DEPARTMENT OF HEALTH AND HUMAN SERVICES
Departmental Grant Appeals Board

Office of Hearings for Civil Money Penalties

In the Case of:
DATE: Dec 22, 1986
The Inspector General,
Docket No. C-15
-v-

DECISION CR 8
Jimmy Paul Scott, Ph.Pp.,

Respondent.

DECISION AND ORDER

In this civil money penalties and assessments case, the Inspector
General (1.G.) of the United States Department of Health and

Human Services (DHHS) sent Jimmy Paul Scott, Ph.D. (Respondent)

a Notice of Determination on March 1, 1985, alleging that the
Respondent submitted false or improper Medicaid claims for payment
in violation of the Civil Monetary Penalties Law (CMPL), 42
U.S.C.A. §1320a-7a (1983, 1985 Supp) and its implementing federal
regulations (Regulations), 42 C.F.R. §§1003.100 to 1003.133
(1986). 1/ 2/ The Respondent challenged the 1.G.'s allegations

on May 16, 1986 by filing an answer and requesting a hearing.

77 Sections 1128A and 1128(c) of the Social Security Act (Act) are
the two sections that are referred to as the Civil Monetary Penalties
Law (CMPL); these two sections are codified in sections 1320a-7a

and 1320a-7(c) of Title 42, U.S.C. (1986). The CMPL was passed

by Congress as part of section 2105 of the Omnibus Budget Reconcilia-~
tion Act of 1981 (Pub. L. No. 97-35, 95 Stat. 357, 789-92, enacted

on August 13, 1981). The CMPL was amended by Congress in section
137(b) (26) of the Tax Equity and Fiscal Responsibility Act of

1982 (Pub. L. No. 97-248, 96 Stat, 380), and amended again on July
18, 1984 in Public Law 98-369 (98 Stat. 1073, 1089, 1100).

2/ The Regulations were approved on July 27, 1983, promulgated on
August 26, 1983, and became effective on September 26, 1983. 48
Fed. Reg. 38827 et seq., (August 26, 1983). They were amended in
1985 to expand subpoena powers and to make technical corrections

(50 Fed. Reg. 37371 et seq., September 13, 1985), amended again in
May 1986 to add provisions to §101.102 (51 Ped Reg 18790 et. seq.
May 22, 1986), and recodified in September 1986, from 45 C.F.R.
(Part 101, §§101.100 to 101.133) to 42 C.F.R. (Ch. V, §§1003.100

to 1003.133) (51 Fed. Reg. 34764 et seq., September 30, 1986)

(See also, 51 Fed. Reg. 37577 and 39528 for technical corrections).
The 1986 recodification of the Regulations resulted in no substantive
changes.
-2-
JURISDICTIONAL AND PROCEDURAL BACKGROUND

In her March 1, 1985 Notice of Determination, Eileen Boyd, the
Deputy Assistant I1.G., Civil Fraud Division, DHHS, notified

the Respondent of the I.G.'s intent to impose civil money penalties
and assessments against Respondent in the amount of $84,000
(penalties of $80,000 and assessments of $4,000); no suspension

was proposed. The Notice of Determination was based on the

I.G.'s conclusion that, during the period August 21, 1981 through
June 18, 1982, the Respondent had presented or caused to be
presented claims for Medicaid payment for 73 line items or services
which the Respondent knew or had reason to know were not provided
as claimed, in violation of the CMPL and Regulations.

In his May 16, 1985 challenge to the I.G.s notice, the Respondent
demanded a hearing before an ALJ and attached an answer raising
several defenses and an argument, in the alternative, that the
penalties and assessments should be reduced because of mitigating
circumstances (pursuant to section 1003.109(b)(2) of the Regulations).

