues that are Medicare allowable expenses" and that "[t]here are a few line items that may relate to a contemplated sale of Hawkeye, but the record is unclear on this." Id. Horras presents no evidence to support his assertions. However, Horras' testimony at the hearing makes clear that as corporate attorney, Bruce Graves represented both Hawkeye and Horras, and provided legal services in connection with the sale of Hawkeye to Auxi. Tr. at 3053.

Richards testified that the invoices from BW&G on their face do not support the I.G.'s conclusion that the costs are unallowable. Tr. 2765-71. Although it is difficult to determine a specific breakdown of which billable hours were assigned to which project, I find that one could reasonably conclude, for example, that references to work on "charitable contributions," and "appraisal" and "valuations" would not be allowable costs that should have been included in Hawkeye's cost reports. I.G. Ex. 298. Moreover, as the I.G. points out, the "Agreement and Plan of Reorganization," dated February 18, 1999, specifically lists counsel for Hawkeye as BW&G. Richards Ex. 2, at 5. The I.G.'s witness, Ms. Munk, testified that the conclusion that all of the legal fees charged were related to the sale of Hawkeye was based on her review of more than just one BW&G invoice. Tr. 932, 934-36; see also I.G. Exs. 20, at 60; 299. The I.G. also directs me to mileage logs for Horras which document dates and his recorded mileage for meetings with Bruce Graves. The document specifies the following reason for the recorded mileage: (1) 8/26/97- "Mtg with Bruce Graves re: business acquisition;" 9/4/97 - "Mtg with Bruce Graves re: possible sell of company;" and 9/25/97 - "Mtg with Bruce Graves re: merger." I.G. Ex. 205, at 5.

The I.G. argues that Horras knew that the business valuation fees by BKD had been previously disallowed by the FI in Hawkeye's 1995 cost report. I.G. Post-Hearing Br. at 126. The Medicare Adjustment Report for Hawkeye's 1995 cost reports has attached to it a March 14, 1977 letter from the Medicare FI which provides an explanation of the adjustments. The document states: "During our review of the Professional services, we noted some entries which were not supported . . . . We also noted costs relating to advertising to the general public and costs relating to reorganization. These cost are not allowable, we are adjusting to remove them." I.G. Ex. 83A, at 14.

Fees paid to SMK for services related to the business valuation of Hawkeye were included in Hawkeye's 1997 cost reports. I.G. Exs. 8-10; 10E, at 3; 83A. The I.G. presented documentary and testimonial evidence that the cost of the SMK valuation, the legal fees and brokerage fees were all incurred in connection with the sale, or possible sale, of Hawkeye. Dick Clock, Vice-President of Hawkeye, testified as to Horras' interest in selling Hawkeye as early as 1996 and that Horras engaged SMK to conduct a business valuation specifically for the sale of Hawkeye. Tr. at 1358, 1360-61, 1366, 1426. Clock also testified as to his direct involvement in securing the service of the MAC Group which were related to the sale of Hawkeye. Tr. at 1588-89. Moreover, Clock stated that Bruce Graves, from BW&G, was counsel for Hawkeye in connection with the sale of Hawkeye to Auxi in March 1999 and that he personally had several meetings with Graves and Horras regarding "due diligence." Tr. at 1360, 1467, 1529, 1533, 1588.

Horras testified that he, on occasion, would intercept the mail coming into Hawkeye by personally collecting and sorting the mail. Additionally, he gave directions that all correspondence was to be directed to him. Tr. at 3070-72. He claimed that he wanted to protect information about the possible sale of the company from being discovered by Hawkeye employees. Tr. at 3069-71. Additionally, the evidence demonstrates that Horras took an active role in how BKD invoices were entered into the chart of accounts and paid via his direct instructions to Kasi Wares, Hawkeye's accounts payable clerk. On the August 14, 1997 BW&G invoice there is a notation stating: "[o]kay to pay per Tom Horras 8-15-97," initialed "KW." I.G. Ex. 298, at 2.

Horras has not proffered evidence to rebut the documentary and testimonial evidence which establishes that: (1) SMK was engaged and paid by Hawkeye to conduct a business valuation for the sale of Hawkeye;⁽²⁸⁾ (2) Brown, Winnick were engaged to provide legal servies connected with the sale of Hawkeye;⁽²⁹⁾ ( 3) Chamberlain, Hrdlicka were engaged to provide legal fees associated with merges and acquisition involving the sale or possible sale of Hawkeye; ⁽³⁰⁾ and (4) Hawkeye contracted with the MAC group in an attempt to find a buyer. ⁽³¹⁾ Moreover, these unallowable costs were included on Hawkeye's 1997 Medicare and Medicaid cost reports. ⁽³²⁾

Based on the parties' arguments, and the documentary and testimonial evidence presented, I find that: (1) the $26,937.58 in professional fees paid were for legal and business valuation expenses related to the sale of Hawkeye; (2) such fees are not allowable costs reimbursable through the Medicare and Medicaid programs; (3) Respondent had first-hand knowledge that these fees were for legal and business valuation expenses related to the sale of Hawkeye; (4) Respondent knew that such fees were not allowable costs through the Medicare and Medicaid programs; and (5) Respondent acted with reckless disregard of this knowledge when he included or caused to be included such costs in Hawkeye's 1997 Medicare and Medicaid cost reports.

I therefore conclude that the I.G. has established by a preponderance of the evidence that Horras knowingly presented or caused to be presented claims for professional fees for legal and business expenses related to the sale of Hawkeye which he knew or should have known were false or fraudulent.

It is not a necessary prerequisite to liability under the Act to find a pattern or scheme of false claims activity. Liability depends on finding that a respondent knew or should have known that the claims are false. However, if there is a pattern of claims activity in a particular case, that pattern may be significant in establishing a respondent's motivation and his level of culpability. That may, in turn, be important in determining what, if any, penalties, assessments, and exclusions should be imposed. The conclusion I draw from Respondent's conduct is that he determined to say to Medicare whatever he deemed to be necessary to maximize Hawkeye's reimbursement, without regard to the truthfulness of his statements, thus showing his disregard of Medicare and Medicaid program reimbursement requirements.

Horras' actions at issue in these proceedings occurred over the course of nearly three years. These were not isolated incidents; rather, the number, nature, and duration of the submissions or alleged improper claims all establish a pattern. These submissions evidence a pattern by Horras of willfully ignoring the Medicare and Medicaid reimbursement requirements in order to maximize his reimbursement.

Moreover, the evidence demonstrates that Horras planned to, and did, file "aggressive cost reports" in order to finance the expansion of Hawkeye in the mid-1990's. Croghan, accountant for Hawkeye, was responsible for the preparation of the annual financial statements. In a memorandum to Horras, Croghan writes that:

The evidence also shows that as early as 1993, Horras was informed by the FI that he had been billing incorrectly, he was instructed to discontinue, yet, he failed to do so. I.G. Exs. 206-233. These incidents are probative of his motives and attitudes towards the Medicare program. While motives and attitudes are not in issue in CMPL proceedings, they can reinforce and explain findings with respect to issues in dispute. I find and conclude that the reckless disregard of Horras was tantamount to "should have known." Respondent, if he was a reasonable medical provider submitting cost reports and exercising ordinary care, at the very least, would have made himself familiar with the rules and regulations for presenting Medicare cost reports. See Heckler v. Community Health Services of Crawford County, Inc., 467 U.S. 51 (1984); Panama R. Co. v. Bossee, 249 U.S. 41(1919); Kellerman v. Askew, 541 F.2d 1313 (10th Cir. 1983) (inadequate amount of supervision); see also discussion in "Keaton and Prosser" on knowledge and care required of professionals. Keaton and Prosser on Torts, 185-93 (5^th ed.).

The evidence in the record requires a finding that Horras, as a reasonable Medicare provider enrolled in the Medicare program, could have easily discovered that he was filing false claims by taking a cursory look at them before they were filed. Horras had the requisite knowledge to know that he had no business submitting claims to Medicare for personal expenses. What is worse, the record supports a finding that Horras actually interfered with Hawkeye's billing practices when he intercepted the mail. He clearly "should have known." Thus, Horras had a duty to ensure that those claims being presented were for services provided as claimed because he caused the false claims at issue to be presented.

The record indicates that Horras had previously been informed that personal expenses were not reimbursable, had received Medicare correspondence denying payment for these personal expenses, and had considerable experience in billing and cost report processing activities. In spite of this evidence, Horras claims that he had no prior warnings or notifications of any alleged improper billings, or of any other kinds of errors, or that he relied upon the advice of consultants he hired and professionals he employed. This statement is contrary to the evidence in this record. Tr. at 1406, 1416, 1425-26, 1874-75; I.G. Ex. 16, at 1-4, 23; 17, at 1, 17, 21, 25, 30; 42, at 3; 440, at 2. Horras was frequently sent Medicare notices and correspondence, particularly in cost report periods just before the time period at issue which detailed denials of personal expenses. Previously, Horras attempted to claim these expenses and the evidence establishes that the FI denied reimbursement and specifically indicated that this continued practice would lead to an investigation and possible charges of fraud. I.G. Exs. 17, 18. This certainly put Horras on notice and he "should have known" the outcome of this continued practice.

