Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Civil Remedies Division
In The Case of:
Kelly R. Pyne,
Petitioner,
- v. -
The Inspector General.
DATE: October 29, 1991
Docket No. C-343
DECISION
On January 3, 1991 the Inspector General (I.G.) notified Petitioner of her
five-year exclusion from
participation in the Medicare and State health care programs, pursuant to section
1128(b)(1) of the Social
Security Act (Act). 1/ The I.G. told Petitioner that she was being excluded
because she had been convicted
of a criminal offense related to fraud, theft, embezzlement, breach of fiduciary
responsibility, or other
financial misconduct.
Petitioner timely requested a hearing and the case was assigned to me for a
hearing and decision. On June
25, 1991, I held a hearing in Cheyenne, Wyoming.
I have considered the evidence, the parties' arguments, and the applicable
laws and regulations. I conclude
that the five-year exclusion imposed and directed against Petitioner by the
I.G. is reasonable.
ISSUE
The issue in this case is whether the five-year exclusion which the I.G. imposed
and directed against
Petitioner is reasonable.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
1. On August 9, 1989, a Deputy District Attorney for the State of Wyoming filed
an Information charging
Petitioner with the crimes of: (1) conspiracy to commit embezzlement, and (2)
conversion of property
valued at $500.00 or more belonging to another. ALJ Ex. 1/1; I.G. Ex. 4. 2/
2. Under Wyoming law, the crimes of conspiracy to commit embezzlement and conversion
of property
valued at $500.00 or more are felonies. ALJ Ex. 1/2; I.G. Ex. 4.
3. On December 18, 1989 Petitioner pled guilty to conspiracy to commit embezzlement.
ALJ Ex. 1/2; I.G.
Ex. 9/4, 10/1.
4. On December 18, 1989, Petitioner was sentenced to, among other things, a
period of five years of
probation. ALJ Ex. 1/2; I.G. Ex. 9/4-6, 10.
5. Petitioner was convicted of a criminal offense within the meaning of section
1128(i)(4) of the Act. ALJ
Ex. 1/3; Findings 1-4.
6. Petitioner was 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. ALJ Ex.
1/3; Findings 1-5.
7. The Secretary of the Department of Health and Human Services (Secretary)
delegated to the I.G. the
authority to determine, impose, and direct exclusions pursuant to section 1128
of the Act. 48 Fed. Reg.
21662 (May 13, 1983).
8. On January 3, 1991 the I.G. excluded Petitioner from participating in Medicare
and directed she be
excluded from participating in Medicaid, pursuant to section 1128(b)(1) of the
Act.
9. The I.G. had authority to impose and direct an exclusion against Petitioner
pursuant to section
1128(b)(1) of the Act. Findings 1-7.
10. In about June 1986, Petitioner was employed by Home Oxygen Plus Equipment
in Cheyenne,
Wyoming. Tr. at 24, 32, 191.
11. Home Oxygen Plus Equipment is a health care provider whose business includes
providing liquid
oxygen to patients at their homes and renting and selling other medical supplies
to individuals. Tr. at 25-
26.
12. About 40 percent of Home Oxygen Plus Equipment's customers are Medicare beneficiaries. Tr. at 28.
13. About 20 percent of Home Oxygen Plus Equipment's customers are Medicaid recipients. Tr. at 28.
14. While employed by Home Oxygen Plus Equipment, Petitioner and other individuals
established a
business which they called Home Oxygen Plus Supply. I.G. Ex. 1/2; Tr. at 43-44,
197.
15. A purpose of establishing Home Oxygen Plus Supply was to operate as a health
care provider in
competition with Home Oxygen Plus Equipment. I.G. Ex. 1/2, 2/4; Tr. at 43-44,
210-211.
16. Petitioner named the business "Home Oxygen Plus Supply" in order
to mislead individuals and entities
with whom she did business under this name that they were continuing to deal
with Home Oxygen Plus
Equipment. Tr. at 44; See Tr. at 60-61, 79-81.
17. Petitioner obtained a Medicare provider number for Home Oxygen Plus Supply. I.G. Ex. 2/4, 12.
18. Petitioner opened a checking account in a Cheyenne, Wyoming, bank for Home
Oxygen Plus Supply.
