Neil R. Hirsch, M.D., CR No. 379 (1995)

$05:Exclusion Case

Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Civil Remedies Division


In the Case of:

Neil R. Hirsch, M.D.,

Petitioner,

- v. -

The Inspector General.

DATE: June 2, 1995
Docket No. C-95-001
Decision No. CR379


DECISION

By letter dated September 13, 1994, Neil R. Hirsch, M.D., the
Petitioner herein, was notified by the Inspector General (I.G.), of
the United States Department of Health & Human Services (HHS), that
it had been decided to exclude Petitioner for a period of five
years from participation in the Medicare, Medicaid, Maternal and
Child Health Services Block Grant, and Block Grants to States for
Social Services programs. 1/ The I.G.'s rationale was that
exclusion, for at least five years, is mandated by sections
1128(a)(1) and 1128(c)(3)(B) of the Social Security Act (Act)
because Petitioner had been convicted of a criminal offense related
to the delivery of an item or service under the Medicaid program.

Petitioner filed a timely request for review of the I.G.'s action.
I set up a briefing schedule for the parties to address the issues
in this case.

Because I have determined that there are no facts of decisional
significance genuinely in dispute, and that the only matters to be
decided are the legal implications of the undisputed facts, I have
decided the case on the basis of the parties' written submissions.
2/ I grant the I.G.'s motion for summary disposition.

I affirm the I.G.'s determination to exclude Petitioner from
participation in the Medicare and Medicaid programs for a period of
five years.


APPLICABLE LAW

Sections 1128(a)(1) and 1128(c)(3)(B) of the Act make it mandatory
for any individual who has been convicted of a criminal offense
related to the delivery of an item or service under the Medicare or
Medicaid programs to be excluded from participation in such
programs for a period of at least five years.


FINDINGS OF FACT AND CONCLUSIONS OF LAW

1. Arizona has in place a State plan approved under Title XIX of
the Act. I.G. Exs. 12, 13. 3/

2. Under section 1115 of the Act, a State's experimental, pilot,
or demonstration project which, in the Secretary's judgment, is
likely to promote the objectives of Title XIX, may receive a waiver
from the Secretary from compliance with any of the requirements of
section 1902 of Title XIX to the extent necessary to enable the
State to carry out its project. Act, section 1115(a).

3. If the Secretary grants a section 1115 waiver, the costs of the
State's project which would not otherwise be included as
expenditures under section 1903, and which would not otherwise be
included as part of the cost of projects under section 1110, shall
be regarded as expenditures under the State plan or plans approved
under Title XIX. Act, sections 1115(a)(1) and (2).

4. On October 1, 1992, the State of Arizona implemented the
Arizona Health Care Cost Containment System (AHCCCS), a
demonstration project approved under section 1115 of the Act. P.
Ex. 3; I.G. Br. at 6; P. Br. at 2.

5. AHCCCS received a section 1115 waiver from the Secretary, which
waived compliance with certain Title XIX requirements. See P. Ex.
1; FFCL 2.

6. The costs of the AHCCCS program which would not otherwise be
included as expenditures under section 1903 of the Act, and which
would not be included as part of the costs of projects under
section 1110, shall, to the extent and for the period prescribed by
the Secretary, be regarded as expenditures under Arizona's Title
XIX State plan. Act, section 1115; FFCL 1-5.

7. AHCCCS contracts with providers for the provision of
hospitalization and medical care coverage to members. Ariz. Rev.
Stat. Ann. 36-2903(A) (1993 and Supp. 1994).
8. A "prepaid capitated" payment system is one in which a health
care provider is paid based on a fixed rate per member,
notwithstanding the actual number of members who receive care from
the provider and the amount of health care services provided to any
member. Ariz. Rev. Stat. Ann. 36-2901(9) (1993 and Supp. 1994).

9. AHCCCS operates on a prepaid capitated basis. Ariz. Rev. Stat.
Ann. 36-2904(A) (1993 and Supp. 1994).

10. The director of AHCCCS is authorized to apply for and accept
federal funds available under Title XIX of the Act in support of
AHCCCS; such funds may be used only to support persons who are
defined as meeting Title XIX eligibility requirements. Ariz. Rev.
Stat. Ann. 36-2903.01(B)(5) (1993).

11. An AHCCCS contractor is required to comply with the provisions
of federal law and regulations governing the Title XIX program,
except for those requirements waived by the federal government for
the State in the State Plan for Medical Assistance. A contractor
is required also to comply with the provisions of Title 36, Chapter
29 of the Arizona Revised Statutes (governing AHCCCS), and with all
applicable regulations promulgated by the Arizona Department of
Health Services. I.G. Ex. 8 at 6.

