Joyce Faye Hughey, DAB No. 1221 (1991)

Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Appellate Division

In the Case of: Joyce Faye Hughey, Petitioner,
- v. -
The Inspector General.
Docket No. C-201
Decision No. 1221

DATE: January 25, 1991

FINAL DECISION ON REVIEW OF ADMINISTRATIVE LAW JUDGE DECISION

On August 9, 1990, Administrative Law Judge (ALJ) Steven T. Kessel
issued a decision regarding the Petitioner's exclusion of Joyce Faye
Hughey (Petitioner) from participation in the Medicare and Medicaid
programs. 1/ Joyce Faye Hughey, DAB Civ. Rem. C-201 (1990)(ALJ
Decision). The Inspector General (I.G.) advised Petitioner on December
20, 1989 that she was being excluded for five years as a result of her
conviction in state court for receiving money misappropriated from a
patient trust fund at the nursing home for which she was working. The
exclusion was based on section 1128(b)(1) of the Act, which provides:

The Secretary may exclude . . . [a]ny individual . . .
convicted, under Federal or State law, in connection with the
delivery of a health care item or service . . . , of a criminal
offense related to fraud, theft, embezzlement, breach of
fiduciary responsibility, or other financial misconduct. 2/

The ALJ held a hearing at which the Petitioner conceded that she had
been convicted of an offense for which exclusion was authorized, but
contended that the period of exclusion was unreasonably long. The ALJ
found that the exclusion for five years was excessive, in light of the
evidence at the hearing, and reduced the exclusion to one year.

The I.G. requested review of this decision before us pursuant to 42
C.F.R. 498.74 and 498.82. 3/ The I.G. did not take exception to any
particular finding or conclusion in the decision but objected to how the
ALJ weighed as mitigating factors the Petitioner's remorse and the
circumstances leading to the crime.

The ALJ Decision

The ALJ made the following findings of fact and conclusions of law. 4/

FINDINGS OF FACT AND CONCLUSIONS OF LAW

1. Beginning in 1986, and ending in March, 1987, Petitioner was
employed as a bookkeeper at the Bellmead Nursing Home in Waco, Texas.

2. Petitioner was hired for this position by her sister, who was
employed as the administrator of the Bellmead Nursing Home.

3. At the time Petitioner was employed by the Bellmead Nursing Home,
she was experiencing personal financial hardship.

4. Petitioner's financial problems were the consequence of an
automobile accident and resulting injuries to Petitioner which had
occurred in 1984.

5. After beginning her employment at the Bellmead Nursing Home,
Petitioner learned that her sister was involved in misappropriating
funds from the patients' trust fund.

6. Petitioner did not report her sister's unlawful acts to law
enforcement authorities.

7. Petitioner did not report her sister's unlawful acts because of her
relationship to her sister.

8. Between October and December, 1986, Petitioner's sister offered
Petitioner money which had been misappropriated from the patients' trust
fund.

9. The total amount of misappropriated money Petitioner accepted from
her sister was about $875.00.

10. Petitioner's decision to accept money from her sister was motivated
in part by her relationship with her sister, and by her financial
circumstances in 1986.

11. In February, 1988, Petitioner learned that her acceptance of
misappropriated funds was being investigated by law enforcement
authorities.

12. On November 18, 1988, a criminal information was filed against
Petitioner in Texas state court.

13. Petitioner was charged in the information with two misdemeanor
offenses of unlawfully appropriating money in an amount greater than
$200.00, and less than $750.00.

14. On December 2, 1988, Petitioner pleaded guilty to a misdemeanor
charge of theft of an amount between $200.00 and $750.00.

15. Petitioner was sentenced to twelve months' probation, and to a
probation payment of $350.00.

16. Petitioner has no record of criminal offenses other than the charge
to which she pleaded guilty.

17. Petitioner has accepted responsibility for her unlawful conduct and
has acknowledged that it was wrong.

18. The criminal offense of which Petitioner was convicted is a
criminal offense as described in section 1128(b)(1) of the Social
Security Act. Social Security Act section 1128(b)(1).

