Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Appellate Division

In the Case of:

Frank A. DeLia, D.O.,

Petitioner,

- v. -

The Inspector General.

DATE: July 18, 1997
Docket No. C-96-387 Decision No. 1620

FINAL DECISION ON REVIEW OF
ADMINISTRATIVE LAW JUDGE DECISION

The Inspector General (I.G.) appealed the March 4, 1997
decision of Administrative Law Judge (ALJ) Steven T.
Kessel in Frank A. DeLia, D.O., DAB CR465 (1997) (ALJ
Decision). The ALJ upheld the I.G.'s authority to
exclude Petitioner from Medicare and State health care
programs pursuant to section 1128(b)(1) of the Social
Security Act (Act), finding that Petitioner had been
convicted of fraud in connection with the delivery of a
health care item or service. The ALJ, however, did not
adopt the five-year exclusion proposed by the I.G.;
instead, the ALJ reduced the length of the exclusion to
three years. The ALJ found that Petitioner had proved
that a mitigating factor existed, specifically that
Petitioner's cooperation with prosecuting officials
resulted in the convictions of other individuals. The
ALJ further found that the mitigating factor outweighed
the three aggravating factors which the I.G. had proved.

On appeal, the I.G objected to the ALJ reducing the
length of the exclusion to three years, which is the
benchmark period set out in applicable regulations. The
I.G. argued that the ALJ failed to properly weigh the
aggravating and mitigating factors and improperly
considered matters outside the scope of the regulations.

For the reasons discussed below, we reverse the ALJ
Decision and impose an exclusion of five years on
Petitioner. We find that the ALJ could have reached his
decision of reducing the exclusion recommended by the
I.G. to the three-year benchmark only by concluding that
the aggravating and mitigating factors in effect
cancelled each other out. While we agree that the
mitigating factor here was exceptional, we also find that
the aggravating factors were so exceptional that we
cannot, in light of the Board's decision in Barry D.
Garfinkel, M.D., DAB 1572 (1996), conclude that the
I.G.'s proposed exclusion of five years was not within a
reasonable range under the particular circumstances of
this case.

BACKGROUND

Under section 1128(b)(1) of the Act, the I.G. may exclude
an individual who has been convicted under federal or
state law, in connection with the delivery of a health
care item or service or with respect to any act or
omission in a program, operated by or financed in whole
or in part by any federal, State, or local government
agency, of any criminal offense relating to fraud, theft,
embezzlement, breach of fiduciary responsibility, or
other financial misconduct. An exclusion imposed under
section 1128(b)(1) shall be for a period of three years,
except that the exclusion may be for more than three
years if aggravating factors establish a basis for a
lengthier exclusion, or for less than three years if
mitigating factors establish a basis for a shorter
exclusion. 42 C.F.R. § 1001.201.

The following summary of the facts of this case is based
on the parts of the findings of fact and conclusions of
law (FFCLs) and of the ALJ's discussion of those FFCLs to
which neither party excepted, and provides a background
to our analysis. This summary is provided for the
convenience of the reader and is not intended to modify
or reverse any findings or conclusions of the ALJ, unless
we expressly state that we are doing so.

On August 13, 1993, Petitioner, a physician, entered into
a plea agreement with the United States, whereby
Petitioner agreed to plead guilty to five counts of mail
fraud arising from a scheme to defraud insurance
companies. The scheme began in 1987 and continued
through 1991. Petitioner was charged with joining with
others to fraudulently obtain money from insurance
companies by directing his staff to prepare false and
fraudulent bills and reports describing fictitious
medical treatments that he and his staff had purportedly
provided to patients of Petitioner who allegedly had been
involved in accidents. Petitioner was charged
additionally with fabricating false and fraudulent
progress notes describing the progress of recovery of his
accident patients. Petitioner pled guilty to five counts
encompassing these charges.