A Prehearing Conference was held in San Francisco, California,

at which time prehearing and hearing procedures, opportunities
for discovery, and due process rights under the CMPL and Regulations
were discussed, and a schedule was set forth regarding discovery,
exchanges of documents, submission of prehearing motions, and
Preparation for the hearing. A Prehearing Order was issued on
August 7, 1985, revised on September 6, 1985, and supplemented on
October 10, 1985. A Ruling was issued on November 22, 1985 in
response to prehearing motions and evidentiary objections.
Summaries of telephone conferences which confirmed Rulings were
issued on April 29, May 1, August 27, and September 2, 1986.

A formal hearing was held in San Francisco, California, from
December 10 to Decémber 12, 1985, and from May 5 to May 9, 1986,
at which time the parties were afforded a full opportunity to
present and have relevant evidence entered into the record, to
present and cross~examine witnesses, and to present statements,
motions and argument, as provided by the CMPL and Regulations.
The parties were represented by counsel at the hearing and were
given the opportunity to submit post-hearing written briefs and
proposed findings of facts and conclusions of law. The I.G. and
the Respondent presented post-hearing briefs, proposed findings
of fact and conclusions of law, and a reply brief.
-3-
THE GOVERNING LAW AND REGULATIONS

I. The Civil Monetary Penalties Law (CMPL) and Regulations

The first section of the CMPL (i.e., Title 42 U.S.C., §1320a-7a;
§1128A of the Act) grants authority for the I1.G. to issue a

Notice of Determination to impose civil money penalties and
assessments against any person who the I.G. determines has presented
or caused to be presented any false or improper claims for payment
under the Medicare, Medicaid, or the Maternal and Child Health
Services Block Grant programs. The second section of the CMPL
(i,e., 42 U.S.C. §13207a-7(c); §1128(c) of the Act) grants authority
for the I.G. to include a proposal to suspend such a person from
participation in the Medicare and Medicaid programs. 3/4/5/6/ In
this case, only §1320a-7a is of concern because no suspension was
proposed.

The CMPL, its legislative history, and the Regulations make it
clear that the intended purpose of imposing civil money penalties
is to deter persons from presenting false or improper Medicare

or Medicaid claims and the purpose of imposing assessments is to
make the government whole for its damages and costs as a result
of presenting such false or improper claims.

The Regulations implement the provisions of the CMPL, delegate
authority from the Secretary to the I.G. to make determinations
regarding false or improper claims presented, and provide a respondent
the right to a hearing before a federal administrative law judge
(ALJ). The I.G. has the burden of proof regarding liability and
aggravating circumstances; a respondent has the burden of proof
regarding circumstances that would justify reducing the amount of

the penalty, or assessment. Regulations §1003.114. Either

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

4/ Section 1320a-7a(h)(2) of the CMPL and §1003.101 of the Regulations
define a "claim" as an application for payment submitted for one or
more items or services for which payment may be made under the Medicare
(Title XVIII), Medicaid (Title XIX), or Maternal and Child Health
Services Block Grant (Title V) programs.

5/ Section 1320a-7a(a)(1)(A) of the CMPL and §1003.102 of the Regula-
tions define a false or improperly presented claim to be one containing
one or more items or services that "the person knew or had reason to
know was not provided as claimed."

6/ Section 1320a-7a(h)(3) of the CMPL and §1003.101 of the Regulations
define an “item or service" to include any item, device, medical
supply or service claimed to have been provided to a patient and
listed in an itemized claim for payment.
-4-

party may seek review by the Secretary of DHHS of an ALJ's decision
and order and may seek judicial review of any decision and order
that has become final. Regulations §§1003.125, 1003.127.