I.G. Ex. 11.
19. Petitioner deposited checks for items or services payable to "Home
Oxygen Plus" which were remitted
in payment for items or services provided by Home Oxygen Plus Equipment into
the Home Oxygen Plus
Supply checking account. I.G. Ex. 1/15, 2/4, 14; Tr. at 44, 60-61, 84, 130,
214-215.
20. Petitioner diverted Medicare reimbursement for items or services which
had been provided by Home
Oxygen Plus Equipment to the account of Home Oxygen Plus Supply. I.G. Ex. 13;
Tr. at 130, 150-153.
21. Petitioner transferred customers of Home Oxygen Plus Equipment to the account
of Home Oxygen
Plus Supply without explaining to them that Home Oxygen Plus Equipment and Home
Oxygen Plus
Supply were competing businesses. Tr. at 166-167; See Tr. at 211-214.
22. Petitioner used equipment belonging to Home Oxygen Plus Equipment to supply
items or services to
customers of Home Oxygen Plus Supply. Tr. at 43, 85, 135, 140, 152.
23. Petitioner's scheme to establish Home Oxygen Plus Supply and her misappropriation
of the assets of
Home Oxygen Plus Equipment was a deliberate act of embezzlement. Findings 1-22;
See 42 C.F.R.
1001.125(b)(1).
24. Petitioner's embezzlement caused substantial damage to Home Oxygen Plus
Equipment. I.G. Ex. 13-
19; Tr. at 45; See 42 C.F.R. 1001.125(b)(6).
25. Petitioner's embezzlement deceived customers of Home Oxygen Plus Equipment,
including Medicare
beneficiaries. Findings 19-21; See 42 C.F.R. 1001.125(b)(6).
26. Petitioner's embezzlement was motivated by animus towards her employer,
Home Oxygen Plus
Equipment. Tr. at 195-196, 211, 226-227; See 42 C.F.R. 1001.125(b)(6).
27. Previous to her establishing Home Oxygen Plus Supply, Petitioner had embezzled
funds from Home
Oxygen Plus Equipment in order to repay a gambling debt. Tr. at 100-101, 112-113,
226.
28. The character and nature of Petitioner's unlawful conduct establishes that
she is not a trustworthy
provider of care. Findings 1-27.
29. That Petitioner now expresses remorse for her unlawful conduct does not
establish that she is a
trustworthy provider of care. See P. Ex. 6; Tr. at 202-203, 208.
30. The fact that Petitioner was a competent employee of Home Oxygen Plus Equipment
does not
establish that she is a trustworthy provider of care. See Tr. at 114.
31. Petitioner's honesty and trustworthiness in her personal relationships
does not establish that she is a
trustworthy provider of care. See Tr. at 181-183.
32. Petitioner's valued services as an inhalation therapist do not establish
that she is a trustworthy provider
of care. See P. Ex. 1, 2; Tr. at 204-207.
33. The conclusion of Petitioner's probation officer that Petitioner is unlikely
to again enter the criminal
justice system does not establish that Petitioner is a trustworthy provider
of care. See P. Ex. 11; Tr. at 190.
34. When considered in its entirety, evidence as to Petitioner's trustworthiness
does not outweigh evidence
as to Petitioner's lack of trustworthiness. Findings 30-35.
35. An exclusion is needed in this case to protect the integrity of federally-funded
health care programs
and the welfare of beneficiaries and recipients of those programs.
36. The five-year exclusion imposed and directed against Petitioner by the I.G. is reasonable.
ANALYSIS
The parties stipulated that Petitioner was convicted of a criminal offense
relating to fraud, theft,
embezzlement, and breach of fiduciary responsibility or other financial conduct,
within the meaning of
section 1128(b)(1) of the Act. Therefore, there is no dispute as to the authority
of the I.G. to impose and
direct an exclusion against Petitioner.
