Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
In the Case of:
The Inspector General
- v. -
Hanlester Network, et al., Melvin L. Huntsinger, M.D., Ned Welsh,
Respondents.
DATE: July 24, 1992
Docket No. C-448
Decision No. 1347
FINAL DECISION ON REVIEW OF
ADMINISTRATIVE LAW JUDGE
DECISION ON
REMAND
The Inspector General (I.G.) of the Department of Health and
Human
Services and nine individual and corporate or partnership
respondents
appealed to an Appellate Panel of the Departmental Appeals Board
from a
decision on remand by Administrative Law Judge (ALJ) Steven T.
Kessel.
See DAB CR181 (1992) (ALJR Decision or ALJ Decision on Remand).
The ALJ Decision on Remand concluded that all nine Respondents
had
violated the anti-kickback statute, section 1128B(b) of the
Social
Security Act (Act). The ALJ concluded that permissive exclusions
under
section 1128(b)(7) of the Act were necessary for some but not all
of
Respondents. We conclude here that the ALJ did not err in finding
that
all Respondents violated the anti-kickback statute but did err in
not
imposing exclusions on all Respondents.
Below, we first provide the general background of these appeals (Part
I),
the issues on appeal (Part II), and a summary of our decision
(Part
III). We then present our analysis (Part IV)..I.
Background
In this section we (1) explain the procedural history and the
legal
standard which applies, (2) highlight some significant aspects of
the
transactions at issue, and (3) summarize the ALJ Decision on Remand.
1/
A. The Procedural History and Legal Standard for
Determining a
Violation of the Anti-kickback Statute
The anti-kickback statute proscribes (1) the offer or payment of
"any
remuneration (including any kickback, bribe, or rebate) directly
or
indirectly, overtly or covertly, in cash or in kind . . . to induce"
the
referral of program-related business, and (2) the solicitation
or
receipt of such remuneration "in return for" referrals. 2/
This case involves the complex interrelationships among the
various
individual and corporate or partnership entities involved in
the
creation and operation of three limited partnership
clinical
laboratories formed in California during the late 1980's. The
issues
presented were whether Respondents offered or paid remuneration
to
physician limited partners to induce the referral of
program-related
business to the partnership laboratories and whether
Respondents had
solicited or received remuneration "in return for" referrals
by virtue
of their management agreement with a large laboratory that
actually
performed the bulk of the tests referred to the partnership
laboratories
(laboratories) by the physician limited partners.
The I.G. proposed permissive exclusions from participation
in
federally-funded health care programs under section 1128(b)(7) of
the
Act based on alleged.violations of the anti-kickback statute. 3/
These
nine Respondents had appealed their proposed exclusions to the ALJ,
who
conducted a hearing and issued an initial decision on March 1,
1991.
The I.G. then appealed to an Appellate Panel, and we issued our
first
decision on September 18, 1991.
In our first decision, we concluded that the ALJ had misread
the
anti-kickback statute to require an agreement to refer
program-related
business and had improperly evaluated whether to impose an
exclusion on
those Respondents which he found had "committed acts described
in"
section 1128B of the Act. 4/ In light of congressional intent
in
enacting the anti-kickback statute, we rejected Respondents'
argument
that the statute could not reach their transactions because they
had
used business techniques which were common in the health care
industry.
We concluded that it was necessary to evaluate all the
circumstances
surrounding a particular transaction or relationship. We
stated --
The plain meaning of the statutory language, as well as
its
context, purpose, and history, support a conclusion that
a
violation [of section 1128B(b)(2)] occurs whenever an
individual
or entity knowingly and willfully offers or pays anything
of
value, in any manner or form, with the intent of
exercising
influence over a physician's reason or judgment in an effort
to
cause the referral of program-related business . . . .
* *
*. [Section 1128B(b)(1)] focuses
on
the substance rather than the form, of
any
transaction or relationship.
DAB 1275, at 2-3 (1991). With regard to section 1128B(b)(1),
we
concluded that the ALJ's findings that there had been neither a
direct
payment to Respondents by the management contractor nor a
guaranteed
flow of business to the management contractor were not
determinative
factors. We remanded this case to the ALJ for further
proceedings
consistent with the applicable legal standard and instructed him
as to
the factors to consider in determining whether an exclusion ought to
be
imposed where he found violations.
B. Significant Aspects of the Transactions at Issue 5/
Respondents are: (1) the Hanlester Network; (2) the Keorle
Corporation;
(3) Pacific Physicians Clinical Laboratory, Ltd. (PPCL); (4)
Omni
Physicians Clinical Laboratory, Ltd. (Omni); (5) Placer
Physicians
Clinical Laboratory, Ltd. (Placer); (6) Kevin Lewand; (7) Gene
Tasha;
(8) Ned Welsh; and (9) Melvin Huntsinger. 6/
The Hanlester Network was a California general partnership formed
in
1987. The Hanlester Corporation, (owned by Mr. Lewand and later
renamed
Keorle Corporation), Mr. Tasha, and Mr. Welsh were the general
partners.
Dr. Huntsinger was identified in a sales brochure as the
medical
director for the Hanlester Network. He owned 30 limited
partnership
shares in one laboratory, and was the medical director of two of
the
laboratories.
Between March 1987 and March 1988, the Hanlester Network issued
private
placement memoranda offering limited.partnership shares in
three
clinical laboratories serving defined communities in California.
The
Hanlester Network was the general partner in each of the
laboratories.
The Hanlester Network marketed limited partnership shares only
to
potential referral sources. The investment required was
nominal,
beginning at $1,500. The private placement memoranda informed
the
investors that they were the primary source of the
partnership
laboratories' business. Prospective investors were told
that physicians
who regularly ordered outpatient tests were to be sought as
limited
partners. The number of investors was limited (35 per lab) so
that each
investor's referrals had a measurable impact on his financial
returns.
The Hanlester Network told prospective partners that if they did
not
utilize the labs it would be "a blueprint for failure." FFCL
44. Thus,
it was made clear to the investors that any financial return,
even
though based on the number of shares, was in large part dependent on
the
volume of investor referrals. Investors were barred from investing
in
other clinical laboratories. When an investor ceased to be a
potential
referral source due to death, retirement, or relocation, the shares
were
to be repurchased. The investors were in fact the main source
of
referrals. The physician investors received substantial
cash
distributions. The laboratories monitored partner usage.
When a
physician investor's referrals were low, that physician was
called,
typically by Dr. Huntsinger, who inquired why. Dr. Huntsinger
informed
some limited partners that their failure to make sufficient
referrals
was damaging the interests of other limited partners. Some of
these
exchanges were heated, and some resulted in the repurchase of
the
limited partner's shares.
Patricia Hitchcock was the Vice President of Marketing for the
Hanlester
Network until November of 1988. She made marketing
presentations and
sold limited partnership shares on behalf of the Hanlester
Network and
the laboratories. Her compensation package provided for
increased
income based on the volume of physician investor referrals to
the
laboratories. The scope of her marketing presentations exceeded
the
parameters of the private placement memorandum. 7/.The Hanlester
Network
had also contracted with SmithKline Bio-Science Laboratories,
Inc.
(SKBL) to provide laboratory management services for the
laboratories.
SKBL was responsible for the day-to-day operations, and 85 to
90 percent
of the work sent to the laboratories was performed by SKBL at its
own
facilities. The laboratories billed for all clinical laboratory
work
done under the auspices of the partnership laboratories
whether
performed at the laboratories or at SKBL's facilities. Under
the
management agreement, SKBL was entitled to 76 percent of
the
laboratories' receipts. In order to make distributions to the
limited
partners, SKBL permitted the laboratories' shares to be calculated
based
on expected rather that actual collections.
C. Summary of the ALJ's Decision on Remand
On remand, the ALJ found that:
o By offering and/or paying profit
distributions to the limited
partner physicians, all
nine Respondents violated section
1128B(b)(2).
o By soliciting or receiving remuneration from
SKBL in return for
referrals of laboratory tests,
Respondents Hanlester Network, PPCL,
Omni, Placer,
Lewand, Tasha, and Keorle violated section
1128B(b)(1).
The ALJ concluded that permanent exclusions of PPCL, Omni, and Placer
were
necessary since the laboratories were created to offer or pay
remuneration to
induce the referral of laboratory test work and could
not operate as
organized without violating section 1128B(b)(2). The ALJ
concluded that
a two-year exclusion of Respondent Hanlester Network
would serve the remedial
purposes of the anti-kickback statute. The ALJ
found significant the
Hanlester Network's role as general partner with
exclusive authority for
management decisions for the laboratories. The
ALJ also found that a
principal function of the Hanlester Network was to
engage in activities which
violated the statute. Thus, the ALJ
concluded that until the Hanlester
Network divested itself of the
management arrangement with the laboratories
it posed a threat to the
integrity of the federally funded health care
programs. The ALJ further
concluded that there was no remedial need to
exclude the remaining
Respondents -- Lewand, Tasha, Welsh, Huntsinger, and
Keorle. The ALJ's
conclusion that exclusions were not necessary for
certain of the
Respondents was largely based on his finding that the.I.G. had
not
proven that these Respondents manifested any propensity to engage
in
illegal or harmful conduct in the future. The ALJ also made a number
of
findings concerning the effect of Respondents' reliance on legal
advice
and their belief or knowledge concerning whether these
transactions
would violate the anti-kickback statute.
II. Issues on Appeal
All parties appealed the ALJ Decision on Remand. We address
the
arguments and exceptions of the Hanlester Respondents, the
Inspector
General, Respondent Welsh, and Respondent Huntsinger
separately.
The Hanlester Respondents raised the following arguments and
exceptions:
8/
(1) Respondents did not violate (b)(2) in marketing
and
operating the joint ventures because their
activity
amounted only to encouragement, which remains
legal
under the Appellate Panel's test.
(2) Respondents did not violate (b)(1) because
their
management agreement with SKBL did not result in
the
payment of any remuneration to the Hanlester
Respondents
for referrals.
(3) No exclusions should have been imposed on
the
partnership laboratories and the Hanlester Network,
even
if they violated either section, because no
remedial
purpose is served.
In support of its position on these issues, the Hanlester
Respondents
excepted to 20 findings of the ALJ on remand and proposed 44
new
findings to the Appellate Panel.
The I.G. raised the following arguments and exceptions:
(1) The ALJ did not have the authority to decline
to
impose any period of exclusion once he found that
a
violation occurred.
(2) The ALJ's finding that exclusions of
certain
Respondents would serve no remedial purpose is
not
supported by substantial evidence..In support of
its
position on these issues, the I.G. excepted to
17
findings of the ALJ on remand and proposed 78
new
findings to the Appellate Panel.
Respondent Huntsinger raised the following argument and exceptions:
Respondent Huntsinger argued that no
substantial
evidence supported the ALJ's findings that he
violated
(b)(2) and contended that acts of other
Respondents
should not be imputed to him. In support, he
excepted
to 16 findings of the ALJ on remand. (Section
(b)(1) is
not an issue as to Respondent Huntsinger.)
Respondent Welsh raised the following argument:
Respondent Welsh objected to the arguments of the
I.G.
in favor of imposing an exclusion on him on the
basis
that he is no longer in the health care industry
and
that the mitigating evidence on character in the
record
is stronger for him than for the other Respondents.
III. Summary of this Decision
We conclude that:
o The ALJ's finding that the Hanlester
Respondents violated
section 1128B(b)(2) is supported by substantial evidence
in the record.
The ALJ's finding in his first decision that Respondents
"encouraged"
physician investors to refer by advising them that the
laboratories'
success would depend on such referrals is not inconsistent with
his
finding on remand that the scheme as a whole evidenced an intent
to
induce referrals, under the applicable legal standard. We also
reject
Respondents' attempts to single out a variety of factors present in
the
case as each insufficient to support a conclusion that Respondents
acted
unlawfully. The ALJ properly considered as a whole all relevant
facts
and the inferences reasonably drawn from them. Also,
Respondents
mischaracterized the effect of particular factors they
addressed.
o The ALJ's finding that the Hanlester
Respondents violated
section 1128B(b)(1) is supported by substantial evidence
in the record.
In our first decision, we concluded that it is the substance
of the
transaction which controls, not the direction in which the
payments
flow. The ALJ correctly analyzed the substance of the
transactions,
concluding that the. benefits SKBL conferred
on Respondents (except
Respondents Huntsinger and Welsh) exceeded the
benefits Respondents
conferred on SKBL and that Respondents intended the
excess to be in
return for referrals. Respondents' assertion that
particular elements
of the transaction did not constitute remuneration is
irrelevant, since
the issue is whether the excess over legitimate benefits in
the
transaction viewed as a whole was intended as remuneration. We
also
reject Respondents' arguments that other statutory provisions and
the
I.G.'s regulations support Respondents' position that their
arrangement
with SKBL was legal.
o The ALJ did not err in imposing
permanent exclusions on the
Respondent laboratories or in imposing a two-year
exclusion on the
Hanlester Network. Such exclusions are reasonable in
light of the
statutory purposes because the Respondent laboratories cannot
operate
without violating the statute, and Respondent Hanlester Network
was
intimately involved in creating and operating the
partnerships.
Respondent Hanlester Network's exclusion is reasonable since
its ties to
the laboratories persist and it did not demonstrate that it can
function
as a trustworthy entity. We reject the Hanlester Respondents'
arguments
that no exclusion should be imposed because there was no evidence
of
overutilization or increased cost to the programs or because
the
potential for harm was no greater here than in any
physician
self-referral arrangement. Rather, we conclude that this
scheme had and
continues to have significant potential for harm to the
programs.
o The issue of whether the ALJ had
authority to decline to impose
any period of exclusion once he found a
violation is moot since we
conclude that it is necessary to exclude all
Respondents to effectuate
the statutory purposes.
o The ALJ's conclusion that exclusions of
certain Respondents
would serve no remedial purpose is not supported by
substantial evidence
in the record and is based in part on erroneous legal
conclusions.
Respondents did not show by a preponderance of the evidence that
they
are trustworthy individuals. A strong inference of
untrustworthiness
arises from Respondents' violations of a criminal statute
through a
scheme which had the potential for substantial harm to the
program.
Respondents' evidence is not sufficient to overcome this
inference
entirely. The ALJ erred in equating a lack of propensity to
commit.
unlawful acts with the trustworthiness needed to protect the
programs,
improperly placing the burden on the I.G. (in order to justify
any
exclusion) to show that Respondents were likely to harm the
programs.
The ALJ's error was attributable in part to his misreading of a
Supreme
Court decision as applying here, and as somehow justifying his view
that
no exclusions should be imposed absent a showing of a propensity
to
commit unlawful acts. Further, we agree with the I.G. that, even
if
Respondents did not know with certainty that their conduct would
violate
the law, the evidence shows that Respondents were aware or should
have
been aware that their conduct "danced close" to the edge of the law
and
were aware or should have been aware that their scheme risked
behavior
by physicians which would harm the programs. ALJR Decision at
59.
o The ALJ's finding that Respondent
Huntsinger violated section
1128B(b)(2) of the Act is supported by
substantial evidence in the
record as a whole, which shows that Respondent
Huntsinger was aware that
the intended purpose of the partnerships was to
offer remuneration to
physicians to induce referrals and that he acted in
furtherance of this
purpose. Respondent Huntsinger had substantial
involvement in the
partnerships, and contacted physician partners, in effect
offering them
economic benefits to induce increased referrals.
o We reject Respondent Welsh's argument
that no exclusion is
reasonable in light of his good character and the fact
that he has left
the health care industry. Good character is not
sufficient to overcome
entirely the inference of untrustworthiness from his
conduct found to
violate the Act.
o In light of the above, we conclude that
exclusions of two years
would not be excessive for Respondents Lewand, Tasha,
and Keorle and
that exclusions of one year would not be excessive for
Respondents
Huntsinger and Welsh.
IV. Analysis
A.
Did the ALJ err in finding that Respondents
violated section
1128B(b)(2)?
In our first decision, we discussed the elements required to find
a
violation of 1128B(b)(2). The legal standards .articulated there are
no
longer subject to dispute before us. 9/ Section 1128B(b)(2)
provides:
Whoever knowingly and willfully offers or pays any
remuneration
(including any kickback, bribe, or rebate) directly
or
indirectly, overtly or covertly, in cash or in kind to
any
person to induce such person --
(A) to refer an individual to a person for
the
furnishing or arranging for the furnishing of any
item
or service for which payment may be made in whole or
in
part under [Medicare or Medicaid], or
(B) to purchase, lease, order, or arrange for
or
recommend purchasing, leasing, or ordering any
good,
facility, service, or item for which payment may be
made
in whole or in part under [Medicare or Medicaid],
shall be guilty of a felony . . . .
