BEFORE THE UNITED STATES
DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of the Under Secretary

In the Matter of:

DATE: May 2, 1988

The Inspector General
Department Grant Appeals
Board Docket No. C-19

Vv.
MEMORANDUM OPINION AND
ORDER
Frank P. Silver, M.D.,
Respondent. DECISION CR 10

On March 8, 1988, I issued a Decision holding that the
Inspector General had failed to prove by a preponderance of the
evidence that the Respondent in the above-captioned matter had
"reason to know” that his billing clerk was submitting Medicaid
claims for services that were not rendered as claimed. That
Decision also concluded that while the Civil Money Penalty Law
(CMPL) does permit the vicarious imposition of assessments, it
does not envision the vicarious imposition of penalties. In
short, the Decision held that the CMPL, as amended, must be read
in light of its unequivocal legislative history which requires
that the law be applied in a manner consistent with the common
law and further, that the common law does not recognize the
vicarious imposition of punitive damages.

On April 21, 1988, some forty-four (44) days after I had
filed my Decision and Order, the Inspector General filed a
motion for reconsideration of that March 8 Order and Decision.

In his motion for reconsideration, the Inspector General argues
that my analyses were incorrect. Specifically, the Inspector
General first argues that inasmuch as the CMPL on its face
mandates the imposition of penalties upon a finding of liability,
it was improper for me to consider the legislative history in
analyzing the statute and thus, I erred by bifurcating the
remedies. The Inspector General also argues that notwithstanding
the manner in which the statute is interpreted, the record as a
whole supports the finding of the Administrative Law Judge (ALJ)
that the Respondent “had reason to know” that his billing clerk
was submitting improper Medicaid claims. For the reasons
discussed below, each of these contentions must be rejected and

the motion for reconsideration must be denied.

As a preliminary matter, one needs to address whether, as a
matter of law, the Secretary retains the discretion to entertain
a motion for reconsideration. Although the regulation
implementing the CMPL makes no explicit reference to such
motions, as a practical matter such motions make imminent sense,
provided that they are filed in a timely manner and raise
critical issues not previously discussed by the parties.

Indeed, “"[t]he power to reconsider is inherent in the power to
decide.” Civil Aeronautics Board v. Delta Air Lines, 367 U.S.

316, 339 (1961) (Whittaker, J., dissenting) (citations omitted). 1/
Moreover, the Administrative Procedure Act, itself, in outlining
the contours of acceptable agency practice, explicitly notes the
potential availability of motions for reconsideration. See, 5
U.S.C. § 704. Here, the Secretary’s decision does not become
effective until sixty (60) days following receipt of that

decision by the Respondent. Thus, it would appear that during
that sixty (60) day window the Secretary retains jurisdiction

over the case and may, in appropriate instances, entertain a
motion for reconsideration. 2/

This is not to say that motions for reconsideration ought to

3/ agencies have customarily entertained motions for
reconsideration. However, it has usually been done pursuant to
specific regulatory authority. See, for instance, 49 CFR §1.101
(1949) (Interstate Commerce Commission); 16 CFR § 3.27 (Supp.
1956) (Federal Trade Commission); 18 CFR § 1.34 (Supp.

1956) (Federal Power Commission); 47 CFR § 1.891 (1949) (Federal
Communications Commission); and 14 CFR 302.37 (1956) (Civil
Aeronautics Board) .

2/ one cannot help but note that a 44 day delay in seeking
reconsideration stretches the bounds of reasonableness.
Generally, motions for reconsideration must be filed on the heals
of the adverse order. For instance, Rule 59(e), Federal Rules of
Civil Procedure, requires that such motions be filed within 10
days of the entry of the judgment and the local rules of the
various district courts adopt a similar limitation with respect
to non-dispositive rulings. Inasmuch as the CMPL regulation
does not impose a time limit within which such motions are to be
filed, I believe that it would be improper to curtail a party’s
ability to file such a motion without prior notice.

Nevertheless, parties are cautioned that such motions are
discretionary with the Secretary and therefore, it would not be
improper for the Secretary at the outset to consider the length
of delay as one factor in deciding whether to entertain that
motion.
be routinely filed or automatically entertained.3/ "[C)jonstant
re-examination and endless vacillation may become ludicrous,
self-defeating, and even oppressive.” Civil Aeronautics Board v.

Delta Air Lines, 367 U.S. at 321 n.5, quoting Tobias,

Administrative Reconsideration: Some Recent Developments jin New
York, 28 N.Y.U.L.Rev. 1262. In the case sub judice, the

Inspector General has had more than an ample opportunity to
present his case fully--both factually and legally. Following
the issuance of the initial ALJ decision on July 11, 1986, the
Inspector General has submitted a total of fourteen (14)
documents, not counting the extant motion. Of those fourteen
documents, eight (8) were briefs addressing substantive legal or
factual issues and six (6) were “informational” letters (e.g.,
calling our attention to new case law or legislation). Indeed,
two of those six letters actually discussed the legislative
history which is the subject of the current motion for
reconsideration. Tn addition,.on remand, the Inspector General
was afforded an opportunity to introduce additional evidence
bearing on the issue of whether the Respondent had reason to know
that his billing clerk was submitting improper Medicaid claims.
However, rather than attempting to proffer such evidence, the

Inspector General chose instead merely to introduce the reverse

3/ The Supreme Court has held that petitions for rehearing
or reconsideration are not essential to due process. Pittsburg,
C.,C. & St. Louis Ry. v. Backus, 154 U.S. 421, 426 (1894).
side of a Medicaid claim form.4/ There comes a time in every
proceeding where basic notions of fairness and administrative
finality dictate that the matter must come to an orderly
conclusion. In the instant case, that time has been reached.
Tenacious adherence to a principle of law that has been soundly
rejected on numerous occasions does not serve the ends of
justice. This is especially true in a case such as this where
the error of law that required the reversal of the ALJ’s initial
decision, was not only plain on its face, but also interjected at

the urging of the Inspector General.

II.

The Inspector General contends that the Under Secretary
lacks the authority to bifurcate the remedies and instead, is
obligated to impose a penalty under the CMPL even where liability
is purely vicarious. In so arguing, the Inspector General asks
that I ignore the clear legislative history underlying recent
congressional action and instead, urges that I reconsider the
case in light of the so-called plain:language of the CMPL. The

language at issue reads as follows:
(a) Any person (including an organization, agency or other

4/ The Inspector General’s failure to introduce additional
evidence on remand is perplexing, especially given the fact that
we indicated in our initial opinion that the record in its then
current state was simply not sufficient to sustain a finding
that the Respondent had reason to know that his billing clerk was
submitting improper claims.
entity) that -
(1) presents or causes to be presented to an officer,
employee or agent of the United States, or of any
department or agency thereof, or of any State agency .
- . a claim that the Secretary determines is for a
medical or other item or service -

(A) that the person knows or has reason*to know
was not provided as claimed, ...

shall be subject, in addition to any other penalties
that may be prescribed by law, to a civil money penalty
ef not more than $2,000 for each item or service.

42 U.S.C. § 1320a-7a(a) [emphasis supplied].

The Inspector General maintains that the phrase “shall be subject
» « . to a civil money penalty of not more than $2,000 for each
item or service” imposes a mandatory duty on the Secretary to
impose such a penalty once liability attaches. And further,
since the language is plain on its face, the legislative history
is irrelevant and therefore, must be ignored. The Inspector
General’s position is seriously flawed for a variety of reasons.
As noted in our initial decision, the plain meaning of the CMPL
does not authorize the vicarious imposition of damages--
compensatory or exemplary .5/ It is only through the use of the
recent legislative history that vicarious liability of any sort

can be justified. Consequently, if one were to ignore that

3/ This issue was extensively briefed by both parties and
thoroughly considered in Silver I. Had the Congress intended to
impose vicarious liability, “it certainly knew how to achieve
such a result.” Indeed, the recently enacted anti-dumping
provisions impose liability on the “responsible physician,” even
though that physician may not have participated in the improper
conduct. See 42 U.S.C. § 1395dd.
legislative history, as the Inspector General now urges, no
liability whatsoever would attach. That legislative history,
which in essence forms the very foundation of the Inspector

General’s case, mandates that I apply the CMPL in accordance with

the common law principles of respondeat superior. Those common
law principles which the Inspector General now deems irrelevant
authorize the vicarious imposition of liability, but do not
authorize the vicarious imposition of punitive damages. In
short, the Inspector General cannot have it both ways: either
the legislative history is relevant in which case vicarious
liability for compensatory damages alone may attach or it is not
relevant in which case no vicarious liability of any sort may
attach. Legislative history, like any other indicia of the law,
is not a creature of convenience to be enthusiastically embraced
when it is useful but callously discarded when it proves to be a
liability. To so argue, not only turns logic on its head, but
also seriously erodes the public’s confidence in our legal system

and its institutions.

