DEPARTMENT OF HEALTH AND HUMAN SERVICES
Departmental Grant Appeals Board

Office of Hearings for Civil Money Penalties

In the Case of:

The Inspector General, Date: July 2, 1987
-Ven- Docket No. C-19
CR 10

Frank P. Silver, M.D.,
Respondent

DECISION AND ORDER ON REMAND

In this case, the Inspector General (1.G.) of the United States
Department of Health and Human Services (DHHS) issued a Notice
of Determination (Notice) informing Frank P. Silver, M.D. (the
Respondent), that the I.G. sought a penalty of $232,000, an
assessment of $18,000, and a ten year suspension of the
Respondent from participating as a medical provider in the
Medicare and Medicaid programs. In the Notice, the I.G. alleged
that the Respondent had violated the Civil Monetary Penalties
Law (CMPL) and its implementing regulations (Regulations) by
presenting or causing to be presented four hundred twenty (420)
false or improper claims for Medicaid and Medicare payment,
involving twelve hundred forty-four (1244) laboratory tests,
during the period August 13, 1981 through May 1983.7?

The Respondent, a licensed physician in Las Vegas, Nevada,
specializing in the practice of obstetrics and gynecology, filed

'The CMPL, consisting of sections 1128A and 1128(c) of the Social
Security Act (Act), is codified in Title 42 U.S.C., at sections
1320a-7a and 1320a-7(c). The Regulations are codified in 42
C.F.R., at sections 1003.100 through 1003.133 (1986). See 48
Fed. Reg. 38827 (Aug. 26, 1983); 51 Fed. Reg. 34764 et seq.
(Sept. 30, 1986); and 51 Fed. Reg. 37577 and 39528 (Oct. 23 and
29, 1986).

*The terms “civil monetary penalties” and “civil money penalties”
are used interchangeably in the CMPL, the Regulations, and in
this Decision and Order.
-2-

a timely answer denying the I.G.’s allegations, challenging the
proposed sanctions, and requesting a hearing before an
Administrative Law Judge (ALJ). On July 11, 1986 this ALJ issued
a Decision and Order, finding the Respondent liable under the
CMPL and Regulations for presenting or causing to be presented
418 Medicaid claims for laboratory tests that were not provided
as claimed, and imposing a penalty of $232,000, an assessment of
$9,237.59, and a suspension from the Medicaid and Medicare
programs for a period of ten years.°

After reviewing the Respondent’s exceptions to the Decision and
Order, the Deputy Under Secretary issued an Opinion and Order
Opinion) on April 27, 1987, which reversed the Decision, vacated
the Order, and remanded this case “for proceedings not
inconsistent” with the Opinion. The Opinion (at p. 2) concluded
that an individual may be subject to liability under the CMPL
“even though his conduct is merely negligent,” that the
Respondent “may not be subject to vicarious liability,” and that
the incorrect standard was applied in judging liability.’

*>T also held that: (1) the I.G. did not prove by a preponderance
of the evidence that improper Medicare claims were presented
(leaving only Medicaid claims at issue in this case); and (2)
the I.G. failed to give adequate notice with regard to two
claims.

‘The incorrect standard was urged by the I.G. and adopted in the
Decision. At the time, I was influenced by the following part of
the preamble to the Regulations: (T)he language just quoted
(“knows or has reason to know”) indicates that Congress intended
to subject to civil money penalty liability those who present or
cause to be presented claims for items or services that they did
not know, but should have known, were not provided as claimed
(emphasis added). 48 Fed. Reg. 38831 (August 26, 1983). Ina
subsequent Decision, issued by me on December 22, 1986, the
“reason to know” standard was applied and the “should have
known” standard was disavowed. See The Inspector General v.
Jimmy Paul Scott, OHCMP/DGAB Docket No. C-15. The Scott Decision
has been, in effect, affirmed by the Deputy Under Secretary and
is now final. Shortly after the Scott Decision was issued, the
Deputy Under Secretary remanded this case. Although the Deputy
Under Secretary's Opinion fails to mention the quoted language
in the preamble, the Opinion tacitly rejects and, thus,
invalidates it.

-3-

THE GOVERNING LAW AND REGULATIONS

I. General Provisions of the Civil Monetary Penalties Law and
Regulations

Section 1320a-7a of the CMPL (section 1128A of the Act) grants
authority for the I.G. to issue a Notice to impose civil money
penalties and assessments against a medical provider who the
I.G. determines: (1) has presented or caused to be presented
false or improper claims for payment under the Medicare,
Medicaid, or the Maternal and Child Health Services Block Grant
programs; or (2) has presented or caused to be presented a
request for payment to a Medicaid recipient or Medicare
beneficiary in violation of the terms of a respondent’s Medicaid
or Medicare provider agreement.° See Regulations section
1003.102. Once a respondent subject to a penalty or an
assessment, section 1320a-7(c) of the CMPL (section 1128(c) of
the Act) grants authority for the I.G. to include a proposal to
suspend the medical provider from participation in the above
named public assistance programs. See Regulations sections
1003.105, 1003.107.

The intended purpose of imposing a civil money penalty is to
deter persons from presenting improper Medicare or Medicaid
claims (or from making requests for payments to Medicaid
recipients in violation of a provider agreement); the purpose of
imposing an assessment is to make the government whole for its
costs and any damages resulting from such improper acts; the
purpose of a suspension is to protect program integrity. See
H.R. Rep. No. 97- 158, 97th Cong., 1st Sess. Vol III, 329;
Preamble to the Regulations (48 Fed. Reg. 38827 to 38836, August
26, 1983).

The Regulations implement the provisions of the CMPL, delegate
authority from the Secretary to the I1.G. to make determinations
regarding civil monetary penalties, and provide a respondent the
right to a hearing before an ALJ. The I.G. has the burden of
producing and proving by a preponderance of the evidence (1)
liability under the CMPL and Regulations, and (2) aggravating
circumstances. A respondent has the burden of producing and
proving by a preponderance of the evidence any mitigating

°*A person eligible for Medicaid benefits is defined at 42 C.F.R.
section 430.1 as a “recipient.” Medicaid recipients may at times
also be referred to in this Decision and Order as Medicaid
beneficiaries or patients.
-4-

circumstances that would justify reducing the amount of the
penalty, assessment, and suspension. Regulations section
1003.114.

The CMPL and Regulations provide for a civil money penalty of
“not more than $2,000” for each improper item or service listed
on each improper claim; the amount of the assessment is not to
be more than twice the amount claimed. Regulations section
1003.103. There is no such limit on the length of a suspension.
The Regulations require that a full and fair trial-type hearing
be conducted by an ALJ. Regulations section 1003.115. Within 60
days of an ALJ’s decision and order, either party may seek
review by the Secretary of DHHS; judicial review may also be
sought. Regulations sections 1003.125, 1003.127. Judicial review
of penalties and assessments is in the appropriate United States
Court of Appeals, and judicial review of a suspension is in the
appropriate United States District Court.

II. Liability Under the CMPL and Regulations

A. Requisite Proof to Establish Liability

Liability will not attach under the CMPL and the Regulations
unless the I1.G. establishes liability by a preponderance of the
evidence adduced during the proceedings in a case. The
Regulations allow the I.G. to establish liability in either of
two distinct ways. The first requires the I.G. to prove the
merits of the case by a preponderance of the evidence. To do
this, the I.G. must prove each of the requisite elements of
liability set forth in the CMPL and Regulations for each “item
or service listed” on each “claim” that the I.G. alleges to be
improper. See CMPL section 1320a-7a; Regulations sections
1003.102, 1003.114(a).°” The second manner of establishing
liability is akin to collateral estoppel and is established if
the I.G. proves that a “final determination” has been rendered

*Section 1320a7a(h) (2) of the CMPL and section 1003.101 of the
Regulations define a “claim” as an application for payment
submitted for one or more items or services for which payment
may be made under the Medicare (Title XVIII), Medicaid (Title
XIX), or Maternal and Child Health Services Block Grant (Title
V) programs.

7Section 1320a-7a(h) (3) of the CMPL and section 1003.101 of the
Regulations define an “item or service” to include any item,
device, medical supply or service claimed to have been provided
to a patient and listed in an itemized claim for payment.
-5-

against a respondent in a prior proceeding (within the meaning
of section 1003.114(c) of the Regulations) .

B. The Two Primary Bases for Liability

There are two primary bases upon which a person can be subject
to liability under the CMPL and Regulations. See Regulations
section 1003.102(a) (1) and (b) (1) .° Each has its own elements (or
standards) which must be proven in order for liability to
attach. The first basis for liability requires the I.G. to
establish that false or improper claims were presented or caused
to be presented by a respondent and the claims contained items
or services which the respondent “knew or had reason to know”
were “not provided as claimed.” CMPL section 1320 a-7a(1) (A);
Regulations section 1003.102 (a) (1). The second basis for
liability under the CMPL and Regulations requires the I.G. to
establish that a request for payment was presented or caused to
be presented to a Medicaid recipient or Medicare beneficiary by
a respondent, and that such action violated a provider agreement
or other agreement. CMPL section 1320a 7a(B) (2); Regulations
Section 1003.102(b) (1). The most significant difference between
these two bases of liability is that scienter is not required
for liability to attach under the second basis.”

III. The Medicaid Law and Program in Nevada

The Medicaid program (Title XIX of the Act; 42 U.S.C. section
1369, et seq.) was created by Congress to assist in providing
medical care to needy persons. If a state chooses to have a

‘The CMPL and Regulations also set forth other lesser known bases
for liability which are not relevant to this case and which have
not yet been tested under the CMPL and Regulations. See, e.g.,
Regulations section 1003.102(a) (2) and (b) (2).

°The CMPL and the Regulations provide relief for those who might
accidentally fall within these strict liability provisions. For
example, the Regulations specify that an ALJ should find it a
“mitigating circumstance” where the facts prove that a medical
provider made improper requests for payment to Medicaid
recipients as a “result of an unintentional and unrecognized
error” and “corrective steps were taken promptly after the error
was discovered.” Regulations section 1003.106(b) (2).
Additionally, the Regulations specify that other circumstances
of a mitigating nature should be taken into account when “the
interests of justice” so require. Regulations Section
1003.106(b) (2), (5).
-6-

Medicaid program, it must submit, for approval by the Secretary
of DHHS, a State Plan which meets federal statutory and
regulatory requirements.

The Nevada Department of Human Resources (NDHR) is the
designated state agency responsible for administering the Nevada
Medicaid program. The Medicaid program is referred to as “State
Assistance for the Medically Indigent” (SAMI). NDHR is
responsible for establishing policy, rules, and regulations
regarding the proper submission of Medicaid claims for payment
by medical providers in Nevada. In order to facilitate the
processing and payment of claims for reimbursement, NDHR
contracted with Blue Shield of Nevada (BSN) to serve as the
fiscal intermediary for the Nevada Medicaid program. I.G. Stip.
B 4; TR 1/210.”°

JURISDICTIONAL AND PROCEDURAL BACKGROUND

The I.G.’s Notice was issued on August 2, 1985. In the Notice,
the I. G. alleged that 1244 line items for services claimed by
the Respondent in the 418 claims at issue were improper because
the Respondent or his billing clerk improperly represented (with
the use of a procedure code on the claims) that the Respondent
had paid independent commercial laboratories to perform various
laboratory tests, including urine cultures, pap smears, and
urinalysis, and argued that the Respondent knew, had reason to
know, or should have known that these claims were improper. The
I.G. argued that (1) in cases where the lab tests were actually
performed, the Respondent had not paid the labs for the
services, but, in fact, the labs billed Medicare or Medicaid and
were paid directly by Medicare or Medicaid (resulting in a
situation where both the Respondent and the labs were paid by
the Medicare and Medicaid programs) and, (2) in other instances,
the Respondent submitted claims for the performance of lab tests
which were never ordered or were never performed.

In the Respondent’s answer and request for a hearing, dated
Sept. 6, 1985, the Respondent admitted that his billing clerk
submitted the claims at issue, but argued that (1) his billing

“The record contains a set of proposed stipulations submitted by
each party. At the hearing, each party adopted some of the other
party’s stipulations. TR I/9 to Il. Each stipulation agreed to
will be referenced as follows: “I.G. Stip/ (number)” (the
stipulations presented by the I.G. and agreed to by the
Respondent) or “R Stip/ (number)” (the stipulations presented by
the Respondent and agreed to by the I.G.).
-7-

clerk simply made errors, (2) these errors were obvious to
Medicaid from the face of the claims at issue, (3) he was at
most negligent in supervising an employee, (4) only gross
negligence is actionable under the CMPL and Regulations, and (5)
if some liability is found, the penalties should be minimal
because of lack of culpability and because of other mitigating
factors such as contributory negligence resulting from
governmental actions and error. The Respondent also argued that:
(1) the penalties provided for by the CMPL are
unconstitutionally disproportionate to the offense committed by
the Respondent; and (2) the spirit of the CMPL and Regulations
require the I.G. to reduce the amount of penalties by following
an internal I.G. policy of twenty times the amount misbilled.

A Prehearing Conference was held in Reno, Nevada on October 25,
1985. A formal Hearing was held in this case in Las Vegas,
Nevada from January 13, 1986 to January 16, 1986. Eight
witnesses testified on behalf of the I.G. and five witnesses
testified on behalf of the Respondent, including the Respondent.
The I.G. and the Respondent each presented a post-hearing brief,
proposed findings of fact and conclusions of law, and a reply
brief.

