Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

In the Case of:

Everett Rehabilitation and DATE: January 28, 1997

Medical Center,
Petitioner,

Docket No. C-96-108
Decision No. CR455

Vv.

Health Care Financing
Administration.

DECISION

I conclude that the effective date of the Medicare provider
agreement is September 18, 1995, and no earlier, for
Petitioner, Nursing Home, Inc., doing business as Everett
Rehabilitation and Medical Center.

PROCEDURAL BACKGROUND

Petitioner is a skilled nursing facility (SNF) and a
participating provider in Medicare. The requirements for
participation in Medicare by SNFs are set forth in
regulations contained in 42 C.F.R. Part 483. Asa SNF,
Petitioner is subject to the survey, certification, and
remedies provisions of 42 C.F.R. Part 488. Petitioner's
right to a hearing concerning an adverse determination by the
Health Care Financing Administration (HCFA) of the United
States Department of Health and Human Services (DHHS), made
pursuant to 42 C.F.R. Parts 483 and 488, is established by 42
C.F.R. Part 498.

By letter dated November 21, 1995, HCFA notified Petitioner
that September 18, 1995, was Petitioner's correct effective
date of certification for Medicare. By letter dated January
19, 1996, Petitioner requested a hearing, contending that
Petitioner is entitled to Medicare certification with an
effective date of June 23, 1995.
2

A concise summary of the process at issue here is provided by
olden State Mano ing and Rehabilitation Center, DAB
1597 (1996):

Title XVIII of the Social Security Act establishes a
federally subsidized health insurance program for the
elderly and disabled, commonly known as Medicare.
Medicare provides reimbursement for certain services
rendered by providers, such as SNFs [skilled nursing
facilities], who participate in the Medicare program
under "provider agreements" with the Department of
Health and Human Services. In order to enter into such
an agreement to participate in the Medicare program,
SNFs must meet certain requirements imposed by
applicable statute and regulations. [citations omitted]

The survey process is the means by which State surveyors
on HCFA's behalf assess providers' compliance with these
requirements. The State survey agency performs the
surveys of SNFs and makes recommendations to HCFA on
whether such facilities meet the federal requirements
for participation in the Medicare program. The results
of such surveys are used by HCFA as the basis for its
decisions regarding a facility's initial or continued
participation in the program. HCFA, therefore, makes
the determination as to whether a facility is eligible
to participate or to remain in the program.

Id. at 3.

The parties filed cross motions for summary judgment,
supporting memoranda, and other documents. Also, the parties
submitted their Stipulation on "Relocation of Colby Manor,"
which I incorporate herein and admit into evidence.

Petitioner submitted exhibits (P. Exs.) 1 through 37. I have
marked the Declaration of Kim Hagen as P. Ex. 37. During the
prehearing conference on June 3, 1996, HCFA indicated it did
not object to P. Exs. 1 through 34 being admitted into
evidence, and I admitted into evidence P. Exs. 1 through 34.
HCFA does not object to P. Exs. 35 through 37 being admitted
into evidence, and I admit into evidence P. Exs. 35 through
37.

HCFA submitted exhibits (HCFA Exs.) 1 through 52. During the
prehearing conference on June 3, 1996, Petitioner indicated
that it did not object to HCFA Exs. 1 through 40 being
admitted into evidence, and I admitted HCFA Exs. 1 through 40
into evidence.
3

HCFA Exs. 42 and 43, the Third Declaration of Teresa Trimble,
was marked by HCFA as HCFA Ex. 43, but HCFA's cover letter
dated June 7, 1996 indicated that the Third Declaration of
Teresa Trimble is HCFA Ex. 42. I then remarked the Third
Declaration of Teresa Trimble as HCFA Ex. 42. Thereafter, I
received the Declaration of David M. Haffie, marked as HCFA
Ex. 42, and HCFA's cover letter dated July 23, 1996 indicated
that the Declaration of David M. Haffie is HCFA Ex. 42.
Consequently, I remarked the Third Declaration of Teresa
Trimble as HCFA Ex. 43 and the Declaration of David M. Haffie
as HCFA Ex. 42 [as HCFA had marked them originally).

Regarding HCFA Exs. 41 through 52, Petitioner does not object
to HCFA Exs. 41 through 50 and HCFA Ex. 52 being admitted
into evidence, but Petitioner does object to HCFA Ex. 51
being admitted into evidence. Petitioner's objection to HCFA
Ex. 51 is overruled, as I do find it relevant to show, among
other things, that HCFA never did assign Colby Manor's
provider number to Petitioner. I admit into evidence HCFA
Exs. 41 through 52.

During the prehearing conference on July 9, 1996, I scheduled
July 30, 1996, as the date the record would close. During
the July 9th conference, HCFA advised me that it would
comment by July 30, 1996 on Petitioner's submissions, which
it did. HCFA commented also on Petitioner's non-submissions.
HCFA included a copy of a Decision and Order for my
consideration. Petitioner has moved to strike at least part
of HCFA's July 30, 1996 submission [see Petitioner's letter
dated July 31, 1996}. Petitioner's Motion to Strike is
overruled, as I find HCFA's July 30, 1996 submission to be
timely and appropriate.

I find that no facts of decisional significance are in
dispute, and consequently there is no need for an in-person
hearing.' Based on the evidence in the written record and
the law, in light of the parties' written arguments,’ I

' The documentary evidence appeared to be
sufficient for my decision, so I did not hold the in-
person hearing that was scheduled to occur in Seattle,
Washington during the week of June 17, 1996. An in-
person hearing could address the limited issue of whether
Petitioner met Medicare participation requirements on
September 11, 1995. Following a telephone conference
with the parties on November 4, 1996, I again decided to
rely on the documentary evidence.

2 petitioner filed the following documents:
Motion for Summary Judgment and Supporting Memorandum;
(continued...)
4
affirm HCFA's determination that the effective date of

Petitioner's Medicare provider agreement is September 18,
1995.

ISSUE
The issue is whether Petitioner is entitled to an effective

date of its Medicare provider agreement any earlier than
September 18, 1995.

STIPULATION ON "RELOCATION OF COLBY MANOR"?

1. Consumer Homes, Inc., d/b/a Colby Manor, had a Medicare
provider agreement to provide SNF services.

2. During the pertinent time period, Consumer Homes, Inc.
was owned 100 percent by Tom Brown.

3. Prior to January 1, 1994, Nursing Home, Inc. was also
owned 100 percent by Tom Brown. The two corporations were
sister corporations.

4. The Washington State Department of Health issued a
Certificate of Need (CON) in April 1992 to Nursing Home,
Inc., to replace the 69 beds at Colby Manor, Everett, and
combine those beds with 31 beds being acquired from Aurora-
Edmonds Nursing Homes, Edmonds, to construct a 100-bed
nursing home.

5. Consumer Homes, Inc. ceased operating Colby Manor as a
SNF at the end of June 1995.

2(,...continued)
Response to HCFA's Summary Judgment Motion; Memorandum on
Agency; Reply Memorandum on Agency; Motion for Subpoena;
Response to HCFA Comments on HCFA Exs. 44-47.

HCFA filed the following documents: Motion for
Summary Judgment and Memorandum in Support; Reply
Memorandum, Opposing Petitioner's Motion for Summary
Judgment; Memorandum on Agency; Memorandum in Opposition
to Subpoena; Comments on HCFA Exs. 44-47; Memorandum in
Response to Kim Hagen Declaration.

3 I adopt the stipulation as executed by the
parties but have modified it according to the style of
the DAB.
5

6. Nursing Homes, Inc. did not purchase the stock of
Consumer Homes, Inc. and did not purchase the Colby Manor
plant or building.

7. Consumer Homes, Inc. is not Nursing Homes, Inc.

8. Tom Brown is not Sunrise Healthcare, Inc.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

1. Petitioner is a corporation, Nursing Home, Inc., doing
business as Everett Rehabilitation and Medical Center. P.
Exs. 1, 15.

2. On June 23, 1995, Petitioner opened for business in a
newly built physical plant and began providing skilled
nursing facility services in Everett, Washington.

3. Petitioner was a "new facility" in several respects:

(a) the physical plant Petitioner was occupying was
newly built;

(b) Petitioner's license from the State to operate a SNF
was newly issued;

(c) Petitioner was newly utilizing its 100-bed nursing
home CON from the State; and

(d) Petitioner was to become a new participant in
Medicaid and Medicare.

4. Petitioner did not purchase or otherwise acquire the
Medicare provider agreement and Medicare provider number of
Consumer Homes, Inc., doing business as Colby Manor.

5. Between June 23 and 26, 1995, all Colby Manor residents,
including one Medicare patient,‘ relocated from Colby Manor
to Petitioner's newly built physical plant. P. Exs. 11, 31.

6. A transfer of a Medicare patient does not constitute
transfer of a Medicare provider agreement.

4 The Medicare patient's initials are M. D. See
P. Ex. 28.
6

7. What transpired between June 23 and 26, 1995, between
Consumer Homes, Inc., doing business as Colby Manor, and
Petitioner, may be termed a "relocation" in two respects:

(a) all Colby Manor residents relocated from Colby Manor
to Petitioner's newly built physical plant; and

(b) Colby Manor's 69-bed nursing home CON from the State
"relocated" to Petitioner.

8. What transpired between June 23 and 26, 1995, between
Consumer Homes, Inc., doing business as Colby Manor, and
Petitioner, was not a relocation in two pivotal respects:

(a) the business entity itself, Consumer Homes, Inc.,
doing business as Colby Manor, did not relocate; and

(b) the Medicare provider agreement and Medicare
provider number of Consumer Homes, Inc., doing business
as Colby Manor, were not transferred to Petitioner.

9. "Relocation" of a Medicare provider cannot apply to an
entity that has no Medicare provider agreement and no
Medicare provider number. HCFA Exs. 41, 43.

10. The transaction may have been a "relocation" insofar as
the residents and the CON were concerned, but the transaction
was not a relocation with regard to any entity having a
Medicare provider agreement and Medicare provider number.

11. If the move had been a relocation of a Medicare
provider, the effective date of Petitioner's Medicare
provider agreement would have been June 23, 1995.

12. Colby Manor did not change its address. Colby Manor
closed. Colby Manor did not transfer its Medicare provider
agreement or its Medicare provider number.

13. On May 19, 1995, Tom Brown, as President of Colby Manor,
anticipating completion and licensure for occupancy of the
new Everett Medical and Rehabilitation Center, wrote to Kamla
Mehta, Manager, District 3, of the State, to give notice of
the termination of the Medicare and Medicaid contracts of
Consumer Homes, Inc., doing business as Colby Manor. P. Ex.
12.

14. On May 22, 1995, Kamla Mehta of the State called Tom
Brown to tell him that he had to withdraw his letter giving
notice of the termination of the Medicare and Medicaid
contracts of Consumer Homes, Inc., doing business as Colby
Manor; that Everett Rehabilitation Center was a replacement
7

facility, and residents had a right to move into the new
building. P. Ex. 11; HCFA Ex. 38 at 5-6.