In our first decision, we rejected the ALJ's conclusion that
section
1128B(b)(2) requires proof that a respondent sought or obtained
an
agreement from a provider precluding the provider from
obtaining
services elsewhere. We applied the plain meaning of the
phrase "to
induce," i.e., to exercise influence over reason or
judgment. DAB 1275,
at 18, 59; AP 3. We found that this meaning
on its face was stronger
than simple encouragement, and particularly so in
the context of this
statute where the inducement would be in the form of
offering or paying
any remuneration. DAB 1275, at 18-19. We
further found that the
overall purpose and context of the provision in the
statute and the
legislative history clearly supported a broader reading of
"to induce"
than that originally employed by the ALJ. We discussed the
case law and
determined that those cases which reached the issue supported
our
understanding of the meaning of the provision. See DAB 1275, at
35-41,
in particular the discussion at page 40 of United States v.
Duz-Mor
Diagnostic Laboratory, Inc., 650 F.2d 223 (9th Cir. 1981), and
United
States v. Greber, 760 F.2d 68 (3rd Cir. 1985), cert. denied, 474
U.S.
988 (1985). In light of the fact that our understanding was
derived
from the plain meaning of the statute and was supported
by.context,
purpose, legislative history, and case law, we rejected efforts
to
misuse canons of statutory construction in an attempt to reach a
desired
result by imposing a strained reading of the phrase "offers . . .
any
remuneration . . . to induce" referrals as meaning offers
payments
conditioned on obtaining an agreement to make referrals. DAB
1275, at
21-30. 10/
The ALJ suggested that he was not certain what set of facts
would
constitute only encouragement but not the exercise of influence
over
reason or judgment. ALJR Decision at 23, n.15. However, he
concluded
that this did not matter because Respondents' conduct plainly
exceeded
the standard set in our first decision. 11/ The ALJ stated
that the
evidence before him in this case "establishes that
Respondents
deliberately enticed" physician investments by offering
"substantial
profits indirectly linked" to referrals. ALJR Decision at
24. In
addition, Respondents "made it plain [to the
physician.investors] . . .
that their failure to refer business to the
laboratories would cause the
ventures to fail." Id. The ALJ
stated that Respondents "did exhort
physicians to refer tests . . . for
pecuniary gain . . . ." ALJR
Decision at 62.
We find that these facts, as well as those discussed below and
substantial
evidence in the record as a whole, provide ample support for
the ALJ's
conclusion that Respondents met the legal standards required
to prove a
violation of (b)(2).
The Hanlester Respondents challenged the following FFCLs in this area:
235. The key to Respondents' marketing strategy was that
physician
investors would be influenced to refer laboratory tests to the
joint
ventures' laboratories. 12/
240. On Respondents' behalf, and as a means of persuading physicians
to
refer tests to joint venture laboratories, Respondent Hanlester
told
potential limited partner physicians that failure by them to refer
tests
would be a blueprint for failure of the joint ventures.
241. As a means of persuading limited partners to refer tests to
joint
venture laboratories, Respondents PPCL, Omni, and Placer, on behalf
of
all Respondents except Respondents Welsh and Huntsinger,
made
substantial cash distributions to limited partners.
244. Respondents knowingly and willfully offered remuneration
to
physicians with the intent of exercising influence over
these
physicians' reason or judgment in an effort to cause them to refer
tests
to joint venture laboratories.
245. All Respondents except Respondents Welsh and Huntsinger
knowingly
and willfully paid remuneration to physicians with the intent
of
exercising influence over these physicians' reason or judgment in
an
effort to cause them to refer tests to joint venture laboratories.
246. Respondents violated section 1128B(b)(2) of the Act by
knowingly
and willfully offering or paying remuneration to physicians to
induce
them to refer program-related business..The first three are
essentially
findings about the structure of the joint ventures, while the
last three
are conclusions about the liability of Respondents. (We
discuss the
facts relating to Respondents Huntsinger and Welsh separately).
13/
The Hanlester Respondents attacked the findings generally on the
basis
that our decision did not accept the I.G.'s argument that "induce"
was
the same as "encourage," and that the ALJ originally found
that
Respondents "only" encouraged referrals. However, the finding
cited by
Respondents for this proposition (FFCL 81) simply states
that
Respondents "encouraged" physician investors to refer to the
joint
venture laboratories "by advising [them] . . . that the
laboratory's
success would depend on such referrals." 14/ The ALJ,
thus, did not
find that Respondents only encouraged referrals, but rather
that one
form of encouragement offered by Respondents was advice that
success
(which ultimately would benefit the.physician investors
through
distributions) was dependent on their referrals. Furthermore,
when the
ALJ described this behavior as a form of encouragement, he believed
that
the important distinction was between any form of encouragement
as
opposed to an agreement precluding provider choice. The same
behavior
may also be described as evidence of Respondents' intent to
offer
financial benefits to influence provider judgment. For that
reason, we
instructed the ALJ on remand to conduct a "reexamination of
the
significance of the findings of fact previously made." DAB 1275, at
60.
On remand, the ALJ did apply the corrected standard to the
existing
findings and found that Respondents' conduct as a whole, including
the
conduct described in FFCL 81, exceeded the test for unlawful
inducement.
The Hanlester Respondents also argued that the ALJ misunderstood
the
meaning of "to induce" as explained in our first decision, in that
he
"created a concept of `influencing referrals' which is at odds" with
our
explanation. Respondents referred to the ALJ's use of the
words
"influencing" or "persuading" in findings such as FFCLs 235, 240,
and
241. However, each of these FFCLs finds that a particular element
of
the partnership laboratory arrangement (e.g., the overall
marketing
strategy, the emphasis to physician investors on the likelihood
of
failure if they did not refer tests to the laboratories, and
the
substantial cash distributions) evidenced an intent to influence
test
referrals. The ALJ did not find that any one of these elements
alone
necessarily demonstrated the required intent of "exercising
influence
over these physicians' reason or judgment in an effort to cause
them to
refer tests," but rather reached that conclusion on the basis of all
the
facts. FFCLs 244 and 245. This approach is in accord with
our
instructions to the ALJ on remand to examine and evaluate "all
the
circumstances surrounding a transaction or relationship in order
to
ascertain the parties' intentions." DAB 1275, at 54.
The Hanlester Respondents went on to address a variety of factors
present
in this case and to argue that each one was insufficient in
itself to support
a conclusion that Respondents acted unlawfully. The
overall answer to
these contentions is again that the character of the
ventures here, and the
intentions and actions of the parties in
structuring and operating them, must
be viewed as a whole. All relevant
facts and the inferences reasonably
drawn from them by the ALJ must be
considered together, regardless of whether
an individual fact standing
alone would suffice to demonstrate the prohibited
intent. See DAB 1275,
at 55-57. However, we.also find that
Respondents mischaracterized the
effect of the particular factors which they
addressed.
For example, the Hanlester Respondents contended that the ALJ
erred
because he erroneously perceived profiting from providing
Medicare
services as wrongful. H. Br. at 8-10. Respondents did
not provide any
citation from the ALJ Decision supporting this allegation,
and we find
none. The unlawful conduct here was not profiting by
efficiently
providing services at a cost less than the rates paid by
Medicare. The
unlawful conduct was knowingly and willfully offering and
paying
financial inducements to physicians to obtain referrals of
Medicare
business. Respondents' profit or loss in that process is
irrelevant.
The Hanlester Respondents also analogized a laboratory in which
physicians
have a financial interest to an in-house laboratory owned by
a physician who
profits from performing his own tests. However, in the
in-house
laboratory, the physician is directly providing services for
the money
received, is not making referrals, and is the only party
involved, so the
anti-kickback statute is not implicated. 15/
The Hanlester Respondents argued that the ALJ incorrectly held
that
"physician-owners may not profit from their laboratory testing if
tests
are performed at their own laboratories." H. Br. at 10. The
ALJ made
no holding about whether physicians may profit from doing their
own
laboratory tests. Nor did he impose an absolute prohibition
of
physician referrals to all businesses in which they hold
ownership
interests. Rather, he applied the test of evaluating the
total
arrangement to ascertain whether remuneration was being offered in
this
instance for the purpose of influencing the physicians' judgment
in
deciding where to refer tests. He did not, nor do we, attempt to
set
forth blanket rules relating to physician investments. It is not
our
role to undertake to develop regulatory guidance to non-parties.
Cf. 42
C.F.R. .1001.952 (safe harbor regulations). Such an attempt
would be
especially inappropriate when the focus of the statute is on the
intent
of parties in offering.particular inducements, since intent
is
necessarily determined individually. 16/
The Hanlester Respondents excepted to FFCL 241, which found
that
Respondents (except Respondents Huntsinger and Welsh) made
"substantial
cash distributions" as "a means of persuading limited partners
to refer
tests." Respondents made no specific argument and cited
nothing in the
record to undercut this finding. The fact of the cash
distributions is
uncontested at this point (FFCLs 197-199); therefore,
Respondents are
presumably objecting to the ALJ's finding on the purpose of
the
distributions. Respondents repeatedly asserted that the record
showed
no evidence of influence over physician's judgment. In
support,
Respondents pointed out that not all physician investors made
referrals
and yet they received distributions. Further, Respondents
argued that
although ownership may have encouraged them to refer to the
joint
venture laboratories, "all other things being equal," their judgment
was
not therefore influenced. H. Br. at 11-13. These arguments
reflect a
misunderstanding of what it means to influence a physician's
judgment.
A physician's judgment has been influenced whenever his choice
of
laboratory would have been different in the absence of the
financial
motivation provided by the offer of remuneration. The
anti-kickback
statute thereby assures public confidence, in that patients
whose care
is financed through the federally-funded programs can trust
their
physicians to select the laboratories to which their tests will
be
referred without the fear that the physicians are trading off
quality,
processing speed, or other values, for financial self-interest.
Furthermore, it is not necessary to a violation that a
physician's
decision to perform a test or to select a particular laboratory
be in
fact medically unsound or irresponsible. Congress wished to
protect
against even the potential for such results from kickback
schemes.
Proof of overutilization could have properly led to an inference
that
the distributions had the effect of influencing physician
investors'
referrals, and therefore that they were probably intended to have
that
effect. However, the absence of overutilization does not prove
the
absence of such an intent. See DAB 1275, at 57; ALJR Decision at
25.
We have stated that, in determining intent, it "is relevant whether
the
arrangement was.likely to lead physicians to select one laboratory
over
another or to overutilize laboratory services because of the
incentives
provided." DAB 1275, at 57 (emphasis added).
Every potential evil against which the statute is directed need not
be
realized in every case in order to prove a violation. It is enough
that
Respondents planned and operated a scheme which offered a
substantial
risk of harm, because it provided significant incentives likely
to
affect referral decisions. It may be true, as the Hanlester
Respondents
argued, that the selection of SKBL to manage the laboratories
and
perform most of the testing was intended and perceived by
potential
investors as assuring a known level of quality. And, no
doubt, evidence
of a disregard for quality might have been additional proof
that
referrals were sought and obtained by means of financial
inducements
alone. However, the use of a well-known name in connection
with
soliciting investors does not undercut the finding that
Respondents
intended to influence physician choices by offering and
paying
remuneration for referrals. By involving a reputable laboratory
as
manager, Respondents simply made it easier for physician investors
to
select their laboratories over others not offering financial
inducements
by reducing some of the risk of uncertain quality in switching to
a
newly-opened laboratory. (The risk was apparently not wholly
eliminated
since there is evidence in the record of quality control
complaints by
physician investors.) 17/.The Hanlester Respondents relied on
the
testimony of several physician investors to demonstrate that
their
investment in the laboratories did not influence their judgment
in
ordering tests or cause them to overutilize. However, a review of
their
testimony does not establish that financial incentives were
unimportant
to them in selecting laboratories. 18/
The Hanlester Respondents also contended that FFCL 235 (which found
that
influencing physician investors to make referrals was "the key
to
Respondents' marketing strategy") was flawed because it was based
on
aspects of.the ventures' structure and operation which
Respondents
viewed as not significant as markers of illegality. Among
these,
Respondents pointed to (1) the small size of the investments
required
from prospective partners (FFCL 237), (2) the opportunity to earn
money
indirectly on referred laboratory tests, (3) the limitation of
partners
to potential referral sources, and (4) the encouragement and
monitoring
of partners' usage.
(1) Respondents argued that the nominal size of the investment
required
to become a limited partner could not constitute an inducement to
make
referrals, since at most it served only to make investing easier not
to
induce later referrals. 19/ While Respondents acknowledged that
low
minimum investments might have encouraged investments, they argued
that
the total distributions from those minimum shares were so small
that
they did not influence physicians' referral decisions, even though
they
represented a 50 percent return on those investments. Although
some
physicians denied that the distributions on their investments
influenced
their laboratory choices, the testimony of others suggests
the
distributions possible even from the small investments required to
join
the partnerships did affect their referral decisions. Compare
Dr.
ReVille (Tr. 1443) with Dr. Rubin (Tr. 773). In any case, the ease
of
investment had the effect of motivating more physicians to
become
involved in the partnership laboratories. The ALJ could
reasonably
infer that part of the scheme was to try to ensure that those
physicians
most likely to make referrals could easily invest. In light
of the
overall design of the partnerships to maximize limited
partner
referrals, the ease of entry into the partnerships is simply one of
many
factors about their structure (most of them uncontested factually)
from
which the ALJ, having heard all the evidence and weighed the
credibility
of the witnesses, drew inferences as to the purposes and motives
of the
principals. See ALJR Decision at 20, 25-26.
(2) Respondents argued that the opportunity to profit from
laboratory
test referrals is inherent in ownership.and therefore cannot be
evidence
of illegal intent. The mere fact that an opportunity to profit
is
inherent in investing in a business does not mean that distribution
of
profit cannot be used as the vehicle to offer or pay remuneration
under
the anti-kickback statute. For example, in the Bay State case,
the
opportunity to earn money on a consulting contract, which
would
otherwise be ordinary and lawful, nevertheless violated
the
anti-kickback statute when it was intended to influence the referral
of
program-related business. Thus, the form in which the economic
benefits
are couched (here, profit through ownership) is irrelevant.
See DAB
1275, at 24-26. Furthermore, in this case, we find that
substantial
evidence in the record supports the inference drawn by the ALJ
that one
incentive to refer to the joint venture laboratories was to make
money
indirectly from test referrals, because changes in Medicare law
had
foreclosed other means of profiting from laboratory testing. 20/ It
is
important to note, here, that the illegal intent required is an
intent
to use economic self-interest to influence the physician in selecting
a
laboratory, not necessarily an intent to violate the law.
Moreover,
offering an opportunity to obtain a substantial return on a
small
investment to a limited group of physicians who are chosen based
on
criteria that maximize their potential as referral sources and who
are
instructed that the financial success of their investment depends
on
their referrals is far more than offering profit which
ordinarily
accrues from ownership.
(3) Respondents argued that the restriction of partnership offerings
to
potential referral sources was innocuous, because (a) this
limitation
simply served to increase access to physicians, and (b) the
restrictions
helped Respondents comply with state securities laws requiring a
certain
proportion of "sophisticated investors."
The anti-kickback statute does not permit obtaining "access" to
potential
customers for laboratory services to be paid by Medicare or
Medicaid by
the.expedient of offering financial inducements for
referrals, however useful
such access may be to a new laboratory.
Respondents often stressed that their
practices should not be found to
be illegal just because they were profitable
or made good economic
sense. However, neither is a practice immune from
scrutiny or
necessarily legally permissible, merely because it is good
business.
DAB 1275, at 23-24. In fact, one reason Congress found it
necessary to
act to prohibit kickback schemes is that they present
temptation
precisely because they make business sense for the promoters,
even
though they expose the federal program payors and beneficiaries
to
potential harm.
While Respondents suggested several reasons why physicians
make
knowledgeable and likely investors for laboratories, they failed
to
point out any legitimate reason why they would not seek or
accept
capital from other sources, even other sophisticated investors such
as
physicians or attorneys, who were not potential customers.
Respondents
pointed to nothing in the state securities law which would
have
prevented them from offering shares to investors who were not
referral
sources. In our first decision, we cited the restrictions on
investors
to potential referral sources as a proper basis for drawing
inferences
about the intent of the venture, and we find no error in the ALJ
having
drawn such inferences concerning Respondents' intent to induce
referrals
from this fact, along with the other facts discussed in his
decision on
remand. See DAB 1275, at 56.
