Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Amanda B. Wendel, M.D.,
Petitioner,
v.
Centers for Medicare and Medicaid Services.
Docket No. C-13-70
Decision No. CR2726

Date: March 15, 2013

DECISION

Wisconsin Physicians Service Insurance Corporation (WPS), an administrative contractor
acting on behalf of the Centers for Medicare and Medicaid Services (CMS), notified
Petitioner that her Medicare billing privileges were revoked effective June 1, 2011.
Petitioner appealed. For the reasons stated below, I reverse CMS’s determination to
revoke Petitioner’s Medicare billing privileges.

I. Background and Procedural History

Petitioner, a physician, was enrolled in the Medicare program as a supplier.! On June 21,
2012, WPS informed Petitioner that her Medicare billing privileges were revoked
effective June 1, 2011. WPS alleged that Petitioner was noncompliant with regulatory
requirements at 42 C.F.R. § 424.535(a)(1) and 42 C.F.R. § 410.20 because she was no
longer licensed to practice medicine in Iowa, and with 42 C.F.R. § 424.535(a)(9) because
she “‘did not report” that she was “no longer licensed and therefore did not comply with
the requirement for reporting this change of information.” CMS Exhibit (CMS Ex.) 1;
Petitioner Exhibit (P. Ex.) 1.

' The Medicare program considers a physician to be a “supplier.” 42 C.F.R. §§ 400.202;
498.2.
On July 11, 2012, Petitioner requested reconsideration indicating that she practiced at the
Dermatology Clinic of lowa, P.C., from August 1, 2010 through June 30, 2011, after
which she relocated to Illinois. Petitioner was aware that her Iowa license was due to
expire on June 1, 2011, but had been informed by the Iowa Board of Medicine (lowa
Board) that she could practice during a 60-day grace period following expiration.
Because Petitioner only planned to practice in Iowa through June 30, 2011, she chose not
to renew her Iowa medical license. Petitioner noted that she had applied for an Illinois
license and was working to “credential” with Medicare at the new location. Petitioner
indicated that she failed to send appropriate documentation regarding her relocation and
the reassignment of her Medicare billing privileges to WPS, but that she was now doing
so to correct the oversight. CMS Ex. 2; P. Ex. 5. WPS acknowledged receipt of
Petitioner’s request for reconsideration on July 19, 2012. P. Ex. 11.

By letters to Petitioner dated September 6, 2012 and October 5, 2012 (the October 5,
2012 letter corrected a typographical error in the September 6, 2012 letter), WPS denied
Petitioner’s request for reconsideration. CMS Exs. 4, 5; P. Ex. 15. WPS noted that CMS
may revoke an enrolled supplier’s Medicare billing privileges for noncompliance under
42 C.F.R. § 424.535(a)(1). Under 42 C.F.R. § 410.20, services must be furnished by a
professional who is legally authorized to practice in the state where she is performing the
functions or actions, and who is acting within the scope of her license. Further, pursuant
to 42 C.F.R. § 424.516(d), changes of information must be timely reported to WPS.

WPS determined that Petitioner’s “Iowa State license is listed as inactive status effective
June 1, 2011, and WPS Medicare Provider Enrollment did not receive an 855] application
to properly report this.” P. Ex. 15, at 1; CMS Ex. 4.

By letter dated September 17, 2012, Petitioner requested a hearing. The Civil Remedies
Division received Petitioner’s letter on October 22, 2012. I was assigned to hear and
decide this case and issued an Acknowledgment and Pre-hearing Order (Order) on
November 14, 2012. In response, CMS filed a motion for summary disposition and brief
(CMS Br.) and seven proposed exhibits. Petitioner filed a motion for summary
disposition and brief and 17 proposed exhibits. Subsequently, Petitioner filed a
replacement copy of P. Ex. 10 (noting that she had inadvertently filed a copy of P. Ex. 9
as P. Ex. 10). Because neither party has objected to any of the proposed exhibits, I admit
CMS Exs. | through 7 and P. Exs. | through 17 into the record. I also accept as P. Ex.
10, the replacement copy that Petitioner filed. Neither party offered any witnesses;
therefore, I will not hold an in-person hearing. Accordingly, the record is closed and I
find it unnecessary to summarily decide this matter. I have considered all of the written
evidence of record and I issue this decision based on that record. See Order § 12.

IL. Discussion

In order to participate in the Medicare program as a supplier, individuals must meet
certain criteria to enroll and receive billing privileges. 42 C.F.R. §§ 424.505, 424.510;
424.516. In order for a physician to enroll as a supplier, he or she must comply with
relevant state licensing requirements, namely that the physician must be legally
authorized to practice in the state in which he or she performs services and must be acting
within the scope of his or her license. 42 C.F.R. §§ 410.20(b), 424.516(a)(2). A
physician must report to the relevant Medicare contractor, within 30 days, any adverse
legal action and any change in practice location. 42 C.F.R. § 424.516(d)(1)(ii) and (iii).
CMS may revoke a physician’s Medicare billing privileges if the physician is not in
compliance with enrollment requirements or if the physician has failed to comply with
the reporting requirements specified in 42 C.F.R. § 424.516(d)(1). 42 C.F.R.

§ 424.535(a)(1), (a)(9).

In the present case, WPS revoked Petitioner’s billing privileges because Petitioner’s lowa
medical license was listed as inactive status effective June 1, 2011, and WPS did not
receive a Form CMS-855] application to properly report the change to inactive status.
CMS Ex. 5, at 1. On appeal, CMS asserts that WPS determined from an online search of
the Iowa Board’s records that Petitioner’s medical license expired on June 1, 2011, and
entered into inactive status on that date. CMS Br. at 4; CMS Ex. 7, at 1. Therefore,
Petitioner was allegedly not in compliance with Medicare requirements because she was
not actively licensed in Iowa, the state where she provided services billed to Medicare in
June 2011. CMS Br. 5-6. CMS also noted that as a second, related basis for revocation,
Petitioner failed to report to CMS the change in her license status.” CMS Br. at 1.

> In its brief, CMS asserts, for the first time, that Petitioner’s admitted failure to comply
with the requirement to report a change in practice location “is grounds for the revocation
of her billing privileges.” CMS Br. at 6. The “admission” that CMS refers to is
contained in a letter from the Iowa dermatology practice, which was Petitioner’s prior
employer. The letter states that the practice “fail[ed] to send appropriate documentation
that [Petitioner] would be relocating and to reassign her billing privileges.” CMS Ex. 2,
at 1; P. Ex. 5, at 1. The letter also states that “steps were already being taken to
credential [Petitioner] with Medicare at her new location in Illinois.” CMS Ex. 2, at 1; P.
Ex. 5, at 1. This letter is not persuasive evidence that Petitioner failed to comply with the
requirement to notify CMS that her practice location had changed. This statement is not
responsive to any issue in this case and I have no other evidence as to whether Petitioner
informed CMS of a change in practice location. At most it indicates that Petitioner
misunderstood CMS’s second basis for revocation (i.e., that Petitioner did not report that
she was no longer licensed in Iowa). Without CMS formally noticing Petitioner and
adding this as a basis for revocation (I do not consider three sentences at the end of
CMS’s brief such notice) to which Petitioner has an opportunity to respond, I will not
A. Issue
Whether CMS had a legitimate basis to revoke Petitioner’s Medicare billing privileges.
B. Findings of Fact, Conclusions of Law, and Analysis*

1. Petitioner was authorized to practice medicine in the State of Iowa
through August 1, 2011.

Petitioner was licensed to practice medicine in lowa. The Iowa Administrative Code
(Code), at section 653-9.13 (147,148), governs renewal of permanent physician licenses
in Iowa.’ In regard to a physician’s failure to renew a license, section 9.13(6) of the Code
states:

9.13(6) Failure to renew. Failure of the licensee to renew a license within two
months following its expiration date shall cause the license to become inactive and
invalid. A licensee whose license is invalid is prohibited from practice until the
license is reinstated in accordance with rule 9.13 (147,148).

a. In order to ensure that the license will not become inactive when a paper
renewal form is used, the completed renewal application and appropriate
fees must be received in the board office by the fifteenth of the month prior
to the month the license becomes inactive. For example, a licensee whose
license expires on January 1 has until March | to renew the license or the
license becomes inactive and invalid. The licensee must submit and the
board office must receive the renewal materials prior to or on February 15
to ensure that the license will be renewed prior to becoming inactive and
invalid on March 1.

b. In order to ensure that the license will not become inactive when on-line
renewal is used, the licensee must complete the on-line renewal prior to
midnight of the last day of the month in the month after the expiration date
on the license. For example, a licensee whose license expiration date is
January 1 must complete the on-line renewal before midnight on the last

consider this issue. Thus, this decision is limited to a review of the bases for revocation
indicated by WPS, which are summarized above.

* My findings of fact and conclusions of law are set forth in italics and bold font.

* The Code was amended in 2012, but did not materially change section 9.13(6).
Because Petitioner’s license expired in 2011, reference is to the 2011 Code.
day of February; the license becomes inactive and invalid at 12:01 a.m. on
March 1.

Petitioner filed as an exhibit a letter dated September 11, 2012, signed by the lowa
Board’s Director of Licensure & Administration, explaining the impact of license
expiration on a physician’s medical license. P. Ex. 9. The Director stated, consistent
with the Code provision cited above, that:

A licensee has a two month grace period following the expiration date of their
[sic] license in which they [sic] can renew [his or her] license. If a physician fails
to renew [the] license prior to the expiration date of their [sic] license, they [sic]
will be assessed a penalty fee(s) during this grace period. Once the license is
renewed it is valid for two years.

P. Ex. 9. According to the Code and the Director of Licensure & Administration of the
Iowa Board, the expiration of a physician’s license does not mean that a physician is
prohibited from practicing medicine in Iowa on the date of expiration. A physician’s
icense, due to the grace period set forth in the Code, does not become inactive and
invalid until 60 days after the date a physician’s license expires.”

Petitioner asserts in her hearing request that she did not renew her medical license
because she was leaving practice in the State of Iowa as of June 30, 2011, and that she
contacted the Iowa Board and was advised that she had a 60-day grace period in which to
practice before her license would be considered inactive and invalid. CMS Ex. 6, at 1.
Thus, under Iowa law, Petitioner was still licensed to practice in Iowa through August 1,
2011. Petitioner notes that after contacting the Iowa Board again, the Board informed her
that it was “standing by their previous recommendation that they do not consider a
physician as ‘inactive’ until that 60 day period has lapsed.” CMS Ex. 6, at 1.

Based on the evidence of record, I find that Petitioner’s physician’s license in lowa
expired on June 1, 2011, but that she remained legally authorized to practice medicine in
Iowa until August 1, 2011.

