Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Civil Remedies Division
In the Cases of: Donna Scotti, Orthotic and Prosthetic Images, Ltd., and Louis
Scotti, Petitioners,
- v. -
The Inspector General.
DATE: July 29, 1997
Docket Nos. C-97-282
C-97-337
C-97-365
Decision No. CR481
DECISION
I decide that the Inspector General (I.G.) is authorized to exclude Petitioners
Louis Scotti, Donna
Scotti, and Orthotic and Prosthetic Images, Ltd. (Petitioner Orthotic), from
participating in
Medicare and State health care programs, including State Medicaid programs.
The exclusion of
each of the Petitioners is authorized under section 1128(b)(5)(B) of the Social
Security Act (Act),
as it was revised and amended in 1996. I decide additionally that the length
of the exclusions
which the I.G. imposed against Petitioners is reasonable. The I.G. excluded
each Petitioner for
the same period of time that the Petitioner is excluded by the New York Medicaid
program. An
exclusion of at least that length is required for an exclusion imposed under
the revised and
amended section 1128(b)(5)(B) of the Act.
As I discuss in more detail below, at Finding 4, the I.G. made her determination
to exclude
Petitioners on the following facts. Petitioner Louis Scotti is the president
and chief operating
officer of Petitioner Orthotic. Petitioner Donna Scotti is a shareholder in
Petitioner Orthotic. The
New York State Department of Social Services (Department of Social Services)
determined to
exclude all three Petitioners from participating in the New York State Medicaid
program. The
basis for the Department of Social Services determination included findings
that Petitioners had:
submitted false Medicaid reimbursement claims; made false statements in connection
with
submitting Medicaid reimbursement claims; failed to disclose information concerning
their right to
reimbursement from the New York Medicaid program; and engaged in unacceptable
record
keeping. Petitioners negotiated a settlement with the Department of Social Services
in which they
agreed to be excluded from the New York Medicaid program for a two-year period,
commencing
on April 8, 1996 and ending on April 7, 1998.
Each Petitioner requested a hearing from the I.G.'s determination to exclude
that Petitioner.
Petitioners and the I.G. requested that the cases be consolidated. I ruled that
the cases should be
consolidated in light of the parties' request to consolidate the cases, and
also in light of the issues,
facts, and law that the cases share.
The parties agreed that the cases should be heard and decided based on their
written submissions.
The I.G. submitted a brief and a reply brief. Petitioners jointly submitted
a brief and a reply brief.
The deadline for submitting reply briefs was July 7, 1997. The I.G. submitted
her reply brief
timely. Petitioners did not submit their reply brief until July 11, 1997, and
have not offered any
explanation for submitting it untimely. I have decided not to exclude Petitioners'
reply brief,
however, inasmuch as it contains no arguments or assertions of fact that would
affect my decision
in these cases.
The I.G. submitted five exhibits (I.G. Ex. 1 - 5). Additionally, the I.G. provided
me with a copy
of the revised and amended version of section 1128 of the Act, as an attachment
to her proposed
exhibits ("Attachment A"). Petitioner submitted an exhibit, "Exhibit
A", which I have
redesignated as P. Ex. 1. I note that P. Ex. 1 is the same exhibit as is I.G.
Ex. 5. Petitioners also
submitted an affidavit of Petitioner Louis Scotti as an attachment to their
reply brief, which they
have not designated as an exhibit. I have designated the affidavit of Petitioner
Louis Scotti as P.
Ex. 2.
No objections have been made to my receiving into evidence I.G. Ex. 1 - 5 and
P. Ex. 1.
Petitioner seeks to have me admit into evidence P. Ex. 2, and the I.G. objects
to my receiving into
evidence P. Ex. 2. I base these conclusions on Petitioners' reliance on the
exhibit, and the I.G.'s
motion that I strike P. Ex. 2. Motion to Strike Affidavit in Response to the
Draft Audit Report.