15. When Consumer Homes, Inc., doing business as Colby
Manor, terminated its business at the end of June 1995, it
still had its Medicare provider agreement and Medicare
provider number.

16. A provider who ceases providing services is deemed to
have terminated voluntarily its Medicare provider agreement.
A cessation of business is deemed to be a termination by the
provider, effective with the date on which it stopped
providing services to the community. 42 C.F.R. §

489.52(b) (3).

17. Petitioner had no Medicare provider agreement and no
Medicare provider number when it opened for business on June
23, 1995.

18. The State's certification for Medicare and Medicaid
coverage effective June 23, 1995 was based upon a mistake --
the State erroneously asserted that Colby Manor had moved to
a new location.

19. Whether Petitioner knew the State was mistaken when the
State termed the transaction a relocation of a Medicare
provider is irrelevant for purposes of this Decision.

20. Pursuant to the regulations, the effective date of
Petitioner's Medicare provider agreement can be no earlier
than September 18, 1995. Findings 21-29.

21. Petitioner applied to become a Medicare SNF provider on
September 6, 1995. HCFA Ex. 6; HCFA Ex. 32 at 3.

22. Petitioner's administrator signed copies of the Medicare
provider agreement on September 8, 1995. P. Ex. 19.

23. Medicare regulations require direct observations of
patient care prior to certification. 42 C.F.R. § 488.26.

24. The on-site survey to determine whether Petitioner was
in substantial compliance with Medicare participation
requirements occurred on September 5-8 and September 11,
1995. HCFA Exs. 7, 8, 12, 15.

25. The effective date of the Medicare provider agreement is
the date the on-site survey is completed, if all Medicare
participation requirements are met on that date. Otherwise,
it is the earlier of: (a) the date on which the deficiencies
were corrected or (b) the date on which the provider
8

submitted a plan of correction acceptable to HCFA. 42 C.F.R.
§ 489.13(a), (b) (3).

26. Petitioner was found not to be in substantial compliance
with Medicare participation requirements, specifically,
Quality of Care and Resident Assessment. HCFA Exs. 12, 15.

27. On September 18, 1995, Petitioner submitted a plan of
correction acceptable to HCFA for the deficiencies found
during the on-site survey.

28. When a provider is found not to be in substantial
compliance, correction of the deficiencies or submission of a
plan of correction acceptable to HCFA is a condition
precedent to the SNF's ability to begin its participation in
the Medicare program. 42 C.F.R. § 489.13(b) (3).

29. Petitioner's Medicare provider agreement was approved
effective September 18, 1995. HCFA Exs. 19, 20.

30. On June 26, 1995, Kamla Mehta of the State wrote
Petitioner's administrator to indicate approval for occupancy
in the new location effective June 23, 1995 and an increase
to 24 Medicare beds. P. Ex. 2.

31. Petitioner fully expected to receive Medicare payments
for the care Petitioner provided to Medicare patients, based
on Kamla Mehta's advice during the May 22, 1995 meeting and
Kamla Mehta's letter dated June 26, 1995.

32. One Medicare patient relocated to Petitioner from Colby
Manor on June 26, 1995, and soon thereafter Petitioner began
to accept and provide care for additional Medicare patients.
P. Ex. 28.

33. Petitioner has been notified that it will not receive
Medicare payments accrued prior to September 18, 1995, the
effective date of its Medicare provider agreement.

34. From June 26, 1995 until September 18, 1995, Petitioner
provided care to Medicare patients, for whom Medicare
reimbursement "accrued" in the amount of nearly one-half
million dollars, which Petitioner has been notified HCFA will
not pay.

35. There were two sources of delay in Petitioner's
obtaining approval as a Medicare provider -- Petitioner and
the State.

36. HCFA did not contribute to the delay in Petitioner's
obtaining approval as a Medicare provider.
9

37. HCFA cannot delegate its decision-making powers.
Charter Hospital of Indianapolis, OHA Docket No. 000-51-7186
(1991) [hereinafter Charter Hospital]. HCFA Memorandum on
Agency at 1-3, plus Attachment A.

38. The State survey agency should ascertain whether a SNF
meets the requirements of participation and make its
recommendations to HCFA. 42 C.F.R. § 489.10(d). Mountain
View Hospital District and Nursing Home, OHA Docket No. 000-
01-7036 (1990) [hereinafter Mountain View). HCFA Declaration
in Response to Kim Hagen at 2, plus attachment.

39. The State has no decision-making authority regarding a
provider's Medicare agreement. The State merely recommends;
HCFA decides. HCFA Ex. 48; Mountain View; Charter Hospital.

40. Estoppel is an equitable principle which, if applied
here, would conflict with the regulations.

41. An administrative law judge does not have the authority
to relieve Petitioner of the requirements under the
regulations for beginning its Medicare participation.

DISCUSSION

I. Petitioner thought it had a Medicare provider agreement
and provider number, effective June 23, 1995.

Petitioner's representatives had planned carefully the
opening of Everett Rehabilitation and Medical Center. On
April 26, 1995, Petitioner's representatives met with Carolyn
Enloe of the State. P. Exs. 30, 31. During the April 26,
1995 meeting, Petitioner's representatives were advised of
the process for a new SNF provider to obtain a Medicare
provider agreement, that is, for the facility to be surveyed
after patients (usually private pay patients) had been
admitted, so that the care given could be assessed.

This process has been termed the "Richmond Beach" process,
because Petitioner's representatives had been involved in
obtaining a Medicare provider agreement in that way for their
Richmond Beach facility the year before. HCFA Ex. 36; P.
Exs. 32, 33. :

On April 28, 1995, Petitioner's representatives applied for a
State license to operate a 100-bed nursing home. P. Ex. 15.
Petitioner's representatives had previously acquired, when
they bought the stock of Nursing Home, Inc., a Certificate of
Need from the State for 100 nursing home beds (to replace
Colby Manor's 69 beds and to add 31 more beds from Aurora-
10

Edmonds Nursing Homes). P. Ex. 14. The exhibits do not
contain an updated Certificate of Need.

Petitioner's representatives purposely did not acquire an
already existing Medicare provider agreement and provider
number. As a new provider, Petitioner was entitled to a
higher rate of reimbursement than that of Colby Manor. HCFA
Exs. 42, 52. See 42 C.F.R. §§ 413.13, 413.30(e) (2).
Consequently, Petitioner's representatives chose not to
obtain the Medicare provider agreement and Medicare provider
number of Consumer Homes, Inc., doing business as Colby
Manor. HCFA Exs. 42, 52.

On the morning of May 22, 1995, Petitioner's representatives
met with Kamla Mehta of the State. P. Exs. 30, 31. During
the May 22, 1995 meeting, Petitioner's representatives were
advised by Kamla Mehta that Petitioner was a replacement
facility for Colby Manor, and that the current Medicare and
Medicaid certification for Colby Manor would transfer with
the patients and begin June 23, 1995, the date the patient
transfer would begin. HCFA Ex. 38; P. Exs. 32, 33.

On May 31, 1995, Petitioner signed a Medicaid contract with
the State. Petitioner was identified in the contract as
Nursing Home, Incorporated, doing business as Everett
Rehabilitation and Medical Center. HCFA Ex. 47.

On June 23, 1995, the State licensed Petitioner and certified
it for Medicare and Medicaid, including 24 Medicare beds.

The Medicare and Medicaid Certification and Transmittal is
signed by Kamla Mehta, Manager, District 3, of the State. P.
Ex. 17.

"Certification" is defined by the regulations as "a
recommendation made by the State survey agency on the
compliance of providers and suppliers with the conditions of
participation, requirements (for SNFs and NFs), and
conditions of coverage." 42 C.F.R. § 488.1.

The Medicare and Medicaid Certification by the State includes
the following State Survey Agency Remarks (which are
erroneous): "({e)ffective June 23, 1995 Colby Manor has moved
to a new location, increased their total number of beds and
changed its name to Everett Rehabilitation Medical Center.
State agency approves occupancy." P. Ex. 17.

On June 26, 1995, Kamla Mehta of the State wrote Petitioner's
administrator to indicate approval for occupancy in the new
location effective June 23, 1995 and an increase to 24
Medicare beds. P. Ex. 2.
11

Petitioner fully expected to receive Medicare payments for
the care Petitioner provided to Medicare patients, based on
the State's Certification dated June 23, 1995. P. Ex. 17.
One Medicare patient relocated to Petitioner from Colby Manor
on June 26, 1995, and soon thereafter Petitioner began to
accept and provide care for additional Medicare patients. P.
Ex. 28.

From June 26, 1995 until September 18, 1995, Petitioner
provided care to Medicare patients, for whom Medicare
reimbursement "accrued" in the amount of nearly one-half
million dollars, which Petitioner has been notified HCFA will
not pay.

II. The move of Colby Manor residents to Petitioner's newly
built physical plant was not a relocation of a Medicare
provider.

The move of Colby Manor residents to Petitioner's newly built
physical plant on June 23-26, 1995, was not a relocation of a
Medicare provider. If the move had been a relocation of a
Medicare provider, the effective date of Petitioner's
Medicare provider agreement would have been June 23, 1995.°
"Relocation" of a Medicare provider cannot apply to an entity
that has no Medicare provider agreement and no Medicare
provider number. HCFA Exs. 41, 43. Petitioner, Nursing
Home, Inc., doing business as Everett Rehabilitation and
Medical Center, had no Medicare provider agreement and no
provider number when it opened for business in its newly
built physical plant.

The entity that had a Medicare provider agreement and a
provider number, Consumer Homes, Inc., doing business as
Colby Manor, aid not move into Petitioner's newly built
physical plant. Neither did it transfer to Petitioner its
Medicare provider agreement and provider number.

III. The State mistakenly certified Petitioner's Medicare
coverage effective June 23, 1995.

On June 5 and 9, 1995, Petitioner was surveyed by the State.
P. Ex. 2. The June 5 and 9, 1995 survey was a preoccupancy
survey, one that does not include observations of patient
care. HCFA Exs. 36, 37.

> petitioner's representatives chose not to
acquire Colby Manor's Medicare provider agreement and
provider number. A benefit of beginning anew is the
higher rate of reimbursement. HCFA Exs. 42, 52. A
disadvantage is the waiting period.
12

On June 23, 1995, the State licensed Petitioner and certified
it for Medicare and Medicaid, including 24 Medicare beds.®
The Medicare and Medicaid Certification and Transmittal is
signed by Kamla Mehta, Manager, District 3, of the State. P.
Ex. 17.

The State's certification for Medicare and Medicaid coverage
effective June 23, 1995, was based upon a mistake. The
State's finding that "[e]ffective June 23, 1995 Colby Manor
has moved to a new location, increased their total number of
beds and changed its name to Everett Rehabilitation Medical
Center" was erroneous. P. Ex. 17.