Respondent's decision to ignore the legal requirements of the Medicare cost report reimbursement process does not excuse him from liability. In discussing the reasonable person concept, Professor Keaton, in Keaton and Prosser on Torts (5^th ed.), states that "it seems clear that the actor must give to his surroundings the attention which a standard reasonable man would consider necessary under the circumstances and that he must use such senses as he has to discover what is readily apparent." Id. at 182. Professor Keeton states that the actor may "be engaged in an activity, or stand in a relation to others, which imposes upon him an obligation to investigate and find out, so that the person becomes liable not so much for being ignorant as for remaining ignorant; and this obligation may require a person to know at least enough to conduct an intelligent inquiry as to what he does not know." Id. at 185. Voluntary ignorance is equivalent to negligence. Gobrecht v. Beckwith, 135 A., 20, 22 (1926).

Horras did not act as a reasonable medical provider vis-a-vis the Medicare program. In spite of the overwhelming evidence that he had prior knowledge of the unallowable costs, he purposely continued to submit these claims in Hawkeye's Medicare and Medicaid cost reports. In fact, he acted in reckless disregard of their accuracy. Horras should have known that the cost report claims he submitted to Medicare were "not provided as claimed." In a deposition taken August 21, 2002, Horras admitted that he understood that while an expense may be a legitimate business expense, Medicare will not choose to reimburse the expense unless it is related to patient care. I.G. Ex. 20, at 72.

Yap testified that he personally taught Horras how the Medicare auditors worked to identify areas of fraud, waste, and abuse. Yap also testified that he taught Horras the primary rule for appropriate Medicare cost reimbursement, which is that in order for costs to be allowable, they must be related to the delivery of patient care. Such costs must also follow the second cardinal rule of Medicare cost reimbursement, which is that the costs must be reasonable and prudent in nature. Tr. at 1353, 1357, 1876, 1911, 1913.

The I.G. contends that Horras learned from Yap that if costs were under a certain threshold dollar amount, Medicare auditors would not review the cost even if it were obviously unallowable. Yap testified that Horras learned how the Medicare cost reimbursement system operated by attending Medicare-related seminars, reading the applicable rules such as the PRM, staying current by reading periodicals and newsletters for the home health field, and through discussion with office personnel. Tr. at 1860-61, 1874-75, 1966-68. Horras also attended meetings with auditors from the FI and received correspondence from theses auditors that contained adjustments to Hawkeye's cost report for 1990-1993. These adjustment reports from the FI auditors outlined disallowed costs not reimbursable under Medicare cost reimbursement rules and regulations. The I.G. also contends that many of these identified costs which were not allowed by the FI in early 1993 continued to appear on Hawkeye's 1995-1997 cost reports which are at issue in these proceedings. These include business valuation expenses, advertising expenses designed to increase patient utilization, costs related to the personal use of company autos and the luxury portion of those costs, Embassy Club dues, and charitable contributions.

During 1993 and 1994, Horras received two letters from the FI, dated July 23, 1993 and October 19, 1994, which contained warnings that repeat adjustments to Hawkeyes's cost reports would be considered program abuse and include investigation and possible prosecution. I.G. Exs. 17, 18. Thus, Horras was aware of the gravity of what he was doing and the consequences of continuing to include unallowable costs on Hawkeye's cost reports.

Yap testified that Horras knew all the expenses that were incurred by Hawkeye, that he was aware of the items included in the cost reports, and, specifically, the fact that his personal expenses were being billed to Medicare. Yap testified that he left his position at Hawkeye because he was unable to stop Horras from billing personal expenses to Medicare and because Horras failed to fulfill a stock ownership promise. Tr. at 1911, 1913.

The use of certification statements to create a certain representation by a medical provider was discussed by the Fahner court when claims by an optometrist to the Medicaid program of Illinois contained certification language virtually identical to the case at bar: "This is to certify that the information above is true, accurate and complete . . . ." United States ex rel. Fahner v. Alaska, 591 F. Supp 794, 796 (N.D. Ill., 1984). In addressing Medicare claims for nursing home services the Peterson court stated that "[a] physician's signature certifies that physician services were personally rendered by him or under his personal direction." Peterson v. Weinberger, 508 F. 2d 45, 52 (5th Cir.); cert. denied, 423 U.S. 830 (1975). The court commented that it was entirely reasonable and necessary for the government to require such a certification on the claim forms to implement the Act, and at the same time protect public funds. Id. Obviously, a false certification on the claim form frustrated the government's attempt to process only valid claims and led to the payment for services which were not covered or payable under the Act.

Certifications are familiar features in many government reimbursement forms. Those administering the program attempt to affix personal responsibility for claim information on the medical provider to avoid attempts to shift responsibility for false claims to others. At the same time, the certification of true accuracy and completeness is a common means of gaining some reasonable assurance that the provider has assured that the claims are indeed true, accurate and complete.

Horras was under a duty to investigate the truth, accuracy and completeness of the 178 claims at issue before they were submitted, by virtue of the certification statements on the cost reports. To the extent that a respondent submitted improper claims which it should have investigated, it is liable under section 1128A of the Act and applicable regulations. Respondents who have assumed the responsibilities of officers with a company and corporation have a duty to investigate and learn the requirements of HHS rules and regulations. Furthermore, Horras executed a provider agreement which obligated Hawkeye to adhere to the policies and criteria of the PRM for claiming reimbursement. I conclude that this agreement and the policies incorporated therein imposed a duty on Horras to verify the truthfulness and accuracy of the cost report claims, which he ignored.

Horras provided the following certification on each of the cost reports submitted to Medicare and Medicaid covering the period from 1993 though 1997:

I HEREBY CERTIFY that I have read the above statement and that I have examined the accompanying Home Health Agency Cost Report and Balance Sheet and Statement of Revenue and Expense prepared by Hawkeye . . . and that to the best of my knowledge and belief, it is a true, correct and complete report prepared from the books and records of the provider in accordance with applicable instructions, except as noted. I further certify that I am familiar with the laws and regulations regarding the provision of health care services, and that the services identified in this cost report were provided in compliance with such laws and regulations.

I.G. Ex. 2A, at 108 (This statement is required to appear on all Medicare cost report claim forms pursuant to 42 C.F.R. � 455.18).

The unqualified certification statement on the claims at issue is contrasted with certifications with qualifiers (i.e., "to the best of any knowledge and belief"). This latter type was found to impose no duty on the qualifier to check the facts on a Veterans Administration loan application. United States v. Ekelman & Associates, Inc., 532 F.2d 545, 549 (6th Cir. 1976). The court indicated it would have reached a different result (imposing a duty to obtain personal knowledge) if the qualifier had not been present. Id. The certification of truth, accuracy, and completeness is a common means of gaining some reasonable assurance that the provider has attested that the claims are true, accurate, and complete.

Horras had "ultimate final authority" for the business decisions of Hawkeye, including the submission of costs reports to Medicare and Medicaid. He was not an "absentee owner," and was directly involved in the daily operations and functions of Hawkeye, including review of cost reports annually submitted to Medicare and Medicaid. Horras provided the certification on each of the reports submitted to Medicare and Medicaid covering the period from 1993-1997. This certification acknowledged that he read and approved the claims contained in the Medicare and Medicaid cost reports at issue and acknowledged that he was aware of the policies and procedures for reimbursement of items and services for Medicare and Medicaid.

Horras' behavior in ignoring the certification statements, his behavior in ignoring Medicare regulations and Medicare notices, added to his behavior in interfering and intercepting the mail to conceal the BKD invoices, supports a finding that Horras knew that he was filing false or improper claims on Hawkeye cost reports for 1995, 1996, and 1997, and therefore subject to sanctions.

Once liability is proven by a preponderance of the evidence, as it has in this case, the ALJ must determine the appropriate amount of penalties, assessment and length of exclusion. Congress intended the penalty to be a deterrent rather than to be retribution or punishment. See Mayers v. United States Department of Health and Human Services, 806 F. 2d (11th Cir. 1986), cert. denied 484 U.S. 822 (1987); see also Chapman v. United States Department of Health and Human Services, F.2d (10th Cir. 1987). A deterrent is meant both to encourage others to comply with the law and to discourage a respondent from committing the wrong again. Retribution or punishment goes well beyond this point and might raise constitutional questions. To arrive at an appropriate penalty that would be a deterrent, rather than retribution, an ALJ must consider the factors outlined in the regulations, weigh the gravity of the wrong done by a respondent, and consider what it would take to prevent the wrong from being committed again by a respondent and others. Taking this into consideration, the penalty I deem appropriate in this case is meant to be proportionate to the offense committed by Horras, as indicated by the facts in the record, and is meant to be a deterrent rather than punishment.

