SUBJECT:

Hong Lu, A.K.A. Hong Lu Henry, A.K.A. Lu Hong,

Petitioner,

The Inspector General.

DECISION

I decide that the I.G. has not established a basis to exclude Petitioner, Hong Lu, from participating in Medicare or other federally funded health care programs.

I. Background

On January 31, 2006, the I.G. notified Petitioner that she was being excluded from participating in Medicare and other federally funded health care programs. The I.G. asserted that Petitioner had been convicted of a criminal offense as is described in section 1128(a)(3) of the Social Security Act (Act). The I.G. told Petitioner that she was being excluded for a period of five years, the minimum period that is mandated for an exclusion that is imposed pursuant to section 1128(a)(3).

Petitioner requested a hearing and the case was assigned to me for a hearing and a decision. Each party submitted a brief and proposed exhibits. Neither party asked to present testimony in person. The I.G. submitted exhibits designated I.G. Ex. 1- Ex. 7. Petitioner submitted a single exhibit, consisting of several documents, which she designated Petitioner's Ex. A (P. Ex. A). Petitioner did not object to my receiving into evidence I.G. Ex. 1- I.G. Ex. 7. Therefore, I receive these exhibits. The I.G. objected to my receiving into evidence large portions of P. Ex. A, specifically, P. Ex. A, at 1- 29, 39-42, and 46 -51, on grounds of relevance. I overrule the I.G.'s objection. While I do not find these pages to be especially relevant neither do I find them to be prejudicial. I am admitting them so as to make the record of this case as complete as possible. I note that I do not rely on P. Ex. A for my decision in this case.

II. Issues, findings of fact and conclusions of law

A. Issues

The issues in this case are whether:

1. Petitioner was convicted of a criminal offense; and

2. Petitioner's conviction was of an offense as is described at section 1128(a)(3) of the Act.

B. Findings of fact and conclusions of law

I make findings of fact and conclusions of law (Findings) to support my decision in this case. I set forth each Finding below as a separate heading. I discuss each Finding in detail.

1. Petitioner was convicted of a criminal offense.

Section 1128(i) of the Act defines a "conviction" to include, among other things, the following circumstances:

(3) when a plea of guilty or nolo contendere by the individual or entity has been accepted by a Federal, State, or local court; or

(4) when the individual or entity has entered into participation in a first offender, deferred adjudication, or other arrangement or program where judgment of conviction has been withheld.

Act, section 1128(i)(3), (4).

On October 8, 2004, Petitioner entered a plea of no contest to a second degree felony offense in the State of New Mexico. I.G. Ex. 5, at 1. Petitioner was placed on supervised probation for a period of five years. I.G. Ex. 6, at 1. Her sentence specified that further proceedings against Petitioner would be deferred "without adjudication of guilt." Id.

Petitioner's plea and sentence plainly fall within the reach of section 1128(i)(3) and (4) of the Act and are, therefore, a "conviction" within the Act's meaning. Her plea of no contest is a plea of nolo contendere. And, it is evident from her sentence that she entered into an arrangement or program where judgment of conviction was withheld.

Petitioner argues that to interpret her plea and sentence to be a conviction would violate her right to due process. According to Petitioner:

It is arbitrary, capricious, and irrational to exclude a person from participation in federal health care programs - and potentially cut off her livelihood - without some evidence in the record that she has engaged in wrongful conduct.

Petitioner's brief at 2-3. Petitioner's argument notwithstanding, the meaning of the Act is plain and the evidence showing that her plea and sentence are a conviction is unequivocal. Petitioner's argument boils down to a challenge of the Act's constitutionality, an issue which I have no authority to hear and decide.

2. The I.G. did not prove that Petitioner's conviction was of an offense that is described at section 1128(a)(3).

The I.G. is required to exclude any individual who is convicted of an offense that occurred after August 21, 1996:

in connection with the delivery of a health care item or service or with respect to any act or omission in a health care program . . . operated in whole or in part by any Federal, State, or local government agency, of a criminal offense consisting of a felony relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct.

Act, section 1128(a)(3). ⁽¹⁾

The I.G. alleges that Petitioner's conviction is covered by the section because it is for an offense that was committed in connection with the delivery of a health care item or service. ⁽²⁾

The term "in connection with" is not defined by the Act. For there to be a requisite connection with a health care item or service there must be a discernable nexus between the crime and a health care item or service. At a minimum, the crime must have some impact on the delivery of health care in order to be connected to it. A crime that is committed in connection with the delivery of a health care item or service may consist of a crime directly involving the delivery of health care. It may also be one that interrupts the delivery of health care. Or, it may consist of a crime that has some perceptible financial impact on the delivery of health care.

For example, the filing of false or inflated reimbursement claims with a health insurer is connected with the delivery of a health care item or service because such crimes have a direct and palpable impact on the finances of the health insurer and on the ability of the insurer to pay other legitimate claims for services. As another example, the theft or unlawful diversion of health care products such as pharmaceuticals is connected with the delivery of a health care item or service because it impairs patients' access to the products and because it has a cost impact on health insurers. Crimes which consist of the generation of paper supporting false claims, the destruction of records to conceal other program-related crimes, or the lending of one's name or provider number to a scheme to create false claims also are program related. And, of course, conspiracy to commit any of these crimes is connected with the delivery of a health care item or service.

It should be obvious from my description of included crimes that section 1128(a)(3) casts a very broad net. Although the term "in connection with" is expansive it is not, however, infinitely elastic. Not every crime that is committed by a health care provider or someone who is associated with a health care provider automatically falls within the reach of the section. Absent the requisite nexus, a crime - even one that is committed by a health care provider or an employee of a health care provider - is outside the scope of what is covered by section 1128(a)(3).