Quite aside from the Inspector General’s unorthodox
treatment of legislative history, the motion for reconsideration
is telling in what it fails to say. The Inspector General has
devoted considerable time repeating a somewhat polemic discussion
of the evils likely to behalf our system if penalties are not
imposed in this case. Significantly, however, the Inspector

General has made no effort to question the policy considerations
outlined in my recent decision which firmly support the notion
that the vicarious imposition of punitive damages not only makes
little sense, but may well undermine the Inspector General’s
overall enforcement effort. This is especially noteworthy given
the fact that in my Opinion on Remand at 28, I indicatea that the
"Inspector General makes no effort to proffer any legitimate
rationale for the vicarious imposition of punitive damages.”
Moreover, the motion for reconsideration does not identify with
any specificity the shortcomings of the approach embodied in the
Restatement (Second) of Torts § 909. As noted in the Opinion on
Remand, Section 909 provides the Inspector General with maximun

flexibility in enforcing the CMPL.

The Inspector General’s so-called plain meaning argument is

tied to the phase “shall be subject to a... penalty.”
However, as the Inspector General recognizes that phrase must be
read in the context of the entire statute. When so read that
phrase certainly does not require that a penalty be imposed where
the Secretary determines that such is unwarranted. Indeed, a
somewhat less tentative phrase is used throughout title 18 of
the United States Code (i.e., "shall be fined not more than$. .

or imprisoned not more than ... year, or both”) and no one can
seriously argue that such language requires a judge to either

fine or imprison a convicted felon. See 18 U.S.C. § 3561.

IIt.
As noted above, a motion for reconsideration, when timely
made, may be justified to raise new and relevant points or to
alert the decision maker to new and significant case law or
legislation. In that regard, the Inspector General’s motion as
it relates to the legislative history surrounding recent
amendments to the CMPL is certainly proper. However, the same
cannot be said for that aspect of the motion which seeks to
reargue for at least the third time the sufficiency of the
evidence. That matter has been fully briefed by both sides and
was duly considered. The Inspector General’s reanalysis of the
record raises no new points and presents no new insights.

Iv.

For the reasons stated above the Inspector General’s motion

for reconsideration is DENIED and further pleadings in this case

will not be accepted for filing.

It is So Ordered.

/s/

Anabel Smith Bowen
Deputy Under Secretary
BEFORE THE UNITED STATES
DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of the Under Secretary

In the Matter of:

DATE: March 8, 1988
The Inspector General

Department Grant Appeals

Board Docket No. C-19

FINDINGS AND ORDER ON
REMAND

Frank P. Silver, M.D.,
Respondent.

ef

For the reasons set forth in the attached Opinion on Remand
of this date, IT IS HEREBY FOUND

THAT the Inspector General has failed to prove by a
preponderance of the evidence that the Respondent either
knew or had reason to know that improper Medicaid claims
were being submitted by his billing clerk and accordingly,
the Respondent is not held directly liable under the Civil
Money Penalty Law;

THAT the Inspector General has established by a
preponderance of the evidence that the Respondent’s billing
clerk either knew or had reason to know that she had
submitted Medicaid claims for services not provided as
claimed; and

THAT as a result of the conduct of the Respondent’s billing
clerk, as noted above, Respondent is held vicariously liable
under the Civil Money Penalty Law for assessments in the
amount of $9,000., to cover the costs of this action.

ACCORDINGLY, IT IS HEREBY ORDERED

THAT the Decision on Remand of the Administrative Law Judge
of July 2, 1987, is REVERSED;
Page 2
Findings and Order on Remand
In Re Frank Silver, M.D.

THAT the Order of the Administrative Law Judge entered July
2, 1987, is VACATED; and

THAT the RESPONDENT is ORDERED to pay assessments in the
amount of $9,000.

/s/

Anabel Bowen
Deputy Under Secretary
BEFORE THE UNITED STATES
DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of the Under Secretary

In the Matter of:
DATE: March 8, 1988
The Inspector General
Department Grant Appeals
Board Docket No. C-19
OPINION ON REMAND

Frank P. Silver, M.D.,
Respondent.

This Civil Money Penalty case is on review before the Deputy
Under Secretary for the second time. On July 2, 1987, the
Administrative Law Judge (ALJ) issued a Decision and Order on
Remand in which he found that Frank P. Silver, M.D.
(“Respondent”) had reason to know that his billing clerk was
submitting claims to SAMI, the Nevada State Medicaid agency, for
services not provided as claimed. The ALJ ordered the Respondent
to pay an assessment of $9,000 and penalties of $73,500. In
addition, the ALJ ordered that the Respondent be suspended from
the Medicare and Medicaid programs for a period of three years.
This case presents two primary issues. First, has the Inspector
General established by a preponderance of the evidence that
Respondent had reason to know that his billing clerk was
submitting improper claims to SAMI. And second, does the Civil
Money Penalty Law ("CMPL”) authorize the vicarious imposition of

compensatory damages, assessments and penalties (including
suspension from the Medicare and Medicaid programs). For the
reasons stated below, I conclude (1) that the Inspector General
has failed to establish by a preponderance of the evidence that
the Respondent had reason to know of the improper billings and
(2) that the Respondent may be held vicariously liable for the
improprieties of his billing clerk, but as a matter of law such
liability must be limited only to compensatory damages and
assessments. Consequently, the ALJ’s Decision on Remand is

reversed and the Order on Remand is accordingly modified.

The facts of this case were amply set out in our initial
Opinion and those findings are specifically incorporated by
reference. However, inasmuch as there have been numerous filings
since the date of our initial Opinion, in order to put this
Opinion into proper perspective, I believe it appropriate to
summarize the procedural aspects of this case, beginning with
the ALJ’s initial Decision and Order. On July 11, 1986, an ALJ
issued a Decision and Order finding the Respondent liable under
the Civil Money Penalty Law (CMPL), 42 U.S.C. §§ 1320a-7a(a)1,
1320a-7(c), for filing 418 Medicaid claims for laboratory tests
that were not provided as claimed. That Decision and Order
imposed penalties of $232,000 and assessments of $9,237.59 and
suspended Respondent from participating in the Medicaid and

Medicare programs for a period of ten years. In his ruling, the
ALJ concluded that although the Respondent did not intend to
defraud or otherwise cheat the Medicaid program, he nevertheless
was grossly negligent in not more carefully supervising the
activities of his billing clerk and thus, he “should have known”
that the billings being submitted to Medicaid by his billing

clerk were erroneous.

On review, the Inspector General tacitly acknowledged that
the ALJ used the incorrect standard in judging the Respondent’s
culpability. Specifically, rather than judging the Respondent’s
conduct by using the “have reason to know” standard, as required
by the statute, the ALJ used the less rigorous “should have
known” standard. Nevertheless, the Inspector General argued
that the Decision and Order of the ALJ should be affirmed for
three reasons. First, the Inspector General noted that there was
sufficient evidence to support a finding that the Respondent had
actual knowledge of his billing clerk’s improper billing
practices. Second, the Inspector General contended that the
evidence was sufficient to support a finding that the Respondent
had “reason to know” of those improper practices. And third,
even if the Respondent did not have reason to know, he was
nonetheless vicariously liable for the improper actions of his
employee. In our Opinion of April 27, 1987, we held that the
ALJ (at the urging of the Inspector General) had in fact employed
the incorrect standard in judging the Respondent’s culpability

under the CMPL. As noted above, rather than judging the
Respondent’s conduct by using the “have reason to know” standard,
as required by the statute, the ALJ used the less rigorous
"should have known” standard. We also held that the record as a
whole was devoid of evidence supporting the Inspector General’s
contention that the Respondent had “actual knowledge” of the
improper billing practices and further held that a Respondent may
only be penalized for the improper conduct of an employee, if
the Inspector General is able to satisfy the requirements of the
Restatement (Second) of Torts §909 (1979). In this case, we

noted that the record lacked any such evidence.