12. Another section of the Arizona statutes mandates that the
provisions relating to the operation of AHCCCS will be suspended
if, at any time, federal funding under Title XIX is denied, not
renewed or becomes unavailable. Ariz. Rev. Stat. Ann. 36-2919
(1993).

13. The section 1115 waiver enables AHCCCS to receive Title XIX
funds from the State as payments for services furnished under it.


14. Payments made to AHCCCS pursuant to section 1115(a)(2) are
indisputably payments made under Title XIX, i.e., Medicaid
payments. FFCL 9-13.

15. The AHCCCS program is a project approved under section 1115 of
the Act. FFCL 5, 13.

16. The AHCCCS program is considered to be a State health care
program within the meaning of section 1128(h)(1). FFCL 13-15.

17. Petitioner, an ophthalmologist, was one of three owners and
principals of Health Care Providers of Arizona, Inc. (HCPA). I.G.
Ex. 1 at 3-5; I.G. Ex. 10 at 2; P. Ex. 2.

18. HCPA was incorporated on August 6, 1982, to deliver health
care to AHCCCS enrollees. I.G. Ex. 1 at 3-5; I.G. Ex. 7 at 3.

19. HCPA was a prime contractor with AHCCCS from 1982 to 1984.
I.G. Ex. 1 at 3-5; P. Ex. 2.

20. AHCCCS paid HCPA monthly capitation payments for the delivery
of health care to indigent Arizona citizens. I.G. Ex. 1 at 3-5.

21. The monthly contract payments made to HCPA were federal funds
under Title XIX. FFCL 10, 14-19.

22. Between October 1, 1982 and September 30, 1984, HCPA's sole
source of income was payments by AHCCCS and interest derived
therefrom. I.G. Ex. 7.

23. AHCCCS checks paid to HCPA were deposited into HCPA's
corporate checking account, which was controlled by HCPA's
principals, one of whom was Petitioner. I.G. Ex. 1 at 4-5.

24. On or about July 28, 1989, a 17-count indictment was filed in
the Superior Court of the State of Arizona (State court) against
Petitioner and the two other principals of HCPA. I.G. Ex. 7.

25. On April 6, 1992, Petitioner pled guilty to two counts of
facilitation of theft, in violation of Ariz. Rev. Stat.
13-1004 and 13-1802(A)(2). Pursuant to a plea agreement, these
counts were amended and constitute amended counts 14 and 16 of the
indictment. See I.G. Ex. 1.

26. By signing and dating the statements attached to his plea
agreement, titled "Exhibit II, Factual Basis for Amended Count 14"
and "Exhibit III, Factual Basis for Amended Count 16," Petitioner
has admitted to the facts set forth in these statements. I.G. Ex.
1 at 4, 5.

27. The factual basis for amended count 14 states that Petitioner
"aided [another principal's] theft of HCPA monies in violation of
A.R.S. 13-1802(A)(2) by signing check number 2018 in the amount of
$300.00 written on HCPA's checking account payable to Oximetrix,
Inc." I.G. Ex. 1 at 4.

28. Petitioner signed check number 2018 to pay for an electric
surgical knife, "knowing that the equipment was to be used for . .
. non-AHCCCS cosmetic surgery patients. Cosmetic procedures are
not covered by AHCCCS." I.G. Ex. 1 at 4.

29. The factual basis for amended count 16 states that Petitioner
"aided in Berton Siegel's theft of HCPA monies by signing check
#3748 in the amount of $10,000 written on Health Care Providers of
Arizona checking account to Touche Ross Minneapolis." I.G. Ex. 1
at 5.

30. Check number 3748 was used to pay the balance on an actuarial
study which was to provide information for a private health care
organization owned by Berton Siegel and Petitioner. Petitioner
signed the check knowing that the actuarial study was not used for
HCPA's purposes. I.G. Ex. 1 at 5.

31. By signing checks on HCPA's checking account for the purchase
of equipment for non-AHCCCS patients and for services from a
non-AHCCCS organization, Petitioner misappropriated AHCCCS funds
that had been entrusted to HCPA to pay for health care to indigent
Arizona citizens who were enrolled in the AHCCCS program. FFCL
23-30.