What is disputed is the reasonableness of the five-year exclusion which the
I.G. imposed and directed
against Petitioner. The I.G. contends that Petitioner's admitted unlawful embezzlement
of assets from her
employer is proof that she is an untrustworthy provider of care and that the
five-year exclusion is
reasonably necessary to accomplish the remedial purpose of the Act. Petitioner
argues that,
notwithstanding her unlawful acts, she has learned her lesson and will never
repeat such acts or engage in
other misconduct in the future. She asserts, additionally, that the effect of
the exclusion is to prevent her
from performing a valuable medical service to patients. Therefore, according
to Petitioner, the exclusion is
unreasonable. She urges that I terminate it effective the date of my decision
in this case, thereby making
her immediately eligible for reinstatement as a Medicare and Medicaid provider.
Section 1128 is a civil remedies statute. The remedial purpose of section 1128
is to enable the Secretary to
protect federally-funded health care programs and their beneficiaries and recipients
from individuals and
entities who have proven by their misconduct that they are untrustworthy. Exclusions
are intended to
protect against future misconduct by providers. Manocchio v. Sullivan, No. 90-8114,
slip op. at 6 (S.D.
Fla. July 12, 1991).
Federally-funded health care programs are no more obligated to deal with dishonest
or untrustworthy
providers than any purchaser of goods or services would be obligated to deal
with a dishonest or
untrustworthy supplier. The exclusion remedy allows the Secretary to suspend
his contractual relationship
with those providers of items or services who are dishonest or untrustworthy.
The remedy enables the
Secretary to assure that federally-funded health care programs will not continue
to be harmed by dishonest
or untrustworthy providers of items or services. The exclusion remedy is closely
analogous to the civil
remedy of termination or suspen-sion of a contract to forestall future damages
from a continuing breach of
that contract.
Exclusion may have the ancillary benefit of deterring providers of items or
services from engaging in the
same or similar misconduct as that engaged in by excluded providers. However,
the primary purpose of an
exclusion is the remedial purpose of protecting the trust funds and beneficiaries
and recipients of those
funds. Deterrence cannot be a primary purpose for imposing an exclusion. Where
deterrence becomes the
primary purpose, section 1128 no longer accomplishes the civil remedies objectives
intended by Congress.
Punishment, rather than remedy, becomes the end.
[A] civil sanction that cannot fairly be said solely to serve a remedial purpose,
but rather can be
explained only as also serving either retributive or deterrent purposes, is
punish-ment, as we have come to
understand the term.
United States v. Halper, 490 U.S. 435, 448 (1989).
In determining the reasonableness of an exclusion, the primary consideration
must be the degree to which
the exclusion serves the law's remedial objective of protecting program recipients
and beneficiaries from
untrustworthy providers. An exclusion is not excessive if it does reasonably
serve these objectives. Thus,
in any case in which the length of an exclusion is at issue, I must assess the
evidence in order to decide
whether the exclusion is reasonably needed to protect federally-funded health
care programs or their
beneficiaries and recipients from a party whose conduct demonstrates that he
or she manifests a propensity
to commit harmful acts in the future. I do not analyze an exclusion as redress
for past harmful conduct.
On the other hand, evidence of past harmful acts by an excluded party may demonstrate
a propensity by
that party to commit such acts or similar misconduct in the future.
The hearing in an exclusion case is, by law, de novo. Act, section 205(b).
Evidence which is relevant to
the reasonableness of the length of an exclusion will be admitted in a hearing
on an exclusion whether or
not that evidence was available to the I.G. at the time the I.G. made his exclusion
determination. Evidence
which relates to a petitioner's trustworthiness or the remedial objectives of
the exclusion law is admissible
at an exclusion hearing even if that evidence is of conduct other than that
which establishes statutory
authority to exclude a petitioner. For example, in this case I allowed Petitioner
to introduce evidence
attesting to her honesty and trustworthiness which emanated from relationships
and events occurring after
her conviction for embezzlement. See, e.g., P. Ex. 1, 2, 11.
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
legislative intent. Because
of the de novo nature of the hearing, my duty is to objectively determine the
reasonableness of the
exclusion by considering what the I.G. determined to impose in light of the
statutory purpose and the
evidence which the parties offer and I admit. The I.G.'s thought processes in
arriving at his exclusion
determination are not relevant to my assessment of the reasonableness of the
exclusion.