(4) Respondents' argument in defense of pointing out the
financial
necessity of investor referrals to limited partners and
monitoring
physician investors' usage of the laboratories to increase
referrals was
again based on the "business sense" of such activities in
getting access
to and keeping the loyalty of customers. H. Br. at
23-26. It may well
be that any laboratory would find it beneficial to
keep track of its
customers and follow up on a drop in their usage.
However, the ALJ
found more than that in this case.
The customers here had been told that their failure to make
referrals
would be a "blueprint for failure" of the business in which they
had a
financial stake. FFCL 44. In FFCL 240, to which the
Hanlester
Respondents excepted, the ALJ found that this communication to
potential
physician investors was made "as a means of persuading physicians
to
refer tests." Respondents admitted that their goal was to
encourage
partners to switch their tests to the laboratories, but asserted
that
this purpose.was the same as when they sought patronage
from
non-investor physicians. H. Br. at 23-25. The difference is
that the
risk of the business failing would not be a persuasive argument to
a
customer who did not have a financial stake in its success.
This
"economic fact," as Respondents referred to it, actually highlights
one
danger of this laboratory structure, i.e., that financial
self-interest
would motivate physicians to patronize a laboratory that might
otherwise
be unable to compete by marketing to disinterested customers on
the
basis of quality or service. 21/ Similarly, the evidence
which
Respondents cited that other laboratories used sales representatives
to
contact potential customers to urge them to select their laboratories
is
irrelevant where those laboratories were not offering distributions
to
those potential customers. 22/ We therefore find that FFCL 240
is
supported by substantial evidence in the record.
On the subject of monitoring, the ALJ found that Respondent
Huntsinger
made calls to physician investors to find out why their usage was
low
and to tell them that their low usage relative to other partners
was
hurting the partnership's interests. FFCLs 125-129. (However,
.he did
not find that Respondent Huntsinger demanded an increase in order
for
them to remain partners or threatened to oust them. FFCLs
130-132.)
Respondents did not similarly follow up on non-partner
customers. Tr.
797-98. The Hanlester Respondents argued again
that all this activity
resulted from their concern to keep quality
satisfactory, since the
physician investors might otherwise refer
elsewhere. H. Br. at 24; FFCL
50. Respondents may have sought to
prevent quality control from
interfering with their efforts to retain
investors' referral streams,
but they also sought to induce continued
referrals by other means,
including pointing out the effect of low usage on
the financial
interests of other partners. FFCL 129. (They also
sought to foreclose
other laboratories from competing against them on the
basis of higher
returns by requiring investors to agree not to invest in
other
laboratories. See, e.g., I.G. Ex. 4.0, at 14.)
We find that the ALJ's conclusion that Respondents (other than
Respondents
Huntsinger and Welsh, who are discussed separately below)
violated (b)(2) by
knowingly and willfully offering or paying
remuneration to physicians to
induce them to refer program-related
business is supported by substantial
evidence in the record and that
Respondents' challenges to the findings
supporting the ALJ's conclusion
are without merit. We therefore affirm
FFCLs 235, 240, 241, 244, 245,
and 246. In our first decision, we
remanded to the ALJ to consider all
of the facts and circumstances relating
to these joint ventures to
determine whether Respondents had offered "any
remuneration," which we
defined as "anything of value," in order "to induce"
referrals, which we
said connoted "an intent to exercise influence over the
reason or
judgment" of a referring physician. The ALJ weighed the
evidence and
found that an intent to induce referrals could be inferred from
the
structure and operation of these joint ventures, including the fact
that
Respondents were paying substantial cash distributions and
relatively
high rates of return (FFCLs 238 and 241), warning about possible
failure
absent physician investor referrals (FFCL 240), urging referrals
and
discouraging alternatives (FFCLs 233 and 243), and
presenting
opportunities to earn income otherwise barred by law on laboratory
tests
(FFCL 239). This evidence is more than sufficient to meet the
standard
enunciated in our prior.decision. 23/ We therefore uphold the
ALJ's
conclusion on section 1128B(b)(2).
B.
Did the ALJ err in finding that Respondents
violated section
1128B(b)(1)?
In our first decision, we also enunciated the elements required to
find
whether Respondents violated section 1128B(b)(1) in their
management
relationship with SKBL. The legal standards articulated
there, as with
those relating to section 1128B(b)(2), are no longer subject
to dispute
before us. Section 1128B(b)(1) provides:
Whoever knowingly and willfully solicits or receives
any
remuneration (including any kickback, bribe, or rebate)
directly
or indirectly, overtly or covertly, in cash or in kind --
(A) in return for referring an individual to a
person
for the furnishing or arranging for the furnishing
of
any item or service for which payment may be made
in
whole or in part under [Medicare or Medicaid], or
(B) in return for purchasing, leasing, ordering,
or
arranging for or recommending purchasing, leasing,
or
ordering any good, facility, service, or item for
which
payment may be made in whole or in part under
[Medicare
or Medicaid],
shall be guilty of a felony . . . .
In our first decision, we rejected the ALJ's analysis of this provision
to
require the remuneration to be in the form of payments and to be
conditioned
on an agreement to refer business. DAB 1275, at 46-49.
We
discussed the meaning of the phrase "any remuneration" (both in
(b)(1)
and (b)(2)) and determined that its scope was considerably
broader. We
pointed out the expansive.context, which the legislative
history
demonstrated to be intended to broaden the reach of the
anti-kickback
statute. DAB 1275, at 25. We concluded that "any
remuneration"
referred to anything of economic value used with the proscribed
intent
and did not depend on "the direction in which money payments flow in
a
transaction." DAB 1275, at 28; AP 4. Therefore, the focus of
the
analysis should be on whether the economic benefits sought or
received
were intended to be in return for referring program-related
business.
Among the relevant factors which we instructed the ALJ to consider
were
the respective duties and compensation of the parties, SKBL's
control
over the referring of tests to it from the laboratories, the value
of
the use of money advanced by SKBL to Respondents, and whether the sum
of
the benefits received by Respondents from SKBL exceeded the sum
of
legitimate benefits, i.e., those benefits in return for services
other
than referrals. DAB 1275, at 57-58. We also pointed out
that it was
not decisive whether Respondents guaranteed SKBL a flow of
referrals or
whether the management agreement also had some legitimate
business
purposes. DAB 1275, at 58.
The ALJ on remand applied this guidance to analyzing the
relationship
between Respondents and SKBL, in which SKBL received 76% of
the
laboratories' collections for managing the laboratories. 24/ Among
the
benefits which the ALJ found that Respondents received from SKBL
were
SKBL's assumption of the operating risks and management
responsibilities
for the laboratories, SKBL's payment of anticipated receipts
in advance,
and the use of SKBL's name for marketing to potential
investors. These
benefits exceeded the legitimate value of what
Respondents provided to
SKBL, apart from a stream of referrals. ALJR
Decision at 29. He found
that that arrangement was premised from its
inception on the intent of
the parties that Respondent laboratories would
refer tests to SKBL from
which SKBL would benefit financially, and in fact
SKBL performed the
vast majority of the tests itself. ALJR Decision at
28. He found that
the remuneration received by Respondents from SKBL
depended partly on
the volume of tests generated by the laboratories.
ALJR Decision at
28-29. He also found that the purpose of at least some
of the
remuneration, including the advance payments, was as an incentive
in
order to assure that the physician investors would.continue to
refer
tests to the laboratories, and thence to SKBL. ALJR Decision at
29-30.
The ALJ acknowledged that Respondents may well have had other
motives
for their management agreement with SKBL, in addition to
obtaining
remuneration for their referrals. However, the law requires
only that
obtaining remuneration for referrals be a "not insignificant
purpose" of
the remuneration to find a violation of the Act, regardless of
whether
additional purposes for the remuneration also exist. Greber;
United
States v. Kats, 871 F.2d 105 (9th Cir. 1989).
We find that these facts, as well as those discussed below and
substantial
evidence in the record as a whole, provide ample support for
the ALJ's
conclusion that Respondents' conduct met the legal standards
required to
prove a violation of section 1128B(b)(1). (The ALJ did not
find a
violation of (b)(1) by Respondents Huntsinger or Welsh. We
discuss
Respondents Huntsinger and Welsh separately below.)
The FFCLs to which the Hanlester Respondents excepted in this area are:
263. All of the benefits which Respondents other than Respondents
Welsh
and Huntsinger obtained from the agreements between
Respondents
Hanlester, PPCL, Omni, Placer, and SKBL constitute "remuneration"
within
the meaning of section 1128B(b)(1) of the Act.
264. The benefits which Respondents, other than Respondents Welsh
and
Huntsinger, obtained from the agreements between Respondents
Hanlester,
PPCL, Omni, Placer and SKBL were "in return for"
program-related
referrals under section 1128B(b)(1) of the Act, because there
would have
been no reason to have SKBL manage the joint venture laboratories
unless
referrals were made by the laboratories to SKBL.
265. In entering into agreements with SKBL, all Respondents, other
than
Respondents Welsh and Huntsinger, intended that the value of what
they
earned by virtue of the tests processed pursuant to the agreements
would
exceed the value of what they would have earned from those tests
had
they not entered into the agreements.
266. The value of the remuneration which all Respondents, other
than
Respondents Welsh and Huntsinger, expected to receive from SKBL
exceeded
the expected value of the benefits which Respondents conferred
on
SKBL..267. All Respondents, other than Respondents Welsh
and
Huntsinger, knowingly solicited remuneration from SKBL in return
for
referring program-related business to SKBL, in violation of
section
1128B(b)(1) of the Act.
268. All Respondents, other than Respondents Welsh and
Huntsinger,
knowingly received remuneration from SKBL in return for
referring
program-related business to SKBL, in violation of section
1128B(b)(1) of
the Act.
Part of the Hanlester Respondents' argument resurrected their
contention
that no remuneration could have occurred because SKBL paid no
money to
Respondents. H. Br. at 32. We have already resolved this
issue by
holding that what is relevant is the substance of a transaction in
which
benefits are exchanged, not the direction in which cash flows.
SKBL
earned most of the money collected from Medicaid and Medicare
by
performing most of the laboratory tests in its own laboratories.
FFCL
190. That SKBL put all receipts in accounts for the laboratories
and
then withdrew its share, rather than collecting the receipts itself
and
then paying the partnerships their share, is a mere formality,
without
substantive effect.
The Hanlester Respondents contended that the advance payment of
revenues
to the laboratories to be distributed to the physician investors was
not
remuneration in return for referrals because (1) the change was a
result
of management problems with SKBL, and (2) it was not SKBL's
money. It
is meaningless to insist, as Respondents did, that these sums
were not
"owned" by SKBL. SKBL controlled the laboratories' accounts
and, under
the management agreements, was entitled to its monthly share of
cash
receipts. I.G. Ex. 4.1, at 5-6 (PPCL); I.G. Ex. 5.1, at 5-6
(Omni);
I.G. Ex. 6.1, at 6-7 (Placer). It was not unreasonable for the
ALJ to
infer that when SKBL deferred its withdrawals in order to increase
the
funds available to the partnerships to make distributions to
physician
investors, Respondents received remuneration that was in return
for
their referrals. ALJR Decision at 28. Respondents did not
assert that
SKBL did not continue to operate the laboratories and thereby
incur
costs, while deferring its management fee. Respondents cited
testimony
of Kevin Lewand in support of their argument that the reason for
the
change to advance payments was to resolve a dispute with SKBL
concerning
management problems. H. Br. at 32, 44-47; Tr.
2006-2015. Even if this
were one reason for the advance payments, there
is evidence in the
record the advances were necessary because without them
payments to the
partners might have had to be delayed. Tr. 2101.
Furthermore, we.have
already affirmed the ALJ's findings on SKBL's payment of
advances to the
partnerships in his first decision, including that their
purpose was to
"provide greater initial compensation for" the limited
partners. FFCL
174. It was reasonable to infer that Respondents
sought to advance the
payments from SKBL at least in part because delays in
the limited
partners' distributions might have disrupted their referrals to
the
laboratories. The statutory requirement that remuneration be in
return
for referrals is satisfied by finding that the advances "were made
by
SKBL in order to assure that the limited partners continued to
refer
business to the joint venture laboratories which would then be
referred
to SKBL," regardless of any other motives also underlying the change
in
the payment scheme. ALJR Decision at 29.
The Hanlester Respondents also returned to the argument that profit
cannot
prove illegality, i.e., an agreement between a referral source
and a provider
cannot violate the law simply based on whether it is
advantageous. H.
Br. at 33. As we have stated in regard to section
1128B(b)(2), it is
not the profitability of the arrangement which is
relevant to our
analysis. The Hanlester Respondents violated the
statute by knowingly
and willfully seeking economic benefits in return
for channeling to SKBL the
referral stream of which they gained control
through the joint venture
partnerships. How successful they were in
negotiating those benefits is
not at issue. Respondents argued that 24
percent was not an excessive
sum for them to receive in return for the
residual risk that the partnerships
would fail. H. Br. at 40-41.
However, Respondents did not point to any
evidence of legitimate
services or benefits which Hanlester Network provided
to SKBL (as
opposed to Hanlester Network's services to the limited
partnerships)
other than "maintaining good relationships with the physician
limited
partners." H. Br. at 41. Respondent Lewand testified that
Hanlester
Network intended to set up the laboratories and turn them over to
SKBL
as "turn key" operations, in which Respondents did not expect to
have
ongoing operational duties except in relation to marketing and
managing
the limited partnerships. Tr. 2007. This amounts
primarily to
undertaking to keep the stream of referrals flowing. The
laboratories
had enough equipment and space to meet licensing requirements
and
perform a limited number of tests. SKBL provided their medical
director
and undertook all operating expenses. The laboratories were
obligated
only to cover non-operating costs of the partnerships themselves
(such
as legal and accounting expenses). Therefore, the laboratories
too
offered little of value to SKBL in return for their guaranteed share
of
collections besides.their control of a stream of referrals from
"loyal"
physicians. It was not unreasonable for the ALJ to infer from
these
facts that SKBL's management role was based essentially on
its
anticipated receipt of referrals from the joint venture
laboratories,
and that Respondents expected to receive greater benefits from
SKBL than
if Respondents had operated laboratories performing their own
tests, or
had sent out tests to reference laboratories with which they had
no
contract benefitting them in return. We therefore find no basis
for
Respondents' attack on FFCLs 263, 264, 265, and 266. The two
other
challenged FFCLs, 267 and 268, are conclusions about
Respondents'
violation of section 1128B(b)(1) in light of the findings upheld
above,
and therefore are affirmed.
The Hanlester Respondents argued that the I.G. failed to prove that
the
Hanlester Network's retention of 4 percent of collections for
marketing
and the laboratories' retention of 20 percent for distribution to
the
physician investors was "excessive" or "unreasonable," by any
showing
that they exceeded comparable arrangements or fair market
value.
However, the I.G. was not required to prove that the amount obtained
by
Respondents through the management agreement with SKBL was greater
than
provided for generally in such transactions, since we have pointed
out
that common business practices are not necessarily legitimate.
The
meaningful comparison would be with management contracts that do
not
involve the ability of a manager to channel referrals to itself, or
with
a reference laboratory relationship which does not involve the
element
of management control over the source laboratory's referral
streams.
The ALJ found that the benefits gained by Respondents from
this
arrangement were greater than those available from simply
referring
tests to outside laboratories on a test-by-test basis. This
excess
value served to compensate Respondents for granting SKBL control
over
the stream of test referrals. ALJR Decision at 30. Therein
lies the
illegality.
The Hanlester Respondents relied on FFCL 201 to argue that
SKBL's
assumption of the operating risks did not constitute remuneration
in
return for referrals. H. Br. at 32. Respondents asserted that
since
FFCL 201 was not vacated in our decision, it was now binding.
However,
although that finding was not excepted to before us during the
first
appeal and therefore was not vacated, the ALJ determined that
his
finding was premised on his earlier narrow interpretation of the
meaning
of "remuneration" and that the finding was no longer accurate.