On remand, the I.G. submitted a brief, the Respondent submitted
a brief in opposition, and the I.G. submitted a reply brief.
The I.G. argues that there is ample evidence in the record to
support a finding that the Respondent “had reason to know” that
the claims at issue were for services not provided as claimed,
and that the Respondent is liable for the proposed penalty,
assessment, and suspension. I.G.Rem Br/2, 30.’ The Respondent

"Reference to the briefs, the transcript, the stipulations,
hearing exhibits, and to these Findings of Fact and Conclusion
of Law are as follows:

1.G.’s Brief on Remand = 1.G.Rem Br/ (page); 1.G.’s Reply Brief
on Remand = I.G.Rem Rep Br/ (page); Respondent's Answer Brief on
Remand = R Rem Br/ (page); I.G.’s Brief I.G. Br/(page); I.G.’s
Reply Brief = I.G. Rep Br/ (page); Respondent’s Brief = R

Br/ (page); Respondent’s Reply Brief = R Rep Br/ (page);
Transcript = TR (volume number) /(page); Stipulations submitted
by the I.G. = 1.G. Stip/(number); Stipulations submitted by the
Respondent = R Stip/(number); I.G. Exhibit = I.G. Ex
(number) / (page); Respondent's Exhibit = R Ex (number) / (page);
ALJ Findings of Fact and Conclusions of Law = FFCL/ (number)
-8-

denies there is credible evidence to support such a finding.
R/Rem Br/1. On May 14, 1987, 1.G. Exhibits P and Q were admitted
into evidence, with no objection, during a telephone conference
with the parties. I. G. Exhibit P is the affidavit of Jeanette
Romer. I.G Exhibit O is a claim form-showing the physician’s
certification. On June 17, 1987, I. G. Exhibit R was admitted
into evidence with no objection. I.G. Exhibit R is a letter
dated June 4, 1987, to the I.G. from the Clark County Medical
Society. On May 20, 1987, Respondent’s Exhibit 7 was admitted
into evidence over the objection of the I.G. (on relevancy
grounds) during a telephone conference. Respondent’s Exhibit 7
consists of (1) an October 10, 1986 letter to Dr. Silver from
the Clark Co. Medical Society; and (2) an attached affidavit
from Joseph Kelly, Esq.

ISSUES

1. Whether the I.G. proved by a preponderance of the evidence
that the Respondent “had reason to know” that his
bookkeeper was presenting improper claims to the Medicaid
programs; and, if so,

2. Whether the amount of proposed penalty, assessment, and
suspension are appropriate “under the circumstances of this

case.”

FINDINGS OF FACT AND CONCLUSIONS OF LAW

Having reconsidered the entire record, the arguments and
submissions of the parties, and being advised fully herein, I
make the following Findings of Fact and Conclusions of Law: 1213

PSome of the proposed findings and conclusions offered were
rejected because they were not supported by the evidence in the
record, needed to be modified, or were not material; others were
rejected because there were conflicts between the documentary
evidence and the testimony, or between the documentary evidence
and the stipulations. Also, I have incorporated some findings
and conclusions elsewhere in this Decision.

SaAny part of this Decision and Order preceding the Findings of
Fact and Conclusions of Law which is obviously a finding of fact
or conclusion of law is hereby incorporated herein as a finding
of fact or conclusion of law. I refer primarily to the facts and
conclusions that were not disputed or which are clear and do not
need to be repeated here.
-9-

1. For the purposes of these proceedings, I have taken judicial
notice of the statutes of the United States, the regulations of
the Secretary of DHHS, all other pertinent regulations of the
United States, the statutes of the State of Nevada, the
regulations of the Nevada Medicaid Program and all other
pertinent regulations of the State of Nevada as they existed at
the time of the cause of action. I.G. Stip. A 1; TR I/9, 128.

2. The Secretary delegated authority to the I.G. and his
delegates to take action under the CMPL (i.e., sections 1128A
and 1128(c) of the Act) pursuant to the Regulations and
delegations of authority dated April 18, 1983, July 27, 1983,
September IS, 1983, and September 26, 1983. I.G. Stip. A 3 to 6;
TR I/9; 50 Fed. Reg. 37371 (September 13, 1985).

3. The Notice or Determination dated August 2, 1985, notified
the Respondent that the I.G. had determined that the Respondent
should be subject to penalties of $232,000, assessments of
$18,000, and suspension from participation in the Medicaid and
Medicare programs for a period of ten years, alleging that the
Respondent presented or caused to be presented to Aetna, the
carrier for Medicare, and to Blue Shield Nevada, the carrier for
Medicaid, from about September 1981 through about May 1983,
false or improper claims 1244 line items or services which the
Respondent knew or had reason to know were not provided as
claimed, in violation of the CMPL and Regulations. At the
hearing, the I.G. noted that: (1) the Notice had incorrectly
stated the number of claims at issue to be 516 when, in fact,
the correct number was 420; and (2) the number of line items or
services alleged to be false or improper remained the same (i.e.
1244). The 420 claims containing the 1244 line items or services
alleged to be false or improper are listed in the attachment to
the I.G.’s Notice of Determination. A true and correct copy of
this Notice and its attachment is a part of the record in this
case. I.G. Stip. B 1, 2, 7; TR I/6; TR II/363.

4, The Respondent, by letter dated September 6, 1985, filed an
answer to the Notice and a request for a hearing before an ALJ,
pursuant to section 1003.109(b) (2) of the Regulations. A true
and correct copy of the answer and the defenses listed therein
is a part of the record in this case.

5. Of the 420 claims in evidence in this case, two were neither
listed in the Attachment to the Notice of Determination nor in
any amendment or other notice to Respondent (I.G. Ex 419 and
420). Thus, those claims are stricken for lack of notice and are
not a part of this case. Accordingly, the number of claims at
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issue is reduced to 418. The number of line items or services at
issue remains 1244.

6. Dr. Frank Silver, the Respondent, is a physician specializing
in gynecology and obstetrics. He was licensed to practice in the
State of Nevada during the entire period involved in this case.
TR ITI/507.

7. The Nevada Department of Human Resources (NDHR) is the State
Medicaid Agency. NHDR has been authorized to administer the
Nevada Medicaid Program, also known as State Assistance to the
Medically Indigent (SAMI). I.G.Stip. B3; TR I/9, 15.

8. Blue Cross/Blue Shield of Nevada (hereinafter referred to as
“Blue Shield Nevada” or “BSN”) has served as the Medicaid fiscal
intermediary (carrier) for NDHR for administering SAMI. I.G.
Stip B 3; TR 1/9, 15.

9. Prior to submitting any of the SAMI claims for reimbursement
which are the subject of this proceeding, the Respondent had
enrolled with BSN as a Physician providing services to Medicaid
recipients. The Respondent submitted claims for SAMI
reimbursement from 1973 through the dates at issue in this case.
I.G. Stip. 9 6; TR 1/38, 40, 44, 549.

10. BSN received, reviewed, and processed claims for services
rendered to SAMI recipients. Such claims are subject to specific
requirements governing the filing of claims for SAMI
reimbursement. I.G. Ex 426; I.G. Stip. B 5; TR 1/148.

11. To ensure compliance with its regulations and requirements,
SAMI issued to all participating providers froth Medicaid
Physician Billing Manuals (Billing Manual) and SAMI Bulletins
(Medicaid Bulletins), designed to highlight and clarify the
Billing Manuals. Such information was sent to the providers’
billing addresses. I1.G. Stip. B 9; TR I/ 143, 144, 146; TR
II/215-216; I.G. Ex 426, 1.G. Ex F.

12. As with all other participants in the SAMI Program, the 1981
and 1982 billing manuals and all educational bulletins were sent
to the Respondent at his billing address. Respondent’s office
was his billing address. TR 1/100, TR II/216.

13. Blue Shield Nevada promulgated and disseminated the Billing
Manual, which was revised in May 1981, April 1982, and September
1985. A true and correct copy of the April 1982 version of the
manual is in evidence in this case as I.G. Ex 426. See 1.G.
-ll-

Stip./B 5. The 1982 Billing Manual was accompanied by a cover
letter, “Dear Doctor:...”, which, in part, read: “This manual
has been addressed to your personal attention with the hope that
you will request your billing staff to read it carefully." 1.G.

Ex 426/1.

14. True and accurate copies of certain Medicaid Bulletins are
in evidence in this case. They are: Bulletin #86(issued April
18, 1977), Bulletin #121 (issued December 10, 1979), Bulletin
#131 (issued October 7, 1980) Bulletin #132 (issued October 7,
1980), Bulletin #134 (issued October 13, 1980), and Bulletin
#146 (issued June 22, 1981). 1.G. Ex 426, F.

15. Any provider of services to the SAMI program is required to
either sign the claim personally or initial the claim and use a
signature facsimile stamp. The signature constitutes a
certification that all the information on the billing form is
true, accurate and complete. I. G. Stip. B 7; I.G. Ex 426/8; TR
I/43, 47-48; TR III/549.

16. Of the 418 claim forms submitted or caused to have been
submitted by the Respondent, 341 were submitted on “HCFA 1500”
forms, and 65 on “AMA-I” forms. 1.G. Ex 426/7-10. The remaining
12 claims were filed on forms with no specific certification of
truth and accuracy. 1.G. Ex 214-218, 220, 226-228, 266, 306
392.

17. In using the HCFA 1500 form, the Respondent by his signature
or his signature stamp certified to the truth, accuracy and
completeness of the claim. At Block 25 of the HCFA 1500, the
words “SIGNATURE OF PHYSICIAN OR SUPPLIER,” are followed by the
words “I certify that the statements on the reverse apply to
this bill and are made a part hereof,” followed by the signature
space. The reverse side of the HCFA 1500 form states, with
respect to Medicaid Payments: “NOTICE: This is to certify that
the foregoing information is true, accurate and complete.” I.G.
Ex. 426/8, 1.G. Ex P.

18. In using the AMA-I form, the Respondent by his signature or
his signature stamp certified to the truth, accuracy and
completeness of the claim. At Block 25 of the AMA-1, the words
“SIGNATURE OF PHYSICIAN OR SUPPLIER,” are followed by the words
“Read back before signing,” followed by the signature space. The
reverse side of the AMA-1 form states, with respect to Medicaid
payments: “NOTICE: This is to certify that the foregoing
information is true, accurate and complete.” IG Ex P, Q.
-12-

19. In using the form without a specific certification of truth
and accuracy, the Respondent was not liable under the CMPL for
the truth, accuracy, and completeness of the claim absent other
circumstances giving rise to a duty to investigate the truth,
accuracy, and completeness of the claim.

20. In 1981, Respondent was the top physician biller to SAMI,
and was among the top five physician billers to SAMI during each
of the five years prior to trial. TR II/182.

21. During 1982, 47 percent of the line items in Respondent’s
billings to SAMI (1,154 of 2,438) were for laboratory services.
During the first five months of 1983, 47 percent of the line
items in Respondent’s billings to SAMI (440 of 932) were for
laboratory services. IG Ex M; TR IV/664.

22. The total dollar amount of laboratory items billed to SAMI
by the Respondent was approximately three percent of the total
amount billed to SAMI by the Respondent during the period at
issue.

23. The Respondent authorized Mrs. Kathleen Eby to sign all the
claims filed during the period involved here and to submit those
claims to the SAMI program on his behalf. I.G. Stip. B/7; I1.G.
Ex 426/8; TR 1/43, 47-48; TR III/549.

24. At all times relevant here, Mrs. Kathleen Eby was in charge
of bookkeeping and billing functions for the Respondent.
TR.1I/38-39, 82, 100, 104; TR II/215-216; TR III/549-550.

25. Mrs. Kathleen Eby knew or had reason to know the relevant
rules and regulations of the SAMI program. TR I/38-39, 100, 104;
TR II/215-216; TR III/549-550.

26. The Respondent presented or caused to be presented to BSN
the 418 claims for Medicaid reimbursement for at least 1244
items or services specified in the Inspector General’s August 2,
1985 Notice letter. I.G. Stip. 9/7.

27. Of the claims listed in the attachment to the Notice, those
for Melinda Johnson, Robiteen Brooks, Luandra Norris, and Maggie
DeBarge are listed in duplicate; and the I.G. did not submit
exhibits or other evidence of the claim for services rendered to
Alice Connell on June 28, 1982. The duplicate claims are
stricken, and the Inspector General did not prove that the Alice
Connell claim was false or improper by a preponderance of the
evidence.
-13-

28. The I.G. alleged that six (6) of the 420 claims listed in
the Notice were crossover claims (i.e., were submitted to and
processed by Medicare as well as Medicaid). The I.G. did not
prove by a preponderance of the evidence that the six (6)
crossover claims (Nos. 218, 220, 306, 359, 363; see, TR I/Il,
12) were submitted to or processed by the Medicare carrier
(Aetna). There is proof (and the Respondent admits) that these
same claims were submitted to the Medicaid carrier (BSN), were
processed by the Medicaid carrier, and that payment was received
by the Respondent from the Medicaid carrier. See R Rep Br/2, 3;
cf., TR 1/102.

29. The remaining 418 Medicaid claims at issue contain at least
1244 line items. Tr I/11; IG Ex 1-418. See, also, attachment to
the I.G.’s Notice letter.

30. During the period at issue, services provided to SAMI
recipients were billed using a procedure number from the 1974
Edition of the CRVS manual. TR 1/169; TR II/286, 290; I.G. Ex
426/5, 14. The 1974 CRVS Manual was available prior to January
I, 1976 and all physicians were notified by bulletins (such

as #121). The 1974 CRVS became effective in Nevada as of January
1, 1976, and no billings were accepted after January 1, 1980
under any codes other than the 1974 CRVS. 1.G. Ex 426/ 14, 15.

31. The Nevada Medicaid Program utilized the 1974 CRVS procedure
codes as descriptors of services provided to Medicaid
recipients, and these procedure codes had to be used when
submitting claims to BSN at all times relevant to this action.
The procedure codes, contained within the 1974 Revision of
California Relative Value Studies (CRVS), also establish the fee
schedule for services rendered by providers. A true and correct
copy of the 1974 CRVS is in evidence in this case as I.G. Ex
431. I.G. Stip. B 8.

