Steven Herlich, CR No. 197 (1992)

Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

In the Case of:
Steven Herlich,

Petitioner,
- v. -
The Inspector General.

DATE: May 11, 1992

Docket No. C-367

DECISION

On February 15, 1991, the Inspector General (I.G.) notified Petitioner that he was being excluded from
participating in Medicare and State health care programs for 20 years, pursuant to section 1128(a)(1) of the
Social Security Act (Act). 1/ The I.G. advised Petitioner that he was being excluded as a result of his
conviction of a criminal offense related to the delivery of an item or service under Medicaid.

Petitioner timely requested a hearing, and the case was assigned to me for a hearing and a decision. I held
a hearing in Baltimore, Maryland, on December 18, 1991. The parties submitted posthearing briefs and
reply briefs.

I have carefully considered the evidence, the applicable law, and the parties' arguments. I conclude that the
20-year exclusion imposed by the I.G. is excessive. I find that the remedial principles of the Act will be
met in this case by a 10-year exclusion, and I modify the exclusion accordingly.

ISSUE

The issue in this case is whether the exclusion which the I.G. imposed and directed against Petitioner is
reasonable.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

1. Petitioner attained a degree in pharmacy and became a licensed pharmacist in 1982. Tr. at 53. 2/

2. In January 1985, Petitioner became the proprietor of a franchised pharmacy in Baltimore, Maryland.
Tr. at 55.

3. On May 2, 1990, Petitioner pleaded guilty in the Circuit Court for Baltimore City, State of Maryland, to
one count of Medicaid fraud. I.G. Ex. 6/1.

4. Petitioner entered his guilty plea pursuant to a plea agreement dated April 4, 1990. I.G. Ex. 4.

5. Petitioner's guilty plea to Medicaid fraud was a consequence of his involvement in a conspiracy to
defraud the Maryland Medicaid program. I.G. Ex. 5/3; Tr. at 63 - 64.

6. Beginning in late 1985, Petitioner conspired with another individual to falsify prescriptions for drugs to
be provided to Medicaid recipients, and to file false claims for Medicaid reimbursement based on fictitious
prescriptions. I.G. Ex. 5/3; Tr. at 64.

7. Petitioner obtained blank original prescription invoices from the Maryland Medicaid program and
supplied them to his co-conspirator. I.G. Ex. 5/3.

8. Petitioner's co-conspirator used the blank invoices to create fictitious prescriptions for drugs to be
provided to Medicaid recipients. I.G. Ex. 5/3.

9. Petitioner provided his co-conspirator with information about drugs and prescription amounts to be used
in creating fictitious prescriptions. I.G. Ex. 5/3 - 4.

10. Petitioner's co-conspirator forged physicians' signatures on the fictitious prescriptions. I.G. Ex. 5/4.

11. Petitioner's co-conspirator used a variety of schemes to obtain Medicaid cards from Medicaid
recipients. I.G. Ex. 5/4.

12. Petitioner imprinted information on claims for Medicaid reimbursement from the Medicaid cards that
his co-conspirator had obtained. I.G. Ex. 5/4.

13. Petitioner created false claims for Medicaid reimbursement based on the fictitious prescriptions that
had been created by his co-conspirator, and presented these false claims to Medicaid. I.G. Ex. 5/4 - 5.

14. Petitioner presented false claims to Medicaid for refills of fictitious prescriptions. I.G. Ex. 5/5.

15. Petitioner also presented false claims to private insurers for reimbursement based on fictitious
prescriptions. I.G. Ex. 5/5.

16. In September 1988, Petitioner began submitting claims for Medicaid reimbursement based on
computer-generated tapes. He continued to present false reimbursement claims to Medicaid via computer-
generated tapes based on fictitious prescriptions. I.G. Ex. 5/5.

17. The conspiracy by which Petitioner presented false claims for Medicaid reimbursement continued until
April 12, 1989, when Maryland State Police and the Maryland Medicaid Fraud Control Unit executed a
search warrant at Petitioner's pharmacy. I.G. Ex. 5/7.

18. Petitioner defrauded Maryland Medicaid, the Maryland Kidney Disease Program, and private insurers.
I.G. Ex. 5/8; Findings 13, 15.

19. Petitioner presented approximately $450,000 in false Medicaid claims during the three fiscal years
ending June 30, 1989. I.G. Ex. 5/7.

20. Petitioner split the proceeds of his false Medicaid and insurance claims with his co-conspirator. I.G.
Ex. 5/9; Tr. at 64.

