SUBJECT:

Roberto Kutcher-Olivo, M.D.,

Petitioner,

The Inspector General

DECISION

This case is before me pursuant to a request for hearing filed on April 26, 2001 by Roberto Kutcher-Olivo, M.D. (Petitioner).

I. Background

By letter dated February 28, 2001, the Inspector General (I.G.) notified Petitioner that he was being excluded from participation in the Medicare, Medicaid, and all federal health care programs, as defined in section 1128B(f) of the Social Security Act (Act), for a minimum period of five years. The I.G. informed Petitioner that he was being excluded, pursuant to section 1128(b)(1) of the Act, due to his conviction in the U.S. District Court for the District of Puerto Rico of a criminal offense related to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct.

I held a telephone conference in this case on June 6, 2001. The parties agreed that this matter could be decided based on written arguments and documentary evidence, and that an in-person evidentiary hearing was unnecessary. On July 17, 2001, the I.G. submitted her Motion for Summary Affirmance (I.G. Br.) and brief in support, accompanied by four proposed exhibits. These have been identified as I.G. Exhibits (I.G. Exs.) 1-4. On September 14, 2001, Petitioner submitted his brief in response to the I.G.'s brief (P. Br.), accompanied by four proposed exhibits. These have been identified as Petitioner's Exhibits (P. Exs.) 1-4. The I.G. filed a reply brief (I.G. Reply) on October 22, 2001. Neither party objected to the opposition's proposed exhibits. Thus, I admit both parties' exhibits as previously identified.

It is my decision to sustain the determination of the I.G. to exclude Petitioner from participating in the Medicare, Medicaid, and all federal health care programs. I base my decision on the documentary evidence, the applicable law and regulations, and the arguments of the parties. It is my finding that the Petitioner was convicted of a criminal offense related to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct. However, based upon the facts and evidence submitted, I find that the five-year exclusion imposed by the I.G. is unreasonable and should be reduced to four years.

II. Issues

1. Whether the I.G. had a basis upon which to exclude Petitioner from participation in the Medicare, Medicaid, and all other federal health care programs; and

2. Whether the five-year period of exclusion imposed by the I.G. is unreasonable.

III. Applicable Law and Regulations

Section 1128(b)(1)(B) of the Act authorizes the Secretary of the U.S. Department of Health and Human Services (Secretary) to exclude from participation in any federal health care program (as defined in 1128B(f)), any individual convicted under federal or state law, of a criminal offense related to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct.

The exclusion under section 1128(b)(1)(B) shall be for three years unless the Secretary determines, in accordance with published regulations, that a shorter period is appropriate because of mitigating circumstances or that a longer period is appropriate because of aggravating circumstances. Act, section 1128(c)(3)(D); 42 C.F.R. � 1001.201(b).

Pursuant to 42 C.F.R. � 1001.2007, a person excluded under 1128(b)(1) may file a request for hearing before an administrative law judge (ALJ).

Section 1128(b) of the Act authorizes the Secretary to exclude individuals from receiving payment for services that would otherwise be reimbursable under Medicare, Medicaid, or other federal health care programs.

IV. Findings of Fact and Conclusions of Law

1. During the period of time relevant to this case, Petitioner managed and controlled Basic American Medical-Puerto Rico, Inc. (BAMI), a corporation organized under the laws of the State of Indiana and registered and authorized to do business in the Commonwealth of Puerto Rico. I.G. Ex. 1, at 1.

2. BAMI operated the Hato Rey Community Hospital. I.G. Ex. 1, at 1.

3. Petitioner was president of BAMI. I.G. Ex. 1, at 2.

4. Pursuant to financing provided by the U.S. Department of Housing and Urban Development (HUD), Hato Rey Community Hospital was subject to a regulatory agreement which became effective on March 31, 1984. This agreement provided that "the owners shall not, without the prior approval of the Secretary of HUD, encumber, pledge or dispose of, or encumber any personal property of the project, including income, or pay out any funds except from surplus cash, except for reasonable operating expenses and repair." I.G. Ex. 2, at 11.

5. As of March 31, 1993, an audit made of the Hato Rey Community Hospital revealed that project funds were diverted as loans and recorded as "Accounts Receivable" in the hospital's books. Said funds were diverted to Petitioner as stockholder and to several affiliate entities owned by Petitioner. I.G. Ex. 2, at 12.