* CMS asserts that under the Code a license becomes “inactive” immediately on
expiration if not renewed and “invalid” two months later if not renewed within that time.
CMS Br. at 5 n.2. Contrary to this position, section 9.13(6) of the Code clearly states that
the failure of the licensee to renew the license “within two months following its
expiration date shall cause the license to become inactive and invalid.”
2. Petitioner met the licensure enrollment requirement in 42 C.F.R.
§§ 410.20(b) and 424.516(a)(2) to be a physician for purposes of
billing the Medicare program because she was authorized to practice
medicine in Iowa through at least August 1, 2011.

The Medicare program requires suppliers to have the relevant state licensure for the
services being provided. 42 C.F.R. § 424.516(a)(2). A physician is defined by statute as
“a doctor of medicine . . . legally authorized to practice medicine and surgery by the State
in which he performs such function or action... .” 42 U.S.C. § 1395x(r). The regulation
at 42 C.F.R. § 410.20(b), referencing physicians’ services, states Medicare will pay for
the services of a physician if the physician is “legally authorized to practice by the State
in which he or she performs the functions or actions” and is “acting within the scope of
his or her license.”

Here, Iowa is the state in which Petitioner was practicing when her license expired and
the licensing rules of Iowa control with regard to whether a physician is legally
authorized to practice and is acting within the scope of his or her license. As already
found above, Petitioner was authorized to practice medicine in lowa for 60 days
following the June 1, 2011 expiration of her physician’s license. Therefore, Petitioner
met the Medicare program requirements to be a physician for services performed in lowa
through at least August 1, 2011.°

3. Petitioner did not fail to report her alleged inactive medical
license because her license was not inactive during the relevant
period, June 1 through 30, 2011.

As noted above, Petitioner was authorized to practice medicine in Iowa through August
1, 2011. Thus, as of June 1, 2011, there was nothing for Petitioner to report to WPS
under 42 C.F.R. § 424.535(a)(9). Therefore, she had no adverse legal action taken
against her in Iowa and she had not changed her practice location.

° This conclusion is limited to the specific findings in WPS’s determinations, the position
taken by CMS in its brief, as well the evidence of record. Petitioner has demonstrated
that the basis for a retroactive revocation to June 1, 2011, was incorrect. It is unclear
whether CMS could revoke Petitioner’s enrollment on or after August 1, 2011, on the
same grounds. CMS did not argue this in its brief and my decision is circumscribed by
the actual position of CMS and the record.
III. Conclusion

Petitioner has shown that she met Medicare enrollment criteria on June 1, 2011, the date
on which WPS made the revocation of her enrollment effective. Petitioner also showed
that she continued to be authorized to practice medicine in Iowa until at least August 1,
2011. Accordingly, WPS’s determination to revoke Petitioner’s billing privileges is
reversed.

/s/
Scott Anderson
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division
Lorrie Laurel, PT,
(NPI: 1760444657),
Petitioner,
v.
Centers for Medicare & Medicaid Services.
Docket No. C-13-56
Decision No. CR2724

Date: March 13, 2013

DECISION

Petitioner, Lorrie Laurel, is a physical therapist who practices in the State of Florida.
Until recently, she participated in the Medicare program as a supplier of services. In
2006, Petitioner Laurel pled guilty in a Florida circuit court to grand theft. Based on that
guilty plea, which it considers a felony conviction, the Centers for Medicare & Medicaid
Services (CMS) has revoked her Medicare billing privileges. Petitioner appeals.

The parties have filed cross motions for summary judgment. For the reasons explained
below, I find that no material facts are in dispute and that the Medicare statute and
regulations authorize revoking Petitioner’s billing privileges. I therefore grant CMS’s
motion and deny Petitioner’s.

I. Background

By letter dated May 4, 2012, the Medicare contractor, First Coast Services Options,

advised Petitioner that her Medicare billing privileges were revoked effective November
17, 2006. The contractor took this action pursuant to 42 C.F.R. § 424.535(a)(3) because,
on October 11, 2006, in the Circuit Court for Holmes County, Florida, Petitioner Laurel
pled guilty to one count of grand theft, a felony. The contractor imposed a three-year bar
on re-enrollment. CMS Ex. 1.

Petitioner requested reconsideration. In a reconsidered determination, dated September
10, 2012, the contractor upheld the revocation. Petitioner timely appealed, and that
appeal is now before me. CMS Exs. 2, 3.

CMS moves for summary judgment and has filed a supporting brief (CMS Br.) as well as
four proposed exhibits (CMS Exs. 1-4). Petitioner files a cross-motion for summary
judgment and supporting brief (P. Br.). CMS filed a response brief opposing Petitioner’s
motion for summary judgment (CMS Response).

IL. Discussion

CMS is entitled to summary judgment because the undisputed evidence
establishes that Petitioner was convicted of a felony offense detrimental to
the best interests of the Medicare program and its beneficiaries.'

Statute and regulations. CMS, acting on behalf of the Secretary of Health and Human
Services, may revoke a supplier’s billing privileges if, within the preceding ten years, she
was convicted of a federal or state felony offense that CMS “has determined to be
detrimental to the best interests of the [Medicare] program and its beneficiaries.”

42 C.F.R. § 424.535(a)(3); see Social Security Act (Act) §§ 1842 (h)(8) (authorizing the
Secretary to revoke the enrollment of a practitioner who has been convicted of a felony
offense that the Secretary determines is “detrimental to the best interests of the program
or program beneficiaries”) and 1866(b)(2)(D) (authorizing the Secretary to revoke a
supplier’s billing privileges after she ascertains that the practitioner was convicted of a
felony that she “determines is detrimental to the best interests of the program or program
beneficiaries”).

Offenses for which billing privileges may be revoked include financial crimes such as
“extortion, embezzlement, income tax evasion, insurance fraud, and other similar crimes
for which the individual has been convicted, including guilty pleas and adjudicated
pretrial diversions.” 42 C.F.R. § 424.535(a)(3)(i)(B). Once CMS revokes a supplier’s
billing privileges, she cannot participate in Medicare from the effective date of the
revocation until the end of the re-enrollment bar. Id. § 424.435(c). A re-enrollment bar
must be for a minimum of one year, but cannot exceed three years. /d. After the re-
enrollment bar has expired, a revoked supplier may reapply to the program. Id.

§ 424.535(d).

' T make this one finding of fact/conclusion of law.
Summary judgment. Summary judgment is appropriate if the case presents no genuine
issue of material fact and the moving party is entitled to judgment as a matter of law.
Senior Rehab. & Skilled Nursing Ctr., DAB No. 2300 at 3 (2010); see CMS Br. at 1, 6; P.
Br. at 7.

Here, no material facts are in dispute.” Petitioner Laurel pled guilty in the Circuit Court
of Holmes County, Florida, to one count of second degree grand theft, admitting that she
stole more than $20,000 from her hospital employer. Specifically, she admitted to the
following charge:

Lorrie Laurel[,] between the dates of January 2002 and December 2002...
did knowingly obtain or use, or endeavor to obtain or use of a value of
$20.000,00 or more, which was the property of Doctor’s Memorial Hospital
or any other person not the defendant(s) with the intent to permanently or
temporarily deprive or any other person not the defendant(s) of the property
or benefit therefrom or to appropriate the property to the use of Lorrie
Laurel or to the use of any person not entitled thereto, contrary to Florida
Statute 812.014(1) and (2)(b).

CMS Ex. 4 at 8, 10. In a ruling dated December 28, 2006, nunc pro tunc (now for then,
ie., retroactive to) November 8, 2006, the state judge accepted her plea but withheld
adjudication.* He sentenced her to five years supervised probation, ordered her to
perform 150 hours of public service work, and ordered her to pay restitution as well as
court costs. P. Br. at 2; CMS Ex. 4 at 9, 10. She was neither incarcerated nor fined.
CMS Ex. 4 at 8-10; P. Br. at 2.

Petitioner argues that her billing privileges are not subject to revocation under section
424.535(a)(3), because she was not “convicted” of a felony. Ultimately, the state court
judge did not sentence her to jail time or impose a fine, which suggests that she
successfully completed her period of probation. In Petitioner’s view, she was not
convicted under Florida state law, because the court ultimately withheld the adjudication

> Petitioner challenges some of the allegations set forth in her arrest warrant and other
criminal court documents. However, none of these challenged facts are material to my
decision. P. Br. at 11-12. I rely solely on the fact of Petitioner’s guilty plea and the
specific charge to which she admitted guilt.

> T recognize the discrepancy between these dates and those cited by CMS as the dates of
the guilty plea (October 11, 2006) and the court’s judgment (November 17, 2006).
Petitioner, however, does not challenge the CMS’s dates, so I also accept them.
of guilt.* Here, however, federal regulations control. The regulatory definition of
“conviction” explicitly includes “guilty pleas and adjudicated pretrial diversions.”
42 CFR. § 424.535(a)(3)(i)(B).

Thus, the plain language of the regulation compels me to find that, for purposes of her
Medicare participation, Petitioner Laurel was convicted of a felony, notwithstanding the
provisions of state law. In a related context (exclusions from federal health care program
participation under section 1128 of the Act), the Departmental Appeals Board has
characterized as “well established” the principle that the term “conviction” includes
“diverted, deferred and expunged convictions, regardless of whether state law treats such
actions as a conviction.” Henry L. Gupton, DAB No. 2058 at 8 (2007). In Gupton, the
Board acknowledged that the federal definition of “conviction” often differs from many
state criminal law definitions:

The rationale for the different meanings of “conviction” for state criminal
law versus federal exclusion law purposes follows from the distinct goals
involved. The goals of criminal law generally involve punishment and
rehabilitation of the offender, possibly deterrence of future misconduct by
the same or other persons, and various policy goals [footnote omitted].
Exclusions imposed by the [Inspector General], by contrast, are civil
sanctions, designed to protect the beneficiaries of health care programs and
the federal fisc, and are thus remedial in nature rather than primarily
punitive or deterrent. ... In the effort to protect both beneficiaries and
funds, Congress could logically conclude that it was better to exclude
providers whose involvement in the criminal system raised serious
concerns about their integrity and trustworthiness, even if they were not
subjected to criminal sanctions for reasons of state policy.

Gupton, DAB No. 2058 at 7-8. Inasmuch as CMS, like the Inspector General, acts to
protect program beneficiaries and funds, I find that the Board’s sound reasoning in
Gupton applies to revocations based on felony convictions.