32. Bulletin No. 131, dated August 25, 1980, warned providers
that “violations of the intent and language” of the 1974 CRVS is
considered “abuse of the Medicaid program” and that such abuse
would subject the provider to investigation and other sanctions.
I.G. Ex 426/15.

33. Medicaid laboratory services are covered by the CRVS coding
system, and the rules governing submission of claims for
laboratory services are set out in the pathology section of the
CRVS. I.G. Ex 431/3.
-14-

34. The correct CRVS code for billing a urinalysis test is
81000; a urine culture is coded 87086; a vaginal culture is
coded 87040 or 87070; a pap smear is coded 88150 or 88155; a
complete blood count is coded 85022.

35. When using the CRVS codes, the provider is indicating: (1)
that the specified laboratory test has been performed by the
provider, and he is seeking payment for that service; or (2)
that an outside laboratory was used by the provider, that he
paid the outside laboratory, and he is seeking reimbursement for
his payment to the lab. 1.G. Ex 431/37, 13, 18-19; I.G. Ex

F/2; TR II/253, 286 (Testimony of BSN Claims Processor and
Medicaid Utilization Control Specialist).

36. The correct CRVS codes for billing the collection and
handling of a blood sample are 99018--99023. A provider may
claim a blood drawing charge in addition to other services
provided to the recipient, including an office visit, in
situations where an outside lab analyzes the blood sample. I.G.
Ex 431/5; TR 1/168; TR I1/255-256, 288.

37. In 59 of 65 claims in which blood tests were billed, the
Respondent also billed a blood drawing charge. I.G. Ex 43, 50,
70, 77, 101, 117, 118, 123, 127, 134, 135, 136, 138, 339, 143,
146, 149, 171, 182, 184, 189, 213, 223, 240, 246, 252, 264, 278,
280, 297, 299, 301, 303, 306, 308, 310, 311, 313, 314, 319, 320,
324-327, 329, 345, 347, 358, 365, 367, 373, 381, 397, 400, 412,
414, 415, 418. cf. I.G. Ex 73, 288, 323, 351, 370, 401.

38. The correct CRVS codes to be used generally when billing for
the collection and handling of specimens other than blood is
99007. This code may only be used when specimen collection is
the only service provided and billed by the provider; this code
may not be used in instances where there is an examination of
the Medicaid recipient or an office visit charge to Medicaid
and an outside lab performs the lab test. I.G. Ex 431/4, para.
9; TR I/81, 171-172; TR II/256, 287-288.

39. In 416 of the 418 claims at issue, the Respondent billed
SAMI for both an office visit (using one of the CRVS codes in
the 90000 series) and for one or more laboratory tests; in none
of these did the Respondent perform the lab test. I.G. Ex 1-49
51-357, 359-418.

40. In addition to the claims referred to in FFCL/38 above: (1)
in I. G. Ex 50, the Respondent billed SAMI $10 for an injection
under code 90730 (changed by the carrier to 90030, the proper
-15-

CRVS code for an injection) in addition to billing SAMI for a
urinalysis, a urine culture, a blood test, and a blood drawing
charge; and (2) in I.G. Ex 358, the Respondent billed SAMI $135
for a “pelvic ultra sound,” in addition to billing SAMI for a
blood test, a blood drawing charge and an injection.

41. The Respondent’s billing clerk, Mrs. Eby, knew and
understood the CRVS and SAMI rules and regulations on billing
for laboratory tests and handling fees during the period at
issue. TR I/63-76, 80-82; 125 to 202; I.G. Ex 422, 423, 426,
431; cf. I1.G. Ex D (affidavit of Kathy Eby), E, F.

42. When submitting a claim for laboratory tests, the provider
is required to indicate the laboratory where the test was
performed. The provider may claim reimbursement for tests
performed in his office only if the laboratory is certified by
the Nevada Bureau of Laboratories and Research. I.G. Ex F/2;
I.G. Ex 426/9-10; TR 1/128, 151-152.

43. Prior to and during the relevant time period, the Respondent
did not have the required certification needed to operate a
testing laboratory in his office. I.G. Ex 421; TR 128, 130, 152;
I.G. Ex III/ 540.

44, Under the SAMI rules and regulations in effect during the
period at issue, a provider may claim reimbursement for lab
tests performed by an independent laboratory only when he paid
the laboratory for the service, was billing SAMI for
reimbursement, and the cost of each test was itemized on the
claim form. The provider was not required to submit the
laboratory’s invoice for the tests performed; he was not
required to indicate the cumulative lab charges in box 22 of the
claim form. I.G. Ex 426/9, 10; I.G. Ex F/2; TR II/224-225, 253-
254, 262-263.

45. On each of the 418 claims at issue, the Respondent’s billing
clerk represented that the Respondent had reimbursed a
commercial laboratory for the performance of between one and six
tests. For each test for which reimbursement was sought, Mrs.
Eby identified the service by the 1974 CRVS test procedure code,
written description, and price claimed. However, the
laboratories had not been reimbursed by the Respondent for such
testing services, and the Respondent had “reason to know” that
these claims were false as presented to SAMI. I.G. Ex I, 418; TR
I/ 75-85, 83-91, 105-106; TR II/253, 268, 322-324; TR III/525.
-16-

46. On 91 of the 418 claims at issue, the Respondent’s billing
clerk (acting at the Respondent’s behest) submitted claims
indicating that laboratory tests had been performed by a
laboratory. In fact, the tests were not performed at all, and
the Respondent had “reason to know” that these claims were false
as Presented to SAMI. TR II/ 335-343; TR IV/596, 623-648; I.G.
Tx 1-67; I.G. Ex G; R Ex 3; I.G. Ex 171, 173, 176, 179, 180,
183, 192, 194, 195, 196, 253, 262, 263, 265, 278, 284, 291, 300,
311, 316, 333, 348, 350, 353, 359, lb - 67b; Ic - 67c, 171b,
171c, 179b, 180b, 180c, 1830, 1920, 19,c.

47. In 71 of the 418 claims at issue, the Respondent’s billing
clerk misidentified the commercial laboratory performing the
itemized tests. This material misrepresentation could have
resulted in the Respondent being reimbursed for the cost of the
tests at a rate different than if the billing clerk had
correctly identified the source of the testing, and the
Respondent had “reason to know” that these claims were false as
presented to SAMI. I1.G. Ex 1, 67; I.G. Ex la, 67a; I.G. Ex 113-
116; I.G. Ex 113a-116a; TR II/232, 251, 325.

48. Liability attaches under the CMPL only when the I.G. proves
by a preponderance of the evidence adduced during the
proceedings in a case that a respondent presented or caused to
be presented false or improper claims for items or services
which the respondent “knew or had reason to know” were not
presented as claimed.

49, The notion that liability can only attach upon a showing of
fraud or other conduct bordering on fraud is contrary to both
the plain meaning of the CMPL and its legislative history; the
CMPL is an administrative mechanism for deterring fraud and
abuse; the CMPL applies to cases involving false or Improper
claims that were filed with knowledge and intent on one end of
the spectrum of liability to false or improper claims that were
filed in a negligent manner on the other end (i.e., where the
Respondent had “reason to know”). See Scott Decision and Order,
pp. 25 to 27; see also Opinion, pp. 30 to 32.

50. The “reason to know” standard for purposes of the CMPL means
that a Respondent is under a duty to investigate to ensure that
false or improper claims are not being presented or caused to be
presented by or for the Respondent, once the Respondent has
actual notice or has sufficient information such that “a
reasonable man of ordinary intelligence or one of superior
intelligence” would have notice; this is where a Respondent
would “either infer the existence of the fact in question or
-17-

would regard its existence as so highly probable that his
conduct would be predicated upon the assumption that the fact
did exist.” Restatement (Second) of Torts section 12 (1965).
51. The term “reason to know,” for purposes of the CMPL in this
case, means that the Respondent was under a duty to investigate
the claims at issue, once the Respondent had sufficient
information to place a reasonable person with the superior
intelligence of the Respondent in similar circumstances on
notice that such an investigation would be warranted. Once the
duty attached, the Respondent became liable for what a
reasonable person with the superior intelligence of the
Respondent in similar circumstances would have known had he
investigated further. Scott, pp. 27, 28; Opinion, pp. 32, 34.

52. For purposes of the “reason to know” standard in the CMPL
and Regulations, the duty to investigate is also created by a
pre-existing duty of providers and practitioners to provide
quality care to patients. Opinion, pp. 39, n. 15. The Respondent
provided such quality care to his patients.

53. The certification on the HCFA 1500 and AMA-1 forms at issue
created a duty for the Respondent to investigate the truth,
accuracy and completeness of the claims submitted on those
forms. This duty to investigate renders the Respondent liable
under CMPL for what a reasonable person with the superior
intelligence of the Respondent in similar circumstances would
know had he investigated further.

54. The fact that the Medicaid rules allowed for a facsimile
rubber stamp signature instead of a personal signature of the
Respondent does not diminish his duty to investigate or the
liability resulting from his failure to investigate.

55. The Respondent “had reason to know” of the existence and
contents of the 1981 and 1982 Billing Manuals and the
educational bulletins referred to in FFCL 11 to 13 or he had a
duty to ensure that his billing staff read these materials
carefully.

56. The Respondent (as of late 1980 or early 1981) changed his
billing methodology with respect to laboratory tests for SAMI
patients, and he ordered Mrs. Eby to stop paying laboratories
directly. Mrs. Eby continued to seek reimbursement from SAMI and
the Respondent had “reason to know” that Mrs. Eby was submitting
false claims. TR III/ 544-545.
-18-

57. In an interview on July 13, 1983, Jeanette Romer stated to
Mrs. Eby that there were numerous instances in which SKI had
been billed by both the laboratory and by the Respondent for the
same test. Mrs. Eby stated that the Respondent had instructed
her on how and what he wanted her to bill. Mrs. Eby also stated
that she had argued with the Respondent at times that he could
not bill certain ways and things, and that she nevertheless
ended up doing what the Respondent told her to do. This included
billing for pan smears and the types of laboratory tests in the
418 claims at issue. I.G. Ex 422; TR III/1141.

58. Acting on behalf of the Respondent, Mrs. Eby submitted
claims to the SAMI program in order to obtain reimbursement
which she knew the Respondent was not entitled to. TR I/41-48,
61-63, 67, 77-79, 83-85, 89-91, 94-95, 97, 100, 105- 108, 111,
140; TR II/284; TR III 536-538, 544, 548, 550; TR IV/609, 653;
I.G. Ex 422; 1.G. Ex D/2.

59. The Respondent had sufficient information with respect to

the 418 claims at issue to know that further investigation was
warranted, and his failure to exercise his duty to investigate
those claims makes him liable under the CMPL.

60. An investigation of the 418 claims at issue by the
Respondent would have revealed that such claims were for
services not provided as claimed.

61. The Inspector General proved by a preponderance of the
evidence that the Respondent presented or caused to be presented
418 claims containing at least 1244 items or services which he
had “reason to know” were not provided as claimed.

62. Each of the 418 claims and 1244 items or services are
subject to a determination under Section 101.102 of the
Regulations.

63. The Inspector General proved by a preponderance of the
evidence that the Respondent submitted claims for a substantial
amount and for a lengthy period of time. This is an aggravating
factor.

64. The Respondent’s degree of culpability is lessened because
the I.G. did not prove by a preponderance of the evidence that
the Respondent “knew” the claims were false. This is a
mitigating circumstance.
-19-

65. The Respondent has paid $8,762.41 in restitution to the
State of Nevada.

66. The same factors that are considered in determining
penalties and assessments are to be considered in determining
the length of a suspension. 42 C.F.R. section 1003.107.

67. The maximum civil money penalty in this case is $2,488,000
($2,000 x 1,244 items or services claimed on the 418 claims at
issue). The Inspector General proposed a penalty of $232,000.

68. The I.G. computed the assessment by doubling the amounts
paid to the Respondent for 1244 items or services listed in the
claims at issue in this case. See Respondent Dip 2, 3. The
Regulations allow an assessment of up to double the amount
claimed, a higher figure.

69. The I.G. agreed that $8,762.41 (representing the amount
recouped on the claims at issue) could be subtracted from the
proposed assessment. Taking this recoupment into account and
taking other aggravating and mitigating circumstances into
account, I have reduced the assessment to nine thousand
dollars ($9,000). Nine thousand dollars is an appropriate
assessment, taking into account the costs of investigating the
false claims and of pursuing administrative sanctions.

70. After weighing all of the aggravating and mitigating
circumstances, it is an appropriate deterrent, based on the
evidence adduced in this case, to impose a penalty of $73,500 on
the Respondent, and it is appropriate to suspend the Respondent
from participating in the Medicaid and Medicare programs for a
period of 3 years.

DISCUSSION

I find that the I.G. did not prove by a preponderance of the
evidence that the Respondent had “actual knowledge” that Mrs.
Eby was submitting false Medicaid claims. See, Opinion, p.28. I
also find that the I.G. did not prove by a preponderance of the
evidence that the Respondent conspired with Mrs. Eby to defraud
Medicaid, or that the Respondent intentionally developed office
procedures designed to defraud Medicaid. Instead, the
preponderance of the evidence in this record supports a finding
that the Respondent had “reason to know” that improper claims
were being submitted on his behalf by Mrs. Eby.
-20-

I. Application of the “Reason to Know” Standard of Liability
Under the CMPL and Regulations

The elements of liability for this type of case are set forth in
the CMPL and Regulations.** With the exception of the element of
scienter, the elements of liability are straightforward, need
little interpretation, and are not difficult to apply.’ I have
held in prior decisions that the element of scienter, which
requires a medical provider to “know” or have “reason to know”
that claims presented were not provided as claimed, is not the
same as intent to defraud.” Scott, p. 26. Proof of actual
knowledge or proof that a respondent had “reason to know” is all
that the CMPL and Regulations requires for liability to attach.
See Opinion, p. 30.