ALJR
Decision at 28. We instructed the ALJ to reexamine the
significance of
his previous findings in.light of the definitions which we
articulated,
and he has done so here. Therefore, we conclude that the
ALJ did not
err in considering the value to Respondents of SKBL's assumption
of the
partnership laboratories' operating risks as one of the
economic
benefits which Respondents received from SKBL. 25/
The Hanlester Respondents also argued that Congress intended
arrangements
like this to be legal because it specifically exempted,
from the direct
billing requirements, payments to referring
laboratories. As we
discussed in our first decision, the Deficit
Reduction Act of 1984, Public
Law No. 98-369 (DEFRA), prevented doctors
from billing Medicare for clinical
diagnostic laboratory tests performed
by other laboratories. DAB 1275,
at 49, n.31; section 1833 of the Act.
However, DEFRA also established an
exception permitting independent
clinical laboratories to bill Medicare for
tests which they sent out to
reference laboratories. Section
1833(h)(5)(A)(ii) of the Act. Since it
was legal for a laboratory to
refer tests to another laboratory and
still bill Medicare for them,
Respondents contended that their
arrangement with SKBL was
"statutorily-approved." H. Br. at 33. The
use of a legal method
of billing does not serve to immunize the total
arrangement here. For
example, if an internist were to send all his
neurology patients to one
specialist in return for something of economic
value (whether money payments
or less obvious exchanges, such as the use
of a car), such a kickback scheme
would not be lawful just because both
doctors used proper methods to bill
Medicare for the services provided.
The Hanlester Respondents bolstered their contentions concerning
the
reference laboratory exception by claiming that a "shell lab"
rule
evidenced both that Congress continued to permit reference
laboratory
billing and that the restrictions which it added would have
been
unnecessary if the anti-kickback statute already made
reference
laboratory billing illegal. H. Br. at 33. The "shell
lab" rule was
contained in the Omnibus Budget Reconciliation Act of 1989,
Public Law
No. 101-239, and limited the availability of reference
laboratory
billing.to rural hospitals and other laboratories which send out
no more
than 30 percent of their tests. Section 1833(h)(5)(A)(ii)(III)
of the
Act. This limitation was intended to redress abuses of the
reference
laboratory billing exception, which had been intended to benefit
small
laboratories which had to send out certain "difficult or
sophisticated
tests," by parties who had --
created laboratories that have only a limited capacity to
do
testing, or indeed have virtually no capacity to do testing,
but
that act as conduits for referrals to other laboratories.
This
arrangement allows the owners and operators of the
referring
laboratory to obtain substantial discounts from the
testing
laboratory or to make other financial arrangements so that,
even
though there is a limit on Medicare payments, the
referring
laboratory is able to make inappropriate profits on testing
done
for Medicare patients. This is likely to be an inducement
for
unnecessary testing and contravenes the intent of the
direct
billing requirement.
H.R. Rep. No. 247, 101st Cong., 1st Sess. 356 (1989), reprinted in
1989
U.S. Code Cong. & Admin. News 2082. Far from reaffirming its
support
for all reference laboratory arrangements, Congress was seeking
once
again to stem abuses exploiting an exception to direct billing which
had
been intended to serve a narrow purpose.
It was necessary for Congress to act in this area, despite the
existence
of the anti-kickback statute, because not all laboratories
referring out
large numbers of tests necessarily do so to a laboratory from
which they
receive remuneration as clearly as the Respondents' laboratories
did
here under the management agreement. Congress presumably concluded
that
laboratories that exist largely to channel test referrals are likely
to
pose a risk of harm to the Medicare program, even absent
remuneration
for the referrals. In any case, the fact that Congress
later more
narrowly targeted arrangements like Respondents under another
provision
of the Act can hardly be support for the proposition that
Congress
intended to exempt their arrangement from the broad reach of
the
anti-kickback statute. In fact, the legislative history affirms
that
the "shell lab" rule "would not affect in any way the current
statutory
provisions prohibiting kickbacks or payments made to induce"
referrals.
Id.
Respondents argued that any remuneration which they received from SKBL
was
exempt from the anti-kickback statute as a discount. They argued
that
if SKBL charged.its retail rates to the laboratories, these would
have
approximated third party payee fee schedules, and that as a result
the
laboratories would have had no profit. Therefore, they reasoned
that
any remuneration found from SKBL to the laboratories was tantamount
to a
discount to the laboratories on SKBL's testing services. H. Br.
at
47-48. The anti-kickback statute is expressly made inapplicable to
--
a discount or other reduction in price obtained by a
provider of
services or other entity . . . if the
reduction in price is
properly disclosed and
appropriately reflected in the costs claimed
or
charges made by the provider or other entity under [Medicare
or
Medicaid].
Section 1128B(b)(3)(A) of the Act.
We see no reason to accept Respondents' novel characterization of
the
relationship with SKBL as a discount, especially without any citation
to
the record to support it. Furthermore, Respondents offered no
evidence
that any such discounts were disclosed or passed through to Medicare
as
required to qualify for the exemption. Rather, Respondents argued
that
the requirement to reflect discounts appropriately in claims to
Medicare
does not apply to clinical laboratory services, because they are
paid on
the basis of a fee schedule. H. Br. at 50. Medicare
payments for
clinical diagnostic laboratory services are made based on
negotiated
rates, or the lesser of a fee schedule, certain limits set by test
for
specific years, or the actual charges for the service provided.
Section
1833(a)(1)(D) of the Act. The fee schedule is thus a ceiling
on
payments. If SKBL gave the laboratories discounts which reduced
the
laboratory charges below the fee schedule, Medicare could
have
benefitted from appropriate reductions in charges. In any
case,
Respondents did not explain why the existence of a fee schedule
for
clinical diagnostic services would exempt them from the requirement
to
disclose all discounts they received in order to come within
the
kickback exception.
Respondents further suggested that their scheme should be treated
as
protected by the discount provision of the "safe harbor"
regulations,
even though management agreements are explicitly excluded from
such
protection. See 42 C.F.R. .1001.952(h)(3)(vi). (The discount
provision
of the regulations also contains a disclosure requirement,
which
Respondents again did not address. 42 C.F.R.
.1001.952(h)(1)(iii)(B).)
Respondents contended that the management agreement
exception
was.irrational and targeted them directly, and should therefore
be
disregarded. H. Br. at 48-49. The I.G. denied that the
exception was
included out of spite, arguing that its intent was to keep the
discount
provisions distinct from another safe harbor provision
expressly
applicable to management agreements. See 42 C.F.R.
.1001.952(d).
Respondents did not attempt to claim protection under that safe
harbor,
nor could they since it excludes management contracts in which
the
compensation is determined "in a manner that takes into account
the
volume or value of any referrals." 42 C.F.R. .1001.952(d)(5).
We find
the I.G.'s explanation of the safe harbor regulations
plausible. Even
if the management agreement exception to the discount
safe harbor were
directed specifically at Respondents' arrangements,
Respondents could
not claim the protection of the discount safe harbor
provided in the
regulations (even though those regulations were not adopted
until July
29, 1991), and yet ask us to ignore the limitation the Secretary
has
placed on it. 56 Fed. Reg. 35,952 (July 29, 1991).
Respondents do not
meet the terms of the statutory discount exception, and
they have not
shown that the regulatory safe harbor would have provided them
any
greater protection, had it been in place at the time of their
conduct.
We find substantial evidence in the record to support the ALJ's
conclusion
that Respondents (other than Respondents Huntsinger and
Welsh) violated
section 1128B(b)(1) by knowingly and willfully
soliciting and receiving
remuneration in return for referring laboratory
tests to SKBL. The
ALJ's findings support the inference that one
purpose of the benefits
solicited and received by Respondents was
remuneration in return for SKBL's
access to the physician investors'
stream of tests, and that those benefits
exceeded any benefits (other
than access to Respondents' limited partners'
tests) provided by
Respondents to SKBL. None of the arguments raised by
the Hanlester
Respondents is sufficient to overcome this inference.
This evidence
more than meets the standard enunciated in our prior
decision. We
therefore uphold the ALJ's conclusion on section
1128B(b)(1) and affirm
his FFCLs 263 through 268.
C. Did the ALJ err in imposing permanent
exclusions on the
three joint venture laboratories and a two-year
exclusion on the
Hanlester Network?
In our first decision, we reviewed the ALJ's decision not to impose
any
exclusion on the Respondents who were initially found to have
violated
the Act based solely on the conduct of their agent, Ms.
Patricia
Hitchcock, who.told potential investors that their opportunity to
invest
(and to retain their shares) depended on their agreeing to
send
referrals and tied the number of shares offered to the
anticipated
volume of referrals. FFCLs 211-213. She acted on
behalf of the
Hanlester Network and the partnership laboratories and was
motivated by
her compensation package which made it "in her interest to
convince
physicians that they must refer business" to the laboratories.
ALJ
Decision at 46; FFCL 71. The ALJ held that the Hanlester Network
and
the laboratories were vicariously liable for her acts as their
agents,
but concluded that she was not the agent of the other Respondents
and
that she acted on her own initiative without their approval.
ALJ
Decision at 44-47, 84-88. We remanded to the ALJ to reconsider
the
appropriate remedy, even if he did not find additional bases
of
liability. DAB 1275, at 51-53. We expressed concern that the
ALJ had
not given sufficient weight to the seriousness of the offense
involved,
which is in the nature of a program-related crime, although we
concluded
that a five-year exclusion was not mandatory or automatically
warranted
(as the I.G. had argued). DAB 1275, at 52; AP 6. We
instructed the ALJ
that the alleged lack of actual harm was a mitigating
factor which must
be proved by the Respondents and which would not
necessarily prevent
imposition of an exclusion depending on "the degree to
which a
Respondent is willing to place the programs in jeopardy." DAB
1275, at
52; AP 7.
On remand, the ALJ did find additional bases for liability, since he
found
that all Respondents except Huntsinger and Welsh violated both
section
1128B(b)(1) and section 1128B(b)(2) through their own actions
(in addition to
the vicarious liability mentioned above). The ALJ
imposed permanent
exclusions on the joint venture laboratories because
they could not function
as they were structured without violating
section 1128B(b)(2), by continuing
to seek to influence physician
investors through offering them remuneration
to refer tests to the
laboratories. ALJR Decision at 52-53. The
ALJ imposed a two-year
exclusion on the Hanlester Network, which he deemed
sufficient time for
it to divest itself of involvement with the laboratories
and to assure
that it undertakes no other unlawful activities. ALJR
Decision at
53-54. The ALJ declined to impose any exclusions on the
remaining
Respondents, for reasons discussed below in regard to the
I.G.'s
exceptions. ALJR Decision at 54-55.
The Hanlester Respondents argued that no exclusions should have
been
imposed, because no evidence demonstrated overutilization or
increased
cost and the potential for harm is no greater than in any
self-.referral
arrangement. H. Br. at 56-58. As to the
laboratories, Respondents
argued that the exclusions served no remedial
purpose, because the
laboratories were already out of business. 26/
Respondents also argued
that the exclusions were unnecessary to the extent
that they reflected
the findings of vicarious liability. Respondents
alleged that the
laboratories are defunct, that Ms. Hitchcock was never
replaced, that
her representations were overridden by disclosures in the
private
placement memos, and that her compensation package cannot be
attacked
under the anti-kickback statute because of an employee
exception
thereunder. H. Br. at 53-56.
Respondents excepted to the following findings in this regard:
277. Respondents PPCL, Omni, and Placer were created in order to
offer
or pay remuneration to limited partner physicians to influence
their
reason and judgment as to whether to refer business to
these
Respondents' joint venture laboratories.
278. Respondents PPCL, Omni, and Placer could not operate as
organized
without offering or paying remuneration to limited partner
physicians to
influence their reason and judgment as to whether to refer
business to
these Respondents' joint venture laboratories.
279. Respondents PPCL, Omni, and Placer could not operate as
organized
without violating section 1128B(b)(2) of the Act..280. A
permanent
exclusion of Respondents PPCL, Omni, and Placer is necessary to
meet the
remedial purpose of section 1128 of the Act.
283. A principal function of Respondent Hanlester was to engage
in
activities which violate sections 1128B(b)(1) and 1128B(b)(2) of
the
Act.
285. Until Respondent Hanlester divests itself of its
management
arrangement with Respondents PPCL, Omni, and Placer,
Respondent
Hanlester poses a threat to the integrity of federally-funded
health
care programs to the same extent as do Respondents PPCL, Omni,
and
Placer.
286. The remedial purpose of section 1128 of the Act will be served
in
these cases by excluding Respondent Hanlester for two years.
300. The I.G. has proven that he is authorized to impose and
direct
exclusions against Respondents Lewand, Tasha, Welsh, Huntsinger,
and
Keorle by virtue of having proven that these Respondents engaged
in
conduct which violated either section 1128B(b)(1) or 1128B(b)(2) of
the
Act.
The Hanlester Respondents' arguments about the lack of overutilization
or
proof of actual harm must fail. Much of their argument returns to
the
premise underlying most of their briefing in this case, i.e., that
widespread
disruption in the health care industry must inevitably follow
if these
partnerships are found to have violated the anti-kickback
statute or at least
if any sanctions are imposed as a result of their
violations. See H.
Br. at 57-58. As we have pointed out throughout, no
one aspect of these
partnerships alone proves a violation; rather, the
ALJ properly based his
conclusions on the totality of circumstances
surrounding the partnerships'
organization and operation. It is useless
for Respondents to reiterate
that particular features might also occur
in innocent contexts, for example,
that distributions occur in all
limited partnerships. The ALJ did not
find that these arrangements are
illegal because they are limited
partnerships, but rather that
Respondents employed the limited partnership
vehicle for illegal
purposes. We have not held that all physician
ownership relationships
violate the Act, nor even that all physician
referrals to entities in
which they have some ownership interest violate the
Act.
27/.Furthermore, the harm to the federally-funded health care
programs
presented by this kind of scheme goes beyond the question of
whether
particular tests were necessary or were properly performed.
Public
confidence in the integrity of the Medicare and Medicaid programs
is
undermined when patients are referred on the basis, even in part, of
a
provider's self-interest in receiving some remuneration as a result
of
the referral. The goal of eliminating this conflict of
interest
complements that of preventing overutilization. See DAB 1275,
at 20.
There is no doubt that the testimony of some of the physician
investors
discussed above demonstrates that they altered their decisions
about
where to refer their patients as a result of investing in
the
laboratories from which they anticipated distributions. They
therefore
selected "one laboratory over another . . . because of the
incentives
provided." DAB 1275, at 57.
As far as the impact of Ms. Hitchcock's conduct and compensation on
the
reasonableness of the exclusion of the laboratories and of the
Hanlester
Network, the ALJ.found it unnecessary to rely on this factor,
because he
imposed exclusions based on other considerations. ALJR
Decision at
53-54. The I.G. did not press for a longer period of
exclusion for the
Hanlester Network based on Ms. Hitchcock's marketing
activities. We
therefore need not reach the issues raised by
Respondents in regard to
vicarious liability as a basis for the exclusion of
the laboratories and
Respondent Hanlester. We note, however, that our
first decision
rejected the suggestion that Ms. Hitchcock's resignation was
adequate to
undo the effects of her representations on the structure and
operation
of the partnerships (should they resume operations). DAB
1275, at 53.
We also reject the argument that Respondents use of a
compensation
package designed to provide incentives to Ms. Hitchcock to
maximize
referrals from physician investors is immunized from consideration
under
the anti-kickback statute. The employee exception states that
the
anti-kickback statute does not apply to "any amount paid by an
employer
to an employee (who has a bona fide employment relationship with
such
employer) for employment in the provision of covered items
and
services." Section 1128B(b)(3)(B) of the Act. The violation
here is
not analogous to the use of productivity incentives offered by
an
independent laboratory to its sales staff to encourage them to
promote
the laboratory to potential customers, as the Hanlester
Respondents
contended, nor are Respondents charged with paying remuneration
to Ms.
Hitchcock in return for her obtaining referrals. H. Br. at
55-56. The
violation here is the use of partnership distributions as an
inducement
to potential customers to become investors and make
referrals. In that
context, the partnerships' use of incentives for its
sales agent not
only to seek investors, but to benefit from those investors'
referrals,
is relevant evidence that Respondents intentionally structured
the
partnerships to induce referrals.
The FFCLs challenged by Respondents find that the laboratories could
not
operate as organized without violating the Act because they were
created
to (and must continue to) offer remuneration for the purpose
of
influencing the limited partners to make referrals. FFCLs 277, 278,
and
279. For the reasons discussed above, we reject Respondents
position
that these findings amount to banning all physician ownership "in
one
fell swoop." H. Br. at 58. Rather, we agree with the ALJ that
the
violations here arose out of the entire structure and organization
of
these laboratories, as specifically designed and operated
by
Respondents, and therefore that a permanent exclusion is necessary
and
.appropriate for the laboratories. We therefore affirm FFCLs 277,
278,
279, and 280.