Prior to filing this motion, the I.G. had filed a motion that I strike portions
of Petitioners' brief
which comprise arguments based on the facts alleged in P. Ex. 2. Inspector General's
Motion to
Strike, or in the Alternative, Give no Weight to Louis Scotti's Statement; See
Petitioners' brief at
11 - 12. On July 28, 1997, this office received an affidavit from Petitioners'
counsel in opposition
to the I.G.'s Motion to Strike. I have designated this affidavit as P. Ex. 3.
As I discuss below, at Finding 6, I find the contents of P. Ex. 2, and Petitioners'
arguments that
are based on the contents of P. Ex. 2, to be irrelevant to deciding the issues
in these cases.
However, I do not find the I.G. to be prejudiced by my receiving into evidence
P. Ex. 2, and I
deny both of the I.G.'s motions. Therefore, I receive into evidence I.G. Ex.
1 - 5 and P. Ex. 1 - 3.
I do not receive into evidence the I.G.'s Attachment A, inasmuch as it is not
evidence and was
not submitted as evidence.
In her brief, the I.G. noted that the caption of these cases inaccurately designates
Petitioner
Orthotic as "Orthotic and Prosthetic Images, Inc." when, in fact,
the correct designation of
Petitioner Orthotic is "Orthotic and Prosthetic Images, Ltd." I.G.
Ex. 5; P. Ex. 1. The I.G.
moved to correct the incorrect nomenclature in the caption. Petitioner did not
oppose the motion.
Therefore, I order that the caption of these cases be amended to designate Petitioner
Orthotic as
"Orthotic and Prosthetic Images, Ltd."
These cases involve two issues. The first issue is whether the I.G. is authorized
to exclude
Petitioners pursuant to the revised and amended version of section 1128(b)(5)(B)
of the Act. The
second issue is whether it is reasonable for the I.G. to exclude each Petitioner
for a period that is
coterminous with the exclusion which was imposed on that Petitioner by the Department
of Social
Services. In deciding that each exclusion is authorized and is reasonable, I
make findings of fact
and conclusions of law (Findings). Below, I state each Finding as a heading,
and I discuss each
Finding in detail.
1. These cases are governed by the amendments and revisions to section 1128
of the
Act which Congress adopted on July 31, 1996.
On July 31, 1996, Congress adopted amendments and revisions to section 1128
of the Act. These
amendments and revisions are contained in legislation known as the Health Insurance
Portability
and Accountability Act of 1996 (HIPAA), Pub.L. 104-191 (104th Congress, 2nd
Session); 110
Stat. 1978, Title II, Secs. 201, 211 - 213. HIPAA was signed into law on August
21, 1996. With
exceptions that are not relevant here, the effective date of HIPAA is January
1, 1997. Pub.L.
104-191, section 218.
These cases are governed by the provisions of HIPAA which revise and amend
section 1128(b)(5)
of the Act. These revisions and amendments became effective on January 1, 1997.
The
exclusions that are at issue here became effective on April 16, 1997, more than
four months after
the effective date of HIPAA. Petitioners have not argued that their cases should
be governed by
the version of section 1128(b)(5) which predates the effective date of HIPAA.
In this case, the provisions of HIPAA may actually inure to Petitioners' benefit.
Prior to the
effective date of HIPAA, the Act did not mandate an exclusion of any given length
in the case of
an exclusion imposed under the pre-HIPAA version of section 1128(b)(5). The
Secretary of the
United States Department of Health and Human Services (Secretary) adopted a
regulation
implementing the pre-HIPAA version of section 1128(b)(5), which directed that
an exclusion
imposed under the pre-HIPAA version of section 1128(b)(5) be for a period of
three years, in the
absence of aggravating or mitigating factors which established a basis for an
exclusion of more
than or less than three years. 42 C.F.R. § 1001.601. That regulation has
now been superseded by
the provisions of HIPAA which direct that in the case of an exclusion imposed
under section
1128(b)(5) the exclusion be for a period that is at least coterminous with the
State action on
which the exclusion is based.
The State actions at issue in these cases consist of two-year exclusions. The
I.G. determined to
impose exclusions that are coterminous with the two-year exclusions. Had these
cases been
governed by the pre-HIPAA version of section 1128(b)(5), then, absent proof
of aggravating or
mitigating factors, the exclusions imposed by the I.G. would have been for a
period of three years,
rather than a period which is coterminous with the two-year exclusions imposed
by the
Department of Social Services.