Beginning in May 1995, the State mistakenly treated as a
relocation of a Medicare provider the upcoming move of Colby
Manor residents to Petitioner's newly built physical plant.
One way that move could have been a relocation of a Medicare
provider was for Petitioner to have obtained the Medicare
provider agreement and Medicare provider number of Consumer
Homes, Inc., doing business as Colby Manor. That is not,
however, what the corporations involved had in mind.
Petitioner bought the stock of the corporation that held the
CON; Petitioner did not buy the stock of the corporation that
had a Medicare agreement.

The State was mistaken when it determined that the
transaction was a relocation of a Medicare provider. Whether
Petitioner knew the State was mistaken is irrelevant for
purposes of this Decision.

Iv. Petitioner obtained a Medicare provider agreement,
effective September 18, 1995.

Pursuant to the regulations, the effective date of
Petitioner's Medicare provider agreement can be no earlier
than September 18, 1995. Petitioner's requirements under the

6 petitioner argues that it relied on the State's
determinations that its Medicare and Medicaid coverage
would begin when it opened its doors, June 23, 1995.
Petitioner maintains that "HCFA's recourse is to make an
initial survey a condition of continued Medicare
participation." P. Reply Memorandum on Agency at 2.
Petitioner's Medicare coverage could not have begun the
day it opened its doors, because of the roughly 20 days
(or more) required for a new provider to demonstrate that
it meets Medicare participation requirements. See
Discussion at V.
13

regulations for beginning its Medicare program participation
are summarized as follows:

Petitioner is required by the regulations to make
application to participate in Medicare. 42 C.F.R. §
489.10. Petitioner applied to become a Medicare
provider of skilled nursing facility services on
September 6, 1995. HCFA Ex. 6; HCFA Ex. 32 at 3.

Petitioner is required by the regulations to sign copies
of the Medicare provider agreement. 42 C.F.R. § 489.11.
Petitioner's Administrator signed the agreement on
September 8, 1995. P. Ex. 19.

Petitioner is required by the regulations to undergo an
on-site survey to determine whether Petitioner is in
substantial compliance with Medicare participation
requirements. 42 C.F.R. §§ 488.10, 488.11. Medicare
regulations require direct observations of patient care
prior to certification. 42 C.F.R. § 488.26. Pre-
occupancy license surveys do not assess actual patient
care. HCFA Ex. 37. The effective date of the Medicare
provider agreement is the date the on-site survey is
completed, if all Medicare participation requirements
are met on that date. 42 C.F.R. § 489.13(a).
Petitioner's on-site survey occurred on September 5-8
and September 11, 1995. HCFA Exs. 7, 8, 12, 15.

Petitioner is required by the regulations to be in
substantial compliance’ with Medicare participation
requirements, or at least to submit a plan of
correction’ acceptable to HCFA. 42 C.F.R. §

489.13(b) (3). Petitioner was found not to be in
substantial compliance with Medicare participation
requirements, specifically Quality of Care and Resident
Assessment. HCFA Exs. 12, 15. On September 18, 1995,
Petitioner submitted a plan of correction acceptable to

7 Substantial compliance means a level of
compliance with the requirements of participation such
that any identified deficiencies pose no greater risk to
resident health or safety than the potential for causing
minimal harm. 42 C.F.R. § 488.301. See also 59 Fed.
Reg. 56,183 (1994).

8 Plan of correction means a plan developed by
the facility and approved by HCFA or the survey agency
that describes the actions the facility will take to
correct deficiencies and specifies the date by which
those deficiencies will be corrected. 42 C.F.R. §
488.401.
14

HCFA for the deficiencies found during the on-site
survey.

Petitioner's Medicare provider agreement was approved
effective September 18, 1995. HCFA Exs. 19, 20.

Vv. Petitioner's approval as a Medicare provider was delayed
for more than two months.

The on-site survey to determine whether Petitioner was in
substantial compliance with Medicare participation
requirements would likely have been done promptly after
Petitioner opened, had the process for a new provider, the
"Richmond Beach" process, been implemented. Consequently,
the direct observations of actual patient care, which are
required for a new provider to obtain a Medicare agreement
and provider number, would likely have occurred promptly
after Petitioner opened. Petitioner would likely have
addressed promptly in a plan of correction any deficiencies
found. HCFA would likely have communicated promptly whether
Petitioner's plan of correction was acceptable.

My expectation that these actions would all have occurred
promptly, had the process for a new provider been initiated,
is based on actual events once Petitioner "got on the right
track" for a new provider, during September 1995, and based
also on the Richmond Beach experience, when the process from
the facility's opening to Medicare certification took about
20 days. P. Exs. 32, 33. Had Petitioner's certification as
a new Medicare provider taken roughly the same amount of time
after opening as demonstrated by those two events, Petitioner
would likely have been approved for a Medicare agreement by
mid-July 1995.° Since the effective date of Petitioner's
Medicare agreement is September 18, 1995, I conclude that
Petitioner's approval as a Medicare provider was delayed for
more than two months."°

9 Whether Petitioner could have opened earlier
than June 23, 1995, had Petitioner known it would be
undergoing the "Richmond Beach" process, is not clear.
Whether any of the beds under Petitioner's Certificate of
Need from the State [P. Ex. 14], was available to it
earlier than June 23, 1995, such as any of the 31 beds it
was acquiring from Aurora-Edmonds Nursing Homes, Edmonds,
is not clear.

10 During the more than two month-delay,
Petitioner provided care to Medicare beneficiaries.
Medicare reimbursement would have amounted to nearly one-
half million dollars. HCFA Ex. 42; P. Ex. 32 at 9.
15

There were two sources of delay in Petitioner's obtaining
approval as a Medicare provider: Petitioner and the State.

A. Examples of Petitioner's contribution to the delay:

1. When Petitioner's representatives -- i.e., Richard
Marcotte, Russell Kubik -- met with Kamla Mehta of the
State on the morning of May 22, 1995, they failed to
tell her specifically that petitioner's representatives
had chosen not to obtain the Medicare provider agreement
and Medicare provider number of Consumer Homes, Inc.,
doing business as Colby Manor. P. Exs. 32, 33; HCFA Ex.
38.

2. It is not clear when Petitioner's representatives
got a copy of the Medicare and Medicaid Certification by
the State. The remarks therein, "[e]ffective June 23,
1995 Colby Manor has moved to a new location, increased
their total number of beds and changed its name to
Everett Rehabilitation Medical Center" were a red flag
-- Petitioner's representatives knew that Colby Manor
didn't move and didn't change its name. P. Ex. 17. Yet
Petitioner's representatives failed to correct the
record.

3. As early as July 5, 1995, Petitioner's
representatives expected to follow up with HCFA, but
failed to do so, regarding the Medicare and Medicaia
Certification by the State. HCFA Ex. 46; HCFA Comments
on HCFA Exhibits 44-47 at 7.

4. On or about July 26, 1996, in response to HCFA's
inquiry about whether Petitioner "should be treated as a
relocation or as a new facility for purposes of the
Medicare program," Petitioner's representative Russell
Kubik advised Petitioner's paralegal, Kim Hagen, "that
the matter was already taken care of and was a moot
issue." P. Ex. 37. Consequently, Kim Hagen responded
to Kirk Pagett's inquiry, that Russ Kubik had said
everything was taken care of, so why was he even working
on this. HCFA Ex. 45.

B. Examples of the State's contribution to the delay:

1. When Kamla Mehta, Manager, District 3, of the State,
met with Petitioner's representatives on the morning of
May 22, 1995, she failed to inquire specifically whether
Petitioner was acquiring the Medicare provider agreement
and Medicare provider number of Consumer Homes, Inc.,
doing business as Colby Manor. HCFA Ex. 38; P. Exs. 32,
33.
16

2. Kamla Mehta failed to make adequate inquiry upon her
receipt of a letter from Tom Brown on the afternoon of
May 22, 1995. HCFA Ex. 38. On May 19, 1995, Tom Brown,
as President of Colby Manor, anticipating completion and
licensure for occupancy of the new Everett Medical and
Rehabilitation Center, had written to Kamla Mehta, to
give notice of the termination of the Medicare and
Medicaid contracts of Consumer Homes, Inc., doing
business as Colby Manor. P. Ex. 12; HCFA Ex. 38.

Kamla Mehta apparently did not want to believe Tom
Brown's letter. She wrote, on or about September 15,
1995:

May 22 .. . Received Letter from Tom Brown
re: Colby Manor Terminating
Medicare/Medicaide [sic] contract. He also
mailed similar letter to residents.

May 22... I called and told him that he
has to withdraw that letter. Everett Rehab
Center is a replacement facility, residents
have right to move to new building.

P. Ex. 11.

3. Kamla Mehta assumed that Tom Brown would "withdraw
that letter," as she had instructed. P. Ex. 11.
Kamla Mehta consequently failed thereafter to
determine the status of the Medicare provider
agreement and Medicare provider number of Consumer
Homes, Inc., doing business as Colby Manor.

4. Kamla Mehta failed to grasp the significance of the
SUN HEALTHCARE GROUP, INC. and SUNRISE HEALTHCARE
CORPORATION letterhead of the letters she received
from Petitioner's representatives prior to
Petitioner's opening. P. Exs. 4, 9, 15, 16.

5. The State failed to note Petitioner's identity as
specified in Petitioner's Application for License
to Operate a Nursing Home: "Nursing Home, Inc. is
100% owned by Sunrise Healthcare Corporation and
Sunrise Healthcare Corporation . . . [is] 100%
owned by Sun Healthcare Group, Inc." P. Ex. 1 at
6.
17

6. The State may have failed until about July 19,
1995,"' to forward to HCFA the State's Medicare and
Medicaid Certification for Petitioner, which
contained the remarks: "[e)ffective June 23, 1995
Colby Manor has moved to a new location, increased
their total number of beds and changed its name to
Everett Rehabilitation Medical Center." HCFA Ex.
4; P. Ex. 11.

7. In August 1995, the State failed to act promptly
upon information from Hannah Hirabayashi of HCFA
that Sun Health Care Group was the new corporation
and was a CHOW -- "CHOW" means change of ownership.
Kamla Mehta's response was that the State was not
considering [the transaction] as a CHOW. P. Ex. 11
at 2.

8. Through September 7, 1995, Kamla Mehta failed to
alert Petitioner's representatives to the potential
consequences of Petitioner failing to have a
Medicare provider agreement and Medicare provider
number. P. Exs. 12, 32.

I find specifically that HCFA did not contribute to the
delay.

In May 1995, Kamla Mehta described the transaction for
Hannah Hirabayashi at HCFA by telling her that Colby
Manor was moving. Based on the information Kamla Mehta
gave her, Hannah Hirabayashi concluded that the
transaction was a relocation. HCFA Exs. 39, 38. Thus,
Kamla Mehta wrote on May 26, 1995: "I have discussed
with Hanna [sic] at ROX [Hannah Hirabayashi at HCFA
Regional Office, Region X], as all Colby Manor residents
will be moving, she says they do not have to get new
[M]jedicare/Medicaid certification. WE should only
notify ROX date of move, name and address change and
change of ownership if any." P. Ex. 10.