All of the claims in this case were presented and received on or
after August 13, 1981. To establish liability for claims

presented on or after August 13, 1981 (the effective date of the
CMPL), the I.G. must prove by a preponderance of the evidence all
the requisite elements of liability set forth in the CMPL and
Regulations. See CMPL §1320a-7a(1)(A); Regulations §1003.102(a)(1),
1003.114(a). For ease of discussion, I separated those elements
into seven parts, as follows: (1) that a "person" (2) "presented

or caused to be presented" (3) one or more Medicaid (or Medicare)
"claims" (4) containing one or more medical “items or services"

(5) to the Medicaid (or Medicare) “agency” for payment (6) that a
respondent "knew or had reason to know" (7) were “not provided as
claimed". 7/ Regulations §§1003.101, 1003.102. The I.G. also

must prove by a preponderance of the evidence any alleged aggravating
circumstances. Regulations §§1003.114, 1003.106. Section 1003.106
of the Regulations sets forth guidelines for determining both
aggravating and mitigating circumstances. Section 1003.114(d) of
the Regulations sets forth the standard of proof for mitigating
circumstances:

The respondent shall bear the burden of producing and
proving by a preponderance of the evidence any
circumstances . . . that would justify reducing the amount
of the penalty or assessment. .. .

The Regulations provide that the maximum penalty is $2,000 for

each false or improper item or service listed on each claim in

issue (Regulations, §1003.103); the maximum assessment is twice
the amount of items or services falsely or improperly claimed.

Regulations, §1003.104.

The Regulations require that a full and fair "trial-type hearing”
be conducted by an ALJ. See, Regulations §1003.111 (right to

a hearing), 1003.113 (notice of hearing), 1003.114 (burden of
proof), 1003.115 (right to a fair hearing to be conducted by an
ALJ), 1003.116 (rights of parties), 1003.117 (discovery rights),
1003.118 (evidence and witnesses), 1003.120 (no ex parte contacts),
1003.123 (briefs and proposed findings of fact and conclusions of
law), 1003.124 (record), 1003.125 (decision and order), 1003.126
(judicial review), and 1003.132 (limitations); see also, Londoner
v. Denver, 210 U.S. 373, 386 (1908); DAVIS, Administrative Law
Treatise, 2d Ed. 1978, chapters 12, 13. In addition, the parties
have the right to cross-examine all witnesses called by the
opposing party well beyond the normal scope of cross-examination.
Regulations, §1003.118(d).

77 The CMPL and Regulations also set forth other bases for
liability which are not relevant in this case. See Regulations
§101.102(a)(2) and (b).
-5-

II, The Medicaid Law and Program in California (Medi-Cal)

Title XIX of the Act (42 U.S.C. §1396 et seq.) establishes a program,
known as Medicaid, under which the federal government provides
financial assistance to participating states to aid them in
furnishing health care to needy persons. See, Harris v. McRae,

488 U.S. 297, (1980). If a state chooses to have a Medicaid

Program, it must submit a "State Plan" to the Secretary of DHHS

which meets federal statutory and regulatory requirements for

federal approval. The approved California Medicaid program is

known as "Medi-Cal". Medi-Cal is responsible for determining
eligibility for services, establishing standards for the services
provided, establishing standards and requirements for the submission
of claims for reimbursement, setting payment levels for providers

of services, processing claims, and paying claims. These standards
and requirements are set forth as provisions of law in the California
Administrative Code (CAC), Title 22. See also, Cal. Welf. &

Inst. Code §14063.

Computer Sciences Corporation (CSC) serves as the fiscal intermediary
(also referred to as fiscal agent, or carrier) for the Medi-Cal
program and, as such, facilitates the processing and payment of
claims for reimbursement. TR 1/67, 69; I.G. Ex 44. CSC processed
and paid claims submitted by Medi-Cal providers for items or

services that the providers stated were rendered to Medicaid
beneficiaries during the relevant time period in this case. id.

ISSUES

The principal issues are:

A) Liability:

1) Whether the I.G. proved by a preponderance of the evidence
that the Respondent "presented or caused to be presented," from August
12, 1981 through June 28, 1982, Medicaid “claims" for payment for
73 reimbursable medical “services” that the Respondent “knew or
had reason to know" were "not provided as claimed."

