SUBJECT:

Arkady Rozenberg,

Petitioner,

The Inspector General.

DECISION

Petitioner, Arkady Rozenberg, was a major player in an elaborate scheme to defraud insurance companies. He was eventually caught, convicted, sentenced to jail time, and ordered to pay a staggering $1,133,358.66 in restitution. Because of his conviction, the Inspector General (I.G.) excluded him from participating in Medicare, Medicaid, and other federally funded health care programs for a period of 25 years. For the reasons discussed below, I find that the I.G. is authorized to exclude Petitioner pursuant to section 1128(a)(3) of the Social Security Act (Act), and that the 25 year exclusion falls within a reasonable range.

I. Background

By letter dated March 29, 2002, the I.G. notified Petitioner that he was being excluded from participation in Medicare, Medicaid, and all federal health care programs for a period of 25 years. The I.G. advised Petitioner that he was being excluded pursuant to section 1128(a)(3) of the Act because of his conviction in the United States District Court for the Central District of California of a felony criminal offense related to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct in connection with the delivery of a health care item or service. By letter dated May 24, 2002, Petitioner requested a hearing and the case was assigned to me.

On July 10, 2002, I held a prehearing conference by telephone at which the parties seemed to agree that this matter could be resolved based on the written submissions. I.G. Brief at 7; Sanders Declaration � 4 (P. Ex. 5, at 1). Petitioner acknowledges that, during the telephone conference call, he stipulated that the I.G.'s motion for summary judgment "could be litigated without oral testimony and by written brief alone," but asserts that "by such stipulation, [counsel] did not intend to waive any hearing rights [Petitioner] has or may have in connection with a hearing on the ultimate issues in this case." Sanders Declaration � 5 (P. Ex. 5, at 2). I find this confusing, but, as discussed below, inasmuch as I find no material facts in dispute, summary disposition is appropriate whether Petitioner has agreed to it or not.

The I. G. filed five exhibits (I.G. Exs. 1 - 5) as part of her submission, and Petitioner appended six attachments to its brief. One of the Petitioner's attachments duplicates I.G. Ex. 2, so I decline to admit it. I have numbered the remaining attachments as Petitioner's exhibits 1 - 5 (P. Exs. 1 - 5) to conform to Civil Remedies Division procedures. In the absence of objection, I receive into evidence I.G. Exs. 1 - 5 and P. Exs. 1 - 5.

II. Issue

I consider first whether summary disposition is appropriate in this case.

On the merits, Petitioner does not dispute that he "can be excluded for a reasonable period for the protection to the government programs." P. Brief at 1 - 2. He argues that the length of the exclusion is unreasonably long for two reasons: 1) the I.G. did not consider the mitigating factor of his alcoholism; and 2) most of his "overt" illegal conduct occurred prior to August 21, 1996. The sole issue before me, therefore, is whether the length of the exclusion in excess of the five-year mandatory minimum is reasonable. 42 C.F.R. �1001.2007.

III. Statutory and Regulatory Background

Section 1128(a)(3) of the Act authorizes the Secretary of the HHS (Secretary) to exclude from participation in any federal health care program (as defined in section 1128B(f) of the Act):

Any individual or entity that has been convicted for an offense which occurred after the date of the enactment of the Health Insurance Portability and Accountability Act of 1996 ⁽¹⁾, 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 health care program operated by or financed in whole or in part by any Federal, State, or local government agency, of a criminal offense consisting of a felony relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct.

Section 1128(c)(3)(B) of the Act provides that an exclusion imposed under section 1128(a)(3) of the Act shall be for a minimum period of not less than five years.

Specific aggravating factors that are not offset by specified mitigating factors may justify increasing the period of exclusion. 42 C.F.R. � 1001.102. The following four factors may serve as a basis for lengthening the period of exclusion: (1) the acts resulting in the conviction, or similar acts, resulted in a financial loss to one or more entities of $1,500 or more (42 C.F.R. � 1001.102(b)(1)); (2) the acts that resulted in the conviction, or similar acts, were committed over a period of one year or more (42 C.F.R. � 1001.102(b)(2)); (3) the sentence imposed by the court included incarceration (42 C.F.R. � 1001.102(b)(5)); and (4) the individual has been the subject of any other adverse action by any federal, State, or local government agency or board, if the adverse action is based on the same set of circumstances that serves as the basis for imposition of the exclusion (42 C.F.R. � 1001.102(b)(9)).