In his plea agreement, Petitioner admitted that the loss
and attempted loss to insurers which were attributable to
his scheme totalled between $350,000 and $500,000. In an
October 23, 1995, criminal judgment imposed against
Petitioner, Petitioner was sentenced to a term of
incarceration of 10 months and ordered to pay restitution
in the amount of $120,000. Petitioner, pursuant to his
earlier plea agreement, had forfeited assets valued at
$225,000.

Also as part of his plea agreement, Petitioner agreed to
cooperate with federal authorities in the investigation
of the scheme. In fact, beginning in December 1991,
Petitioner provided substantial cooperation to
prosecuting authorities, leading to the conviction of
numerous other individuals. Also, in December 1991 the
last instance of Petitioner's criminal conduct occurred.
Petitioner was found to have attempted to conceal some
fraudulent conduct and was required to accept additional
penalties in his sentencing guideline for obstruction of
justice. I.G. Ex. 4, at 5.

Following Petitioner's guilty plea, the I.G. notified
Petitioner that he was being excluded from participation
in Medicare and State health care programs for a period
of 10 years. While Petitioner was appealing his
exclusion before the ALJ, the I.G. reduced the period of
the exclusion to five years to reflect the mitigating
factor of Petitioner's cooperation with federal
authorities that led to the conviction of other
individuals.

In his decision the ALJ found that the I.G. could
properly exclude Petitioner under section 1128(b)(1) of
the Act because Petitioner had been convicted of a crime
committed in connection with a health care item or
service. As to the length of the exclusion, the ALJ
noted that section 1128 is a remedial enactment whose
purpose "is not to punish miscreants, but to protect
federally-funded health care programs, and beneficiaries
and recipients of those programs, from individuals who
are untrustworthy." ALJ Decision at 7. The ALJ
continued that an exclusion, in order to be reasonable,
"must comport with the Act's remedial purpose." Id.

The ALJ noted that while the regulation at 42 C.F.R. §
1001.201 sets forth the criteria for evaluating whether
an exclusion imposed under section 1128(b)(1) is
reasonable, it does not assign any specific weight to
those factors, giving the adjudicator in any particular
case the discretion to weigh the evidence which relates
to aggravating and mitigating factors and to decide
whether the length of an exclusion is reasonable. Id.

The ALJ found that the I.G. had proved the existence of
three aggravating factors:

-- the acts which resulted in Petitioner's
conviction caused losses of $1500 or more to
insurers (the ALJ noted that, while in his
guilty plea Petitioner acknowledged that the
amount of loss or attempted loss he caused was
in the range of $350,000 to $500,000, a better
measure of the actual losses caused by
Petitioner might be the ordered restitution
amount of $120,000);
-- the acts which resulted in Petitioner's
conviction were committed by Petitioner over a
period of more than one year (the ALJ found
that Petitioner's criminal conduct extended
over a period of "more than three years"); and
-- Petitioner was sentenced to a period of
incarceration (10 months) as punishment for his
crimes.

The ALJ considered that these aggravating factors might
initially show that Petitioner was a highly untrustworthy
individual, but the ALJ stated that the evidence relating
to the aggravating factors was not as damaging as it
might appear. ALJ Decision at 9. The ALJ noted that the
evidence shows Petitioner's untrustworthiness was diluted
by the fact that Petitioner had not engaged in any
unlawful activity since 1991, approximately six years.
Id. The ALJ further noted that, while Petitioner was
incarcerated, the relative shortness of his sentence
reflected his cooperation with prosecuting officials.
Id.