2. Section 1128(b)(5)(B) of the Act authorizes the I.G. to exclude any individual
or
entity who is suspended, excluded from participation, or otherwise sanctioned,
under a
State health care program, for reasons bearing on the individual's or entity's
professional competence, professional performance, or financial integrity.
HIPAA retained, at section 1128(b)(5)(B), the exclusion authority which predated
the enactment
of HIPAA and which was formerly codified at section 1128(b)(5) of the Act. Section
1128(b)(5)(B), like the pre-HIPAA version of section 1128(b)(5), authorizes
the I.G. to exclude
any individual or entity who is suspended, excluded from participation, or otherwise
sanctioned,
under a State health care program, for reasons bearing on that individual's
or entity's professional
competence, professional performance, or financial integrity. Act, section 1128(b)(5)(B).
The I.G.'s authority to impose an exclusion under section 1128(b)(5)(B) derives
from the action
taken by or pursuant to a State health care program. The I.G. is authorized
to impose an
exclusion under section 1128(b)(5)(B) where a State takes one of the actions
described in that
section for any of the reasons described in that section. Because the I.G.'s
authority to exclude
under section 1128(b)(5)(B) derives from the action taken by a State, and not
from the conduct
on which that action is based, an individual or entity who is excluded pursuant
to the section may
not attack the I.G.'s authority to exclude by asserting that the State acted
improperly, or that the
individual or entity did not engage in the conduct which the State found to
be grounds for its
action.
3. An exclusion that is imposed by the I.G. under section 1128(b)(5)(B) of
the Act
must be at least coterminous with the State exclusion, suspension, or other
sanction on
which the I.G.'s exclusion determination is based.
The I.G. has discretion to impose an exclusion under section 1128(b)(5)(B)
where there exists
State action authorizing an exclusion. However, under HIPAA, where the I.G.
chooses to impose
an exclusion, Congress has directed that the exclusion be for a period of time
that is at least
coterminous with the State exclusion, suspension, or other sanction on which
the I.G.'s exclusion
determination is based. Act, section 1128(c).
Arguably, sections 1128(b)(5)(B) and 1128(c) give the I.G. discretion to impose
an exclusion
under section 1128(b)(5)(B) that is for a period which is greater than coterminous
with a State
exclusion, suspension, or other sanction. If the I.G. did so, there would be
an evidentiary issue of
whether the greater-than-coterminous exclusion is reasonable. But, where the
I.G. elects to
impose a coterminous exclusion, there can be no evidentiary issue of reasonableness,
because
Congress established that a coterminous exclusion is reasonable in a case involving
an exclusion
imposed under section 1128(b)(5)(B) of the Act. Act, section 1128(c).
4. Petitioners were excluded from participating in a State health care program
for
reasons bearing on their financial integrity.
Petitioners were excluded from participating in a State health care program
for reasons bearing on
their financial integrity. I base this conclusion on the following undisputed
facts.
Petitioner Louis Scotti is an orthotist and prosthetist. He is president and
chief operating officer
of Petitioner Orthotic. Petitioner Donna Scotti is a shareholder in Petitioner
Orthotic.
Petitioners' Brief at 2; See I.G. Ex. 5 at 1. Petitioner Orthotic was established
to operate as a
vendor of durable medical equipment including durable medical equipment that
is requisitioned for
use by recipients of the New York Medical Assistance Program. I.G. Ex. 5 at
1. I take notice
that the New York Medical Assistance Program is New York's Medicaid program,
and is a State
health care program within the meaning of the Act. See I.G. Ex. 5 at 1.
On March 28, 1996, the Department of Social Services notified Petitioner Louis
Scotti that it had
determined to exclude him, Petitioner Donna Scotti, and Petitioner Orthotic
from participating in
the New York Medical Assistance Program for a period of at least five years.
I.G. Ex. 1 at 2.