The Hanlester Network was intimately involved in creating and
operating
the partnerships and negotiating the management agreement with
SKBL. So
long as its ties to the laboratories persist, or so long as it
has not
demonstrated that it will operate in compliance with the Act, there
is
no assurance that the Hanlester Network could function as a
trustworthy
entity in dealing with federally-funded programs. Absent
such
assurance, a two-year exclusion is reasonable to ensure that it
will
divest its role in the laboratories and will not operate in violation
of
the Act. Respondents did not show any persuasive basis to change
the
length of the exclusion imposed by the ALJ. We therefore affirm
FFCLs
283, 285, and 286. (FFCL 300 is discussed below in regard to the
I.G.'s
exceptions to the ALJ's failure to exclude the remaining
Respondents.)
D. Did the ALJ err in declining to impose
any period of
exclusion on certain Respondents?
As discussed above, the ALJ, in his first decision, found only
vicarious
liability and imposed no exclusions. We instructed him to
reconsider
the appropriate remedy based both on any additional liability he
might
find as a result of our decision and on the concerns we expressed
about
the weight to be given to the seriousness of the offense and
the
relevance of proof of harm. On remand, the ALJ found that
five
Respondents (in addition to the Hanlester Network and the
three
laboratories) violated section 1128B(b)(2): Lewand, Keorle,
Tasha,
Welsh, and Huntsinger. The ALJ found that three of these also
violated
section 1128B(b)(1): Lewand, Keorle, and Tasha. However,
he concluded
that no remedial purpose would be served by excluding any of
these
Respondents, because they did not demonstrate "a propensity to engage
in
conduct in the future which is unlawful or harmful." ALJR Decision
at
54.
The I.G. argued that this result was erroneous for two reasons:
(1)
that the ALJ lacked authority to decline to impose any period
of
exclusion once the I.G. exercised his discretion in proceeding against
a
party and demonstrated that an exclusion was authorized under the
Act,
and (2) that the evidence in the record sufficiently supported
findings
that all Respondents were untrustworthy and should be
excluded. The
I.G. excepted to FFCLs 270-272 and 275-276, as erroneous
as a matter of
law, and to FFCLs 288-295, 297-299, and 305, as also
unsupported by
substantial evidence in the record..270. Exclusions
imposed and
directed pursuant to section 1128 of the Act are not intended
to
compensate for past wrongs.
271. Exclusions imposed and directed pursuant to section 1128 of
the
Act are remedial and are not intended to punish for wrongful acts.
272. The issue to be resolved in determining whether to impose
an
exclusion pursuant to section 1128 of the Act is whether a
party
manifests any propensity to engage in conduct in the future which
is
either illegal or harmful.
275. The fact that a party has engaged in illegal or harmful
or
potentially illegal or harmful conduct does not necessarily prove
that
party manifests a propensity to engage in illegal or harmful conduct
in
the future.
276. Section 1128(b) of the Act does not mandate an exclusion of
every
individual or entity who has engaged in conduct which authorizes
the
Secretary to impose and direct an exclusion under section 1128(b).
288. Respondent Lewand believed that the organization and activities
of
Respondents Hanlester, PPCL, Omni, and Placer did not violate the Act.
289. Respondents Tasha, Welsh, Huntsinger and Keorle relied
on
Respondent Lewand's judgment to organize and manage
Respondents
Hanlester, PPCL, Omni, and Placer.
290. The I.G. did not prove that Respondents Lewand, Tasha,
Welsh,
Huntsinger, and Keorle organized and operated Respondents PPCL, Omni,
or
Placer, or entered into or participated in agreements with SKBL,
knowing
or believing that their actions violated sections 1128B(b)(1)
or
1128B(b)(2) of the Act.
291. The I.G. did not prove that Respondents Lewand, Tasha,
Welsh,
Huntsinger, and Keorle organized and operated Respondents PPCL, Omni,
or
Placer, or entered into or participated in agreements with SKBL
with
reason to know that their actions violated sections 1128B(b)(1)
or
1128B(b)(2) of the Act.
292. The I.G. did not prove that Respondents Lewand, Tasha,
Welsh,
Huntsinger, and Keorle organized and operated Respondents PPCL, Omni,
or
Placer, or entered into or participated in agreements with SKBL
in
negligent disregard of the requirements of sections 1128B(b)(1)
or
1128B(b)(2) of the Act..293. Respondents Lewand, Tasha,
Welsh,
Huntsinger, and Keorle reasonably could have concluded that
their
organization and operation of Respondents PPCL, Omni, or Placer,
and
their entry into or participation in agreements with SKBL did
not
violate sections 1128B(b)(1) or 1128B(b)(2) of the Act.
294. The I.G. did not prove that, based on their conduct in creating
or
managing Respondents PPCL, Omni, and Placer, Respondents Lewand,
Tasha,
Welsh, Huntsinger, and Keorle manifest any propensity to engage
in
illegal or harmful conduct in the future.
295. The I.G. did not prove that, based on the agreements
between
Respondents PPCL, Omni, Placer, and SKBL, Respondents Lewand,
Tasha,
Welsh, Huntsinger, and Keorle manifest any propensity to engage
in
illegal or harmful conduct in the future.
297. Respondents Lewand, Tasha, Welsh, Huntsinger, and Keorle were
in
some respects guided in their organization and operation of
Respondents
Hanlester, PPCL, Omni, and Placer, and their entry into
and
participation in agreements with SKBL, by legal advice that
their
conduct was not unlawful.
298. Respondents Lewand, Tasha, and Welsh proved that they have
strong
reputations for integrity and honesty.
299. The weight of the evidence in these cases does not establish
that
Respondents Lewand, Tasha, Welsh, Huntsinger, or Keorle demonstrate
any
propensity to engage in illegal or harmful conduct in the future.
305. There exists no remedial need to exclude Respondents
Lewand,
Tasha, Welsh, Huntsinger, and Keorle, and I do not exclude
these
Respondents.
We do not address the question of the ALJ's authority to decline to
impose
some exclusion despite finding a violation, because the issue is
moot in
light of our decision below to impose exclusions of some length
on all
Respondents. (In any case, the I.G. could have, but failed to,
raise
this issue in its earlier appeal in this case.) We next discuss
whether
exclusions should be imposed on each Respondent based on the
facts of this
case and the proper legal standards. We look first at the
legal
principles which the ALJ enunciated in weighing the need for
exclusions and
then briefly at the evidence regarding each Respondent.
We conclude that the
ALJ erred in placing the burden on the I.G. (in
order to justify an
exclusion) to demonstrate that Respondents had.a
propensity to commit
unlawful acts. The ALJ also erred in reading the
Supreme Court decision
in United States v. Halper, 490 U.S. 435 (1989),
as requiring this
result. A proper understanding of the concept of
"trustworthiness"
requires us to impose exclusions on all Respondents,
since they did not
produce evidence sufficient to overcome the inference
of untrustworthiness
which arises from their conduct violating the
statute. We reject the
idea that Respondents were so confused about the
state of the law that no
sanction can fairly be imposed on them.
The ALJ acknowledged that the "starting point" for determining
the
reasonableness of the length of a proposed exclusion is "the
conduct
which authorizes the Secretary to impose an exclusion," since the
"fact
that Congress identified specific conduct as grounds for exclusion
under
section 1128(b) demonstrates that it considered that conduct to
be
evidence of lack of trustworthiness." ALJR Decision at 49.
Thus, the
proof that each Respondent violated section 1128B(b)(1) and/or
section
1128B(b)(2) suffices to raise "an inference that an exclusion of
at
least some duration is needed." Id. From this point, however, the
ALJ
narrowed his focus to whether the specific conduct involved in
the
violation demonstrated "a propensity on the part of the perpetrator
to
engage in conduct which is unlawful or harmful." Id. The ALJ
pointed
out that in particular cases a respondent may be able to show
by
"mitigating" circumstances that no remedial need exists for an
exclusion
because there is no such "propensity." (However, as we
discuss below,
the ALJ's findings shifted this burden to the I.G. to prove
the
existence of a propensity.)
The ALJ understood the existence of remedial need to be governed by
the
principle which he derived from Halper, that "remedial statutes
cannot
be applied constitutionally for punitive ends." ALJR Decision at
37.
28/ .Consequently, he reasoned that exclusions "cannot be imposed
as
retribution for prior wrongful conduct or solely to deter parties
from
engaging in misconduct." ALJR Decision at 37-38.
We conclude that Halper does not apply to the present cases for
several
reasons. First, no prior criminal convictions occurred.
Second, these
Respondents do not present the "rare case" of repeated small
violations
triggering massive penalties in the nature of liquidated
damages.
Third, the government is not seeking any monetary penalties here,
much
less excessive recoveries. Fourth, excluding providers who engage
in
kickback schemes from dealing with federally-funded programs for
a
reasonable period of time is inherently remedial and rationally
related
to the proper functioning of the programs. 29/.We conclude that the
ALJ
erred to extent he suggested that, in order to serve primarily
remedial
ends, exclusions must have no ancillary benefits, including
deterrent or
punitive impact on those who have harmed the programs. We
therefore
vacate FFCLs 270 and 271, which state that exclusions are not
intended
to "compensate for past wrongs" or to "punish for wrongful
acts,"
because they misstate the legal standard. The period of
exclusion must
not be excessive in light of the primarily remedial goals set
by the
statute, but may serve other ends as well.
We have approved of the use of "trustworthiness" by ALJs as a
useful
shorthand for expressing cumulative factors which show that a
party's
participation in Medicare and Medicaid does not pose a risk to
the
programs of a type which Congress intended exclusions to prevent.
Those
are the factors which correctly govern the assessment of whether
a
particular period of exclusion is reasonable or excessive. As the
ALJ
recognized, Congress considered certain conduct as
evidencing
untrustworthiness. Therefore, a finding that a respondent
has engaged
in.such conduct raises an inference that some exclusion is
needed. This
shifts the burden to the respondent to offer assurances
of
trustworthiness sufficient to overcome that inference. By
determining
that the central issue in deciding whether to impose an exclusion
is
"whether a party manifests any propensity" to engage in illegal
or
harmful conduct, and by then finding that the I.G. did not prove
that
respondents manifested such a propensity, the ALJ placed the burden
on
the wrong party. FFCLs 272, 275, 294, 295, and 299. While a
showing of
such a propensity or natural bent toward particular misconduct
would be
an aggravating factor in considering the reasonable length of
an
exclusion, a lack of propensity does not necessarily equate
to
trustworthiness. 30/ Respondents would have to come forward
with
affirmative evidence assuring their trustworthiness in order to
overcome
the inference arising from their past acts.
Our first decision in these cases, as well as our decisions in
other
cases, provide considerable guidance on proper considerations
in
evaluating Respondents' trustworthiness, including, for example:
- the circumstances of the misconduct and the seriousness
of
the offense, in particular the commission of misconduct in
the
nature of a program-related crime, see DAB 1275, at
52;. -
"the degree to which a respondent is willing to
place the
programs in jeopardy," even if no actual harm is
accomplished,
id. at 52; 31/
- the failure to admit misconduct, or express remorse,
or
evidence rehabilitation, see e.g., Olufemi Okonuren, M.D.,
DAB
1319, at 13 (1992); Robert Matesic, R.Ph. d/b/a
Northway
Pharmacy, DAB 1327, at 12 (1992); and
- the "likelihood that the offense or some similar abuse
will
occur again," see e.g., Matesic, at 8. (The ALJ may have
meant
to encompass this idea within his treatment of
"propensity.")
32/
We next consider trustworthiness in relation to the evidence relating
to
Respondents Lewand, Keorle, and Tasha. We have discussed the
overall
nature of the partnerships and why they violate the
anti-kickback
statute both as they were planned and in their operations
elsewhere.
Those facts are relevant here, since these Respondents were the
primary
actors and agents in the planning and operation of the
partnerships. We
have also affirmed above the findings that these
Respondents separately
violated sections 1128B(b)(1) and 1128B(b)(2),.both of
which constitute
serious offenses in the nature of program-related
crimes. We therefore
begin with an inference that some period of
exclusion is required to
provide assurances of trustworthiness before these
Respondents are again
permitted to participate in the program. Below,
we discuss the
individual activities and responsibility of these
Respondents.
It is uncontested that Respondent Lewand "made the principal legal
and
business decisions" for the Hanlester Network, PPCL, Omni, and
Placer
during the relevant time period. FFCL 287. He took an
active role in
preparing the private placement memoranda. See, e.g.,
Tr. 1989-1990.
He was the principal person involved in negotiating the
management
agreement structure with SKBL. See e.g., Tr. 2092.
Clearly, if the
Hanlester Network "deliberately enticed" limited partners to
refer to
the laboratories by offering financial inducements and arranged
its
relationship with SKBL to provide a stream of advance payments to use
as
an incentive to maintain referrals from the partners, the
Hanlester
Network acted as the creature of Respondent Lewand. Cf. ALJR
Decision
at 24 and 30. The ALJ has already determined that Respondent
Keorle is
the corporate "alter ego" of Respondent Lewand. ALJR Decision
at 64.
Therefore, Respondent Keorle's trustworthiness derives from that of
its
principal and does not require separate discussion.
While Respondent Lewand was the planner and architect of the
partnerships,
Respondent Tasha was the primary player in their
operation. Thus, he
oversaw the marketing of the partnerships,
supervised Ms. Hitchcock, and was
in charge of the monitoring of
partners' usage. See e.g., Tr. 785-86,
795-97, 946, 953, 2231, 2342.
Respondent Tasha remained active in the
partnerships despite receiving
the Fraud Alert, which the ALJ acknowledged
did constitute at least
"notice that the I.G. considered his [Tasha's]
conduct . . . to be a
potential violation of the Act." ALJR Decision at
60. While we agree
with the ALJ that the Fraud Alert "did not represent
the Secretary's
final interpretation of the Act," we do not agree with the
ALJ's
assessment that Respondent Tasha's heavy involvement in
these
enterprises at the time of its issuance meant that he could
reasonably
take no steps in response. See ALJR Decision at 60-61.
It is
reasonable to infer untrustworthiness from his failure to show
any
effort to change the operations, or to notify the limited partners,
or
otherwise to seek to reassess his compliance with the law.
A major factor in the ALJ's conclusion not to impose exclusions was
the
suggestion that Respondents.understandably failed to realize that
they
risked violating the Act by their conduct. 33/ See, e.g., FFCLs
288,
290, 291, 292, and 293. In this regard, the ALJ
seriously
mischaracterized our first decision as "announc[ing] definitions of
the
terms `to induce' and `remuneration' which had not previously
been
adopted by any court." 34/ Our understanding of these terms in
their
context in this statute was derived from their plain meaning, and
was
supported by the legislative background, and the case law. We
found
that the statute was not ambiguous and did not require resort to
outside
sources and that, where courts had reached the issues before us,
their
holdings were consistent with ours. DAB 1275, passim. The
lack of
ambiguity undercuts the heavy emphasis which Respondents have
repeatedly
placed on the idea that vast uncertainty surrounded the meaning of
the
anti-kickback statute. The hope of a segment of the private bar or
of
some promoters of business ventures that an interpretation might
be
obtained that would narrow the reach of the statute on its face is
not
enough to demonstrate that they were entirely unaware that
the
anti-kickback statute on its face would impact partnerships
with
features like those of the laboratories here. Cf. ALJR Decision at
57.
The ALJ also appears to have relied as proof of uncertainty on
certain
points which we rejected in our first decision. For example,
we
rejected the contention that decade-old opinion letters signed by
HCFA
officials had any relevance here; they do not address the
circumstances
at issue, they disclaim any official status on their face,
and
Respondents did not claim to have relied on them. DAB 1275, at
44.
Nevertheless, the ALJ.reverted to referring to them as evidence
that
Respondents could not have determined that "a finding of
unlawful
conduct would be the likely outcome." ALJR Decision at 56-57
(emphasis
in original). 35/ Similarly, the ALJ again gave great weight
to
evidence that a "substantial minority" of physicians participate
in
joint ventures to which they make referrals; he inferred that
those
participants, and by extension Respondents here, were neither
"conscious
participants in kickback schemes or indifferent to the
law's
prohibitions." ALJR Decision at 58-59. Our first decision
pointed out
that "`[c]ommon' does not necessarily mean `legitimate,'"
especially in
an industry that Congress found to be rife with fraud.
DAB 1275, at
23-24, 56.