Petitioner also argues that she is not subject to revocation because CMS has not alleged
that she violated any Medicare condition of participation. According to Petitioner,
because section 424.535 allows CMS to revoke Medicare enrollment based on a

* CMS argues, convincingly, that Petitioner’s guilty plea constitutes a conviction under
Florida law, citing provisions of Florida’s Criminal Punishment Code, which define
conviction as “a determination of guilt resulting from a plea or trial, regardless of
whether adjudication was withheld.” Fla. Stat. § 921.0021(2); Montgomery v. State, 897
So.2d 1282, 1287 (2005) (finding clear legislative intent to consider as convictions all
determinations of guilt, “even where adjudication had been withheld.) I need not
resolve the question of state law, however, because federal law controls.
supplier’s failure to meet all Medicare conditions of participation, it may not revoke for
other reasons, such as disputes over reimbursement (“conditions of payment”). P. Br. at
6-8. I find this argument confusing and Petitioner’s reasoning faulty. Section 424.535
allows CMS to revoke a supplier’s Medicare enrollment and billing privileges for failing
to comply with enrollment requirements (42 C.F.R. § 424.535(a)(1)). In defining
enrollment requirements, that subsection incorporates the other provisions of section
424.535(a), including the provision regarding felonies (424.535(a)(3)).° Moreover, even
if it did not, section 424.535(a)(3) provides an independent basis for revocation.

Nor does the regulation require that the financial crimes be related to the Medicare
program. As CMS points out, the regulations’ drafters intended to protect the Medicare
program and its beneficiaries from fraudulent and abusive providers and suppliers, and
they singled out, as threats to the program, those convicted of felonious financial crimes.
71 Fed. Reg. 20,754, 20,768 (Apr. 21, 2006).

Petitioner does not deny that grand theft — taking money from a hospital — is a financial
crime, as, plainly, it is. By regulation, financial crimes are detrimental to the best
interests of the Medicare program and its beneficiaries. 42 C.F.R. § 424.535(a)(3);
Letitia Bussell, M.D. DAB No. 2196 at 9 (2008). CMS is therefore authorized to revoke
Petitioner’s Medicare enrollment and billing privileges.

Petitioner also attacks the timing of the revocation, complaining that CMS “waited
almost six years after Laurel’s plea agreement to revoke her Medicare participation.” P.
Br. at 8. Because, a revocation based on a felony conviction is effective the date of that
conviction (42 C.F.R. § 424.535(g)), any Medicare payments Petitioner received
following her conviction will likely be denied retroactively. Petitioner argues that “CMS
impermissibly utilizes [section] 424.535(a)(3) as a “retrospective ‘Condition of Payment’
remedy.” P. Br. at 9. If, in fact, Petitioner had been out of compliance with a “condition
of payment,” according to Petitioner, it would have been subject to a six-year statute of
limitations. I find this argument puzzling, inasmuch as CMS imposed the revocation by
letter dated May 4, 2012, revoking billing privileges effective November 17, 2006, six
months shy of any purported six-year deadline.

Nor does any such deadline apply here. Petitioner cites, as support for her position, 28
U.S.C. § 2801, which requires that claims against the United States be brought within six
years, but does not apply to actions brought by the United States. Although some
provisions of the Act impose a six-year statute of limitations for various actions,

* In fact, a deficient provider/supplier is generally given the opportunity to correct its
deficiencies “except for those imposed under paragraphs (a)(2), (a)(3), or (a)(5)” of
section 424.535(a). 42 C.F.R. § 424.535(a)(1). So, not only can CMS revoke the felon’s
Medicare enrollment, it may do so without offering the supplier an opportunity to correct
(which, in any event, probably could not be done).
including civil money penalties, assessments and exclusions (Act §1128A(c)(1)), this
action is brought pursuant to a regulation that authorizes CMS to act within 10 years of a
felony conviction. 42 C.F.R. § 424.535(a)(3).

Finally, if Petitioner failed to report the conviction timely, she can hardly complain that
the Medicare contractor failed to act expeditiously. She alleges, generally, that the
contractor was “timely notified. . . via standard interagency reciprocity” (whatever that
is), but she does not claim that she ever reported the conviction, much less that she
reported it within 30 days, as required by the regulations. 42 C.F.R. § 424.516(d).

III. Conclusion

Because the undisputed evidence establishes that Petitioner Laurel was, within the last
ten years, convicted of a felony offense detrimental to the best interests of the Medicare
program and its beneficiaries, CMS is entitled to judgment as a matter of law. I therefore
grant CMS’s motion for summary judgment. Petitioner’s cross-motion is denied.

/s/
Carolyn Cozad Hughes
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Center for Tobacco Products,
Complainant
v.

Lakeview Foods, Inc.
d/b/a Lakeview Food & Liquors,

Respondent.

Docket No. C-13-314
FDA Docket No. FDA-2013-H-0084

Decision No. CR2721

Date: March 13, 2013

INITIAL DECISION AND DEFAULT JUDGMENT

The Center for Tobacco Products (CTP) filed an Administrative Complaint
(Complaint) against Respondent, Lakeview Foods, Inc. d/b/a Lakeview Food &
Liquors, alleging facts and legal authority sufficient to justify the imposition of a
civil money penalty of $250. Respondent did not timely answer the Complaint,
nor did Respondent request an extension of time within which to file an answer.
Therefore, I enter a default judgment against Respondent and order that
Respondent pay a civil money penalty in the amount of $250.

CTP began this case by serving a Complaint on Respondent and filing a copy of
the Complaint with the Food and Drug Administration’s (FDA) Division of
Dockets Management. The Complaint alleges that Respondent impermissibly sold
tobacco products to a minor and used a self-service display in a non-exempt
facility, thereby violating the Federal Food, Drug, and Cosmetic Act (Act) and its
implementing regulations found at 21 C.F.R. Part 1140. CTP seeks a civil money
penalty of $250.

On January 28, 2013, CTP served the Complaint on Respondent by United Parcel
Service, pursuant to 21 C.F.R. §§ 17.5 and 17.7. In the Complaint and
accompanying cover letter, CTP explained that, within 30 days, Respondent
should pay the penalty, file an answer, or request an extension of time within
which to file an answer. CTP warned Respondent that, if it failed to take one of
these actions within 30 days, the Administrative Law Judge could, pursuant to 21
C.F.R. § 17.11, issue an initial decision ordering Respondent to pay the full
amount of the proposed penalty. Respondent did not take one of the required
actions within the time provided by regulation.

lam required to issue a default judgment if the Complaint is sufficient to justify a
penalty, and the Respondent fails to answer timely or to request an extension. 21
C.F.R. § 17.11(a). For that reason, I must decide whether a default judgment is
appropriate here, and I conclude that it is merited based on the allegations of the
Complaint and Respondent’s failure to answer them.

For purposes of this decision, I assume the facts alleged in the Complaint are true.
21 C.F.R. § 17.11(a). Specifically, CTP alleges the following facts in its
Complaint:

e Respondent owns Lakeview Food & Liquors, a business that sells tobacco
products and is located at 4106 North Sheridan Road, Chicago, Illinois
60613.

¢ On September 6, 2011, an FDA-commissioned inspector observed a
violation at Respondent’s establishment, namely, Respondent sold
cigarettes or smokeless tobacco to a person younger than 18 years of age.

e¢ On December 8, 2011, CTP issued a Warning Letter to Respondent
regarding the inspector’s observations from September 6, 2011. The letter
stated that the observations constituted a violation of regulations found at
21 C.F.R. § 1140.14(a) and that these regulations prohibit the sale of
cigarettes or smokeless tobacco to a person younger than 18 years of age.
The letter also advised Respondent that failure to correct the violations
could result in the imposition of a civil money penalty or other regulatory
action by FDA and that it was Respondent’s responsibility to ensure
compliance with the law.

e On August 16, 2012, FDA commissioned inspectors again documented a
violation during a subsequent inspection of the establishment. Specifically,
a display of “‘Skoal” smokeless tobacco was directly accessible to
customers. Since Respondent’s establishment is a convenience store that is
open to the general public, thus not qualifying as a facility where minors
are not permitted to enter at any time, the inspectors documented a
violation for Respondent’s use of a self-service display in a non-exempt
facility.

These facts establish that Respondent is liable under the Act. The Act prohibits
misbranding of a tobacco product. 21 U.S.C. § 331(k). A tobacco product is
misbranded if sold or distributed in violation of regulations issued under section
906(d) of the Act. 21 U.S.C. § 387c(a)(7)(B); 21 C.F.R § 1140.1(b). Under 21
C.F.R. § 1140.14(a), no retailer may sell cigarettes or smokeless tobacco to any
person younger than 18 years of age. Under 21 C.F.R. § 1140.16(c), a retailer
may sell cigarettes and smokeless tobacco only in a direct, face-to-face exchange
between the retailer and the consumer. Examples of methods of sale that are not
permitted include self-service displays. However, 21 C.F.R. 1140.16(c)(2)(ii)
permits facilities to use self-service displays but only if the retailer ensures that no
person younger than 18 years of age is present, or permitted to enter, at any time.

Here, Respondent sold tobacco products to a minor in violation of the foregoing
regulations on September 6, 2011. Most recently, on August 16, 2012,
Respondent used a self-service display of smokeless tobacco in an establishment
that does not restrict minors from entering. Respondent’s actions constitute
violations of law for which a civil money penalty is merited. Accordingly, I find
that a civil money penalty of $250 is permissible under 21 C.F.R. § 17.2.

/s/
Steven T. Kessel
Administrative Law Judge


Department of Health and Human Services

DEPARTMENTAL

APPEALS BOARD

Civil Remedies Division

Center for Tobacco Products,

Compl:

ainant

Vv.

Mae B

. Inc.

d/b/a Turnpike Spirit Shop,

Respondent.

Docket No.
FDA Docket No. F

C-13-315
DA-2013-H-0086

Decision No. CR2720

Date: Mare

INITIAL DECISION AND

The Center for Tobacco Products (CTP) fi
(Complaint) against Respondent, Mae B.,

11, 2013

DEFAULT JUDGMENT

led an Administrative Complaint
ne. d/b/a Turnpike Spirit Shop, alleging

facts and legal authority sufficient to justify the imposition of a civil money

penalty of $500. Respondent did not time’

ly answer the Complaint, nor did

Respondent request an extension of time within which to file an answer.
Therefore, I enter a default judgment against Respondent and order that

Respondent pay a civil money penalty in t

ie amount of $500.

CTP began this case by serving a Complaint on Respondent and filing a copy of
the Complaint with the Food and Drug Administration’s (FDA) Division of
Dockets Management. The Complaint alleges that Respondent impermissibly sold
tobacco products to a minor and failed to appropriately verify the age of a person
purchasing tobacco products, thereby violating the Federal Food, Drug, and
Cosmetic Act (Act) and its implementing regulations found at 21 C.F.R. Part
1140. CTP seeks a civil money penalty of $500.