About July 24, 1995, HCFA became aware that further
investigation was necessary: "(q]uestions from Kirk
Pagett (Petitioner's representative, Sunrise Senior
Reimbursement Analyst] cast doubt on the state's
recommendation, and we began to collect information to
determine the facts after his phone call July 24, 1995
{emphasis added]." HCFA Ex. 43 at 4-5; HCFA Ex. 4.

"The Certification had been signed on June 27,
1995. The State indicated they sent it to HCFA on June
28, 1995. HCFA Ex. 46.
vi.

18

HCFA may not have received the State's Medicare and
Medicaid Certification for Petitioner until about July
19, 1995. P. Ex. 11; HCFA Ex. 4. The State indicated
they sent it to HCFA on June 28, 1995. HCFA Ex. 46.

As early as July 26, 1995, Petitioner knew that HCFA was
trying to determine whether Colby Manor had relocated or
whether Petitioner was a new provider that needed a
survey and a new provider number. This is confirmed in
the notes of Petitioner's paralegal, Kim Hagen. HCFA
Ex. 44 at 10; HCFA Comments on HCFA Exhibits 44-47 at 3-
4; HCFA Memorandum in Opposition to Subpoena at 8. HCFA
never did assign Colby Manor's provider number to
Petitioner. HCFA Ex. 43 at 4-5; HCFA Ex. 51.

On August 22 or 23, 1995, Hannah Hirabayashi of HCFA
called Kamla Mehta of the State to let her know that it
was HCFA's opinion that Petitioner was a new facility
and that an initial survey should be conducted as soon
as possible. HCFA Ex. 33 at 4. On August 23, 1995,
Hannah Hirabayashi of HCFA advised Kirk Pagett that
“after talking to their in-house attorney that it
appears Everett is a brand new facility which needed to
be surveyed and given their own Medicare #." HCFA Ex.
45 at 2. On August 25, 1995, Hannah Hirabayashi of HCFA
advised Kirk Pagett that she hoped the patients would be
paid for that were in the facility, but there was no
guarantee. She also explained the survey process for a
new facility. HCFA Ex. 45 at 4; P. Ex. 31.

On September 6, 1995, Hannah Hirabayashi of HCFA advised
Kirk Pagett that Petitioner should not admit any more
Medicare and Medicaid patients until Petitioner was
certified. HCFA Ex. 48. On September 7, 1995, HCFA's
message that HCFA would not pay for Medicare residents
until a survey is done was relayed by Kamla Mehta to
Petitioner. P. Exs. 11, 32.

HCFA is not bound by the mistakes that were made in
determining the effective date of Petitioner's Medicare

provider agreement.

Petitioner argues that HCFA is bound by the State's erroneous
determinations, because the State is HCFA's agent:

Of course, the agency relationship does not preclude
HCFA, as principal, from later deciding an initial
survey is required. The relationship, however, prevents
HCFA from avoiding the authorized actions of its agent,
DSHS [the State]. Because HCFA cannot avoid its agent's
decision that a relocation occurred, [Petitioner] is
19

entitled to the full benefit of that decision and the
June 23 1995 effective date.

P. Reply Memorandum on Agency at 10.
The State has no decision-making authority regarding a

provider's Medicare agreement. The State merely recommends;
HCFA decides. HCFA Ex. 48; Mountain View; Charter Hospital.

HCFA has a contractual relationship with the State, which is
further defined and clarified by statutes and regulations.
Certain responsibilities are assigned to the State, including
the certification-related duties of "explaining the
requirements and conditions for qualifying as a provider or
supplier of services," and "surveying for the purpose of
certifying to the Secretary compliance or non-compliance of
providers and suppliers. . . ." P. Ex. 35 at 8-9.

"Certification" is defined as "a recommendation made by the
State survey agency on the compliance of providers and
suppliers with the conditions of participation, requirements
(for SNFs and NFs), and conditions of coverage." 42 C.F.R. §
488.1.

Certifications by the State survey agency represent only
recommendations to HCFA. On the basis of those
recommendations, HCFA will determine whether a provider is
eligible to participate in or be covered under the Medicare
program. Mountain View.

As provided by Mountain View:

42 CFR 488.10 and 488.11 provide that State agencies
that have agreements under Section 1864(a) of the Social
Security Act (42 U.S.C. 1395aa) may survey and make
recommendations whether prospective providers meet the
Medicare conditions of participation. 42 CFR 488.12
provides that certifications by the State survey agency
represent recommendations to HCFA and that on the basis
of those recommendations, HCFA will determine whether a
provider is eligible to participate in or be covered
under the Medicare program. 42 CFR 489.10(b) provides
that the State survey agency will ascertain whether the
provider meets the conditions of participation or
requirements (for skilled nursing facilities) and make
its recommendations to HCFA.

Based on these regulations, it is clear that the State
agency is responsible for making recommendations
regarding Medicare participation, and that HCFA is
solely responsible for entering into Medicare agreements
with providers. The survey recommendations which
20

resulted after the surveys done in February, March and
April 1988 did not have any greater significance. They
formed the basis upon which HCFA would execute an
agreement for Medicare participation. The survey
results could not, under the regulations, amount to the
agreement itself.

The last concern to be addressed is whether Respondent
should be estopped from establishing the effective date
of the Medicare agreement later than February 5, 1988,
based on the erroneous advice petitioner received from
the State survey agency and upon which Petitioner relied
to its detriment. However, there is no authority which
allows the petitioner to prevail on this argument.

While the result in this case is unfortunate it is
mandated by the controlling authority of the Social
Security Act and implementing regulations.

Mountain View, at 2-3.

HCFA cannot delegate its decision-making powers. Charter
Hospital. Regarding the effective date of the Medicare
provider agreement, Charter Hospital concludes:

Sections 1861, 1864 and 1866 [of the Social Security
Act”) specifically delegate authority to HCFA to
contract with State agencies to perform virtually any
form of facility survey needed and make recommended
findings to HCFA. The regulations set forth the State
agencies' responsibility and role with clarity and
repeat the caveat that their decisions are only
recommendations. See 42 CFR 488.11(a), (c) and
488.12(a).

Charter Hospital, at 5-6.

The Act grants HCFA the authority to delegate its
investigative powers, but it does not allow HCFA to
delegate its decision-making powers. Since only HCFA
may decide who participates in Medicare, any comments or
assertions made by the surveyors must be treated as
dicta. HCFA cannot delegate the decision-making power
exclusively conferred upon it by statute.

Furthermore, inasmuch as the regulations make it clear
that the surveyors are only empowered to recommend, the
provider or prospective provider must be deemed to

2 42 U.S.C. § 1395x, 42 U.S.C. § 1395aa, and 42
U.S.C. § 1395cc.
21

proceed at its own risk if it anticipates what action
HCFA will take.

Charter Hospital, at 6.

VII. Petitioner claims estoppel.

Petitioner claims that HCFA is estopped from denying
Petitioner a June 23, 1995 effective date of its Medicare
provider agreement. Estoppel is an equitable principle
which, if applied here, would conflict with the regulations.
My authority is limited. I do not have the authority to
relieve Petitioner of the requirements under the regulations
for beginning its Medicare participation.

Further, an estoppel theory presents an uneasy fit in these
circumstances, where the State has no decision-making
authority regarding a provider's Medicare agreement. The
State merely recommends; HCFA decides. HCFA Ex. 48. HCFA
decided, correctly under the regulations, to approve
Petitioner's Medicare provider agreement with an effective
date of September 18, 1995. HCFA Exs. 19, 20, 43 at 4-5;
HCFA Ex. 51.

CONCLUSION

The effective date of Petitioner's Medicare provider
agreement is September 18, 1995, and no earlier.

/s/

Jill S. Clifton
Administrative Law Judge


Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD
Civil Remedies Division

In the Case of:
Paul Karsch, DATE: January 27, 1997
Petitioner,

Docket No. C-96-374
Decision No. CR454

-v-

The Inspector General.

DECISION

By letter dated July 19, 1996, Paul Karsch (Petitioner)
was notified by the Inspector General (I.G.), U.S.
Department of Health & Human Services, that it had
decided to exclude him for a period of five years from
participation in the Medicare program and from
participation in the State health care programs described
in section 1128(h) of the Social Security Act (Act). I
use the term "Medicaid" in this Decision when referring
to the State programs. The I.G. explained that the five-
year exclusion was mandatory under sections 1128(a) (1)
and 1128(c)(3)(B) of the Act because Petitioner had been
convicted of a criminal offense related to the delivery
of an item or service under the Medicare program.

Petitioner filed a timely request for review of the
I.G.'s action, and the I.G. filed a motion for summary
disposition, accompanied by a supporting brief with five
exhibits. I have marked and identified these exhibits as
I.G. Ex. 1 through 5. Petitioner submitted a brief in
response, with three exhibits. I have marked these
exhibits as Petitioner's Ex. 1 through 3. As neither
party has contested the authenticity of the exhibits
introduced by the other party, I am admitting all the
exhibits into evidence.

Because I have determined that there are no material and
relevant factual issues in dispute (i.e., the only matter
to be decided is the legal significance of the undisputed
facts), I have granted the I.G.'s motion and decide the
2

case on the basis of written submissions in lieu of an
in-person hearing.

I affirm the 1.G.'s determination to exclude Petitioner
from participation in the Medicare and Medicaid programs
for a period of five years.

APPLICABLE LAW

Sections 1128(a) (1) and 1128(c) (3) (B) of the Act make it
mandatory for any individual who has been convicted of a
criminal offense related to the delivery of an item or
service under Medicare or Medicaid to be excluded from
participation in such programs for a period of at least
five years.

PETITIONER'S ARGUMENT

Petitioner concedes that he pled guilty to a misdemeanor
pursuant to a Plea Agreement executed on November 22,
1994. Petitioner contends, however, that the document
specifically identified the terms and conditions of the
plea and that such document failed to inform him of the
exclusion provisions of 42 U.S.C. § 1320a-7, the
codification of section 1128 of the Act. Petitioner
maintains that, in order for him to have knowingly and
voluntarily entered into a plea agreement, he was
entitled to full disclosure of all consequences,
including exclusion from the Medicare and Medicaid
programs, as a result of entering a guilty plea.
Petitioner contends that his right to make an informed
decision concerning his guilty pleas was thus violated.
Petitioner further argues that his right to be free from
double jeopardy was violated when, after being punished
in a criminal prosecution, he is penalized by the
subsequent civil sanction of exclusion from the Medicare
and Medicaid programs.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

1. Petitioner was the manager of ATS Medical Services
Inc. (ATS), a Pennsylvania corporation providing medical
services for Medicare patients. I.G. Ex. 3.

2. ATS was affiliated with AMOX Medical (AMOX), a
Massachusetts corporation providing similar services to
Medicare patients. I.G. Ex. 3.
3

3. Medicare contracts with various private insurance who
will administer the processing and payment of claims by
Medicare providers.

4. All claims for Medicare services provided by ATS to
patients in Pennsylvania were required to be filed with
Pennsylvania Blue Shield. I.G. Ex. 3.