Furthermore, my purpose in hearing and deciding the issue of whether an exclusion
is reasonable is not to
second-guess the I.G.'s exclusion determination so much as it is to decide whether
the determination was
extreme or excessive. 48 Fed. Reg. 3744 (Jan. 27, 1983). Should I determine
that an exclusion is extreme
or excessive, I have authority to modify the exclusion, based on the law and
the evidence. Act, section
205(b).
The Secretary has adopted regulations to be applied in exclusion cases. The
regulations specifically apply
to exclusion cases for "program-related" offenses (convictions for
criminal offenses relating to Medicare or
Medicaid). The regulations express the Secretary's policy for evaluating cases
where the I.G. has discretion
in determining the length of an exclusion. The regula-tions require the I.G.
to consider factors related to
the seriousness and program impact of the offense and to balance those factors
against any factors that may
exist demonstrating trustworthiness. 42 C.F.R. 1001.125(b)(1)-(7). In evaluating
the reasonableness of an
exclusion, I consider the regulatory factors contained in 42 C.F.R. 1001.125(b).
The evidence in this case establishes that Petitioner committed a calculated
act of embezzlement against
her employer, Home Oxygen Plus Equipment. The cunning and animus which Petitioner
demonstrated in
planning and executing her scheme establishes her to be capable of engaging
in acts which could cause
severe damage to federally-funded health care programs and their recipients
and beneficiaries. I find that
this evidence greatly outweighs evidence from Petitioner that she has learned
her lesson and regrets her
unlawful acts.
Petitioner was employed as a manager by Home Oxygen Plus Equipment. Her duties
involved the
marketing of health care items and services, including home oxygen supplies,
to individuals. Dissatisfied
with her compensation and with the amount of recognition she received from her
employer for her efforts
on its behalf, Petitioner determined to redress the perceived inequities through
unlawful means.
While employed by Home Oxygen Plus Equipment, Petitioner established a competing
enterprise, which
she called Home Oxygen Plus Supply. In plan and execution, this competitor was
a parasite which fed off
the assets, income, and good will of Home Oxygen Plus Equipment. Petitioner
chose the business name
"Home Oxygen Plus Supply" partly because the name would deceive customers
of Home Oxygen Plus
Equipment into believing that they were dealing with Home Oxygen Plus Equipment,
when, in fact, their
business had been transferred to home Oxygen Plus Supply. Petitioner diverted
remuneration paid to
Home Oxygen Plus Equipment to the account of Home Oxygen Plus Supply. She deceived
customers of
Home Oxygen Plus Equipment into transferring their business to Home Oxygen Plus
Supply. She made
use of equipment belonging to Home Oxygen Plus Equipment to provide services
on behalf of her parasite
business. And, of course, she disclosed none of these acts to her employer.
Petitioner's fraud operated at three levels. First, she deluded her employer
into believing that she was
working to further its business, when, in fact, she was working to destroy it.
Second, she deceived
customers of her employer into believing that they were dealing with her employer,
when, in fact, they
were dealing with the parasite company created by Petitioner. Finally, Petitioner
deceived third party
payers including Medicare into paying remuneration to her for items or services
which were legitimately
remunerable to her employer.
I am impressed by the cleverness and malice which Petitioner devoted to her
scheme. Her unlawful acts
cannot possibly be attributed to a good-faith misunderstanding of her obligations,
to mistake, or to poor
judgment. Nor do her acts suggest, as Petitioner argues, an intent to simply
"borrow" resources from her
employer. Rather, her conception and execution of her embezzlement establishes
Petitioner to have
engaged in a calculated and carefully planned fraud. Her level of culpability
is extremely high.
I infer from this evidence a propensity on Petitioner's part to engage in harmful
conduct in the future. I
conclude that she is an untrustworthy individual. In reaching this conclusion,
I am mindful of Petitioner's
assertions that she has learned her lesson and regrets her unlawful conduct.
I am also cognizant that she
has convinced other individuals, including her probation officer, that she is
sincere in her expression of
remorse and that she is unlikely to enter the criminal justice system again.