6. The above-referenced disbursements were made without HUD approval while Petitioner, who operated Hato Rey Community Hospital, made only four monthly payments on its mortgage between 1988 and 1996. I.G. Ex. 2, at 13.

7. On October 22, 1997, Petitioner was indicted in the U.S. District Court for the District of Puerto Rico, along with his wife, Flor M. Díaz Fontán a/k/a/ F. Díaz de Kutcher, by Criminal Indictment No. 97-237. I.G. Ex. 1.

8. Specifically, Count II of the Indictment charged Petitioner with "aiding and abetting each other, being owners, agents, managers, and otherwise in custody, control and possession of the Hato Rey Community Hospital, did knowingly and willfully use and authorize the use of in excess of five million dollars ($5,000,000) of the rents assets, proceeds, income and other funds derived from the Hato Rey Community Hospital, a property that was securing a mortgage note insured, acquired and held by the Secretary of the Department of Housing and Urban Development during a time when the mortgage was in default, for purposes other than to meet actual and necessary expenses. All in violation of Title 12, United States Code, section 1715z-19; and Title 18, United States Code, Section 2." I.G. Ex. 1, at 18, 19.

9. The acts resulting in Petitioner's indictment occurred from on or about June 24, 1988 through on or about October 1996. I. G. Ex. 1, at 18.

10.On June 30, 1999, Petitioner pled guilty to Count II of the Indictment pursuant to a plea agreement. I.G. Ex. 2.

11.Petitioner was sentenced on April 7, 2000, to 10 months of home confinement, two years probation, and was ordered to pay a $10,000 fine. I.G. Ex. 3.

12. On February 28, 2001, the I.G. notified Petitioner that, as a result of his criminal conviction, he was being excluded for five years from participation in the Medicare, Medicaid, and all federal health care programs under section 1128(b)(1) of the Act. I.G. Ex. 4.

13.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 of a misdemeanor relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct in connection with the delivery of a health care item or service.

14. Where the I.G. determines 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. Act, section 1128(c)(3)(D); 42 C.F.R. � 1001.201(b)(1).

15.In a case involving an exclusion under section 1128(b)(1) of the Act, an exclusion of more than three years may be justified where there exist aggravating factors that are not offset by mitigating factors.

16. 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)(ii); I.G. Ex. 1, at 18.

17.The I.G. proved the existence of a second aggravating factor in that the court imposed a sentence on Petitioner for his crimes which included a period of incarceration. 42 C.F.R. � 1001.201(b)(2)(iv); I.G. Ex. 3, at 2, 3.

18.A period of exclusion may be lessened upon the showing of specific mitigating factors. 42 C.F.R. � 1001.201(b)(3).

19. Petitioner proved the existence of a mitigating factor in that he was convicted of three or fewer 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 $1,500. 42 C.F.R. � 1001.201(b)(3)(i).

20.The I.G. had a basis for excluding Petitioner from participation in Medicare, Medicaid and all federal health care programs.

21. The I.G.'s determination to exclude Petitioner for a period of five years is unreasonable because no consideration was given to the mitigating factor present in Petitioner's case.

V. Discussion

The Petitioner managed and controlled Basic American Medical-Puerto Rico, Inc. (BAMI), a corporation organized under the laws of the State of Indiana and registered to do business in the Commonwealth of Puerto Rico. BAMI operated the Hato Rey Community Hospital, and Petitioner was its president. I.G. Ex. 1, at 1, 2.

Pursuant to financing provided by the HUD on March 31, 1984, the Hato Rey Community Hospital was subject to a regulatory agreement providing that:

The owners shall not, without prior written approval of the Secretary of HUD, encumber, pledge or dispose of, or encumber any personal property of the project, including income, or pay out any funds except from surplus cash, except for reasonable operating expenses and repair.

I.G. Ex. 2, at 11.

As of March 31, 1993, an audit of Hato Rey Community Hospital revealed that project funds were diverted as loans, and recorded as "Accounts Receivable" in the hospital's books. These funds were diverted to Petitioner as the hospital's stockholder and also to several affiliate entities owned by Petitioner. The disbursements were made while the hospital made only four monthly payments on its mortgage between 1988 and 1996. I.G. Ex. 2, at 12, 13. Petitioner did not obtain prior approval from HUD for these transactions. Id.