Instead of dismissing the case, we vacated the ALJ’s Order,
reversed his Decision and remanded the matter to the ALJ so as to
provide him with an opportunity to judge the Respondent’s conduct
using the “have reason to know” standard. Our Order was
sufficiently broad so as to enable the ALJ to reopen the record
and to request that the parties present such additional evidence
on that point as they deemed appropriate. In accordance with
that Order, the ALJ issued an Order on April 30, 1987, in which
he stated that “{uJnless further proceedings are requested or
otherwise indicated, I will decide the issue on the basis of the
briefs and the prior record.” ALJ Order at 4 (April 30, 1987).

On May 14, 1987, the Inspector General filed a motion requesting
that the record be reopened for the limited purpose of
introducing into evidence an example of the reverse sides of the

418 claim forms at issue in the case. That motion was granted
and the record was accordingly supplemented. Also, on May 14,
1987, the Inspector General filed his proposed findings of fact
and Brief on Remand. On May 27, 1987, the Respondent filed his
proposed findings of fact and a brief entitled: Respondent’s

Answer to Inspector General’s Brief on Remand.

On July 2, 1987, the ALJ issued his Decision and Order on
Remand. In that Decision, the ALJ found that the Respondent “had
reason to know” that his billing clerk was in fact submitting
improper Medicaid billings. As a consequence, the ALJ ordered
that the Respondent pay an assessment of $9,000 and penalties of
$73,500. The ALJ further ordered that the Respondent be
suspended from the Medicare and Medicaid programs for a period of
three (3) years. On August 7, 1987, the Respondent filed
exceptions te the ALJ’s Decision and Order on Remand and on
August 25, 1987, the Inspector General filed a reply to the
Respondent’s exceptions. In addition, on August 11, 1987, the
Inspector General filed a separate pleading on the issue of
vicarious liability, which can best be characterized as a motion
to reconsider our earlier holding which had limited the use of
that doctrine in cases arising under the CMPL. On August 21,
1987, the Respondent filed a Reply Brief on the Issue of
Vicarious Liability. Twenty days later, on September 9, 1987,
the Inspector General sought leave to file a brief in Response to
Respondent’s Reply Brief to the Inspector General’s Brief on

Vicarious Liability and attached a copy of that brief to the
motion. On September 15, 1987, the Respondent filed pleadings
opposing the Inspector General’s motion for leave to file a
response.2/ Finally, on January 7, 1988, and January 21, 1988,
the Inspector General submitted materials indicating that in the
final hours of the last session of the Congress, the CMPL was
amended in certain respects which could have a bearing on this
case. In particular, those materials indicate an intent on the
part of the House Committee on the Budget and the Subcommittee on
Health and the Environment of the House Committee on Energy and
Commerce “to incorporate common law principles of respondeat
Superior into the civil money penalty authority.”

On February 4, 1988, in view the voluminous pleadings filed
by the parties, I ordered the matter submitted and now reverse
the Decision of the ALJ, vacate his Order and enter a modified
Order. For the reasons stated below, I conclude (1) that the
Inspector General has failed to prove by a preponderance of the
evidence that the Respondent had reason to know of the improper
billing practices of his clerk, and (2) that a Respondent may be
held vicariously liable under the CMPL, but only to the extent
that such liability is consistent with the common law principles
of respondeat superior. Applying the doctrine of vicarious
liability, the Respondent is ordered to pay an assessment of

$9,000. Since punitive measures may not be vicariously imposed

/ the Inspector General’s motion is file a response on the
issue of vicarious liability is hereby granted.

6
under the common law principles adopted by the majority of our
States, I therefore vacate the penalty of $73,500 and the three

(3) year suspension from the Medicare and Medicaid programs.

II.

In his Decision on Remand, the ALJ thoughtfully analyzed
the "reason to know” standard and concluded that the Respondent
had reason to know that his billing clerk, Mrs. Eby, had
submitted Medicaid claims for services that were not provided as
claimed. Decision on Remand at 38. In our Opinion, we
emphasized that the salient difference between the “reason to
know” and “should have known” standards is that under the former,
an actor is under no affirmative duty to ferret out errors, while
under the latter, he is under such a duty. Under the reason to
know standard, an actor is obligated to investigate only if he
either possesses sufficient information to put a reasonable

person2/ on notice that further investigation is warranted or is

2/ The Inspector General has correctly noted that the
reasonable man standard used to assess whether an actor “has
reason to know,” is not a purely objective test. Instead, an
actor will be held to higher standard, if he has superior
intelligence. The Inspector General therefore argues that since
the Respondent has superior intelligence, he in fact should be
held to a higher standard. IG’s Brief on Remand at 5 (May 14,
1987). The Respondent does not disagree with the Inspector
General’s characterization of the law, only with its application.
The Respondent argues that while he may have superior
intelligence, that intelligence is limited to certain disciplines
and does not encompass: the arcane world of Medicaid regulations
and billing practices. Respondent’s Answer to IG’s Brief on
Remand at 5 (May 27, 1987). The Inspector General’s view, while
interesting as a matter of theory, is contrary both to basic

7
under some pre-existing duty to investigate. The ALJ’s finding
that the Respondent “had reason to know” of the improper billing
practices of his clerk was premised on the legal conclusion that
the Respondent was under a pre-existing duty to review the
accuracy of each claim. Specifically, the ALJ found that the
Respondent was under a pre-existing duty to investigate the
truth, accuracy and completeness of the claims before they were
submitted, solely because each of the claims contained a
certification statement. The certification referred to by the
ALJ reads as follows: ”NOTICE: This is to certify that the
foregoing information is true, accurate and complete.” xy
Decision on Remand at 39. The ALJ stressed the importance of
‘this certification by noting that “{w]Jhile the Respondent was
allowed to use a facsimile stamp for his signature, he was
required to imitial each claim form after he checked the accuracy
of each claim.” Decision on Remand at 40. Similarly, the
Inspector General in his Brief of August 25, 1987, emphasized
that the certification is a representation by the physician or
principles of tort law and the structure of his own case. The
Inspector General called as witnesses numerous individuals who
attempted to outline the complexities of the Medicaid billing
system. None of these witnesses was a physician. Rather each
specialized in a particular area of Medicaid reimbursement. In
short, in reviewing the facts of this case, I shall treat the
Respondent as I would any other Medicaid physician, and not as an
expert in the area of Medicaid reimbursement. Given the high

error rate normally associated with Medicaid claims, any other
holding would be disingenuous at best.

