Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Civil Remedies Division
In the Case of:
Joel Davids,
Petitioner,
- v. -
The Inspector General.
DATE: June 18, 1991
Docket No. C-278
DECISION
In this case, governed by section 1128 of the Social Security Act (Act), the
Inspector General (I.G.) of the
United States Department of Health and Human Services (DHHS) notified Petitioner
by letter dated June 4,
1990, that he was being excluded from participating in the Medicare and Medicaid
programs for a period
of five years. Petitioner was advised that his exclusion resulted from his conviction
of a criminal offense
related to fraud, theft, embezzlement, breach of fiduciary responsibility, or
other financial misconduct,
within the meaning of section 1128(b)(1) of the Act.
Petitioner timely requested a hearing before an Administrative Law Judge (ALJ)
and the case was assigned
to me for a hearing and decision. I held an in-person hearing in Philadelphia,
Pennsylvania on December
13, 1990. Both parties submitted posthearing briefs.
I have considered the evidence introduced by both parties at the hearing, as
well as the applicable law. I
conclude that the I.G. had authority to exclude Petitioner and that the five-year
exclusion imposed and
directed against Petitioner is excessive. I conclude that the remedial purposes
of section 1128 of the Act
will be served by a three-year exclusion and I modify the exclusion accordingly.
APPLICABLE STATUTES AND REGULATIONS
I. The Federal Statute.
Section 1128 of the Act is codified at 42 U.S.C. 1320a-7 (West U.S.C.A., 1990
Supp.). Section 1128(b)(1)
of the Act permits the I.G. to exclude from Medicare and Medicaid participation:
. . . any individual or entity that has been convicted, under Federal or State
law, in connection with
the delivery of a health care item or service or with respect to any act or
omission in a program operated by
or financed in whole or in part by any Federal, State, or local government agency,
of a criminal offense
relating to fraud, theft, embezzlement, breach of fiduciary responsibility,
or other financial misconduct.
II. The Federal Regulations.
The governing federal regulations are codified in 42 C.F.R. Parts 498, 1001,
and 1002 (1989). Part 498
governs the procedural aspects of this exclusion case; Parts 1001 and 1002 govern
the substantive aspects.
ADMISSIONS
At the hearing and during the prehearing conference on September 27, 1990,
Petitioner admitted that: (1)
he was "convicted" of a criminal offense, within the meaning of section
1128(i) of the Act; and (2) the
offense was "related to fraud, theft, embezzlement, breach of fiduciary
responsibility, or other financial
misconduct," within the meaning of section 1128(b)(1) of the Act. Tr. 5;
Order and Notice of Hearing,
dated October 9, 1990.
ISSUE
The remaining issue in this case is whether the five-year exclusion imposed
and directed against Petitioner
by the I.G. is appropriate and reasonable.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
Having considered the entire record, the arguments, and the submissions of
the parties, and being advised
fully herein, I make the following Findings of Fact and Conclusions of Law:
1. At all times relevant to this case, Petitioner was employed as the Associate
Administrator of
Finance of the James C. Giuffre Medical Center (Giuffre). I.G. Ex. 1/2.
2. Giuffre is a non-profit health care institution, located in Philadelphia, Pennsylvania. I.G. Ex. 1/1.
3. Giuffre receives a substantial portion of its annual funding from DHHS under
its Medicare and
Medicaid programs. Id.
4. The amount of reimbursement that Giuffre receives from the Medicare and
Medicaid programs is
determined, in part, by cash reports which Giuffre submits to the Medicare and
Medicaid programs. Id.
5. Counts one and three of the criminal information filed against Petitioner
in the United States District
Court for the Eastern District of Pennsylvania (District Court), charged Petitioner
with: conspiracy to
defraud the United States by attempting to impede and impair the lawful functions
of the Internal Revenue
Service (IRS); and filing a false tax return. I.G. Ex. 1.