21. Petitioner falsified the business records of his pharmacy in order to conceal payments to his co-
conspirator. I.G. Ex. 5/10 - 11.

22. Prior to Petitioner's having entered into the conspiracy, Petitioner's pharmacy had experienced severe
financial difficulties. I.G. Ex. 5/9; Tr. at 56 - 57, 61.

23. In 1987, Petitioner paid himself a salary of more than $90,000, and, in 1988, he paid himself a salary
of $158,000. I.G. Ex. 5/9.

24. Between January 1, 1986, and April 12, 1989, Petitioner made payments to his co-conspirator of more
than $250,000.

25. Based on his guilty plea, Petitioner received a suspended prison sentence of three years. I.G. Ex. 6/1.

26. Petitioner additionally was sentenced to reside for 18 months at Fellowship House, a psychiatric
halfway house which provides transitional living for individuals who have been discharged from
hospitalization for psychiatric conditions. I.G. Ex. 6/1; Tr. at 125.

27. Petitioner additionally was sentenced to five years' probation. I.G. Ex. 6/1.

28. Petitioner additionally was sentenced to pay a fine of $10,000 and court costs of $105. I.G. Ex. 6/1.

29. Petitioner additionally was sentenced to pay restitution of $290,000 to the Maryland Medicaid
program. I.G. Ex. 6/1.

30. Petitioner completed his residence at Fellowship House. Tr. at 70, 127.

31. Petitioner presently is enrolled in a community support program under the continued supervision of
Fellowship House staff. Tr. at 127.

32. Petitioner paid his fine, court costs, and restitution to the Maryland Medicaid program. P. Ex. 18/1 -
/26; Tr. at 70.

33. As a condition of his plea, Petitioner surrendered his license to practice pharmacy. Petitioner also
agreed that he would not apply for or hold a license to practice pharmacy in any other state or jurisdiction
until such time, if ever, that his Maryland pharmacy license was restored. I.G. Ex. 4/4; P. Ex. 19/1 - /5.

34. As a condition of his plea, Petitioner agreed that he would disclose to Maryland authorities any
information that he had about unlawful activities. I.G. Ex. 4/3.

35. Petitioner has cooperated with Maryland authorities in criminal prosecutions against other individuals,
including his co-conspirator. P. Ex. 3; Tr. at 72.

36. Petitioner began abusing controlled substances as early as May 1985. P. Ex. 1/2; Tr. at 60.

37. Petitioner abused controlled substances through July 1989, when he was hospitalized for an overdose.
P. Ex. 1/4; Tr. at 68.

38. The controlled substances which Petitioner abused included the medication Halcion. Tr. at 60 - 61, 97.

39. Halcion may produce side effects, including impaired judgment and memory. Tr. at 98.

40. Petitioner has undergone both in- and out-patient treatment for controlled substance abuse, beginning
with his July 1989 hospitalization. P. Ex. 6/1 - /4, 7/1 -/2, 14/1 - /2; Tr. at 95, 100 - 101, 106 - 107.

41. Petitioner's out-patient treatment for controlled substance abuse has included random drug testing. Tr.
at 107.

42. Petitioner has not abused controlled substances since he began treatment for controlled substance
abuse. Tr. at 76, 107, 113.

43. Petitioner has been treated by a psychiatrist since his July 1989 hospitalization for controlled substance
abuse. P. Ex. 4/1 - /2; Tr. at 95, 107, 111 - 112, 114.

44. Petitioner has been diagnosed to be suffering from psychiatric disorders, including depression, a
generalized anxiety disorder, and a mixed personality disorder with borderline, self-defeating, and
dependent features. P. Ex. 1/1 - /6, 2/1 - /5, 6/1 - 4; Tr. at 96 - 98.

45. Petitioner has manifested a tendency to become dependent on other individuals in a self-destructive
manner. Tr. at 98, 103.

46. Petitioner's psychiatric problems and substance abuse were factors which contributed to his decisions
to engage in criminal activity. Tr. at 108 - 109.

47. Petitioner does not manifest predatory or anti-social instincts as a result of his psychiatric problems.
Tr. at 111.

48. Petitioner has made substantial progress towards rehabilitation from his psychiatric and substance
abuse problems. Tr. at 113 - 114.

49. Petitioner has obtained and maintained gainful employment in a field unrelated to his pharmacy
practice. Tr. at 52 - 53.

50. Petitioner has progressed to living independently in the community in a safe and appropriate way. Tr.
at 127 - 128.

51. It is likely that Petitioner will not manifest substance abuse problems or criminal misconduct in the
future. Tr. at 116 - 117, 120.