In the Scott Decision, I found that Congress in using the term
“knows” and the drafters of the Regulations in using the term
“knew” were referring to conscious knowledge of a fact (or
subjective knowledge) .*° The term “reason to know” has a “highly
specialized” meaning. Opinion page 26. It is the most difficult
term in the CMPL and Regulations to apply. The application of
the term in this case tests the “outer limits of the CMPL.” See
Opinion, p. 41. In analyzing the term reason to know, the
Restatement (Second) of Torts (at section 12) (1965) states:
“Reason to know” means that the actor has knowledge of facts
from which a reasonable man of ordinary intelligence or one of
the superior intelligence of the actor would either infer the

“Por liability to be established in this case, the I.G. must
prove by a preponderance of the evidence that: (I) the
Respondent (a “person”) (2) “presented or caused to be
presented” (3) the Medicaid “claims” in issue (4) to the SAMI
program (“agency”) (5) for medical (laboratory) “items or
services” when, in fact, (6) reimbursable laboratory services
were “not provided as claimed” and (7) the Respondent “knew or
had reason to know” that the laboratory services were not
provided as claimed. See Scott, at pages 26 to 28.

“The CMPL and Regulations contain slightly different language
with identical meaning. Under section 1320 a-7a(1) (a) of the
CMPL, liability attaches when: “the person knows or has reason
to know.” Under section 1003.102 (a) (1) of the Regulations,
liability attaches when “the person knew or had reason to know.”

"It should be noted that proof of actual knowledge is considered
to be an aggravating factor. Regulations Section
1003.106(b) (2) .107.
-21-

existence of the fact in question or would regard its existence
as so highly probable that his conduct would be predicated upon
the assumption that the fact did exist.

Thus, “reason to know” employs the “reasonable person”
(objective knowledge) concept. See also Restatement (Second) of
Agency, section 9 (1957). In discussing objective knowledge,
Professor Keeton, in Keeton and Prosser on Torts, states that
one of the most difficult questions (in connection with
negligence) “is that of what the actor may be required to
know.”*’

In Fidler v. Eastman Kodak Co., 555 F. Supp. 87, 92 (D. Mass.
1982), the term “reason to know” was analyzed. The Court cited
the Restatement (Second) of Torts and stated that:
Alternatively, the actor would regard the existence of the
particular fact in question as so legally probable that he would
base his conduct upon the assumption that the fact existed. The
Court then concluded:

Mrs. Fidler was in possession of information from which a
reasonable person would have inferred the fact of causation.
Accordingly, her conduct should have been governed by the
assumption that such fact of causation existed. Therefore, she
had reason to know the cause of her physical damage, and cannot
be excused for her failure to file suit in a timely fashion. The
“reason to know” standard does not create a duty on the part of
a respondent to ferret out false or improper claims presented by
an employee unless (1) the respondent has sufficient information
to place him, as a reasonable medical provider, on notice that
the claims presented were for services not provided as claimed,
or (2) there are pre-existing duties created which would require
a respondent to verify the truth, accuracy, and completeness of
claims presented or caused to be presented to Medicaid or
Medicare. See Scott, pp. 25 to 30; Opinion, p. 32.

Thus, if the Respondent in this case acted negligently in light
of information that came to his attention or if he ignored pre-
existing requirements or duties, such as a Medicaid requirement
to examine the claims at issue before they were presented to

"For a discussion of subjective knowledge and objective
knowledge, see Seavy, "Negligence-Subjective or Objective," 41
Harv. L. Rev. 1, 17. See also Restatement (Second) of Torts,
sections 289, 290; Opinion, p. 28.
-22-

Medicaid, he would be liable under the CMPL for the false or
improper claims filed at issue in this case.

In analyzing the breadth and scope of the phrase “knows or has
reason to know,” I am guided by the preamble to the Regulations,
which declares: “The statute sweeps within its ambit not only
the knowing, but the negligent. . . .” 48 Fed. Reg. 38827, 38831
(Aug. 26, 1983). From this, and from analyzing the CMPL and
Regulations, I conclude (as I did in the Scott case) that the
phrase “knows or has reason to know” encompasses a spectrum
where liability attaches on one end of the spectrum when a
respondent files false claims with actual knowledge and attaches
on the other end of the spectrum when a respondent files false
or improper claims in a negligent manner. The Deputy Under
Secretary’s Opinion (at pages 30 to 32) affirms this analysis.
To determine whether the Respondent acted negligently for
purposes of liability under the CMPL and Regulations, I must
determine whether there is enough evidence in this record which
proves that the Respondent did not act as a “reasonable person.”
Opinion, p. 34. To analyze the “reasonable person” standard for
purposes of the CMPL, I must first make the judgment as to
whether sufficient information came to the Respondent’s
attention to spring into existence the duty to investigate the
accuracy of the claims and then make a judgment as to what the
results would show if he had investigated. Opinion, p. 32. In
applying this standard, I must determine whether to consider the
Respondent’s actions in relation to a person of “ordinary”
intelligence or to take into account evidence “of the superior
intelligence of the actor.” See Restatement (Second) of Torts,
section 12. I agree with the I.G. that the Respondent should be
judged in terms of the highly educated, board certified, and
highly successful physician that he is. See 1.G. Rem Br/4, 5.

I must also determine whether any pre-existing duties exist in
this case so as to vitiate the need for “independent proof to
cause the duty to spring into existence.” Opinion, p. 39, n. 15.

II. Rules, Procedures and Regulations Governing the Submission
and Processing of the Medicaid Claims at Issue

At all times relevant to this case, SAMI issued Billing Manuals
and Medicaid Bulletins to participating providers at the
provider’s billing address, and operated a provider services
department. These were designed to ensure compliance with the
Medicaid regulations and to assist providers in billing.

I.G. Stip. B 5; 1.G. Ex 426, 1.G. Ex F.; TR III/550. Billing
Manuals were distributed to all providers in Nevada in 1981 and
1982. TR 1/143, 146; TR II/215, 216. The Respondent received
-23-

these Billing Manuals and the Medicaid Bulletins. TR I/100; TR
II/216; 1.G. Ex 426.

Mrs. Eby, the Respondent’s billing clerk, would place these
publications on the Respondent’s desk. TR I/100. During the
dates at issue in this case, BSN’s provider services
representatives were employed to personally visit providers,
answer questions via a toll-free telephone line maintained for
the providers, and conduct workshops for training providers or
their staff in proper billing of Medicaid. TR II/212, 213.

The Respondent was required to identify each claimed service by
using a specific procedure code. Procedure codes are set forth
in the 1974 California Relative Value Studies (CRVS) Manual.
FFCL/30, 31, 33; I. G. Ex 431; TR II/286, 290. The rules,
regulation, and directions for use of the proper procedure codes
are set forth in the Billing Manual, the Medicaid Bulletins, and
the 1974 CRVS manual. The pathology section of the 1974 CVRS
manual governs the submission of claims for laboratory test
services. FFCL/30, 31, 33; I.G. Ex 426, 431; TR II/217. These
publications establish the items and services for which
providers may seek payment and specify instances in which
payment is improper or an abuse of the Medicaid program.
FFCL/31, 32; I.G. Ex 426/15.

The process of collecting and handling laboratory test specimens
(handling fees) is identified by a specific procedure code
number set forth in the 1974 CVRS procedure codes. The procedure
codes used for lab tests performed on the specimens are
different from the procedure codes for collecting and handling
the specimens. FFCL/34, 36. The CRVS manual sets forth a simple
rule for collecting and handling a laboratory test specimen: if
a patient is seen by a physician solely for the collection of a
specimen and no other service is provided and billed, the
physician may bill a handling fee for each specimen collected by
using procedure code 99007. FFCL/38; 1.G. Ex 431/4, section 9;
TR I/81 171-172, TR II/256, 287-288. If, in addition to
collecting specimens, the physician provides and bills other
services (e.g., an office visit), he may not bill for a handling
fee, except for the service of drawing blood. FFCL/38; TR 2/168,
TR II/255-256, 288.

The 1974 CRVS manual instructions on billing for the handling of
test specimens have been in effect since 1974 and are the
exclusive rules applied by the SAMI program. FFCL/30, 31, 33; TR
II/217-218, 290. If a provider sought payment for both an office
visit or physical examination and payment for the collection of
a specimen, the handling fee was not allowable (except for the
-24-

drawing of blood) and the submission of such a claim was and is
an abuse of the Medicaid program. FFCL/32; TR II/254-256; I.G.
Ex B. The Respondent’s claims at issue in this case did not show
the handling fee procedure codes, but rather procedure codes for
the lab tests themselves. The Nevada Medicaid program required
that claims for payment or reimbursement be submitted on
designated claims forms (the HCFA-1500 or the AMA-1) and contain
specified information. I.G. Ex 426 at 5; I.G. Ex F. The provider
was required to sign the claim at the bottom of the form. The
signature constituted a certification that the information on
the claim was true, accurate, and complete and an acknowledgment
that any false claims, statements or concealment of material
facts were subject to prosecution under federal or state law.
I.G. 426/8. The certification statement is present on all but 12
of the 418 claims at issue. FFCL/16.

If the medical provider was reimbursing the labs for tests
performed and seeking payment from Medicaid, the provider had to
indicate the date and place of service, describe the service (by
using 1974 CRVS procedure code number and written description),
enter the name and address of the lab, and the amount the
Respondent paid to the lab. I. G. Ex 426. The Medicaid program
allowed providers to bill Medicaid directly for the lab tests
performed by an outside laboratory only when the providers paid
the lab and billed SAMI for reimbursement. I.G. Ex 426/10; I1.G.
Ex F/2; TR 11/253. If lab work was done in the provider’s
office, it was not payable by SAMI unless the physician’s
laboratory was certified by the Nevada Bureau of Laboratories
and Research. FFCL/42; 1I.G. Ex F/2; 1.G. Ex 426/9-10; TR 1/128,
151-152.

After reviewing a claim for correct procedure codes,
completeness, amount to be paid for any laboratory services, and
disallowing non-covered services (TR III/502, I1/265), a BSN
claims processor brought the claim up on his or her computer
terminal screen to clear it for payment.*® During the period at

Sat all times relevant to this case, all Medicaid claims for
payment sent to SAMI were assigned by BSN to a claims processor;
the assignment was based on the type of provider submitting the
claim. TR I/24; TR II/246 to 298. The claims processor reviewed
each line item on each claim to determine if the claim was
payable and, if so, at what amount. TR I1I/265. If laboratory
work was claimed, box 22 of the form (1.G. Ex 426/7) was
reviewed to see whether the tests were performed in the
physician’s office or sent to a reference lab. TR II/248. If the
physician indicated that the lab work was sent to an outside
-25-

issue, the BSN computer did not detect any errors in

the Respondent’s claims. The computer was apparently not
programmed to alert the claims processor to a potential
duplicate billing from a physician and a laboratory. TR II/226
261, 267; TR IV/667, 689.

If a claim was to be paid after review by the claims processor,
it was forwarded to the payment branch at BSN for issuance of a
check to the provider. The provider was then given “explanation
of benefits” forms (EOB’s) which detailed what services were
payable, and how much was payable, and listed reasons why
payment for items or services had been denied. TR 1/40-41, 48,
90, 94. If there were any questions or confusion about the
proper procedure codes to use, what was properly payable by
Medicaid or what constituted abuse of the Medicaid program, the
provider or his billing staff could have, and had the
responsibility to, request more detailed explanations; BSN’s
provider services department was always available to answer
questions. TR II/ 213, 214-215; 1.G. Ex 426/15 to 17.

III. The Submission of the Improper Claims at Issue

The Respondent employed Mrs. Kathleen Eby as his billing clerk
from 1973 to date. 1.G. Stip/B6; TR 1/38,39, 44; TR IV/531, 532,
549. During the period at issue, the Respondent delegated to
Mrs. Eby the responsibility of preparing Medicaid claims for
submission to the SAMI program and signing the SAMI claims

on his behalf without the Respondent’s review. TR 1/43, 47-48,
108; See R Rep Br/17. When SAMI forwarded payments to the
Respondent’s office along with explanation of benefits forms

laboratory, the claims examiner reviewed box 21 of the form to
determine which laboratory rendered the service. The price list
for that laboratory was referred to and the charge for the
particular test was noted on the claim. TR II/213-232, 248-250.
Where the cost of a test exceeded the maximum amount allowed by
the program, the test was priced at the allowable maximum. TR
II/251-252. If the physician misidentified the laboratory
rendering the test, the wrong price list would have been used to
calculate payment to the physician. TR II/232, 251. BSN did not
require the provider to submit the invoice from the outside
laboratory for tests performed. FFCL/32; TR II/244. Similarly,
the provider was not required to indicate in box 22 of the claim
form the cumulative charges for laboratory services (TR 11/225,
262-263), but all charges had to be itemized in box 24. Column E
of box 24 was the only relevant price information needed for the
processing of the claim. TR 11/225, 262-263, TR IV/443.
-26-

(EOB’s), Mrs Eby noted on each patient’s billing ledger the
amount paid for each service claimed. TR I/40, 1150. In
instances where SAMI or BSN did not pay, Mrs. Eby often
contacted the BSN provider service department and requested an
explanation of the EOB’s. TR 1/41. On rare occasions, the
Respondent personally reviewed the EOB’s and discussed SAMI
billing with Mrs. Eby. TR I/48-49, 61.