In this regard, the ALJ found that Petitioner had proved
the presence of a mitigating factor, his cooperation with
prosecuting officials. The ALJ found that the evidence
established that "Petitioner went to extraordinary
lengths to atone for his crimes." Id. The ALJ found
impressive the large number of individuals convicted due
to Petitioner's cooperation, the number of investigations
Petitioner participated in, the time frame of four years
during which he cooperated, and the potential risk to his
personal safety. The ALJ found that the I.G. put too
much weight on the evidence establishing the aggravating
factors and gave insufficient weight to the evidence
which established the mitigating factor. The ALJ further
found that "the impact of the evidence pertaining to
aggravating factors is diminished substantially by the
fact that all of Petitioner's criminal activity occurred
in the remote past." ALJ Decision at 10. The ALJ
accordingly found that the five-year exclusion imposed by
the I.G. was not reasonable and imposed an exclusion of
three years.

PARTIES' ARGUMENTS

The I.G. took exception to the following two FFCLs in the
ALJ Decision:

22. In light of the evidence which is relevant to
aggravating and mitigating factors, a five-year
exclusion is not reasonable.

23. A three-year exclusion is reasonable in this
case.

The I.G. also raised objections to the following:

o the ALJ's finding that it is not possible to
decide precisely how much loss Petitioner's
criminal acts caused insurers to suffer;
o the ALJ's finding that "a better measure of the
actual loss caused by Petitioner is his
sentence to pay restitution in the amount of
$120,000";
o the ALJ's consideration of the time period
between the last documented occurrence of
Petitioner's criminal conduct and the exclusion
as a mitigating factor;
o the ALJ's conclusion that the extent of
Petitioner's cooperation is evidence that
Petitioner went to extraordinary lengths to
atone for his crimes;
o the ALJ's conclusion that the evidence of
mitigation is extraordinary proof of
Petitioner's efforts to regain a trustworthy
status;
o the ALJ's finding that Petitioner's criminal
acts extended over a period of more than three
years; and
o the ALJ's disregard without explanation of
evidence in the record which directly
contradicted the evidence to which the ALJ
cited in his decision.

Petitioner responded that the ALJ Decision modifying his
exclusion to three years was appropriate as a matter of
law. Petitioner argued that the FFCLs contested by the
I.G. were appropriate and reasonable given the facts on
the record and the discretion of the ALJ to weigh the
evidence before him. Petitioner contended that the ALJ
properly gave substantial weight to the mitigating
factor, as Petitioner's cooperation with prosecuting
authorities had resulted in the conviction of 25
individuals at the time the I.G. reduced the proposed
exclusion to five years, with the conviction of eight
additional individuals occurring since that time.

ANALYSIS

The issue before us is whether the ALJ could properly
conclude on the record before him that the five-year
exclusion imposed by the I.G. fell outside of a
reasonable range of exclusion periods under the
circumstances of this case. Garfinkel at 7. As
mentioned above, the regulation at 42 C.F.R. § 1001.201
specifies that exclusions pursuant to section 1128(b)(1)
of the Act will be for three years, unless certain listed
aggravating or mitigating factors form a basis for
lengthening or shortening that period. The I.G. adopted
the three-year period as the benchmark to be consistent
with the period set for government-wide debarment
proceedings. 57 Fed. Reg. 3298, at 3303 (January 29,
1992).

The ALJ began his analysis of this case with a discussion
of what are the standards for determining the length of
an exclusion. As noted above, the ALJ stated that "[t]he
Secretary has given discretion to the adjudicator to
weigh, on a case-by-case basis, the evidence which
relates to aggravating and/or mitigating factors, and to
decide, based on that evidence, whether an exclusion is
reasonable." ALJ Decision at 7. In Garfinkel, however,
the Board rejected a similar standard, finding that the
regulations, promulgated by the Secretary, vested
discretion in the I.G. to determine the length of an
exclusion as long as it was within a reasonable range.

The preamble to the 42 C.F.R. Part 1001 indicates that
the regulation contemplates broad discretion for the I.G.
in setting the length of an exclusion in a particular
case, in light of the I.G."s "vast experience in
implementing exclusions under these authorities." 57
Fed. Reg. 3298, at 3321. Consequently, "[s]o long as the
amount of the time chosen by the [I.G.] is within a
reasonable range, based on demonstrated criteria," the
ALJ, and hence the Board in reviewing the ALJ's action,
is without authority to alter it. Id.