The purpose of assessments in CMPL cases is to enable the United States to recover the damages resulting from false or improper claims; this includes amounts paid to a respondent by Medicare and/or Medicaid and the costs of investigating and prosecuting unlawful conduct. See 48 Fed. Reg. 38,831 (1983). Additionally, 42 C.F.R. � 1003.107 requires the same criteria used in determining the penalty and assessments to be used to determine the length of any exclusion imposed. The purpose of the exclusion is deterrence and protection of the Medicare and Medicaid programs. Id. at 38,832. Specifically, the CMPL and 42 C.F.R. � 1003.106 require me to examine: (1) the nature of the claims or requests for payment and the circumstances under which they were presented; (2) the degree of culpability of Respondent; (3) the history of prior offenses of Respondent; (4) other wrongful conduct; (5) the financial condition of Respondent; and (6) such matters as justice may require.

The guidelines at 42 C.F.R. � 1003.106(b)(l) also state that an aggravating circumstance exists where the requests for payment were of several types, occurred over a lengthy period of time, were large in number, indicated a pattern of making such requests for payment, or the amount was substantial. However, the guidelines do not indicate what period of time is lengthy, what amount of requests is a large number, or what is a substantial amount. See 48 Fed. Reg. 38,827 (1983). These judgments are left to the discretion of the ALJ.

Horras did not prove any of his proposed mitigating circumstances. The I.G. proved by a preponderance of the evidence that the Horras billed for substantial sums (considering the items were for personal expenses for a period of over three years) and the period over which he billed was lengthy. The expenses billed for were for several types and a pattern was proven by a preponderance of the evidence. These are all aggravating factors.

One of the most complex of the factors to be considered by an ALJ in determining the amount of the penalty is the "degree of culpability." The guidelines in the regulations indicate that this factor relates to the degree of a respondent's knowledge and intent. As stated earlier, it is a prerequisite that a respondent "knew or should have known" that the claims were false or improper in order for liability to attach. Knowledge, however, is an aggravating factor, and "unintentional or unrecognized error" is a mitigating factor if Horras took corrective steps promptly after the error was discovered. 42 C.F.R. � 1003.106(b)(2). The determination of the degree of culpability in this case involves an inquiry into the degree of Horras' knowledge. 48 Fed. Reg. 38,827 (1983).

Here, the I.G. did prove by a preponderance of the evidence that Horras had actual knowledge that the claims were improper. The I.G. also proved that the Horras "should have known" the expenses included in the cost reports were improper, by showing that Horras continued in aggressive cost reporting to increase Hawkeye's revenues and submitted personal expenses all for his own personal gain. His extensive knowledge and experience with the submission of Medicare and Medicare claims and cost reports, was enough to alert him that his actions were inconsistent with Medicare reimbursement rules and regulations.

Horras is liable under the CMPL, his actions created a duty to investigate the claims being filed on his behalf and the I.G. did prove by a preponderance of the evidence that Horras actually knew the false content of the claims.

The next factor is "prior offenses" of a respondent. The regulation at 42 C.F.R. �1003.106(b) of 42 C.F.R. states that an aggravating circumstance exists if a respondent was held liable for criminal, civil or administrative sanctions in connection with one of the programs covered by the CMPL statute or any other medical services program. This would clearly prevent consideration of mere allegations of past wrongdoing. A respondent must have been "held liable" and subjected to actual sanctions before committing the acts for which he is found liable. The preamble makes clear that prior offenses are not an aggravating circumstance, unless there has been a final agency determination or a final adjudication in a court. 48 Fed. Reg. 38,832 (1983). There are no prior offenses which I consider an aggravating factor. However, absence of a prior offense is not a mitigating factor under the regulations.

Pursuant to 42 C.F.R. � 1003.106(b)(4), the statute of limitations governing CMPL proceedings does not apply to proof of other wrongful conduct as an aggravating circumstance. Although the alleged improper claims submitted to the FI for 1993-1994 are outside the statute of limitation, they can be considered aggravating. Additionally, evidence of "other wrongful conduct" may be presented as an aggravating factor even if such conduct was not specifically mentioned in the notice of proposed determination initiating the CMPL proceeding. 42 C.F.R. �� 1003.106(b)(4) and 1003.107(b).

Section 1003.106(b)(4) of 42 C.F.R. makes it an aggravating factor if the I.G. proves that a respondent engaged in wrongful conduct, other than the conduct at issue, relating to government programs or in connection with the delivery of a health care item or service. In accordance with section 1003.106(b)(4), "other wrongful conduct" includes, but is not limited to, evidence that the conduct for which the I.G. is seeking civil sanctions is part of a larger pattern or scheme of the same or similar wrongful conduct.

The evidence presented at hearing demonstrates that Horras knowingly presented or caused to be presented unallowable costs in Hawkeye's 1993 and 1994 cost reports which included unallowable personal use of automobile costs, Embassy Club dues, and charitable donations. The I.G. has established via documentary and testimonial evidence that Horras had been informed by PAAR auditors that the costs were removed from Hawkeye's 1990 and 1991 cost reports well in time before Horras submitted the 1993 and 1994 cost reports. ⁽³³⁾

I find that Horras' presentation of pest control services provided to his private residence, and included in the 1993 and 1994 cost reports as identified in I.G. Exs. 366-391, and paid for by Hawkeye in one monthly check, is an aggravating circumstance demonstrating other wrongful conduct demonstrated by Horras. Additionally, Nancy Colbert provided cleaning services to both Horras' home and to Hawkeye. A "Report of Interview," dated May 21, 1999, and authored by SA Ewers, states that Ms. Colbert had been instructed by Horras to include the cleaning services she provided to both his personal residence and Hawkeye on one bill to Hawkeye. I.G. Ex. 44, at 2. Ms. Colbert is reported to have stated with the first invoice submitted to Hawkeye's bookkeeper, she had failed to separate out the office cleaning from that of the residence. Once Horras became aware of this, he returned the bill to her and instructed her that she did not need to divide the bill, rather "just to put it all together." Id.

I find that Horras has not proffered evidence to rebut the conclusion that he knew that the unallowable costs associated with the house cleaning provided at his private residence were false and fraudulent when they were included on Hawkeye's 1993 and 1994 Medicare and Medicaid cost reports. And thus, I find his intentional concealment of these personal services to be evidence of other wrongful conduct engaged in by Horras and consider them aggravating circumstances in determining the appropriateness of the proposed sanctions.

The regulations state that the financial condition of a respondent would constitute a mitigating circumstance if the penalty or assessment, without reduction, would jeopardize the ability of a respondent to continue as a Medicare provider. Thus, it is clear that I may consider Horras' financial condition. Furthermore, section 1003.106(b)(4) of 42 C.F.R. notes that an ALJ must consider the resources available to a respondent. This indicates that financial disclosure by a respondent is a key requirement in evaluating a respondent's financial condition.

The record before me does not permit a conclusive finding regarding any reference to the amount of Respondent's net worth because he failed to provide any. Horras filed documents in these proceedings regarding his Chapter 7 petition for personal bankruptcy. Horras Ex. 1. At this time those proceedings are complex and ongoing.

The CMPL statute and the regulations also contain an umbrella factor, "other matters as justice may require." 42 C.F.R. � 1003.106(b)(5). The regulations do not provide further detail, except to indicate that consideration of other matters should be limited to those relating to the purposes of civil money penalties and assessments. Id.

The purpose of a CMP is deterrence and protection of the Medicare and Medicaid programs rather than retribution or punishment. Deterrence should serve to encourage others to follow the law and to keep individuals from committing the wrong again. See Chapman, 821 F.2d 523 (10^th Cir. 1987).

The violations established in this case were deliberate and fraudulent. Contrary to Horras' assertions, his actions of including unallowable costs in Hawkeye's Medicare and Medicaid cost reports as part of his aggressive cost report strategy, allowed him to fraudulently obtained Medicare and Medicaid reimbursement greater than that which he would have obtained had the costs been honestly stated. I am not persuaded by Respondent's arguments that the Medicare rules were ambiguous. The "should know" standard includes reckless disregard for the consequences of a person's acts as well as simple negligence in preparing, presenting, or in supervising the preparation and presentation of claims. See Mayers, 806 F.2d 995 (11th Cir. 1986), cert. denied, 484 U.S. 822 (1987).