32. Petitioner was a joint owner of Eyelites International, Inc.
(Eyelites), an optical company.
I.G. Ex. 1 at 3.

33. Via two subcontracts executed on or about August 9, 1983 and
August 11, 1983, Eyelites became a HCPA subcontractor to provide
eyeglasses to HCPA's AHCCCS members. I.G. Ex. 1 at 3; I.G. Ex. 7
at 13.

34. Neither Petitioner nor the other principal of Eyelites signed
the subcontract; instead, two employees of the principals who had
no association with Eyelites were directed to sign the Eyelites'
subcontracts. I.G. Ex. 1 at 3.

35. AHCCCS regulations required HCPA's principals to disclose to
AHCCCS any subcontracts in which a HCPA principal had a financial
interest. I.G. Ex. 1 at 3.

36. On April 6, 1992, Petitioner pled guilty to one count of
fraudulent schemes and practices, wilful concealment, in violation
of Ariz. Rev. Stat. 13-2311. Pursuant to a plea agreement, this
count was amended and now constitutes amended count 10 of the
indictment. See I.G. Ex. 1.

37. By signing and dating the statement attached to his plea
agreement, titled "Exhibit I, Factual Basis for Amended Count 10,"
Petitioner has admitted to the facts set forth in this statement.
I.G. Ex. 1 at 3.

38. The factual basis for amended count 10 states that
Petitioner "knowingly concealed the related party status of
Eyelite, International, Inc. pursuant to a scheme or artifice to
defraud which enabled [Petitioner] to have HCPA pay $60,000.00 to
Eyelites between November 14, 1983 and February 8, 1984 . . . while
[Petitioner's] financial interest in Eyelites, International, Inc.
remained concealed from AHCCCS." I.G. Ex. 1 at 3.

39. Petitioner knowingly concealed from AHCCCS that Petitioner, a
HCPA principal, had a financial interest in Eyelites' subcontract.
FFCL 32-38.

40. Under its subcontract, HCPA paid $60,000 to Eyelites between
November 14, 1983 and February 8, 1984, for approximately 63 pairs
of eyeglasses for HCPA's AHCCCS patients, with an average cost of
approximately $952.38 per pair of glasses. I.G. Ex. 1 at 3.

41. Petitioner used Title XIX funds paid to HCPA by AHCCCS to pay
Eyelites under the fraudulently obtained subcontract. Petitioner
misappropriated Title XIX funds by directing such monies to
Eyelites, a HCPA related party. I.G. Ex. 1 at 4. FFCL 32-40.

42. Petitioner caused AHCCCS funds to be used for private,
non-Medicaid purposes. FFCL 25-41.

43. Based on Petitioner's guilty plea, the State court convicted
Petitioner of two counts of facilitation of theft and one count of
fraudulent schemes and practices and wilful concealment. I.G. Exs.
2, 3.

44. In accordance with the terms of Petitioner's plea agreement,
the State court judge granted Petitioner's motion to dismiss counts
1-9, 11-13, 15, and 17 of the indictment. I.G. Ex. 3 at 4.

45. The State court placed Petitioner on three years probation,
commencing July 31, 1992, and ordered him to pay restitution in the
amount of $40,000. In addition, the court ordered Petitioner to
pay $50,000 as reimbursement, a fine of $14,000, and other
assessments and fees. I.G. Ex. 3.

46. As part of his plea agreement, Petitioner stipulated that he
was "on notice that as a result of his plea he is subject to
exclusion from Medicare and other State health care programs as a
health care provider for a minimum period of at least five years."
I.G. Ex. 1 at 6.

47. Under section 1128(i)(3) of the Act, "an individual or entity
is considered to have been `convicted' of a criminal offense -- (3)
when a plea of guilty or nolo contendere by the individual or
entity has been accepted by a Federal, State or local court. . . .
"

48. Petitioner's guilty plea, and the actions taken by the State
court indicating acceptance of his plea, constitute a "conviction"
of Petitioner within the meaning of section 1128(i)(3) of the Act.
FFCL 36; 43-47.

49. Petitioner was convicted of a criminal offense related to the
delivery of an item or service under the Medicaid program, within
the meaning of section 1128(a)(1) of the Act. FFCL 36-48.

50. Under section 1128(a)(1) of the Act, a conviction within the
meaning of section 1128(i) mandates exclusion. The administrative
law judge is not authorized to look behind the conviction to
determine its validity.

51. The Secretary of HHS has delegated to the I.G. the authority
to determine, impose, and direct exclusions pursuant to section
1128 of the Act. 48 Fed. Reg. 21,662 (1983).