On January 28, 2013, CTP served the Complaint on Respondent by United Parcel
Service, pursuant to 21 C.F.R. §§ 17.5 and 17.7. In the Complaint and
accompanying cover letter, CTP explained that, within 30 days, Respondent
should pay the penalty, file an answer, or request an extension of time within
which to file an answer. CTP warned Respondent that, if it failed to take one of
these actions within 30 days, the Administrative Law Judge could, pursuant to 21
C.F.R. § 17.11, issue an initial decision ordering Respondent to pay the full
amount of the proposed penalty. Respondent did not take one of the required
actions within the time provided by regulation.

lam required to issue a default judgment if the Complaint is sufficient to justify a
penalty, and the Respondent fails to answer timely or to request an extension. 21
C.F.R. § 17.11(a). For that reason, I must decide whether a default judgment is
appropriate here, and I conclude that it is merited based on the allegations of the
Complaint and Respondent’s failure to answer them.

For purposes of this decision, I assume the facts alleged in the Complaint are true.
21 C.F.R. § 17.11(a). Specifically, CTP alleges the following facts in its
Complaint:

e Respondent owns Turnpike Spirit Shop, a business that sells tobacco
products and is located at 1838 Black Rock Turnpike, Fairfield,
Connecticut 06825.

e¢ On December 22, 2011, an FDA-commissioned inspector observed a
violation at Respondent’s establishment, namely, Respondent sold
cigarettes or smokeless tobacco to a person younger than 18 years of age.

e On February 9, 2012, CTP issued a Warning Letter to Turnpike Spirit Shop
& Wine Emporium regarding the inspector’s observations from December
22, 2011. The letter stated that the observations constituted a violation of
regulations at 21 C.F.R. § 1140.14(a) and that these regulations prohibit the
sale of cigarettes or smokeless tobacco to a person younger than 18 years of
age. The letter also advised Respondent that failure to correct the
violations could result in the imposition of a civil money penalty or other
regulatory action by FDA.

e On July 25, 2012, FDA commissioned inspectors documented additional
violations during a subsequent inspection of the establishment. At
approximately 3:05 P.M. ET, a minor under the age of 18 was able to buy a
package of “Marlboro Red Label” cigarettes. Additionally, the minor’s
identification was not verified, by means of photographic identification
containing the bearer’s date of birth, before this sale.

These facts establish that Respondent is liable under the Act. The Act prohibits
misbranding of a tobacco product. 21 U.S.C. § 331(k). A tobacco product is
misbranded if sold or distributed in violation of regulations issued under section
906(d) of the Act. 21 U.S.C. § 387c(a)(7)(B); 21 C.F.R § 1140.1(b). Under 21
C.F.R. § 1140.14(a), no retailer may sell cigarettes or smokeless tobacco to any
person younger than 18 years of age. Under 21 C.F.R. § 1140.14(b)(1), a retailer
must verify, by means of photo identification containing the bearer’s date of birth,
that no person purchasing the tobacco product is younger than 18 years of age.

Here, Respondent sold tobacco products to a minor in violation of the foregoing
regulations on two separate occasions. Most recently, on July 25, 2012, at
Turnpike Spirit Shop, Respondent sold tobacco products to a minor and failed to
appropriately verify the minor’s age prior to the sale. The Complaint alleges a
previous violation on December 22, 2011, also for the sale of tobacco products to
aminor. CTP alleges that this violation occurred at Turnpike Spirit Shop & Wine
Emporium. Although the Complaint does not state that Turnpike Spirit Shop &
Wine Emporium is also known as or is a prior name of Turnpike Spirit Shop, I
infer that the two names refer to the same retail outlet. Therefore, Respondent’s
actions and omissions on two separate occasions at the same retail outlet constitute
violations of law for which a civil money penalty is merited. Accordingly, I find
that a civil money penalty of $500 is permissible under 21 C.F.R. § 17.2.

/s/
Steven T. Kessel
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division
Social Security Administration
Office of the Inspector General,

Petitioner,
v.
Nancy Whitehead
Docket No. C-12-370
Decision No. CR2718

Date: March 11, 2013

DECISION

The Inspector General (IG) for the Social Security Administration (SSA) charges that
Respondent, Nancy Whitehead, violated section 1129 of the Social Security Act (Act),
because, while acting as a representative payee for her mentally-impaired brother-in-law,
she converted his benefits to her own use or otherwise misused his funds. The IG
proposes imposing against Respondent Whitehead a $70,000 civil money penalty (CMP)
plus a $66,616 assessment in lieu of damages (total penalties: $136,616).

For the reasons set forth below, I agree that Respondent Whitehead improperly converted
her brother-in-law’s disability benefits and that she deliberately misled SSA about her
actions. | therefore find the penalties imposed reasonable.

Background
The Social Security Disability program (Title Il of the Act) is an insurance program that

pays benefits to insured individuals who are aged, blind, or disabled. Act § 223 et seq.
See also 20 C.F.R. §§ 404.315, 404.1505.
If SSA determines that a beneficiary is not able to manage his benefits because he is
legally incompetent or mentally or physically incapable, it will pay those benefits to a
representative payee, commonly referred to as “rep payee.” 20 C.F.R. § 416.610.
Among other requirements, the rep payee must:

e use the benefit payments solely for the beneficiary’s benefit, in a manner she
determines to be in the beneficiary’s best interests, consistent with SSA
guidelines; payments are considered used for the beneficiary’s benefit if they are
used for the beneficiary’s current maintenance (food, shelter, clothing, medical
care, personal comfort items);

e keep the benefits received on the beneficiary’s behalf separate from her own
funds and show the beneficiary’s ownership of the benefits, unless she is a spouse
or parent and lives in the same household;

¢ treat interest earned on the benefits as the beneficiary’s property;

e notify SSA of any event or change that will affect the beneficiary’s right to
benefits, amount of benefits, or how the beneficiary receives them;

© upon request, submit to SSA a written report accounting for the benefits received
on the beneficiary’s behalf, and make all supporting records available for review;
and

e notify SSA of any change in circumstance that would affect her performing her
responsibilities as a rep payee.

20 C.F.R. §§ 404.2035; 404.2040(a).

In this case, SSA designated Respondent Whitehead as rep payee for her brother-in-law,
Terry Freeman, who is mentally impaired. SSA alleges that Respondent Whitehead used
$15,000 of his benefits to purchase a house, which she titled in her own name; she then
charged him excessive rent for living in the house. SSA also alleges that Respondent
Whitehead improperly paid $10,000 of his benefit money to her sister, who was
Beneficiary Freeman’s sometimes-estranged wife, claiming that she was repaying an
outstanding business loan. Inasmuch as she was acting as her sister’s rep payee, SSA
also argues that she had a conflict of interest. Finally, SSA alleges that Respondent
Whitehead withheld additional funds and kept them for herself or disbursed them to her
sister and unidentified family members.
Respondent Whitehead denies any wrongdoing and claims that she honestly believed that
her actions were appropriate and authorized by SSA. She argues that SSA’s proposed
penalties are excessive, unreasonable, and not authorized by the statute.

The parties agree that an in-person hearing is not necessary, and the case may be decided
based on their written submissions. Petitioner’s Response to August 17, 2012 Order
(August 28, 2012); Respondent’s Brief (Resp. Br.) at 1. In response to my initial order,
the parties submitted their briefs (SSA Br.; Resp. Br.) and exhibits. The IG submitted 11
exhibits (SSA Exs. 1-11), and Respondent submitted 4 exhibits (Resp. Exs. 1-4).

Responding to my October 25, 2012 Order for Additional Development, Respondent
Whitehead submitted a written response (Resp. Response) and a set of bank records,
including copies of bank statements and cancelled checks. We have marked these
records “Resp. Ex. 5” and numbered the pages (1-70). SSA filed a response (SSA
Response) and Respondent Whitehead filed a sur-reply (Resp. sur-reply) with a written
declaration signed by Respondent Whitehead (Whitehead 2™! Decl.).!

In the absence of any objections, I admit into evidence SSA Exs. 1-11 and Resp. Exs. 1-
5.

Issues

The issues before me are: 1) does SSA have a basis for imposing penalties; and 2) if so,
are the proposed penalties — a $70,000 CMP and $66,616 assessment in lieu of damages —
reasonable?

Discussion

1. SSA has a basis for imposing penalties because, while acting as rep payee for
her mentally-impaired brother-in-law, Respondent Whitehead knowingly
converted to improper uses significant portions of his Social Security disability
insurance benefits.”

Section 1129 of the Act subjects to penalty any representative payee who receives
benefits on another’s behalf and converts those benefits to a use that the rep payee knows,
or should know, is other than for the use and benefit of the beneficiary. Act § 1129(a)(3);
see 20 C.F.R. § 498.102(b).

' This is Respondent Whitehead’s second declaration. The first is admitted as Resp. Ex.
1.

> My findings of fact/conclusions of law are set forth, in italics and bold, in the
discussion captions of this decision.
On April 9, 2009, an administrative law judge (ALJ) awarded Social Security Disability
Insurance Benefits to Beneficiary Freeman, with an effective date of January 2007. SSA
Ex. | at 3 (Williams Decl. § 8); SSA Ex. 1 at 21; SSA Ex. 11 at 2 (Freeman Decl. 4 7).
The ALJ also determined that Beneficiary Freeman should have his benefits paid to a rep

payee.

Ina req

SSA Ex. 1 at 3 (Williams Decl. 4 9).

est dated May 1, 2009, Respondent Whitehead asked SSA to pay Beneficiary

Freeman’s benefits to her. In that request, she asserted:

Beneficiary Freeman needs a rep payee because he is mentally impaired;

Beneficiary Freeman lives alone and has no other relative or close friend interested

in being his rep payee;

e In error, the request says that Respondent Whitehead is Beneficiary Freeman’s

brother-in-law; in fact, she is his sister-in-law;°

Beneficiary Freeman owes her no money, and she does not expect him to owe her
money in the future;

SSA Ex. | at 8.

In the request, Respondent Whitehead acknowledged that all payments made to her as rep

payee “

“must” be used for the beneficiary’s current needs or saved for his future needs.

She said that she understood that she could be liable for repayment and could be punished

by fine.

, imprisonment, or both, if found guilty of misusing his benefits. She promised:

to use the payments for the beneficiary’s current needs and to save any currently
unneeded benefits for future use;

to file an accounting report on how the payments were used and to make all
supporting records available for review if requested by SSA;

to reimburse any losses suffered by the beneficiary due to her misuse of his funds;

to notify SSA if the beneficiary dies, leaves her custody, changes his living
arrangements or is no longer her responsibility;

* Bene

ficiary Freeman is married to Respondent’s sister, Pamela Freeman. SSA Ex. 11

at 1 (Freeman Decl. 4 1). It seems that Beneficiary Freeman’s wife also receives Social
Security Disability benefits, and Respondent Whitehead acts as her representative payee
as well. SSA Ex. 11 at 2 (Freeman Decl. § 8).
SSA Ex. 1 at 9. On the request form, SSA repeated, in writing, that: “payments must be
used for the claimant’s current needs or saved if not currently needed”; Respondent could
be liable for repayment of any amounts not used for the beneficiary’s needs; she must
account for the benefits when SSA asks her to; and she must keep records of how the
benefits are spent. SSA Ex. | at 11, 13.