To the extent that Horras was disdainful and purportedly ignorant of the Medicare rules and requirements, the evidence in this record demonstrates that his ignorance was self-imposed and self-serving. He simply did not care about the consequences of his disregard for the truth and accuracy of the cost report claims he submitted. Under federal law, intent can be imputed to one who files false claims "with reckless disregard of whether the statements were true and with a conscious purpose to avoid learning the truth." United States v. Sarantos, 455 F.2d 877, 880 (2d Cir. 1972); United States v. Lange, 528 F.2d 1280(5th Cir. 1976); United States v. Abrams, 427 F.2d at 86 (2d Cir. 1970); United States v. Jewel, 1532 F.2d 697 (9th Cir. 1976) cert. denied, 96 S.Ct. 3173. Here Horras had actual knowledge of the contents of the claims he submitted; he had first-hand knowledge of whether the claims he submitted reflected the services he actually provided. There was no third-party independently responsible for the filing of the claims.

The case law fully supports an interpretation of "damages" that includes all reasonable proximate damages. "It is well settled that the Congress need not limit itself to the amount of actual damages in calculating a civil penalty or assessment." Chapman, supra at 529. "The purpose behind the CMPL is to make the government whole for monies paid on fraudulent submissions and the cost of investigating such fraudulent submissions." See Bernstein v. Sullivan, 914 F 2d. 1395, 1397 (10th Cir. 1990).

Both the assessments and the penalties are amply justified by the evidence in this case, and by the factors which I have enumerated. The assessments cannot begin to recoup the cost which the government incurred in connection with this case. The hearing in this matter was a culmination of an extensive investigation into Hawkeye's cost reporting practices which lasted for many years. The hearing lasted 11 days, and required the compensation, travel, and lodging of a number of federal employees at government expenses, plus the cost of the court reporter services.

The I.G. has proven, by a preponderance of the evidence, all of the elements required for the imposition of sanctions against Horras. Thus, I conclude the record fully supports an assessment, penalties and an exclusion at the levels proposed.

In summary, based on the analysis above, I affirm the determination of sanctions for Respondent Horras and conclude that an assessment of $673,212 and penalties of $38,000, and an exclusion from participation in Medicare and Medicaid for seven years are appropriate under section 1128A of the Act. The assessment figure is based on the pro rata reduction of Horras' exposure noted in an earlier part of this Decision.

In her request for hearing, Respondent Richards asserts that, given her status at Hawkeye, she is not a "person" against whom sanctions can or should be assessed under section 1128A(a)(1)(A) and (B) of the Act. See July 19,2002 Hearing Request at 2. She argues that although she was given the title "Director of Finance," she was under the supervision of both Clock and Horras, never had any real corporate authority, and was never the owner of any stock or other ownership stake in Hawkeye. Thus, she argues, she is not a provider nor a principal, and to impose penalties, assessments, and exclusion from Medicare and Medicaid program participation against her runs counter to Congressional intent. Id.

Richards provides a chronology of her employment at Hawkeye in order to establish that she was only a "low-level manager." Following Richards' college graduation, she was employed as a staff accountant by Hawkeye, and was responsible for accounts payable and payroll functions. In 1994, after Yap, her immediate supervisor, left full-time employment at Hawkeye, Richards became Director of Finance for Hawkeye and assumed additional responsibilities which included the preparation of cost reports for Medicare and Medicaid. Initially, while in that position, she prepared schedules for the cost reports under the guidance of Yap, who had been retained by Hawkeye as a consultant after he had left his full-time position there. As Richards notes, Yap served as a Medicare intermediary auditor for a number of years. Richard's July 19, 2002 Hearing Request at 3. Richards also asserts that "[a]lthough she was in charge of the cost report preparation for Hawkeye for the years 1995, 1996, and 1997, during the period of March 31, 1996 through May 13, 1996, she was on pregnancy leave." Id. Richards additionally states that the process for the cost report preparation was always collaborative and involved other corporate officers which included Horras as the owner of Hawkeye. Id. Richards affirmatively states in her defense that she did not sign the cost reports. Additionally, during any audit and appeal process, she says that she frequently relied on the other professionals associated with Hawkeye to "defend" certain cost items challenged by the intermediary auditors. Tr. at 2645, 2683.

The CMPL authorizes the I.G. to institute administrative proceedings against Richards in this matter. The statute states, in relevant parts, that action can be brought against "[a]ny person (including an organization, agency, or other entity) . . . that knowingly presents or causes to be presented to an officer, employee, or agent of the Unites States . . . a claim . . . for a medical item or service that the person knows or should know was not provided as claimed . . . [or] . . . is false and fraudulent. Act, � 1128A(a)(1)(A) and (B). The regulations which implement this statute define "person" to mean "an individual, trust or estate, partnership, corporation, professional association or corporation, or other entity, public or private." 42 C.F.R. � 1003.101.

Thus, it is plain that an action under the CMPL can be brought against Richards and that, based on the I.G.'s allegations, she is a proper party in this case. The statute allows an action to lie against both the entity that presented an improper claim and any person who caused the presentation of such claim. Thus, as in this case, if more than one person is responsible for the actions which form the basis of the sanctions, each such person may be held liable for the penalty prescribed. 42 C.F.R. � 1003.2(d)(1); Edward J. Petrus, Jr. M.D., and the Eye Center of Sutin, DAB No. 1264 (1991); see also United States v. Manuel. A. Cabrera-Diaz and Esther Arbona, 106 F. Supp. 2d 234 (D.P.R.2000) (under False Claim Act secretary responsible for preparing and submitting cost report is jointly and severally liable with physician for submission of false claims).

The 112 claims which the I.G. alleges Richards presented to Medicare and Medicaid for items or services in the Hawkeye cost reports covering the 1995-1997 period that were not related to patient care, were not reasonable and proper costs of operation, or were otherwise not allowed include the following four separate categories:

The I.G. asserts that the claims at issue in this case were false or fraudulent or not provided as claimed because they were not related to patient care and/or were not reasonable costs of operation of Hawkeye. I.G. Post-Hearing Br. at 3. The I.G. directs me to various regulatory sources which include section 1861(v)(1)(A) of the Act; 42 C.F.R. � 413.9; HCFA Pub. 15-1 �� 2102.2, 2102.3, 2136.2, 2138.3, and 2176; and Iowa Administrative Code � 221-79.1(1)(b). In her decision to pursue sanctions against Richards, the I.G. asserts that Richards' knowledge and active participation with Horras in the inclusion of false and fraudulent claims in the 1995-1997⁽³⁴⁾ cost reports makes her equally liable with Horras for the presentation of these claims.⁽³⁵⁾ I.G. Prehearing Br. at 13.

Richards claims that CMS rules and regulations require the submission of claims even if presumptively non-reimbursable if the provider seeks to challenge the presumption. July 19, 1002 Hearing Request at 6. Richards states that the complexity and ambiguity of the Medicare and Medicaid reimbursement processes have been recognized by the courts. July 19, 1002 Hearing Request at 6; see Shalala v. Guernsey Memorial Hospital, 514 U.S. 87 (1995); United States v. Calhoon, 97 F.3d 518, 522-23 (11^th Cir. 1996).

In determining Richards' culpability, I address each cost category separately in the discussion that follows, but, as will be seen, I recapitulate certain aspects of each category based on my analysis of them as to Respondent Horras.

Hawkeye's 1995, 1996, and 1997 cost reports contain $44,678.55 in unallowable costs related to personal use of a Lexus SC400 and a Chevrolet Suburban. ⁽³⁶⁾ I.G. Prehearing Br. at 6, n. 7; I.G. Exs. 3A-9D;137-203. The I.G. alleges that the payments and expenses also included costs for monthly lease payments, automobile service expenses, and license fees for these vehicles. I.G. Post-Hearing Reply Br., at 14; I.G. Exs. 138-155; 158-173; 176-177; 179-181; 187-204. The I.G. alleges further that Richards knowingly approved these expenses and certified their inclusion in the relevant cost reports.⁽³⁷⁾ I.G. Reply Br. at 14-15. The I.G. claims that Richards knew that these were unallowable costs when she included them in Hawkeye's 1995, 1996, and 1997 cost reports because the FI had previously disallowed this category of costs in Hawkeye's 1990 and 1991 cost reports. I.G. Post-Hearing Reply Br. at 18; I.G. Exs. 16, at 3-4, 23, 45-54; 17, at 1-2, 8-10, 29-30.

As I have already found in section VI(C)(3) of this Decision that: (1) the $44,678.55 in automobile expenses included unallowable expenses related to personal mileage for the Lexus SC 400 and Chevrolet Suburban; and (2) such fees are not allowable costs reimbursable through the Medicare and Medicaid programs, I need not repeat that analysis here. Rather, I must now address whether Richards knew or should have known that these expenses were non-reimbursable costs. See 42 C.F.R. � 413.9; Iowa Admin. Code � 441-79(1)(b); and HCFA Pub. 15-1 �� 2102.2 and 2102.3.