52. An exclusion imposed and directed pursuant to section
1128(a)(1) of the Act must be for a period of at least five years.
Act, sections 1128(a)(1),
1128(c)(3)(B); 42 C.F.R. 1001.102(a).

53. Section 1128 of the Act is intended to protect the integrity
of federally-funded health care programs and the welfare of program
beneficiaries and recipients from individuals and entities who have
been shown to be untrustworthy. See S. Rep. No. 109, 100th Cong.,
1st Sess. 1 (1987), reprinted in 1987 U.S.C.C.A.N. 682.

54. Neither the I.G. nor an administrative law judge is authorized
to reduce the five-year minimum mandatory period of exclusion.

55. The I.G. properly excluded Petitioner from participation in
the Medicare and Medicaid programs for five years, as required by
sections 1128(a)(1) and 1128(c)(3)(B) of the Act. FFCL 1-54.


PETITIONER'S ARGUMENT

Petitioner contends that because the AHCCCS program is a
demonstration project approved under section 1115 of the Act, it is
not a plan approved under Title XIX. Petitioner contends further
that AHCCCS is not a State health care program within the meaning
of section 1128(h) of the Act because it does not fulfill all Title
XIX requirements. P. Br. at 8-13. Additionally, Petitioner argues
that his offenses did not relate to the delivery of an item or
service under Title XVIII or a State health care program. P. Br.
at 12-21. He asserts that there is no nexus between his offenses
and the delivery of an identifiable item or service. Moreover,
Petitioner contends that the victim of his offenses was HCPA, not
AHCCCS. P. Br. at 14-21. Furthermore, Petitioner alleges that the
exclusion imposed against him by the I.G. has a punitive aspect.
Petitioner contends that, based on the foregoing, he should not be
subjected to a mandatory exclusion. P. Br. at 31-33.


BACKGROUND

Under section 1115 of the Act, a State's experimental, pilot, or
demonstration project which, in the Secretary's judgment, is likely
to promote the objectives of Title XIX, may receive a waiver from
the Secretary from compliance with any requirements of section 1902
of Title XIX to the extent necessary to enable the State to carry
out its project. If the Secretary grants a section 1115 waiver,
the costs of the State's project, which would not otherwise be
included as expenditures under section 1903, shall be regarded as
expenditures under the State plan or plans approved under Title
XIX. Act, sections 1115(a)(1) and (2). 4/

The legislative history of section 1115 states in part:

The public assistance titles of the Social Security Act
contain a number of requirements on the States for the approval of
a State plan. These plan requirements, however, often stand in the
way of experimental projects designed to test out new ideas and
ways of dealing with the problems of public welfare recipients.
One such requirement, for example, is that the plan be in effect
throughout the State. A demonstration project usually cannot be
statewide in operation. For this reason, under the bill the
Secretary would be authorized to waive plan requirements to the
extent he believes this action is necessary to carry out a
demonstration or experimental project, if such project furthers the
general objectives of the program. This would mean that the
regular Federal participation would be available for such projects
whether they involve assistance, service, or administrative
expenditures.

S. Rep. No. 1589, 87th Cong., 2nd Sess. (1962), reprinted in 1962
U.S. Code Cong. & Admin. News 1943.

Congress thus intended that a project which received a section 1115
waiver would still be able to receive federal funds under a public
assistance title. Thus, the effect of section 1115 is to enable a
State to carry out a demonstration project and receive Title XIX
federal funds.

Section 1115(a)(1) provides that the Secretary may waive compliance
with section 1902 requirements "to the extent . . . necessary."
The section 1115 waiver, therefore, gives states the flexibility to
deviate from the requirements of section 1902 of the Act, which
contains various State plan requirements for reimbursement under
the Medicaid program. The section 1115 waiver provides Title XIX
funding for costs which would otherwise be considered non-matchable
expenditures under section 1903 of the Act. These are costs which
would normally not receive federal funds; however, since they have
been approved under the section 1115 waiver, they are regarded as
Title XIX expenditures.


DISCUSSION

I. A project approved under section 1115 of the Act is
regarded as a State health care plan approved under Title XIX,
within the meaning of section 1128(h)(1) of the Act.