52. Petitioner was convicted of a criminal offense related to the delivery of an item or service under
Medicaid. Finding 3; Social Security Act, 1128(a)(1).

53. The Secretary of the Department of Health and Human Services (Secretary) delegated to the I.G. the
authority to determine, impose, and direct exclusions pursuant to section 1128 of the Act. 48 Fed. Reg.
21662 (May 13, 1983).

54. The I.G. had authority to impose and direct an exclusion against Petitioner. Findings 54, 55.

55. Five years is the minimum statutory period of exclusion for an individual convicted of a criminal
offense within the meaning of section 1128(a)(1). Social Security Act, 1128(c)(3)(B).

56. On February 15, 1991, the I.G. advised Petitioner that he had determined to exclude Petitioner from
participating in Medicare, and to direct that he be excluded from participating in Medicaid, for 20 years.
I.G. Ex. 2/1 - /2.

57. Regulations published on January 29, 1992 establish criteria to be employed by the I.G. in determining
to impose and direct exclusions pursuant to sections 1128(a)(1) and (2) and (b) of the Act. 42 C.F.R. Part
1001; 57 Fed. Reg. 3298, 3330 - 3341 (January 29, 1992).

58. The Secretary did not intend that regulations contained in 42 C.F.R. Part 1001, and, in particular, 42
C.F.R. 1001.101 and 1001.102, govern my decision in this case.

59. The criminal misconduct engaged in by Petitioner was willful, required planning and calculation, and
establishes a high level of culpability on Petitioner's part. Findings 5 - 25.

60. Petitioner's history of substance abuse establishes that he is capable of engaging in misconduct which
could jeopardize the welfare of program beneficiaries and recipients. Findings 37 - 40.

61. Petitioner's culpability for criminal conduct and his substance abuse establish that he is an
untrustworthy individual and that an exclusion of greater than five years is necessary to protect the
integrity of federally-funded health care programs and the welfare of program beneficiaries and recipients.
Findings 61, 62.

62. In light of Petitioner's efforts at rehabilitation, an exclusion of 20 years is not remedially necessary in
order to protect the integrity of federally-funded health care programs and the welfare of program
beneficiaries and recipients. Findings 41 - 44, 49 - 53.

63. The Act's remedial purpose will be accomplished by an exclusion of ten years.


ANALYSIS

The parties do not dispute that Petitioner was convicted of a criminal offense within the meaning of section
1128(a)(1) of the Act, and, therefore, they do not disagree that the I.G. had authority to impose and direct
an exclusion against Petitioner. 3/ Nor do the parties disagree that the Act mandates an exclusion of at
least five years for individuals found to have committed offenses within the meaning of section 1128(a)(1)
of the Act.

The parties disagree as to the reasonableness of the length of the exclusion imposed and directed by the
I.G. The I.G. contends that the 20-year exclusion is reasonable, particularly when evaluated pursuant to
regulations published by the Secretary on January 29, 1992. Petitioner asserts that the new regulations do
not apply to govern my evaluation of the exclusion's reasonableness. Furthermore, he contends that the
exclusion which the I.G. imposed and directed in this case is excessive. Petitioner urges me to modify the
exclusion to the five-year minimum period required by law.

1. Regulations published by the Secretary on January 29, 1992 are not applicable to this case.

On January 29, 1992, the Secretary published regulations which, among other things, establish criteria to
be employed by the I.G. to determine the length of exclusions to be imposed pursuant to sections 1128(a)
and (b) of the Act. 42 C.F.R. Part 1001; 57 Fed. Reg. 3298, 3330 - 3341. These regulations include a
section which establishes criteria to be employed by the I.G. to determine the length of exclusions to be
imposed pursuant to section 1128(a)(1). 42 C.F.R. 1001.102; 57 Fed. Reg. 3331.

The I.G. contends that these regulations are applicable to this case. He argues that the exclusion he
imposed and directed against Petitioner comports with the criteria of 42 C.F.R. 1001.102, and that
therefore, the exclusion should be sustained. Petitioner argues that the regulations are not applicable here.

a. Regulations contained in 42 C.F.R. Part 1001 do not establish criteria for review of exclusion
determinations.

I conclude that my review of the reasonableness of the exclusion imposed and directed against Petitioner is
not governed by the new regulations' criteria for determining exclusions under section 1128(a)(1). The
regulations contained in Part 1001 of the new regulations, and 42 C.F.R. 1001.102 in particular, were not
intended by the Secretary to govern hearings as to the reasonableness of exclusion determinations. Stephen
J. Willig, M.D., DAB CR192 (1992) (Willig), Aloysius Murcko, D.M.D., DAB CR189 (1992) (Murcko),
Charles J. Barranco, M.D., DAB CR187 (1992) (Barranco). And, even if the Part 1001 regulations do
govern such hearings, they do not apply in cases involving exclusion determinations made prior to the
regulations' publication date. Id.