During the period at issue, the Respondent relied on commercial
laboratories to perform the analysis of specimens obtained from
his patients (e.g., pap smears, vaginal and urine cultures,
urinalysis and blood tests). TR 1/49, 64, 74; TR III/519. The
Respondent’s nurse would review a patient’s medical chart

and complete a test requisition form indicating the lab tests
that were ordered by the Respondent; these tests were performed
by an outside lab. TR IV/524. The laboratory, when notified,
sent a courier to pie up the specimens and the requisition
forms. TR II/299. Upon arrival at the laboratory, the specimens
were logged into a computer and assigned an identification
number before the requested lab tests were performed. TR
III/301. The test results were then reviewed by the Respondent’s
office personnel. If the results were normal, the test results
were placed on the patient’s medical chart without the
Respondent’s review. If the results were abnormal, they would be
shown to the Respondent. TR III/524. This procedure saved the
Respondent the effort of reviewing all of the lab results. TR
III/525. Whenever the Respondent was not shown a patient’s test
results, he assumed the results were normal. TR III/524. Because
most of his patients were “generally infected” and had “obvious
kinds of things going on,” the Respondent prescribed medications
at the same time that the test specimens were taken. TR III/516
524. If the patient was not heard from, the Respondent assumed
that she had gotten better. TR III/524.

From about 1973 until about 1978, the Respondent performed all
routine lab tests in his own office using a certified lab
technician. I.G. Ex 425/I. The Respondent’s lab was not
certified as required by Nevada law. TR 1/58, 128, 130, 152, TR
TII/530, 540; 1.G. Ex 421. During this period, Mrs. Eby would
indicate on item 22 of the Medicaid claim form (see 1.G. 426/7)
that laboratory work was not performed outside of the office. TR
1/72.

From 1978 to early 1981, the Respondent paid outside labs for
performing his lab tests. 1.G. Ex D. The Respondent began to
rely on commercial laboratories because, in 1977, he was
informed that his lab was uncertified and that Medicaid would
-27-

not pay for lab tests performed by an uncertified lab. The
Respondent’s SAMI claim form submitted during this period
indicated that an outside laboratory had performed the test;
item 21 indicated the name and address of the laboratory for the
tests done. TR I/61, 64-65, 74.

Some time in late 1980 or in early 1981, Mrs. Eby claimed
handling fees for lab tests by using the correct 1974 CRVS codes
for handling fees. Mrs. Eby testified that she began to claim
handling fees in 1980 or 1981 for handling laboratory specimens
because she had been ignorant of handling fees before that time.
TR I/74, 78, 79, 82, 92. The provider services department at BSN
gave her instructions on how to claim the fees. BSN told Mrs.
Eby which 1974 CRVS codes were to be used on the claim forms. TR
1/79-81. She was told that SAMI would pay only a set price for
the handling fees. TR I/ 78,82.°°

Despite Mrs. Eby’s contact with BSN about how to properly bill
for handling fees; Mrs. Eby claimed handling fees for things for
which Medicaid did not allow (i.e., urine cultures, urinalysis,
pap smears and vaginal cultures when there was an office visit).
I.G. Ex B; TR I/89-93.7° Soon after Mrs. Eby began to claim these
handling fees, a claims processor denied the handling fees to
the Respondent, noted the denial on the claim form and
instructed the computer not to pay that portion of the claim.
I.G. Ex B; TR II/254-256. Each improperly claimed handling fee
was itemized and the basis for the denial of payment was noted
on EOB’s and forwarded to the Respondent. I.G. Ex B-l; TR I/40-
41, 90 to 91, 94 to 95.

During the period at issue in this case, August 13, 1981 through
April 11, 1983, the Respondent stopped reimbursing test
laboratories and, instead, let the lab bill the SAMI program
directly. TR 1/61, II1I/544; see 1.G. Ex D/7. Once he adopted
this procedure, the Respondent was not permitted by the Medicaid
rules and regulations to bill SAMI separately for the
performance of any laboratory tests or for handling fees. TR

“This same information was already available to Mrs. Eby in the
1981 Medicaid Billing Manual (1I.G. Ex 426), the October 1980
SAMI Bulletin relating to billing requirements (I.G. Ex F), and
during the annual training workshops sponsored by BSN. TR I/100-
101; II/213.

Because the specimens had been collected as a part of a
physical examination of the patient, their collection and
handling were not payable by the SAMI program.
- 28 -

1/143, 148-149; 1.G. Ex 426/9.

Despite this, Mrs. Eby filed claims for laboratory tests. The
claims submitted during this period appear to be identical to
the claims submitted by Mrs. Eby during that period when the
Respondent had been paying the outside labs, except that these
claims did not specify the cost of the test. Opinion, pages 6,7.
Mrs. Eby’s procedures for billing laboratory services to the
SAMI program were as follows: A list of services provided to a
Medicaid patient was recorded on a billing ledger by the office
receptionist after she reviewed the patient’s medical chart. TR
1/44-45, 70. Mrs. Eby then would refer to the billing ledger in
order to complete the SAMI claim form. TR 1/140; II/284. Any
laboratory work listed on the billing ledger would be included
specifically on the SAMI claim. TR I/44-70. The SAMI claims for
laboratory tests were submitted to BSN be fore the test results
were received by the Respondent’s office. TR 1/45, 66-67, 284.
When the test results arrived at the Respondent’s office, Mrs.
Eby would check to make sure that all the tests for which
payment had been claimed were performed and that the results
were noted properly on the patients’ charts by the “girls in the
front office.” TR 1/46-47, 58. Mrs. Eby explained that the
Respondent reviewed the lab test results when they were received
and rarely noted that the result of a test he had ordered was
not in a patient’s chart. TR 2/47, 48, 58.

It is significant to note that Mrs. Eby conceded that the claims
filed during the period at issue looked identical to the claims
filed for the period when the Respondent paid the labs directly
and then sought reimbursement from SAMI (i.e., the second
period). TR 2/78. This is the period immediately following the
notification that Medicaid would not pay for handling fees for
lab tests (when there was an office visit) for urine culture,
pap smears, urinalysis, and vaginal cultures. Thus, the
Respondent was put on notice and Mrs. Eby knew very well that
any attempt to bill Medicaid for handling fees for urine
cultures, urinalysis, vaginal cultures, and pap smears when she
also billed for an office visit was an abuse of the Medicaid
program. Since the claims submitted during the period at issue
looked almost identical to the claims submitted when the
Respondent paid the labs and sought reimbursement from SAMI, I
find that Mrs. Eby sought to create the impression to SAMI that
-29-

the Respondent was seeking reimbursement for lab fees and not
for handling fees.”

The Respondent profited by the amount of $9,204.38 from this
practice until October of 1983, when the Nevada Medicaid program
switched to a sole source laboratory contract, under which two
designated laboratories performed all the testing for the SAMI
program and billed SAMI directly. TR 1/190-191; TR I1I/275- 276.

IV. The State and Federal Investigations of the Respondent’s
Medicaid Billing Practices

NHDR is responsible for investigating allegations of fraud or
the filing of false claims by providers in the SAMI program. In
October of 1982, BSN notified the NHDR that the Respondent was
submitting claims for lab services that were performed by
outside labs and billed by the labs directly to SAMI. TR 1/127.
NDHR then commenced an investigation. TR I/126. NDHR did not
communicate with the Respondent until May 2, 1983, when it
requested that the Respondent make available certain of his
records. TR 1/131.

Jeanette Romer, an investigator for NHDR, opened the
investigation. I.G. Ex 420. Ms. Romer compiled a list of patient
names and laboratory tests billed on their behalf for the period
from 1979 through 1983. TR I/131. Ms. Romer concluded that on
numerous occasions the same test had been billed twice. TR
1/131, 132. In July of 1983, Ms. Romer and Ms. Molly Earnhart, a
medical review specialist with NHDR, conducted a week-long
record search at the Respondent’s medical office. TR 1/133; TR

1 The Respondent’s argument that BSN should have been able to
detect the fact that the Respondent was not seeking
reimbursement for the lab tests themselves is not supported by
the evidence in this case. Quite the contrary, the carrier, BSN,
would not have been able to spot the claims in issue as improper
claims on their face. Mrs. Eby purposely listed the 1974 CRVS
procedure/codes for the tests themselves and identified an
outside laboratory as the facility performing the tests. TR
I/77-78. In all the claims in issue, she identified the tests
themselves rather than describe the item as a handling fee. As a
result of this, BSN claims processors reviewing these claims
paid the Respondent for the cost of these tests thinking that
the outside lab identified was being reimbursed by the
Respondent. TR II/253. In reality, the Respondent was not paying
the outside lab and the lab was billing the SAMI program
directly. TR I/61, 151.
-30-

II/281. As part of the review, the investigators pulled the
chart of each patient on the billing list and reviewed all test-
related documentation. TR 1/133; II/282. At the end of her
audit, Ms. Romer found that most of the Respondent’s charts did
not have laboratory results for any urinalysis tests, although
they had been ordered. TR 134, 184-185. Ms. Romer also found
that the test results frequently billed by the Respondent, such
as urinend vaginal cultures, pap smears and complete blood
counts, were also missing from the patient’s medical charts. TR
1/134-135.

At this time, Ms. Romer and Ms. Earnhart interviewed Mrs. Eby
concerning the Respondent’s billing practices; Mrs. Eby
explained that she had told the Respondent that he could not
bill for certain things, but that he would not believe her. TR
1/141; 1.G. Ex 422. At that time, Mrs. Eby made no suggestion
that she was attempting to collect handling fees through the
misidentification of the 1974 CRVS codes. TR I/141; II/283. Ms.
Romer concluded that the claims she viewed were false and she
recommended that the State proceed to exclude the Respondent
from participation in the Medicaid program. TR 1/154, 174, 187;
I.G. Ex 420. Her conclusions were there were a number of false
claims (submitted from 1981 to 1983) in addition to the claims
at issue here. R Ex 6/169, 178; TR 1/92.

After the NHDR completed its investigation of the Respondent, it
referred the case to the DHHS for possible prosecution under the
CMPL. TR 1/157. Ms. Romer worked on the federal investigation;
she contacted two laboratories where the Respondent referred lab
test specimens during 1983. During the initial analysis of the
Respondent’s laboratory billings, it had been noted that while
the Respondent and the laboratory usually billed for the
identical tests, in a number of instances only the Respondent
had billed for a urinalysis test. TR I/ 157. Because this raised
a question whether the urinalysis had been performed by the
laboratory, Ms. Romer wrote the two laboratories (National
Health Laboratories (NHL) and Associated Pathologists
Laboratories (APL)) and requested lab reports for some of the
Respondent’s patients. TR 1/158, 160; see 1.G. Ex 427, 1.G. Ex
430. The general manager of NHL, Joseph Stone, reviewed the
laboratory’s report files for the requested tests and was unable
to find any test results corresponding to Ms. Romer’s list. I.G.
Ex 430; TR I/161. By law, APL keeps copies of all the
requisition slips submitted by physicians for a period of five
years. TR III/303. The requisition slip indicates the tests that
have been requested and, in addition, reflects any complaints
from the physician that tests were not performed as requested.
-31-

TR III/302-303. In 66 of the 69 instances where the
Respondent billed the SAMI program for the performance of a
urinalysis test, no urinalysis had been requested by the
Respondent nor had the test been performed by APL. TR II/164-
166; I.G. Ex 1(B)-67(b).

A second review of the Respondent’s medical records was
performed as part of the federal investigation by Al Montano, an
investigator for the I.G. The results of Mr. Montano’s analysis
(I.G. Ex G) confirmed that the Respondent routinely billed
Medicaid for urinalysis testing which was never performed (TR
1/184-185; TR IV/596), and that the Respondent had billed SAMI
for other tests (such as pap smears, vaginal cultures and blood
tests) where the patient’s chart did not contain a test result
and the laboratory had not billed for the test. TR II/322-323,
325-326, 345-346. Also, the claims submitted misrepresented
which laboratories actually performed the tests. TR II/325.
Based on the federal and State findings, the I1.G. formally
notified the Respondent on August 2, 1985 of his proposed
imposition against the Respondent of a penalty, an assessment
and a suspension from the Medicaid and Medicare programs.

The above evidences that the Respondent’s medical records were
kept in a negligent manner. While there is no evidence that the
Respondent’s sloppy record keeping affected the quality of
medical care rendered to Medicaid patients, an inference can be
drawn that it could have.

V. The Evidence in the Record Establishes that the Respondent’s
Billing Clerk, Mrs. Eby, Submitted the Improper Claims at Issue
Because of Interference or Pressure Exerts by the Respondent

Each of the 418 claims forms at issue identifies a commercial
laboratory as the source of laboratory testing, itemizes the
cost of each test, and has the signature of “Frank P. Silver,
M.D.” in the signature block, certifying that the services were
rendered as claimed. The Respondent and Mrs. Eby admitted that
the commercial laboratories had not been paid by the Respondent
to perform the tests in question. TR I/77; TR III/541. Each of
the 1,244 services listed on the 418 claims at issue where the
Respondent claimed reimbursement from Medicaid for the cost of a
laboratory test is an improper claim, and I conclude that Mrs.
Eby purposely filed these claims knowing that they were false.

Each of the claims are false because they represented that the
Respondent had reimbursed commercial laboratories for the
performance of between one and six lab tests when, in fact, the
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services were not performed as claimed because the laboratories
had not been reimbursed for such testing services by the
Respondent. In at least 91 instances, the claims indicated that
laboratory tests had been performed by a laboratory when, in
fact, the tests had not been performed at all. In addition, in
71 of the claims at issue, the commercial laboratory performing
the itemized tests had been misidentified. There was absolutely
no need for the submission of claims for lab tests because the
laboratories were billing Medicaid directly and because the
Respondent had chosen not to reimburse the commercial labs for
the tests.

After reviewing the entire record, including the testimony of
all the witnesses in this case, I find the testimony of Jeanette
Romer, Molly Earnhart, Alfonso Montano, and of the other I.G.
witnesses to be credible and reliable.