On October 22, 1997, Petitioner and his wife Flor M. Díaz Fontán, a/k/a/ F. Díaz de Kutcher, were indicted in a two-count Criminal Indictment No. 97-237 in the U.S. District Court for the District of Puerto Rico. I.G. Ex. 1. Pursuant to an agreement, Petitioner entered a plea of guilty to Count II of the Indictment on June 30, 1999, and the first count was dismissed. Count two charged Petitioner with:

From on or about June 24, 1988 through in or about October, 1996, . . .aiding and abetting each other, being owners, agents, managers, and otherwise in custody, control and possession of the Hato Rey Community Hospital, did knowingly and willfully use and authorized the use of in excess of five million dollars ($5,000,000) of the rents, assets, proceeds, income and other funds derived from the Hato Rey Community Hospital, a property that was securing a mortgage note insured, acquired and held by the Secretary of the Department of Housing and Urban Development during a time when the mortgage note was in default, for purposes other than to meet actual and necessary expenses. All in violation of Title 12, United States Code, section 1715z-19; and Title 18, United States Code, Section 2.

I.G. Ex. 1, at 18, 19.

On April 7, 2000, Petitioner was sentenced to 10 months home confinement, two years probation, and was ordered to pay a fine of $ 10,000. I.G. Ex. 3.

By letter dated February 28, 2001, the I.G. informed Petitioner that he would be excluded from participation in Medicare, Medicaid, and all federal health care programs for a period of five years. I.G. Ex. 4.

A. I.G.'s contentions

The I.G. asserts that she has a basis for the exclusion in this case in light of Petitioner's conviction in the U.S. District Court for the District of Puerto Rico of an offense relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct with respect to any act or omission in a program (other than a health care program) operated or financed in whole or in part by any Federal, State, or local government agency. Additionally the I.G. argues that, inasmuch as the acts resulting in Petitioner's conviction spanned a period of approximately eight years, and his sentence included a period of incarceration, there are two aggravating factors present which justify lengthening the exclusion by two years. Thus, states the I.G., a five-year exclusion in this case is not unreasonable, even though there is one mitigating factor present in this case.

B. Petitioner's contentions

Petitioner contends that the I.G. does not have a basis for the exclusion in this case because, according to the plea agreement he entered into, he was excluded from all government programs for a period of five years beginning on February 27, 1998. Consequently, argues Petitioner, based on the plea agreement approved by the U.S. District Court, he cannot be excluded for the same facts and conviction again, for another five-year period.

In the alternative, Petitioner contends that the five-year exclusion is unreasonable because the I.G. failed to consider the mitigating factor present in the case. In this regard, he asserts that the I.G. did not consider that the conviction was for three or fewer misdemeanor offenses and the loss to a government program or to other individuals or entities was less than $ 1,500.

C. Analysis of the parties' contentions

Petitioner's argument that the I.G. had no basis for the exclusion in this case is without merit. As stated earlier, Petitioner alleges that the plea agreement he entered into provided for exclusion from all government programs commencing February 27, 1998. Paragraph 11 of the plea agreement signed by Petitioner on June 30, 1999, under the heading "DEBARMENT OF DEFENDANT FROM H.U.D. PROGRAMS" states as follows:

As part of this agreement, the United States, through its agency known as the United States Department of Housing and Urban Development (HUD) states that the defendant shall be subject to debarment/exclusion from any of its benefits/programs for a period of five (5) years. (See attached letter from Dane Narode, Acting Deputy Chief Counsel of the U.S. Department of Housing and Urban Development, dated January, 1999, attached hereby as Exhibit 'I'). The starting date of the five (5) year debarment/exclusion shall be February 27, 1998.

I.G. Ex. 2, at 5.

Contrary to Petitioner's assertion, the language of the agreement only refers to exclusion from HUD programs. It does not apply to all federal programs. It is true that the attached letter ⁽¹⁾ refers to all government programs, however that language was not incorporated into the plea agreement. The letter appears to have been included to show HUD's approval of the negotiated plea, subject to certain conditions. However, the parties departed from the language of the letter which referred to exclusion from all government programs and, instead, limited participation exclusively to HUD programs. I find that the binding language is that which is found in the body of the plea agreement. Moreover, the plea agreement specifically states at paragraph 20 that "the above-stated terms and conditions constitute the entire Plea Agreement between the parties and deny the existence of any other terms and conditions not stated herein." I.G. Ex 2, at 13. Thus, it is clear that the intention of the parties was to limit the scope of exclusion to HUD programs only.