Section 1128 is a remedial statute. Exclusions imposed under section 1128 cannot be imposed lawfully for
other than remedial reasons. See United States v. Halper, 490 U.S. 435, 448 (1990) (Halper).

The Halper case decided the question of whether a punitive sanction imposed under the False Claims Act
against a party who had previously been convicted of a criminal offense based on identical facts constituted
a "second punishment" which violated the Double Jeopardy Clause of the United States Constitution. The
Supreme Court's decision subsumes the broader questions of what constitutes a civil remedy and what
constitutes a punishment. The Supreme Court observed in Halper that the aims of retribution and
deterrence are not legitimate nonpunitive government objectives. It concluded:

a civil sanction that cannot be fairly said solely to serve a remedial purpose, but rather can be explained
only as also serving either retributive or deterrent purposes, is punishment, as we have come to understand
the term.

490 U.S. at 448.

Civil remedy statutes cannot be applied constitutionally to produce punitive results in the absence of
traditional constitutional guarantees such as the right to counsel, the right to a trial by jury, or the right
against self-incrimination. Kennedy v. Mendoza-Martinez, 372 U.S. 144, 168 - 169 (1963). Labelling a
statute as a "civil remedies" statute will not serve to insulate acts taken pursuant to that statute from
analysis as to whether they are remedial or punitive. Id.

The legitimate remedial purpose for any exclusion imposed pursuant to section 1128 is to protect federally-
funded health care programs and their beneficiaries and recipients from parties who are not trustworthy to
provide care. Robert Matesic, R. Ph., d/b/a Northway Pharmacy, DAB 1327 (1992) (Matesic) at 7 - 8;
Willig at 14 - 15; Hanlester Network, et al. DAB CR181 (1992) (Hanlester) at 37 - 38. Section 205(b) of
the Act guarantees parties excluded pursuant to section 1128 and who request hearings full administrative
review of the reasonableness of the length of the exclusions imposed against them, measured by the
remedial criteria implicit in section 1128. Bernardo G. Bilang, M.D., DAB CR141 at 9 (1991); aff'd. DAB
1295 (1992); Eric Kranz, M.D., DAB CR148 at 7-8 (1991); aff'd. DAB 1286 (1991); Hanlester at 39 - 43.

The Matesic, Bilang, Kranz, and Hanlester decisions all involve exclusions imposed under section 1128(b)
of the Act, a section which gives the Secretary authority to impose and direct exclusions against certain
individuals and entities, but which does not mandate exclusions. This case involves an exclusion imposed
under section 1128(a) of the Act, a section which mandates exclusions of at least five years for individuals
who are convicted of program-related offenses. Section 1128(a) embodies a legislative conclusion that
such individuals and entities are untrustworthy and that, in cases falling under that section, exclusions of at
least five years are necessary to accomplish the Act's remedial purpose. However, the authority to impose
exclusions under section 1128(a) for more than five years is permissive, even as is the authority to impose
exclusions of any duration under section 1128(b). Christino Enriquez, M.D., DAB CR119 (1991) at 11 -
12. The remedial standard for evaluating an exclusion imposed pursuant to section 1128(a) which exceeds
five years -- the trustworthiness of the excluded party -- is identical to that used to evaluate the
reasonableness of any exclusion imposed under section 1128(b). Id.

Section 205(b) of the Act guarantees an excluded party the right to a de novo hearing as to the
reasonableness of the length of an exclusion imposed under section 1128(b) or as to the reasonableness of
an exclusion in excess of five years imposed under section 1128(a). Bilang at 9; Kranz at 7 - 8; Hanlester
at 39 - 43. The de novo hearing granted by section 205(b) contemplates a full administrative review of
whether an exclusion comports with the Act's remedial purpose. As the appellate panels affirmed in Bilang
and Kranz, an administrative law judge who conducts a hearing as to the reasonableness of an exclusion
may consider all evidence which is relevant to the issue of reasonableness. Kranz at 8; see Joel Davids,
DAB 1283 (1991) at 7; Vincent Baratta, M.D., DAB 1172 (1990) (Baratta) at 11.