5. All claims for Medicare services provided by AMOX for
patients in Maine, New Hampshire, and Massachusetts were
required to be filed with Massachusetts Blue Shield.

I.G. Ex. 3.

6. Reimbursement rates for medical services vary from
location to location throughout the United States.

7. Petitioner caused to be filed with Pennsylvania Blue
Shield a claim which falsely represented that certain
health care services were provided in Pennsylvania,
whereas in fact the services had been provided by AMOX in
Massachusetts. I.G. Ex. 3.

8. On December 29, 1994, a criminal information was
filed in the United States District Court, Middle
District of Pennsylvania, charging Petitioner with
wilfully making false statements on an application for
Medicare reimbursement. I.G. Ex. 3.

9. Petitioner pleaded guilty to the offense charged in
the information pursuant to a plea bargain negotiated
with the United States Attorney. I.G. Ex. 4.

10. The Court accepted Petitioner's plea and entered
judgment against him on June 1, 1995. I.G. Ex. 5.

11. Petitioner was ordered to pay a $3000 fine and $25
assessment. I.G. Ex. 5.

12. Petitioner's guilty plea, and the court's acceptance
of that plea, constitutes a "conviction" within the
meaning of section 1128(i)(3) of the Act.

13. For the mandatory exclusion of section 1128(a)(1) to
apply, the criminal offense giving rise to the conviction
must be related to the delivery of items or services
under the Medicare or Medicaid programs.

14. Filing false claims under the Medicare or Medicaid
programs is a program-related offense.
4

15. Petitioner herein was convicted of a criminal
offense "related to the delivery of an item or service"
under the Medicare program, within the meaning of section
1128(a)(1) of the Act.

16. Exclusion of Petitioner does not subject him to
double jeopardy.

17. A defendant in a criminal proceeding does not have
to be advised of all the possible consequences, such as
temporarily being barred from government reimbursement
for his professional services, which may flow from his
guilty plea.

18. Sections 1128(a)(1) and 1128(i) of the Act, read
together, provide adequate notice of the consequences
which could result from conviction of an offense related
to the delivery of an item or service under the Medicare
program.

19. Pursuant to section 1128(a)(1) of the Act, the I.G.
is required to exclude Petitioner from participating in
the Medicare and Medicaid programs.

20. The minimum mandatory period for exclusions pursuant
to section 1128(a)(1) of the Act is five years.

21. The I.G. properly excluded Petitioner from
participation in the Medicare and Medicaid programs for a
period of five years pursuant to sections 1128(a)(1) and
1128(c)(3)(B) of the Act.

22. Neither the I.G. nor the administrative law judge
has the authority to reduce the five-year minimum
exclusion mandated by sections 1128(a) (1) and
1128(c)(3)(B) of the Act.

DISCUSSION

The first statutory requirement for mandatory exclusion
pursuant to section 1128(a)(1) of the Act is that the
individual subject to such action must have been
convicted of a criminal offense under federal or State
law. Section 1128(i)(3) provides, inter alia, that when
a person enters a guilty plea to a criminal charge and
the court accepts such plea, the individual will be
regarded as having been convicted within the meaning of
section 1128 of the Act. In the case at hand, Petitioner
concedes that he entered a plea of guilty to filing false
claims under the Medicare program in violation of 42
U.S.C. § 1320a-7b(a) and that the United States District
5

Court for the Middle District of Pennsylvania accepted
his plea. Petitioner's admissions are supported by the
evidence adduced by the I.G., and I therefore find that
Petitioner was convicted of a criminal offense within the
meaning of the Act.

Next, section 1128(a)(1) of the Act requires that the
criminal offense in question be related to the delivery
of an item or service under Medicare or Medicaid.
Petitioner does not dispute that he pled guilty to the
offense of filing a false claim under the Medicare
program. Departmental Appeals Board (DAB) case law has
long held that filing false Medicare or Medicaid claims
constitutes clear program-related misconduct, sufficient
to mandate exclusion. See, e.g., Jack W. Greene, DAB
CR19 (1989), aff'd DAB 1078 (1989), aff'd sub nom. Greene
yv. Sullivan, 731 F.Supp. 835, 838 (E.D. Tenn. 1990). I
accordingly find that the offense which Petitioner was
charged and convicted of in the present case constitutes
criminal fraud related to the delivery of Medicare
services.

With respect to the double jeopardy issue, the impact of
the double jeopardy clause on civil and criminal multiple
"punishments" was extensively reviewed in U.S. v. Halper,
490 U.S. 435 (1985). There, the Supreme Court recognized
that in the rare case a civil penalty may be so extreme
and so disproportionate to the Government's actual
damages and expenses as to constitute prohibited
punishment. Id. at 447-51. The Halper Court
specifically recognized that the question of double
jeopardy was not dependent solely on whether the penalty
was characterized as "civil" or "criminal." Rather, the
focus was on the purpose and effect of the penalties on
the particular case.

The remedial nature of the mandatory exclusion was
examined in Manocchio v. Sullivan, 768 F.Supp. 814 (S.D.
Fl. 1991), where the Court applied the Supreme Court's
two-prong test. The first prong is a determination of
Congress' intent. The Court found that because specific
sections of the 1987 Amendments were labelled "criminal,"
other sections not so entitled, such as the mandatory
exclusion, were remedial. Second, the Court examined the
purpose and effect of the exclusion period and found its
intent, as expressed by Congress, was clearly remedial
and intended: (i) to protect the Medicare and Medicaid
programs from fraud and abuse, and (ii) to protect
citizens who rely on the integrity of participants in the
6

program.' The Court held that there was sufficient
public interest in excluding convicted providers that the
exclusion did not violate either the double jeopardy or
the ex post facto clauses. Therefore, the Court found
that, as the provider failed to establish that there was
no rational relationship between the nonpunitive
interests and the exclusion period, his appeal must fail.

The remedial nature of the 1987 Amendments was also
considered in Greene v. Sullivan, 731 F.Supp. 838, 840
(E.D. Tenn. 1990).? There a District Court held the
double jeopardy arguments of Halper inapplicable to the
case of a pharmacist who had been convicted for having
filed a false report and as a result had received a
mandatory five-year exclusion. That Court particularly
noted the agency's argument that in Greene, as opposed to
Halper, the government was not seeking any monetary
recovery. Rather, as in the instant case, the government
sought to protect the Medicare and Medicaid programs by
excluding persons convicted of defrauding those programs.
These goals, the Court declared, “are clearly remedial
and include protecting beneficiaries, maintaining program
integrity, fostering public confidence in the program,
etc." 731 F. Supp. at 840. Thus, the exclusion remedy
is more analogous to the revocation of a professional
license for misconduct than it is punitive, and
accordingly there is no double jeopardy. 731 F. Supp. at
840; Dewayne Franzen, DAB 1165, at 11-12 (1990).

Clearly Petitioner has not here established that his
exclusion presents one of those rare Halper cases in
which the civil penalty is extreme and bears no rational
relation to the remedial goals. The primary purpose of
this exclusion is not to punish Petitioner, but to
protect the programs, beneficiaries, and recipients from
future misconduct by a provider who has proved himself
untrustworthy. See Manocchio v. Sullivan, supra.

Finally, Petitioner argues that he should not be subject
to an exclusion under section 1128(a)(1) because he was
not informed in the criminal proceeding that he would be
excluded from the Medicare and Medicaid programs as a
result of his conviction. Petitioner asserts that he was

' See S.Rep. No. 100-109, 100th Cong., 1st Sess.
1-2 (1987), reprinted in 1987 U.S.C.C.A.N. 682.

2? For additional discussion of the remedial
nature of the 1987 Amendments, see 57 Fed. Reg. 3744
(January 29, 1992).
7

deprived of his due process, as he claims that he has
been deprived of his livelihood.

This argument is essentially the same as an argument made
by a petitioner in the case Douglas Schram, R.Ph., DAB
CR215 (1992), aff'd DAB 1372 (1992). In that case, the
petitioner argued that his due process rights were
violated because he was deprived of the notice necessary
to understand the possible consequences of his guilty
plea. The petitioner asserted that, had he known of the
consequences of his plea, he would have pled differently.
This argument was rejected. In rejecting this argument,
I cited U.S. v. Suter, 755 F.2d 523, 525 (7th Cir. 1985),
for the proposition that a defendant in a criminal
proceeding does not have to be advised of all the
possible consequences which may flow from his plea of
guilty. DAB CR215, at 6. The appellate panel of the DAB
affirmed this decision, finding that it "correctly held
that, as defendant, Petitioner did not have to be
advised of all the possible consequences of his plea."
DAB 1372, at 11. The DAB has held in other cases that
arguments about the process leading to a petitioner's
criminal conviction are completely irrelevant to an

exclusion proceeding. See, e.g., Charles W. Wheeler, DAB
1123 (1990). In view of the foregoing, Petitioner's

argument that the I.G. is precluded from imposing an
exclusion in this case because Petitioner did not know
that his conviction would result in an exclusion is
without merit.

CONCLUSION

Sections 1128(a)(1) and 1128(c)(3)(B) of the Act require
that Petitioner be excluded from the Medicare and
Medicaid programs for a period of at least five years
because of his conviction of a program-related criminal
offense. Neither the I.G. nor the judge is authorized to
reduce the five-year minimum mandatory period of
exclusion. Jack W. Greene, DAB CR19, at 12-14 (1989).

The I.G.'s five-year exclusion of Petitioner is therefore
upheld.

/s/

Joseph K. Riotto
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division
In the Case of:
Thomas Bruce Vest, M.D., DATE: January 6, 1997
Petitioner,

Docket No. C-96-110
Decision No. CR453

-v-

The Inspector General.

DECISION

I conclude that Petitioner, Thomas Bruce Vest, M.D., is
subject to a five-year minimum mandatory period of
exclusion from participation in the Medicare, Medicaid,
Maternal and Child Health Services Block Grant and Block
Grants to States for Social Services programs.

I. Procedural History

By letter dated January 23, 1996, the Inspector General
(I.G.) of the United States Department of Health and
Human Services (DHHS) notified Petitioner that he was
being excluded for five years from participation as a
provider in Medicare and Medicaid. The I.G. advised
Petitioner that he was being excluded as a result of his
conviction of a crimiral offense related to the delivery
of an item or service under the Medicare program and that
the exclusion of individuals convicted of such offenses
is mandated by section 1128(a)(1) of the Social Security
Act (Act).? The I.G. further advised Petitioner that,
for exclusions imposed pursuant to section 1128(a) (1),
section 1128(c) (3)(B) of the Act mandates a five-year
minimum period of exclusion.

' Unless otherwise indicated, hereafter I refer
to all programs from which Pétitioner has been excluded,
other than Medicare, as "Medicaid."