6. Petitioner's charge of conspiracy was based partly upon allegations that
he caused false and
inaccurate cash reports to be generated and submitted to DHHS and its authorized
representatives. I.G. Ex.
1/2-7.
7. The charges filed against Petitioner alleged:
a. In December 1982, Petitioner distributed checks to executives of Giuffre
as automobile
expense reimbursement checks when, in actuality, those checks were retroactive
lump-sum salary
increases;
b. On December 22, 1982, Petitioner received a check from Giuffre for $5,000
based on a
false and inaccurate travel authorization/settlement form submitted by him requesting
six months' of
automobile expenses at $833 per month, when, in actuality, the expenses had
not been incurred;
c. In January 1983, Petitioner submitted a false and fraudulent automobile
lease invoice
bearing the name ELDA Leasing Co.; that company in fact did not exist and the
company's address was
that of Petitioner's residence;
d. From January 1983 to December 1983, Petitioner received monthly checks
in the amount
of $833 for a total of approximately $10,000 under the guise of automobile expense
reimbursement, when,
in actuality, those checks were a salary increase;
e. In 1984, Petitioner computed salary increases for executives of Giuffre.
The monthly
checks issued for these increases were falsely listed in Giuffre's account records
as monthly automobile and
travel expenses, when, in actuality, the checks were Christmas bonuses for executives
of Giuffre; and
f. In December 1984, Petitioner prepared and distributed checks which were
listed in
Giuffre's accounting records as hospital related insurance premiums, when, in
actuality, the checks were a
Christmas bonus for executives at Giuffre.
Id.
8. Petitioner's charge of filing a false tax return was based upon his failure
to report taxable income
on his 1984 individual income tax return. I.G. Ex. 1/9.
9. Petitioner pled guilty to, and was convicted of, the two counts filed against
him. I.G. Ex. 4; I.G.
Ex. 2.
10. Petitioner made false entries in Giuffre's accounting records to conceal
the fact that he was
generating income for himself and other employees of Giuffre. I.G. Ex. 1/3-7.
11. As a result of Petitioner's actions, false and inaccurate cash reports
were submitted to the
Medicare and Medicaid programs. FFCL 10.
12. Petitioner was "convicted" of a criminal offense within the meaning
of section 1128(i) of the Act.
FFCL 9.
13. As a result of his conviction, Petitioner was fined $15,000; placed on
probation for a period of
five years; ordered to pay all taxes, penalties, and sums charged in the indictment
or as required by law;
and sentenced to serve 100 hours of community service. I.G. Ex. 2.
14. The Secretary of the United States Department of Health and Human Services
(the Secretary)
delegated to the I.G. the authority to determine, impose, and direct exclusions
pursuant to section 1128 of
the Act. 48 Fed. Reg. 21661 (May 13, 1983).
15. The I.G. may exclude individuals convicted of a criminal offense relating
to fraud, theft,
embezzlement, breach of fiduciary responsibility, or other financial misconduct,
within the meaning of
section 1128(b)(1) of the Act.
16. The permissive exclusion provisions of section 1128 of the Act do not establish
minimum or
maximum periods of exclusion. See Act, section 1128(b)(1)-(14).
17. Petitioner admitted that he was "convicted" of a criminal offense
"related to fraud, theft,
embezzlement, breach of fiduciary responsibility, or other financial misconduct,"
within the meaning of
sections 1128(i) and 1128(b)(1) of the Act. Tr. 5; Order and Notice of Hearing,
dated October 9, 1990.
18. A remedial objective of section 1128 of the Act is to protect program beneficiaries
and recipients
by permitting the Secretary (or his delegate, the I.G.) to impose and direct
exclusions from participation in
Medicare and Medicaid of those individuals who demonstrate by their conduct
that they cannot be trusted
to provide items or services to program beneficiaries and recipients.
19. An additional remedial objective of section 1128 of the Act is to deter
individuals from engaging
in conduct which jeopardizes the integrity of federally-funded health care programs.