The Act requires that, in evaluating the reasonableness of an exclusion, an administrative law judge must
consider any evidence which relates to a party's trustworthiness. As the appellate panel recently held in
Matesic:

Since the reasonableness of an exclusion turns on the length of time necessary to establish that a
provider is not likely to repeat the type of conduct which precipitated the exclusion, the ALJ must evaluate
the myriad facts of each case. These include the nature of the offenses committed by the provider, the
circumstances surrounding the offense, whether and when the provider sought help to correct the behavior
which led to the offense, how far the provider has come toward rehabilitation, and any other factors
relating to the provider's character and trustworthiness.

Id. at 12 (citation omitted).

The regulation at issue here, 42 C.F.R. 1001.102, would, if held to establish a standard for reviewing the
reasonableness of exclusions in excess of five years imposed pursuant to section 1128(a)(1), bar excluded
parties from presenting evidence at hearings as to their trustworthiness. If applied as is urged by the I.G.,
the regulation would deny excluded parties the opportunity to demonstrate that exclusions imposed against
them are inconsistent with the Act's remedial purpose. It would serve to insulate punitive exclusions from
meaningful administrative review.

The regulation provides that no exclusion imposed pursuant to section 1128(a) of the Act will be for less
than five years. 42 C.F.R. 1001.102(a); 57 Fed. Reg. 3331. This requirement tracks the Act's mandatory
exclusion provision and is not at issue here. The regulation provides further that the I.G. may consider
certain "aggravating" factors as a basis for imposing an exclusion of more than five years. 42 C.F.R.
1001.102(b)(1) - (6). These include the following: (1) the acts resulting in a party's conviction, or other,
similar acts resulted in a financial loss to Medicare or Medicaid of $1,500 or more; (2) the acts resulting in
a party's conviction, or other, similar acts were committed over a period of one year or more; (3) the acts
resulting in a party's conviction or other, similar acts had a significant adverse physical mental or financial
impact on a program beneficiary or other individual; (4) the criminal sentence imposed against a party
included incarceration; (5) a party has a prior criminal, civil or administrative sanction record; and (6) a
party has at any time been overpaid $1,500 or more by Medicare or Medicaid for improper billings. Id.

The regulation provides further that the I.G. may consider certain "mitigating" factors to offset the presence
of "aggravating" factors. 42 C.F.R. 1001.102(c)(1) - (3). These mitigating factors are expressly limited
to the following: (1) a party was convicted of three or fewer misdemeanor offenses, and the total loss to
Medicare and Medicaid resulting from the offenses and from similar acts is less than $1,500; (2) the record
in a party's criminal proceeding, including sentencing documents, demonstrates that the court which heard
the criminal case determined that, before or during the commission of the offense, the party had a mental,
emotional, or physical condition that reduced the party's culpability; and (3) a party's cooperation with
federal or state officials resulted in others being convicted of criminal offenses, excluded from Medicare or
Medicaid, or having civil money assessments or penalties imposed against them pursuant to section 1128A
of the Act.

There is no question that the presence or absence of evidence which relates to the regulation's
"aggravating" and "mitigating" factors may, in a particular case, denote the presence or absence of
trustworthiness. For example, evidence which relates to the seriousness of a criminal offense (evidence as
to the dollar amount of the fraud, the time period over which an offense is perpetrated, or the impact of
fraud on program beneficiaries and recipients) plainly is relevant to the propensity of a party to commit
future unlawful acts. John N. Crawford, Jr., M.D., DAB 1324 at 12 (1992); Hanlester at 49 - 52.
Similarly, evidence as to a party's cooperation with prosecuting authorities or as to his or her mental and
emotional state at the time he or she committed a crime may be relevant evidence of trustworthiness.
Therefore, the "aggravating" and "mitigating" factors in 42 C.F.R. 1001.102(b) and (c) may be
instructive points of reference for evaluating a party's trustworthiness with respect to the reasonableness of
an exclusion imposed against that party, for more than five years, pursuant to section 1128(a)(1). 4/

However, this regulation would fall short of satisfying the statutory test for measuring the reasonableness
of exclusions if applied as a standard for administrative review, because if so applied it would exclude
consideration of evidence which could be relevant to the issue of a party's trustworthiness. Matesic at 12.
For example, evidence as to a party's mental state at the time that party committed a criminal offense is
relevant to that party's trustworthiness even if that evidence was never considered by the judge who heard
and decided the party's criminal case. See 42 C.F.R. 1001.102(c)(2). Evidence as to a party's
rehabilitation subsequent to that party's commission of criminal acts may also be highly relevant in
evaluating that party's propensity to commit criminal acts in the future. Matesic at 12. The regulation
would, if applied as a standard for exclusions in excess of five years, preclude any consideration of this
evidence. 5/