B) The Amount of Penalties and Assessments if Liability is

Proven:

2) Whether the I.G. proved by a preponderance of the evidence
that aggravating circumstances exist in this case.

3) Whether the Respondent proved by a preponderance of the
evidence any circumstances that would justify reducing the amount
of the penalties or assessments proposed (mitigating circumstances).
-~6-

4) Whether the amount of the proposed penalties and
assessments is reasonable and appropriate under the circumstances
of this case, within the intent and meaning of the CMPL and
Regulations.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

Having considered the entire record, the arguments, objections,
motions, and submissions of the parties, and being advised fully
herein, I make the following Findings of Fact and Conclusions of
Law: 8/ 9/ 10/

1. Por the purposes of this case, I have taken judicial notice
of the statutes of the United States, the regulations of the
Secretary of DHHS, all other pertinent regulations of the
United States, the statutes of the State of California, the
regulations of the California Medicaid Program and all other
pertinent regulations of the State of California as they existed
during the time at issue in this case.

2. This proceeding is governed by the CMPL and the Regulations.

8/7 References to the briefs, the transcript, the stipulations,
hearing exhibits, and to the "Findings of Fact and Conclusion of
Law" are as follows:
I.G.'s Brief
I.G.'s Reply Brief
Respondent's Brief
Respondent's Reply Brief
Transcript
Written Stipulations
I.G. Exhibit
Respondent's Exhibit.
ALJ Findings of Fact

and Conclusions of Law = FFCL/number

I.G. Br/page number
I.G. Rep Br/page number
R Br/page number

R Rep Br/page number
TR/volume/page number
Stip. (number)

I.G. Ex/page number

R Ex/page number

9/ Some of the findings and conclusions proposed by the parties
were rejected or modified because they were not supported by the
evidence in the record and some have been incorporated elsewhere
in this Decision.

10/ Any part of this Decision and Order preceding the Findings of
Fact and Conclusions of Law which is obviously a finding of fact

or conclusion of law is hereby incorporated as a finding of fact

or conclusion of law; I refer primarily to the facts and conclusions
that were not disputed or which are clear and do not need to be
repeated here.
ll.

The Secretary has delegated his authority to take action under
the CMPL and the Regulations to the I.G. and to the I.G.'s
delegates.

The authorized Notice or Determination dated March 1, 1985,
notified the Respondent that the I.G. had determined that the
Respondent should be subject to penalties of $80,000 and
assessments of $4,000, alleging that the Respondent presented
or caused to be presented to CSC, from August 21, 1981 through
June 18, 1982, false or improperly filed claims for Medicaid
payment involving 73 line items or services which the Respondent
knew or had reason to know were not provided as claimed, in
violation of the CMPL and Regulations. A true and correct
copy of this Notice and its attachment is a part of the

record in this case.

The Respondent, Jimmy Paul Scott, Ph.D. (a person within the
meaning of the CMPL and Regulations) by letter dated May 16,
1985, filed an answer to the Notice, and a request for a
hearing before an ALJ, pursuant to section 1003.109(b)(2)

of the Regulations. A true and correct copy of this answer
and the defenses listed therein is a part of the record in
this case. Regulations, §1003.101.

Medi-Cal is the California Medicaid program under Title XIX
of the Social Security Act, 42 U.S.C. §1396 et seg.; Cal.
Welf. and Inst. Code §14063.

The fiscal intermediary for the Medi-Cal program during the
period covered by the claims in issue was CSC. TR 1/67, 69;
I.G. Ex 44/3.

Under the Medi-Cal program, psychotherapy is a covered
service when provided by a licensed psychologist. Calif.
Admin. Code title 22 (CAC) §§51309(a); 51232.

No more than two psychology services per month are covered
by Medi-Cal. Id. §51304.

Medi-Cal beneficiaries are issued Medi-Cal cards each month,
TR II/256, containing two "MEDI" stickers. TR III/137-139.