The I.G. argues that identifying when a crime falls within the meaning of section 1128(a)(3) is a matter of common sense. However, common sense - whatever that term means - does not allow one simply to ignore the statutory requirement of a nexus between a covered crime and the delivery of a health care item or service. A common sense standard does not mean that one may abandon analysis simply to pick and choose arbitrarily what is within the section's reach.

There is a regulation which applies section 1128(a)(3). The regulation, 42 C.F.R. � 1001.101(c)(1), defines the delivery of a health care item or service to include:

the performance of management or administrative services relating to the delivery of such items or services . . . .

Although the regulation makes it clear that a health care item or service may include a related administrative service, it does not, however, refine the definition of what is connected to the delivery of a health care item or service. It does not state a broader definition of the requisite nexus than I state above. The fact that a person's crime may involve the performance of a management or an administrative service for a health care provider coupled with the fact that he or she is convicted of a crime involving financial transactions does not mean necessarily that his or her crime is connected with the delivery of a health care item or service. The necessary additional element that must be established, consistent with the regulation's definition, is that the administrative activity that is the basis of a crime must relate to a health care item or service.

Petitioner was convicted of the crime of money laundering. She entered a no contest plea in a New Mexico State court to the following allegation:

That between the 1^st day of January, 1998, and the 12^th day of May, 2003 . . . [Petitioner] did intentionally use proceeds of an illegal activity to engage in a financial transaction with a value greater than $100,000.00 knowing that the transaction is designed in whole or in part to conceal or disguise the nature, location, source, ownership or control of the property or to avoid a transaction reporting requirement under state or federal law . . . .

I.G. Ex. 4, at 19.

The indictment contains no information that connects Petitioner's crime to a health care item or service. Indeed, it says virtually nothing specific about the crime to which Petitioner pled no contest. ⁽³⁾ It does not identify the source of the funds which Petitioner laundered, her motivation for laundering money, or how she laundered money.

The additional evidence concerning Petitioner's conviction is contained in Petitioner's hearing request. I.G. Ex. 2. In that document Petitioner admits that she:

was charged with various offenses arising from her then-husband's medical practice, in which . . . [Petitioner] was a receptionist and helped keep the books . . . .

Id. at 1. ⁽⁴⁾

Additionally, she admits that:

The [money laundering] charge rested entirely on alleged bank deposits and bank transactions that . . . [Petitioner] allegedly made with the proceeds of her then-husband's medical practice . . . .

Id. at 2.

It is reasonable to infer that these admissions establish a connection between moneys generated by Petitioner's then-husband's medical practice and Petitioner's money laundering. But, it is not reasonable to take an additional step and conclude that the laundering activity had any impact on the delivery of health care. There is nothing in the record of this case from which I can infer that Petitioner's crime - or even the activities that generated the funds which she laundered - affected the availability of health care, its quality, or had an impact on health care insurers. I cannot draw that inference from the criminal charges that were dismissed because no finding was made about these charges. And, I have no information independent from the indictment and Petitioner's skeletal admissions that enlightens me about the transactions of which Petitioner was charged or the crime to which she pled no contest.

The absence of information makes it impossible for me to conclude what activities led to Petitioner's criminal money laundering. There are obviously many possible explanations for her crime, but nothing in the record that allows me to infer which explanation is likely. Petitioner might have laundered funds that were the avails of unlawful activities that had to do with providing health care, including funds received from filing false or fraudulent claims. Or, she might have laundered funds that were the result of activities conducted by her then-husband that were wholly unconnected to the delivery of health care items or services. And, finally, she might have laundered funds that were the avails of legitimate activities by her then-husband (connected with the delivery of health care or not) but which he and Petitioner might have desired to conceal from taxing entities.

Moreover, the I.G. has not shown that Petitioner's money laundering activities were part of some health care related management or administrative service that she performed on behalf of her then-husband. Although Petitioner admitted serving as her husband's bookkeeper, she did not admit that she laundered the money as part of her normal bookkeeping activities. Nor did she admit that she laundered funds that were generated as reimbursement for medical items or services. The I.G. offered no independent evidence establishing that she did so.

I will not hazard a guess as to why Petitioner committed her crime or as to what activities underlay her crime absent credible evidence allowing me to make a reasonable inference. I find that the record in this case is insufficient for me to conclude that Petitioner's crime was committed in connection with the delivery of a health care item or service. The I.G. has failed to adduce sufficient evidence to establish prima facie that Petitioner committed an offense that is covered by section 1128(a)(3). Therefore, there exists no basis for the I.G. to exclude Petitioner.

Steven T. Kessel

Administrative Law Judge

1. The effective date of August 21, 1996 is the date of enactment of the Health Insurance Portability and Accountability Act (HIPAA).

2. There is an alternative basis for an exclusion to be mandated by the section and that is that the crime be with respect to any act or omission in a health care program. Neither party argues that this alternative basis is a reason for excluding Petitioner.

3. The count of which Petitioner was convicted is one count of a 65-count indictment that charged her with, among other crimes, murder, racketeering, conspiracy, and numerous controlled substance related offenses. I.G. Ex. 4. However, she was convicted of none of these other crimes. The indictment contains no explanation of how, or whether, Petitioner's money laundering activity may have been linked to other crimes of which she was not convicted. Id.

4. Petitioner makes a similar admission in an addendum to an application that she filed in New Mexico for renewal of her license as an acupuncturist. I.G. Ex. 3, at 2.