On October 1, 1982, the State of Arizona implemented AHCCCS, a
demonstration project approved under section 1115 of the Social
Security Act. Pursuant to the Arizona statute, AHCCCS contracts to
provide hospital and medical care coverage to its members, who are
indigent Arizona citizens. Ariz. Rev. Stat. Ann. 36-2903(A)
(1993 and Supp. 1994). HCPA, a company in which Petitioner was one
of three owners and principals, was incorporated on August 6, 1982,
to deliver health care to AHCCCS enrollees. HCPA was a prime
contractor with AHCCCS from 1982 to 1984. In accordance with its
contract, AHCCCS made monthly payments to HCPA to cover the cost of
providing services to indigent Arizona patients. The payment
AHCCCS made to HCPA was made on a prepaid capitated basis (Ariz.
Rev. Stat. Ann. 36-2904(A)
(1993 and Supp. 1994)), in which the amount of the payment, in any
given month, was based on the number of patients enrolled with HCPA
during that month. 5/ P. Br. at 17-18.

The I.G. does not dispute Petitioner's assertion that AHCCCS was
approved under section 1115, and that it was not required to comply
with certain Title XIX requirements. Petitioner argues, however,
that AHCCCS cannot be a State health care program within the
meaning of section 1128(h)(1) of the Act because it does not
fulfill all Title XIX requirements. P. Br. at 8-13. Petitioner's
argument, however, does not have any merit.

Based on the evidence in the record, I conclude that Arizona has in
existence a State plan approved under Title XIX. 6/ I.G. Exs. 12
and 13. The AHCCCS program thus operates under this State plan. 7/
Pursuant to section 1115 of the Act, AHCCCS' costs which would not
otherwise be included as section 1903 expenditures ". . . shall .
. . be regarded as expenditures under the State plan . . .
approved under such title." Thus, under AHCCCS, expenditures which
would normally not be allowable under section 1903 are regarded as
expenditures under Arizona's Title XIX plan. The section 1115
waiver enables AHCCCS to receive Title XIX federal funds from the
State as payments for services furnished under it. It is
indisputable, therefore, that payments made to AHCCCS pursuant to
section 1115(a)(2) are Title XIX, i.e., Medicaid payments. This
means that the monthly payments which HCPA received under the
AHCCCS program are Medicaid payments.

The director of AHCCCS is authorized to apply for and accept
federal financing through Title XIX of the Act. Ariz. Rev. Stat.
Ann. 36-2903.01(B)(5) (1993). Such funds may be used only to
support persons who are defined as meeting Title XIX eligibility
requirements. Ariz. Rev. Stat. Ann. 36-2903.01(B)(5) (1993).
Accordingly, a contractor with AHCCCS is required to comply with
the provisions of federal law and regulations governing the Title
XIX program, except for those requirements that have been
specifically waived for the State in the State Plan for Medical
Assistance. I.G. Ex. 8 at 6. Arizona State law mandates also that
provisions relating to AHCCCS operations will be suspended if Title
XIX funding is at any time denied, not renewed, or made
unavailable. Ariz. Rev. Stat. Ann. 36-2919 (1993).

Based on the foregoing, I find that although the AHCCCS program is
a project approved under section 1115 of the Act, it is considered
to be a State health care program within the meaning of section
1128(h)(1). Payments made under the section 1115 waiver are still
Medicaid payments. The fact that payments received by HCPA from
AHCCCS were made pursuant to a waiver of certain Title XIX
requirements does not change that the source of funds is the
Medicaid program. Although the Secretary may have waived
compliance with certain Title XIX requirements, payments to the
program are made from Title XIX funds. 8/ I find, therefore, that
the funds which Petitioner misappropriated from the AHCCCS program
(as discussed below) were Medicaid funds paid to AHCCCS pursuant to
Arizona's State plan and its section 1115 waiver.

II. Petitioner was "convicted" of a criminal offense, within the
meaning of section 1128(a)(1) of the Act.

An individual or entity must be excluded from participation in the
Medicare and Medicaid programs pursuant to section 1128(a)(1) where
two elements are present: (1) the individual or entity has been
"convicted" of a criminal offense, within the meaning of section
1128(i); and (2) the conviction is related to the delivery of an
item or service under the Medicare or Medicaid programs.

With regard to the first element, as stated earlier, Petitioner
pled guilty to one count of fraudulent schemes and practices,
wilful concealment and two counts of facilitation of theft. Based
on Petitioner's guilty plea, the State court convicted him of these
offenses. The court placed Petitioner on three years' probation,
commencing July 31, 1992, and ordered him to pay restitution in the
amount of $40,000. I.G. Ex. 3 at 3. In addition, the court
ordered Petitioner to pay $50,000 as reimbursement, a fine of
$14,000, and other assessments and fees. I.G. Ex. 3 at 4. Under
section 1128(i)(3), "an individual or entity is considered to have
been `convicted' of a criminal offense -- (3) when a plea of guilty
or nolo contendere by the individual or entity has been accepted by
a Federal, State or local court . . . ." Thus, Petitioner's guilty
plea, and the court's acceptance of that plea, constitute a
"conviction" of Petitioner within the meaning of section 1128(i)(3)
of the Act.