On May 11, 2009, SSA began sending the benefit checks, payable to Respondent
Whitehead “for Terry R. Freeman.” SSA Ex. 2 at 21,22. Between May 11, 2009, and
May 3, 2010, SSA sent her checks totaling $52,724.96. SSA Ex. 2 at 20-38.

Beneficiary Freeman, however, was very unhappy with the manner in which Respondent
managed his benefits, complaining that “[s]tarting in May 2009, and continuing each
month through May 2010, Mrs. Whitehead misused some portion of my monthly
benefits.” SSA Ex. 11 at 2 (Freeman Decl. 414).

On May 20, 2010, Beneficiary Freeman’s sister, June Beale, became his new rep payee.
They retained an attorney, Gerald Brown, and complained to SSA that Respondent
Whitehead had misused beneficiary funds; they also filed a misuse complaint with the
Sheriff’s Office for Madison County, Georgia. After an initial investigation, the sheriff’s
office referred the matter to SSA, which brought this action. SSA Ex. 1 at 21; SSA Ex. 2
at 3, 6-8, 10, 14-15; SSA Ex. 3 at 3-4; SSA Ex. 10 at 1, 4 (Beale Decl. 495, 10, 12).

Overwhelming — and largely undisputed — evidence establishes that SSA may rightfully
impose penalties against Respondent Whitehead. From receipt of Beneficiary Freeman’s
first check, she knowingly converted his funds to her own and to other improper uses.

Co-mingling of funds. As noted above, regulations mandate that Respondent Whitehead
keep Mr. Freeman’s benefits separate from her own funds and show that he is their
owner. 20 C.F.R. § 404.2035(b). Although she assured SSA that she complied with
these requirements, in fact, she did not.

In applying to be the rep payee, Respondent Whitehead told SSA that she did not have a
bank account and declined the option of having Beneficiary Freeman’s funds deposited
directly into an account set up for him with herself as payee. SSA Ex. 1 at 9, 11. In fact,
she had a bank account, held solely in her own name, and she immediately began
depositing Beneficiary Freeman’s checks into that account. She did not put his name on
the account, but held his funds in her own name throughout her tenure as rep payee.
Resp. Response at 1; Resp. Ex. 5. Then, in a statement dated February 23, 2011, she
falsely told SSA that she deposited Beneficiary Freeman’s checks into an account at First

* Ms. Beale’s declaration states that she became the rep payee on May 20, 2012, which is
obviously a typographical error.
Citizens Bank in hers and Terry Freeman’s names. SSA Ex. 2 at 39. I consider this a
deliberate deception. Terry Freeman’s name first appears on the account (“Terry
Freeman by Nancy B. Whitehead, Rep Payee”) in August 2010, three months after she
was removed as his rep payee, when she was no longer receiving and depositing his
checks into the account. R. Ex. 5, at 36. Respondent does not explain why she so
belatedly added his name, but, inasmuch as she knew that SSA was investigating her
performance, I can reasonably infer that she did so to obscure the fact that she kept his
benefits under her own name.

Payments for “outstanding debts.” Notwithstanding SSA’s explicit warnings and her
own written assurances, Respondent Whitehead did not use all of Beneficiary Freeman’s
benefits to cover his current needs, and she saved nothing for his future use. Rather, she
ept portions of these funds for herself or paid them to her sister and unnamed others.
SSA Ex. 4 at 3, 5, 9; SSA Ex. 1 at 21.

I discuss below Respondent’s paying her sister $10,000 from beneficiary funds and her
paying $15,000 of his money as a down payment on a house held in her own name. In
addition, she has admitted that she used beneficiary funds to “repay” those who
contributed toward Beneficiary Freeman’s living expenses before he began receiving
benefits:

e Ina February 23, 2011 statement to SSA Special Agent Mike Davis, she claimed
that she “used all funds [she] received from SSA on behalf of Freeman to settle
past or present debts of Freeman and pay Freeman’s living expenses... .” SSA
Ex. 2 at 40;

e Responding to his request for an accounting, she gave Attorney Brown
handwritten notes and bank statements listing payments totaling $6,520.24, which,
she claimed, represented Beneficiary Freeman’s outstanding debts to her and other
family members for expenses incurred in 2008 and the first half of 2009. SSA Ex.
1 at 21; SSA Ex. 4 at 3, 5, 10-16; SSA Ex. 2 at 16-17; see SSA Br. at 7.

e Inher first written declaration, she reiterates that she financially assisted her sister
and Beneficiary Freeman during 2008, but, contradicting her earlier statements,
says that she “did not expect nor . . . use any of Terry’s benefits to reimburse
myself for the assistance I provided them during 2008.” R. Ex. | at 1 (Whitehead
Decl. | 4);

e Inthe same declaration she claims that, soon after becoming his rep payee, at the
beneficiary’s request, she “made several payments for debts and expenses such as
delinquent medical, doctor, and dental bills.” R. Ex. 1 at 1-2 (Whitehead Decl. {
4).
Respondent Whitehead’s co-mingling of funds and less-than-reliable record-keeping
makes it difficult to ascertain exactly how much she paid for Beneficiary Freeman’s past
debts and to whom she made those payments. The accounting she gave to Attorney
Brown reflects relatively small payments for old debts to J. Adams ($100 in July 2009),
S. Treadwell ($70 in July 2009, $140 in August 2009, $150 in September 2009, and $25
in October 2009) and B. Barnett ($132 in November 2009). SSA Ex. 4 at 20-22; Resp.
Ex. 5 at 8, 11; but see Resp. Ex. 5 at 14 (showing an additional $100 payment to J.
Adams in August 2009); Resp. Ex. 5 at 17 (showing $100 payment — not $150 — to S.
Treadwell in September 2009).

In another document, also provided to Attorney Brown, she itemizes the $6,520.24
“outstanding debt” that Beneficiary Freeman purportedly owed to her and other family
members, which she said she repaid out of his funds. SSA Ex. 4 at 3, 5. Comparing this
list to the annotated copies of cancelled checks (dated July 2008 through June 2009), it
seems that she and her sister Pamela were Beneficiary Freeman’s principal, perhaps sole,
“creditors.” SSA Ex. 4 at 10-16. From this, I conclude that Respondent Whitehead paid
these beneficiary funds to herself and her sister Pamela.

Respondent Whitehead justifies her actions by claiming that she was paying off the
beneficiary’s debts and that she did so “in an open manner. . . with the honest belief that
such was in the best interests of [Beneficiary Freeman].” Resp. Br. at 3. For his part,
Beneficiary Freeman denies ever having asked Respondent Whitehead to pay any debt he
incurred prior to May 2009. SSA Ex. 11 at 2 (Freeman Decl. § 11).

The regulations explicitly do not require a rep payee to use benefit payments to satisfy
debts incurred “prior to the first month for which payments [were] certified.” Further,
they authorize her to repay those earlier debts “only if the current and reasonably
foreseeable needs of the beneficiary are met.” 20 C.F.R. § 404.2040(d).°

No evidence establishes that Beneficiary Freeman had any legal obligation to pay to
Respondent, her sister, or any other family member any purported “debts.” Prior to
assuming her role as representative payee, Respondent Whitehead unequivocally assured
SSA that Beneficiary Freeman owed her no money: “Terry R. Freeman does not owe me
any money and I do not expect him to in the future.” SSA Ex. | at 8; SSA Ex. 7 at 2.
Generally, a creditor may not serve as a rep payee unless SSA is assured that the

* According to June Beale, Beneficiary Freeman’s needs were not being met. For
example, he had no supplemental medical insurance or life insurance. His teeth had been
removed, but he had no dentures. SSA Ex. 10 at 2 (Beale Decl. § 10).
individual or institution poses no risk to the beneficiary, presents no substantial conflict
of interest, and satisfies other criteria. 20 C.F.R. § 404.2022(e).°

It seems that the bulk of the checks Respondent points to as evidence of Beneficiary
Freeman’s debts are checks paid to or on behalf of his wife. See, e.g. SSA Ex. 4 at 10-16.
Respondent cites no support, and I am aware of none, for the proposition that one spouse
must reimburse another for their shared household expenses. See SSA Ex. 11 at 2
(Freeman Decl. § 12) (acknowledging that, although his wife paid living expenses while
ie was unable to work, he paid them prior to that).

Respondent also claimed reimbursement for transportation costs to which she was
probably not entitled. She lists car payments of approximately $220 per month from June
2009 through May 2010, as well as payments for tags, car insurance and repairs.’ SSA
Ex. 4 at 20-22; see also, e.g., Resp. Ex. 5 at 8, 9, 11, 12, 15, 23, 25, 27, 29, 32. Yet, she
claims that she was entitled to more than $800 for transporting the beneficiary to his
medical appointments “since he had no automobile.” SSA Ex. 4 at 3 (deducting $870
from the lump sum check); SSA Ex. 4 at 6 (claiming $870 for “transportation to Dr.
appointments” from 9/19/08-5/31/10); SSA Ex. 4 at 19, 43 (justifying $830 in
transportation costs from 6/1/09-5/11/10).

Finally, Respondent can hardly claim to have acted “in an open manner” inasmuch as she
lied to SSA about making these payments. In a Rep Payee report, signed and dated June
21, 2010, she told SSA that, of the $49,260 in benefits received between June 1, 2009 and
May 31, 2010, she spent $25,150 “for the beneficiary’s food and housing between
06/01/2009 and 05/31/2010.” She also reported that she spent $24,110 “on other things
for the beneficiary such as clothing, education, medical, and dental expenses, recreation,
or personal items between 06/01/2009 and 05/31/2010.” SSA Ex. 2 at 18 (emphasis
added). She did not disclose payments for debts allegedly incurred prior to June 1, 2009.

® A creditor would also have to be one of the following: 1) a relative living in the same
household; 2) the beneficiary’s legal guardian or representative; 3) a licensed or certified
care facility; 4) a qualified organization authorized to collect a fee; 5) an administrator,
owner, or employee of the facility in which the beneficiary lives; or 6) any other
individual SSA deems appropriate based on a written determination. Had she told SSA
that Beneficiary Freeman owed her money, Respondent Whitehead would likely not have
been allowed to act as his rep payee, particularly since she also acted as Pamela
Freeman’s rep payee, which presents a substantial conflict of interest (as the evidence
here well illustrates). See SSA Ex. 1 at 4 (Williams Decl. {§ 12, 15).