2? Those parts of the Act discussed herein are
codified in 42 U.S.C. § 1320a-7.
2

By letter dated February 5, 1996, Petitioner filed a
request for hearing. In his request for a hearing,
Petitioner asked that his exclusion be stayed pending a
decision by the United States Court of Appeals for the
Seventh Circuit in the appeal of his criminal conviction.
In a telephone prehearing conference which I convened on
March 6, 1996, the I.G. argued that, as a matter of law,
a mandatory exclusion imposed pursuant to section

1128(a) (1) of the Act becomes effective 20 days after
notice and continues in effect until an administrative
law judge issues a decision finding that the I.G. lacked
authority to impose the exclusion or until the conviction
underlying the exclusion is reversed or vacated.
Petitioner nevertheless requested the opportunity to
brief the issue of whether the administrative law judge
has authority to stay the effect of an exclusion.
Petitioner filed a brief and a supplemental brief on this
issue. The I.G. filed a motion for summary disposition,
in which she argued also that the administrative law
judge lacks authority to stay the effect of a mandatory
exclusion. Petitioner responded, opposing the I.G.'s
motion for summary disposition. On August 28,.1996, I
issued an order directing the parties to supplement the
record. The parties filed supplemental submissions in
response to my order.?

3 In this Decision, I refer to the parties!
submissions as follows:

Petitioner's

Submission Abbreviation
The ALJ Has the Authority to P. Stay Br.

Stay the Exclusion...

Supplemental Brief in Support P. Cont. Br.
of Motion to Continue... .

Response to Respondent's Motion P. Resp. Br.
For Summary Disposition

Response to Respondent's Sup- P. Supp. Br.
plemental Brief

I.G. Submission

Respondent's Motion for I.G. Br.
Summary Disposition

Respondent's Supplemental Brief I.G. Supp. Br.

Respondent's Motion to Supplement I.G. Mot.
3

By motion dated November 7, 1996, the I.G. requested to
further supplement the record. The I.G. attached to her
motion the I.G.'s proposed exhibit 8.‘

Petitioner has not objected to the I.G.'s motion to
supplement the record nor to the admission into evidence
of the exhibits submitted by the I.G. The I.G. has not
objected to the admission into evidence of the exhibits
submitted by Petitioner.* In the absence of objection, I
grant the I.G.'s motion to supplement the record, and I
admit into evidence I.G. Exhibits (Exs.) 1 through 8, and
P. Exs. 1 through 5.

After careful consideration of the briefs and documentary
evidence submitted by the parties, I conclude that, to
the extent there are facts in dispute, I am able to
resolve them based on the written record before me,
without the need for an in-person hearing. Based on the
record before me, I conclude that Petitioner is subject
to the minimum mandatory exclusion provisions of sections
1128(a)(1) and 1128(c)(3)(B) of the Act. Accordingly, I
affirm the I.G.'s determination to exclude Petitioner
from participation in Medicare and Medicaid for a period
of five years.

II. Issues

The issues are: 1) Whether Petitioner's exclusion may be
stayed pending the outcome of his appeal of his
conviction; 2) whether Petitioner was convicted of a
criminal offense under federal or State law; and 3) if

‘ I have renumbered the pages of I.G. Ex. 8, from
1 through 15.

5 Petitioner attached three documents to his
opening brief. Two of them were marked as "Ex. #A" and
"Ex. B." The third document, a letter dated March 7,
1996, from Petitioner's attorney to Michael T. Dyer,
Regional Inspector General, was unmarked. Petitioner
attached an affidavit of his attorney to his Response to
the I.G.'s motion for summary disposition. The affidavit
was unmarked. Petitioner attached excerpts from the
transcript of his criminal trial to his Response to the
I.G.'s supplemental brief. The transcript excerpts were
also unmarked. I have marked these exhibits to conform
to the requirements of my prehearing order. I have
marked Petitioner's Exhibits as follows: Ex. #A is now
P. Ex. 1; Ex. B is now P. Ex. 2; the March 7 letter to
Michael T. Dyer is P. Ex. 3; the affidavit of
Petitioner's attorney is P. Ex. 4; the transcript
excerpts together constitute P. Ex. 5.
4

Petitioner was so convicted, whether the conviction
relates to the delivery of an item or service under
Medicare.

III. Findings of Fact and Conclusions of Law

1. Petitioner is a physician who practiced in Alton
Illinois and operated Doctors Clinic there.

2. In an indictment filed in the United States District
Court for the Southern District of Illinois (District
Court) on or about March 18, 1993 (indictment), a Grand
Jury charged Petitioner with 40 counts of mail fraud.
I.G. Ex. 2.

3. After a jury trial in the District Court, Petitioner
was found guilty of 33 counts of mail fraud. I.G. Ex. 3
at 1, I.G. Ex. 8 at 11-14.

4. On October 11, 1995, the District Court entered
judgment against Petitioner. I.G. Ex. 3 at 1.

5. The District Court sentenced Petitioner to 24 months!
incarceration and to pay $1,650 in assessments, $25,000
in fines, and $41,460.98 in restitution. I.G. Ex. 3 at
5.

6. Petitioner was convicted of a criminal offense,
within the mieaning of section 1128(i) of the Social
Security Act. Findings 2-5.

7. Petitioner's conviction is currently on appeal to the
United States Court of Appeals for the Seventh Circuit.
P. Stay Br. at 1.

8. The fact that Petitioner's conviction is on appeal is
irrelevant to my determination that Petitioner has been
convicted within the Social Security Act's definition.

9. Count 14 of the indictment charged, among other
things, that Petitioner had knowingly and intentionally
mailed or caused to be mailed false, fraudulent, and
fictitious correspondence, claim forms, and billings
regarding patient L.F. from Doctors Clinic to the
Medicare Part-B Carrier, Blue Shield of Illinois, P.o.
Box 1210, Marion, Illinois.* I.G. Ex. 2 at 34.

® In this Decision, I refer to the patients by
their initials to protect their privacy.
5

10. Count 17 of the indictment charged, among other
things, that Petitioner had knowingly and intentionally
mailed or caused to be mailed false, fraudulent, and
fictitious correspondence, claim forms, and billings
regarding patient L.G. from Doctors Clinic to the
Medicare Part-B Carrier, Blue Shield of Illinois, P.o.
Box 1210, Marion, Illinois. I.G. Ex. 2 at 39. -

11. Count 29 of the indictment’ charged, among other
things, that Petitioner had knowingly and intentionally
mailed or caused to be failed false, fraudulent, and
fictitious correspondence, claim forms, and billings
regarding patient E.M. from Doctors Clinic to the
Medicare Carrier, Travelers Insurance Company, P.O. Box
10066, Augusta, Georgia. I.G. Ex. 2 at 58.

12. The jury found Petitioner guilty of counts 14, 17,
and 29 of the indictment. I.G. Ex. 3 at 1; I.G. Ex. 8 at
5, 7.

13. Petitioner's conviction is related to the delivery
of an item or service under Medicare, within the meaning
of section 1128(a)(1) of the Act. Findings 9-12.

14. The Secretary of DHHS (Secretary) has delegated to
the I.G. the authority to exclude individuals from
participation in Medicare and to direct their exclusion
from participation in Medicaid. 48 Fed. Reg. 21,662
(1983); 53 Fed. Reg. 12,993 (1988).

15. The I.G. was required to exclude Petitioner from
participation in Medicare and Medicaid for at least five
years. Act, sections 1128(a) (1), 1128(c) (3) (B).

16. By law, an exclusion imposed pursuant to section
1128(a) (1) of the Act takes effect 20 days after notice
to the excluded party. 42 C.F.R. § 1001.2002(b).

17. The administrative law judge is not authorized to
delay the effective date of an exclusion imposed pursuant
to section 1128(a)(1) of the Act.

18. The administrative law judge is not authorized to
declare statutes or regulations unconstitutional.

Iv. iscussion

The I.G. excluded Petitioner from participation in
Medicare and directed that Petitioner be excluded from
participation in Medicaid, pursuant to section 1128(a) (1)
of the Act. Asa preliminary matter, Petitioner has
argued that his exclusion should be stayed pending the
outcome of the appeal of his criminal conviction to the
6

U.S. Court of Appeals for the Seventh Circuit. I
conclude that I lack authority to stay Petitioner's
exclusion. Therefore, Petitioner's exclusion remains in
full force and effect unless I conclude that the I.G.
lacked a basis for imposing the exclusion. To establish
a basis for Petitioner's exclusion, the I.G. must prove
that (1) Petitioner was convicted, under federal or State
law, of a criminal offense, and (2) the conviction
related to the delivery of an item or service under
Medicare or Medicaid. I find that the I.G. has proved
both elements. Therefore, Petitioner's five-year
exclusion is required as a matter of law.

A. I_lack authority to stay the effect of
Petitioner's exclusion under the circumstances

of this case.

Petitioner argues that, by regulation, the effect of his
exclusion is automatically stayed pending my decision on
his request for a hearing in this case. Petitioner
contends that 42 C.F.R. §§ 1001.2003(b) (2) and 1005.22(a)
compel this conclusion. Petitioner misconstrues both
regulations.

The I.G. correctly points out that 42 C.F.R. § 1001.2003
does not apply to mandatory exclusions imposed pursuant
to section 1128(a) of the Act. I.G. Br. at 8.
Petitioner's strained reading of section 1001.2003 fails
to recognize that the regulation sets forth exceptions to
the general rule governing the effective date of
exclusions. The general rule, which is found at 42
C.F.R. § 1001.2002(b), provides that exclusions take
effect 20 days after the date of the I.G.'s notice
imposing the exclusion. By contrast, when the I.G. seeks
to impose an exclusion based on sections 1001.901, .951,
-1601, or .1701 of the regulations, a timely request for
a hearing by an affected individual will delay imposition
of the exclusion until an administrative law judge issues
a decision upholding the I.G.'s determination to exclude.
42 C.F.R. § 1001.2003(b). Section 1001.2003(b) is
inapplicable to the present case because Petitioner's
exclusion was not imposed pursuant to any of the
enumerated regulatory sections, but was imposed pursuant
to section 1001.101.

The effective date of Petitioner's exclusion is governed
by 42 C.F.R. § 1001.2002. Like other exclusions governed
by section 1001.2002, Petitioner's exclusion is
derivative of an action taken by another fact-finder, in
this case, his conviction in the District Court. Both
Congress and the Secretary have determined that
individuals who have been convicted by courts or
sanctioned by State agencies for certain types of
7

misconduct should be presumed to be untrustworthy to
participate in Medicare and Medicaid.

The Secretary has established a regulatory scheme in
which no exclusion takes effect before an excluded party
has had the opportunity to contest in a due process
hearing the determination that the party engaged in
conduct demonstrating untrustworthiness. Thus, the
regulations establishing the effective dates of
exclusions treat separately derivative exclusions based
on prior criminal or administrative sanctions (governed
by section 1001.2002), and those described in section
1001.2003, in which the I.G. seeks an exclusion based on
facts which have not previously been established in
judicial or administrative proceedings. Where an
individual has been convicted or has had a professional
license revoked, the individual has been afforded the
right to a due process hearing in another forum. In such
cases, the exclusion takes effect 20 days after notice
and remains in effect pending any administrative law
judge hearing. On the other hand, where the I.G. seeks
to exclude an individual or entity based on alleged
wrongdoing that has not been the subject of prior
findings by a court or administrative agency, an
individual who requests a hearing will not be excluded
until after an administrative law judge determines that
the I.G. has proven a factual basis for the exclusion.