III. Petitioner's criminal conviction is related to the delivery
of an item or service under the Medicaid program, within the
meaning of section 1128(a)(1) of the Act.

As for the second element under section 1128(a)(1), I find that the
criminal offense of which Petitioner was convicted is
"program-related."

A. Petitioner's conviction of fraudulent schemesand
practices, wilful concealment is related to thedelivery of an item
or service under the Medicaidprogram.

On April 6, 1992, Petitioner pled guilty to one count of fraudulent
schemes and practices, wilful concealment, in violation of Ariz.
Rev. Stat. 13-2311, and two counts of facilitation of theft, in
violation of Ariz. Rev. Stat. 13-1004 and 13-1802(A)(2).
These counts were amended counts 10, 14, and 16, respectively, of
the original indictment. Petitioner signed and dated factual
statements which underlie the basis for these counts, thereby
admitting to the facts set forth in these statements.

Based on the factual basis for amended count 10 signed by
Petitioner, his conviction for fraudulent schemes and practices,
wilful concealment arose from Petitioner's principal interest in
Eyelites International, Inc. (Eyelites). I.G. Ex. 1 at 3.
Petitioner was a co-owner of Eyelites, and through this
privately-held corporation, he subcontracted with HCPA to provide
eyeglasses to HCPA's AHCCCS members. AHCCCS regulations required
HCPA principals to disclose to AHCCCS any HCPA related party
subcontracts in which a HCPA principal had a financial interest.
I.G. Ex. 1 at 3. Petitioner knowingly concealed his related party
status in Eyelites, and his financial interest in the subcontract
was not immediately discovered, because neither Petitioner nor the
other principals of Eyelites signed the subcontract. I.G. Ex. 1 at
3. Two employees of the principals, who had no association with
Eyelites, were directed to sign the Eyelites' subcontracts. Under
the subcontract, HCPA paid $60,000 to Eyelites between November 14,
1983 and February 8, 1984 for approximately 63 pairs of eyeglasses
for HCPA's AHCCCS patients, with an average cost of approximately
$952.38 per pair of glasses. Id.

Petitioner argues that his failure to disclose an ownership
interest in Eyelites does not relate to the delivery of an item or
service under the Medicaid program since it does not relate to any
request for payments from AHCCCS. Petitioner contends that it was
an unintentional oversight. P. Br. at 15.

A criminal offense will be found to be program-related when there
exists a "common sense connection" between the criminal offense and
the delivery of items or services under the Medicare or Medicaid
programs. Richard F. Jaskiewicz, R.N., DAB CR315 (1994), Berton
Siegel, D.O., DAB 1467 (1994). In addition, 42 C.F.R.
1001.101(a) provides also that an offense will be program-related
if it concerns "the performance of management or administrative
services relating to the delivery of items or services under any
such program." 42 C.F.R. 1001.101(a) (1994). Here, Petitioner,
through HCPA's subcontract with Eyelites, was submitting claims for
eyewear services for HCPA's AHCCCS patients. Petitioner,
therefore, used Title XIX funds, paid to HCPA by AHCCCS, to pay
Eyelites (and himself) under the fraudulently obtained subcontract.
Petitioner's misappropriation of federal funds to his own privately
held corporation is the common sense connection between
Petitioner's failure to disclose and the unlawful use of federal
funds.

B. Petitioner's convictions of facilitation oftheft are
related to the delivery of an item orservice under the Medicaid
program.

Petitioner was convicted of two counts of facilitation of theft.
Both offenses concerned the use of Medicaid funds for private
purposes.

AHCCCS checks paid to HCPA were deposited into HCPA's corporate
checking account, which was controlled by HCPA's principals, one of
which was Petitioner. Petitioner signed a $300 check on HCPA's
checking account for the purchase of electrical surgical knife
equipment, knowing that the equipment was to be used for non-AHCCCS
cosmetic surgery patients. I.G. Ex. 1 at 4. The wilful nature of
this offense was further illustrated by the fact that AHCCCS does
not cover cosmetic procedures. Petitioner also signed a $10,000
check on HCPA's checking account to Touche Ross, Inc. to pay the
balance of an actuarial study commissioned for a private health
care services organization of which Petitioner is a co-owner.
Petitioner signed the $10,000 check despite knowing that the
actuarial study was used for his health care organization and not
for HCPA.

