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DATE: March 5, 1999

In the Case of:

Florence Peters, D.P.M.,

Petitioner,

- v. -

The Inspector General.

Docket No. C-98-439
Decision No. CR582

By letter dated May 29, 1998, the Inspector General (I.G.), United States Department of Health and Human Services (DHHS), notified Florence Peters, D.P.M. (Petitioner), that she would be excluded from participation in the Medicare, Medicaid, and all federal health care programs for a minimum period of five years.⁽¹⁾ The I.G. imposed this exclusion pursuant to section 1128(b)(1) of the Social Security Act (Act), based on Petitioner's conviction in the United States District Court for the Northern District of Illinois for criminal offenses related to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct in connection with the delivery of a health care item or service.

By letter dated July 23, 1998, Petitioner requested review of her five-year exclusion. The I.G. moved for summary disposition. 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.

Both parties submitted briefs and Petitioner submitted a reply brief. The I.G. submitted three proposed exhibits (I.G. Ex. 1-3). Petitioner did not object to the I.G.'s proposed exhibits and I receive into evidence I.G. Ex. 1-3.

I conclude that Petitioner is subject to a five-year period of exclusion from participation in the Medicare and Medicaid programs, and I therefore affirm the I.G.'s determination.

Under section 1128(b)(1) of the Act, the Secretary may exclude from participation in Medicare and Medicaid:

[A]ny individual or entity that has been convicted, under Federal or State law, in connection with the delivery of a health care item or service or with respect to any act or omission in a program operated by or financed in whole or in part by any Federal, State, or local government agency, of a criminal offense relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct.

See Medicare and Medicaid Patient and Program Protection Act of 1987, Pub. L. 100-93 (MMPPPA).

Under the implementing regulations contained in 42 C.F.R. � 1001.201(b)(1), the I.G., acting on behalf of the Secretary, will impose a three-year exclusion under section 1128(b)(1) of the Act, unless certain specified aggravating or mitigating factors are present which form a basis for lengthening or shortening the period of exclusion.

The I.G. may consider six aggravating factors, listed under 42 C.F.R. � 1001.201(b)(2), as a basis for lengthening the exclusion period. The specific aggravating factors pertinent to this case are:

1. The acts that resulted in the conviction, or similar acts, were committed over a period of one year or more; and,

2. The sentence imposed by the court included incarceration.

42 C.F.R. � 1001.201(b)(2)(ii) and (iv).⁽²⁾

The I.G. may consider four mitigating factors as a basis for reducing the exclusion period under 42 C.F.R. � 1001.201(b)(3):

1. The individual or entity was convicted of 3 or fewer misdemeanor offenses, and the entire amount of financial loss to a government program or to other individuals or entities due to the acts that resulted in the conviction and similar acts is less than $1500;

2. The record in the criminal proceedings, including sentencing documents, demonstrates that the court determined that the individual had a mental, emotional, or physical condition, before or during the commission of the offense, that reduced the individual's culpability;

3. The individual's or entity's cooperation with Federal or State officials resulted in--

(A) Others being convicted or excluded from Medicare or any of the State health care programs, or

(B) The imposition of a civil money penalty against others; or

4. Alternative sources of the type of health care items or services furnished by the individual or entity are not available.

Petitioner asserts that she has not been convicted, as defined by section 1128(i) of the Act, of a criminal offense "related to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct in connection with the delivery of a health care item or service or related to any act or omission in a health care program operated by or financed in whole or part by a Federal, State or local government agency." Petitioner's Initial Brief (P. Br.) at 2. Petitioner concedes that she was convicted for felony offenses related to making false statements on her individual and corporate tax returns for tax years 1988 and 1989, and for "corruptly endeavoring to obstruct or impede the administration of the internal revenue laws." P. Br. at 2-3. Petitioner maintains, however, that such her offenses are unrelated to the delivery of a health care item or service, or to any act or omission in a health care program operated by or financed by a federal, State or local government agency. P. Br. at 3.

Petitioner also argues that, even if the Act does apply to her conduct, the 1996 provisions of section 1128(b)(1) of the Act apply in this case, and therefore, her offenses "do not fit the descriptions" of offenses covered by section 1128(b)(1) of the Act. P. Br. at 4. Specifically, Petitioner states that the 1996 provisions apply only to convictions for misdemeanor offenses, while she was convicted for felony offenses. Id. Petitioner also contends that none of her offenses occurred after the August 21, 1996 effective date of the Health Insurance Portability and Accountability Act of 1996 (HIPAA). Therefore, her offenses do not meet the requirements of section 1128(b)(1). P. Br. at 5. Finally, Petitioner asserts that section 1128(b)(1) of the Act is inapplicable because her convictions were unrelated to the delivery of a health care item or service. P. Br. at 4-5.