Here the I.G. objected to the ALJ's finding that the
five-year exclusion chosen by the I.G. was not
reasonable. The ALJ's finding was based on his weighing
of the aggravating and mitigating factors of this
particular case. Thus, the I.G. questioned how the ALJ
evaluated each of these factors in arriving at his
decision. The I.G. argued that the ALJ failed to
properly weigh the aggravating and mitigating factors.
The I.G. contended that the ALJ failed to consider
evidence in the record that supported the aggravating
factors, while basing his conclusions in Petitioner's
favor on the mitigating factor on speculation rather than
on substantial evidence.

In Garfinkel, the Board examined the standards by which
an ALJ should evaluate aggravating and mitigating factors
to determine whether the length of an exclusion is within
a reasonable range. In Garfinkel, the ALJ did not adopt
the three-year exclusion proposed by the I.G.; instead,
the ALJ reduced the length of the exclusion so that it
would end upon the date of issuance of the ALJ decision.
The ALJ found that the petitioner had proved that a
mitigating factor existed, that alternative sources of
the health care services provided by the petitioner were
not available, and that this mitigating factor outweighed
three aggravating factors.

In Garfinkel, the Board acknowledged that it has "a
limited role in reviewing ALJ decisions in exclusion
cases," with the applicable standard of review on
disputed issues of law being whether the ALJ Decision is
erroneous and the applicable standard of review on
disputed issues of fact being whether the ALJ decision is
supported by substantial evidence on the record as a
whole. At 5. The Board reversed the ALJ's decision and
reinstated the exclusion period originally imposed by the
I.G. The Board found that the ALJ's determination that a
mitigating factor was present was not supported by
substantial evidence on the whole record and, even if the
mitigating factor were present, the ALJ's determination
that the circumstances relating to the three aggravating
factors did not justify a three-year exclusion was not
supported by substantial evidence on the whole record.
The Board found that the ALJ misapprehended the question
before her, which was not to determine what period of
exclusion would be "better" but whether the period
imposed by the I.G. was within a reasonable range. At
11.

We find that the ALJ here also erred. The question
before the ALJ was not whether five years or three years
was the better period of exclusion, but whether the five
years proposed by the I.G. was, within the discretion
afforded the I.G. by the regulation, that is, within a
reasonable range of possible exclusions. Moreover, in
weighing the aggravating factors against the mitigating
factor present in this case, the ALJ should have
considered whether on balance they supported a conclusion
that five years was within the reasonable range of an
exclusion period.

We further find that, in addition to misstating what his
role was in evaluating the reasonableness of the length
of an exclusion, the ALJ, as argued by the I.G., failed
to properly weigh the aggravating and mitigating factors
present in this case. In his decision the ALJ found the
mitigating factor of Petitioner's cooperation with
authorities so exceptional that it outweighed the three
proven aggravating factors. At the outset, it is clear
from Garfinkel that the number of aggravating versus
mitigating factors found in a particular case is not
necessarily determinative of the period of an exclusion.
Specifically, the Board stated that "it is possible in
particular circumstances for one mitigating factor to be
so significant as to outweigh multiple aggravating
factors." Garfinkel at 31. The preamble to 42 C.F.R.
Part 1001 explicitly recognized this possibility:

We do not intend for the aggravating and mitigating
factors to have specific values; rather, these
factors must be evaluated based on the circumstances
of a particular case. For example, in one case many
aggravating factors may exist, but the subject's
cooperation . . . may be so significant that it is
appropriate to give that one mitigating factor more
weight than all of the aggravating.

57 Fed. Reg. 3298, at 3314. Thus, the fact that the ALJ
here found that Petitioner proved only one mitigating
factor while the I.G. proved three aggravating factors is
not necessarily determinative of whether an exclusion
falls within a reasonable range.