’ Although she paid no car loan in June, she made a double payment in July. SSA Ex. 4
at 21.
Respondent well knew that she was required to spend Beneficiary Freeman’s money for
is current maintenance or to save it for his future needs. 42 C.F.R. §§ 404.2035(a);
404.2040(a). She assured SSA, in writing, that she would do so. SSA Ex. | at 9, 11, 13.
Making payments to herself and to her sister cannot be considered spending the money
for the use and benefit of the beneficiary; because she did so, she is subject to penalties
under section 1129.

$10,000 payment to Respondent’s sister/Beneficiary Freeman’s wife. In her submissions
to Attorney Brown, Respondent Whitehead conceded that she paid $10,000 from
Beneficiary Freeman’s benefit checks to her sister Pamela, claiming that she was
repaying a 2005 debt: “Terry Freeman borrowed Pamela Freeman’s inheritance from her
mother in 2005 and promised to pay it back to her when he received his lump sum
payment from Social Security.” SSA Ex. 4 at 3; see SSA Ex. 2 at 16. Inasmuch as Terry
Freeman did not apply for benefits until July 25, 2006, he would have had no expectation
in 2005 of receiving any lump sum disability check, so I doubt that he then promised to
repay any loans when his disability check came in. SSA Ex. | at 3 (Williams Decl. § 8).
In any event, Respondent Whitehead seems to have partially abandoned this position, and
she no longer refers to any 2005 promise to repay.

Still, in her February 23, 2011 statement to Special Agent Davis, she said that Terry
borrowed Pam’s $10,000 inheritance back in 2005 and that the couple had separated
numerous times. When, in 2009, she received Beneficiary Freeman’s check for back
benefits, she took $10,000 and placed it in Pamela’s account. SSA Ex. 2 at 4, 41. This
statement is consistent with the documentary evidence and strongly supports the
proposition that Respondent converted the funds to an improper use.

Respondent’s own written declaration is conspicuously silent on her giving $10,000 to

er sister. Resp. Ex. 1. Pamela Freeman, however, claims that “[w]hen Terry got his
lump sum from SSA[,] he told Nancy to put $10,000 in the bank for me that he had
borrowed when I got my inheritance from my parents.” Resp. Ex. 2 at 2 (P. Freeman
Decl. 4 9). Beneficiary Freeman denies this. He says that he merely asked Respondent
Whitehead to put any remaining funds (after purchase of the house) into a savings
account for him. SSA Ex. 11 at 2-3 (Freeman Decl. ¥ 15, 16).

Any claim that Respondent properly repaid a debt is undermined by her failure to
disclose her actions. In her June 21, 20010 Rep Payee Report, she deliberately misled
SSA about the payment. As discussed above, she falsely claimed that she spent all of the
beneficiary funds on his immediate needs (food, housing, clothing, medical expenses,
personal items, etc.). SSA Ex. 2 at 18.

Absolutely no evidence shows that Beneficiary Freeman was legally obligated to pay
$10,000 to his wife. I do not find credible Pamela Freeman’s claim — which even
Respondent Whitehead does not currently make — that her husband instructed Respondent

10

to give his money away. Moreover, Beneficiary Freeman needed a rep payee because he
was not capable of managing his own funds. Respondent Whitehead had a duty to spend
those funds properly. By giving away one-third of his past-due benefits, she misused
those funds and is subject to penalty under section 1129.

Down-payment on a house held in the Whiteheads’ names. Using Beneficiary Freeman’s
disability funds for the down payment, on August 13, 2009, Respondent Whitehead and
er husband, Claude Whitehead Jr. (also called Junior Whitehead), purchased a house in
their own names for $65,000. SSA Ex. 1 at 19-20; SSA Ex. 2 at 40. Respondent then
charged Beneficiary Freeman $722 a month to live in the house, although she later
lowered the payments to $600.

Respondent Whitehead told Special Agent Davis that she agreed to assist Terry and
Pamela in purchasing a home. She bought the house for $65,000, putting $15,000 down,
which she took from Terry’s lump sum benefit check. She said that Terry agreed to pay
er $722 per month for ten years, to be taken from his benefits check. As part of the
agreement, he also had to allow her to continue as his representative payee. She collected
$722 per month from September through December 2009, but, when Terry complained,
she lowered the payments to $600 per month. SSA Ex. 2 at 40; SSA Ex. 5 at 3. He later
told her that he no longer wanted to purchase the house, and he moved out. She did not
return his $15,000 down payment, but said that she applied it to debts the beneficiary
incurred before he began receiving his benefits. SSA Ex. 2 at 5, 40; SSA Ex. 5 at 4.

According to Beneficiary Freeman, Respondent Whitehead and her husband offered to
finance the purchase of a house for him and his wife. She agreed to put $25,000 from his
lump sum check as a down payment on the house, the remainder to be deposited in the in
a savings account for him. He claims, however, that she told him that the house cost
$85,000; he learned of the actual price from his siblings, who checked the public records.
She did not tell him that the house was purchased solely in the Whiteheads’ names. SSA
Ex. 11 at 3 (Freeman Decl. § 16).

Nothing in writing memorializes any house-purchase agreement between Respondent
Whitehead and Beneficiary Freeman, nor has Respondent provided any documents
describing the financing arrangements between the house sellers and the Whiteheads.
Even assuming that she intended eventually to transfer title of the house to the
beneficiary, she jeopardized his interests and violated the regulations because she did not
show his ownership of the property. 20 C.F.R. § 404.2035(b).* Further, by her own
admission, she tied his maintaining his interest in the property to her remaining as his
representative payee, which is a blatant conflict of interest and plainly improper. See,

* In the State of Georgia, as in most jurisdictions, transactions concerning land sales are
enforceable only if they are in writing and signed by the parties. See, e.g., Ga. Code Ann.
§ 13-5-30 (statute of frauds).
11

e.g., 20 C.F.R. § 404.2022(e). She did not advise SSA of this arrangement, even though
it affected her performing her responsibilities as rep payee. See 20 C.F.R. § 404.2035(f).
Her refusal to return his money, leaving him with neither an enforceable interest in the
property nor his $15,000 down payment, constitutes an improper conversion and justifies
SSA’s imposing a penalty under section1129.

Excessive rent. After purchasing the house, Respondent Whitehead wrote monthly “rent”
checks from beneficiary funds, payable to her husband, Junior. SSA Ex. 4 at 4. For the
first four months, she took $722 a month. When Beneficiary Freeman complained, she
reduced the amount to $600. Resp. Ex. 1 at 2-3 (Whitehead Decl. § 9); SSA Ex. 11 at 4
(Freeman Decl. ff 18, 19); Resp. Ex. 5 at 14, 17, 51, 59, 65, 67, 68, 70. SSA asserts that
the amounts she charged were excessive; the fair rental value of the house was $400 per
month. SSA Ex. | at 5-6 (Williams Decl. § 20); see SSA Ex. 1 at 15-19. Respondent
argues that $722 does not represent a monthly rent payment; it represents the cost of a
lease/purchase, which “would typically be much larger than rent.” Resp. Br. at 5; Resp.
Ex. 4 (Thompson Decl. 45). She also suggests that the monthly payment covered
property taxes and insurance, as well as lease/purchase. Resp. Ex. 1 at 3 (Whitehead
Decl. § 9). She does not provide a breakdown of these purported costs. In fact, the
record includes copies of cancelled checks, payable to the Madison County Tax
Commissioner, which show that she paid property taxes separately. In January 2010, for
example, Respondent wrote a $600 check to Junior Whitehead and a $400 check to the
Madison County Tax Commissioner. On both checks, she indicates that the payment is
for the same property, the house she bought using beneficiary funds. Resp. Ex. 5 at 65;
see also Resp. Ex. 5 at 52 (showing an additional payment to the tax assessor in
November 2009).

Because Respondent neither explains nor documents her financial arrangements for
purchasing the house, I cannot tell whether she paid cash for it or financed the $50,000
balance. In either event, I see no support for considering this transaction a
lease/purchase, entitling her to monthly payments greater than either the fair market rent
or a reasonable mortgage payment. Either Respondent improperly purchased the house,
using beneficiary funds and then rented it to him at an inflated rate or, if 1 accept her
assertions, the beneficiary was purchasing the house through her. If purchasing the
ouse through her, his down payment exceeded 23% of the purchase price, and his
monthly payments should not have exceeded a reasonable mortgage payment. That
Respondent fails to provide any evidence of financing leads to the inescapable inference
that she charged Beneficiary Freeman more than the monthly payment that was actually
due, assuming she financed the house herself, or than would have been due had she
financed the house through a financial institution.’

° Although rough, it seems that national mortgage rates in 2009 were about 5%, perhaps
a bit lower on a 10-year loan in the State of Georgia. At 5%, the monthly payments on a
$50,000 ten-year loan would be about $530. www.usbank.com/calculators.

12

Respondent probably should not have set herself up as the beneficiary’s landlord and/or
mortgage holder, but, having done so, she was obligated to operate at arm’s length and
was not entitled to profit from the arrangement.'” Her conduct was plainly improper and
subjects her to penalty under section 1129.

2. The IG proposes reasonable penalties: a $70,000 CMP and $66,616
assessment in lieu of damages.

The statute allows SSA to impose a CMP of “not more than $5,000 for each” conversion
of benefits to an improper use. Act §1129(a)(3). Consistent with the statute, the
implementing regulation explains that the IG may impose a penalty of not more than
$5,000 “for each time the representative payee receives a payment under title I]. . . for
the use and benefit of another individual, and who converts such payment, or any part
thereof, to a use that [she] knew or should have known was other than for the use and
benefit of [the beneficiary].” 20 C.F.R. §§ 498.103(b).

SSA may also impose an assessment in lieu of damages of not more than twice the
amount of benefits or payments converted. Act § 1129(a)(3); 20 C.F.R. § 498.104.

The IG proposes a CMP of $136,616, which represents a $5,000 penalty for 14 converted
payments ($70,000) plus $66,616, which represents twice the amount of the converted
benefits, as an assessment in lieu of damages.

Number of violations. With respect to the CMP, Respondent Whitehead argues that each
of her purportedly improper disbursements came from just one check, a lump-sum
payment of $31,376.72, dated August 12, 2009, so, at most, Respondent is liable for a
single $5,000 CMP. Resp. Br. at 3. SSA argues that Respondent is liable for each
conversion to an improper use, without considering from which check or checks the
funds derived. SSA Response at 4. Neither party points to any compelling support for its
position, although SSA cites legislative history, which says that a CMP “of up to $5,000
may be imposed for each violation. .. .” S. Rep. No. 108-176, at 13 (2003). In SSA’s
view, “each violation” means each time the rep payee misspends any funds. Thus, giving
$10,000 to her sister would be one violation, and using $15,000 to buy a house in her
own name would be a separate violation, even if all of the funds came from the same
check.