In the present case, Petitioner was convicted after a
lengthy trial in the District Court. The I.G. is
entitled to rely on that conviction as establishing
Petitioner's untrustworthiness. Pursuant to 42 C.F.R. §
1001.2002, Petitioner remains excluded pending my ruling
on his request for a hearing.

Petitioner's reading of 42 C.F.R. § 1005.22 is equally
inapposite. Petitioner argues that this regulation
allows, or perhaps mandates, that Petitioner's exclusion
be stayed pending judicial review. P. Stay Br. at 4.
Petitioner acknowledges that the regulation, by its
terms, applies to civil money penalty (CMP) cases.
Nevertheless, Petitioner argues that the phrase "any
penalty" in section 1005.22(b)(1) should be read to apply
to exclusions, as well. I disagree. The context
demonstrates that the phrase refers to a CMP. But even
if the regulation could be read to apply to exclusions,
subsection (a) contemplates a stay of enforcement pending
appeal of the administrative law judge's decision to an
appellate panel of the Departmental Appeals Board (DAB).
Similarly, subsection (b)(1) describes a process for
requesting a stay of any appellate panel decision pending
appeal to a federal court. Thus, section 1005.22
contains no provision for implementing a stay of
8

penalties during the pendency of proceedings before an
administrative law judge.

Petitioner argues also that section 705 of the
Administrative Procedure Act authorizes me to stay the
effect of Petitioner's exclusion "when justice so
requires." P. Stay Br. at 2. According to Petitioner,
justice requires that his exclusion be stayed because he
will suffer irreparable harm if he is excluded. I
conclude that section 705 does not authorize me to stay
Petitioner's exclusion. Moreover, even if I had such.
authority, I would not find that Petitioner has proved
that he would suffer irreparable harm.

Section 705 of the Administrative Procedure Act provides
that when an agency finds that justice so requires, the
agency may postpone the effective date of action taken by
it, pending judicial review. Plainly, the Secretary has
authority to stay the effect of an exclusion, should she
find that justice so requires. However, the Secretary
has not delegated plenary authority to administrative law
judges to take all actions on behalf of the Secretary.
The limits of the Secretary's delegation of authority to
administrative law judges are set forth at 42 C.F.R. §
1005.4. Nothing in that regulation states or suggests
that the Secretary has delegated to administrative law
judges the authority to stay exclusions. On the
contrary, 42 C.F.R. § 1005.4(c) (4) specifically states
that administrative law judges do not have authority to
enjoin any act of the Secretary. Pursuant to this
section, I lack authority either to enjoin the imposition
of an exclusion or to stay the exclusion once it is
imposed. See David A. Barrett, DAB CR288 (1993); see
also, prehearing order in Barrett (Docket No. C-93-113,
September 8, 1993) (Leahy, Administrative Law Judge).

Even if I had authority to grant a stay, I would not find
that justice requires such a stay in this case.
Petitioner's argument that he would suffer irreparable
harm if I do not stay his exclusion appears to be based
on his fear that he will lose his right to be reinstated
to Medicare participation if his conviction should be
reversed after I have issued a decision upholding the
I.G.'s decision to exclude him. This concern is
unfounded. The regulations provide for reinstatement of
individuals if their convictions are reversed or vacated.
See 42 C.F.R. § 1001.3005. Therefore, I conclude that
Petitioner's argument that he would suffer irreparable
harm is without merit:

For these reasons, I conclude that Petitioner's arguments
that the effect of his exclusion should be. stayed pending
the outcome of his appeal to the Seventh Circuit are

without merit. Therefore, I will proceed to consider the
9

I.G.'s authority to impose the exclusion at issue in this
case.

B. Petitioner has been convicted of a criminal
offense.

The evidence submitted by the I.G. demonstrates that
Petitioner was convicted of a criminal offense, as
defined under the Social Security Act. Section 1128(i)
defines the term "convicted" to include the following
dispositions of criminal cases:

(1) when a judgment of conviction has been entered
against the individual or entity by a Federal,
State, or local court, regardless of whether there
is an appeal pending or whether the judgment of
conviction or other record relating to criminal
conduct has been expunged;

(2) when there has been a finding of guilt against
the individual or entity by a Federal, State, or
local court;

(3) when a plea of guilty or nolo contendere by the
individual or entity has been accepted by a Federal,
State, or local court; or

(4) when the individual or entity has entered into
participation in a first offender, deferred
adjudication, or other arrangement or program where
judgment of conviction has been withheld.

After a trial in the District Court, a jury returned
guilty verdicts against Petitioner on 33 counts of mail
fraud. Finding 3. Based on those verdicts, the trial
judge found Petitioner guilty on those counts. In
addition, the court entered a judgment of conviction
against Petitioner on October 11, 1995. Finding 4.

Thus, Petitioner's conviction falls within the definition
of section 1128(i)(1) of the Act, in that a judgment of
conviction has been entered against him by a federal
court. In addition, Petitioner's conviction is within
the definition of section 1128(i)(2) because the District
Court found Petitioner guilty.

Petitioner has not explicitly argued that he was not
convicted. However, an element of Petitioner's argument
that he should not be excluded until after the Court of
Appeals has ruled on his criminal appeal appears to be
that his conviction is not "final." Petitioner seems to
contend that a conviction which has been appealed ought
not to be the basis for an exclusion until all appeals
have been exhausted. P. Stay Br. at 3. In support of
10

this argument, Petitioner cites several decisions of
Illinois State courts. Id.

Petitioner's argument is not persuasive. Federal
regulations specifically authorize the I.G. to proceed
based upon convictions, "regardless of whether

- . - [t]here is a post-trial motion or an appeal
pending." 42 C.F.R. § 1001.2. Thus, whether or not
Illinois State courts would treat Petitioner's conviction
as final, I am bound by the federal definition of
conviction found in the Social Security Act and the
applicable regulations. For these reasons, I conclude
that Petitioner was convicted within the meaning of the
Act, despite the fact that his appeal is pending before
the Seventh Circuit.

Cc. Petitioner's conviction was related to the
delivery of an item or service under Medicare.

I have concluded that Petitioner was convicted of a
criminal offense, within the meaning of the Social
Security Act. The criminal offenses of which Petitioner
was convicted were 33 counts of mail fraud. A conviction
for mail fraud may not, on its face, appear related to
the delivery of an item or service under Medicare.
However, in determining whether or not Petitioner's
conviction is program-related, I am not limited to
considering the formal designation of the criminal
statute an individual was convicted of violating.
Instead, I may inquire into the conduct which led to the
conviction. As an appellate panel of the DAB held in
DeWayne Franzen, DAB 1165 (1990), in determining whether
a conviction is program-related, the administrative law
judge may appropriately look beyond the four corners of
the trial court's judgment:

(T]he ALJ, the finder of fact, can look beyond the
findings of the . . . court to determine if a
conviction was related to [a federal program].
Therefore, the ALJ's characterization of an offense
is not limited to the . . . court's or the violated
statute's precise terms for purposes of determining
whether a conviction related to [a federal program].

Id. at 6. See also H. Gene Blankenship, DAB CR42 (1989)
(Docket No. C-67). Thus, I am authorized to inquire into
the circumstances surrounding Petitioner's conviction to
determine whether it was program-related. In this case,
the circumstances surrounding Petitioner's conviction
convince me that it was "related to the delivery of an
item or service" under Medicare.
11

In the present case, the indictment charged, and the jury
concluded, that, in three instances, Petitioner knowingly
mailed or caused to be mailed false and fraudulent claims
to Medicare Part B Carriers seeking reimbursement for
health care services provided to Medicare beneficiaries.
Such conduct is plainly related to the delivery of
Medicare items or services.

Petitioner argues that the evidence produced by the I.G.
fails to establish that Petitioner's conviction relates
to the delivery of an item or service under Medicare.
Petitioner argues that the indictment offered by the I.G.
as I.G. Ex. 2 does not accurately reflect the offenses of
which Petitioner was convicted. P. Ex. 4. Based on
Petitioner's argument and the affidavit which is in
evidence as P. Ex. 4, I ordered that the parties
supplement the record in this case. The parties
submitted supplemental briefs and exhibits. In his
supplemental response, Petitioner continues to assert
that the I.G. failed to prove that the offenses of which
Petitioner was convicted related to the Medicare program.
The I.G. moved to further supplement the record and I
granted the motion and admitted in evidence I.G. Ex. 8.
I.G. Ex. 8 is a copy of the transcript of the portion of
Petitioner's criminal trial at which the jury's verdicts
were read. I conclude that this exhibit is sufficient to
prove, by a preponderance of the evidence, that
Petitioner was convicted of offenses that are related to
the delivery of items or services under Medicare.
Petitioner has offered no evidence or argument to rebut
the contents of I.G. Ex. 8.

I.G. Ex. 8 demonstrates that the jury found Petitioner
guilty on counts 14, 17, and 29 of the indictment.

Those counts involved patients L.F., L.G., and E.M. Each
of those counts charged that Petitioner submitted false
and fraudulent claims to the Medicare Carrier in
connection with his treatment of the named patients. It
is well-settled that submitting false claims for Medicare
reimbursement is related to the delivery of an item or
service under Medicare, within the meaning of section
1128 (a) (1).

In Douglas Schram, R.Ph., DAB 1372 (1992), an appellate
panel of the DAB held that submitting a false claim to

Medicaid is related to the delivery of an item or service
under Medicaid, within the meaning of section 1128(a) (1)
of the Act. The Board reasoned:

By submitting a claim . . . seeking payment or
allowance, an individual or entity is representing
that an item or service has been (or will be)
delivered under the program for which payment or
allowance is due.
12

Id. at 8. See also Jack W. Greene, DAB 1078 (1989),
aff'd sub nom. Greene v. Sullivan, 731 F. Supp. 835 &

838 (E.D. Tenn. 1990). Thus, in the present case,
Petitioner's conviction is related to the delivery of
items or services under Medicare because in submitting or
causing to be submitted false claims to the Medicare
Carrier, Petitioner falsely represented that he had
provided services to beneficiaries for which he was
entitled to be compensated by the Medicare program.

D. I_lack authority to declare unconstitutional
statutes or regulations.

Petitioner argues finally that imposition of an exclusion
before he has been afforded a hearing violates his right
to due process under the Constitution. As I have
discussed at length in section A. of this Decision, the
I.G. has excluded Petitioner based on Petitioner's
conviction in the District Court of 33 counts of mail
fraud. It can hardly be said that Petitioner was
deprived of due process, having been afforded a trial of
more than four months' length, after which he was found
guilty, beyond a reasonable doubt, of having committed
mail fraud directed at the Medicare program. Thus, I do
not find persuasive Petitioner's argument that his
exclusion prior to hearing violates his constitutional
right to due process. Nevertheless, even were I
persuaded of the merits of Petitioner's constitutional
arguments, I do not have the authority to decide the
constitutional validity of an exclusion imposed and
directed in accordance with the Act and regulations. Lee
G. Balos, DAB 1541, at 9 (1995); Shanti Jain, M.D., DAB
1398, at 7 (1993). The Act and regulations do not
entitle Petitioner to a pre-exclusion hearing. The Act
and regulations give Petitioner only the right to request
a hearing on che issue of whether there is a basis for
his exclusion. 42 C.F.R. § 1001.2007. I have afforded
Petitioner the hearing (based on the written record)
contemplated by the Act and regulations.