I find Mrs. Eby’s hearing testimony to be unreliable. Her
testimony is inconsistent with the facts established by the
testimony of others and the exhibits in the record, especially
the testimony of Jeanette Romer. The Deputy Under Secretary’s
Opinion finds that the record amply reflects the fact that Mrs.
Eby acted recklessly at best and with a “touch of larceny,” at
worst. See Opinion, p. 16. Mrs. Eby testified that she did not
comply with the Medicaid rules and regulations because she did
not have a copy of the SKI Billing Manual and did not see
pertinent Medicaid Bulletins. TR 1/103, 104, 113 to 115, 122;
I.G. Ex D, F, 426. Mrs. Eby testified: “I never intentionally
billed to fraud anybody. My error here is my own stupid error in
not knowing what I was doing, as far as coding is concerned.”
Id. She, in essence, claims to have sought handling fees for the
lab tests and through error submitted claims for the tests
themselves. The evidence demonstrates that this is not true.

The evidence shows that Mrs. Eby was not confused about handling
fees at all; she knew that the Respondent would not be paid for
them by SAMI if she used the proper 1974 CRVS procedure codes
for handling fees because Medicaid had told her that the
Respondent could not get handling fees for the lab tests at
issue. To overcome that obstacle, Mrs. Eby intentionally
deceived Medicaid by using the wrong procedure codes. Mrs. Eby
has worked full-time as a medical billing clerk and office
manager since 1973 and during that time submitted SAMI claims
for three different physicians. TR 1/38, 39, 104. As providers,
the three physicians were sent copies of the SAMI Billing Manual
as well as SAMI Bulletins. TR I/115, II/215-216. Mrs. Eby
admitted that she questioned the billing staff at other
-33-

physicians’ offices about processing SAMI claims, yet she stated
that she never was told by these persons of the existence of the
SAMI Billing Manual that addressed the very questions she asked
about. See TR I/83. She admits to having attended two of the
annual billing workshops sponsored by BSN, yet she stated that
she never saw the Medicaid Billing Manual and SAMI Bulletins
made available to all the participants. TR II/213.

Despite her denials, the evidence indicates that Mrs. Eby had
frequent telephone and other contacts with BSN personnel. TR
1/41, 78, 79, 96, 112. She stated that she did not, to her
knowledge, ever contact BSN by telephone. TR I/41. Mrs. Eby
stated that she often contacted BSN by mail. TR 1/95, 96. Ms. La
Fleur testified that she received regular telephone inquiries
from Mrs. Eby and that she kept Dr. Silver’s office telephone
number available in the event she could not answer Mrs. Eby’s
questions immediately; I find Ms. La Fleur’s testimony to be
credible. See TR II/218-222. Ms. La Fleur’s testimony
demonstrates that Mrs. Eby was not forthright and truthful.
Also, although Mrs. Eby denied ever meeting with a field
representative from BSN in 1982 (TR I/99), the Respondent stated
that Mrs. Eby had been contacted by a Medicaid representative
who answered her questions (TR III/550-551).

I find Mrs. Eby’s claim of ignorance not believable, especially
considering that Mrs. Eby was submitting claims, reviewing
EOB’s, and questioning denials of payment for over thirteen
years. TR I/38 to 39, 104 to 105, 115. Anyone in her position
would have a good understanding of the SAMI program and its
billing requirements. See, TR III/387. The Respondent’s own
witness, William Bennett, stated, in effect, that it was Mrs.
Eby’s responsibility to have copies of the SAMI Billing Manual
and the Medicaid Bulletins. TR II/385 to 389. I find that,
despite her denials, Mrs. Eby knew of the SAMI Billing Manual,
the pertinent Medicaid Bulletins, their contents, and how to
file Medicaid claims properly.

The record amply reflects the fact that Mrs. Eby knew exactly
what she was doing. First, in 1981, despite Mrs. Eby’s contact
with BSN about how to properly bill for handling fees, Mrs. Eby
claimed handling fees for urine cultures, urinalysis, pap smears
and vaginal cultures when there was an office visit. I.G. Ex B;
TR I/89-93. In 1981, soon after Mrs. Eby began to claim

these handling fees, a claims processor denied the handling fees
to the Respondent, noted the denial on the claim form, and
instructed the computer not to pay that portion of the claim.
I.G. Ex B; TR II/254-256. Each improperly claimed handling fee
-34-

was itemized and the basis for the denial of payment was noted
on EOB’s. I.G. Ex B/1; TR I/40-41, 90-91, 94-95. In spite of
this, Mrs. Eby claimed ignorance at the hearing. Second, I give
great weight to a July 13, 1983 memorandum of interview

between Medicaid investigators (Jeanette Romer and Molly
Earnhart) and Mrs. Eby. I1.G. Ex 422. This “Memorandum of
Interview” solves the mystery of how an experienced billing
clerk such as Mrs. Eby submitted false claims. She did it
because even though she “argued with” the Respondent about
billing Medicaid, the Respondent “instructed her on how and what
he wanted her to bill,” and she “still ended up doing what Dr.
Silver wanted her to do.” I.G. Ex 422. I find these statements
made by Mrs. Eby to the State investigators in 1983 to be more
reliable than her hearing testimony. This evidence makes it
clear that Dr. Silver interfered with Mrs. Eby’s Medicaid
billing and that this interference led to the submission of the
false claims at issue.

Further evidence of the Respondent’s interference is the
statement “prepared by Jeanette Romer, at the request of Mrs.
Eby in 1983, on Dr. Silver’s stationery. Mrs. Eby asked Ms.
Romer to verify in writing that SAMI would not pay for pap smear
handling fees when an examination was performed. Even though
this was done after the claims at issue were submitted, I find
that this was done because Dr. Silver had a habit of not
believing Mrs. Eby and of telling her to file Medicaid claims
incorrectly because he did not believe her. See I.G. Ex 423.

The record suggests that it was Dr. Silver’s arrogant attitude
in not believing Mrs. Eby when she told him that Medicaid would
not accept claims for laboratory handling fees that got him into
trouble, and not her alleged ignorance. I find that the I.G.
proved by a preponderance of the evidence that Mrs. Eby told the
Respondent that it was improper to submit claims for laboratory
handling fees to Medicaid (like the claims at issue), and that
the Respondent chose to ignore her, thinking that he knew better
than she.

By interfering with the trained professional that he hired to
file claims for him, the Respondent was so negligent in his
responsibility to the Medicaid program as to give rise to a duty
to investigate whether the claims submitted by Mrs. Eby were
proper claims. He insisted that the billing clerk place a higher
priority on his instructions than on instructions from Medicaid.
By doing this, he assumed the burden of ensuring that his
instructions and the consequent claims were accurate and lawful.
-35-

VI. The Evidence in the Record Establishes That the Respondent
Had “Reason to Know” that His Billing Clerk, Mrs. Eby, Was
Submitting the Medicaid Claims at Issue for Services That Were
Not Provided as Claimed

I find that the I.G. proved by a preponderance of the evidence
that the Respondent had sufficient information from which a
reasonable medical provider in his circumstances had “reason to
now” that further investigation of Mrs. Eby’s billing practices
was warranted. See Opinion, p. 9, 16.8 I find and conclude that
the Respondent had “reason to know” that the claims at issue in
this case were false claims because: (1) the Respondent had a
duty to Medicaid to verify the truth, accuracy and completeness
of the claims he caused to be presented; (2) the record in this
case establishes that the Respondent was negligent (in light of
sufficient information which put the Respondent, as a
reasonable medical provider, on notice that he should
investigate Mrs. Eby’s billing activities); (3) the Respondent
interfered with Mrs. Eby’s Medicaid billing function by putting
pressure on her to file Medicaid claims his way without
familiarizing himself with the Medicaid regulations; (4) the
Respondent made a drastic change in his financial relationship
with commercial laboratories just prior to the period at issue
which eliminated the basis for filing any Medicaid claims for
lab tests or handling fees; and (5) a cursory examination of the
claims by the Respondent would have revealed that they were
false or improper. See Opinion, p. 15, 39.

A. The Respondent Was Under a Duty to Investigate the Truth,
Accuracy and Completeness of 406 of the Claims at Issue Before
They Were Submitted, by Virtue of the Certification Statements
on Those Claims

The Deputy Under Secretary’s Opinion states that the duty to
investigate the propriety of claims being submitted to Medicaid
may be triggered by pre-existing duties on the part of medical

TT find that Dr. Silver’s testimony did not rebut the I.G.’s
proof that he had “reason to know” because he was not as candid
as he could have been about: (1) his working relationship with
Mrs. Eby; (2) the attitude he displayed towards her concerning
her handling of the billing function; (3) Mrs. Eby's remarks to
him about what Medicaid would not pay for; (4) arguments he had
with Mrs. Eby about the proper way to submit claims to Medicaid;
and (5) his interference with her activities which led to the
submission of the false claims. See TR III/539 to 551.
-36-

providers. The Opinion cites as an example the duty of care owed
by a medical provider to each of his patients. See Opinion, p.
39. The Opinion states that a pre-existing duty vitiates the
requirement for independent proof to cause the duty to
investigate to spring into existence. A pre-existing duty is
created by proof of a certification statement on 406 of the
claims at issue in this case; this duty is similar to the duty
of quality care. Whether it creates a pre-existing duty or not,
it does, at the very least, cause a duty to investigate to
spring into existence under the “reason to know” standard of
liability in the CMPL and Regulations. See Opinion, p. 26.*? The
certification on these Medicaid claims reads “NOTICE: This is to
certify that the foregoing information is true, accurate and
complete.” See I.G. Ex 426/8; P; Q. This statement is required
to appear on all Medicaid claim forms pursuant to 42 C.F.R.
Section 455.18.

The certification statement was a representation by the
Respondent that he had acquired sufficient information to assure
the Medicaid program that the claims were true, correct and
complete. The Respondent was required to sign or at least
initial the claims. He chose to authorize his billing clerk to
use a signature stamp. There is no evidence that the Respondent
was unaware of the certification requirement; in fact, he
obviously knew that the claims were required to bear his
signature because he had the signature stamp prepared. The
certification statement created a duty on the Respondent to
investigate the accuracy of claims bearing a certification.
Certifications similar to the claims at issue are familiar to
many government claim forms. In complex systems like Medicaid,
it is quite common for persons to attempt to shift
responsibility for false claims to others. Those administering
the program attempt to affix personal responsibility for claim
information on the medical provider.

While the Respondent was allowed to use a facsimile stamp for
his signature, he was required to initial each claim form after

3Exhibit P is an affidavit from Jeanette Romer, which states
that 341 of the 418 claims in issue were submitted on complete
(front and reverse) HCFA 1500 forms, and an additional 65 claims
were submitted on complete (front and reverse) AMA-1 forms. Both
of these kinds of forms contain the certification statement
cited above. 1.G. Ex 426/8; P; Q.
-37-

he checked the accuracy of each claim.*4 The Medicaid program in
Nevada allows facsimile stamps to be used as a convenience to
providers, so that providers will not have to sign hundreds to
claim forms. S.C. Ex. 426/9. At the same time, the certification
of true accuracy and completeness is a common means of gaining
some reasonable assurance that the provider has assured that the
claims are indeed true, accurate and complete.*°

The use of certification statements to create a certain
representation by a medical provider was discussed in U.S. ex
rel. Fahner v. Alaska, 591 F. Supp 794 (N.D. Ill., 1984). In
that case, claims by an optometrist to the Medicaid program of
Illinois contained certification language virtually identical to
the case at bar: “This is to certify that the information above
is true, accurate and complete. . .” 591 F. Supp. at 796. In
Peterson v. Weinberger, 508 F.2d 45, 52 (5th Cir.); cert.
denied, 423 U.S. 830 (1975), Medicare claims for nursing home
services stated: “A physician’s signature certifies that
physician services were personally rendered by him or under his
personal direction.” The Court commented:

“There is some evidence that a billing clerk’s signature or
initials (when a facsimile stamp is used) is not acceptable to
Medicaid. The heading of the signature blocks on these forms call for
“SIGNATURE OF PHYSICIAN OR SUPPLIER.” The billing manual states
that a “Provider’s signature or facsimile stamp (initialed) must
be on every claim and every page of each claim.” S.C. Ex. 426/9.
However, the SAMI program accepted the claims at issue with the
initials of Mrs. Eby (KE) next to the signature stamp of the
Respondent. The proof in the record demonstrates that the
Medicaid program would not pay on the signature of Kathleen Eby.

*The Respondent confuses the Medicare certification language
with the Medicaid certification language on the HCFA 1500 form.
These certifications are quite different and are tailored to the
requirements of the specific programs. The Medicare
certification language does not apply to Medicaid claims. Also,
the decision cited by Respondent with respect to facsimile
stamps, Snell v. Comm. of Penn. St. Ex. Bait., 416 A. 2d 468
(Pa. 1980), has no application to the case at bar. Snell
concerned the issues of whether findings of actual knowledge of
wrongdoing or intent to defraud could be derived from a claim
submitted with a facsimile stamp. These issues are completely
distinct from a “reason to know” standard.

- 38 -

It was entirely reasonable and necessary for the Government to
require such a certification on the claim forms to implement the
Act, and at the same time protect public funds. Obviously, a
false certification on the claim form frustrated the
Government’s attempt to process only valid claims and led to

the payment for services which were not covered or payable under
the Act.

Here, the Respondent, under a certification of truth, accuracy
and completeness of the claims, was under a duty to investigate
the truth, accuracy and completeness of these claims.*° The
certification statements in this case were reasonable means to
notify the provider of a personal responsibility to ensure the
accuracy of all claims. A duty to ensure accuracy is created by
the inclusion of the statement as part of the application.
Whether the Respondent personally signed the statement is not
relevant. Even if the Respondent did not have actual knowledge
of a particular claim, he was aware of his general duty to
ensure the accuracy of all claims submitted for him. At the very
least, this responsibility causes the duty to investigate to
spring into existence for purposes of the “reason to know”
standard.