Neither has Respondent explained why she held Beneficiary Freeman responsible for
100% of the rental payments. Her sister, Pamela, also lived in the house, and rent checks
indicate that payment was made on Pamela’s behalf. Resp. Ex. 5 at 14, 17, 51, 59, 65,
67.
13

In the absence of a written agency policy or regulatory comment, I am reluctant to accept
SSA’s position. Under the statute and regulation, SSA may find a violation and impose a
CMP only if two criteria are met: 1) the rep payee receives a payment; and 2) the rep
payee converts all or part of that payment to an improper use. This suggests (although it
does not compel) that each CMP must be tied to a separate payment. I recognize that this
interpretation subjects a rep payee to a relatively small CMP, even though she misspends
a large sum, so long as that sum is taken from a single check. On the other hand, SSA
also has the authority to impose an assessment in lieu of damages, which is tied to the
amount misused. Congress may reasonably have decided to authorize two different types
of penalties: one based on the number of infractions (CMP); and the other based on the
total amounts misused (assessment).

I need not resolve the issue, however, because the evidence in this case establishes that
Respondent Whitehead converted all or part of at least 14 payments.

First, Respondent received a total of 18 payments and Respondent Whitehead deposited
all or part of each payment into an account in her own name. SSA Ex. 2 at 21-38.
Arguably, every time she improperly deposited beneficiary funds into her own bank
account, she misused those funds and subjected herself to a CMP. See 20 C.F.R.

§ 404.2035(b).

Second, Respondent co-mingled the funds from multiple checks, and her record-keeping
is such that it is not possible to track a specific expenditure to a specific check.

She may not unilaterally attribute the misspent funds to one check. Absent evidence to
the contrary, I find it more reasonable to assume that the first funds deposited into the
account are the first funds withdrawn (““first-in, first-out,” commonly referred to as
FIFO).

On August 12, 2009, SSA issued a lump-sum check in the amount of $31,476.72 to
Respondent Whitehead for Beneficiary Freeman. SSA Ex. 2 at 27. Respondent’s bank
records show that she deposited $25,000 into her account on August 21, 2009. Resp. Ex.
5 at 12.'' At that time, $4,519.94 was already in the account, representing all or portions
of the five immediately preceding deposits:

e August 3 check of $1,332.40, of which she deposited $1300 on August 4;

"" Respondent withheld $6,476.72, which is not accounted for, but may have been the
money she paid (to herself and her sister or other family members) for Beneficiary
Freeman’s purported past living expenses. See SSA Ex. 4 at 3. SSA issued an additional
check for $192.80 on September 1, 2009, which is also unaccounted for. SSA Ex. 2 at
29.
14

e July 9 checks of $250 and $1,697.54, which she deposited on July 9 and 14,
respectively;

e July 2 check of $1,495.60, of which she deposited $1,000 on July 3;
e June 3 check of $1,554, of which she deposited $1,500 on June 4.
SSA Ex. 2 at 20, 22-26; Resp. Ex. 5 at 3, 6, 9, 13.

On September 3, 2009, Respondent withdrew $25,000 from the account, apparently
giving $10,000 to her sister and using $15,000 to purchase the house. Resp. Ex. 5 at 12,
14. Applying FIFO principles, I find that this withdrawal represents funds taken from six
checks, the five listed above and the lump sum payment. The balance remaining in the
account after she made this withdrawal ($4,069.30) is attributable to the lump-sum check.
Thus, she is subject to CMPs of up to $5,000 for each of the six checks from which she
misused funds.

From September 2009 through May 2010, Respondent paid beneficiary funds to herself
and her husband as rent. As discussed above, these payments were excessive, and each
represents a misuse of beneficiary funds. Again applying the principle of FIFO, I find
that the September and October rent checks, which cleared on September 15 and October
14, 2009, respectively, were paid out of the lump sum check. Resp. Ex. 5 at 12, 14, 15,
17. By October 15, however, the lump-sum funds had been effectively depleted, and all
subsequent rent checks came out of the ten benefit checks issued between September 3,
2009, and May 3, 2010, inclusive. SSA Ex. 5 at 15."

Amount of the damages. Because of Respondent’s shoddy record-keeping — and her
deliberate efforts to conceal certain expenditures — I cannot pinpoint the exact amount of
the damages. SSA alleges that she converted more than $33,308.24 to improper uses.
The record here more than supports this figure:

¢ She gave $10,000 to her sister.

¢ She spent $15,000 to purchase a house in her own name and the name of her
husband.

¢ She kept at least $6,520.24 for herself and unidentified others, claiming repayment
of old debts.

© The balance in the account on October 15 was $3,144.64, which represents the
remnants of the lump-sum check plus deposits from two additional benefit checks, dated
September 3, 2009 ($1,428.80) and October 2, 2009 ($1,524.80). SSA Ex. 2 at 28, 30;
Resp. Ex. 5 at 16.
15

e She charged the beneficiary excessive rent for living in the house that his funds
helped to purchase. Based on the evidence in this record, he had nothing more
than a rental interest in the property, so he should not have been paying more than
$400 per month (fair rental value) for the nine months he lived there. For four
months Respondent paid herself $322 more per month than the fair rental value
(total $1,288). For the remaining five months, she paid herself $200 per month
more than the fair rental value (total $1,000). She thus misappropriated an
additional $2,288.

These sums total $33,808.24."

Appropriateness of penalty. I am specifically authorized to affirm, deny, increase, or
reduce the penalties proposed by the IG. 20 C.F.R. § 498.220. In determining the
appropriateness of the penalty, I must consider: 1) the nature of the statements and
representations and the circumstances under which they occurred; 2) the degree of
culpability of the person committing the offense; 3) the history of prior offenses of the
person committing the offense; 4) the financial condition of the person committing the
offense; and 5) such other matters as justice may require. 20 C.F.R. § 498.106.

SSA has imposed CMPs of $5,000 per violation and an assessment equal to twice the
sum of the benefits converted, which represent the maximum penalties. On the other
and, SSA was conservative in determining the number of violations and the amount
misused.

I have considered Respondent’s financial condition, to the extent possible, based on the
imited information she supplies and her well-demonstrated lack of veracity. Her
financial disclosure form is hardly a model of clarity. She submits no documentary
evidence supporting her claims of limited financial resources. Nevertheless, she declares
that she and her family would be devastated by a large civil money penalty. Resp. Ex. 1
at 4 (Whitehead Decl. 14). According to her disclosure form, she receives only $544
per month net in Social Security benefits.'* Her husband’s income (combined federal
benefits plus “net rental inc[ome]’”) adds an additional $2,374 per month. In addition
they derive $1,708 income from a “security deed,” although she does not explain what
that means. SSA Ex. 9 at 3. They have approximately $4,685 in the bank, and she lists

© Trecognize that SSA bases its penalty on a lower amount ($33,308). In my order for
additional development, I pointed out the apparent discrepancy between the amount SSA
identifies as misused and the amount set forth in SSA’s December 14, 2011 notice letter
($33,308). In the absence of any objection from SSA, I affirm the lower amount, even
though the evidence could support higher damages.

Based on Respondent Whitehead’s declaration, her monthly Social Security benefits
appear to have increased, to $564 per month. R. Ex. 1 (Whitehead Decl. { 13).
16

ownership interests in three pieces of real estate, which she values at $200,000, $64,000,
and $88,000, respectively. SSA Ex. 9 at 4. She claims to have one-third interest in these
properties, but does not identify the other owners (presumably one of them is her
husband), or their relationships to the properties. She lists a fourth property, purchased
for $120,000, on which she still owes $94,037.87. SSA Ex. 9 at 5. She claims that,
except for her small disability benefit, all of the family income and assets belong to her
husband. SSA Ex. 9, at 3. I reject this claim as wholly unsubstantiated, particularly
since, as SSA points out, Georgia is an equitable distribution state. In any event, her real
estate holdings represent significant assets, and she has not reliably demonstrated that she
is unable to pay the penalties imposed.

I recognize that Respondent Whitehead has no history of prior offenses. However, as the
above discussion shows, the circumstances surrounding Respondent’s misuse of funds,
her deliberate and ongoing efforts to conceal her actions, and her refusal to return the
beneficiary’s money — actions for which she is completely culpable — all justify the
maximum penalties.

Notably:

e Respondent Whitehead told SSA that she had no bank account, even though she
ad one in her own name. She refused direct deposit, but deposited beneficiary
checks into the account under her own name, telling SSA that she held the funds in
the beneficiary’s name. When SSA began its investigation, she put the
beneficiary’s name on the account, even though she was no longer his rep payee
and was no longer receiving his benefit checks.

e Respondent told SSA that Respondent owed her no money, but then she took his
funds as repayment for past financial assistance.

e Respondent told the beneficiary’s attorney that she used his benefit funds to repay
erself for past financial assistance. Yet, she told this tribunal that he owed her no
money and that she did not reimburse herself from his funds. She did not then
account for the substantial missing sums.

e Respondent affirmatively misled SSA about how she spent the benefits. She did
not disclose to SSA that she kept funds to repay old debts, including $10,000 for
er sister; she did not tell SSA about purchasing the house with beneficiary funds.
In fact, she deliberately deceived the agency, reporting that she used all funds to
cover his then current maintenance (from June 1, 2009 through May 31, 2010).

e She purchased a house in her own name without any written evidence that the
beneficiary owned an interest in the property.

17

e She tied the beneficiary’s interest in the property to her remaining his rep payee.
e She charged the beneficiary an inflated rent.

e She claimed that the monthly rent included taxes, even though she wrote separate
checks to the tax commissioner, also using beneficiary funds.

e She refused to return the misappropriated funds to the beneficiary, even after she
acknowledged that she was not entitled to them.

In affirming the penalties, I also consider the beneficiary’s vulnerability. Beneficiary
Freeman’s mental impairments made him especially vulnerable to victimization.

Because of his mental impairments, people were less likely to take seriously his
complaints about the rep payee’s financial misconduct. When he complained to his
sister, for example, she assumed that he was confused by his medications, his
psychological condition, and his memory deficits. Fortunately, his psychiatrist
intervened, telling her that Beneficiary Freeman was not confused on this issue, and
expressing concerns that the beneficiary’s funds were being embezzled. SSA Ex. 10 at 2
(Beale Decl. 4 9).