Additionally, the Department of Social Services notified Petitioner Louis Scotti
that it would seek
restitution of $38,577.22, plus interest. Id. The Department of Social Services
sent a
substantially identical notice to Petitioner Donna Scotti on or about April
1, 1996. I.G. Ex. 2.
The determinations to exclude Petitioners were premised on an audit report of
Petitioner Orthotic
which found that Petitioner Orthotic had engaged in unacceptable and improper
billing practices
resulting in overpayments to Petitioner Orthotic. I.G. Ex. 3 at 3.
The Department of Social Services based its determinations on a conclusion
that Petitioners had
engaged in unacceptable practices. I.G. Ex. 1 at 1; I.G. Ex. 2 at 1. The Department
of Social
Services defined an "unacceptable practice" to be a practice that
includes fraud or abuse. Id.
Specifically, the Department of Social Services found that Petitioners had engaged
in the
following unacceptable practices: submitting false claims; making false statements
to support
Medicaid reimbursement claims; failing to disclose facts concerning possible
unauthorized
payments or overpayments; and failing to maintain records or to make relevant
records available
to auditors. I.G. Ex. 1 at 1 - 2; I.G. Ex. 2 at 1 - 2.
On October 31, 1996, Petitioners entered into a settlement agreement with the
Department of
Social Services. I.G. Ex. 5. I note that, in its preamble, the settlement agreement
refers only to
the Department of Social Services and Petitioner Orthotic as parties. Id. at
1. However, it is
evident from the text of the agreement and from the signatures of Petitioners
Louis and Donna
Scotti, that the agreement is between the Department of Social Services and
all three Petitioners.
I.G. Ex. 5.
Petitioners and the Department of Social Services agreed that the period of
exclusion of
Petitioners from participating in the New York Medical Assistance Program would
be reduced
from five years to two years. The exclusion was agreed to commence on April
8, 1996 and to end
on April 7, 1998. Any of the Petitioners could apply to the Department of Social
Services for
reinstatement to the New York Medical Assistance Program on or after April 7,
1998. I.G. Ex. 5
at 2 - 3. The parties also agreed that the Department of Social Services could
offset $38,577.22
in withheld payments against the overpayment in that amount which the Department
of Social
Services had determined that Petitioners caused. I.G. Ex. 5 at 3; see I.G. Ex.
1 at 2, I.G. Ex. 2 at
2.
The settlement agreement contains a disclaimer of liability by Petitioners. It recites that:
[b]y entering into this Stipulation of Settlement . . . [Petitioners] do not
admit to
committing specific acts of wrong doing, nor does the Department [of Social
Services] contend that specific acts of wrong doing, or specific practices deemed
"unacceptable" under the Department's regulations were committed by
. . .
[Petitioners].
I.G. Ex. 5 at 3 - 4.
The evidence plainly establishes that Petitioners were excluded from participating
in a State health
care program. Petitioners agreed to be excluded from the New York Medical Assistance
Program, a State health care program, as part of their settlement agreement
with the Department
of Social Services. I.G. Ex. 5.
Petitioners argue that an exclusion which is agreed to as part of a settlement
is not an "exclusion"
within the meaning of section 1128(b)(5)(B) of the Act. Petitioners assert that
there must be an
adjudication of culpability for an exclusion to be an "exclusion"
within the meaning of section
1128(b)(5)(B). Petitioners contend that their agreement to settle their cases
with the Department
of Social Services may not be construed to include an exclusion of Petitioners
from participating
in the New York Medical Assistance program because no final adjudications of
culpability were
made in Petitioners' cases. Petitioners' brief at 4 - 7.
Section 1128(b)(5)(B) does not require that there be an adjudication of culpability
in order for
there to be a State action giving the I.G. the authority to impose an exclusion.
The Act contains
no language which supports Petitioners' argument. An exclusion is an "exclusion"
within the
meaning of the section, whether it is imposed by a State agency based on an
adjudication, or
whether it is agreed to as a settlement of a State action, as is the case here.
Petitioners were excluded for reasons bearing on their financial integrity.