See P. Ex. 11. However,
Petitioner's behavior convinces me that she remains capable of engaging in harmful
conduct in the future. I
am unwilling to gamble that my assessment is incorrect based on Petitioner's
representations that she is a
changed person or on other individuals' assertions that she has been honest
so far in her dealings with them.
Petitioner asserts that none of her unlawful conduct harmed the Medicare program.
From this, she argues
that I should not infer a need for an exclusion continuing past the date this
decision is issued. 3/ As I note
above, the test for determining the reasonableness of an exclusion is a party's
propensity to harm federally-
funded health care programs or their beneficiaries and recipients in the future.
That propensity may be
inferred from past acts which are harmful to Medicare, but it may be inferred
from other things as well,
including acts which harmed Petitioner's private employer. 4/ In this case,
I infer a propensity to do harm
in the future from the calculating and malicious nature of Petitioner's unlawful
conduct. I find that the fact
that Petitioner engaged in an elaborate scheme to embezzle funds from her employer
after he declined to
press charges for a previous embezzlement offense is strong evidence of her
untrustworthiness. Petitioner
admitted that, prior to establishing Home Oxygen Plus Supply, she had embezzled
money from her
employer to pay a gambling debt and that her employer resolved this matter without
criminal prosecution.
Petitioner introduced evidence to show that since her conviction she has served
as an inhalation therapist
and has performed credibly in that capacity. She asserts that one effect of
the exclusion will be to deprive
her of the opportunity to perform work which is of great social value. I recognize
that may be so.
However, I conclude that the exclusion imposed by the I.G. is reasonable in
light of the propensity to
engage in harmful conduct demonstrated by Petitioner. 5/
CONCLUSION
Based on the evidence in this case and the law, I conclude that the five-year
exclusion imposed and
directed against Petitioner by the I.G. is reasonable. I therefore sustain the
exclusion.
____________________________
Steven T. Kessel
Administrative Law Judge
1. "State health care program" is defined by section 1128(h) of the
Social Security Act to cover three types
of federally-financed health care programs, including Medicaid. I use the term
"Medicaid" hereafter to
represent all State health care programs from which Petitioner was excluded.
2. I refer to the exhibits admitted into evidence and the transcript of the hearing as follows:
I.G. Exhibit I.G. Ex. (number)/(page)
Petitioner's Exhibit P. Ex. (number)/(page)
Administrative Law
Judge Exhibit ALJ Ex. 1/page
Transcript Tr. at (page)
ALJ Ex. 1 consists of stipulations of facts entered into by the parties and
jointly submitted by them to me at
the June 25, 1991 hearing. I opted to mark the stipulations as an ALJ exhibit
and to admit them into
evidence although, technically, I was not obligated to do so.
3. It is not entirely clear that Petitioner is correct in her contention that
her conduct did not harm Medicare.
The evidence establishes that Petitioner diverted to the account of Home Oxygen
Plus Supply Medicare
reimbursement for items or services which was in fact payable to Home Oxygen
Plus Equipment. There is
not evidence of record to show what impact such diversion had on the Medicare
program.
4. Congress has explicitly recognized that a propensity to commit harm against
federally-funded health
care programs or their beneficiaries and recipients may be inferred from unlawful
or damaging conduct
which is not directed against Medicare or Medicaid or against the beneficiaries
or recipients of these
programs. Many of the subsections of section 1128 authorizing an exclusion are
based on conduct other
than conduct which is necessarily harmful to Medicare or Medicaid or to beneficiaries
and recipients of
these programs. See, e.g., Act, sections 1128(a)(2), (b)(1), (b)(2), (b)(3),
(b)(4), and (b)(5).
5. If I could modify the exclusion so as to permit Petitioner to continue as
a Medicare or Medicaid
provider as an inhalation therapist employed by Children's Hospital in Denver,
Colorado I might be
tempted to do so. The evidence in this case suggests that Petitioner does not
represent a threat to federally-
funded health care programs or to beneficiaries and recipients while employed
in that capacity. However, I
do not have the freedom to so narrow the exclusion. Walter J. Mikolinski, Jr.,
DAB App. 1156 (1990) at
5-16; See Corrine B. Kohn, DAB Civ. Rem. C-262 (1991).