Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
In the Case of:
Joel Davids,
Petitioner,
- v. -
The Inspector General.
DATE: December 11, 1991
Docket No. C-278
Decision No. 1283
FINAL DECISION ON REVIEW OF
ADMINISTRATIVE LAW JUDGE
DECISION
The Inspector General (I.G.) requested review of a June 18,
1991
decision of Administrative Law Judge Charles E. Stratton upholding
the
I.G. determination to exclude Joel Davids (Petitioner)
from
participation in the Medicare and Medicaid programs, but reducing
the
period of exclusion imposed by the I.G. from five years to three
years.
Joel Davids, DAB CR137 (1991) (C-278, ALJ Decision).
The Petitioner's exclusion was based on section 1128(b)(1) of the
Social
Security Act (Act), 42 U.S.C. 1320a-7(b)(1), which permits the
exclusion
of:
Any 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.
On appeal, the I.G. argued that the ALJ improperly substituted
his
judgment for that of the I.G., and that the ALJ's decision to impose
a
three-year exclusion was not supported by substantial evidence.
For the reasons discussed below, we uphold the ALJ Decision. In
doing
so, we affirm each of the ALJ's findings of fact and conclusions of
law.
1/
Background 2/
The Petitioner was employed as the Associate Administrator of Finance
of
the James C. Giuffre Medical Center (Giuffre), a non-profit health
care
institution located in Philadelphia, Pennsylvania, which receives
a
substantial portion of its annual funding from the Department of
Health
and Human Services (DHHS) under the Medicare and Medicaid
programs. A
criminal information filed in the United States District
Court for the
Eastern District of Pennsylvania (District Court), charged
the
Petitioner with conspiracy to defraud the United States by attempting
to
impede and impair the lawful functions of the Internal Revenue
Service
(IRS), and filing a false tax return.
These charges alleged that in December 1982, the Petitioner
distributed
checks to executives of Giuffre as automobile expense
reimbursement
checks which were actually retroactive lump-sum salary
increases. At
that time, the Petitioner received a check from Giuffre
for $5,000 based
on a false and inaccurate travel authorization/settlement
form he
submitted requesting six months of automobile expenses at $833.
In
actuality, the expenses had not been incurred. In January 1983,
the
Petitioner submitted a false and fraudulent automobile lease
invoice
bearing the name ELDA Leasing Co.; that company in fact did not
exist
and the company's address was that of the Petitioner's residence.
From January 1983 to December 1983, the Petitioner received monthly
checks
in the amount of $833 for a total of approximately $10,000 under
the guise of
automobile expense reimbursement, when, in actuality, those
checks were a
salary increase. In 1984, he computed salary increases
for executives
of Giuffre; monthly checks issued for these increases
were falsely listed in
Giuffre's account records as monthly automobile
and travel expenses. In
December 1984, he prepared and distributed
checks which were listed in
Giuffre's accounting records as
hospital-related insurance premiums. In
both cases, the checks were
actually Christmas bonuses for executives of
Giuffre.
The charge of conspiracy was based partly upon allegations that
the
Petitioner caused false and inaccurate reports to be generated
and
submitted to DHHS and its authorized representatives; the charge
of
filing a false tax return was based upon his failure to report
taxable
income on his 1984 individual income tax return. On July 12,
1988, the
Petitioner pled guilty to one count of conspiracy to defraud the
United
States, and one count of filing a false tax return. He was
fined
$15,000; placed on probation for a period of five years; ordered to
pay
all taxes, penalties, and sums charged in the indictment or as
required
by law; and sentenced to serve 100 hours of community service.
The Petitioner was notified in a letter from the I.G. dated June 4,
1990
that he was being excluded from participation in Medicare and
state
health programs for five years. He requested review of the
I.G.'s
decision, and a hearing was held before the ALJ on December 13,
1990.
At the hearing, the Petitioner admitted that he was "convicted" of
a
criminal offense "related to fraud, theft, embezzlement, breach
of
fiduciary responsibility, or other financial misconduct," within
the
meaning of sections 1128(i) and 1128(b)(1) of the Act (section
1128(i)
defines conviction as including a plea of guilty or nolo
contendere).
In his decision, the ALJ concluded that the five-year exclusion
imposed
and directed against the Petitioner was excessive (FFCL 27), and
that
the remedial considerations of section 1128 of the Act would be
served
in this case by a three-year exclusion (FFCL 28).
In his discussion of the case, the ALJ noted that the purpose of
an
exclusion is to protect programs, beneficiaries and recipients until
a
provider is trustworthy and to deter similar improper conduct. Here,
he
concluded, a five-year exclusion was not needed to serve these
remedial
aims, and would be unreasonably punitive. The ALJ was
persuaded that
there was little likelihood that the Petitioner will again
engage in
unlawful conduct; his criminal behavior appeared to have been
an
aberration rather than the norm, and is not likely to be repeated.