3/ This notice is required by 42 CFR § 455.18(a) (1).
supplier that he or she has acquired sufficient knowledge to
assure that the claim is true, correct and complete. IG Brief at
12 (August 25, 1987). In light of the potential significance of
this certification, the Inspector General proceeded to note that
a billing clerk’s signature is not acceptable. Indeed, the
billing manual instruction with respect to the HCFA 1500
signature block states: “”Provider’s signature or facsimile stamp
(initialed) must be on every claim and every page of claim.” IG
Ex. 426/9. The thrust of the ALJ’s Decision and Inspector
General’s argument was that the certification was no mere
formality, that the provider is under a duty to ascertain the
truth before certifying and once certification occurs, the
provider may be held liable for any inaccuracies on the form.
However, even a cursory glance at the exhibits in this case
reveals a tekling irony: neither the Respondent’s signature nor
his initials appear on any claim form. Moreover, while a
facsimile stamp, when properly initialed by the provider, may be
used in lieu of the provider’s actual signature, here, not only
was no facsimile stamp used, but the Respondent never even inked
his initials. Instead, Mrs. Eby using the Respondent’s name
signed each of the claim forms and then proceeded to initial
(i.e., *K.E.”%) each form. Clearly, even under the most liberal
reading of the manual instruction, none of these claims should
have been paid by the intermediary.4/ Indeed, had the

4/ The ALJ notes that SAMI, the Nevada Medicaid agency,
accepted the claims at issue with initials of Mrs. Eby next to
the signature stamp of the Respondent. Decision on Remand at 40,

9
intermediary rejected these claims, the Respondent then would
have been required to focus on the claims at issue and he may not
have certified them for payment. In short, since under the
ALJ’s theory the certification formed the basis of the pre-
existing duty and since no valid certification was ever
introduced into evidence, then no pre-existing duty exists.

This is not to say, that a valid certification would be
sufficient, as a matter of law, to form the basis of a pre-
existing duty to investigate. Rather, under the circumstances of

this case, it is unnecessary to address that issue.

The ALJ also reiterated a number of the points that he had
made in his original Decision. Many of those points, however,
are dependent on the existence of a valid certification. For
instance, the ALJ held that the Respondent had “reason to know”
because he was negligent in not more carefully supervising Mrs.
Eby. The CMPL though does not, in and of itself, impose
liability for negligent supervision. Instead, liability is
imposed only if a respondent has reason to know that improper
claims are being submitted. As we indicated in our original
Opinion, a claim for negligent supervision is nothing more than a
claim that a respondent “should have known” that improper

Medicaid billings were being filed and thus, is not actionable

n. 20. However, as noted above, no signature stamp was ever
used. Hence, even under SAMI’s tortured ready of the manual
instruction, these claims ought never have been paid.

10
under the CMPL. Opinion at 39. The ALJ’s holding though that
negligent supervision is actionable is primarily based on the
notion that the "Respondent failed to check the accuracy of the
claims, as was required by the certification statements.”
Decision on Remand at 42. However, as noted above, there were no
validly executed certifications filed in this case.

Consequently, there is no basis to argue that a duty sprang into

existence.

Finally, it must be noted that in our original Opinion we
held that “the evidence adduced at the hearing [when judged
against the correct standard] falls short of sustaining the
Inspector General’s burden of proof.” Opinion at 2. Inasmuch as
no new evidence, other than the reverse side of one certification
form, was introduced on remand, there is no basis in the record
to reverse our original conclusion. Consequently, I find that
the Inspector General has failed to establish by a preponderance
of the evidence that the Respondent had reason to know that his

billing clerk was submitting false Medicaid claims.

IIt.

The Inspector General has devoted considerable effort urging
that I reconsider our original Opinion in which we held that an
individual may not be-held vicariously liable under the CMPL.

The Inspector General vigorously avers that an actor should be

11
subject to vicarious liability under the CMPL for the following
reasons. First, he argues that the doctrine of respondeat
superior is woven so thoroughly into the fabric of our legal
tradition, it is likely that Congress intended to incorporate the
doctrine into the CMPL. Second, he opines that the CMPL would be
eviscerated if an actor were not held vicariously liable for the
actions of his employee and further that the compensatory goal of
the statute would be effectively thwarted. Third, the Inspector
General contends that CMPL should be interpreted in light of
erica .
Corp., 456 U.S. 556 (1982), a case in which the Supreme Court
applied common law agency principles to hold a principal liable
for treble damages for the antitrust violation perpetrated by an
agent. And finally, the Inspector General has brought to our
attention recent action by the Congress which indicates an intent
on the part of the Congress to incorporate common law notions of

vicarious liability into the CMPL.

At the outset, it must be emphasized that in analyzing the
scope of vicarious liability one must be mindful of a critical
distinction which we voiced in our original Opinion:

It should be noted that from a theoretical perspective the

issue of whether the doctrine of respondeat superior

supports the imposition of liability in the event of an
intentional tort is distinct from the issue of whether the
doctrine supports the imposition of punitive damages.

Opinion at 13 n.5.

Thus, the scope of the doctrine with respect to the CMPL is

12
necessarily a function of a two-step analysis. First, should an
individual be held vicariously liable for compensatory damages
(including costs in the form of an assessment) under the CMPL.
And second, should an individual be held vicariously liable for
penalties under the CMPL. For the reasons set out below, I
conclude that while a principal may be held vicariously liable
for both compensatory damages and assessments under the CMPL, a
principal may not be held vicariously liable for penalties
(including suspension) .

A.

During the waning hours of the first session of this
Congress, the House of Representatives, without debate, amended
the language of the CMPL to provide that liability could attach
if a provider either knows or should have known that false claims
were submitted. In short, the House substituted the “should have
known” standard for the “reason to know” standard. According to
the House Report, this change was made in response to our
original Opinion in the Silver case. Specifically, the House
Report stated:

The Under Secretary [sic] first held that an employer may

not be subject to civil penalties or assessments for the

actions taken by his employee within the scope of his or her
employment. The Under Secretary [sic] also interpreted the

“reason to know” standard as imposing a duty on a physician

or other person to investigate the truth of his claims for

payment only if he has previously learned of some
information that puts him on notice that this or her claims
are improper.

* * *

The Committee amendment would therefore provide for the
imposition of civil money penalties and assessments in

13
instances where a person (or entity) “knows or should know”
that claims submitted were false. The purpose of this
amendment is to nullify the interpretation set forth in
Silver, and to incorporate common law principles of
respondeat superior into the civil money penalty authority.

H.R. Rep. No. 100-391, 100th Cong., 1st. Sess., vol. I, 534
(1987).

The Report went on to observe that providers “have an affirmative
duty to ensure that the claims for payment which they submit, or
which are submitted on their behalf by billing clerks or other
employees, are true and accurate representations of the items of

services actually provided.” Id.

In essence, the Committee arguably found fault with two
aspects of our initial Opinion. First, the Committee apparently
disagreed with our holding that penalties and assessments may not
be vicariously imposed. And second, the Committee disagreed with

our interpretation of the phrase “reason to know.”

The effect on this case of the amendment and of the
accompanying Committee statements is less than clear. It is by
now well settled that “post-passage remarks of legislators,
however explicit, cannot serve to change the legislative intent
of Congress expressed before the Act’s passage.” Region R:
Reorganization Act Cases, 419 U.S. 102, 132 (1974). Courts are
understandably reluctant to seriously consider post-enactment
statements of intent, because of the hazards usually associated
with such after-the-fact pronouncements. See, c en _v

14
Young, No. 86-1548, slip op. at 19 (D.C. Cir. October 23, 1987).
Whatever those hazards may normally be, in this setting they are
particularly apparent. Here, the amendment and Committee
statement were made amidst the documented chaos of the budget
reconciliation process--a process whereby thousands of pages of
legislation were at the eleventh hour hurriedly enacted and
presented to the President for his signature in order to prevent
the government from unceremoniously closing. The legislation was
adopted with such speed that most legislators were unaware of
many controversial provisions contained in the final bill. In
fact, the current amendment itself, which is less than a model of
clarity, evidences the problems frequently associated with
-hastily drafted omnibus legislation. For example, the Committee
begins by noting two problems that it intends to address:
vicarious liability and the use of the “reason to know” standard.
However, the amendment itself only addresses our interpretation
of the reason to know standard. No language was offered,
considered or adopted which in any way would have imposed
vicarious liability on providers. Consequently, one could argue
that Congress’ failure to specifically incorporate language to
impose vicarious liability is evidence that vicarious liability
ought not be imposed. Further, and more troubling, is the
assertion in the House Report that our interpretation of the
“reason to know” standard is not consistent with congressional
intent. Not only does. the Inspector General fully concur with

our interpretation of that phrase, but also, as we indicated in

15
our original opinion, our interpretation of that phrase is fully
consistent with the manner that it has been interpreted by the
courts and commentators for more than a generation. Thus, the
statement in the House Report that “the ’knows or should know’
language clarifies but does not alter the intent underlying the
current ‘knows or has reasons to know’ language,” only creates
uncertainty and confusion. The uncertainty generated by the
amendment is further exacerbated by the fact that that amendment
is to be applied retroactively. While the retroactive
application of the amendment may in the future raise significant
constitutional issues, we need not address those here because
the Inspector General “does not contend that the Respondent ’s
conduct should be otherwise judged by the ’should know’ standard,
since we did not file exceptions on this issue.” IG Letter at 1

(January 7, 1988).