I do not have authority to declare regulations to be ultra vires the Act. 42 C.F.R. 1005.4(c)(1); 57 Fed.
Reg. 3351; See Jack W. Greene, DAB 1078 (1989) (Greene) at 18. 6/ If the new regulations are explicit in
their instructions to me, I must apply them even though they may conflict with the letter of the Act,
Congress' intent, or the Board's interpretations of the Act. On the other hand, I am required where possible
to read regulations consistent with the letter and spirit of the Act and the Board's decisions. If it is
reasonably possible for me to interpret these regulations in a way which avoids a clash between the
regulations and congressional intent, I must do so. As the appellate panel held in Greene:

In order to consider the "issues" as stated by the regulation [the version of 42 C.F.R. 1001.125 which
predates the January 29, 1992 publication] the A.L.J. must apply the underlying statutory provisions that
the issues were designed to address. The A.L.J. must consider 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. It would literally be impossible to
apply the issue identified by the regulation in a legally correct manner without considering these factors as
appropriate.

Greene at 17 (emphasis added).

The regulation at issue here plainly would conflict with the letter and intent of the Act and the Board's
decisions, if applied as is advocated by the I.G. However, the new regulations do not mandate the
interpretation advocated by the I.G. As I held in Willig, and as Judge Steinman held in Barranco, it is
possible to read these regulations in a manner which is consistent with the Act and with the Board's
interpretations of the Act's purpose and intent. Willig at 18 - 24; Barranco at 24 - 27. 7/ I conclude that the
regulations contained in Part 1001, and 42 C.F.R. 1001.102 in particular, were not intended by the
Secretary to establish criteria for the review of exclusion determinations at administrative hearings
conducted pursuant to section 205(b) of the Act. While the regulations establish criteria to be employed by
the I.G. in determining to impose exclusions, they do not establish criteria for evaluating the
reasonableness of the I.G.'s determinations. The criteria which must be used by administrative law judges
to evaluate the reasonableness of exclusions continue to be those criteria established by the Board's
appellate panels.

Nowhere do the new regulations state that the criteria to be employed by the I.G. for determining
exclusions are to serve as criteria for evaluating the reasonableness of exclusions. As I observed in Willig,
the letter of these regulations only establishes criteria to be employed by the I.G. in making exclusion
determinations. Willig at 19. That is underscored by the comments to Part 1001 of the new regulations,
which explicitly state that the Part 1001 regulations establish criteria to be used by the I.G. in making
exclusion determinations. 57 Fed. Reg. 3229. Thus, the plain meaning of the new regulations, as
supported by the interpretive comments, is that the Part 1001 regulations establish criteria for exclusion
determinations which are not intended to be binding as a standard for reviewing the reasonableness of
exclusions.

In Willig, I held that the Board's appellate panel decisions were the Secretary's interpretations of the Act.
Willig at 20. In interpreting the Act, the Board serves as the Secretary's delegate and acts for the Secretary.
Id. I held that had the Secretary intended to overrule his prior interpretations of the Act by publishing the
new regulations, he would have explicitly said so. Id. By not saying so, and by not anywhere stating that
the Part 1001 regulations are intended to establish criteria to govern administrative reviews of exclusions,
the Secretary made it evident that he did not intend to overrule his decisions interpreting the Act. Id. 8/

I also held in Willig that the Part 1001 regulations would be inconsistent with the new Part 1005
regulations (which govern hearings as to exclusion determinations) if they were found to establish criteria
for review of exclusions. Willig at 21 - 23. The new Part 1005 regulations establish elaborate hearing and
appeals procedures for parties dissatisfied with exclusion determinations. The right to due process
accorded to petitioners by these regulations would be a hollow right if, in fact, there was no meaningful
opportunity for petitioners to test the reasonableness of exclusion determinations against the Act's remedial
criteria. Yet that would be the consequence of finding that the Part 1001 regulations established criteria
governing the review of exclusion determinations. Id.

b. The Part 1001 regulations do not apply retroactively to pending cases.

I conclude that it was not the Secretary's intent to retroactively apply the new regulations to unlawfully
strip parties, including Petitioner, of previously vested rights. Therefore, the new Part 1001 regulations
were not intended to apply to cases pending as of the date of their publication (assuming they establish
criteria for administrative review of exclusions).