Petitioner argues that these checks do not relate to the delivery
of items or services under the Medicaid program, since AHCCCS
payments are not paid on a fee for service basis, but on a
capitated basis, regardless of whether any items or services are
rendered. P. Br at 13-15. Petitioner argues also that his
criminal offenses are not program-related since AHCCCS was not
harmed by his misconduct. According to Petitioner, HCPA, and not
AHCCCS, was the victim of his crimes since the federal funds at
issue were directly paid in trust to HCPA.

Petitioner's arguments, however, are without any merit. By signing
checks on HCPA's checking account for the purchase of equipment for
non-AHCCCS patients and for services for a non-AHCCCS organization,
Petitioner
caused AHCCCS funds to be used for private, non-Medicaid purposes.
Thus, Petitioner misappropriated AHCCCS funds that had been
entrusted to HCPA to pay for health care to indigent Arizona
citizens enrolled in the AHCCCS program. Under its contract with
AHCCCS, HCPA's primary purpose was to provide health care services
to AHCCCS enrollees regardless of how payment was rendered.
Petitioner's misconduct directly diminished the ability of programs
funded by Title XIX to provide health care services to its
recipients by reducing the funds available to pay for these
services. Thus, AHCCCS, and not HCPA, was the victim of
Petitioner's crimes.

Petitioner's financial misconduct, and his depletion of funds
necessary for the delivery of health care to AHCCCS enrollees,
sufficiently establishes that Petitioner's convictions for
facilitation of theft are related to the delivery of an item or
service under the Medicaid program. Berton Siegel, D.O., DAB 1467
(1994). Furthermore, a criminal offense is considered to be
"program-related" where either the Medicare or Medicaid program is
the victim of the crime. Napoleon S. Maminta, M.D., DAB 1135
(1990).

IV. Petitioner's mandatory five-year exclusion is remedial, and
not punitive, in nature.

Petitioner argues that the five-year exclusion imposed upon him has
a punitive effect in that he would be unable to "submit[ ] true and
correct bills in the future for services that his patients need and
require." Petitioner's Request for Hearing at 3. Petitioner
contends that any remedial effect of the exclusion is sufficiently
accomplished by the fact that Petitioner is no longer in Arizona
and will not be a prime contractor under AHCCCS. In addition,
Petitioner argues that the five-year exclusion which has been
imposed against him is unduly harsh since the I.G. has not proven
the existence of aggravating circumstances.

I find that Petitioner's arguments are without merit. Section 1128
is a civil statute, and, in a prior decision of an appellate panel
of the Departmental Appeals Board, the panel stated that exclusions
are not punitive actions. The panel stated that exclusions are
administrative remedies designed to protect federally-funded health
care programs:

[T]he purpose of the exclusion here is to protect federally
funded health programs, not to punish Petitioner. Both the State
. . . and the federal government have an interest in protecting
such programs from untrustworthy individuals.

Paul R. Scollo, D.P.M., DAB 1498 (1994), quoting Larry White,
R.Ph., DAB 1346, at 3 (1992).

Congress intended section 1128 to be remedial in application. The
legislative history behind section 1128 supports that the purpose
of the exclusion law is to protect the integrity of federally
financed health care programs and the welfare of the programs'
beneficiaries and recipients. The exclusion law is intended to
protect program funds and beneficiaries and recipients from
providers who have demonstrated by their conduct that they pose a
threat to the integrity of such funds, or to the well-being and
safety of beneficiaries and recipients. See S. Rep. No. 109, 100th
Cong., 1st Sess. 1 (1987), reprinted in 1987 U.S.C.C.A.N. 682.
Thus, Petitioner's argument that his exclusion is punitive in
nature is without any merit.

Furthermore, an exclusion imposed and directed pursuant to section
1128(a)(1) of the Act must be for a period of at least five years.
9/ This means that in the case of a mandatory exclusion, the I.G.
is not required to prove the existence of aggravating factors.


CONCLUSION

I find that the AHCCCS program is considered to be a "State plan,"
within the meaning of section 1128(h) of the Act. Accordingly,
Petitioner's convictions are related to the delivery of an item or
service under the Medicaid program. Petitioner's offenses involved
the misappropriation of federal funds, and his crimes directly
diminished the Medicaid program's ability to provide health care
services to its recipients, by reducing the funds available to pay
for these services.