Although it is well established that the language in a House
Report is not binding on a federal agency, out of deference to
the Congress and a need to foster comity, I believe it advisable
to give the Report language appropriate effect. Consequently,
since the House Report does indicate a belief that the CMPL ought
be implemented in a manner consistent with the common law
doctrine of respondeat superior, I conclude that the Respondent
is liable for compensatory damages, including those aspects of a
compensatory damage award that would normally be classified as

taxable costs. In the setting of the CMPL, taxable costs are

16
analogous to assessments, and hence, the Respondent is
vicariously liable for the $9,000 assessment imposed by the ALJ.
As discussed below, however, the vicarious imposition of punitive
damages would not be consistent with the common law doctrine of
respondeat superior and thus, that portion of the ALJ Order on
Remand imposing punishment is vacated.

B.

The Inspector General, relying almost exclusively on the
Supreme Court opinion in American Society, urges that penalties
may be vicariously imposed under the doctrine of respondeat
superior. In American Society the Court, partially relying on
common law principles of agency, upheld the imposition of treble
damages for antitrust violations. In that case, the defendant, a
professional association of 90,000 mechanical engineers, was
charged with having violated the antitrust laws, because
industry standards adopted by one of its committees were
primarily promulgated to prevent the plaintiff from successfully
marketing its product. In particular, the vice chairman of the
subcommittee was also the vice president of the plaintiff’s
principal competitor, and it appeared from the evidence, that he
was responsible for instigating certain subcommittee and
committee action that seriously injured the plaintiff’s ability
to compete with his employer. The Court affirmed the liability
of the defendant under the antitrust laws for the actions of an
agent that were undertaken with apparent authority. The

Inspector General argues that the Court’s decision in American

17
Society supports the common law imposition of punitive damages
under the doctrine of respondeat superior and thus, supports the

ALJ’s imposition of penalties under the CMPL.

The Inspector General’s reliance on American Society as a
basis for supporting the vicarious imposition of punitive damages
is clearly misplaced. At issue in this case is whether the
common law recognizes the vicarious imposition of punitive
damages. With respect to that issue, the Court’s opinion in
American Society is not apposite, for four independent reasons.
First, the antitrust laws at issue in American Society are
conceptually distinct from common law principles of tort
liability and therefore, the Court’s analysis logically cannot be
used as a basis for synthesizing common law precepts. Second,
treble damages under the antitrust laws simply are not analogous
to traditional punitive damages; they serve different purposes
and foster different societal goals. Third, the facts of the
case sub judice do not support the application of the doctrine of
apparent authority which was central to the cCourt’s decision in
American Society. And fourth, to the extent that American
Society may be compared with this case, the holding there is
entirely consistent with our Opinion in this case. In addition,
notwithstanding the Court’s opinion in American Society, the
common law does not countenance the vicarious imposition of
punitive damages primarily because the rationale underlying its

application makes little sense in this context.

18
Under the antitrust laws, compensatory and exemplary damages
are inextricably intertwined: one form of damages cannot exist
without the other. Once civil liability attaches, the trial court
is obligated to impose treble damages. Unlike a court
adjudicating a typical common law tort, a court in an antitrust
case lacks the authority to parse damages between compensatory
and exemplary and to independently determine the legal and
factual propriety of each component. This dependency places a
court in a conceptual dilemma and effectively forces it to
analyze the entire damage request in light of the policy
considerations underlying the vicarious imposition of
compensatory damages, considerations that normally would be
entirely inappropriate if the only issue before the Court were
the vicarious imposition of punitive damages. In American
Society, for instance, had the Court determined that treble
damages could not be vicariously imposed, it would necessarily
also have been forced to deny the plaintiff compensatory relief.
Yet, the doctrine of respondeat superior, at least with respect
to compensatory damages, is so well ingrained in our common law
tradition, that such a holding would have been untenable. Thus,
given the choice facing the Court (i.e., compensating an innocent
victim for injuries suffered at the hands of the defendant’s
agent or denying such compensation on the grounds that the
defendant would be forced pay treble the amount of the actual

damages), its holding is entirely consistent with both

19
commonsense and the common law doctrine of respondeat superior.
In contrast, however, the CMPL provides the decision maker with
same discretion with respect to the imposition of penalties, as
the common provides with respect to the imposition of punitive
damages. In neither case is the decision maker required to
impose exemplary damages upon a finding of liability. In both
cases, each damage element can and must be individually
scrutinized. Thus, while the Court may have been justified in
partially relying on certain common law principles to support its
position that treble damages could be vicariously imposed under
the antitrust laws, the converse clearly does not follow. That
is to say, common law principles of vicarious liability cannot be
derived from the Supreme Court’s antitrust holding in American
Society. That holding, is simply not conceptually relevant to

the issues pesed by this case.

As noted above, treble damages under the antitrust laws are
not akin to traditional punitive damages. Specifically, the
primary purposes of punitive damages are to punish and to deter.
In contrast, the primary purpose of treble damages under the
antitrust laws is to provide a powerful incentive for the private
enforcement of the antitrust laws.9/ See, Areeda, Antitrust

5/ it is interesting to note, that one of the primary
differences between the analysis of the majority and that of the
dissent in American Society hinges on the manner in which each
characterized the purpose under treble damages. The majority
opinion downplayed the punitive aspects of treble damages and
extolled their compensatory purpose. In contrast, the dissent
argued that “treble damages primarily punish and are intended to

20
Analysis 69 (1969). As the Court in Rei . Sonotone Corp.,
442 U.S. 330, 344 (1979) stated:
Congress created the treble-damages remedy ...
precisely for the purpose of encouraging private
challenges to antitrust violations. These private
suits provide a significant supplement to the limited
resources available to the Department of Justice for
enforcing the antitrust laws and deterring violations.
{emphasis in original].
While treble damages do serve as a deterrent, the deterrent is
indirect and derives from the expectation that treble damages
provide an incentive for vigorous private enforcement, thereby
increasing the likelihood that anticompetitive activities will be
detected and remedied. The direct deterrent effect of the
treble damage remedy is limited, for two reasons. First, such
damages are generally a deductible business expense for federal
income tax purposes. Rev. Rul. 64-224, 1964-2 Cum. Bull. 52. &/
<
Second, treble damages, unlike punitive damages, result in an
award that is not related to the wealth of the defendant, but
only to the damages suffered by the plaintiff, and thus in many
instances they do not serve to punish as much as they do to
compensate. In short, treble damages authorized by the antitrust

laws are not closely akin to either the penalties imposed under

the CMPL or to traditional punitive damages.

do so.” American Society, 456 U.S. at 583 (Powell, J.,
dissenting) .

§/ such damages are not fully deductible if the defendant
has been previously convicted in a related criminal action. See,
Section 162-22, Internal Revenue Code.