I held in Willig and Murcko, and Judge Steinman held in Barranco, that, assuming that the new Part 1001
regulations do establish standards to be employed at the level of administrative hearings for evaluation of
the reasonableness of exclusion imposed under section 1128 of the Act, they are not applicable to cases
which were pending as of the date of their publication. Willig at 24 - 27; Murcko at 7 - 11; Barranco at 19
- 24. We found that to apply these regulations to such cases, as was advocated by the I.G., would strip
excluded parties of previously vested rights and operate to create manifest injustice. Id. Such an
application would be an unlawful retroactive application of the new regulations which was not intended by
the Secretary. Willig at 25 - 27; Murcko at 9 - 11; Barranco at 23 - 24.

The identical analysis applies here. The new regulations, if they establish a standard for reviewing
exclusions of greater than five years' duration imposed pursuant to section 1128(a)(1), would strip
petitioners of the right to a full review of the reasonableness of exclusions pursuant to the Act's remedial
criteria. A full review of an exclusion's reasonableness requires consideration of any evidence relevant to a
petitioner's trustworthiness, not just the narrower criteria contained in 42 C.F.R. 1001.102(b) and (c).
See Matesic at 12.

2. The 20-year exclusion which the I.G. imposed and directed against Petitioner is excessive.

The evidence in this case establishes Petitioner to have committed wholesale and massive fraud against the
Maryland Medicaid program and other health care insurers. Over a more than three-year period, Petitioner,
a pharmacist, conspired with another individual to present thousands of fraudulent claims for prescription
drugs to Medicaid and other entities. Petitioner's fraudulent claims during this period exceeded $450,000.
He and his co-conspirator realized hundreds of thousands of dollars from their fraud.

Petitioner's scheme required elaborate planning and documentation. He and his co-conspirator created
false prescriptions and fictitious Medicaid claims. Petitioner maintained false business records to conceal
his crimes. The books and records of Petitioner's pharmacy became a mechanism whereby Petitioner
effectively laundered the proceeds of his theft.

Petitioner's wilful fraud establishes him to be a manifestly untrustworthy individual. The deliberate nature
of his crimes and the persistence with which he engaged in criminal behavior demonstrate a need to protect
federally-funded health care programs from Petitioner and his larcenous acts. Were the evidence that I
have just cited the only evidence relevant to Petitioner's trustworthiness, I would not hesitate to sustain the
full 20-year exclusion imposed by the I.G.

However, evidence pertaining to Petitioner's criminal conduct presents an incomplete picture of Petitioner.
The evidence in this case demonstrates that, notwith-standing the gravity of his crimes, Petitioner has made
a commendable effort to rehabilitate himself. The evidence establishes that, given Petitioner's efforts at
rehabil-itation, an exclusion of 20 years is not necessary, either to protect federally-funded health care
programs from Petitioner or to assure that Petitioner is no longer untrustworthy.

Petitioner's criminal acts resulted from two interrelated behavior patterns, consisting of psychiatric
problems and a substance abuse disorder. In the period subsequent to exposure of his crimes, Petitioner
has made substantial efforts to change both of these behavior patterns. He has undergone intensive in- and
outpatient treatment. This has included hospitalization, an extended stay in a psychiatric halfway house,
and continued regular participation in psychiatric and drug abuse treatment sessions. He has submitted to
regular testing for the presence of controlled substances and has remained substance-free for more than two
years.

More important, Petitioner freely acknowledges the gravity of his misconduct and the damage he caused by
his misconduct. He has made sincere efforts to redress his acts. These efforts include prompt restitution of
the money he fraudulently obtained and cooperation with law enforcement officials, leading to criminal
charges and convictions of other individuals. Since his conviction, he has secured and maintained gainful
employment in a field outside of health care. He has impressed professionals, including his treating
psychiatrist, with his desire to rehabilitate himself. 9/

I am not suggesting that Petitioner has now shown himself to be a trustworthy individual. Given the nature
of Petitioner's crimes, a lengthy exclusion is justified in this case to protect federally-funded health care
programs from even the possibility that Petitioner may at some future date engage in unlawful conduct.
For that reason, I do not accept Petitioner's assertion that, in light of his efforts at rehabilitation, an
exclusion of only five years (the minimum period mandated by section 1128(a)(1) for individuals
convicted of program-related crimes) meets the Act's remedial purpose in this case. A longer exclusion
plainly is justified by the evidence.