Richards argues that it was an acceptable practice at Hawkeye to submit claims for the business use of a leased vehicle used by Horras along with a valid, accurate mileage log which identified its business usage. July 19, 2002 Hearing Request at 7. Richards admits that she was aware of prior audit disallowances of Hawkeye vehicle expenses, and contends that the disallowances were based on the failure of the logs and documentation to properly support Horras' business use of company vehicles. Richards Post-Hearing Br. at 18.

The evidence establishes that as early as 1993, Richards was provided with a PRRB ⁽³⁸⁾ decision that specifically cautioned that in order for automobile business costs to be reimbursed to a provider it was necessary for the provider to maintain mileage logs that distinguished business use from personal use. I.G. Ex. 17, at 29-30; 16, at 45-54. ⁽³⁹⁾

Also, according to a "Report of Interview" dated December 15, 1998, and authored by SA Ewers, Richards admitted that, based on the advice of her predecessor Yap, all costs related to vehicle mileage, both personal and business, were deliberately included in Hawkeye's cost reports and that the FI's auditors would "pull it out." I.G. Ex. 22, at 7.

Another "Report of Interview" authored by SA Ewers and dated June 25, 1999, establishes that when Richards was asked about communications between she and Angela Murphy, PAAR auditor, Richards acknowledged having discussed with Ms. Murphy the correspondence which identified disallowable costs. SA Ewers further reports that Richards claimed that regardless of Horras' feelings about these expenses, it should have been her responsibility to determine what should be on the Medicare cost reports. I.G. Ex. 23, at 6.

In preparation for Hawkeye's 1992 cost report, Richards prepared an "Audit Exposure List" document which listed automobile expenses that she anticipated would be adjusted out of the cost reports based on PAAR's prior audits and adjustments. I.G. Exs. 12; 23, at 2-3. Richards acknowledged that she had authored the "Audit Exposure List" and prepared it for Croghan, C.P.A. Tr. at 2820; I.G. Ex. 12; 23, at 2; see also Tr. at 2185 (Croghan's testimony).

Richards defends her actions by claiming that the FI allowed Horras to reconstruct mileage logs for his personal use of the automobiles for the 1992 cost report. Richards Post-Hearing Br. at 18. The FI, however, informed Horras and Richards that they "agreed to look at the business miles used by Horras, if the provider would reconstruct from his time studies and the mileage logs the miles between branch offices." I.G. Ex. 18. Additionally, Yap's testimony brought the accuracy of Horras' mileage deep into doubt when he declared that Horras made up data for the mileage logs and time studies after the fact. Tr. at 1919; I.G. Ex. 440, at 2.

As to the luxury limit portion of the included costs, Richards states that the adjustments to Hawkeye's 1990 cost reports did not include a luxury limit, rather the adjustment was related to auto insurance. Richards Post-Hearing Br. at 18-19. However, I find that Richards' assertions do not justify her actions in including expenses related to luxury vehicles in Hawkeye's Medicare and Medicaid cost reports, because she was aware that the personal mileage use and luxury expenses were unallowable costs as evidenced by her "Audit Exposure List." See I.G. Ex. 12.

I find that the actions of Richards in connection with the automobile expenses clearly were undertaken with the requisite knowledge of those expenses' unallowable character. Her "Audit Exposure List" unmistakably demonstrates that she knew such costs were not allowed, yet she included these costs in Hawkeye's 1995, 1996, and 1997 Medicare and Medicaid cost reports. I.G. Ex 12.

Richards has not proffered evidence sufficient to rebut the conclusion that she knew that the costs related to Horras' personal use of Hawkeye automobiles and the luxury portion of the cost of these automobiles were not allowable Medicare expenditures. The evidence demonstrates that Richards knowingly presented or caused to be presented, these unallowable costs for reimbursement in Hawkeye's 1995-1997 cost reports in violation of section 1128A of the Act.

Hawkeye's 1995, 1996, and 1997 cost reports include $1,411 for the Embassy Club, which is a social club and thus a unallowable cost. ⁽⁴⁰⁾ I.G. Prehearing Br. at 6, n. 7; I.G. Exs. 206-233. The I.G. asserts that costs related to a private social club are not related to patient care, that they are unallowable costs, and that costs of meals served to non-employees are not related to patient care and, thus, are also unallowable costs. I.G. Post-Hearing Br. at 111; see also 42 CFR 413.9; HCFA Pub. 15-1 �� 2102.3, 2105.2, and 2138.3. The I.G. alleges that Richards filed cost reports for 1995 through 1997 for Embassy Club dues and meals that she knew or should have known were unallowable costs for reimbursement through the Medicare and Medicaid programs. I.G. Post-Hearing Br. at 111.

As for the Embassy Club dues and expenses, Richards asserts that Horras, as owner and CEO of Hawkeye, used the club for business functions, board meetings, and employee appreciation functions. July 19, 2002 Hearing Request at 7.. Richards says she reasonably believed that such costs were properly shown and categorized on the reports based on the "teachings of the reimbursement guidelines in force and effect for the periods in question." Richards Post-Hearing Br. at 19. Richards adds that whatever the exact nature of the Embassy Club might be, the I.G.'s witness Ms. Munk presumed to testify that it is a social club when Ms. Munk had never been there. Id.

A review of the documentary evidence establishes that: (1) these dues were previously disallowed by the Medicare FI in Hawkeye's 1991 cost report (I.G. Exs. 12; 17); (2) Richards acknowledged these dues to be one of the expenses that the Medicare FI would disallow, based on the 1991 disallowances, in her "Audit Exposure List."( I.G. Ex. 12); and (3) Richards listed these dues as the kinds of personal expenses that were submitted in cost reports in her conversations with Mr. Booth, a representative from Auxi ( Tr. at 2301).

Richards asserts that the "Audit Exposure List" prepared after her review of the adjustments in Hawkeyes's 1991 cost reports only represented items she "thought" PAAR auditors would disallow. I.G. Ex. 12 (Audit Exposure List); I.G. Ex. 23, at 2 ("Report of Interview" with SA Ewers and Richards). Richards also states that Horras "knows what expenses have been disallowed on previous reports and when." I.G. Ex. 23, at 5. However, Richards' arguments do not amount to, or point to, evidence sufficient to rebut the conclusion that she should have known that the costs associated with the Embassy Club dues were false and fraudulent when they were included on Hawkeye's 1995, 1996, and 1997 Medicare and Medicaid cost reports.

I find and conclude that the I.G. has shown by a preponderance of evidence that Richards should have known that the presented costs for Embassy Club dues on Hawkeye's 1995, 1996, and 1997 cost reports were unallowable expenses for reimbursement submission under the federal programs. I also find and conclude that Richards acted in reckless disregard of this knowledge when she included or caused to be included such costs in Hawkeye's 1995, 1996, and 1997 Medicare and Medicaid cost reports, and her actions are in violation of section 1128A of the Act. See also 42 C.F.R. � 413.9; Iowa Admin. Code � 441-79.1(1)(b).

I therefore find and conclude that the I.G. has established by a preponderance of the evidence that Richards knowingly presented or caused to be presented claims for Embassy Club dues which she knew or should have known were false.

Hawkeye's 1995, 1996, and 1997 Medicare and Medicaid cost reports included $16,013.54 in donations which were unallowable costs for reimbursement from the Medicare and Medicaid programs. These costs included donations to the University of Iowa Facilities Project, University of Iowa Champions Club, Iowa Special Olympics, March of Dimes, and other local societies and schools. I.G. Prehearing Br. at 6, n. 7; I.G. Exs. 268-295.

The I.G. states that costs incurred by providers for donations to charitable or education organizations are not related to patient care, and thus are not allowable costs. 42 C.F.R. 413.9; HCFA Pub.15-1 �� 2102.3, 2105.7. The I.G. alleges that Richards, for the 1995 through 1997 cost reports, claimed $16,013.54 in charitable donations, and that she knew or should have known that they were unallowable. I.G. Post-Hearing Reply Br. at 18.

As for charitable donations, for 1995 through 1997, Richards asserts that it was the practice of Hawkeye to include charitable donations on cost reports and that she did as instructed to do so by her former superior Yap, who had been a Medicare intermediary auditor. Richards Post-Hearing Reply Br. at 20. Richards states that charitable donations were not consistently an issue in earlier cost reports. Id.