19. Pursuant to section 1128(b)(1) of the Social Security Act, the
Secretary of the Department of Health and Human Services (the Secretary)
has authority to impose and direct an exclusion against Petitioner from
participating in Medicare and Medicaid. Social Security Act, section
1128(b)(1).

20. The Secretary delegated to the I.G. the duty to impose and direct
exclusions pursuant to section 1128 of the Social Security Act. 48 Fed.
Reg. 21662 (May 13, 1983).

21. On December 20, 1989, the I.G. notified Petitioner that she was
being excluded from participation in the Medicare and Medicaid programs
as a result of her conviction of a criminal offense related to fraud,
theft, embezzlement, breach of fiduciary responsibility, or other
financial misconduct.

22. Petitioner was notified that she was being excluded for five years
pursuant to section 1128(b)(1) of the Social Security Act.

23. The exclusion provisions of section 1128(b)(1) of the Social
Security Act establish neither minimum nor maximum exclusion terms in
those circumstances where the I.G. has discretion to impose and direct
exclusions. Social Security Act, section 1128(b)(1) - (14).

24. A remedial objective of section 1128(b)(1) of the Social Security
Act is to protect the integrity of federally funded health care
programs, and their recipients and beneficiaries, from individuals who
demonstrate by their conduct that they cannot be trusted to deal with
program funds or to provide items or services to recipients and
beneficiaries. Social Security Act, section 1128.

25. An additional remedial objective of section 1128 is to deter
individuals from engaging in conduct which jeopardizes the integrity of
federally-funded health care programs. Social Security Act, section
1128.

26. Petitioner was convicted of a serious criminal offense. Finding
14; see 42 C.F.R. 1001.125(b)(1).

27. The offense of which Petitioner was convicted involved an isolated
circumstance of wrongful conduct which occurred over a brief period of
time. Finding 8; see 42 C.F.R. 1001.125(b)(1).

28. The amount of money misappropriated by Petitioner, while not
insubstantial, did not constitute a large sum.

29. Petitioner's misconduct was in some respects the consequence of
emotional duress, and is at variance with her record for honesty.
Finding 10; see 42 C.F.R. 1001. 125(b)(4), (6).

30. There is little likelihood that Petitioner will in the future
repeat her unlawful conduct. Findings 16, 17, 29; see 42 C.F.R.
1001.125(b)(6).

31. The sentence imposed on Petitioner for her crime did not involve
incarceration. Finding 15; see 42 C.F.R. 1001.125(b)(5).

32. The five year exclusion imposed and directed against Petitioner is
excessive. Findings 26-30.

33. The remedial considerations of section 1128 of the Social Security
Act will be served in this case by a one year exclusion.

ALJ Decision at 2-5 (citations to record omitted).

The ALJ pointed out that no regulations have yet been adopted under
section 1128(b)(1), under which Petitioner was excluded. The current
regulations apply only to exclusions for crimes related to the Medicare
or Medicaid programs, not permissive exclusions for offenses such as
Petitioner's, which involve misconduct in other government programs or
health care services. The ALJ, nevertheless, looked to those
regulations for "broad guidelines" to determine the factors to consider
in setting the appropriate length of an exclusion. Id. at 6-7. 5/
Those regulations provide that the I.G. will consider:

(1) The number and nature of the program violations and other
related offenses;

(2) The nature and extent of any adverse impact the violations
have had on beneficiaries;

(3) The amount of damages incurred by the Medicare, Medicaid
and the social services programs;

(4) Whether there are any mitigating circumstances;

(5) The length of the sentence imposed by the court;

(6) Any other factors bearing on the nature and seriousness of
the program violations; and

(7) The previous sanction record of the suspended party under
the Medicare or Medicaid program.