A claim for reimbursement for psychology services must have
a MEDI sticker affixed to the claim form before Medi-Cal
will pay the claim. TR II/261; I.G. Ex 38.
12.

13.

14.

15.

16,

17.

18.

19,

20.

21.

22.

23.

-8-

The Medi-Cal program covers individual psychotherapy (one-
half hour, one hour or one and one-half hours). CAC
§51505.3; I.G. Ex 38.

The procedure code for one-half hour of psychotherapy is 2360;
for one hour, 2361; and for one and one-half hours, 2362. If

a code 2362 is claimed, the provider must attach a justification.
Id.; TR IV/31.

The Provider Manual issued by CSC provides instructions

to program participants and contains the law concerning
Medi-Cal reimbursement. Appendix A of the Manual relates

to psychology, and makes clear that (1) psychology services
are limited to two a month and (2) for each separate therapy
service, there must be a MEDI sticker that is valid for the
month of the service. I.G. Ex 38/A-23.

The Medi-Cal program does not pay for vitamins or nutritional
supplements. CAC §§51313, 59999.

The Medi-Cal regulations make it illegal for a provider

to remove more stickers from a Medi~Cal card than are
necessary for a particular service and illegal to use stickers
issued to anyone other than the patient. CAC §51486.

Dr. Scott was, during the relevant period, licensed
in California as a psychologist by the Bureau of Medical
Quality Assurance (BMQA). TR IV/32; I.G. Ex 44/2.

Dr. Scott was not licensed as a physician. TR IV/33.
Dr. Scott participated in the Medi-Cal program. I.G. Ex 45/3.

Gail Hartman began working for Dr. Scott around July 1981.
She did the billing for him, in accordance with his instructions.
I.G. Ex 45, 46,

The billing account records kept by Dr. Scott contained
ledger cards and copies of receipts. See, I.G. Ex 6A-31.

Dr. Scott also kept client (patient) files containing notes
and office visit vouchers or receipts. I.G. Ex 6A-31l; I.G,
Ex 45.

The entries in the client files, the entries in the ledger
cards, and the receipts are all consistent with each other.
In other words, the entries in the client files match the
entries in the ledger cards, and the ledger cards match the
receipts in the files. TR IV/44, 53-54, 69-71. (Also, the
"ov" (office visit) and "supp" (nutritional supplements)
receipts match corresponding entries in the leder cards.)
E.g., TR III/350-353; TR IV/39, 44-45.
24. Dr. Scott and Gail Hartman kept appointment books. Office
visits and other appointments were entered in those books.
TR IV/91-95; I.G. Ex 35, 36, 46.

25. Dr. Scott reviewed and signed the Medi-Cal claims, which had
been prepared by Gail Hartman in accordance with Dr. Scott's
instructions. I.G. Ex 45, 46.

26. Both Dr. Scott and Gail Hartman knew the relevant billing
rules for psychotherapy services. They both were familiar
with procedure codes 2361 and 2362. They were familiar with
the limitations on the use of MEDI stickers (and the rule
that only MEDI stickers could be used on Respondent's
claims). I.G. Ex 45, 46; TR III/317; TR VI/133.

27. Dr. Scott knew that the Medi-Cal program would not pay
him for vitamins or nutritional supplements sold to clients.
TR III/334. TR VII/141, 144; I.G. Ex 45.

28. Gail Hartman also knew that MEDI sticker were to be used
solely for psychotherapy and not for nutritional and other
services. I.G. Ex 46; TR III/312.

29. All of the claims in this case list the same diagnosis
description -- stress reaction. I.G. Ex 1A, 1B; TR V/5.
See also, I.G. Ex 46; I.G. Ex 37.

30. Dr. Scott told clients that MEDI stickers could be used in
payment for the vitamins he sold. TR VI/142; TR III/338.

31. The claims at issue here are for a “medical or other item
or service;" the claims were for "psychotherapy." CMPL,
§1320a-7a(h) (3).