It should also be noted that the I.G.'s authority to impose an exclusion remedy derives only from the circumstances set forth in the Act and regulations duly promulgated by the Secretary of the Department of Health and Human Services. In the case before me, the circumstances that gave rise to the I.G.'s exclusion was Petitioner's conviction. The plea agreement, to which the I.G. was not privy, is not one of the circumstances from which the I.G.'s authority would derive. Thus, even if Petitioner had bound himself in the plea agreement from participation in all government programs as he claims, such exclusion would not operate as a bar to prevent the I.G. from exercising her discretion under the Act. Once the I.G. has knowledge of the existence of a conviction, which serves as the basis for the exclusion, it is within her discretion to determine how and when to proceed. Neither the law nor the regulations impose any constraints on the I.G. in that regard. Pertinent to this fact is my lack of authority to backdate the commencement of the exclusion period to a date prior to the conviction, or otherwise alter the effective date of an exclusion imposed by the I.G. acting within the scope of discretion delegated by statute. I find, therefore, that the I.G. is not bound by the plea agreement between Petitioner and the federal prosecutors, nor by an exclusion imposed by other agencies of the United States Government. Petitioner has pointed to no authority to support his argument that the I.G. would be so bound.

Petitioner's second point of contention, to the effect that the I.G. ignored the existence of mitigating factor does have merit. 42 C.F.R. � 1001.201(b)(3)(i) provides that the following factor may be considered as mitigating and a basis for reducing the period of exclusion:

(i) The individual or entity was convicted of 3 or fewer 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 $1,500.

The I.G. concedes that Petitioner satisfies the requirements of the above-referenced mitigating factor. However, in spite of this the I.G. argues that a five-year exclusion is not unreasonable. I disagree. In the imposition notice, the I.G. assessed the penalty after taking into account the existence of two aggravating factors. However, at that time, the I.G. did not recognize the existence of any mitigating factor. She argued as much in her brief. The I.G. did not concede the existence of a mitigating factor until the filing of her reply brief. Inasmuch as the I.G. arrived at the penalty in this case under the presumption that no mitigating factor existed, I find that a five-year exclusion is unreasonable.

I cannot agree with Petitioner, however, that the period of exclusion should be reduced to less than three years because of the "weakness" of the aggravating factors in this case and the "strength" of the mitigating factor. The I.G. has established that the delinquent activity spanned a period of approximately eight years, and the sentence imposed included incarceration. Those aggravating factors are certainly more significant than Petitioner's mitigating factor, which merely reflects that his acts of misconduct could have been more egregious. P. Br., at 4-6. ⁽²⁾

In view of the foregoing, I find that a four-year period of exclusion is not unreasonable. Such length of exclusion is within a reasonable range of possible exclusion periods given the circumstances of this case, in which two aggravating factors and one mitigating factor were present. The four-year exclusion is a legitimate remedy consistent with the purpose of section 1128 of the Act. Specifically, that purpose is to protect federally-funded health care programs and their beneficiaries and recipients from untrustworthy individuals.

In closing, I must note that Petitioner's implied claim of innocence on page five, at footnote three, of his response brief is unavailing. 42 C.F.R. � 1001.2007(d), provides that:

When the exclusion is based on a conviction . . . the basis for the underlying determination is not reviewable and the individual or entity may not collaterally attack the underlying determination . . .

See also Peter J. Edmonson, DAB No. 1330 (1992).

VI. Conclusion

The I.G. is authorized to exclude Petitioner from Medicare, Medicaid, and all federal health care programs pursuant to section 1128(b)(1) of the Act. However, based upon the facts in this case and the existence of one mitigating fact, I determine that a four-year period of exclusion is reasonable and appropriate.

José A. Anglada

Administrative Law Judge

1. The letter from HUD Acting Deputy Chief Counsel appears at Exhibit "B" of Petitioner's request for hearing.

2. For an example of what I would consider a strong mitigating factor, refer to 42 C.F.R. � 1001.201(b)(3)(iii). That subsection refers to excluded individuals who cooperate in bringing other offenders to justice.