21
In American Society, the Court heavily relied upon the
agency principle of apparent authority to form the basis of
vicarious liability. The doctrine of apparent authority
basically holds a principal liable for the actions of his agent,
if a person reasonably believes from the actions of the
principal that the agent is authorized to undertake the
problematic activities. “Apparent authority” is defined in the
Restatement (Second) of Agency § 8 as follows:

Apparent authority is the power to affect the legal

relations of another person by transactions with third

persons, professedly as agent for the other, arising from
and in accordance with the other’s manifestations to such
third persons.
However, apparent authority exists only to the extent that it is
reasonable for the third person dealing with the agent to believe

<
that the agent is authorized. Further, the third person must

actually believe that the agent is authorized. Restatement

{Second) of Agency § 8, comment c. See, Foerstel v. Houston, 101
F.2d 742, 747 (6th Cir. 1939); Cox v. Pabst Brewing Co., 128 F.2d

468, 472 (10th Cir. 1942). Under SAMI’s own rules, a Medicaid
claim form can only be processed if that form contains an
appropriate certification from the principal. Those rules
describe the contours of reasonable behavior. Here, as noted
above, no valid certification was ever submitted by the
Respondent or his agent, and hence, there is no basis whatsoever
for SAMI to believe that the agent had apparent authority to act.
SAMI’s own rules establish that absent some expression by the

22
principal (e.g., principal signing his initials to the form)

there is simply no authority.

Finally, the Court’s holding in American Society is entirely
in accord with both the position adopted in the Restatement
(Second) of Torts § 909 and this Opinion. Under the Restatement,
as discussed below, a principal may be held liable for punitive
damages if the agent that caused the injury was in a management
position. In American Society, the actual tortfeasor was the
vice chairman of the defendant’s subcommittee and thus, was
serving the defendant in a management capacity. In sharp
contrast, the Respondent’s bookkeeper had no management role.

She was not authorized to supervise employees, she was not
authorized to make deposits, she was not authorized to make
withdrawals and she was not authorized to enter into contracts.
And consistent with that lack of authority, she undertook none of
those responsibilities. Indeed, the Inspector General has never
attempted to portray Mrs. Eby has anything other than a
nonsupervisory employee. Thus, even if we were to apply the
holding in American Society to the fact of this case, the result

would be the same.

The Inspector General also attempts to argue that under the
common law punitive damages may be vicariously imposed. This
argument is based exclusively on a footnote in the Court’s

opinion in American Society recounting a statement made by Dean

23
Prosser. However, not only is Dean Prosser’s assertion that a
majority of the states vicariously impose punitive damages
simply not correct, but the common law specifically rejects the
notion that punitive damages may be vicariously imposed.
Notwithstanding Dean Prosser’s statements to the contrary ,2/ the
majority of jurisdictions follow the rule that a principal cannot
be held vicariously liable for punitive damages assessed against
an agent unless the principal’s conduct, in relation to the

agent’s, was itself somehow wrongful. 8/ This rule, frequently

7/ pean Prosser has stated that the majority of states have
imposed punitive damages vicariously even in the absence of
approval or ratification. Prosser, Law of Torts 12 (4th ed.
1971). This statement appears to have misled some scholars and
courts, including the Supreme Court in American Society. See,
Owen, Punitive Damages in Products Liability Litigation 74 Mich.
L. Rev. 1257, 1300-01 (1976). As discussed below, 24 States
currently reject the vicarious imposition of punitive damages,
while 18 others permit their imposition.

<

8/ Twenty-four (24) jurisdictions have refused to apply the
doctrine of respondeat superior in situations involving punitive
damages and instead, have adopted the rules set forth in the
Restatement (Second) of Torts. Those jurisdictions are as
follows:

California Agarwal _v. Johnson, 25 Cal.3d 932 (1979)

Colorado Frick v. Abel], 602 P.2d 852 (Colo. 1979)
Connecticut Maisenbacker v. Society Concordia of Danbury,

71 Conn. 369 (1899).
District of

Columbia Dart Drug, Inc. v. Linthicum, 300 A.2d 442
(D.C. App. 1973)

Florida Mercury Motors Exp., Inc. v. Smith, 393 So.2d
545 (Fla. 1981)

Hawaii uer v. Yo ‘ a U
Honolulu, 57 Haw. 390 (1976)

Idaho Openshaw v. Oregon Auto Ins. Co., 94 Idaho
335 (1971)

Illinois Pendowski_v. Patent Scaffolding Co., 89 Ill.
App.3d 484 (1980)

Iowa Briner v. Hyslop, 337 N.W.2d 858 (Iowa 1983).

24
Kansas
Minnesota
Nevada
New Jersy
New Mexico

New York
North Dakota

Ohio

Rhode Island
Texas

Vermont
virginia
West Virginia
Wisconsin

Wyoming

Kline v. Multi-Media Cabelvision, Inc., 233
Kan. 988 (1983).
Minn. Stat. Ann. sec. 549.20(2).

Summa _ Corp. v. Greenspan, 96 Nev. 247 (1980).
Security Aluminum Window Mfq. Corp. v. Lehman

Assoc. Inc., 108 N.J. Super. 137 (1970).
Samedan Oil Corp. v. Neeld, 91 N.M. 599
(1978).
ve , 171 N.Y. 439 (1902).
, 225
N.W.2d 80 (N.D. 1974).
Tracy v. Athens & Pomeroy Coa] & Land Co.,
115 Ohio St. 298 (1926).
Conti v. Winters, 86 R.I. 1456 (1957).
Fisher v. Carrousel Motor Hotel, Inc., 44
S.W.2d 627 (Tex. 1967).
Centra
Corp., 137 Vt. 32 (1979).
Freeman v. Sproles, 204 Va. 353 (1963).
Addair v. Huffmann, 156 W. Va. 592 (1973).
Garcia v. Sampson’s Inc., 10 Wis.2d 515
(1960) .
Condict v. Condict, 664 P.2d 131 (Wyo. 1983).

The following eighteen (18) jursidictions do not follow the
Restatement wiew and instead employ the doctrine of respondeat
superior with respect to punitive damages:

Alabama
Arizona
Arkansas
Georgia
Indiana
Kentucky
Maine
Maryland
Michigan
Mississippi

Missouri

Avondale Mills v. Bryant, 10 Ala. App. 507
(1913).
, 9 Ariz. App.
336 (1969).
e@, 251 Ark. 1036

(1972).
Piedmont Cotton Mills, Inc. v. General
Warehouse No, 2, 222 Ga. 164 (1966).
Hibschman Pontiac, Inc. v. Batchelor, 226
Ind. 310 (1977).
» 426

S.W.2d 935 (Ky. 1968).

. anada, 57 Me.
202 (1869).
Safeway Stores v. Barrack, 210 Md. 168
(1956).
Lucas v. Michigan Cent. R. Co., 98 Mich. 1
(1893). °
Sanifer Oi] Co. v. Drew, 220 Miss. 609
(1954).

Johnson v. Allen, 448 S.W.2d 265 (Mo. App.
25
referred to as the so-called complicity rule, 2/ has been aptly
synthesized in the Restatement (Second) of Torts § 909 (1979) :40/

Punitive damages can properly be awarded against a master or
other principal because of an act of an agent if, but only

f,

(a) the principal or managerial agent authorized the
doing and the manner of the act, or

(b) the agent was unfit and the principal or managerial
agent was reckless in employing or retaining him, or
(c) the agent was employed in a managerial capacity and
was acting in the scope of employment, or

(a) the principal or a managerial agent of the
principal ratified or approved the act.

The complicity rule was adopted by the American Law Institute in
the Restatement largely out of a recognition that there is little

1969).

Montana Rickman v. Safeway Stores, 124 Mont. 572
(1951).

North Carolina Hairston v. Atlantic Greyhound Corp. ,220 N.C.
642 (1942).

Oklahoma Kurn_ v. Radencic, 193 Okla.1126 (1943).

Oregon Stroud v. Denny’s Restaurant, Inc., 271 ore.
430 (1975).

Pennyslvania Philadelphia Traction Co. v. Orbann, 119 Pa.
37 (1888).

South Carolina Hopper v. Hulto, 160 S.C. 404 (1931).

Tennessee Odum v. Gray, 508 S.W.2d (Tenn. 1974).

2/ The complicity rule limits the imposition of vicarious
liability for punitive damages to situations in which a
managerial agent of the employer either commits the egregious
act, specifically authorizes the act, or ratifies the act or when
an unfit employee recklessly hired by the employer commits the
act. Under the complicity rule, the employer’s liability is not
truly vicarious, but rather hinges on some discrete act of the
employer.

19/ this Restatement section is identical to Restatement
(Second) of Agency § 217C (1958).