Conclusion

Respondent Whitehead violated section 1129 of the Act when she improperly converted
the beneficiary’s disability benefits to her own and to other improper uses. She then
deliberately misled SSA about her actions. I therefore consider it reasonable to impose a
CMP of $70,000 and a $66,616 assessment in lieu of damages.

/s/
Carolyn Cozad Hughes
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division
Edward S. Roberts, DC,!
(NPI: 1780671925),
Petitioner,
v.
Centers for Medicare and Medicaid Services.
Docket No. C-13-45
Decision No. CR2714

Date: March 5, 2013

DECISION

Palmetto GBA (Palmetto), an administrative contractor acting on behalf of the Centers
for Medicare and Medicaid Services (CMS), denied Petitioner’s request to enroll in the
Medicare program. This determination was based on Petitioner’s guilty plea to the felony
of engaging in lewd and lascivious acts with a child less than 14 years of age. Petitioner
appealed. For the reasons stated below, I affirm Palmetto’s determination.

I. Background and Procedural History
On March 30, 2011, Petitioner, Edward S. Roberts, DC, pled guilty to the felony of

engaging in lewd and lascivious acts with a child under the age of 14, in violation of
section 288(A) of the California Penal Code. CMS Exhibits (Exs.) 1; 3, at 1. Petitioner

' This case was originally captioned without indicating Petitioner’s doctor of chiropractic
degree. I am amending the caption in this case to include reference to that degree in
conformance with the standard practice of the Civil Remedies Division. See, e.g., Dawn
Sea Kahrs, DC, DAB CR2528 (2012).
entered the guilty plea in the Superior Court of the State of California in and for the
County of Shasta.” CMS Ex. 1.

On December 15, 2011, Palmetto informed Petitioner that it was retroactively revoking
his Medicare Provider Transaction Number (PTAN) under 42 C.F.R. § 424.535(a)(3), as
a result of his felony conviction, and 42 C.F.R. § 424.535(a)(9), for failing to report the
conviction to Palmetto.. CMS Ex. 2, at 1. The letter informed Petitioner of his right to
request reconsideration within 60 calendar days of the postmark date. CMS Ex. 2.

Ina January 3, 2012 letter, Petitioner acknowledged Palmetto’s revocation of his billing
privileges, disputed that he was convicted, and indicated that he was unaware that he
needed to report a “conviction” that was going to be removed from his record or a
restriction on his chiropractor license that had not been finalized. CMS Ex. 4. Petitioner
also submitted a supplementary application for enrollment (Form CMS-855I) to formally
inform Palmetto of a change of information related to an adverse action/conviction.
CMS Ex. 4. Apparently interpreting Petitioner’s Form CMS-855] as an application for
enrollment, on February 28, 2012, Palmetto notified Petitioner that his application had
been denied under 42 C.F.R. § 424.530(a)(3) due to Petitioner’s felony conviction. CMS
Ex. 5, at 1. The letter informed Petitioner that he could either submit a corrective action
plan within 30 days from the date of the letter or he could exercise his right to request
reconsideration within 60 days from the date of the letter. CMS Ex. 5, at 1.

On April 25, 2012, Petitioner filed a timely request for reconsideration of Palmetto’s
February 28, 2012 determination. CMS Ex. 6, at 1-2. Petitioner’s basis for his
reconsideration request was that his guilty plea, which included a conditional mechanism
for dismissal of the charges upon Petitioner’s completion of a treatment program, is not
the same as a conviction. CMS Ex. 6, at 1; CMS Ex. 4, at 11. On July 24, 2012,
Palmetto’s reconsidered determination upheld the denial of Petitioner’s enrollment
application based on a felony conviction. CMS Ex. 7, at 1. The letter notified Petitioner
that he may request final review by an administrative law judge. CMS Ex. 7, at 2.

On September 21, 2012, Petitioner filed a timely request for a hearing (RFH). In
response to my October 23, 2012 Acknowledgment and Pre-Hearing Order (Order), CMS
filed a Pre-Hearing Brief and Motion for Summary Judgment and seven exhibits (CMS
Exs. 1-7). Petitioner did not submit a response brief, but filed two exhibits (P. Exs. 1-2).

? Petitioner signed a Stipulation in Resolution of Interim Suspension Request on May 23,
2011, which delineates the specific conditions of his plea agreement.

3 Palmetto mistakenly stated the date of revocation as March 20, 2011, in its initial
determination to revoke Petitioner. However, as CMS counsel in this case noted, the
revocation actually is effective from March 30, 2011. CMS Pre-Hearing Brief and
Motion for Summary Judgment at 2.
In the absence of an objection from either party, I admit CMS Exs. 1-7 and P. Exs. 1-2
into the record. Further, because neither party provided a list of proposed witnesses or
written direct testimony, I will decide this matter based on the written record. Order § 12.
IL. Discussion

A. Issue

Whether CMS had a legitimate basis for denying Petitioner’s enrollment under 42 C.F.R.
§ 424.530(a)(3) based on his felony guilty plea.*

B. Findings of Fact, Conclusions of Law, and Analysis®

Petitioner is a supplier for purposes of the Medicare program. 42 C.F.R. §§ 410.20(b)(5),
410.21, 498.2. In order to participate in the Medicare program as a supplier, individuals

* A determination by CMS to deny a supplier enrollment or to revoke a supplier’s
enrollment in the Medicare program is an appealable “initial determination.” 42 C.F.R.

§ 498.3(b)(17). A supplier may request reconsideration of an initial determination
denying enrollment or revoking enrollment. 42 C.F.R. §§ 498.5(1)(1), 498.22(a). To do
so, a supplier must file a request for reconsideration with CMS within 60 days from
receipt of the initial determination and must state in the request the issues or the findings
of fact with which the supplier disagrees and the reasons for the disagreement. 42 C.F.R.
§ 498.22(b)-(c). Although a supplier who is “dissatisfied with a reconsidered
letermination . . . is entitled to a hearing before an [administrative law judge],” 42 C.F.R.
§ 498.5(1)(2), an initial determination is “binding” unless it is first reconsidered. See

42 C.F.R. § 498.20(b)(1). Therefore, if a supplier does not receive a reconsidered
letermination from CMS, then that provider does not have a right to a hearing before an
administrative law judge. Denise Hardy, DAB No. 2464, at 4-5 (2012); Hiva Vakil, DAB
No. 2460, at 4-5 (2012); see also Better Health Ambulance, DAB No. 2475, at 4 (2012).
Therefore, I do not have jurisdiction to review the December 15, 2011 initial
letermination to revoke Petitioner’s enrollment because Palmetto did not render a
reconsidered determination of that action. Because Palmetto rendered a reconsidered
letermination on its initial determination to deny enrollment and Petitioner filed a request
for hearing from that determination, I have jurisdiction to review that reconsidered
letermination. CMS Ex. 7. Thus, I will decide whether Palmetto had a legitimate basis
to deny Petitioner’s application under 42 C.F.R. § 424.530(a)(3) rather than revoke his
enrollment under 42 C.F.R. § 424.535(a)(3). It should be noted that these provisions are
essentially identical and the result in this case would be the same regardless as to which
regulatory provision I applied.

> My findings of fact and conclusions of law are set forth in italics and bold font.
must meet certain criteria to enroll and receive billing privileges. 42 C.F.R. §§ 424.505,
424.510. CMS may deny enrollment for any reason stated in 42 C.F.R. § 424.530.

1. Petitioner pled guilty to the felony of committing lewd and lascivious
acts with a child within 10 years of the date of his application for
provider enrollment.

Neither party disputes that Petitioner entered into a plea agreement and pled guilty on
May 23, 2011, to one of four charged counts of lewd or lascivious acts with a child under
14 years, a felony under the California Penal Code. CMS Exs. 1, 3, at 1; 4, at 10;
Cal.Pen.Code § 288A (2010). Petitioner’s application for enrollment was received by
Palmetto on January 13, 2012. CMS Exs. 4, 2-9, 5, at 1. Therefore, I find that Petitioner
pled guilty to that felony and entered into a plea agreement within 10 years of his
application for enrollment.

2. Petitioner’s guilty plea and plea agreement constitutes a conviction of
a felony under 42 C.F.R. § 424.530(a)(3), which provides a legal basis
for Palmetto to deny enrollment in the Medicare program.

Petitioner contends that the denial of his enrollment is unjustified because he was never
convicted of a felony, only pled guilty to a felony, and that the guilty plea was later
withdrawn after he fulfilled the terms of his plea agreement. RFH at 1; CMS Ex. 4, at 1,
10; 6, at 3; P. Exs. 1, at 3; 2. However, Petitioner’s argument fails. The regulations
contemplate this scenario and provide that a guilty plea/plea arrangement is a sufficient
basis to deny his application for enrollment. See 42 C.F.R. § 424.530(a)(3)(i)(A). The
pertinent regulatory provision provides the following basis for the denial of an enrollment
application:

(3) Felonies. If within the 10 years preceding enrollment or revalidation of
enrollment, the provider, supplier, or any owner of the provider or supplier,
was convicted of a Federal or State felony offense that CMS has determined
to be detrimental to the best interests of the program and its beneficiaries.
CMS considers the severity of the underlying offense.

(i) Offenses include—
(A) Felony crimes against persons, such as murder, rape, or assault, and other
similar crimes for which the individual was convicted, including guilty pleas

and adjudicated pretrial diversions.

42 CFR. § 424.530(a)(3).
Because Petitioner entered into a plea agreement that included both a guilty plea and an
adjudicated pretrial diversion arrangement, Petitioner is considered “convicted” of a
felony. Further, a review of the offense that Petitioner pled guilty to is one that is a
felony “against persons,” similar to assault or rape. Jd. Section 288(A) of the California
Penal Code describes the crime of lewd or lascivious acts as:

any person who willfully and lewdly commits any lewd or
lascivious act...upon or with the body, or any part or member
thereof, of a child who is under the age of 14 years, with the
intent of arousing, appealing to, or gratifying the lust,
passions, or sexual desires of that person or the child...

Cal.Pen.Code § 288(A)(a).

The element in this offense of touching in a sexual nature means that conviction of this
crime is per se considered detrimental to the best interests of the program. 42 C.F.R.

§ 424.530(a)(3)(i)(A). I do not have the authority to exercise discretion when CMS has
shown that Petitioner has been convicted of a felony that is specifically enumerated in the
regulations as being detrimental to the best interests of the program. See Letantia
Bussell, DAB No. 2196, at 10, 13 (2008). Because I find that CMS has made such a
showing, I must affirm its determination to deny Petitioner’s enrollment application.

II. Conclusion

For the reasons explained above, I affirm CMS’s determination to deny Petitioner’s
enrollment as a supplier in the Medicare program.

/s/
Scott Anderson
Administrative Law Judge