42 C.F.R. 1001.125(b). The findings of the ALJ demonstrated that he
considered each of these points.

The ALJ also noted that regulations have been proposed which would
supersede the existing regulations for program-related convictions and
apply to permissive exclusions, if adopted. See 55 Fed. Reg. 12205
(1990). The ALJ declined to rely on these proposed regulations, despite
the urging of the I.G., because (1) it would not be appropriate to
assume that they will be adopted without change, and (2) it is not clear
that they would apply retroactively even if adopted. ALJ Decision at 7,
n.4; see also David Cooper R.Ph., DAB Civ. Rem. C-51, at 8, n.4 (1990).

Analysis

The I.G. objected to consideration of the Petitioner's remorse and the
circumstances of the crime in evaluating the reasonableness of the
exclusion period, arguing that standard had no basis in law. In support
of this objection, the I.G. cited the two remedial purposes of the
exclusion remedy mentioned above, protecting the programs and deterring
other possible wrongdoers. The I.G. also pointed out that the ALJ's
role was only to determine whether the exclusion period was reasonable,
i.e., "not extreme or excessive." I.G.'s Brief (Br.) at 4-5; 43 Fed.
Reg. 3744 (1983). The I.G. agreed that, in so doing, the ALJ was to use
the factors listed at 42 C.F.R. 1001.125 as guidelines, including
mitigating circumstances. Id. at 5. The I.G.'s description of the
legal standard to be applied thus appears to be substantially the same
as the standard on which the ALJ relied. The difference lies in what
effect the proposed regulations should be given and what weight various
mitigating facts should be assigned.

The I.G. argued that no weight should be given to expressions of remorse
as a mitigating factor, because such expressions are self-serving and
not a reliable measure of trustworthiness. Id. at 5-6; but see Roderick
L. Jones, R. N., DAB Civ. Rem. C-230, at 7 (1990) (Petitioner's
repentance and remorse are relevant to trustworthiness.). The I.G.
concluded that "[t]here is nothing in the record but Ms. Hughey's
alleged remorse to offset the fact that she participated in a scheme to
steal money from elderly patients in a nursing home." Id. at 6.

We find no merit in the I.G.'s arguments. The ALJ did not exonerate the
Petitioner from responsibility for her actions, and in fact emphasized
that the offense was "serious and unforgivable." ALJ Decision at 9. He
did, as the finder of fact, assess the credibility of the Petitioner and
judge that she had "credibly asserted that she had learned never to
repeat her unlawful conduct." Id. at 8. The ALJ's findings based on
witness demeanor and credibility are entitled to particular weight since
we lack the opportunity to make observations of testimony. See, e.g.,
Kopack v. NLRB, 668 F.2d 946, 953-55 (7th Cir. 1982), cert. den 456 U.S.
994; Butler-Johnson Corp v. NLRB, 608 F.2d 1303, 1305 (9th Cir. 1979).
Resolving such credibility issues is the function of the ALJ. Myers v.
Secretary of Health and Human Services, 893 F.2d 840, 846 (6th Cir.
1990) and cases cited therein.

In addition, remorse was not the only mitigating factor on which the ALJ
relied. The ALJ also found that Petitioner's demonstration of remorse
was supported by evidence of trustworthy behavior before and after the
offense, which the ALJ characterized as a "brief and isolated incident."
ALJ Decision at 8. The ALJ found that the circumstances of her crime
were unusual and unlikely to recur. Id. 6/ The I.G. is thus incorrect
in asserting that only her statements of remorse before the ALJ offset
the fact of Petitioner's crime in weighing her future trustworthiness.
Contrary to what the I.G. argued, the message of the ALJ's decision
plainly is not that "mere expressions of remorse" can thwart the
consequences intended by Congress. I.G. Br. at 7.