However, in finding that the mitigating factor was so
exceptional that it outweighed the aggravating factors,
the ALJ either ignored evidence showing the exceptional
nature of the aggravating factors or improperly gave
inadequate weight to those aggravating factors.

Regarding the first aggravating factor found by the ALJ,
that Petitioner's acts caused losses of more than $1500,
the I.G. contended that the ALJ minimalized the amount of
pecuniary harm caused by Petitioner by focusing on the
amount of restitution Petitioner was required to pay,
$120,000, when there was evidence in the record in the
form of a sentencing memorandum from the U.S. Attorney's
Office that stated Petitioner received $400,000 from
insurance companies as a result of fraudulent medical
bills.* The I.G. contended that the ALJ also failed to
consider, in determining the amount of harm caused by
Petitioner, the $225,000 in assets Petitioner was
required to forfeit in addition to the court-ordered
restitution.

The I.G. questioned the ALJ's determination that the
actual loss caused by Petitioner's actions could not be
determined in light of the above, quoting from the
Board's ruling on reconsideration of Wesley Hal
Livingston and Shoals Medical Equipment and Supply Co.,
Inc., DAB 1406, at 3-4 (1993):

[I]f there is evidence in the record which directly
contradicts the evidence cited by the administrative
law judge (or which might render inference otherwise
drawn from that evidence unreasonable), the
administrative law judge should not disregard that
evidence without explaining why.

Evidence in the record clearly established that
Petitioner was engaged in a large-scale scheme to defraud
insurance companies, submitting some 175 fraudulent
claims in the process. There was uncontested evidence in
the record before the ALJ that losses attributable to
Petitioner's criminal conduct were in the area of
$400,000. Thus, the ALJ's reliance on a figure of
$120,000 as "a better measure of the actual losses"
caused by Petitioner, without any explanation why the
more accurate figure of $400,000 was disregarded,
minimalized the exceptional scope of Petitioner's
criminal endeavors. Given that the triggering point for
the cost of criminal conduct to be considered an
aggravating factor is set at $1500 in the regulations,
losses in the $400,000 range unarguably give rise to an
exceptional aggravating factor.

As to the second aggravating factor, whether Petitioner's
criminal acts occurred over a period of one year or more,
the ALJ found that Petitioner engaged in criminal conduct
for "more than three years." According to the I.G.,
there was evidence in the record that the minimum amount
of time Petitioner engaged in criminal conduct was four
years. The I.G. argued that the ALJ's finding on the
length of Petitioner's criminal conduct was thus not
supported by substantial evidence.

Absent other errors, we would conclude that describing
criminal conduct as occurring for "more than three
years," as opposed to more than four years, was
inaccurate, but nevertheless harmless error. Here,
however, this error was not harmless because it
downplayed the length of time Petitioner engaged in
fraudulent activity and is one of the several factors
improperly relied on by the ALJ in reducing the length of
the exclusion imposed by the I.G., a result that we find
unsupported by substantial evidence.

The I.G. also alleged that the ALJ in his decision
improperly considered a mitigating factor that is not
specified in 42 C.F.R. § 1001.202(b)(3), the length of
time that elapsed since Petitioner's last criminal act.
The ALJ had noted that the record indicated that
Petitioner had not engaged in any criminal activity since
1991, which, according to the ALJ, diluted Petitioner's
untrustworthiness. The I.G. argued that the ALJ's
conclusion on this issue was legally erroneous.