26
justification to support vicarious punitive damage liability.
Although vicarious liability for compensatory damages has existed
for centuries, it remains a rule in search of a rationale. A
variety of justifications have been offered, but each has proven
less than fully adequate. The most influential factor underlying
vicarious liability for compensatory damages would appear to be
the desire to ensure that innocent victims can reach a defendant
with sufficient resources to provide full relief. Courts have
long assumed that employers generally have deeper pockets than
their employees and thus, the likelihood of compensation
increases as liability is shifted to the employers. Vicarious
liability for compensatory damages has also been justified on the
grounds that it spreads the loss and that it internalizes the
costs of injuries associated with the activities of an

enterprise. <

Each of these justifications has been subject to criticism
in the context of compensatory damages. Yet, whatever their
merit, they offer no support for vicarious punitive damage
liability. Clearly, justifications that are grounded on a desire
to ensure that a victim is fully compensated do not apply.
Punitive damages are not intended to compensate innocent victims,
but rather to punish malfeasors. The loss-spreading rationale
contradicts the theory underlying punitive damages. By
definition, it would spread punishment among large numbers of

nonwrongdoers who do not deserve punishment and thus, may well

27
weaken the deterrent effect of punitive damages. The cost
internalization argument is equally unsatisfying. Indeed, if one
assumes that vicarious liability for compensatory damages
provides an adequate incentive for an employer to take cost-
justified precautions, then the vicarious imposition of punitive
damages introduces an untoward inefficiency. Namely, if punitive
damages are vicariously imposed the employer may be induced to
take precautions beyond the necessary level of efficiency. In
the healthcare services market such inefficiencies may only. serve
to further contribute to spiraling costs. In such a setting, it
makes more sense, both economically and morally, to impose lower
punitive damages on the actual malfeasor--the employee. Indeed,

- if such were done, the deterrent effect would be greater since
the employee generally lacks the ability of the employer to
spread those doses. Clearly, the vicarious imposition of
punitive damages raises the moral hazard issue associated with
policies that ensure against punitive damage awards. In essence,
the employer, with his greater ability to spread the lose, in

effect is transformed into the employee’s underwriter.

Not surprisingly, the Inspector General makes no effort to
proffer any legitimate rationale for the vicarious imposition of
punitive damages. Instead, he opines that without the vicarious
imposition of punitive damages the CMPL would be eviscerated,
hospitals and other providers would be able to evade the CMPL’s

provisions by delegating responsibilities to non-management

28
personnel and as a result, fraud would blossom. The Inspector
General’s parade of horrors is largely illusory. Of the many
CMPL cases instituted by the Inspector General, this is only one
in which the issue of vicarious liability has ever been raised.
It is most unlikely that the unique fact pattern that gave rise
to this case would ever be replicated. Moreover, the provisions
of the Restatement provide more than ample protection against
those entities that attempt to avoid responsibility by “passing
the buck.” In addition, the Inspector General’s concerns are
premised on a questionable assumption: the target of an
enforcement action should be limited to the principal. If, as we
are told, the purpose of the CMPL is to compensate the
government, punish the wrongdoer and deter future improprieties,
then restricting the enforcement to only principals makes little
sense. Indeed, in this case, the Inspector General would have
been able to vindicate each and every purpose underlying the CMPL
had he instituted an action against both the Respondent and Mrs.
Eby. Under such a strategy, the Inspector General would look to
the principal to pay the compensatory component of the damage
award and to the actual wrongdoer to pay the penalties. While
the economic resources of an agent may not justify the full
measure of punitive damages that would normally be imposed on an
economically viable principal, the purpose of punitive damages is
not to compensate but to punish. Consequently, a small penalty
imposed on a wrongdoer of limited means may have a greater penal

effect than a larger penalty imposed on a wealthy individual.

29
Further, broadbased enforcement of the CMPL may well deter others
in similar circumstances from undertaking improper billing

practices. In short, we anticipate that the Opinion in this case
will assist rather than impede the Inspector General’s excellent

enforcement efforts.

/s/

Anabel Bowen
Deputy Under Secretary

30


DEPARTMENT OF HEALTH AND HUMAN SERVICES
Departmental Appeals Board

Civil Remedies Division

In the Case of:

Eulalia Sentmanat, M.D., DATE: December 26, 1989

Petitioner, Docket No. C-88

-ve- DECISION CR 61

The Inspector General.

DECISION OF ADMINISTRATIVE LAW JUDGE
ON MOTION FOR SUMMARY DISPOSITION

On December 9, 1988, the Inspector General (the I.G.)
notified Petitioner that she was being excluded from
participation in Medicare and State health care programs
for five years. The I.G. told Petitioner that she was
being excluded as a result of her conviction in a Florida
court of a criminal offense related to the delivery of an
item or service under Medicaid. Petitioner was advised
that exclusion from participation in Medicare and
Medicaid of individuals or entities convicted of such an
offense are mandated by section 1128(a) (1) of the Social
Security Act. The I.G. further advised Petitioner that
the law required that the minimum period of such an
exclusion be not less than five years.

Petitioner timely requested a hearing, and the case was
assigned to me for a hearing and a decision. The I.G,

1 "state health care program" is defined by

section 1128(h) of the Social Security Act to include any
State Plan approved under Title XIX of the Act (such as
Medicaid). I use the term "Medicaid" hereafter to
represent all State health care programs from which
Petitioner was excluded.
2

moved for summary decision, and Petitioner opposed the
motion. I heard oral argument of the motion on
October 17, 1989.

I have considered the parties' arguments, their fact
submissions, and applicable law. I conclude that the
exclusion imposed and directed by the I.G. in this case
is mandated by law. Therefore, I enter summary
disposition in favor of the I.G.

ISSUE

The issue in this case is whether Petitioner was
convicted of an offense within the meaning of 42 U.S.C.
1320a-7(i).

FINDINGS OF FACT AND CONCLUSIONS OF LAW

1. On November 23, 1987, Petitioner was charged with
three felony offenses, pursuant to Florida law.
I.G. Ex. 1.

2. Count I and II of the information filed against
Petitioner charged her with knowingly filing false claims
for services under the Florida Medicaid program. Count
III of the information charged Petitioner with grand
theft. I.G. Ex. 1.

3. On June 20, 1988, Petitioner entered a plea of nolo
contendere to Counts I, II, and III of the information
filed against her in the Circuit Court of the Eleventh
Judicial Circuit of Florida. I.G. Ex. 3.

4. Petitioner was convicted of a criminal offense as
defined by section 1128(i) of the Social Security Act.

2 The parties's exhibits and memoranda will be

cited as follows:

I.G. Exhibit I.G. Ex. (number)
I.G. Brief I.G. Br. (page)
Petitioner's Exhibit P. Ex. (number)

Petitioner's Br. P. Br. (page)
3

5. Petitioner was convicted of a criminal offense
related to the delivery of an item or service under
Medicaid within the meaning of section 1128(a) (1) of the
Social Security Act.

6. On December 9, 1988, the I.G. excluded Petitioner
from participating in the Medicare program and directed
that she be excluded from participating in Medicaid,
pursuant to section 1128(a)(1) of the Social Security
Act.

7. The exclusion imposed and directed against Petitioner
by the I.G. was for five years, the minimum period
required by law for an exclusion imposed and directed
pursuant to section 1128(a)(1) of the Social Security
Act. Social Security Act, section 1128(c) (3) (B).

8. The exclusion imposed and directed against Petitioner
by the I.G. is mandated by law. Social Security Act,
sections 1128(a) (1); 1128(c) (3) (B).

ANALYSIS

There are no disputed material facts in this case.

The record establishes that Petitioner pled nolo
contendere in a Florida court to two counts of filing
false claims for services under the Florida Medicaid
program and one count of grand theft. Based on this
conviction, the I.G. excluded Petitioner from
participating in Medicare and directed that she be
excluded from participating in Medicaid, for five years.