Petitioner also maintains that, even if the provisions of section 1128(b)(1) of the Act are applicable, the length of exclusion imposed is not reasonable, because the specific aggravating factors the I.G. cited in her case do not support a five-year exclusion. In support of her argument, Petitioner contends that her acts were not continuous, but occurred on the discrete dates she filed tax returns. She also argues that her sentence, which included incarceration, did not reflect an individual assessment of Petitioner's actions. Rather, Petitioner contends that the court imposed a sentence of incarceration based solely upon federal sentencing guidelines. P. Br. at 6-7.

1. During the period relevant to this case, Petitioner was licensed to practice podiatry in the State of Illinois. I.G. Ex. 1.

2. During the period relevant to this case, Petitioner was the sole shareholder of Dr. Florence L. Peters, Ltd., a corporation incorporated under the laws of the State of Illinois, which conducted business as Suburban Podiatry Associates (Corporation). I.G. Brief in Support of Motion for Summary Disposition (I.G. Br.) at 5; I.G. Ex. 1.

3. On November 14, 1996, a grand jury charged Petitioner, in a First Superseding Indictment filed in the United States District Court for the Northern District of Illinois, with five counts of federal income tax fraud in violation of 26 U.S.C. � 7206(l). I.G. Ex. 1.

4. In Counts One and Three of the indictment, Petitioner was charged with filing corporate income tax returns on behalf of the Corporation, for calendar years 1988 and 1989, respectively, that contained numerous false entries including but not limited to: understating the amount of gross business receipts; reporting personal expenses on equipment and home improvements as business-related repair expenses and as capital expenditures, subject to depreciation allowances; and, falsely claiming a corporate loss. Id.

5. In Counts Two and Four of the indictment, Petitioner was charged with filing, during calendar years 1988 and 1989, respectively, individual income tax returns that under-reported her total income, and failed to disclose additional income in the form of personal services paid for by the Corporation. Id.

6. In Count Five of the indictment, Petitioner was charged with conduct that, beginning at least as early as March 23, 1987 and continuing until at least June 1992, amounted to Federal tax fraud. Specifically, Petitioner was charged with fraudulently and corruptly obstructing and impeding and endeavoring to obstruct and impede the due administration of the Internal Revenue Code, by engaging in activities such as: diverting business income from the Corporation's account into her personal bank account and accounts she maintained for her children; using diverted funds for personal purposes; concealing her personal use of the Corporation's expenditures; and making misrepresentations to the Internal Revenue Service (IRS). Id., at 10.

7. On June 30, 1997, Petitioner was found guilty and a judgment was entered against her in the United States District Court for the Northern District of Illinois convicting her of all five counts of the indictment. I.G. Ex. 2.

8. Petitioner was sentenced to 27 months of imprisonment, one year of supervised release and 100 hours of community service, and ordered to pay a fine of $5000 and prosecution costs of $8,693.30. I.G. Ex. 2.

9. On May 29, 1998, the I.G. notified Petitioner that she was being excluded for five years from participation in the Medicare, Medicaid, and all federal health care programs, pursuant to section 1128(b)(1) of the Act. I.G. Ex. 3.

10. Under section 1128(b)(1) of the Act, the I.G. is authorized to exclude any individual or entity that has been convicted, under federal or State law, in connection with the delivery of a health care item of service or with respect to any act or omission in a program operated by or financed in whole or in part by any federal, State, or local government agency, of a criminal offense relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct.

11. When the I.G. makes a determination to exclude an individual pursuant to section 1128(b)(1) of the Act, the term of exclusion will be for a period of three years, in the absence of aggravating or mitigating factors that would support an exclusion of more or less than three years. 42 C.F.R. � 1001.201(b)(1).

12. In a case involving an exclusion under section 1128(b)(1) of the Act, the I.G. may exclude an individual or entity for more than three years where aggravating factors exist which are not offset by mitigating factors. 42 C.F.R. � 1001.201(b)(2) and (3).

13. Petitioner was convicted under federal law, in connection with the delivery of a health care item or service, of criminal offenses relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct. I.G. Ex. 1, 2.