The I.G. sought to require the ALJ to apply the provisions of the
proposed regulations to define which mitigating factors should have been
considered. I.G. Br. at 8; 55 Fed. Reg. 12205, 12217. 7/ The short
answer is that, since proposed regulations have no legal force until
adopted, the ALJ was not bound by them. The Administrative Procedure
Act (APA) requires generally that proposed regulations be published,
followed by an opportunity for comment. 5 U.S.C. 553(b) and (c). Only
after consideration of these comments shall a final rule be issued which
may be effective, i.e., have legal force, no less than 30 days
thereafter. 5 U.S.C. 553(c) and (d). 8/ Until final publication, the
regulations may well be changed or may never be adopted at all.

It would be unfair to Petitioner to bind the ALJ to a standard for which
the Petitioner may not have prepared in presenting her evidence and of
which she could not have had notice. The Tenth Circuit has pointed out
that a proposed rule does not serve as notice of the final rule:

At the point of publication of the proposed rule the agency is,
of course, not bound to the issuance of the rule in any exact
form. . . . [U]ntil publication is made of the rule actually
adopted, the public of course does not know which course the
agency will take or how to prepare for the regulation.

Rowell v. Andrus, 631 F.2d 699, 702, n.2 (10th Cir. 1980). Therefore,
the ALJ was not restricted to the list of mitigating factors in the
proposed regulation. 9/

The I.G.'s position seems to be that once a conviction has been
demonstrated, untrustworthiness is sufficiently proved to require a
five-year exclusion and that any reduction in that period reflects a
"sympathy" standard not derived from the law. I.G. Br. at 6, 9-12. In
arguing that remorse and personal circumstances are not valid grounds to
reduce an exclusion period, the I.G. cited Frank J. Haney, DAB Civ. Rem.
C-156 (1990). In that case, the ALJ reduced an exclusion period from
five years to three, also over the I.G.'s objection, despite
Petitioner's conviction for a felony. While rejecting the stress of
Petitioner's involvement in a lawsuit as mitigation, because it might
recur, the ALJ considered other factors including character evidence,
Petitioner's mother's illness and death, and Petitioner's otherwise good
record.

In Haney, as here, the ALJ determined that a conviction alone does not
end the discussion, since a "criminal conviction in 1988 does not
necessarily evidence that [Haney] . . . is, at this time, an
untrustworthy individual." Id. at 8. If anything, the Haney decision
suggests that the ALJ in each case viewed the evidence of mitigation
individually and carefully weighed it against the factors favoring
exclusion. The ALJ reasonably determined that Petitioner, who completed
a one-year probation for a misdemeanor theft, should not undergo a
longer exclusion than Mr. Haney, who was convicted of two felonies in a
tax fraud scheme spreading over several years for which he was still
serving five years probation.

This does not mean that we would have reduced the exclusion here as
substantially as the ALJ did if we were making the decision in the first
instance. Our review of the record indicates that there are factors
which the ALJ may not have fully considered (but which the I.G. did not
raise) which lead us to question the reduction of the period of
exclusion to one year. For example, Petitioner testified that she
turned the patient account books for the Bellmead Nursing Home over to
her sister. Transcript (Tr.) at 72. It is not clear whether the ALJ
considered the fact that this may have contributed to further thefts and
that Petitioner could have instead set up a system for accounting for
the patient funds such as the system she testified she later used in
other nursing homes. Tr. at 90.

We view our role as a limited one, however. Our guidelines state that
our standard of review on disputed issues of fact is "whether the ALJ's
decision is supported by substantial evidence" and on disputed legal
issues is whether "the ALJ's decision was erroneous." DAB Guidelines,
Appendix B at 28.29 (1989). The I.G. did not challenge the ALJ's
findings of fact, and we have concluded that the I.G.'s arguments
concerning the legal standard applied are without merit. Thus, given
the limited scope of our review, we must affirm the ALJ's decision.

Conclusion

Based on the foregoing analysis, we affirm the ALJ decision.