The exclusion
determinations by the Department of Social Services were predicated on findings
that Petitioners
had engaged in financial misconduct resulting in overpayments to Petitioner
Orthotic, which
included submitting false reimbursement claims and making false statements in
connection with
those claims. I.G. Ex. 1 at 1 - 2; I.G. Ex. 2 at 1 - 2; I.G. Ex. 3 at 3.
Petitioners argue that the reasons for their exclusions may not be inferred
from the Department of
Social Services exclusion determinations in their cases, inasmuch as they settled
their cases with
the Department of Social Services with an agreement in which liability was disclaimed.
See I.G.
Ex. 5 at 3 - 4. The disclaimer notwithstanding, I find that Petitioners were
excluded for reasons
bearing on their financial integrity.
The settlement agreement between Petitioners and the Department of Social Services
did not take
place in a vacuum. Had the Department of Social Services not made determinations
of financial
misconduct, then there would not have been a settlement agreement. Petitioners
entered into the
settlement agreement because it offered them less restrictive sanctions than
those which the
Department of Social Services at first determined to impose.
Section 1128(b)(5)(B) does not require that the State determination which impels
a settlement
become a final determination by the State in order for it to be the reason underlying
a settlement
agreement which results in an individual or entity being excluded. Nor does
the Act require that
an excluded party accept or agree to a finding of liability. The Act only requires
that an exclusion
(whether it be imposed or agreed to by settlement) relate to the excluded individual's
professional
competence, professional performance, or financial integrity.
Under section 1128(b)(5)(B), I find that the requisite relationship between
an exclusion and an
individual's professional competence, professional performance, or financial
integrity exists if a
State determines to impose an exclusion based on any of the reasons described
in section
1128(b)(5)(B), and the excluded party then settles with the State for a less
stringent exclusion as a
way of avoiding the exclusion that the State originally determined to impose.
In such a case, a
reason for the exclusion agreed to between the State and the excluded individual
is the findings of
misconduct by the State which underlie the State's initial determination. That
is so, because no
exclusion would be agreed to absent the underlying findings of misconduct.
Petitioners argue additionally that the Department of Social Services determinations
may not be
used as a basis for establishing their culpability. However, Petitioners' culpability
is not at issue
here. As I hold at Finding 2, the I.G.'s authority to exclude pursuant to section
1128(b)(5)(B)
derives from the exclusion action taken by a State authority. What is necessary
to give the I.G.
authority to exclude under section 1128(b)(5)(B) is that a State make a determination
about an
individual's culpability which becomes a reason for that individual's ultimate
exclusion by the
State. The accuracy of that determination is not relevant.
5. The I.G. is authorized to exclude Petitioner under section 1128(b)(5)(B) of the Act.
The evidence establishes the necessary prerequisites to give the I.G. authority
to exclude
Petitioners pursuant to section 1128(b)(5)(B) of the Act. Petitioners were excluded
from
participation in a State health care program. They were excluded for reasons
bearing on their
financial integrity.
6. The exclusions are reasonable.
The I.G. imposed exclusions against Petitioners that are coterminous with the
exclusions that
were imposed against them as a result of their settlement agreement with the
Department of
Social Services. The remedies that were imposed by the I.G. in this case comport
with the
requirements of section 1128(c) of the Act. Therefore, they are reasonable.
Petitioners assert that it would not be in the interest of justice for the
I.G. to exclude them.
Petitioners' brief at 11 - 12; P. Ex. 2. Essentially, they argue that the exclusions
are not fair to
Petitioners. They assert also that, to the extent that Petitioners submitted
inaccurate or
unsupported reimbursement claims to the New York Medical Assistance Program,
such claims
were the consequence of innocent errors and not of misconduct. Id.
I do not find that these arguments are relevant to the issues I may hear and
decide. Congress
settled the issue of whether exclusions imposed by the I.G. pursuant to section
1128(b)(5)(B) that
are coterminous with the State sanctions on which they are based are reasonable,
by requiring that
the I.G. impose exclusions in such cases that are at least coterminous with
the State sanctions on
which they are based.
________________________
Steven T. Kessel
Administrative Law Judge