The I.G. contends that Petitioner was convicted of a
criminal offense related to the delivery of an item or
service under the Medicaid program within the meaning of
section 1128(a)(1) of the Social Security Act. I.G. Br.
4, 5. The I.G. asserts that section 1128 of the Social
Security Act mandates that individuals convicted of such
offenses be excluded from participation in Medicare and
Medicaid. Id. He further asserts that Petitioner was
excluded for the minimum period mandated by law, inasmuch
as section 1128(c) (3)(B) of the Social Security Act
requires that an individual convicted of an offense, as
defined by section 1128(a)(1), be excluded for at least
five years. Id.

Petitioner argues that she was not "convicted" within the
meaning of Florida law and that sections 1128(a)(1) and
1128(i) of the Social Security Act are unconstitutional.
4

1. Petitioner was convicted within the meaning of
section 1128(a)(1) and 1128(i).

Petitioner asserts that she was not "convicted" of a
criminal offense within the meaning of section 1128 of
the Social Security Act. She admits that she entered a
nolo contendere plea to a criminal offense related to the
delivery of an item or service under Medicaid, but
asserts that her plea does not constitute a "conviction"
under Florida law.

Petitioner further asserts that the decisions in Carlos
E. Zamora, M.D, v. The Inspector General, Docket No. C-74
(1989), Roberto V. Salinas v. The Inspector General,
Docket No. C-72 (1989), and Lectoy T. Johnson v. The
Inspector General, Docket No. C-69 (1989) are not
controlling because her case involves a conflict between
Florida law and federal law, whereas these cases involved
the acceptance of nolo contendere pleas and deferred
adjudication of those pleas pursuant to Texas law.

Although Petitioner's case may involve Florida law,
rather than Texas law, the issue and basic principles
enunciated in Zamora, Salinas, and Johnson remain the
same. The issue is whether federal law or state law
controls in interpreting section 1128 of the Social
Security Act.

42 U.S.C. 1320a-7(a) (i) and 7(i).

It is Congress, not the state legislatures, which enacts
federal law, and the interpretation of a federal statute
is governed by federal, rather than state law. To the
extent that the definition of "convicted" in a federal
statute is different from state law, the federal law
definition controls. United States v. Allegheny Co., 322
U.S. 174, 183 (1944).

Section 1128(i) of the Act provides that an individual
has been "convicted" of a criminal offense when:

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

(2) there has been a finding of guilt against the
individual or entity by a Federal, State, or local
court;
5

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

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

I conclude that Petitioner was "convicted" within the
meaning of sections 1128(a) (1), (i) (3) and (i) (4).

Petitioner entered a plea of nolo contendere and that
plea was accepted by the state court. Her plea of nolo
contendere constituted a "conviction" within the plain
meaning of 1128(i) (3).

Moreover, the legislative history of subsection 1128(i)
makes it clear that Congress intended to include a plea
of nolo contendere within the scope of the term
"conviction", even though under state law and practice no
judgment of conviction is ever entered. Carlos E.
Zamora, M.D. v. the Inspector General, Docket No. C-74
(1989), appeal docketed, DAB No. 89-100, Decision No.
1104, p. 5 (1989).

"If the financial integrity of Medicare and Medicaid is
to be protected, the programs must have the perogative
not to do business with those who have pleaded to charges
of criminal abuse against them". H.R. No. 727, 99th
Cong., 2d Sess. 75, reprinted in 1986 U.S. Code Cong. &
Admin. News 3607, 3665.

Thus, Congress made the determination that persons who
plead guilty or nolo contendere to program-related
offenses are as untrustworthy as those convicted after a
trial, and a state law cannot thwart that determination
or override the acts of Congress. Section 1128(i) (3)
contains no qualifying language or exceptions.

The I.G. has asserted that Petitioner was also
"convicted" within the meaning of 1128(4). Petitioner
pled nolo contendere and an "adjudication of guilt" was
withheld by the state court pursuant to a Florida
statute. Petitioner was placed on probation for three
years and ordered to pay $445.00 in restitution to the
Medicaid program and $3,785.00 for investigative costs to
the Florida Medicaid Fraud Control Unit. Thus,
Petitioner was "convicted" because this arrangement was
one in which there was a "deferred adjudication," as
defined by section 1128(i) (4).
6

2. Rule 410(2) of the Federal Rules of Evidence is not
controlling in this case

Petitioner contends that the use of her nolo plea to
exclude her from Medicare and Medicaid programs violates
Rule 410(2) of the Federal Rules of Evidence as well as
Florida law. She argues that the I.G.'s Exhibits 1 and 2
would be inadmissible at a hearing in this case and
should not be used as a basis for summary disposition.

Petitioner is correct in her asssertion that Rule 410(2)
provides that "evidence of a plea of nolo contendere is
not in any civil or criminal proceeding admissible
against the defendant who made the plea..."

However, Rule 410(2) was amended in 1975 to make it clear
that the rule applied, except as otherwise provided by
Congress, in order to preserve particular congressional
policy judgment as to the effect of a plea of nolo
contendere. Pub. L. 94-149. Section 1128 reflects just
such a policy judgment by Congress that Rule 410(2) will
not apply in exclusion cases.

Furthermore, this issue has been specifically addressed
by Congress in section 205(b) of the Social Security Act
which provides that:

Evidence may be received at any hearing before the
Secretary even though inadmissible under rules of
evidence applicable to court procedure.

Thus, I conclude that Rule 410(2) is not applicable to
this proceeding. Section 205(b) is dispositive of this
issue and is controlling in this case. The I.G.'s
submissions would be admissible at an exclusion hearing
and constitute sufficient evidence on which to decide
whether summary disposition is appropriate in this case.

3. I_do not have the authority to grant petitioner
relief based on her arguments that 42 U.S.C. 1320a=

7(a)(1) and 7(i) are unconstitutio’

Petitioner requests that I hold 42 U.S.C. 1320a~7(a) and
1320a-7(i) (3) unconstitutional as enacted and as applied
to the facts of this case. She asserts that these
sections are contrary to substantive and procedural due
process guarantees enumerated in the Fifth Amendment to
the United States Constitution. She also argues that if
her nolo contendere plea was obtained through ineffective
assistance of counsel or was otherwise involuntary, it
will be difficult for the plea to be set aside.
7

The current law provides that an excluded party may
request a hearing as to an exclusion and is entitled to a
hearing to the same extent as is provided in 42 U.S.c.
405(b). 42 U.S.C. 1320a-7(f). The scope of my review in
these cases is stated in 42 C.F.R. 1001.128(a). This
section limits an appeal in this type of case to the
issues of (1) whether a petitioner was, in fact,
convicted; (2) the conviction related to Petitioner's
participation in the delivery of medical care or services
under the Medicaid, Medicare or social services programs;
and (3) whether the length of the suspension is
reasonable.

These issues relate to the propriety of the imposition of
the exclusion in a particular case and I have the
authority to interpret section 1128 and the regulations
promulgated thereunder. I do not have the authority to
declare a federal statute unconstitutional or invalidate
a regulation. Petitioner must address these arguments in
another forum, since I do not have the authority to grant
the relief she seeks.

4. The length of Petitioner's exclusion is reasonable.

Petitioner has not contended that the length of her
exclusion is unreasonable. Section 1128 not only
mandates exclusions for individuals convicted of offenses
related to the delivery of an item or service under the
Medicaid program, it requires that the term of such an
exclusion be for at least five years. Social Security
Act, section 1128 (c) (3) (B).? Thus, I conclude that the
length of Petitioner's exclusion is reasonable.

3 rf the I.G. had imposed and directed an

exclusion against Petitioner for a period longer than
five years, then there would exist an issue as to the
reasonableness of that part of the exclusion which
exceeded five years. In that event, either side would be
permitted to introduce evidence as to the presence of
aggravating or mitigating factors.
8
CONCLUSION

Based on the undisputed material facts and the law, I
conclude that the I.G.'s exclusion is mandated by law.
Therefore, I am entering a decision in favor of the I.G.
in this case. The five-year exclusion imposed and
directed against Petitioner is sustained.

/s/

Steven T. Kessel
Administrative Law Judge