Mitigating factors may be considered as a basis for reducing the period of exclusion only if aggravating factors justify an exclusion longer than five years. The only factors considered mitigating are: (1) Petitioner was convicted of three or fewer misdemeanor offenses and the resulting financial loss to Medicare and the State health care program was less than $1,500; (2) the record in the criminal proceedings, including the sentencing documents, demonstrates that the court determined that Petitioner had a mental, physical, or emotional condition before or during the commission of the offense, that reduced his culpability; or (3) Petitioner's cooperation with federal or state officials resulted in others being convicted or excluded, or additional cases being investigated, or a civil money penalty being imposed. 42 C.F.R. � 1001.102(c).

The Secretary has delegated to the Inspector General (I.G.) the authority to impose exclusions. 42 C.F.R. � 1001.401(a). So long as the amount of time chosen for the exclusion imposed on Petitioner by the I.G. is within a reasonable range, based on demonstrated criteria, I have no authority to change it. Joann Fletcher Cash, DAB No. 1725 at 7 (2000), citing 57 Fed. Reg. 3298, 3321 (1992).

IV. Discussion

From on or before February 1, 1993, until about December 11, 1996, Petitioner, along with three named and other unnamed confederates, engineered and participated in a major scam to defraud private insurance companies. He created, controlled, and managed law offices designed to generate, process, and negotiate thousands of phony personal injury insurance claims for staged automobile accidents. I.G. Exs. 1, 2. Petitioner played a key role in the criminal enterprise, initially locating and setting up the office. Id. at 4. The law office paid a referral fee to individuals, known as cappers, who solicited and recruited fraudulent "victims." The law office then filed phony claims with the insurance companies. When an insurance company paid a settlement to the law office, it paid the "victim" a prearranged fee for participating in the staged accident. In this way, the law office generated more than $4,609,000.00 from the insurance companies, which it placed in the office's "attorney-client trust account." Although checks drawn on that account were made payable to the claimants and doctors associated with the fraudulent insurance claims, in fact, Petitioner himself cashed those checks and used the money to pay the cappers and the others associated with the scheme, and "for his own benefit." Id. at 2 - 3. Petitioner pled guilty to five counts of mail fraud for submitting false medical claims to insurance companies. I. G. Ex. 2, at 5, I.G. Ex. 3. He waived indictment by the grand jury and also pled guilty to conspiracy to commit money laundering. I.G. Exs. 2, 3. He also agreed to plead guilty in Los Angeles County Superior Court to one count of conspiracy to commit insurance fraud and one count of money laundering. I.G. Ex. 3, at 5.

Petitioner was sentenced to more than three years (37 months) incarceration, followed by three years of supervised release. He was ordered to pay a $75,000 fine plus restitution in the amount of $1,133,358.66. I.G. Ex. 4.

A. Summary disposition is appropriate here because no material facts are in dispute.

Summary disposition is appropriate where the parties raise no genuine issue of material fact. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970). To demonstrate a genuine issue, a party must provide evidence of specific facts and must show that the fact in contention is material, that is, a fact that might affect the outcome of the action. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986). Here, Petitioner identifies the "material fact" in dispute as "whether the OIG considered the existence of a mitigating factor (Petitioner's reduced culpability due to his alcoholism) in its determination as to the length of the exclusion." P. Brief at 3. Setting aside relevance questions, ⁽²⁾ that issue is simply not in dispute. The I.G. did not consider Petitioner's alcoholism a mitigating factor. Further, as I discuss below, Petitioner's alcoholism is not a mitigating factor. Accepting as true Petitioner's claims regarding his alcoholism does not establish a mitigating factor. As a matter of law, my determination as to whether he has established a mitigating factor is based on the closed record in the criminal proceedings. Petitioner has thus not established any material fact in dispute for which an in-person hearing is required.

B. A 25-year exclusion falls within a reasonable range.

1. That some - or even most - of Petitioner's felonious acts occurred prior to August 26, 1996, does not affect the applicability of section 1128(a)(3), nor its implementing regulations.