However, evidence presented by the I.G. shows that charitable donations were disallowed by the FI in 1993 from Hawkeye's 1991 cost report. I.G. Ex. 17, at 2-5. Richards listed donations on her "Audit Exposure List" as an expense she expected to be disallowed from the 1992 cost report. I.G. Ex. 12. Moreover, Richards attended an exit conference with the FI in 1994 regarding the 1992 cost report in which auditors warned that this was the third cost report in which unallowable costs had been included and that Hawkeye must discontinue this practice or risk losing its Medicare funding. Finally, Richards testified that she knew that these costs were disallowed in the past, yet she continued to include them in the 1995, 1996, and 1997 cost reports. Tr. at 2543, 2909-10.

I thus am led to the belief that, having admitted to knowledge of Hawkeye's 1991 cost report adjustments, and having included them in her "Audit Exposure List," Richards knowingly presented unallowable charitable donations in Hawkeye's 1995, 1996, and 1997 Medicare and Medicaid cost reports. See I.G. Ex. 23, at 2; 12.

In section VI(C)(6) of this Decision, I have found that: (1) the $23,490.54 in charitable donations included donations to the University of Iowa Facilities Project, University of Iowa Champions Club, Iowa Special Olympics, March of Dimes and other local societies and schools; and (2) such charitable donations are not allowable costs reimbursable through the Medicare and Medicaid programs, and therefore I need not address them again here.

Richards has not proffered evidence sufficient to rebut the conclusion that she knowingly presented, or caused to be presented unallowable costs for donations in Hawkeye's 1995 and 1996 Medicare and Medicaid cost reports. I find and conclude that: (1) Respondent Richards knew that these expenses were for charitable donations; (2) Respondent knew or should have known that section 2101.3 of the PRM specifically precluded reimbursement for charitable donations because they are not costs related to patient care; (3) Respondent knew or should have known that charitable donations were not allowable costs through the Medicare and Medicaid Program; and (4) Respondent acted with reckless disregard of this knowledge when she included or caused to be included such costs in Hawkeye's 1995, 1996, and 1997 Medicare and Medicaid cost reports.

Hawkeye's 1997 Medicare and Medicaid cost report included $26,937.58 in legal and business valuation fees related to the sale of, or possible sale of Hawkeye.⁽⁴¹⁾ I.G. Post-Hearing Br. at 117. The I.G. states that legal fees and related costs incurred in the sale of a facility are not related to patient care and not common in the home health field and they are not allowable costs, and that Richards filed these claims when she knew or should have known they were unallowable. I.G. Post-Hearing Br. at 118; see also 42 C.F.R. 413.9; HCFA Pub. 15-1 �� 2102.3, 2176.

At the hearing, Richards denied any knowledge of BW&G fees. Tr. at 2965. Richards testified that she did not sit in on any meetings with BW&G which may have occurred from August through October of 1997. Tr. at 3965. However, evidence was presented at hearing which demonstrates that Richards participated in a meeting at Bruce Graves' office.⁽⁴²⁾ An October 1997 invoice from BW&G reveals that Richards attended a meeting with Bruce Graves and Horras on September 19, 1997:

I.G. Ex. 299, at 5. Although this evidence does show that Richards participated in a meeting at Grave's office, it does not specify the topic of the meeting.

Richards argues that there is no evidence on the face of the invoices from BW&G to support the I.G.'s conclusion that these particular costs are unallowable. Tr. 2770; Richards Post-Hearing Br. at 20; I.G. Ex. 299, at 5 (see also abstract above).

The I.G. makes inferences that the September 19, 1997 meeting between Horras and Richards was regarding the sale of Hawkeye. But Graves also performed other legal work for Hawkeye during that period of time. The I.G. argues that the meeting must have been about the sale of Hawkeye since "the mileage logs reflect that a majority of the meetings that took place between Respondent Horras and Bruce Graves regarding the sale of Hawkeye occurred between August and October of 1997." I.G. Post-Hearing Br. at 124. Although the I.G. did establish through documentary and testimonial evidence that Horras knew that the fees from BW&G were related to the sale of Hawkeye, I find that the I.G. has not shown by a preponderance of the evidence that Richards knew that the invoices from BW&G were related to the sale of Hawkeye, especially since, as Richards correctly maintains, the invoices from BW&G do not on their faces support the inferences the I.G. invites me to accept. Unlike the parallel situation with Respondent Horras, I find here that the I.G. has not provided additional documentary or testimonial evidence that would allow me to come to that conclusion. Thus, I will not accept the I.G.'s inferences. I do however find that Richards acted with reckless disregard when she presented or caused to be presented invoices when she included or caused to be included BW&G costs in Hawkeye's 1997 Medicare and Medicaid cost reports.

Fees paid to SMK for services related to the business valuation of Hawkeye were included in Hawkeye's 1997 cost reports. I.G. Exs. 8-10; 10E, at 3; 83A. The I.G. argues that Richards had actual knowledge that these fees were unallowable, and that she admitted as much at hearing when she testified that she knew that similar valuation fees for BKD had been disallowed in Hawkeye's 1995 cost report:

According to the I.G., the FI disallowed the BKD business appraisal fees on March 14, 1997 from Hawkeye's 1995 cost report, yet Richards included the SMK business appraisal fees in Hawkeye's 1997 cost report. I.G. Post-Hearing Br. at 126; Tr. at 2917; I.G. Ex. 83A. The I.G. argues that Richard had an "affirmative duty to know what costs she was putting into Hawkeye's cost reports." I.G. Post-Hearing Reply Br. at 21; I.G. Exs. 303B, at 54; see also I.G. Exs. 457, 459; Tr. at 3237. The I.G. directs me to Richards' job description which states : "[r]eviews all accounts payable invoices and approves invoices for payment." I.G. Ex. 454, at 6; see also Tr. at 2883-84. The I.G. argues that Richards cannot now deny that she never saw the bills or invoices. I.G. Post-Hearing Reply Br. at 21.

I do agree that the notation of that responsibility on Richards' job description created a duty for her to check and verify invoices and approve payment; however, it is not dispositive that she did so with specific reference to any given item in this category, and thus is not proof that she saw the invoice or bill. I cannot find that this affirmative duty was so far-reaching as to warrant investigation by Richards of every invoice that went into the trial balance or supervision of her subordinates on every activity, without some sort of "triggering" information that would alert her to the need for such scrutiny.

In her defense, Richards asserts that she never saw the invoices nor knew anything about the SMK expenses. Richards Post-Hearing Br. at 20. She further states that if these charges were placed on the cost reports she was not aware of it. July 19, 2002 Hearing Request at 8. Richards claims that she received poor and misleading training from Yap, and that she regularly relied on outside consultants who at no time told her that she was doing anything wrong. Richards Prehearing Br. at 12. Richards also claims that she relied on advice from Deloitte & Touche, a management consulting firm, in preparing Hawkeye's 1995, 1996, and 1997 cost reports. Tr. at 2947.

A May 16, 1995 engagement letter to Richards from Deloitte & Touche confirmed their role. Richards Ex. 37. The letter states that the firm will provide "assistance in evaluating third-party cost reporting and identifying opportunities for maximizing the related reimbursement for home health service . . . providers should ensure the cost report is filed correctly using an aggressive, but defensible, interpretation of the Medicare regulations." Id.

Yap testified that, subsequent to leaving his position at Hawkeye as Director of Finance, but while a "consultant" at Hawkeye, he assisted Richards with technical components of preparing cost reports. Tr. at 2029. Yap testified further that it was Richards' responsibility to remove unallowable costs before giving numbers to him for insertion into the cost report forms. Id. Yap explained that as consultant he was not involved in the day-to-day operations of Hawkeye and not in a position to render advice on the allowability of specific items and for that reason did not do so. Tr. at 1980, 2147-48. He also stated that his "job was to prepare the cost report," and that he "was not engaged to audit or give advice." Tr. at 2147-48.

Richards claims that she physically entered the numbers on the cost reports by completing the cost report forms, but that those reports and forms were reviewed and signed by Horras as President and CEO of Hawkeye. She asserts that it was Horras who was responsible for assuring compliance with Medicare regulations as he signed the cost reports certifying that they were accurate. Richards Post-Hearing Br. at 4-5.

The I.G. has not proved by a preponderance of the evidence that Richards knew that the SMK invoices contained fees related to the sale of Hawkeye and were thus unallowable. Horras, through his own testimony and actions, showed that he intentionally diverted and sequestered all incoming mail related to the sale of Hawkeye and directly told the accounts payable clerk how to enter the invoices and payments into the chart of accounts. Tr. at 3070-72; see also discussion in section VI(C)(7). However, I do find that Richards, in her role as Director of Finance, having been given notice that previous cost report submissions had included unallowable costs specifically related to the sale of Hawkeye, should have known that she was presenting or causing to present improper costs related to the sale of Hawkeye. This prior notice of PAAR's disallowance of business valuation fees from Hawkeye's 1997 cost reports would have placed her on notice to perform a far-closer scrutiny of consultant fees and invoices.