We agree with the I.G. The regulations at 42 C.F.R. §
1001 do not provide any basis for deciding at what point
prior criminal conduct becomes remote, making the
individual therefore less culpable. The period of time
that may elapse from an individual's last instance of
criminal conduct to an I.G. decision to impose an
exclusion can be attributable to any number of factors,
the length and complexity of an investigation, for
example. Similarly, the reasons why an individual
decides to refrain from further criminal conduct could be
myriad and impossible to ever ascertain accurately. The
applicable regulations do not provide for credit to an
individual for not engaging in criminal acts for some
length of time. Therefore, the ALJ's finding that the
criminal conduct here was "remote" was not supported by
substantial evidence. The ALJ should not have used this
as a factor in the evaluating the reasonableness of the
I.G.'s proposed exclusion.

Lastly, the I.G. challenged the great weight the ALJ gave
to the mitigating factor, Petitioner's cooperation with
prosecuting authorities. The I.G. argued that, in giving
such weight, the ALJ made erroneous conclusions or
improperly relied on irrelevant matters. The I.G.
questioned the ALJ's conclusion that Petitioner's
cooperation was "evidence that Petitioner went to
extraordinary lengths to atone for his crime." ALJ
Decision at 9. The I.G. contended that Petitioner's
reasons for cooperation were not apparent from the
record, and that the more likely reason for the
cooperation was Petitioner's desire to avoid a longer
prison sentence. Petitioner's motivation for
cooperation, according to the I.G., should have been
irrelevant to the ALJ's analysis of the evidence
supporting aggravating and mitigating factors. Similarly
irrelevant, the I.G. continued, was the ALJ's discussion
of the number of investigations in which Petitioner
participated and of the potential risk to Petitioner.
The I.G. argued that the only evidence relevant to the
mitigating factor is whether the individual's cooperation
resulted in others being convicted. The I.G. contended
that she already took Petitioner's cooperation into
account when she reduced the original ten-year exclusion
to five years.

The I.G.'s interpretation of how the mitigating factor of
cooperation with prosecuting officials should be
evaluated, as being limited solely to the issue of
whether the cooperation led to any other convictions,
strikes us as being overly narrow. There are degrees of
cooperation in obtaining a conviction of another, from
simply informing authorities of the existence of a co-
conspirator to active involvement in an investigation
using recording equipment and testifying in court. To
limit an ALJ's evaluation of this mitigating factor to
merely noting whether there was a subsequent conviction
would unduly constrain the ALJ's role as an evaluator of
the particular facts of a case.

That being said, however, the I.G. previously took
Petitioner's cooperation into account when the I.G.
reduced the exclusion from ten to five years. While
Petitioner's cooperation resulted in eight more
convictions after the I.G. reduced the exclusion to five
years, the I.G. was not clearly unreasonable in declining
to reduce the exclusion any further. The I.G.'s decision
not to do so could be justified on the exceptional
aggravating circumstance of the scope of Petitioner's
fraudulent scheme. Her decision could also be justified
based on the fact that even after Petitioner began
cooperating with prosecuting officials he engaged in
obstruction of justice in an attempt to conceal the scope
of his crimes. The ALJ erred in finding that Petitioner
attempted to regain a trustworthy status by cooperating
since Petitioner's motive in cooperating with prosecuting
officials cannot be ascertained.

Therefore, in evaluating the aggravating and mitigating
factors proven in this case, we find that there is
substantial evidence in the record to find that the
aggravating factors were so exceptional that the I.G.'s
decision to impose an exclusion of five years was within
a reasonable range of possible exclusion periods.

CONCLUSION

In summary, for the reasons discussed above, we affirm
those FFCLs to which no exceptions were made, but we
delete FFCL 23 and modify FFCL 22 to read as follows:

22. The exclusion period of five years imposed by
the I.G. is within the range of reasonable periods
under the circumstances of this case and is
affirmed.

________________________
Donald F. Garrett

________________________
M. Terry Johnson

________________________
Cecilia Sparks Ford
Presiding Board Member
* We note that there was also an indication in the
record that insurance companies provided a total of
approximately $964,000 in settlements to clients and
attorneys based, in part, upon the fraudulent bills
submitted by Petitioner. I.G. Ex 4, at 4-5.