Petitioner concedes that among the "overt actions" encompassed by his guilty pleas, at least one occurred after August 21, 1996, the effective date of section 1128(a)(3). He argues, however, that "the vast majority of the illegal conduct in which he engaged occurred during the period in which the presumptive exclusion period for conviction of this conduct would have been three years." According to Petitioner, the length of his exclusion is "dramatically out of proportion" to the lengths of exclusion imposed under the prior law (42 U.S.C. �1320a-7). P. Brief at 8 - 9.

I agree that Petitioner is subject to a mandatory exclusion only if the I.G. establishes a conviction for criminal actions taken after HIPAA's effective date; however, I do not agree that I should not consider the totality of the criminal enterprise in reviewing the length of the exclusion. First, this was not a simple crime, involving one overt action that occurred at an identifiable point in time, and for which I can easily identify the amount of financial loss for a specific date; instead, this was a complicated criminal enterprise that included conspiracy and spanned years. Petitioner did not just set up a sham law office prior to HIPAA's effective date; he maintained that office well after the effective date. He did not simply open money-laundering accounts prior to HIPAA's effective date; he maintained those accounts well after. The criminal record establishes the amount of financial losses caused by the entire enterprise, but how would I allocate that loss between the times before and after HIPAA's effective date? Accepting Petitioner's position would require me to look behind the convictions in an effort to allocate degrees of guilt at specific points in time. As a practical matter, I find this unworkable, particularly in cases involving long-running conspiracies. Moreover, I am not even authorized to examine the underlying bases for the convictions. Susan Malady, DAB No. 1816 (2002); Frank R. Pennington, M.D., DAB No. 1786 (2001).

The Board reached the came conclusion in Susan Malady, supra. There, Petitioner's felonious conduct began well before August 21, 1996, and continued through September 3, 1996, less than two weeks after HIPAA's effective date. According to Petitioner Malady, she was terminated from her employment on September 3, 1996, but the criminal conduct, which led to her termination, ended before August 21, 1996. The Board rejected her position, pointing out her conviction for conduct that occurred between December 20, 1994, and September 3, 1996. That some, or even most, of the specific criminal acts occurred prior to HIPAA's effective date, in the Board's view, did not affect the applicability of �1128(a)(3).

Congress intended to include all offenses occurring after August 26, 1996. A person should not escape the reach of section 1128(a)(3) simply because he or she began committing the same crime prior to the statute's effective date.

Malady at 7. The Board then affirmed the ALJ finding that Petitioner Malady's crimes resulted in a loss of more than $1,5000, and occurred over a period of more than one year. ⁽³⁾

2. Petitioner's crimes resulted in a loss to one or more entities of more than $1,500. 42 C.F.R. � 1001.102(b)(1).

Aside from arguing that the bulk of his crimes occurred prior to HIPAA's effective date, Petitioner does not directly challenge the amount of the loss caused by his activities. The criminal record establishes that his scheme caused losses in excess of $4,609,000.00 to the defrauded insurance companies. This is more than three thousand times the amount necessary to satisfy the regulation. The district court required Petitioner to pay $1,133,358.66 in restitution, more than 750 times the amount necessary. Thus the financial losses caused by Petitioner's criminal acts well exceed the $1,500 standard, and alone would justify a significant period of exclusion. I.G. Exs. 3, 4.

3. The crimes that resulted in Petitioner's conviction occurred over a period of more than one year. 42 C.F.R. � 1001.102(b)(2).

The record establishes that Petitioner pled guilty to criminal acts covering a time period from on or about February 1, 1993, until about December 11, 1996, well beyond the requisite one year. I.G. Ex. 3. As noted above, in Malady, the Board affirmed the ALJ finding that the crime that resulted in her conviction occurred over a period of time of more than one year, even though the criminal conduct ceased just two weeks after the statute's effective date.