20. Petitioner's conspiracy conviction is a criminal offense related to fraud,
theft, embezzlement,
breach of fiduciary responsibility, or other financial misconduct, within the
meaning of section 1128(b)(1)
of the Act. FFCL 1-12.
21. The I.G. properly excluded Petitioner from participation in the Medicare
and Medicaid programs.
FFCL 1-20.
22. It is an aggravating factor that Petitioner's crimes were serious in nature. FFCL 6, 9.
23. It is an aggravating factor that the District Court imposed a serious penalty
against Petitioner as a
result of his criminal conviction. FFCL 13.
24. The I.G. has not proved that Medicaid made any overpayment as a result
of Petitioner's actions.
I.G. Ex. 1.
25. The length of probation imposed against Petitioner by the District Court
is not conclusive in
determining an appropriate length of exclusion.
26. The I.G. has not proved that Petitioner's criminal offenses had an adverse
impact on the Medicare
or Medicaid programs. I.G. Ex. 1.
27. The five-year exclusion imposed and directed against Petitioner is excessive.
28. The remedial considerations of section 1128 of the Social Security Act
will be served in this case
by a three-year exclusion.
DISCUSSION
Petitioner admits that he was "convicted" of a criminal offense "related
to fraud, theft, embezzlement,
breach of fiduciary responsibility, or other financial misconduct," within
the meaning of sections 1128(i)
and 1128(b)(1) of the Act. Therefore, I find and conclude that the I.G. has
authority to impose and direct
an exclusion against Petitioner from participating in the Medicare and Medicaid
programs. The only
contested issue in this case is whether the length of the exclusion that the
I.G. determined to impose and
direct against Petitioner is reasonable and appropriate. Resolution of that
question depends on analysis of
the evidence in light of the exclusion law's remedial purpose.
There are two ways that an exclusion imposed and directed pursuant to the law
advances this remedial
purpose. First, an exclusion protects programs and their beneficiaries and recipients
from an untrustworthy
provider until that provider demonstrates that he or she can be trusted to deal
with program funds and to
serve beneficiaries and recipients. Second, an exclusion deters providers of
items or services from
engaging in conduct which threatens the integrity of programs or the well-being
and safety of beneficiaries
and recipients. See H.R. Rep. No. 393, Part II, 95th Cong., 1st Sess., reprinted
in 1977 U.S. Code Cong. &
Admin. News 3072.
An exclusion imposed and directed pursuant to section 1128 will likely have
an adverse financial impact
on the person against whom the exclusion is imposed. However, the law places
program integrity and the
well-being of beneficiaries and recipients ahead of the pecuniary interests
of providers. An exclusion is not
punitive if it reasonably serves the law's remedial objectives, even if the
exclusion has a severe adverse
financial impact on the person against whom it is imposed.
No statutory minimum mandatory exclusion period exists for section 1128(b)(1)
exclusions. The
determination of when an individual should be trusted and allowed to reapply
for participation as a
provider in the Medicare and Medicaid programs is a difficult issue and is one
which is subject to
discretion; there is no mechanical formula. The Secretary has adopted regulations
to be applied in
exclusion cases. 42 C.F.R. 1001.125(b). The regulations specifically apply only
to exclusions for
"program-related" offenses. To the extent that they have not been
repealed, however, they embody the
Secretary's intent that they continue to apply, at least as broad guidelines,
to the cases in which
discretionary exclusions are imposed. The regulations require the I.G. to consider
factors related to the
seriousness and program impact of the offense, and to balance those factors
against any mitigating factors
that may exist. 42 C.F.R. 1001.125(b)(1)-(7). See Thomas J. DePietro, R.Ph.,
DAB Civ. Rem. C-282
(1991); Falah R. Garmo, R.Ph., DAB Civ. Rem. C-222 at 10 (1990); Leonard N.
Schwartz, R.Ph., DAB
Civ. Rem. C-62 at 12 (1989).
An exclusion must be judged in light of the evidence in the case and the intent
of the exclusion law.