The ALJ determined that the Petitioner had demonstrated naivete and
lack
of judgment in the circumstances which led to his criminal offense,
and
had wrongfully believed that he could take an approved salary
increase
as a car allowance. He noted that the Petitioner specialized
in working
at hospitals that were suffering severe financial problems, and
that at
least two such hospitals were surviving through the Petitioner's
and
others' efforts. In reaching these conclusions, the ALJ gave
great
weight to the credibility of the Petitioner's testimony. He
stated that
the Petitioner testified in a forthright manner at the hearing,
did not
appear to try to avoid questions, demonstrated remorse for his
actions,
and credibly asserted that he had learned never to repeat his
unlawful
conduct.
I.G.'s arguments for reinstating five-year exclusion
The I.G. disagreed with FFCLs 27 and 28 as unsupported by
substantial
evidence, and asked that the Board reinstate the original
five-year
period of exclusion. He argued that in reducing the
exclusion, the ALJ
substituted his judgment for that of the I.G., in
violation of the
Board's holding in Vincent Baratta, M.D., DAB 1172
(1990). According to
the I.G., Baratta held that review of the I.G.'s
exercise of discretion
is ordinarily under an abuse of discretion standard,
where the reviewer
may not simply substitute his or her judgment for that of
the person
exercising discretion.
The I.G. acknowledged that great weight must be given to the
ALJ's
determinations of credibility of witnesses, but noted that
these
determinations must be supported by the record. He maintained
that the
Petitioner's credibility was undermined by contradictions in
his
testimony relating to his creation of false documents, and by
his
failure to reveal that he was assisted in improving the
financial
condition of the hospital by an outside consulting firm.
The I.G. asserted that the ALJ was wrong to conclude that the
Petitioner
demonstrated naivete and lack of judgment when the Petitioner was
a
Certified Public Accountant, and could hardly claim to have been
naive
about his actions. The ALJ was also wrong to characterize
the
Petitioner's actions as an aberration, the I.G. declared, since at
the
hearing the Petitioner acknowledged receiving undeclared income
for
consulting work at the same time that he was employed by the
hospital.
Finally, the I.G. asserted that the record does not show the
Petitioner
was truly remorseful, but that he was remorseful only for the cost
to
him and his family occasioned by the discovery of his crimes.
According
to the I.G., the Petitioner's failure to accept responsibility for
his
actions and his attempts to deny his guilt discredited his claims
of
remorse.
Standard of Board review
Section III.(b) of the guidelines for exclusion cases (DAB Practice
Manual
Appendix B) provides that the standard which we employ in
reviewing a
disputed issue is whether the ALJ decision is supported by
substantial
evidence in the record, and the standard of review regarding
a disputed issue
of law is whether the ALJ decision is erroneous.
Carlos E. Zamora, M.D., DAB
1104 (1989); Lakshmi N. Murty Achalla, M.D.,
DAB 1231 (1991).
Analysis
At the outset, we note that pursuant to section 205(b) of the Act, the
ALJ
conducts a de novo review of the exclusion imposed by the I.G.
Baratta, at
7. The I.G.'s reliance on Baratta for the proposition that
review of
the length of a period of exclusion imposed by the I.G. is
under an abuse of
discretion standard is misplaced. In that case, the
petitioner argued
that the I.G. had improperly exercised his discretion
by choosing to impose a
permissive exclusion at all under section
1128(b)(4)(A) of the Act. The
Board declined to disturb the ALJ
decision, and concluded that the ALJ was
not legally required by section
205(b) of the Act to review the I.G.'s
exercise of discretion in
deciding to exclude petitioner under a statutory
standard that was
clearly applicable. The Board also said that there
was no clear
delegation of this authority to the ALJ. In footnote 5 (p.
7), the
Board noted that while the petitioner's argument suggested that the
ALJ
should have reviewed the reasonableness of the I.G.'s exercise
of
discretion, such review was ordinarily under an abuse of
discretion
standard.
We do not consider the exercise of discretion discussed in Baratta --
the
Secretary's option to impose or not to impose a permissive exclusion
-- to be
analogous to the I.G.'s selection of the length of the
exclusion. Here,
in performing a de novo review, the ALJ clearly may
assess whether the period
of exclusion initially imposed was reasonable.
See 42 C.F.R. 1001.128(a)(3)
and Achalla, at 7. Thus, we do not agree
that the ALJ may modify the
period of exclusion only where an abuse of
discretion is shown.
Aside from questioning the scope of the ALJ's review, the I.G. argued
that
the ALJ Decision was unsupported by the evidence. The I.G.
assailed the
Petitioner's trustworthiness and credibility by citing
apparent discrepancies
in his testimony concerning the creation of false
documents. These
alleged discrepancies appeared to reflect the
Petitioner's counsel's position
at the hearing that the Petitioner's
plea of guilty to a conspiracy count was
not an admission of the overt
acts in the conspiracy. That position was
specifically rejected by the
ALJ.
We have no basis for concluding that the ALJ's assessment of
the
Petitioner's credibility was based on mistaken determinations as to
the
Petitioner's claims regarding false documents, or to the
Petitioner's
culpability for their creation. The ALJ noted that the
Petitioner's
activities which led to his conviction concerned false entries
in
accounting records, and the ALJ admitted the Petitioner's plea
agreement
into evidence. Although the I.G. pointed to one instance
where the
Petitioner may not have testified in a forthright manner, the ALJ
found
that the Petitioner's testimony had been forthright on the basis of
the
overall testimony and the record as a whole.