B. The Respondent Had “Reason to Know” Mrs. Eby was Filing False
Claims Because a Reasonable Medical Provider Would Have Reason
to Know Through Reasonable Supervision and Attentiveness

I find that the Respondent had sufficient notice that Mrs. Eby
was filing false or improper Medicaid claims so as to spring his
duty to investigate into existence. See Opinion, p. 32. As I
discuss above, a mere glance at the 418 claims at issue would
have revealed to the Respondent that they were false.

The Respondent’s failure to perform his duty to investigate in
light of notice makes him liable for the claims at issue under
the CMPL and Regulations. If this factor is coupled with the
fact that the Respondent failed to check the accuracy of the

*The unqualified certification statement on the claims at issue
is to be contrasted with certifications with qualifiers (i.e.,
“to the best of any knowledge and belief”). This latter type was
found not to impose a duty on to check the facts in a V.A. loan
application in U.S. v. Ekelman & Associates, Inc., 532 F. 2d
545, 549 (6th Cir. 1976). The court indicated it would have
reached different result (imposing a duty to obtain personal
knowledge) if the qualifier had not been present.

-39-

claims, as was required by the certification statements, the
Respondent’s negligence is more apparent. Thus, the Respondent’s
behavior in ignoring the certification statements, added to the
Respondent’s behavior in ignoring Medicaid regulations, ignoring
Medicaid Bulletins, and ignoring Medicaid EOB’s, added to the
Respondent’s behavior in interfering with Mrs. Eby and failing
to check the Medicaid regulations when he disagreed with Mrs.
Eby, supports a finding that the Respondent had “reason to know”
that Mrs. Eby Was filing false or improper claims on his behalf.

The Respondent argues that I should find that he did not have
“reason to know” about Mrs. Eby’s improper activities because he
delegated complete responsibility to her for submitting the
Medicaid claims at issue. He argues that he had no
responsibility for Mrs. Eby’s improper activities. The evidence
in the record requires a finding to the contrary.*’

The Respondent, as a reasonable Medicaid provider enrolled in
the Medicaid program, could have easily discovered that Mrs. Eby
was filing false claims by taking a cursory look at them before
they were filed; he had the requisite knowledge to know that she
had no business submitting claims to Medicaid for lab tests
because he admits that he ordered her to stop reimbursing labs
for tests and to have the labs bill Medicaid directly.*® The
Respondent admits, in effect, that he could tell that the claims
at issue were false claims on their face. See R Rem Br/25. What
is worse, the record supports a finding that the Respondent
actually interfered with Mrs. Eby when she attempted to file
Medicaid claims in accordance with the Medicaid regulations. He
clearly had “reason to know” because he told her what to do.
Thus, the Respondent had a duty to ensure that those claims

If the Respondent had hired a competent billing clerk, properly
delegated the Medicaid billing function to her, properly
supervised her, and not interfered with her once she was
properly trained, the Respondent would not be liable under the
CMPL and Regulations.

*The factual situations in the three cases principally relied
upon in the Deputy Under Secretary’s application of the “reason
to know” standard involved physically observable conditions. See
Madison v. Desert Livestock Company, 574 F.2d 1027 (10th Cir.
1978); Samuels v. Empresa Linkas, 573 F.2d 884 (5th Cir. 1978);
Christians v. Homesake Enterprises, Ltd., 25 Wis. 2d 25, 303
N.W.2d 608 (1981). Here, the condition was also physically
observable, if Dr. Silver had only taken five minutes to glance
at one of the 418 claims at issue.

- 40 -

being presented were for services provided as claimed because he
caused the false claims at issue to be presented.

The Respondent had sufficient information from which a
reasonable person in his circumstances would have known that
further investigation of the claims at issue was warranted for
several reasons. First, the Respondent had participated in
Medicaid since 1973. He was the top physician biller to Medicaid
in the State of Nevada during 1981, and was among the top five
billers in the State during each of the five years prior to the
hearing in this case. TR 1/182. In addition, during 1982,
approximately 47 percent of the line item entries on the
Respondent’s billings were for laboratory work. IG Ex M. The
claims at issue represented a very substantial portion of the
Respondent’s substantial billings to the program.

Second, the Respondent was sent the Medicaid Billing manuals in
1981 and in 1982 and was periodically sent all of the relevant
Medicaid Bulletins at his billing address. The 1982 Billing
manual was accompanied by a cover letter, addressed to “Dear
Doctor.” IG Ex 426/1, FFCL 11, 13. When asked what she would do
when educational bulletins came in, Mrs. Eby testified she would
put them on the Respondent’s desk, “for him to see what
information came down from Medicare, Medicaid.” TR 1/100.

Third, a review of these Medicaid documents would reveal that
the submission of a claim for an actual laboratory test when not
performed and not reimbursed by a physician is a false claim.

The Respondent demonstrated a clear understanding of SAMI
reimbursement rates (TR IV/533, 544-545) and billing
restrictions (TR IV/533-534). The Respondent’s knowledge of SAMI
reimbursement requirements was demonstrated by his decision to
change his financial relationship with the laboratories
performing tests for him for the period at issue. When SAMI
changed its rules to limit reimbursement to actual charges,
which would preclude any profit to the Respondent on these
billings, the Respondent decided to change his procedure to let
the labs handle billings directly with Medicaid. TR 1/61,
111/544. Since the Respondent was no longer performing the tests
himself and was not reimbursing an outside laboratory for the
work, the Respondent was not permitted by the Medicaid rules and
regulation to bill SAMI at all for these tests or for any
handling fees; there was no need to file a claim at all. TR
1/143, 148-149; IG Ex. 426/9. However, the claims received by
SAMI were filled out in an identical manner to claims

submitted during the period when the Respondent was reimbursing
laboratories directly. TR I/78. This change in procedures was
-41-

immediately preceded by notifications from SAMI that the program
would not pay for handling fees for lab tests (when there was an
office visit or an exam billed) for urine cultures, pap smears,

urinalysis, and vaginal cultures. IG Ex. B-1; TR 1/40-41, 90-91.

Finally, as stated above, the record contains evidence that it
was the Respondent who instructed Mrs. Eby on how and what to
bill, and that he and Mrs. Eby had argued about billing issues.
I find that laboratory tests and handling fee billings were
among the billing issues they argued about. As I discussed
earlier, the record indicates that Ms. Eby had previously been
informed that handling fees were not reimbursable, had received
EOB’s denying payment for handling fees and had considerable
experience in medical billing.

I find that she knew about the improper billing and would not
have continued the practice without instructions from the
Respondent which would interfere with her usual billing
procedures. In spite of this evidence, the Respondent claims
that he “had no prior warnings or notifications of any alleged
misbillings or of any other kinds of errors.” R Rem Br/8. This
statement is contrary to the evidence in this record. The
Respondent was frequently sent EOB’s in the period just before
the time period at issue which detailed denials of handling
fees. Medicaid informed the Respondent in these EOB’s that
Medicaid would not pay handling fees for lab tests (when there
was an office visit or an exam) for urine culture, pap smears,
urinalysis and vaginal cultures. When Mrs. Eby attempted to
claim handling fees in such situations just prior to the time
period at issue, the Medicaid carrier would deny the fee,
itemize that fact on the EOB form and send the form addressed to
the Respondent at his billing address.

This certainly put the Respondent on notice and gave him “reason
to know” that either Mrs. Eby was incompetent or that his own
instructions to her were dead wrong; he never bothered to
check.** The I.G.’s proof that the Respondent had a conversation

*Moreover, other prior actions of Medicaid put the Respondent on
notice of Medicaid rule violations. From 1973-1978, Respondent
operated an unlicensed laboratory at his office in Boulder City,
Nevada and he was informed of this fact in 1977. He made no
effort to investigate the problem or correct it. In 1978,
Respondent was informed that he had been billing incorrectly for
comprehensive exams and this abuse of the Medicaid program would
have to cease. Yet, the Respondent neglected to notify his
billing clerk. With respect to these latter two incidents, the
-42-

with Mrs. Eby in which she attempted to inform him that Medicaid
did not pay for handling fees, that he told her that he did not
believe that and that, in effect, he told her to continue to
bill for such services is corroborated by the Respondent’s
testimony that he believed Mrs. Eby did continue to bill for
handling fees. TR III/544. He even offered to take a lie
detector test that he believed the claims were for handling
fees.

The Respondent’s voluntary decision to ignore the legal
requirements of the claiming process does not excuse him from
liability. In discussing the reasonable person concept,
Professor Keeton, in Keeton and Prosser on Torts (Fifth
Edition), states (at page 182) that “it seems clear that the
actor must give to his surroundings the attention which a
standard reasonable man would consider necessary under the
circumstances and that he must use such senses as he has to
discover what is readily apparent.” Professor Keeton states (at
page 185): the actor may “be engaged in an activity, or stand in
a relation to others, which imposes upon him an obligation to
investigate and find out, so that the person becomes liable not
so much for being ignorant as for remaining ignorant; and this
obligation may require a person to know at least enough to
conduct an intelligent inquiry as to what he does not know.”
Voluntary ignorance is equivalent to negligence. Gobrecht v.
Beckwith, -135A-.20,22 (1926) .°*°

Opinion stated that they do not show that Respondent had ‘reason
to know” that the claims in issue warranted further
investigation. Opinion, p. 37 to 38. However, these incidents
are probative of the Respondent’s motives and attitudes towards
the Medicaid program. While motives and attitudes are not in
issue in CMPL proceedings, they can reinforce and explain
findings with respect to issues in dispute. In the case at bar,
these incidents help explain why the Respondent chose to ignore
Mrs. Eby in their arguments over billing issues and why he chose
not to investigate the claims at issue.

*Moreover, even if the Respondent had none of the notices cited
above that made his duty to investigate spring into existence,
the Respondent was negligent “for failing to train and supervise
Mrs. Eby.” While the Deputy Under Secretary referred to the
Respondent as “careless,” he was so careless that it gave rise to
‘reason to know.” See Opinion, p. 39. It is helpful to look at a
few cases in an expanding area of tort law, negligent hiring,
-43-

Thus, as a reasonable Medicaid provider who countermanded Mrs.
Eby’s intent to file proper Medicaid claims, the Respondent
would have determined whether the claims he submitted to SAMI
were for reimbursable services and whether the services claimed
were actually provided. He also would have checked the claims
presented against his own ledger cards to ensure that the
services for which he billed SAMI were actually-provided en
those dates. Ignorance is no defense; a respondent becomes
liable for remaining ignorant, especially, as here, when he, as
a reasonable medical provider, has an obligation to conduct an
intelligent inquiry concerning his submission of Medicaid
claims, especially when his billing clerk told him what the
Medicaid regulations provided for and he argued with her.”

training, and supervision. In Ponticus v. K.M.S. Investments,
331 NW 2d 907 (1983), a case where a resident manager raped a
tenant, Minnesota imposed a duty on landlords to investigate
their employees; the Court held that an investigation would have
revealed that the manager was on parole for armed robbery and
that it was foreseeable that he might commit another violent
crime. See also City of Oklahoma v. Tuttle, 471 U.S. 808 (1985);
Burch v. A&G Associates, 333 N.W. 2d 140 (1983); Williams v.
Feather Sound, 386 So 2d 1238 (1980). In Cuttler v. Farmington,
498 A. 2d 316 (N.H. 1985), the Court found a town negligent for
failing to adequately train its police. I find that the
Respondent did have a reckless disregard for the Medicaid
program’s ground rules and regulations in delegating the
important function of billing to Mrs. Eby without exercising
proper supervision over her. I find and conclude that the
reckless disregard of the Respondent was tantamount to “reason to
know.” The Respondent, if he was a reasonable medical provider
submitting claims and exercising ordinary care, at the very
least, would have made himself familiar with the rules and
regulations for presenting Medicaid claims, or hired, trained or
supervised someone competent to do so. See also Panama R. Co. v.
Bossee, 249 U.S. 41, (1919); 53 AM Jur 2d, Master and Servant
section 404; Forrester v. Southern Pac. Co., 134 P. 753, 764, 36
Nev. 241 (1913); Curtis, Liability of Employers for Punitive
Damages Resulting From Acts of Employees, 54 Chi-Kent L. Rev.
829-850 (1978); see also Kellerman v. Askew, 541 F.2d 1313 (10th
Cir. 1983) (inadequate amount of supervision).

*'See discussion in “Keeton and Prosser” on knowledge and care
required of professionals (at pp. 185 to 193).
-44-

Instead, the Respondent did not want to be bothered by paperwork
or clerical duties or to be involved with matters that he
considered to be beneath him. Because he is not fond of
governmental intrusion or regulation (with regard to the
practice of medicine) and does not like the burdens placed upon
him by Medicare and Medicaid, he purposely remained ignorant of
these rules and regulations. See R Rep Br/5. He saw these
regulations and rules as bureaucratic and bothersome. I find
that his actions and his words illustrate that he views these
persons or agencies imposing these burdens and regulation

as antithetical to the efficient practice of medicine as he sees
it. See, e.g., Rep. Br/ 4, 5. He thought he knew better than the
Medicaid people whom he thought knew nothing about the practice
of medicine. He thought he should get paid extra for handling
fees for lab tests such as pap smears, vaginal cultures, urine
cultures and urinalysis, regardless of any Medicaid rules and
regulations and regardless of what Mrs. Eby told him.”

VII. The Appropriate Amount of the Penalty, ‘Assessment, and
Suspension

In order to decide the appropriate amount of the penalty that
should be imposed in any case where the I.G. has established
liability, the CMPL and Regulations require the ALJ to consider
aggravating and mitigating circumstances. Specifically section
1003.106(a) and (b) of the Regulations and section 1320a-7(c) of
the CMPL require the ALJ to examine the following

circumstances: (1) the nature of the claims or requests for
payment and the circumstances under which they were presented,
(2) the degree of culpability of the Respondent, (3) the history
of prior offenses of the Respondent (as an aggravating factor
only), (4) the financial condition of the Respondent and (5)
such other matters as justice may require.