Furthermore, Respondents Lewand, Keorle, and Tasha were not
simply
physicians who participated in a joint venture, but were the
moving
forces behind creating and structuring these partnerships. In
fact, a
number of the physicians approached about the partnerships
raised
concerns about the legality of these schemes under the
federal
anti-kickback statute, demonstrating that the medical community
was
aware of at least their relevance to such a self-referral
arrangement.
See, e.g., Tr. 779, 1809.
It would be disingenuous for us to insist that no reasonable person
could
have reached a conclusion different from ours as to whether this
particular
scheme fell squarely within the ambit of the anti-kickback
statute.
First, while we have found that the plain.meaning of the
statute controls
here, the ALJ was not alone among commentators in
seeking to read in some
narrower interpretation. See, e.g., United
States v. Greber: A New Era
in Medicare Fraud Enforcement?, 3 J.
Contemp. Health L. & Pol'y 309
(1987); Adams and Klein, Medicare and
Medicaid Anti-Fraud and Abuse
Law: The Need for Legislative Change, 2
Health Span 19 (1985).
Second, applying even the correct legal
standards to the particular elements
of these ventures required a close
analysis. However, we do not see how
any reasonable person, aware of
the statutory language and its purpose, could
have concluded that the
anti-kickback statute would not impinge, at least
potentially, on this
scheme, or that the organizers would not run the risk of
crossing the
line into illegality.
Respondents may not be culpable to the same degree as the case where
there
is absolute certainty as to how the statute will apply to
particular
facts. Cf. ALJR Decision at 56. A deliberate intention to
break
the law without regard for consequences might have been an
aggravating
factor, so that culpability in that case would have been
greater. By no
means, however, did the existence of differing opinions
as to the scope or
enforcement of the statute absolve Respondents of all
culpability, or more to
the point, provide assurance of their future
trustworthiness in complying
with the Act.
The ALJ rejected the analysis that Respondents "danced close to the
line,"
because he found that there had been "considerable dispute as to
where the
line lies." ALJR Decision at 59. But see, Boyce Motor Lines
v.
United States, 342 U.S. 337 (1952). But it is only in those areas
where
the precise division between lawful and unlawful conduct is still
in the
process of definition, as when a law is being applied in a new
context (such
as here since the anti-kickback statute was being newly
applied to clinical
laboratory self-referral arrangements), that a party
could violate the law
through willful and knowing action, without
simultaneously having
deliberately intended to break the law. If the
"willingness to flirt"
with a violation can have no consequences simply
because the providers did
not know to a certainty whether their actions
would result in a finding of a
violation, then other providers have no
incentive to act with caution until
they see a provision enforced in
precisely the same circumstances. Cf.
DAB 1275, at 40, n.25. Here,
unrebutted evidence in the record
indicates Respondents' awareness that,
at the very.least, they were operating
in an area of legal risk, for
example:
-- Respondents Lewand, Keorle, and Tasha were heavily
involved
in setting up and crafting these arrangements.
-- These Respondents' much-vaunted familiarity with the
health
care industry makes it implausible that they were unaware of
the
impact of changes in the anti-kickback statute on that
industry.
(For example, Respondent Lewand testified that he was a
founder
and legal counsel to the California Clinical
Laboratory
Association. Tr. 1952-53, 2418.)
-- Respondent Lewand was fully aware of the existence of
the
anti-kickback law, attended conferences concerning
its
interpretation, and engaged in heated discussions with
other
attorneys about the factors which might increase the risk
of
prosecution. Tr. 2024Z-24Z-3, 2152, 2154-55. 36/ He was
aware
of or had provided articles used by the
marketing
representative, Ms. Hitchcock, in discussing the scope of
the
anti-kickback statute with prospective physician investors.
Tr.
986-87, 1004-11. (The articles themselves provided
"warning
signs," which should have alerted Respondents to their
legal
risk, such as when a "joint venture has no purpose for
existing
other than as a conduit for patient referrals" and when
"a
physician is offered money or any other form of compensation
in
exchange for doing nothing more than referring a patient or
for
some nominal work or investment." I.G. Ex. 75.1, at 5.)
-- The terms of the private placement memoranda, which
so
carefully disclaim the intention of promoting
overutilization
while describing laboratories that could succeed only
if the.
investors actively referred their testing to the
laboratories
and eschewed investment in any competing laboratories,
support
an inference of Respondents' awareness of the
potential
incentives to overutilization. I.G. Exs. 4.0, 5.0,
6.0.
-- Some of the physicians who were approached
questioned
whether the planned ventures might violate the
anti-kickback
statute. See, e.g., Tr. 779, 986-87, 1004-11,
1809.
-- The marketing techniques employed by Respondents blurred
any
distinction between investors and referral sources, for
example,
Ms. Hitchcock's compensation package motivated her to
promote
partners' usage as well as to sell shares and the
monitoring
system set up by Respondent Tasha using Respondent
Huntsinger
targeted specifically decreases in partners'
referrals. See,
e.g., Tr. 2213-14.
The ALJ recognized that in our first decision we noted that
Respondents
"may well have tailored their arrangement to maximize their
financial
returns, despite knowing that they were at least close to an
area
proscribed by federal law." ALJR Decision at 59, n.39, quoting
DAB
1275, at 23, n.13. However, the ALJ did not read this language
as
compelling a finding that Respondents knew that their acts might
be
illegal. The ALJ is correct that we declined to make factual
findings
in our first decision in order to permit the ALJ to reassess
the
evidence in light of a corrected legal analysis. However, in light
of
the discussion above, we find that the record does not support the
ALJ's
finding that Respondents Lewand, Keorle, and Tasha "reasonably
could
have concluded" that their activities did not violate the Act.
We
therefore vacate FFCL 293.
In regard to the ALJ's finding that the I.G. did not prove
that
Respondents acted in negligent disregard of the Act's requirements,
we
conclude that the I.G. did not have the burden to prove this. In
his
discussion, the ALJ properly stated that the burden is on the
excluded
party to show that his conduct was not reckless or negligent.
ALJR
Decision at 55. The ALJ stated that Respondents had met that
burden,
but his specific FFCL placed the burden on the I.G. FFCL 292;
see also
FFCLs 290, 291. Moreover, the basis for the ALJ's statement
and for
FFCL 293 appears to be his erroneous analysis of the lack of clarity
in
the law, which we discussed above..Culpability does not relate solely
to
whether a respondent is aware that his conduct is a criminal
violation
under a particular statute. Since Respondents knew and
represented that
the partnerships could succeed only if the limited partners
referred
substantial numbers of tests to them, it can reasonably be inferred
that
they knew their conduct had the potential of motivating physicians
to
make referrals out of self-interest rather than concern for the
best
interests of their patients. We find that the emphasis in the
marketing
documents on advising physicians not to order tests that
were
unnecessary or medically unsound shows that Respondents were well
aware
that the structure of their venture was likely to provide an
incentive
to investors to do just that. See I.G. Exs. 4.0, 5.0,
6.0. The ALJ
erred in using these self-serving disclaimers as evidence
of the absence
of negligent disregard by Respondents for the potential harm
to the
programs. See ALJR Decision at 55. We therefore vacate
FFCL 292.
We also vacate FFCLs 290 and 291, which found that the I.G. did not
prove
Respondents to have reached a higher level of intent than that
required by
law to find a violation. Although such proof might have
supported a
longer exclusion, it is not required to support imposition
of some
exclusion. The FFCLs to a certain extent support reduction of
the
length of the exclusions originally proposed by the I.G., but are
not
necessary to support the reduction, are potentially confusing, and
raise a
burden question we do not need to address here.
We vacate FFCL 288, which found that Respondent Lewand believed
his
conduct did not violate the Act, because we find the facts
discussed
above undercut Respondent Lewand's assertion that he believed
his
conduct not to be in violation. We affirm FFCL 289, which found
that
Respondents Tasha, Welsh, Huntsinger, and Keorle relied on
Respondent
Lewand to organize and manage the partnerships, but we do not
conclude
that their reliance on Respondent Lewand as an organizer and manager
has
any bearing on their culpability. We vacate FFCL 276 as moot in
light
of our conclusion below that some period of exclusion is reasonable
for
all Respondents. We also vacate FFCLs 272, 275, 294, 295, and
299,
because they mistakenly place a burden on the I.G. to show
a
"propensity" in order to justify imposition of even a minimal
exclusion,
rather than on Respondents to provide affirmative assurances
of
trustworthiness to justify reducing the length of the exclusion
to
zero..
E. Is the length of the exclusions imposed
reasonable?
Having found a need to exclude the laboratories and the Hanlester
Network,
we further conclude, based on the same facts and
considerations, that the ALJ
had no reasonable basis for declining to
impose exclusions on Respondents
Lewand, Tasha, and Keorle. Hanlester
Network was the brainchild of
Lewand, who structured and organized the
laboratories in such a way that they
could not operate without violating
the law. Keorle was simply the
corporate alter ego of Lewand. Tasha
was the principal involved in
marketing the partnerships and relating to
SKBL. If Respondent
Hanlester cannot demonstrate in less than two years
that it will not again
undertake to organize an illegal scheme, it is
only reasonable to require at
least as long for Hanlester's principals
to demonstrate that they will not do
so through some other entity.
While the facts might well justify longer exclusions for
Respondents
Lewand, Keorle, and Tasha, the I.G. did not challenge the
two-year
exclusion imposed on the Hanlester Network. 37/ Since
Respondent
Hanlester Network was the vehicle through which these Respondents
acted,
it would be inappropriate to exclude them for a longer
period.
Therefore, we find that the two-year exclusion of the Hanlester
Network
sets a benchmark for the exclusions of the other parties. The
facts in
regard to each of the parties are clearly sufficient to
support
exclusions of at least the durations imposed here..While we
generally
defer to an ALJ on matters centering on the assessments of
witnesses'
credibility, we have found sufficient facts in the FFCLs
already
affirmed by us to support exclusions of at least two years for
these
Respondents, and additional unrebutted evidence which also supports
our
decision. Even assuming that the character testimony and
Respondents'
own testimony on their reputation and on the legal advice they
received
were wholly credible, that would not suffice to reduce the
reasonable
period of exclusion below two years in light of the findings
and
evidence we discuss above. 38/ Therefore, we do not consider
it
necessary to remand again to the ALJ to consider the appropriate
period
of exclusion. Another remand would be particularly inappropriate
in
light of the long procedures which have already occurred in this
case.
We therefore conclude that Respondents Lewand, Keorle, and Tasha
each
should be excluded from participation in Medicare and Medicaid for
two
years.
F. Should the ALJ have imposed exclusions
on Respondents
Huntsinger and Welsh?
Respondent Huntsinger challenged FFCLs 228 through 240, 243, 244,
and
246.
228. Under section 1128B(b)(2) of the Act, it is not a
necessary
element of a violation that an offer or payment be conditioned on
an
agreement to refer program-related business. Rather, the issue
in
determining a violation is whether a party knowingly and
willfully
offers or pays remuneration to another with the intent of
exercising
influence over the reason or judgment of that person or entity in
an
effort to cause that person or entity to refer program-related
business.
229. In sections 1128B(b)(1) and 1128B(b)(2) of the Act, the
word
"remuneration" covers offering or paying anything of value in any
form
or manner whatsoever..230. The phrase "to induce" in
section
1128B(b)(2) of the Act connotes an intent to exercise influence over
the
reason or judgment of another in an effort to cause the referral
of
program-related business.
231. An offer or payment may violate section 1128B(b)(2) of the
Act
even if it is not conditioned on an agreement to refer
program-related
business.
232. Respondents offered potentially lucrative investments
to
physicians in order to encourage them to become limited partners
in
joint venture laboratories and to refer laboratory tests to
joint
venture laboratories.
233. Respondents urged potential limited partners in joint
venture
laboratories to refer tests to joint venture laboratories by
telling
them that such referrals were necessary for the joint ventures'
success.
234. The intent of Respondents in creating joint venture
laboratories
was to create entities which could be marketed to physicians
as
attractive investments which would generate income for Respondents
and
for the physicians who purchased limited partnership shares.
235. The key to Respondents' marketing strategy was that
physician
investors would be influenced to refer laboratory tests to the
joint
ventures' laboratories.
236. One element of the marketing strategy was to enlist as
limited
partners in the joint ventures those physicians who could
potentially
refer large numbers of tests to joint venture laboratories.
237. As a means of persuading physicians to invest in joint
venture
laboratories and to refer tests to those laboratories,
Respondents
offered to sell limited partnership shares to physicians at a
relatively
low price and in small minimum quantities per investor.
238. As a means of persuading physicians to invest in joint
venture
laboratories and to refer tests to those laboratories, Respondents
told
physicians that, assuming the joint ventures succeeded in
attracting
significant numbers of partners and referred tests, they could
earn
relatively high rates of return on their investments.
239. As a means of persuading physicians to invest in joint
venture
laboratories and to refer tests to those laboratories,
Respondents
offered to physicians the opportunity to earn income indirectly
from
referred .laboratory tests where they were legally barred from
earning
income directly from those tests.
240. On Respondents' behalf, and as a means of persuading physicians
to
refer tests to joint venture laboratories, Respondent Hanlester
told
potential limited partner physicians that failure by them to refer
tests
would be a blueprint for failure of the joint ventures.
243. Respondents discouraged limited partners from using
referral
sources for laboratory tests other than joint venture
laboratories.
244. Respondents knowingly and willfully offered remuneration
to
physicians with the intent of exercising influence over
these
physicians' reason or judgment in an effort to cause them to refer
tests
to joint venture laboratories.
246. Respondents violated section 1128B(b)(2) of the Act by
knowingly
and willfully offering or paying remuneration to physicians to
induce
them to refer program-related business.
Respondent Huntsinger argued the record did not include
substantial
evidence to support a finding that he violated section
1128B(b)(2).
(The ALJ concluded that he did not violate section 1128B(b)(1),
and the
I.G. did not challenge that conclusion.) FFCL 268.
Respondent
Huntsinger emphasized that none of the other Respondents were his
agents
and that therefore he should not be liable for their acts.
In
discussing the evidence, Respondent Huntsinger asserted that the
only
actions of which he had been accused involved (a) his initial
contacts
with potential investors and (b) his follow-up contacts with
partners
who were not making referrals. Huntsinger Brief (Hunt. Br.) at
6. He
described the first set of acts as too "vague and general" to
constitute
"offers of remuneration in exchange for referrals" and the second
set as
"proper calls in the ordinary course of business." Hunt. Br. at
8. He
argued that his position as medical director of the laboratories
was one
that the licensing laws required and could not therefore be a basis
for
a violation. Id. at 15. He complained that no finding was
made naming
"exact words" by which he violated the Act. Id. at
16. Finally, he
asserted that he believed, based on legal advice, that
the ventures were
legal. Id. at 13.
Four of the FFCLs to which Respondent Huntsinger excepted restate
our
findings on the proper legal standards to use in applying
the
anti-kickback statute. Respondent.Huntsinger presented no basis
for
challenging these findings. We see no reason to alter the
findings
which we made in our first decision, and we reaffirm them
here. While
the language used by the ALJ in these findings is not
identical to that
in the Appellate Panel findings on which they rely,
Respondent
Huntsinger did not show any prejudice from any such
differences.
Therefore, we affirm FFCLs 228 through 231.
A number of the FFCLs to which Respondent Huntsinger excepted go to
the
structure of the partnerships and their purpose as "a means
of
persuading physicians to invest . . . and to refer." See, e.g.,
FFCLs
232-240. Respondent Huntsinger presented no argument concerning
the
accuracy of these FFCLs, but rather challenged their relevance to
him.
(The accuracy of those also challenged by Respondent Hanlester
has
already been discussed above.) We do not find it necessary to
determine
the extent to which specific actions by other Respondents can
be
attributed to Respondent Huntsinger. Nor is it necessary to find
that
Respondent Huntsinger structured the partnerships with the
purposes
described in these findings. Rather, we focus on whether
Respondent
Huntsinger was aware of the nature and operation of the
partnerships and
of those features which we have already found caused those
ventures to
violate the anti-kickback statutes. If he was aware that
the intended
purpose of the ventures was to offer any remuneration to
physicians to
induce referrals, and he acted in furtherance of that purpose,
then he
knowingly and willfully violated the Act, as the ALJ found. See
FFCL
246.
Respondent Huntsinger became a limited partner in PPCL at the outset
and
owned 30 shares. FFCL 20. It is reasonable to infer that as a
limited
partner he was aware of the representations in the private
placement
memorandum and of the overall structure of the limited
partnership. See
FFCLs 14-19, 33-63.