14. The I.G. is authorized to exclude Petitioner pursuant to section 1128(b)(1) of the Act.

15. The I.G. proved the presence of an aggravating factor, in that the acts underlying Petitioner's conviction, or similar acts, took place over the course of more than one year. 42 C.F.R. � 1001.201(b)(2); I.G. Ex. 1.

16. The I.G. proved the existence of a second aggravating factor in that the court imposed a sentence on Petitioner for her crimes to include a period of incarceration. 42 C.F.R. � 1001.201(b)(2); I.G. Ex. 2.

17. Petitioner did not prove the presence of any mitigating factor.

18. The I.G. established evidence relating to the aggravating factors which show Petitioner to be untrustworthy to provide care to beneficiaries and recipients of federally funded health care programs. I.G. Ex. 1.

19. The I.G. properly excluded Petitioner from the pursuant to section 1128(b)(1) of the Act.

20. The I.G. determination to exclude Petitioner for a period of five years is reasonable.

Petitioner does not dispute that she has been convicted under federal law, and that her criminal offenses are related to making false statements on personal and corporate federal income tax returns. Rather, she maintains that section 1128(b)(1) of the Act does not apply in her case because her convictions did not arise in connection with the delivery of a health care item or service, or to any act or omission in a health care program operated by or financed by a federal, State or local government agency, and do not meet the requirements of the Act.

I find no merit to this argument and conclude that section 1128(b)(1) of the Act is clearly written to encompass Petitioner's convictions. The record clearly establishes that Petitioner's convictions arose out her falsification of tax records and misstating of income and deductions relating to her medical practice. Such sequence of events is a sufficient nexus to bring her offenses within the ambit of section 1128(b)(1) of the Act.

This interpretation is consistent with prior decisions administrative law judges (ALJ(s)) have issued in Departmental Appeals Board (DAB) cases. In those cases, ALJs have found that section 1128(b)(1) applies to persons who have been convicted of defrauding the United States by attempting to impair the lawful functions of the IRS and filing false tax returns, where such convictions arose out of a business involving the delivery of a health care item or service.

In Francis Craven, DAB CR275 (1991), the I.G. excluded a hospital administrator under section 1128(b)(1), based upon his conviction for falsifying hospital cost reports to disguise salary increases as non-taxable payments. The ALJ found that two facts were sufficient to establish that the petitioner's conviction was in connection with the delivery of a health care item or service. First, the petitioner was employed by an entity providing health care items or services. Second, the petitioner falsified the health care entity's records. Id., at 9. See also, Joel Davids, DAB CR137, aff'd, DAB 1283 (1991); Frank J. Haney, DAB CR81 (1990).

In the instant case, Petitioner used her position as a health care professional, and as the sole shareholder and a health care provider of the Corporation, to perpetrate tax fraud by concealing and diverting the medical practice's income and falsifying its records. Petitioner's tax scheme involved acts that were integrally related to her position within her podiatry practice, and her fraudulent tax returns falsely reflected her medical practice income.

According to the indictment, Petitioner participated in a scheme to defraud the IRS by understating her business income, and by diverting income from the health care business into personal bank accounts, and then failing to report the deposits. I.G. Ex. 1. She also made misrepresentations to her accountant, who evidently prepared her returns, that she made numerous personal expenditures on behalf of the corporation, when the money spent was actually diverted business income. Id. She also falsely claimed personal expenses as legitimate office expenses related to her podiatry practice. In addition to filing false corporate tax returns, Petitioner also falsely described the purposes of these expenditures on checks written from the Corporation's bank account. I.G. Ex. 1 at 10.

Petitioner further contends that, even if the provisions of section 1128(b)(1) of the Act apply in her case, that section only pertains to misdemeanor offenses, not felony offenses. P. Br. at 4-5. Petitioner further contends that section 1128(b)(1) of the Act became effective on August 21, 1996, and that by its terms, cannot apply to offenses committed before that date. Therefore, Petitioner contends, the I.G. cannot rely upon the provisions of section 1128(b)(1) of the Act as a basis for her exclusion, because her offenses occurred before 1996.