On the other hand, 20 years is excessive. A 20-year exclusion is tantamount to a permanent exclusion from
participation in federally-funded health care programs. I conclude that, given Petitioner's efforts at
rehabilitation, he will establish himself to be trustworthy in less than 20 years. I find that a ten-year
exclusion is reasonably necessary to meet the Act's remedial purpose, given the evidence. An exclusion of
ten years is a very lengthy exclusion. However, it acknowledges the likelihood that Petitioner will not
indefinitely pose a serious risk for additional misconduct in the future and presents Petitioner with some
opportunity to resume his profession at some future date, provided he does not again engage in unlawful
conduct.

This case contrasts with David Cooper, R. Ph., DAB CR88 (1990) (Cooper). The petitioner in Cooper was
a pharmacist who conspired to engage in unlawful sales of prescription drugs. As with this case, the
petitioner in Cooper abetted the conspiracy through falsified documentation and business records. As with
this case, the conspiracy in Cooper extended over a period of several years. In Cooper, I sustained a 15-
year exclusion of the petitioner, based on the evidence of his crimes.

The factor which distinguishes Cooper from this case is that, in Cooper, the petitioner never accepted full
responsibility for his unlawful conduct. He characterized his conduct as being "poor judgment" rather than
criminal. He consistently denied his guilt of the offenses of which he was convicted. Cooper at 10. Thus,
unlike Petitioner, the petitioner in Cooper demonstrated no recognition of the severity of his offenses, nor
did he accept responsibility for his crimes. Under the circumstances, I felt that the 15-year exclusion was
justified as a remedy. By contrast, Petitioner here has fully accepted responsibility for his crimes and has
made sincere and diligent efforts at rehabilitation. Such efforts establish a greater level of trustworthiness
than was established in Cooper.


CONCLUSION

I conclude that the 20-year exclusion imposed and directed against Petitioner by the I.G. is excessive. I
modify the exclusion to a term of ten years.

__________________________
Steven T. Kessel
Administrative Law Judge

1. "State health care program" is defined by section 1128(h) of the Act to include any State Plan
approved under Title XIX of the Act (such as Medicaid). I use the term "Medicaid" hereafter to represent
all State health care programs from which Petitioner was excluded.

2. I refer to the Inspector General's exhibits as "I.G. Ex. (number)/(page)." I refer to Petitioner's exhibits
as "P. Ex. (number)/(page)." I refer to the Transcript as "Tr. at (page)."

3. The Act mandates the exclusion of any individual or entity "that has been convicted of a criminal
offense related to the delivery of an item or service under . . . [Medicare] or under . . . [Medicaid] . . . ."
Social Security Act, 1128(a)(1).

4. The regulation which predated this regulation, 42 C.F.R. 1001.125 (1986), was routinely used by
administrative law judges as a nonbinding guideline as to a party's trustworthiness in reviewing the
reasonableness of an exclusion. That practice has been noted and concurred in by the Board's appellate
panels. See Crawford at 10 n.11. However, neither administrative law judges nor the Board have ever
held that this regulation established exclusive and binding criteria for review of exclusions.

5. Indeed, as I discuss infra, evidence as to Petitioner's rehabilitation is crucial to my decision that the
20-year exclusion imposed by the I.G. is excessive. I would be precluded from considering this evidence if
I were bound by the criteria in 42 C.F.R. 1001.102(b) and (c).

6. I also do not have the authority to overrule decisions by the Board's appellate panels.

7. In Barranco, Judge Steinman first considered whether application of the criteria in 42 C.F.R.
1001.501 as a standard for review of the reasonableness of an exclusion would be an unlawful retroactive
application in that case. He concluded that such an application would be unlawful and that it was not
intended by the Secretary. He then considered, as an alternative basis for his decision, whether the
Secretary had intended 42 C.F.R. 1001.501 to establish criteria for evaluating the reasonableness of
exclusions imposed under section 1128(b)(4) of the Act, at the level of the administrative hearing. He
concluded that the Secretary did not intend the regulation to be applicable to the administrative review. I
agree with Judge Steinman's analysis. However, here, I conclude as a first point of analysis that the
Secretary did not intend the regulation to establish criteria for administrative review of a section 1128(b)(4)
exclusion. My rationale for considering this issue first is, that if the Secretary did not intend the regulation
to govern administrative hearings, there would be no issue as to its retroactive application at the hearing
level. My conclusions as to retroactivity are thus alternative findings.

8. I observed in Willig that, where the Secretary intended the new regulations to be applicable both at the
initial determination and administrative review levels, he explicitly recited that in the regulations. Willig at
21; see 42 C.F.R. 1003.106, 1003.107.

9. Most of the evidence offered by Petitioner pertaining to his efforts at rehabilitation would not be
relevant as evidence of "mitigation" under 42 C.F.R. 1001.102(b) and (c).