Vv. Conclusion
The I.G. properly imposed and directed against Petitioner

a five-year minimum mandatory period of exclusion from
participation in Medicare and Medicaid.

/s/

Jill Ss. Clifton
Administrative Law Judge


Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD
Civil Remedies Division

In the Case of:
Louis Mathews, DATE: January 3, 1997
Petitioner,

Docket No. C-96-246
Decision No. CR452

-voe

The Inspector General.

DECISION ON REMAND

This case is before me on remand from the Departmental
Appeals Board.

BACKGROUND

In the case that was initially before me, Petitioner
filed a timely appeal seeking review of the determination
of the Inspector General of the Department of Health and
Human Services (I.G.) to exclude him for a period of
three years pursuant to section 1128(b)(3) of the Social
Security Act (Act).

In that case, inasmuch as there were no facts of
decisional significance genuinely in dispute, I granted
the 1.G.'s motion to decide the case on the basis of the
parties' written submissions. The I.G. established that,
during the period relevant to this case, Petitioner was a
Physician Assistant licensed in California. On March 31,
1993, the State of California filed a criminal complaint
against Petitioner, charging him with unlawfully issuing
a prescription for a controlled substance, uttering a
false prescription, and practicing medicine without a
license. On July 5, 1994, Petitioner entered into a plea
agreement, whereby he pled nolo contendere to one
misdemeanor count of "prescribing without a medical
purpose."

I determined that Petitioner's plea constituted a
"conviction" for purposes of the Act, and that the facts
underlying Petitioner's conviction fully comported with
the requirements necessary for an exclusion to be
2

directed and imposed against Petitioner in accordance
with section 1128(b)(3) of the Act - "Conviction Relating
To Controlled Substance."

Thus, I found no reason to disturb the I.G.'s
determination to exclude Petitioner from participation in
the Medicare and Medicaid programs.

In my Decision of November 24, 1995 (DAB CR403), I found
that. the I.G. properly excluded Petitioner from
participation in Medicare and State health care programs
(hereinafter referred to as "Medicaid") for a period of
three years pursuant to section 1128(b)(3) of the Act. I
upheld Petitioner's exclusion based on the evidence
presented which indicated that there were no aggravating
and no mitigating factors.

Petitioner appealed my Decision to the Departmental
Appeals Board (DAB). In a Decision issued on May 8, 1996
(DAB 1574), the DAB upheld the basis for Petitioner's
exclusion, but remanded the case to me for the limited
purpose of determining whether Petitioner could present
additional material evidence to establish the existence
of a mitigating factor under 42 C.F.R. §
1001.401(c) (3) (i) (A). Louis Mathews, DAB 1574, at 1
(1996). Pursuant to the Board's remand, I conducted a
conference call with the parties to obtain any additional
information relevant to Petitioner's cooperation with
authorities, the mitigating factor that the Board
directed me to further consider. During the call,
Petitioner indicated that he wished to proceed with the
case by filing statements or affidavits in support of his
position. Accordingly, in my Order of June 13, 1996, I
established a schedule for Petitioner to submit
additional evidence relevant to the mitigating factor at
42 C.F.R. § 1001.401(c) (3) (i) (A).

Petitioner has filed his additional evidence in
accordance with my June 13 Order. I find that Petitioner
has failed to establish the existence of the mitigating
factor at 42 C.F.R. § 1001.401(c)(3)(i)(A). Accordingly,
I uphold the three-year exclusion directed against and
imposed upon Petitioner by the I.G.

APPLICABLE LAW AND REGULATIONS

This case is controlled by section 1128(b)(3) of the Act,
codified as 42 U.S.C. 1320a-7(b) (3), which provides that:

The Secretary may exclude the following individuals and
entities from participation in any program under title
XVIII and may direct that the following individuals and
3

entities be excluded from participation in any State
health care program:

(3) CONVICTION RELATING TO CONTROLLED SUBSTANCE. -
Any individual or entity that has been convicted,
under Federal or State law, of a criminal offense
relating to the unlawful manufacture, distribution,
prescription, or dispensing of a controlled
substance.

As to the term of exclusion, the controlling regulation,
42 C.F.R. 1001.401(c) provides that "an exclusion imposed
in accordance with this section will be for a period of 3
years, unless aggravating or mitigating factors listed in
paragraphs (b)(2) and (b)(3) of this section form a basis
for lengthening or shortening that period."' Aggravating
factors include circumstances where the acts that
resulted in the conviction were committed over a period
of a year or more; had a significant adverse impact on
program beneficiaries or other individuals or the
Medicare/Medicaid programs; the sentence imposed by the
court included incarceration; or the convicted. individual
has a prior criminal, civil or administrative sanction
record. 42 C.F.R. § 1001.401(b) (2); 42 C.F.R. §
1001.401(c) (2)

The mitigating factors at 42 C.F.R. § 1001.201(b)(3) and
42 C.F.R. § 1001.401(c) (3) include the individual's
cooperation with law enforcement officials which resulted
in others being convicted, excluded or subject to a civil
money penalty; or the unavailability of alternative

1 There exist two different and potentially
relevant regulations regarding aggrevating and mitigating
factors. The regulation at 42 C.F.k. § 1001.201(b) (2)
and (b)(3) is applicable to permissive exclusions
generally and the regulation at 42 C.F.R. 1001.401(c) (2)
and (3) is specifically applicable to permissive
exclusions for convictions relating to controlled
substances. These two regulatory provisions are not
identical, but their dissimilarities are not relevant
given that they both contain the identical mitigating
factor of cooperation with federal, State or local
officials resulting in the conviction, exclusion or
imposition of a civil money penalty against another
individual. Furthermore, the DAB has remanded the case
to me specifically to.allow Petitioner to present
additional evidence relevant to the mitigating factor at
42 C.F.R. § 1001.401(c) (3) (i) (A).
4

sources of the type of health care furnished by such
individual.

DISCUSSION

As noted above, Petitioner appealed my Decision. on
review, the DAB affirmed the exclusion but remanded the
case for the limited purpose of determining "whether
Petitioner could present additional material and relevant
evidence which could establish the existence of a
mitigating factor under 42 C.F.R. §
1001.401(c) (3) (i) (A)." Louis Mathews, DAB 1574 (May 8,
1996).

On June 11, 1996, I conducted a prehearing conference
during which time I established a schedule for. Petitioner
to file any additional evidence and argument and further
established a deadline for the I.G. to file a response to
Petitioner's submission. On August 24, 1996, in
accordance with my Order requesting Petitioner submit
additional evidence relevant to the mitigating factor at
42 C.F.R. § 1001.401(c) (3(i), Petitioner submitted a
transcript of proceedings in the California Superior
Court, San Bernardino County.? The transcript indicates
that a motion was made pursuant to section 1203.4 of the
California Penal Code to have expunged the conviction
upon which Petitioner's exclusion was predicated.’ The
State did not oppose the motion and the motion was
granted.

However, Petitioner has presented no additional evidence
relevant to the mitigating factor at 42 C.F.R. §
1001.401(c) (3) (i) (A). Nothing in P. Ex. 1 indicates that
Petitioner's cooperation with federal or State
authorities resulted in the another individuzl being
convicted or excluded from Medicare. Instead, the I.G.
correctly asserts that section 1203.4 provides that a
criminal defendant that has successfully completed his

? Petitioner has marked this exhibit as "P. Ex. 1",
and I receive it into evidence.

3° Section 1128(i) of the Act states that "For
purposes of subsections (a) and (b), an individual or
entity is considered to have been convicted of a criminal
offense - (1) when a judgment of conviction has been
entered against the individual or entity by a Federal,
State, or local court, regardless of whether there is an
appeal pending or whether the judgment of conviction or
other record relating to criminal misconduct has been
expunged."
5

probation may be permitted to withdraw his plea and have
the court dismiss the charge or charges against him.

This is plainly what happened in this case. However, the
expungement does not eradicate Petitioner's conviction.
People v. Wiederserg, 44 Cal. App. 3d 550, 553; 118 Cal.
Rptr. 755, 757 (1975); See Meyer v. Board of Medical
Examiners, 34 Cal. 2d 62, 206 P. 2d 1085 (1949). Nor
does such expungement remove the basis for the permissive
three-year exclusion imposed against Petitioner in this

case pursuant to section 1128(b)(3). James F. Allen,
M.D, DAB CR71 (1990); Betsy Chua, M.D., DAB CR76, aff'd
DAB 1104 (1990); Carlos Zamora, M.D., DAB CR22, aff'd DAB
1204 (1989); Benjamin P. Council, M.D., DAB CR391 (1995).

Moreover, the tenor of Petitioner's argument apparently
has changed. Initially, the case was remanded because,
according to the DAB "relevant and material evidence
concerning this factor (42 C.F.R. § 1001.401(c) (3) (i) (A))
was not presented before the ALJ and that there were
reasonable grounds for Petitioner's failure to adduce
this evidence." Louis Mathews, DAB 1574, at 2
(parenthetical added). I have given Petitioner the
opportunity to present evidence relevant to the
mitigating factor at 42 C.F.R. § 1001.401(c) (3) (i) (A) and
have specifically requested that he do so, but Petitioner
has offered nothing relevant.

In his brief, Petitioner has simply argued that his
conviction was expunged "based on a complaint against the
Attorney General and not because Petitioner completed all
of the requirements of probation." P. Response at 1. I
take this to mean that Petitioner's cooperation resulted
in the attorney general in the State of California filing
charges against an unnamed individual. However, this
assertion is itself contradicted by the exhibit
Petitioner himself submitted, which unequivocally states
that it is a motion made pursuant to section 1203.4 of
the California Penal Code, the section which permits the
California court to expunge Petitioner's record based on
his successful completion of probation. P. Ex. 1.

Accordingly, to the extent Petitioner contends that he
cooperated with authorities, the record contains nothing
to support this contention. More importantly, to the
extent Petitioner contends that his alleged cooperation
with authorities resulted in the conviction, exclusion or
the imposition of a civil money penalty in accordance
with 42 C.F.R. § 1001.401(c) (3) (i) (A), such contention is
likewise unsupported.
6
CONCLUSION

Petitioner has not shown that any of the mitigating
factors enumerated in the statute or regulations are
present in his case. More importantly, Petitioner has
offered no evidence that the mitigating factor at 42
C.F.R. § 1001.401(c) (3)(i) (A) is present. Accordingly, I
find that Petitioner was therefore properly excluded for
a period of three years pursuant to section 1128(b) (3) of
the Act.

/s/

Joseph K. Riotto
Administrative Law Judge