Roderick L. Jones, R.N., DAB Civ. Rem. C-230 (1990); Frank J. Haney, DAB Civ.
Rem. C-156 (1990).
An exclusion determination will be held to be reasonable where, given the evidence
in the case, it is shown
to fairly comport with legislative intent. "The word 'reasonable' conveys
the meaning that . . . [the I.G.] is
required at the hearing only to show that the length of the [exclusion] determined
. . . was not extreme or
excessive." (Emphasis added.) 48 Fed. Reg. 3744 (1983). Thus, based on
the law and the evidence, I
have the authority to modify an exclusion if I determine that the exclusion
is not reasonable. Act, section
205(b). The hearing is, by law, de novo. Act, section 205(b). The purpose of
the hearing is not to
determine how accurately the I.G. applied the law to the facts before him, but
whether, based on all
relevant evidence, the exclusion comports with the legislative purpose of protecting
the Medicare and
Medicaid programs and their beneficiaries and recipients from untrustworthy
individuals. Haney, supra.
By not mandating that exclusions from participation in the Medicare and Medicaid
programs be
permanent, Congress has allowed the I.G. the opportunity to give individuals
a "second chance." The
placement of a limit on the period of exclusion allows an excluded individual
or entity the opportunity to
demonstrate that he or she can and should be trusted to participate in the Medicare
and Medicaid programs
as a provider of items and services to beneficiaries and recipients. A determination
of an individual's
current and future trustworthiness thus necessitates an appraisal of the crime
for which that individual was
convicted, the circumstances surrounding it, whether and when that individual
sought help to correct the
behavior which led to the criminal conviction, and how far that individual has
come toward rehabilitation.
DePietro, supra. See Joyce Faye Hughey, DAB App. 1221 at 10 (1991).
The evidence in this case reveals that in November 1988 Petitioner was convicted
of conspiracy to defraud
the United States by attempting to impede and impair the lawful functions of
the IRS., Petitioner and the
other persons involved generated income payments for themselves and concealed
the income by making
false entries in Giuffre's accounting records. As a result of Petitioner's action
of making false entries in
Giuffre's accounting records, false and inaccurate cash reports were generated
and submitted to DHHS and
its authorized agents. The fact that the convictions concerned Petitioner's
engagement in fraudulent
activities is demonstrative of Petitioner's trustworthiness in 1988 and will
be considered in determining an
appropriate period of exclusion. However, Petitioner's criminal conviction in
1988 does not necessarily
evidence that he is, at this time, an untrustworthy individual.
As a result of his criminal actions, Petitioner was placed on probation for
five years, sentenced to serve 100
hours of community service, and fined $15,000. Additionally, Petitioner lost
his Certified Public
Accountant's license for an undetermined period of time. I.G. Ex. 2/36, 52.
The I.G. contends that there are several factors in this case which warrant
a five-year period of exclusion.
These factors are: (1) Petitioner's untrustworthiness evidenced by his criminal
offenses; (2) the serious
nature of Petitioner's criminal offenses; (3) the three-year period over which
Petitioner's criminal offenses
occurred; and (4) the sentence imposed by the District Court included significant
periods of probation,
community service, and fines.
Petitioner argues that, under the circumstances of this case, it is appropriate
that he be excluded for time
served. He asserts that the following mitigating factors warrant a reduction
in the five-year period of
exclusion imposed and directed by the I.G.: (1) his remorse and shame for the
criminal offenses he
committed; (2) he is diabetic and is also suffering from depression which was
the result of stress related to
the criminal offenses at issue; (3) his good character as attested to in letters
written by associates of
Petitioner; (4) there were no program violations, and as a result, no related
offenses; (5) there was no
adverse impact on beneficiaries or recipients; (6) he cooperated with the government's
investigation of this
matter; (7) he has no prior Medicare or Medicaid sanctions; and (8) Medicare,
Medicaid, and the social
services programs were not damaged.