Accordingly, Petitioner's exclusion from the Medicare and Medicaid
programs, for at least five years, is mandated by sections
1128(a)(1) and 1128(c)(3)(B) of the Act. Neither the I.G. nor an
administrative law judge is authorized to reduce the five-year
minimum mandatory period of exclusion. Jack W. Greene, DAB CR19,
aff'd, DAB 1078 (1989), aff'd sub nom., Greene v. Sullivan, 731 F.
Supp. 835, 838 (E.D. Tenn. 1990).

The five-year exclusion is, therefore, sustained.


_______________________
Joseph K. Riotto
Administrative Law Judge

1. In this decision, I refer to all programs from which
Petitioner has been excluded, other than Medicare, as "Medicaid."

2. The I.G. submitted a brief in support of her motion for
summary disposition. Petitioner submitted a response brief and
also, cross-moved for summary disposition. Following the
submissions of these briefs, I ordered further briefing from the
parties. See Order for Supplemental Briefing, dated March 20,
1995. The I.G. submitted a supplemental brief, to which Petitioner
filed a supplemental brief in response.

The I.G. submitted eleven exhibits with her initial brief.
Petitioner submitted three exhibits with his response brief. With
her supplemental brief, the I.G. submitted two additional exhibits
(I.G. Exhibits 12 and 13) and withdrew I.G. Exhibit 11. Petitioner
did not submit any additional exhibits with his supplemental
response brief.

Petitioner objected to the admission of I.G. Exs. 7, 12, and 13.
I.G. Ex. 7 is the original indictment dated July 28, 1989, upon
which criminal proceedings against Petitioner were initiated. This
indictment was filed in the Superior Court of the State of Arizona.
Petitioner has objected to this exhibit on the grounds that it is
irrelevant and prejudicial because 14 counts of the 17-count
indictment were later dismissed. The fact that this indictment was
later amended does not mean that it cannot be a part of the
administrative record before me. Petitioner has not questioned its
authenticity. I overrule Petitioner's objection to I.G. Ex. 7 and
admit it into evidence.

With respect to I.G. Exs. 12 and 13, Petitioner contends that their
submission as exhibits has caused unfair surprise. P. Supp. Br. at
3-5. However, the I.G. submitted these exhibits in accordance with
paragraph 5(a) of my March 20, 1995 Order, in which I gave the I.G.
the opportunity to file any additional documentary evidence as
exhibits in support of her supplemental brief. In paragraph 5(b),
I gave Petitioner the same opportunity to submit additional
documentary evidence with its supplemental response brief. I thus
overrule Petitioner's objections to I.G. Exs. 12 and 13 and admit
them into evidence. In addition to I.G. Exs. 7, 12, and 13, I
admit also into evidence I.G. Exs. 1-6 and 8-10. I admit P. Exs.
1 - 3.

3. I cite the I.G.'s exhibits as "I.G. Ex(s). at (number)." I
cite Petitioner's exhibits as "P. Ex(s). at (number)."

The parties' briefs and my findings of fact and conclusions of law
will be cited as follows:

I.G.'s brief I.G. Br. at (page)

Petitioner's response brief P. Br. at (page)

I.G.'s supplemental brief I.G. Supp. Br. at (page)

Petitioner's supplemental P. Supp. Br. at (page)
response brief

My Findings of Fact and FFCL (number)
Conclusions of Law

4. The statutory language of section 1115(a)(1) and (2) refers
to other titles and sections of the Act; however, for purposes of
relevancy to this decision, I refer only to Title XIX and sections
1902 and 1903.

5. This payment plan varies from the more common
fee-for-service arrangement.

6. The Arizona Department of Health Services was the State
agency designated to administer or supervise the administration of
the Medicaid program under Title XIX of the Act. I.G. Ex. 12 at
10, 14.

7. The fact that the I.G. may not have submitted the plans in
their entirety does not detract from the fact that a State plan
approved under Title XIX is, in fact, in existence in Arizona.

8. In fact, Petitioner's disavowal of AHCCCS as a State health
care program within the meaning of Section 1128(h)(1) is rather
disingenuous in light of the statement in one of its exhibits that
"AHCCCS was then, and remains today, the only statewide prepaid
Medicaid system in the country." P. Ex. 3 at 5.

9. By the very terms of his plea agreement, Petitioner was
placed on notice that, as a result of his plea, he was subject to
exclusion from Medicare and Medicaid for at least five years. I.G.
Ex. 1 at 6.