Respondent Huntsinger permitted his name to be used as the
medical
director of the Hanlester Network (although in fact he never became
a
principal in or employee of the Hanlester Network). See FFCL
13. He
was medical director of the partnerships laboratories under
contract
with SKBL. See FFCLs 113, 114. Substantial evidence in
the record
supports the ALJ's determination that he "was involved actively
in
promoting the joint venture laboratories." ALJR Decision at
27. There
is evidence in the record that Respondent Huntsinger, as a
medical
doctor, was able to initiate contacts with potential investors for
the
partnerships that the sales agent could not otherwise have
achieved.
See, e.g., Tr. 2238-40,.2296-97. Even the testimony cited in
Respondent
Huntsinger's brief demonstrates that he outlined generally
to
prospective investors the involvement of SKBL and the expectation
that
partners would be making referrals. Hunt. Br. at 6-7; Tr.
1510-11,
1521-22, 1551-52. Further, as the ALJ noted, he acted out of
his
"substantial financial interest" in his efforts to further the plan
that
investors be induced to make referrals, since he would benefit both
as
an owner of a large number of shares and as medical director of PPCL
and
Omni if the marketing strategy succeeded. ALJR Decision at 27.
The findings which were already affirmed in our first decision
establish
that Respondent Huntsinger's monitoring of usage went beyond
ordinary
concern for unhappy customers. The ALJ found that Respondent
Huntsinger
called limited partners in PPCL and Omni laboratories to inform
them
that they were not referring sufficient business compared to
other
partners and were thereby "hurting the interests" of other
partners.
FFCLs 125-129; see also Tr. 1560-64. These findings
demonstrate
pressure based on the financial interests of the partners, not
mere
inquiries about quality control problems. While Respondent
Huntsinger
claimed that, out of 180 partners, the I.G. was only able to
locate "1
or 2 who felt pressured by Huntsinger," we do not find that it
was
necessary to a finding that Respondent Huntsinger violated
section
1128B(b)(2) that the I.G. prove that he pressured large numbers
of
partners, or even all of those whose usage was low. It is
sufficient
that he sought to induce the referrals of certain limited
partners
knowingly and willfully by emphasizing that low usage was contrary
to
the financial interest of themselves and their fellow partners, i.e.,
by
offering economic benefits. We find that these facts, and the record
as
a whole, provide substantial evidence to support FFCLs 232-240, 243,
and
244, in relation to Respondent Huntsinger, and we therefore affirm
them.
We reject Respondent Huntsinger's suggestion that the ALJ was required
to
specify the "exact words" by which Respondent Huntsinger violated
the
Act. Rather, we agree that his words and actions as a whole, in
light
of what he knew about the nature and operation of the partnerships,
were
sufficient to support the finding that he violated section
1128B(b)(2),
and we therefore affirm FFCL 246.
Respondent Huntsinger's assertion that he relied on legal advice is
not
sufficient to preclude imposition of any exclusion. He did not
on
appeal point to evidence of any.specific legal advice as to whether
the
partnerships violated the anti-kickback statute. We have already
found
that there was no reasonable basis for a conclusion that
the
partnerships as structured and operated were legal or without
legal
risk. His culpability is less than those Respondents who took the
most
active role in structuring these arrangements, but he
remains
responsible for his own choice to act in an area proscribed by
federal
statute. It is also unavailing for Respondent Huntsinger to
assert that
his involvement in the laboratories was legal because they were
required
by licensing laws to have a medical director. The illegality
here is
not in simply serving as a medical director of a laboratory, but
in
actively participating in promoting a scheme through which
laboratories
were set up to induce selected physician investors to make
referrals or
face pressure and then to pass their referrals through to a
reference
laboratory which could benefit from the referral stream and in
turn
provide secure returns to the physicians, who could not otherwise
profit
from those test referrals. As medical director, he stood at the
center
of the referral stream and was active in conveying the demand
to
physicians to keep up referrals.
The I.G. proposed a seven-year exclusion for Respondent Huntsinger.
In
light of the two-year period imposed on the Hanlester Network,
a
reasonable exclusion for Respondent Huntsinger should be
proportionally
shorter. We therefore modify the ALJ Decision on Remand,
to reflect our
conclusion that an exclusion of one year from participation in
Medicare
and Medicaid for Respondent Huntsinger is reasonable.
Respondent Welsh did not except to any specific FFCLs, but rather
argued
that it was unreasonable to impose the exclusion proposed by the I.G.
on
him in light of the mitigating evidence he presented. He argued
that
even the I.G.'s witnesses testified to his good character
on
cross-examination and that he was unlikely to engage in harmful
conduct
in the future, since he "severed his ties to the clinical
lab
profession." Welsh Br. at 2.
Respondent Welsh was a general partner in the Hanlester Network during
the
time that these ventures were being planned and formed. He
was
"involved in the conception and marketing" of the limited
partnership
laboratories. ALJR Decision at 26. He personally sold
shares in PPCL
to potential investors. ALJR Decision at 27, Tr.
1484. The ALJ found
that Respondent Welsh "knowingly and willfully
offered remuneration to
physicians" to induce referrals and thereby violated
section
1128B(b)(2). .FFCLs 244, 246. The ALJ did not find that
Respondent
Welsh violated section 1128B(b)(1).
The evidence as to his good character may be relevant to mitigating
the
length of exclusion which is reasonable, but cannot overcome
entirely
the inferences to be drawn from his past acts. The I.G. does
not
dispute Respondent Welsh's character and praised his conduct at
the
hearing. I.G. Br. at 33. However, this factor was reflected
in the
reduced period of exclusion proposed for Respondent Welsh in relation
to
other Respondents (three years, as opposed to ten years for
Respondents
Lewand, Keorle and Tasha). We accept the I.G.'s conclusion
that
Respondent Welsh should be excluded for a proportionally shorter
time,
but we are bound to apply those considerations in light of the
two-year
exclusion imposed on the Hanlester Network and Respondents
Lewand,
Keorle, and Tasha. Therefore, we modify the ALJ Decision on
Remand, to
reflect our conclusion that an exclusion of one year from
participation
in Medicare and Medicaid for Respondent Welsh is reasonable.
39/
Having discussed the evidence relating to each of the Respondents
above,
we affirm FFCL 300 that the I.G. proved that each Respondent violated
at
least one section of the Act, so that the I.G. is authorized to
impose
and direct exclusions against the Respondents. In light of
our
determinations above that some period of exclusion is required
against
each Respondent, we vacate FFCL 305, which found that there was
no
remedial need to exclude Respondents Lewand, Tasha, Welsh,
Huntsinger,
and Keorle.. G. Should we
adopt the findings proposed by the
parties?
The parties proposed a number of FFCLs, none of which we adopt. We
have
not found it necessary, in light of the extensive discussion of
the
issues in these cases in our two decisions, to explain why
each
individual proposed FFCL has been rejected. For convenience, we
have
listed below the main reasons we reject the FFCLs and the proponent
and
number of the FFCLs to which each reason applies. Hence, all
FFCLs
proposed by the parties are rejected on one or more of the
following
grounds:
o They are erroneous, do not follow from the record, are unsupported
by
any cited evidence in the record, or conflict with findings
already
conclusively affirmed by us.
Respondent Hanlester's proposed FFCLs 1, 2, 4, 5, 6, 7, 8,
9,
12, 13, 16, 17, 18, 19, 25, 26, 30, 39, 42, 43, and 44.
The Inspector General's proposed FFCLs 4, 6, 8, 9, 10, 19,
27,
37, 38, 39, 58, 60, 65, 66, 67, 68, 69, 72, 73, 74, 75, 76,
77,
and 78.
o They are irrelevant, are speculative, or, even where we may
not
disagree with their substance, are unnecessary to make as findings
in
order to resolve any contested issue before us.
Respondent Hanlester's proposed FFCLs 3, 7, 9, 10, 11, 13,
14,
15, 16, 17, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31,
32,
33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, and 44.
The Inspector General's proposed FFCLs 2, 3, 4, 5, 6, 7, 8,
9,
10, 11, 12, 13, 14, 15, 16, 17, 18, 20, 21, 22, 23, 24, 25,
27,
28, 29, 30, 31, 32, 33, 40, 41, 42, 43, 44, 45, 46, 47, 48,
49,
50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63, 64,
67,
68, 69, 70, and 71.
o They duplicate in whole or in part findings made by us or by the
ALJ,
or simply state those findings in language more favorable to
the
proponent.
Respondent Hanlester's proposed FFCLs 21, 22, 23, 29, 33,
34,
36, 37, 38, 39, 42, 43, and 44.
The Inspector General's proposed FFCLs 1, 26, 34, 35, 36,
and
51..
Conclusion
The following FFCLs in the ALJ Decision on Remand are affirmed:
FFCLs 228, 229, 230, 231, 232, 233, 234, 235, 236, 237,
238,
239, 240, 241, 243, 244, 245, 246, 263, 264, 265, 266, 267,
268,
277, 278, 279, 280, 283, 285, 286, 289, 297, 298, and 300.
The following FFCLs in the ALJ Decision on Remand are vacated:
FFCLs 270, 271, 272, 275, 276, 288, 290, 291, 292, 293,
294,
295, 299, and 305.
For the reasons discussed above, we adopt the following
additional
FFCLs:
AP 8. The length of an exclusion should be the
period
reasonably necessary to provide assurance that a Respondent
is
trustworthy, in light of all the facts and
circumstances,
including the seriousness of the offense, the
circumstances of
the misconduct, and the likelihood that misconduct
would occur
in the future.
AP 9. Respondents did not show by a preponderance of
the
evidence that they reasonably could have concluded that
their
activities did not violate or risk violating the
anti-kickback
statute.
AP 10. Some physicians raised concerns that the
proposed
arrangements for the partnership laboratories violated
the
anti-kickback statute. Tr. 779, 1809.
AP 11. Respondent Lewand was a founder of and legal counsel
to
the California Clinical Laboratory Association. Tr.
1952-53,
2418.
AP 12. Respondent Lewand was aware of the existence of
the
anti-kickback statute, attended conferences concerning
its
interpretation, and had heated discussions about factors
which
might increase the risk of prosecution. Tr. 2024Z-24Z-3,
2152,
2154-55.
AP 13. Ms. Hitchcock used articles in her sales
presentations
which were provided by or shown to Respondent Lewand,
which
alert the reader to factors. which increase the risk of
a
violation. Tr. 986-87, 1004-11; I.G. Ex. 75.0 and 75.1.
AP 14. The remedial purpose of section 1128 of the Act will
be
served by excluding Respondent Lewand for two years.
AP 15. The remedial purpose of section 1128 of the Act will
be
served by excluding Respondent Keorle for two years.
AP 16. The remedial purpose of section 1128 of the Act will
be
served by excluding Respondent Tasha for two years.
AP 17. The remedial purpose of section 1128 of the Act will
be
served by excluding Respondent Huntsinger for one year.
AP 18. The remedial purpose of section 1128 of the Act will
be
served by excluding Respondent Welsh for one year.
We have not adopted any FFCL on the correct interpretation of the
Halper
decision, in light of our conclusion in the analysis that it is
not
applicable to this case.
___________________________
Judith
A.
Ballard
___________________________
Donald
F.
Garrett
___________________________
Cecilia
Sparks
Ford
Presiding
Board Member
1. The decisions issued thus far by the ALJ and the Appellate
Panel
total 225 pages. We do not attempt here to do more than introduce
the
reader to the issues presented. We refer to the first
appellate
decision (DAB 1275) for a thorough discussion of the legislative
history
of the anti-kickback statute and the relevant case law and the
legal
standard which applies.
2. We use the terms "refer" or "referral" to include any form
of
program-related business listed in the anti-kickback statute.
3. Section 1128(b) authorizes permissive exclusions from
Medicare
(Title XVIII of the Act) and several "State health care
programs"
including Medicaid (Title XIX of the Act). We use the term
Medicaid to
refer to all the covered State health care programs.
4. We considered the I.G.'s exceptions to nine of the ALJ's
227
Findings of Fact and Conclusions of Law (FFCLs). We vacated the
FFCLs
to which the I.G. excepted and modified the ALJ Decision to add
seven
appellate FFCLs (AP1 - AP7) which were consistent with
our
determinations concerning the legal standard. While the
ALJ
incorporated the Appellate FFCLs by reference in his decision on
remand,
the ALJ also restated and rephrased our conclusions in additional
FFCLs
and in his analysis. To the extent the ALJ used language
different from
that used by the Appellate Panel, the language of the original
Appellate
FFCLs controls.
5. This section highlights aspects of the transactions at issue
which
are useful in understanding our decision. This section is not
a
substitute for the ALJ's detailed FFCLs which were affirmed here or
in
our first decision. For a comprehensive summary of the
factual
background, see DAB 1275, at 4-8.
6. We use the term Respondents to refer to all or only to
certain
Respondents, as the context indicates. We use the term
Hanlester
Respondents to refer generally to all the Respondents except Ned
Welsh
and Melvin Huntsinger, M.D. We sometimes use the term to refer
only to
the Hanlester Network and the partnership laboratories.
7. The original ALJ decision found that the Hanlester Network,
PPCL,
Omni, and Placer had violated section 1128B(b)(2) by virtue of the
acts
(albeit unauthorized) of their agent Ms. Hitchcock, but imposed
no
exclusions.
8. The Hanlester Respondents expressly preserved a number of issues
for
judicial review. They requested that we reconsider these
issues. We
decline to do so.
9. Throughout this decision, any summary of our findings and
analyses
from our first decision is intended solely for the convenience of
the
reader and does not modify or alter conclusions in that decision.
10. Therefore, as we discuss below, we also reject the
ALJ's
characterization of our first decision as "announcing" new meanings
for
or giving novel interpretations of terms in the statute. See,
e.g.,
ALJR Decision at 56-59.
11. Some situations clearly fall on the side of mere
encouragement,
while others may require a closer case-by-case analysis.
For example, a
marketer who calls all doctors in a certain area and asks them
to send
tests to a particular laboratory or inquires why they are not using
that
laboratory may be encouraging referrals, but is not improperly
inducing
them if he offers no concrete motivation to the doctors'
financial
self-interest. In our first decision, we also pointed to
promotional
drug samples or hospital recruitment lunches as involving offers
of some
tenuous economic value but unlikely to suffice to show an intent
to
influence judgment by economic motives. However, we agree with the
ALJ
that the facts here show the use of economic motivation in an effort
to
influence physicians' judgment in referrals so clearly that this
case
does not present the need to carefully explore where the line may
lie
between "mere encouragement" and inducement. For the same reason,
we
find it unnecessary to address Respondents' argument that the
statute
must be void for vagueness if the ALJ was not able to detail
those
situations where it would not apply because conduct did not go
beyond
encouragement. Respondent Hanlester's Appeal from Remand and
Supporting
Brief (H. Br.) at 7, n.1. We find no vagueness in its
application to
these Respondents' conduct.
12. All citations are omitted from text of FFCLs.
13. We note here that the Hanlester Respondents did not except to
FFCL
239, which found that Respondents, as a means of persuading
physicians
to invest and refer, offered them "the opportunity to earn
income
indirectly from referred laboratory tests where they were legally
barred
from earning income directly from those tests." (Only
Respondent
Huntsinger excepted to this finding.) Under the holding in
United
States v. Bay State Ambulance and Hospital Rental Service, Inc.,
874
F.2d 20 (1st Cir. 1989), knowingly and willfully offering an
otherwise
unavailable opportunity to make money, with the purpose of
obtaining
referrals as a result, suffices to show a violation of
section
1128B(b)(2).
14. The Hanlester Respondents also relied on six findings of the
ALJ,
which we affirmed in our first decision, as support for their
contention
that their intent was merely to encourage referrals rather than
to
influence physicians' judgment. H. Br. at 27-28; FFCLs 46-50,
62. All
six FFCLs are findings about the representations which
Respondents made
to prospective investors in the private placement
memoranda.
Essentially, they find that Respondents represented that patronage
would
be voluntary, that returns would not be tied to referral levels,
that
SKBL would assure the quality necessary to keep limited
partners
referring tests, and that California law prohibited compensation
or
consideration for referrals. As noted below, the ALJ properly looked
at
the structure and operation of the partnerships, rather than being
bound
by the self-serving assertions in the marketing documents.
15. Of course, other laws may govern the legality of in-house
physician
laboratory operations.