4. Petitioner's criminal sentence included incarceration. 42 C.F.R. � 1001.102(b)(5).

As a result of his criminal activity, Petitioner was convicted and sentenced by the Federal District Court to over three years of incarceration (37 months), among other things. Petitioner emphasizes that the sentencing judge recommended he be committed to a boot camp, which, he claims, shows that the judge did not find him irredeemable. The term incarceration means "imprisonment or any type of confinement, with or without supervised release, including, but not limited to, community confinement, house arrest, and home detention." 42 C.F.R. �1001.2. That the judge recommended a particular type of incarceration does not negate this as an aggravating factor. See Jason Hollady, M.D., DAB No. 1855 at 9-10 (2002), where the Board found irrelevant to the issue of whether his sentence included incarceration the fact that, a few days after the beginning of his sentence, Petitioner was put on a work release program.

5. This case does not present any mitigating factors.

Petitioner argues that he suffers from alcoholism and, therefore, had a "mental, physical, or emotional condition that reduced his culpability" within the meaning of 42 C.F.R. � 1001.102(c)(2). He points to the sentencing judge's June 15, 1999 order recommending that he participate in the Bureau of Prisons Alcohol Treatment Program (P. Ex. 1) and to the judgment/commitment order recommending that he be placed in the "Intensive Confinement Program (Boot Camp)." P. Ex. 2; I.G. Ex. 4, at 3. Based on this, he claims that the sentencing judge "recognized" his alcoholism and considered him a good candidate "for rehabilitation and reform." P. Brief at 2.

The Board addressed this issue in Joseph M. Rukse, Jr., R.Ph., DAB No. 1851 (2002) and in Frank R. Pennington, M.D., DAB No. 1786 (2001). In the Board's view, the criminal court must specifically determine "that a mental, emotional, or physical condition reduced culpability for the crime." Rukse at 6, citing Pennington. In Rukse, the sentencing judge, referring to a Pre-Sentence Investigation Report, imposed a sentence at the lower end of the sentencing guidelines. Inasmuch as the Report upon which the sentence was based did not recommend that the Petitioner's alleged drug addiction be considered as having reduced his culpability, the Board found no basis for concluding that the judge made such a determination. Rukse at 8.

Here, as part of the plea agreement the parties specifically agreed to "applicable sentencing guideline factors." The "base offense level" was allotted 17 sentencing points; two "specific" offense characteristics added points to the base level: the value of the funds (adding 5 points) and Petitioner's role in the offense (adding 2 points). The government then stipulated to a "3-level downward adjustment for acceptance of responsibility and the low end of the resulting sentencing range." Petitioner also specifically agreed "that no additional specific offense characteristics, adjustments, or departures apply." I.G. Ex. 3 at 6 (emphasis added). Thus, the criminal court record is not even silent on the issue of reduced culpability. The record establishes that Petitioner's purported alcohol abuse was explicitly not a factor reducing culpability.

Nor does the court's order regarding substance abuse treatment change this result. As the Rukse panel also held:

[T]he implication that the judge considered or was aware of Petitioner's alleged drug addiction does not amount to the determinations required by the regulation - that Petitioner had the condition before or during the commission of the offense and that the condition reduced Petitioner's culpability. Such a provision in a sentencing order establishes only that the sentencing judge recognized that the offender was currently suffering from substance abuse; it does not establish that the judge found the offender's culpability to be reduced as a result of a condition that existed at the time of the offense.

Rukse at 8-9, citing David Yedidsion, M.D., DAB CR715 (2000). I therefore find that no mitigating factors justify reducing the period of exclusion.

V. Conclusion

The statute's purpose is remedial - the protection of federally funded health care programs. The I.G.'s regulations set forth criteria to assess the degree of risk an individual poses to those programs. Here, Petitioner's crime was huge: it spanned years, and grossed millions of dollars. Petitioner was rightfully sentenced to jail time for his pivotal role in the scheme.

I find that the I.G. was authorized to exclude Petitioner pursuant to section 1128(a)(3) of the Act. Considering all of the evidence before me, the 25-year exclusion imposed by the I.G. is within a reasonable range.

Carolyn Cozad Hughes

Administrative Law Judge

1. The Health Insurance Portability and Accountability Act (HIPAA) of 1996 was enacted on August 21, 1996.

2. Since this is a de novo review, the factors the I.G. considered are not relevant. I determine which, if any, of the aggravating and mitigating factors should be applied.

3. I note also that the regulations setting forth the factors considered in determining the length of an exclusion were promulgated well before 1996, and before Petitioner committed any of the illegal activities for which he was convicted. See Malady at 7 - 8, n.5 (2002).