Richards has not proffered evidence to rebut the conclusion that she knowingly presented, or caused to be presented, unallowable SMK fees related to the sale of Hawkeye in Hawkeye's 1997 cost report that she should have known were not allowable. In section VI(C)(7) of this Decision I found that: (1) the $26, 937.58 in professional fees paid were for legal and business valuation expenses related to the sale of Hawkeye; and (2) such fees are not allowable costs reimbursable through the Medicare and Medicaid programs, therefore I shall not address them here.

I find that: (1) Respondent Richards knew that any fees associated with legal and business valuation expenses related to the sale of Hawkeye were unallowable based on her admitted knowledge of PAAR's disallowance of BKD fees in Hawkeye's 1995 cost reports; (2) Respondent should have known that the legal and professional fees from BW&G and SMK were related to the sale of Hawkeye; and (3) Respondent acted with reckless disregard when she included or caused to be included such costs in Hawkeye's 1997 Medicare and Medicaid cost reports.

I therefore find and conclude that the I.G. has established by a preponderance of the evidence that Richards knowingly presented or caused to be presented claims for professional fees for legal and business expenses related to the sale of Hawkeye which she should have known were false or fraudulent.

Having found that the I.G. has established a basis for imposing a CMP, I now consider whether the amount imposed is reasonable. As previously discussed, in determining the amount of the penalty and assessments, the regulations at 42 C.F.R. � 1003.106, require that I take into account: the nature of the wrongdoing; the degree of culpability of the person involved; the history of prior offenses by the person; other wrong doing; the financial condition of the person; and such other matters as justice may require.

The I.G. asserts that the acts that form the basis for Richard's sanctions occurred over the course of nearly a three-year period; that Richards submitted or caused to be submitted improper claims for payment for at least 112 items or services. The I.G. further asserts that the frequency, nature, and duration of these 112 submitted claims for payment indicates that they arose from a scheme, rather than from isolated incidents. The I.G. argues that several of the claims submitted in the three-year period for the 1995 through 1997 cost reports had been disallowed by PAAR auditors in previous cost reports by Medicare and that, in spite of this knowledge, Richards repeatedly submitted such improper claims. The I.G. asks that I consider the nature and circumstances of Richard's conduct as aggravating circumstances in consideration of the proposed sanctions.

Richards argues that during the relevant time period she was a young, inexperienced employee assigned to prepare cost reports. She states that she was trained by someone who was sophisticated in the "complex procedures involved;" that she relied on outside consultants on a regular basis; and she attempted to perform her duties to her employer correctly. Richards Hearing Request at 8.

Although Richards argues that she self-disallowed expenses in the cost reports when she realized that these were unallowable, I find that her self-disallowance does not demonstrate that her other conduct was not fraudulent. The court in Calhoon noted,

The I.G. proved by a preponderance of the evidence that Richards included in Hawkeye's 1995, 1996 and 1997 cost reports substantial sums and the period was lengthy. The expenses included in the cost reports were for several types, and a pattern was proven by a preponderance of the evidence. These are all aggravating factors.

I have addressed some aspects of Richards' culpability in the paragraphs immediately above, but there are other points which require a separate and thoughtful discussion here. Richards states that when her supervisor Yap resigned in 1993, she became Director of Finance. Tr. at 2623-24. She asserts correctly that this position included the assumption of additional duties such as preparation of Medicare and Medicaid cost reports annually for each of the branch offices and the home office. Id. According to Richards this task was a collaborative process at Hawkeye which involved review by other members of the management teach, including Horras, who eventually signed the reports as company owner. Tr. 2640-59; Richards Post-Hearing Br. at 3-4. The cost reports' data were taken from figures contained in the Hawkeye general ledger which in turn included all the expenses and costs incurred by the company. Id. In explaining her role, Richards asserts that she did not review or approve the original invoices, purchase orders, or expense reporter before they were entered into the general ledger by Kasi Ware, the accounts payable clerk, and the expenses were coded by Ms. Ware. Id. at 3.

According to Richards, in preparing the costs reports she simply took numbers from a summary trial balance and placed them on the cost reports just as she had been trained to do. Richards Prehearing Br. at 2-3. She states that this summary trial balance did not list specific expenses, but simply listed a category of expenses and total amount. Id. She further states that any non-Medicare related expenses would then have to be individually "pulled out" of the cost reports. Id Richards states that she would prepare a total of 14 cost reports annually, but she did not sign the reports. Id. Rather, she entered the information and submitted them to Horras for his review. Id

Richards maintains that she frequently relied on other professionals for advice in preparing the cost reports and in "defending" certain items challenged by the FI auditors. Richards Prehearing Br. at 2-3. For the first two years as Director of Finance, Richards claims that she placed heavy reliance on the guidance of Yap who had previously been an FI auditor. Id. She states that on one occasion, Yap prepared a Lotus spreadsheet for her that corresponded to the blanks on the Medicare cost reports and she simply transferred the figures from Yap's spreadsheet to the cost reports. Id.

In addition to Yap, Richards claims that she also sought the guidance of accounting firms such as Deloitte & Touche and BKD to assist her in preparing the cost reports and defending items challenged by the FI auditors. Richards Prehearing Br. at 3. She states that Chris Murphy of BKD assisted her in defending the audit of the 1995 cost report. Id. Additionally, Richards claims to have relied on the guidance of her direct supervisor, Dick Clock, a former employee of Blue Cross-Blue Shield where his duties involved educating companies on cost reporting; thus, according to Richards, he was at least apparently competent in the area of cost reporting and aware of the cost reporting practices at Hawkeye. Id Tr. at 1145, 1462, 1496.

It is also apparent that Richards was rarely a major participant in management decisions at Hawkeye. It is clear from the record that Horras made the principal legal, financial, and business decisions at Hawkeye, more often than not in consultation with nobody but himself. In Gary Alan Katz, R.Ph., DAB No. 1842 (2002), the Board suggested that, when it is found that an aggravating factor considered by the I.G. is not proved before the ALJ, some downward adjustment of the period of exclusion should be expected absent some circumstances that indicate no such adjustment is appropriate. The Katz panel did not elaborate upon the weight to be given to individual aggravating factors, or how my de novo review and assessment of the weight to be given to proven aggravating factors are related to the weight the I.G. assigned those same factors.

For purposes of this analysis, I have so far treated Horras and Richards as if they both exercised some element of responsibility as managers at Hawkeye. As I have written immediately above, I recognize that these Respondents had different quanta of management responsibilities and the extent of their management involvement with Hawkeye was evident during the hearing. However, I explicitly find here and conclude that each Respondent was involved sufficiently in the planning and financial decision-making process at Hawkeye to satisfy the legal standard for violation of the CMPL.

But the I.G. did not prove by a preponderance of the evidence that Richards had actual, direct, concrete knowledge that most of the claims were improper. Nor has the I.G. shown any motive for Richards' actions which could be traced to cupidity, greed, or the self-aggrandizement so evident in Horras' conduct. Culpability on her part is still present, based on what has been shown to be her reckless disregard or distanced indifference to what was going on around her at Hawkeye; however it moves away from, rather than toward, the degree of culpability which Horras bears. In light of the lack of evidence of actual, direct, concrete knowledge and my resulting assessment of the weight of Richards' culpability under the "should have known" standard, I conclude that Richards' degree of culpability should mitigate the penalty, assessment, and suspension imposed.

I therefore find and conclude that although Richards is culpable for involvement in submitting improper claims in Hawkeye's 1995, 1996, and 1997 cost reports, I do not find that she shares in the same amount or degree of culpability attributable to Horras. I find and conclude that Respondent Richards' degree of culpability is very substantially less than that of Respondent Horras.

The next factor I must assess is "prior offenses" attributed to Richards. 42 C.F.R. � 1003.106(b); 48 Fed. Reg. 38,832 (1983). Richards states that she had no history of "prior offenses." Richards Hearing Request at 8. I agree. There is no evidence before me of "prior offenses" which could be construed as an aggravating factor in this case. However, this finding of the absence of prior offenses is not a mitigating factor under the regulations, but is only to be understood here as my declination to rely on any such record as an aggravating factor.

Pursuant to 42 C.F.R. � 1003.106(b)(4), the statute of limitations governing CMP proceedings does not apply to proof of other wrongful conduct as an aggravating circumstance. The alleged improper claims submitted to the FI for 1993 and 1994 are outside the statutory six-year statute of limitation, but can be considered aggravating.

This provision makes it an aggravating factor if the I.G. proves that a respondent engaged in wrongful conduct, other than the conduct at issue, relating to government programs or in connection with the delivery of a health care item or service. In accordance with section 1003.106(b)(4), "other wrongful conduct" includes, but is not limited to, evidence that the conduct for which the I.G. is seeking civil sanctions is part of a larger pattern or scheme of the same or similar wrongful conduct.