Petitioner is correct that, Congress revised section 1128(b)(1) of the Act in 1996 to provide permissive exclusion authority for misdemeanor convictions only. Congress also added a new section 1128(a)(3) of the Act in 1996. The provisions of that new section require a minimum exclusion of five years for any individual or entity convicted of a felony offense related to health care fraud, which occurred after the August 21, 1996 effective date of the HIPAA. The I.G., however, did not exclude Petitioner under the 1996 exclusion provisions of either section 1128(a)(3) or (b)(1) of the Act. Rather, the I.G. excluded Petitioner under the 1987 provisions of section 1128(b)(1).⁽³⁾

Based upon my review of the record, the Petitioner committed felony offenses which occurred between 1987 and 1992, and for which she was convicted in 1997. Therefore, I find that the applicable statutory authority is section 1128(b)(1) of the Act, which Congress enacted in 1987 as part of the MMPPPA, not the provisions of section 1128(b)(1) of the Act as amended in 1996. See Arie Oren, M.D., DAB CR490 (1997), at 12.

I further find that the five-year exclusion that the I.G. imposed against Petitioner is reasonable. First, the I.G. showed that the acts that resulted in Petitioner's conviction, or other similar acts, were committed by Petitioner over a period of one year or more. 42 C.F.R. � 1001.201(b)(2)(ii). In this case, Petitioner engaged in fraudulent conduct over a five-year period from 1987 to 1992. I.G. Ex. 1. Second, the I.G. showed that Petitioner's sentence for her crimes included a period of incarceration. 42 C.F.R. � 1001.201(b)(2)(iv). In this case, Petitioner was sentenced to incarceration for 27 months, and one year of supervision following her release from prison. I.G. Ex. 2.

Specifically, over a five-year period from 1987 to 1992, the I.G. showed that Petitioner engaged in a scheme to defraud the federal government through her manipulation of the income and expenses of her medical practice. Contrary to Petitioner's assertions, the scheme was on-going, as it involved numerous occasions on which Petitioner claimed her personal expenses as business-related expenses, and understated, failed to disclose, or attempted to conceal income. Petitioner's protracted involvement in such a scheme demonstrates that she is capable of engaging in well-organized and complex fraud. Her conduct was persistent and deliberate, not random or impulsive, and resulted in her conviction and sentence to a substantial period of incarceration for her misconduct. Petitioner attempts to downplay her incarceration as a significant aggravating factor, claiming that such period was required under sentencing guidelines. But, in fact, Petitioner's sentence under those guidelines only underscore the extent and seriousness of her fraud.

One of the objectives of section 1128 of the Act is to protect program beneficiaries and recipients by permitting the Secretary (or her delegate, the I.G.) to impose and direct exclusions from participation in Medicare and Medicaid of those individuals who demonstrate by their conduct that they cannot be trusted to provide items or services to program beneficiaries and recipients. An additional remedial objective of section 1128 of the Act is to deter individuals from engaging in conduct which jeopardizes the integrity of federally-funded health care programs. Francis Craven, DAB CR275 (1991). The I.G. presented sufficient evidence to establish the existence of two specific aggravating factors set forth in 42 C.F.R. � 1001.201(b)(2), and to prove that Petitioner is a highly untrustworthy individual.

As Petitioner offered no evidence to establish the existence of any mitigating factors described in 42 C.F.R. � 1001.201(b)(3), I find that the five-year exclusion that the I.G. imposed is reasonable. In the absence of rebuttal evidence related to Petitioner's lack of trustworthiness, a five-year exclusion will reasonably protect federally funded health care programs, and the beneficiaries and recipients of those programs.

I conclude that the I.G. was authorized to exclude Petitioner pursuant to section 1128(b)(1) of the Act. I find that the five-year exclusion is reasonable and I sustain it.

Joseph K. Riotto
Administrative Law Judge

1. In this decision, I use the term "Medicaid" to include any State health care program which receives federal funds as defined by section 1128(h) of the Act.

2. Section 1001.201 was amended, effective October 2, 1998. See 63 Fed. Reg. 46,687 (1998). As the I.G. excluded Petitioner prior to the effective date of the amendment to this section, all references herein are to the regulation in effect prior to October 2, 1998.

3. Congress enacted section 1128(b)(1) of the Act as part of the MMPPPA. The MMPPPA was enacted on August 18, 1987, and became effective on September 1, 1987, nearly ten years prior to Petitioner's conviction on June 6, 1997. Under the MMPPPA, the Secretary of DHHS received expanded exclusion authority under section 1128 of the Act, including permissive exclusion authority with respect to any individual or entity convicted, under federal or state law, of a felony or misdemeanor criminal offense related to fraud in connection with the delivery of a health care item or service. See also, 55 Fed. Reg. 12,206 (1990); 57 Fed. Reg. 3298 (1992).