Alexander G. Teitz

Theodore J. Roumel

Judith A. Ballard Presiding Panel Member .1. The exclusion
extends to three federally-assisted state health care programs defined
in section 1128(h) of the Social Security Act (Act), including Title XIX
(Medicaid); we follow the ALJ decision in referring to them collectively
as "Medicaid".

2. The permissive exclusion authority applied here was added by the
Medicare and Medicaid Patient and Program Protection Act of 1987, Pub.
L. No. 100-93, section 2.

3. In our Acknowledgment of Request for Review, we advised the
parties that we could dismiss the appeal only for the reasons listed at
42 C.F.R. 498.83(b), none of which appeared to apply. Petitioner was
given five days to object or the request for review would be granted.
Petitioner's submission objected generally to review but gave no grounds
or argument to support the objection. The submission was entirely
addressed to responding to the I.G.'s attack on the ALJ's ruling. We
therefore affirm our initial conclusion that no legal grounds exist to
dismiss the I.G.'s appeal and proceed to address the substantive points
raised on appeal.

4. Since neither party challenged any of the numbered findings and
conclusions and we affirm the ALJ decision below, we affirm and adopt
the ALJ's findings and conclusions.

5. We have previously held that the I.G. could properly impose
sanctions before promulgating regulations, because the statute is
self-implementing. Jack W. Greene, DAB No. 1078 (1989), aff'd sub nom.,
Greene v. Sullivan, 731 F. Supp. 835 (E.D. Tenn. 1990). (Although
Greene involved the revised provisions on mandatory exclusions, we see
no reason to treat the permissive exclusion provisions differently.) We
have also held that the ALJ may properly turn to the existing
regulations for general guidance in permissive exclusion cases. Vincent
Baratta, M.D., DAB No. 1172 at 11, n.7 (1990); see also David Cooper,
R.Ph., DAB Civ. Rem. C-51, at 8 (1990). Neither party contests these
points.

6. We think the I.G.'s concern that financial need not be given much
weight in determining trustworthiness is warranted. Such need may
recur. Here, however, the financial need was viewed by the ALJ as
merely one of a set of circumstances which he found was not likely to
recur.

7. The proposed regulations would limit the mitigating factors which
could reduce a permissive exclusion period below five years to the
following:

(i) 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 $1,500;

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

(iii) The individual's or entity's cooperation with Federal or
State officials resulted in others being convicted or excluded
from Medicare or any of the State health care programs; or

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

8. The APA provides exceptions for interpretative rules and
statements of policy, but the I.G. did not contend that any exception
would apply here. Clearly, the Secretary has issued the proposed
regulations in compliance with APA procedure and their preamble
identifies them as implementing regulations, not mere interpretations.
55 Fed. Reg. 12205. During the period before final regulations are
issued, the proposed regulations state the Secretary's intention that
these proposals "provide guidance" in imposing sanctions. Id. at 12215.
While the ALJ might thus seek such guidance, he cannot be held bound to
impose on Petitioner a limitation on acceptable evidence of mitigating
circumstances which does not appear in the statute or in any regulation
presently in force.

9. We also note that the I.G. presented nothing which convincingly
shows that application of the factors in the proposed regulation would
have made a difference here. The I.G. argued that these regulations
would have barred evidence of Petitioner's later remorse and of the
circumstances motivating the crime if not appearing in the criminal
record. The I.G. did not, however, assert that the criminal record
contained no evidence of Petitioner's remorse or the circumstances
considered relevant by the ALJ. As the ALJ found, Petitioner was
sentenced to one-year probation, not incarceration. Finally, we note
that limiting the ALJ's consideration to only those factors listed in
the proposed regulations would appear to be unwise, based on our
experience in deciding cases. It is extremely difficult to anticipate
what all relevant circumstances might be. The approach in the existing
regulations allows for consideration of "[a]ny other factors bearing on
the nature and seriousness of the program