The I.G. has established, via documentary and testimonial evidence, that Richards was aware that PAAR had removed those costs from the 1990 and 1991 cost reports well in time before their having submitted the 1993 and 1994 cost reports. The 1993 and 1994 cost reports serve as evidence to establish that Richards, in her role as Director of Finance, was aware that the improper claims were not allowed and could lead to further investigation by the government including charges of fraudulent filing. Richards was promoted to the position of Director of Finance in June 1993 and was responsible for preparing annual and interim Medicare and Medicaid cost reports for the home office and all subunits. Tr. at 2892-93. The 1993 and 1994 cost reports were submitted in March 31, 1994, April 28, 1995, and January 25, 1996, after Richards became Director of Finance. I.G. Exs. 1A, at 10, 20; 2A, at 14, 108; 2B, at 1, 150; 16, at 1, 3-4, 23, 45-54; 17, at 1, 2, 8, 10, 29-30. I thus find other wrongful conduct engaged in by Richards and consider them aggravating circumstances in determining the appropriateness of the proposed sanctions.

The regulation at 42 C.F.R. � 1003.106(b)(5) requires that an ALJ consider the resources available to a respondent. This indicates that financial disclosure by a respondent is a key requirement in evaluating a respondent's financial condition. Therefore, Richards has the burden of demonstrating by some objective standard that her financial condition would prevent her from being able to pay the penalties and assessment imposed in this case.

Richards claims that she does not have any significant financial resources, that she has been abandoned by her former employer, and that she should not be required to pay the $120,000 in penalties and assessment. Richards Prehearing Br. at 12; Tr. at 2608-11. Richards offered only anecdotal evidence of her financial status; no business or personal records, such as income tax returns, or financial statements, were offered by her to substantiate any assertion of financial incapability which would corroborate Richards' testimony or claims. Compelling as this anecdotal evidence may be, it is simply not as compelling or reliable as financial reports or similar objective evidence. Therefore, I find that while Richards has demonstrated some financial difficulty, she has not met this burden to a degree that would support total remission of any of the monetary sanctions here at issue.

The I.G. did not propose any modification to the amount of the sanctions originally proposed against Richards, in spite of the fact that the I.G. had decided prior to the hearing not to pursue 12 claims for allegedly unallowable costs, and revised the amount of 10 claims for allowable costs against Richards, thus leaving 112 claims for $89,040.66, rather than the original 124 claims for $113,540.19, a total reduction of $23,212. See I.G. Prehearing Br. at 6, n. 7, and 7.

Richards asserts that: (1) the cost of the investigation related to this matter should not be attributable to her; (2) there is no basis shown where she had been uncooperative or dishonest; and (3) the 112 claims had a de minimus effect on the Medicare and Medicaid programs. Richards Hearing Request at 9; Richards Post-Hearing Br. at 22-23. Based on her assertions which she attributes as mitigating factors as defined in 1128A(d) of the Act and 42 C.F.R. � 1003.106(a), Richards contends that she should be exonerated of financial responsibility and that no monetary sanctions should be awarded against her.

Also as a mitigating factor, Richards states that during the spring of 1998 when the United States Department of Justice initiated a criminal investigation of Hawkeye and Horras, she was informed that she was not a target of that investigation and fully cooperated with government investigators, providing several statements and interviews. Richards Post-Hearing Br. at 4-5. Even though she was no longer employed, she asserts that she continued to cooperate with government investigators until May 2001 when the investigation was dropped without indictment. Id. It was not until May 2001 when she was contacted by the I.G. that she was even aware of the claim that she had personal responsibility for the alleged false claims. Id. at 4.

As I have observed earlier, the penalty array in this case is intended to serve as a deterrent to future unlawful conduct in the Medicare and Medicaid programs; the assessment is meant to make the government whole; and the exclusion is meant to protect program integrity. In its report on the CMPL, the House Ways and Means Committee found that "civil money penalty proceedings are necessary for the effective prevention of abuses in the Medicare and Medicaid program . . . ." H.R. Rep. No. 97-158, 97th Cong., 1st Sess. Vol. III, 329 (1981).

While it may be tempting and sympathetic to portray Respondent Richards' actions in this case as merely a misunderstanding of Medicare rules with regard to the submission of these improper claims, the overwhelming weight of the evidence supports my broad conclusion that Richards should have known that the costs she caused to be submitted were false or fraudulent or not provided as claimed. Richards had access to the PRM which serve as a guide to providers in interpreting the statute and regulations, as well as constructive notice that PAAR has disallowed these costs in early cost report submissions. Additionally, as Richards claims, she did rely on the advice of the many consultants which Hawkeye employed prior to and during her tenure as Director of Finance, and this record fully satisfies me that Richards was advised by consultants that Medicare did not, would not, and should not cover these type of costs.

For these reasons I find and conclude that sanctions should be imposed against Respondent Richards. Her role as Director of Finance in a large corporation did not involve simply ministerial tasks; rather, as evident by her job description and testimony, in her position as Director of Finance she exercised some element of discretion as to the finances at Hawkeye.

An exclusion imposed pursuant to the Act obviously can have an adverse financial impact on the person against whom the exclusion is imposed. However, the law places the integrity of the Medicare and Medicaid programs ahead of the pecuniary interests of providers. Thus, in determining to impose an exclusion, the primary consideration must be the degree to which the exclusion serves the Act's remedial objectives. An exclusion is remedial if it does reasonably serve these objectives, even if it has a severe adverse impact on the person against whom it is imposed. There is a legitimate remedial purpose for exclusions in cases where respondents are untrustworthy providers.

I do not find a remedial need under the Act to exclude Richards for five years, and I do not sustain exclusions against her for that period of time. The I.G. did not prove that Richards derived any direct benefit from the acts which form the basis of these proceedings. Exclusions imposed and directed pursuant to section 1128A of the Act are intended to protect federally-funded health care programs and their beneficiaries and recipients from future conduct which is or might be harmful. These exclusions are intended to be remedial and are not intended to punish for wrongful acts. The Act does not mandate an exclusion of every individual or entity who has engaged in conduct which authorized the Secretary to impose and direct an exclusion under the Act.

A maximum exclusion of one year satisfies the Act's remedial objectives. First, it provides a reasonable period of protection for the Medicare and Medicaid programs against repetition by Richards of her unlawful conduct. Second, it serves as a deterrent against Richards and other managers or corporate officers engaging in conduct similar to that seen in this case in circumstances where they are situated as Richards was. The false claims were perpetrated over a period of three years, and involved a substantial sum of money. And it is true that the circumstances surrounding the presentation of these claims establish that Richards acted with reckless disregard as to her obligations to Medicare. But no matter how carefully I sift the evidence, I cannot find in it support for the proposition that Respondent Richards behaved in active measures that could be reasonably called untrustworthy, or that were driven by her desire for improper gain or glory.

I consider it important to stress that this finding - that Richards is not untrustworthy - does not reflect any conclusion on my part that exclusions should not generally be considered as an appropriate remedy for violations under the CMPL. Nor should it be understood as in any way denying the deference to which certain I.G. conclusions are usually entitled. My decision in this case is premised on a legal analysis of what comprises a violation of the Act. The evidence does not demonstrate that Richards acted in a manner marked by motives or attitudes generally found in cases of criminally-unlawful conduct. There is simply nothing in the record before me in this case to show that Richards is untrustworthy. Therefore, the fact that I find no remedial need to impose a five-year exclusion against Richards should not be interpreted as a predilection by me to shrink from excluding parties who hold senior-level management positions in corporations, and who might be in the future found to have violated the CMPL.

The I.G. proposed a CMP of $20,000, an assessment of $100,000, and a five-year period of exclusion. Richards Notice at 1. After weighing all of the evidence in this case and after reevaluating the penalty in light of the implications of the Richard's culpability under the "know or should have known" standard of liability, and after considering all of the aggravating and mitigating circumstances, I reduce the sanctions imposed against Richards as set out immediately below. The assessment figure is based on the pro rata reduction of her exposure noted in an earlier part of this Decision.

Based on the evidence of record in this case and the pleadings of the parties, I sustain the I.G.'s determination to impose CMPs, assessments and exclusions against Respondents Horras and Richards. I further find and conclude that based on all the evidence and the circumstances in this case, that the imposition of a CMP in the amount of $38,000, and an assessment of $673,212, and a seven-year exclusion against Horras is reasonable; and the imposition of a CMP in the amount of $2,500 and an assessment of $2,146, for a total of CMP and assessment of $4,646, and a one-year exclusion against Richards is reasonable as well.