The I.G. also argued that testimony that the Petitioner had
received
undeclared income for consulting work at the time that he was
employed
at Giuffre undermined the ALJ's finding that the criminal
violation
which resulted in his exclusion was an aberration, not likely to
be
repeated. The ALJ noted that the Petitioner's criminal
conviction in
1988 did not necessarily evidence that he is currently
untrustworthy.
Thus, the ALJ's finding is not directly undercut by the
testimony
concerning conduct occurring around the time of the
Petitioner's
criminal violation.
Moreover, the evidence does not reasonably support the I.G.'s reading
of
the transcript as showing that the Petitioner untruthfully claimed
sole
credit for the economic turn-around of the hospitals where he worked
and
ignored the role of a consulting firm. Nowhere did the Petitioner
claim
to have been solely responsible for the economic turn-around, and
at
several places he used the plural "we" in taking credit for
these
accomplishments. We find no merit in the I.G.'s charge that
the
Petitioner disguised the role played by the consulting firm. The
one
character witness the Petitioner presented, Joseph Huber, was
a
vice-president of that firm. As the I.G. noted, Mr. Huber
testified
that a lot of the turn-around at the hospital was directly
attributable
to the Petitioner. There is nothing in the Petitioner's
testimony on
this point that is at odds with or contradicted by Mr. Huber.
3/
The I.G.'s claim that the Petitioner did not demonstrate naivete
appears
to be an assertion that the Petitioner was, because of his
profession,
incapable of being naive. Here, as with the determination
that the
Petitioner demonstrated remorse and had learned to never repeat
his
conduct, the ALJ was in the best position to draw conclusions about
the
Petitioner's behavior. Additionally, the ALJ recognized in FFCLs
not
here contested that the Petitioner's crimes were serious and that
a
serious penalty had been imposed.
The Board has held that an ALJ may properly turn to the
existing
regulations governing mandatory exclusions for general guidance
in
permissive exclusions cases. Baratta at 1, n. 7; Joyce Faye
Hughey,
DAB 1221 (1991) at 6, n. 5. Those regulations, at 42
C.F.R.
1001.125(b)(1-7), provide seven factors to be considered in setting
the
period of exclusion. In this case, the ALJ's findings and
analysis
confirm that he considered each of these points in determining that
a
three-year exclusion was appropriate to effect the remedial aims of
the
statute.
The two FFCLs contested by the I.G. were based not only on those parts
of
the record and points of the ALJ's discussion addressed by the I.G.,
but on
the totality of the evidence before him. Aside from those
findings
criticized by the I.G., the ALJ also noted several additional
factors in
support of a reduction. For example, he noted that the
Petitioner was
completing his probation without incident, had not been
implicated in any
additional misconduct, and had been involved in
turning around hospitals with
serious fiscal problems.
The I.G.'s exceptions in this appeal turn almost entirely on the
ALJ's
findings relating to the credibility of the Petitioner's
testimony. We
have held that resolving such issues is the function of
the ALJ, whose
findings based on witness demeanor and credibility are
entitled to
particular weight since the Board lacks the opportunity to
make
observations of testimony. Hughey, supra; see also Butler-Johnson
Corp.
v. NLRB, 608 F.2d 1303, 1305 (9th Cir. 1979); Kopack v. NLRB, 668
F.2d
946, 953-55 (7th Cir. 1982), cert. denied 456 U.S. 994; Myers
v.
Secretary of Health and Human Services, 893 F.2d 840, 846 (6th
Cir.
1990). During the hearing, the ALJ had the opportunity to observe
the
demeanor of the Petitioner and other witnesses and to evaluate
their
credibility. In contrast, the Board's role as the forum for
the
administrative appeal of the ALJ Decision is a limited one.
Achalla,
supra.
Given the totality of the evidence, and given that the findings the
I.G.
disputes are predominately within the realm of observations best
suited
to the trier of fact, we conclude that FFCLs 27 and 28 were supported
by
substantial evidence, and are not erroneous as a matter of law.
This
does not mean that we would have reduced the exclusion here if we
were
making the decision in the first instance. We may not have been
as
inclined to conclude, as did the ALJ, that the Petitioner acted
from
naivete or that the Petitioner had learned never to repeat his
crime.
But, in view of our limited role, and the ALJ's heavy reliance on
the
Petitioner's hearing testimony in support of his findings,
we
nevertheless affirm the ALJ Decision.
Conclusion
Based on the foregoing analysis, we affirm the ALJ's decision.
Judith A. Ballard
Theodore J. Roumel Public Health Service
Donald F. Garrett Presiding Panel Member
1. We do not address the merits of those findings of fact
and
conclusions of law which were not challenged by either party.
2. This summary of the facts is not intended as a substitute for
the
more detailed factual statements in the FFCLs in the ALJ Decision.
3. The I.G. did not allege that the Petitioner's fraudulent
activities
may have carried over to the Petitioner's efforts to reverse
large
deficits at the