16. In the later Stark Bill, Congress took the approach of
prohibiting
all self-referrals to physician-owned laboratories regardless of
intent,
eliminating this element. Pub. L. No. 101-239, .6204(a)
(1989).
17. See, e.g., Hearing Transcript (Tr.) 2008-11. In fact,
one
representative of SKBL testified that an attraction of the
limited
partnership structure was to create greater loyalty among
physicians,
because "they would have an economic incentive to remain in
the
laboratory and they'd be a little more forgiving of occasional
errors."
Tr. 418-419. This testimony supports the inference drawn by
the ALJ
that the scheme was intended to influence physicians to make
referral
choices different than they would have made on the basis of
quality
considerations. (Where we cite evidence from the record that
provides
additional support to findings or inferences of the ALJ which we
accept,
we do not make new FFCLs. Where we base an inference different
from
those drawn by the ALJ on evidence in the record which is
either
uncontradicted or shown by a preponderance of the evidence but which
is
not the subject of an FFCL, we do make new FFCLs in the conclusion
part
of this decision.)
18. Dr. Rubin testified that before the laboratories were
established
he did most of his laboratory work in-house and sent the rest to
SKBL,
and warned the salesperson that he would not divert tests from his
own
laboratory to the joint ventures. Tr. 763-767. When the
laboratories
came into operation, he continued the same practice of sending
the
laboratory work that he did not do in-house to SKBL (but through
the
joint ventures), and "assumed that . . . someday I would get a
dividend
if they made any money." Tr. 767. Since SKBL performed
the actual
laboratory tests for him throughout, a reasonable inference is
that Dr.
Rubin was influenced to channel his tests through the
laboratories
during his partnership with them because of the prospect of
financial
returns. Further, Dr. Mandilawi stated that he switched from
SKBL to
one of the laboratories in order to benefit from his laboratory
work
(and earlier stated that the benefit that he anticipated from
the
partnership laboratories was financial). Tr. 1793-94. Dr.
Luster
described his understanding of the offer of investment as allowing
him
to "make some money, the idea being we could also refer our
laboratory
work to them." Tr. 1450-51. He testified that he
invested to recoup
some of the income he lost when Medicare switched to
direct billing of
laboratory tests. Tr. 1451-53. He denied
ordering unnecessary tests
simply to make money but answered the question of
whether the
distributions from the limited partnerships had any influence on
where
he sent tests, by acknowledging he would not "make a ton of money
with
the laboratories" but would make more than Medicare's drawing fee.
Dr.
Carrell responded to complaints that he was not using the
partnership
laboratory enough by saying he "would use it as much as [he]
could," but
that he was unhappy because the prices to his private patients
were
higher than elsewhere and the turnaround time was slow. Tr.
1485-89.
Certainly none of this amounts to proof that financial incentives
did
not intrude into the physicians' decisions about where to send tests.
19. We note that, although the Hanlester Respondents made this
argument
in their brief, Respondents (except Huntsinger) did not except to
FFCL
237, which found that the ease of investment (a minimum investment of
3
shares at $500 each) was intended "as a means of persuading
physicians
to invest . . . and to refer." H. Br. at 16-17. Even
if they had
challenged it, Respondents did not show that this finding was
not
supported by substantial evidence.
20. See, e.g., Tr. 1452-53. (Dr. Luster states that he "became
a
limited partner because it offered an opportunity to make some
money,
but also the -- at that time Medicare was changing the
regulations
wherein the doctor couldn't charge a drawing, handling,
and
interpretation fee in addition to lab work . . . When Medicare
came
forward with that regulation, that obviously indicated an income
loss
for me, and this was a way to help recoup some of that.")
21. The Hanlester Respondents cited nothing in the record to
suggest
that these laboratories were designed in response to an unmet need
for
such services in the communities involved. Competing laboratories
were
available in this community. (Respondents stated in their
private
placement memorandum that the market was in fact highly
competitive.
I.G. Exhibit (Ex.) 4.0, at 2.) Furthermore, as noted
above, SKBL itself
was already serving these markets, and even some of the
same physicians,
directly. Although Respondents portray themselves as
reasonable
businessmen simply responding to the exigencies of economic
reality, the
"key to their marketing strategy" was to avoid the discipline of
the
market by using financial incentives to obtain physician loyalty,
rather
than to offer a new service competing on the basis of price or
quality.
22. The Hanlester Respondents referred to testimony of Dr. Soloway
who
directed a laboratory in Las Vegas and who testified that it would
not
be unusual for sales representatives to try to get physicians to
change
their referral patterns. Tr. 1399-1400. However, Dr.
Soloway went on
to say that "the only unusual thing is when you pay a
kickback to do
it." Tr. 1400.
23. We note that the Hanlester Respondents invited us to refer to
their
briefs before the ALJ on remand for their arguments in regard
to
additional assertions by the I.G. which Respondents did not
address
before us because they were not relied on by the ALJ. We find
no need
to review or discuss contentions not relied upon by the ALJ and
not
pressed before us. The question before us is not whether the
I.G.
proved every fact which he initially alleged, but whether the
facts
proved before the ALJ support his conclusion that section
1128B(b)(2)
was violated.
24. These shares reflected the division of collection
ultimately
provided, although earlier versions of the management agreement
with
PPCL provided for an 80% share to SKBL. DAB 1275, at 7; FFCLs 154
and
155.
25. FFCL 201 is not inconsistent with the ALJ Decision on Remand.
By
itself, assumption of the operating risks does not constitute
improper
remuneration. It is only one of the economic benefits to be
considered
in determining whether there is an excess of benefits given over
those
legitimate benefits received, which excess may constitute
remuneration
in return for referrals.
26. The I.G. disputed the assertion that the laboratories were
defunct,
since the only evidence cited by the Hanlester Respondents is
a
statement by Respondent Tasha that the laboratories were "virtually
out
of business." Tr. 2226 (emphasis added); Inspector General's Notice
of
Appeal (I.G. Br.) at 88-89. This representation does not suffice
to
ensure that the partnerships would not resume operations immediately,
if
we overturned the exclusions as Respondents requested. If they
are
permanently dissolved, then imposing a permanent exclusion presents
no
hardship to the laboratories and protects the program from
any
resumption of their illegal activities. In any case, they could
not
operate lawfully as they did previously without violating the
"shell
lab" rule.
27. Congress has struggled at length with the obvious potential
for
conflict of interest in self-referral situations. Most
recently,
Congress banned all physician referrals to laboratories in which
they
have ownership interests, concluding that, in the clinical
laboratory
context, the risk of harm outweighed the benefits of these
ventures.
Pub. L. No. 101-239, .6204(a) (1989). This legislation can
hardly be
used, as Respondents attempted, as evidence that no clinical
laboratory
self-referral scheme could have violated the anti-kickback statute
prior
to the outright bar. H. Br. at 12-13, 57. In other
contexts,
physician-owned ventures may present benefits or be structured
to
minimize risks. For example, the safe harbor provisions shelter
certain
ventures. Others may fall outside the safe harbor regulations
but still
not violate the anti-kickback statute upon weighing of the kind
of
case-by case factors discussed in our first decision. Here,
however,
Respondents did not show, for example, that their venture was
organized
by physicians to serve an unmet need in the community (especially
since
SKBL was already offering laboratory services in these communities),
or
that they diluted the risks of economic inducement by
maximizing
participation by investors who were not referral sources.
Nor did they
show any other benefits or protections to the program
outweighing the
manifest dangers of physician referrals influenced by
self-interest. As
we have stated before, it is not our role to
speculate on what evidence
might be adequate to show a violation in other
factual settings. DAB
1275, at 54.
28. In Halper, a provider filed numerous false claims, totalling
$585.
He was convicted of criminal violations and fined $5,000. Then,
he was
prosecuted under civil statutes which provided for penalties of
$2,000
for each violation, which would have resulted in $130,000 in
penalties.
The Supreme Court agreed with the District Court that such a
penalty
would be so excessive in relation to the harm as to constitute a
second
punishment for the same offense. The Court carefully limited
its
holding to "the rare case . . . where a fixed-penalty provision
subjects
a prolific but small-gauge offender to a sanction
overwhelmingly
disproportionate to the damages he has caused." 490 U.S.
at 449. The
Court upheld its precedents that permitted the government
to recover
more than its actual damages in civil sanctions as "rough
justice." 490
U.S. at 441-42, 446, 449. Furthermore, the Court's
discussion of when a
civil sanction serves solely as punishment is relevant
only to cases
involving prior criminal convictions.
Nothing in today's ruling precludes the Government from
seeking
the full civil penalty against a defendant who previously
has
not been punished for the same conduct, even if the
sanction
imposed is punitive. In such a case, the Double Jeopardy
Clause
simply is not implicated . . . . In other words, the
only
proscription established by our ruling is that the
Government
may not criminally prosecute a defendant, impose a
criminal
penalty on him, and then bring a separate civil action based
on
the same conduct and receive a judgment that is not
rationally
related to the goal of making the Government whole.
490 U.S. at 450-51 (emphasis added).
29. A permissive exclusion (or a mandatory one exceeding five
years)
must, of course, be set for a period of time which is reasonable
in
light of the remedial goals of section 1128 of the Act. The
analysis
required in determining whether the length proposed by the I.G.
is
excessive is similar in some respects to that performed under Halper
in
double jeopardy situations. Furthermore, even in cases where
double
jeopardy could be an issue because a respondent has had a prior
criminal
conviction, courts have held that exclusions are mainly intended
to
protect federally-funded health care programs from fraud and abuse,
not
solely to achieve the punitive ends of retribution or deterrence.
The
goals of exclusions are "clearly remedial and include
protecting
beneficiaries, maintaining program integrity, fostering
public
confidence in the program, etc." Greene v. Sullivan, 731 F.
Supp. 838,
840 (E.D. Tenn. 1990) (upholding a mandatory exclusion after a
criminal
conviction). The goal of protecting the public, as with
professional
license revocation situations, is remedial, even though the
impact on
the individual may be considerable (the pharmacist in Greene argued
that
he would be put out of business). 731 F. Supp. at 839, 840.
While it
may carry the "sting of punishment" to the respondent, an exclusion
may
nevertheless serve remedial ends. Manocchio v. Kusserow, 961 F.2d
1539
(11th Cir. 1992). The court in Manocchio emphasized the overall
purpose
of the sanction legislation, which is on the "legitimate
nonpunitive
goal" of protecting "present and future Medicare beneficiaries
from the
abusers of these programs," even if the result is "rough
remedial
justice." Id., at 1542. In Manocchio, a five-year
exclusion was upheld
as remedial, even though the violation involved a false
claim of only
$62.40.
30. We have used the term "propensity" only when weighing whether
a
provider offered mitigating evidence that there was no propensity
to
engage in particular conduct that would increase the likelihood
of
future offenses. Compare John R. Crawford, Jr., M.D., DAB 1324
(1992),
with Joyce Faye Hughey, DAB 1221 (1991). In both of these
cases, we
imposed some period of exclusion, but in Hughey we accepted the
ALJ's
conclusion that the provider had demonstrated credibly that she
was
unlikely to engage in misconduct under ordinary circumstances and
showed
remorse. In Crawford, however, we found that the provider's
"systematic
fraudulent behavior over two years" precluded him from
demonstrating a
"lack of propensity to engage in future unlawful
conduct." Crawford, at
12-13. Respondents do not benefit from the
comparison of these two
cases, since they perpetrated a kickback scheme
stretching over several
years and involving over a hundred providers and for
which they have
pointed to no demonstration of remorse whatsoever.
31. Respondents argued at length that their misconduct did not
actually
result in costs to the program, since the I.G. had not
proven
overutilization by the limited partners. However, the ALJ
stated
correctly that "it is not the harm caused by a party's prior
misconduct
which justifies the imposition of an exclusion." ALJR
Decision at 51.
The purpose of an exclusion is to protect the public from
dealing with
untrustworthy providers and thereby to foster public confidence
that the
program funds are handled with integrity. This purpose is
remedial,
regardless of whether actual harm or cost to the programs is proven
in a
particular instance of misconduct from which an exclusion results.
32. If so, it is not at all clear to us why Respondents Lewand
and
Tasha, whose business over a number of years has been the
establishment
of health care ventures and whose structuring of at least three
of those
ventures has been shown here to have been in violation of the law,
can
now be trusted not to undertake other questionable ventures. At
the
least, there is evidence that Respondent Lewand, through
Respondent
Keorle, is involved in other health care limited partnerships, and
no
evidence as to whether those ventures are structured lawfully.
ALJR
Decision at 64-65.
33. The I.G. mistakenly characterized this as a "mistake of
law"
defense. I.G. Br. at 36. The ALJ, however, did not suggest
that any
uncertainty about the scope of the law prevented Respondents
from
meeting the "knowing and willful" scienter required to establish
a
violation. The ALJ relied instead on this uncertainty theory for
the
more limited purpose of justifying not imposing an exclusion, on
the
basis that Respondents were less likely to repeat their
violations
because (according to the ALJ) Respondents did not act in
negligent
disregard of a legal standard which they understood to apply to
their
conduct.
34. The ALJ focused exclusively on the word "remuneration," while
we
emphasized the meaning of the phrase "any remuneration" along with
the
expansive phrases that follow it.
35. Respondents need not have known what the "likely outcome" would
be
to have been aware that they were entering an area of
questionable
legality. The Levin case does not serve to give any
greater weight to
the HCFA letters here. Cf. United States v. Levin,
Crim. No. 89-1 (E.D.
Ky. 1990). In that case, opinion letters issued by
HCFA officials
apparently specifically sanctioned the practice challenged in
that case
as not being abusive or violative of any HCFA reimbursement policy,
and
the court does not refer to any disclaimers in those letter such
as
appeared in those at issue here. Consequently, the court held that
the
government could not as a matter of law establish criminal intent
beyond
a reasonable doubt. In the present cases, the letters do not
directly
sanction the totality of Respondents' scheme and contain disclaimers
on
their face as to their authoritativeness. In addition, the I.G. was
not
required to prove intent beyond a reasonable doubt in order to impose
an
administrative sanction.
36. It is not enough to preclude imposition of an exclusion
that
Respondent Lewand reached the erroneous conclusion that the
only
constraint on limited partnership was that the return to investor
must
be "based on a return of his investment, and not on the usage that
he
was providing." Tr. at 2024Z. Such a restriction appears
nowhere in
the federal anti-kickback statute. To the contrary, the
provisions
prohibit "any remuneration . . . [offered, paid, solicited or
received]
directly or indirectly, overtly or covertly, in cash or in
kind."
Sections 1128B(b)(1) and (2) of the Act.
37. The I.G. originally sought a longer period of exclusion for
the
Hanlester Network, but has not contested the two-year period on
appeal
to us. Because the conduct involved here is in the nature of
a
program-related crime, for which a minimum five-year exclusion would
be
mandated if a criminal conviction had been obtained first, we would
have
been inclined to find a longer exclusion reasonable. However,
the
two-year exclusion imposed on the Hanlester Network, which the I.G.
is
not contesting before us, sets a ceiling on the length of exclusions
to
be imposed on other Respondents. Whatever circumstances we might
have
considered relevant as "mitigating" or "aggravating" if we were
setting
periods of exclusion initially in this case, no mitigating factors
have
been demonstrated that would persuade us to reduce the exclusion
periods
below those which we now find proportional to the Hanlester
Network's
two-year exclusion.
38. We therefore affirm FFCLs 297 and 298, in deference to the
ALJ's
assessment of credibility, although we might have found the testimony
on
these issues less persuasive. We see no reason to disturb the
findings,
in any case, since they are not sufficient to affect the
reasonableness
of imposing exclusions of the length we set here. (In
light of the
discussion below, we affirm both findings in regard to
Respondents
Huntsinger and Welsh as well.)
39. As we discussed with regard to the "defunct"
partnership
laboratories, evidence that a respondent has left the
clinical
laboratory business does not preclude imposition of an exclusion,
since
otherwise they are free to reenter the industry and resume
unlawful
conduct at any time. If anything, the harsh impact of an
exclusion is
reduced when a party no longer needs to participate in
federally-funded
health care programs as part of his livelihood.
Although Respondent
Welsh asserted that he has not engaged in any health care
practice since
1987, he did not point to any corroborative evidence in the
record to
support this. It is reasonable to impose a one-year period of
exclusion
to assure that he will not reenter the field immediately and
resume
unlawful activities. In this way, the programs are protected,
until he
provides assurances at the point when he wishes to reenter the
field
that he will comply with its