1 find that the Respondent’s argument that “misbillings” were
apparent to Medicaid on the face of the claims, is contrary to
the evidence in the record. I.G. Ex 1, B, C. Mrs. Kidd, a BSN
claims processor, testified that the false claims in issue
indicated on their face that the Respondent was seeking
reimbursement for his payments to the outside labs (despite the
fact that the dollar amounts were not indicated in box No. 22 on
the claim forms). I.G. Rep Br/2; TR 11/ 253, 257-258. But, the
Respondent’s argument only points out his own negligence. A
cursory look at the claims at issue by him should have
immediately alarmed him, as the person with knowledge of his own
operating procedures, that the claims were false.
-45-

As stated earlier, the penalty can be up to $2,000 for each
improper service, the assessment can be up to twice the amount
claimed, and there is no limit on a suspension. While the CMPL
and Regulations require consideration of aggravating and
mitigating factors to determine the appropriate amount of the
sanctions to be imposed in a given case, there is no formula for
computing them and there is little guidance to be found in the
CMPL and its legislative history (except with regard to
assessments).’ The preamble to the Regulations states that
“fixed numbers” have been “eliminated” as “triggering devices,”
emphasizing that discretion is preferable to a mechanical
formula. 48 Fed. Reg. 38827 (Aug. 26, 1983). Section 1003.106(b)
of the Regulations contains some general guidelines for the
interpretation and application of the aggravating and mitigating
factors.

I conclude that it is both Congress’ and the Secretary’s intent
for the ALJ to decide each case on its own merits, using
discretion rather than a formula. While the ALJ has much
discretion to fix the amount of the penalty on the

relative merits of each case, the ALJ must attempt to craft a
rational approach designed to reconcile the facts of each case
with the intent of Congress. See generally, DAVIS,
Administrative Law Treatise, 2d Ed. 1978 and the 1982
Supplement, Chapters 8, to 13, 29. The process is somewhat like
sailing on uncharted waters. As the preamble to the Regulations
states: “as we gain more experience in imposing sanctions under
the statute, we may further refine the guidelines, but at this
early stage we believe that increased flexibility is
preferable.”

Congress intended the penalty to be a deterrent rather than to
be retribution or punishment. See Mayers v. U.S. Department of
Health and Human Services, 806 F. 2d (llth Cir. 1986); see also,
Chapman v. United States of America, Department of Health and
Human Services, F.2d (10th Cir., June 15, 1987). A deterrent is
meant both to encourage others to comply with the law and to
discourage a respondent from committing the wrong again.
Retribution or punishment goes well beyond this point and might
raise constitutional questions. To arrive at an appropriate
penalty that would be a deterrent, rather than retribution, the
ALJ must consider the factors outlined in the regulations, weigh
the gravity of the wrong done by a respondent, and consider
what it would take to prevent the wrong from being committed
again by a respondent and others. Taking this into
consideration, the penalty I deem appropriate in this case is
meant to be proportionate to the offense committed by the

- 46 -

respondent, as indicated by the facts in the record, and is
meant to be a deterrent rather than punishment. The purpose of
assessments in CMPL cases is to enable the United States to
recover the damages resulting from false or improper claims;
this includes amounts paid to the Respondent by Medicaid and the
costs of investigating and prosecuting unlawful conduct. See 48
Fed. Reg. 38831 (Aug. 26, 1983).

Section 1003.107 of the Regulations requires the same criteria
used in determining the penalty and assessments to be used to
determine the length of any suspension imposed. The purpose of
the suspension is deterrence and protection of the Medicare and
Medicaid programs. 48 Fed. Reg. 38832 (Aug. 26, 1983).

A. The Degree of Culpability of the Respondent

One of the most complex of the factors to be considered by the
ALJ in determining the amount of the penalty is the “degree of
culpability.” The guidelines in the Regulations indicate that
this factor relates to “the degree of the Respondent’s knowledge
and intent.” As stated earlier, it is a prerequisite that a
respondent “knew or had reason to know” that the claims were
false or improper in order for liability to attach. Knowledge,
however, is an aggravating factor, and “unintentional or
unrecognized error” is a mitigating factor if the Respondent
“took corrective steps promptly after the error was discovered.”
Regulations Section 1003.106(b) (2). The determination

of the degree of culpability in this case involves an inquiry
into the degree of the Respondent’s knowledge. See 48 Fed Reg.
38831 (Aug. 26, 1983).

Here, the I1.G. did not prove by a preponderance of the evidence
that the Respondent had actual knowledge that the claims were
improper. The I.G. did prove that the Respondent had “reason to
know” the claims were improper, by showing that the Respondent
insisted that Mrs. Eby continue to seek Medicaid reimbursement
for services that Medicaid did not reimburse and by showing that
the Respondent acted contrary to the certification statements on
the claims.

The Respondent’s insistence, in light of Mrs. Eby’s knowledge
and experience with the submission of Medicaid claims, was
enough to alert the Respondent to the possibility that Mrs. Eby
might be correct; to order her to submit the claims the way he
insisted was reckless and he had “reason to know” that Mrs. Eby
might take action inconsistent with Medicaid rules and
regulations, such as falsifying the claims in order to deceive
-47-

Medicaid into paying for non-reimbursable services. The
Respondent did not exercise due care in his supervision of Mrs.
Eby and his negligence was compounded by the pressure he
exerted on Mrs. Eby to seek reimbursement for handling fees,
pressure which caused her to falsify the claims at issue here.

The Respondent is liable under the CMPL because his actions
created a duty to investigate the claims being filed on his
behalf. Because the I1.G. did not prove that the Respondent
actually knew the false content of the claims, the Respondent’s
culpability is lessened. Culpability is still present, however,
and although it moves toward the minimum “outer limits,” it does
not exceed or even reach those limits. See Opinion, p. 41. In
light of the lack of evidence of actual knowledge and my
assessment of the weight of the Respondent’s culpability under
the “reason to know” standard, I conclude that the Respondent’s
degree of culpability should mitigate the penalty, assessment,
and suspension imposed.

B. The Nature and Circumstances of the Claims and Services at
Issue

The guidelines at section 1003.106(b) (1) of the Regulations
state that it is a mitigating circumstance if the nature and
circumstances of the requests for payment were all of the same
type, occurred within a short period of time, were few in
number, and the total amount requested from Medicaid recipients
was under $1,000. But, the regulations do not specify what
constitutes a “short period of time” or how to evaluate the
number of claims. The guidelines at section 1003.106(b) (1) of
the Regulations also state that an aggravating circumstance
exists where the requests for payment were of several types,
occurred over a lengthy period of time, were large in number,
indicated a pattern of making such requests for payment, or the
amount was substantial. Again, however, the guidelines do not
indicate what period of time is lengthy, what amount of requests
is a large number, or what is a substantial amount. See 48 Fed.
Reg. 38827 (Aug. 26, 1983). These judgments are left to the
discretion of the ALJ.

Since the guideline examples of aggravating circumstances are
couched in the disjunctive, only one need be proven by the I.G.
to establish the nature and circumstances as an aggravating
circumstance. Here, the I.G. has established more than one. On
the other hand, the guideline examples of mitigating
circumstances are couched in the conjunctive; all must be proven
by the Respondent in order to have the nature and circumstances
- 48 -

of the claims at issue to be considered mitigating. The
Respondent did not prove all of them.

The I.G. proved by a preponderance of the evidence that the
Respondent billed for substantial sums (considering the items
were for lab tests for a period of over two years) and the
period was lengthy. The services billed for were not for several
types and a pattern was not proven by a preponderance of the
evidence. Although the improper claims were for several types of
lab tests, they were not for several types of dissimilar
services.

C. History of Prior Offenses

The next factor discussed in the Regulations is “prior offenses”
of a respondent. The guidelines at section 1003.106(b) state
that an aggravating circumstance exists if, for to the
presentation of the improper claims at issue, a respondent was
held liable for criminal, civil or administrative sanctions in
connection with one of the programs covered by the CMPL or any
other medical services program. This guideline would clearly
prevent consideration of mere allegations of past wrongdoing; a
respondent must have been “held liable” and subjected to actual
sanctions before committing the acts for which he is found
liable. The preamble makes clear that prior offenses are not an
aggravating circumstance, unless there has been a final agency
determination or a final adjudication in a court. 48 Fed. Reg.
38832 (Aug. 26, 1983). There are no prior offenses which would
be considered an aggravating factor in this case. Absence of a
prior offense is not a mitigating factor under the Regulations.

D. Other Matters to be Considered as Justice Requires

The CMPL and the Regulations also contain an umbrella factor,
“other matters as justice may require.” The Regulations do not
provide further detail, except to indicate that consideration of
other matters should be limited to those relating to the
purposes of civil money penalties and assessments. Regulations
section 1003.106(b) (5).

The I.G. proved that the Respondent violated Nevada law by
operating an unlicensed laboratory (the Respondent argued that
this was only a minor violation, because the Respondent employed
a licensed or certified lab technician) and that the Respondent
submitted claims from 1973 to 1978 for lab tests performed by
this unlicensed lab in violation of SAMI rules and regulations
(see I.G. Ex 426). This is not an aggravating circumstance, as
- 49 -

alleged by the I.G., because the State never took action with
regard to these violations, even though this is another
illustration of the Respondent’s reckless disregard of the
Medicaid rules and regulations. It is a mitigating circumstance
that the I.G. did not meet his burden of proof with regard to
two claims at issue and with regard to the allegations that
there were six crossover claims received and processed by the
Medicare carrier (Aetna).

I have also considered the fact that the Respondent reached a
settlement agreement with the State concerning his misbillings
and agreed to a voluntary withdrawal from Medicaid for 3 years
(there was no criminal conviction). See R Rep Br/14. This does
not constitute a mitigating circumstance. See Chapman v. United
States, et al., supra, Slip Op. at pp. 13-14. However, as the
I.G. agreed, it is appropriate for the assessment to be reduced
by the amount of restitution recouped by the State in this case
(i.e., $8,762.41). See I1.G. Br/62.

Although there was no direct adverse impact on Medicaid
recipients proven, the I.G. did prove that there was sloppiness
in record keeping and office procedures which could have
indirectly been detrimental to Medicaid recipients. The
Respondent has hired experts to correct this situation.
Particularly because no concrete proof of harm was made, this is
not an aggravating circumstance. It is also not a mitigating
circumstance.

E. Financial condition

The Regulations state that the financial condition of a
respondent would constitute a mitigating circumstance if the
penalty or assessment, without reduction, would jeopardize the
ability of a respondent to continue as a health care provider.
Thus, it is clear that the ALJ may consider the Respondent’s
financial condition (a traditional element evaluated in
compromising or settling claims). Furthermore, the guidelines at
section 1003.106(b) (4) note that the ALJ must consider the
resources available to a respondent. This indicates that
financial disclosure by a respondent is a key requirement in
evaluating a respondent’s financial condition. The Respondent
did not offer evidence of his financial condition. Thus,
financial condition is not a mitigating factor.
-50-

VIII. The Amount of the Penalty, Assessment, and Suspension, As
Modified Here, Is Supported by the Record

After weighing all of the aggravating and mitigating
circumstances present in this case, I reduce the penalty to
$73,500; the assessment to $9,000; and the suspension to three
years. The I.G. proposed a penalty of $232,000; an assessment of
$18,000; and a ten-year suspension. On remand, the Respondent
argued that, if liability is found, the penalty and assessment
should be no greater than double the amount of money received by
Dr. Silver from Medicaid (less restitution paid to the State)
and no suspension other than the three years of voluntary
suspension. (The Respondent contended in his earlier brief that
the penalty and assessment should not total more than $184,087,
twenty times the amount of money paid to the Respondent by
Medicaid, arguing that the so-called twenty-times rule is
binding on the I.G.) See R Rem Br/24 to 28. See also R Rep
Br/15, 16.

The amounts of the penalty, assessment and suspension that could
have been imposed under the CMPL and Regulations are much
greater than the amounts actually proposed by the I.G. As stated
earlier, the penalty is intended to serve as a deterrent to
future unlawful conduct in the Medicare and Medicaid programs;
the assessment is meant to make the Government whole; the
suspension is meant to protect program integrity. In its report
on the CMPL, the House Ways and Means Committee found that”civil
money penalty proceedings are necessary for the effective
prevention of abuses in the Medicare and Medicaid

program. . . .” H.R. Rep. No. 97-158, 97th Cong., 1st Sess. Vol.
III, 329 (1981). I have reevaluated the penalty in light of the
implications of the Respondent’s culpability under the “reason
to know” standard of liability and I find that $232,000 is too
high. See De La Calenas v. Perales, 495 NYS 2d 383

(A.D. Dept. 1, 1985). I find that a penalty of $73,500 is more
appropriate.

This amount is three percent (3%) of the maximum possible and
approximately one-third (32%) of the amount proposed by the I.G.
I also find an assessment of $9,000 and a suspension of three
years to be more appropriate. In imposing the three year
suspension, I have taken as a guideline the standard period
imposed in debarments to protect the integrity of government
programs. See 47 Fed. Reg. 28854 (June 24, 1982). After weighing
all of the aggravating and mitigating circumstances, I conclude
that a penalty of $73,500 is a sufficient deterrent under the
circumstances of this case, that $9,000 is sufficient to
-51-

compensate the Government, and a three year suspension is
sufficient for ensuring program integrity.

ORDER

Based on the evidence in the record and the CMPL and
Regulations, it is hereby Ordered that the Respondent: (1) pay
a penalty of $73,500; (2) pay an assessment of $9,000; and (3)
be suspended from Medicare and Medicaid programs for a period of
three (3) years.

/s/ Charles E. Stratton
Administrative Law Judge