I conclude that the exclusion imposed and directed against Petitioner is excessive.
Given the facts of this
case, a five-year exclusion is not needed to protect the integrity of federally-funded
health care programs,
or beneficiaries and recipients. Nor is an exclusion of that length needed as
a deterrent. I am persuaded
that there is little likelihood that Petitioner will again engage in fraudulent
activities.
Since one of the main purposes of an exclusion from the Medicare and Medicaid
programs is to allow for a
period of time in which to ensure that Petitioner is trustworthy, I examined
such relevant factors as the
nature of the crime for which Petitioner was convicted, the length of the sentence
imposed by the court in
Petitioner's criminal case, and Petitioner's subsequent conduct. To ensure the
protection of the
beneficiaries of the Medicare and Medicaid programs, I also considered Petitioner's
previous sanction
record, whether his criminal conviction involved program violations or other
related offenses, and whether
Petitioner's conduct resulted in damages to the Medicare or Medicaid programs.
The fact that Petitioner cooperated with the government in its investigation
of this matter is a mitigating
factor and was considered in determining an appropriate length of exclusion.
I.G. Ex. 2/16; I.G. Ex. 3/6-7.
The absence of prior offenses by Petitioner is not a mitigating factor. Furthermore,
Petitioner's lack of a
sanction record under Medicare or Medicaid, the I.G.'s lack of proof that there
was any adverse impact on
program beneficiaries, and the fact that Petitioner's convictions did not involve
program violations, are not
mitigating in nature. Rather, their presence would be aggravating factors that
might justify an increased
sanction.
Trustworthiness is not something that is subject to exact measurement or determination.
However, in
attempting to measure Petitioner's trustworthiness, I gave great weight to the
credibility of his testimony
during the December 13, 1990 hearing. I also evaluated Petitioner's credibility,
based on the following
factors. First, I compared Petitioner's testimony to the other evidence introduced
at the December 13, 1990
hearing. Such evidence included testimony of other witnesses and documents.
Second, my personal
observation of Petitioner was that he testified in a forthright manner and did
not appear to try to avoid
questions. For these reasons, I conclude that Petitioner's testimony was credible
and that this reflects
favorably on his trustworthiness.
In addition to Petitioner's credibility, I also considered Petitioner's past
exercise of judgment in determining
his trustworthiness. I considered Petitioner's judgment relevant to this trustworthiness
because a mistake in
judgment can be as harmful as an intentional wrong to program beneficiaries
and recipients. Petitioner has
demonstrated naivete and lack of judgment in the circumstances surrounding his
case which led to his
criminal offenses. Petitioner specialized in working at hospitals that were
suffering severe financial
problems, and through Petitioner's and others' hard work, at least two of these
hospitals are now "surviving
admirably." Tr. 61-62. Petitioner wrongfully believed that he could take
an approved salary increase as a
car allowance which he then failed to properly document and thereby avoided
payment of income tax on
that money to the IRS. P. Br. 3. Petitioner's criminal behavior appears to have
been an aberration rather
than the norm and is not likely to be repeated.
The record establishes that Petitioner is completing his probation without
incident. He has not been
implicated in any additional misconduct. At the hearing, he demonstrated remorse
for his actions and
credibly asserted that he had learned to never repeat his unlawful conduct.
Tr. 62-63. I am persuaded by
Petitioner's testimony, as well as the other evidence of record, that there
is little or no likelihood that
Petitioner will again engage in unlawful conduct.
There is therefore no need for a lengthy exclusion in this case in order to
assure Petitioner's trust-
worthiness. A lengthy exclusion imposed as a deterrent would be unreasonably
punitive when applied to
Petitioner.
CONCLUSION
Based on the material facts and the law, I conclude that the I.G.'s determination
to exclude Petitioner from
participation in the Medicare and Medicaid programs was authorized by law. I
further conclude that a
three-year period of exclusion is reasonable and appropriate in this case.
___________________________
Charles E. Stratton
Administrative Law Judge