32. Dr. Scott “presented or caused to be presented" the 73 claims
at issue here. He admitted in his interview with investigators
of the Bureau of Medi-Cal Fraud that he signed the claims
that were filed with CSC for Medi-Cal reimbursement. I.G. Ex
45; Regulations §1003.102.

33. Dr. Scott sold vitamins to his clients. Al/ TR III/296, 338,
TR VI/142; TR VII/114, 116; I.G. Ex 6B-31.

Ti7 The use of the term "vitamins" in this Decision includes vitamin

and nutritional supplements as well.
34.

35.

36.

37.

38.

39.

-10-

Dr. Scott and Gail Hartman told clients that a single MEDI
sticker could be applied as a credit of as much as $20.00
against vitamin purchases, and they so credited clients for
vitamin purchases. TR II/268; TR III/300; I.G. Ex 44 at 1;
TR VII/114, 116, 124, 126; I.G. Ex 6A-31.

Billing records, client files ,and other documents relied

on by the I.G. in this case were obtained by a search
warrant served by investigators during the development of
the State case against Dr. Scott. The search warrant was
for specified records and documents relating to the period
August 4, 1981 through April 6, .1982, and State publications
containing information about the Medi-Cal program. I.G. Ex
4A. Attached to the warrant was a group of forms containing
information about Medi-Cal claims submitted by Dr. Scott
during the relevant period, The information included the
names of clients and the service provided. I.G. Ex 4C,

Agents of the California Attorney General's Medi-Cal Fraud
unit went to Dr. Scott's office on June 10, 1982, advised

him of his Miranda rights, and served the search warrant on
Dr. Scott.127 TR II/216; I.G. Ex 45. The agents executed
the search warrant by looking through the medical and billing
files and taking those for the period August 4, 1981 through
April 6, 1982, which appeared, in the judgment of the agents,
to be useful. TR II/203. Mario Piazza, an investigator for
the Medi-Cal Fraud unit, testified that the agents did not
take all of the records and files for the period because
they were too voluminous. TR II/203.

On the same day, June 10, 1982, the agents prepared a list
of the property taken from Dr. Scott's office. On September
28, 1982, agent Mario Piazza amended the list to add the
name of one person inadvertently omitted earlier from the
list. I.G. Ex 5.

Evelynne Mills was never a client of Dr. Scott and did not
have an appointment with him on any of the dates claimed,
I.G. Ex 47; TR IV/80-81; I1.G. Ex 35.

Dr. Scott certified on a Medi-Cal claim dated September 21,
1981 that he provided psychotherapy services to Evelynne Mills
on May 5 and 26, June 2 and 23, July 16 and 30, August 4

and 18, and September 7 and 21, 1981. I1.G. Ex 1B.

127 Pursuant to the decision in Miranda v. Arizona, 384 U.S. 436
(1966), an accused must be advised, before any statement is taken,
of his right to remain silent and of the possible consequences of
giving a voluntary statement.
40.

41.

42.

43.

44,

45.

46.

47.

48.

49,

-ll-

Dr. Scott "knew or had reason to know" that he had not provided
psychotherapy services to Evelynne Mills on May 5 and 26,

June 2 and 23, July 16 and 30, August 4 and 18, and September

7 and 21, 1981, as claimed. I1.G. Ex 1B, 2, 3, 6A.

Clubert Kregel did not have an appointment with Dr. Scott
and did not have an office visit with him on November 2 and
16 and December 4 and 18, 1981, as claimed. I.G. Ex 6B,
35; TR IV/97, 99.

Clubert Kregel purchased vitamins from Dr. Scott's office

but did not have an office visit with Dr. Scott on November 10,
1981. She paid for the vitamins with MEDI stickers. 1I.G.

Ex 6B; TR IV/98.

Dr. Scott certified on November 19, 1981 that he provided
psychotherapy services to Clubert Kregal on November 2

and 16, 1981; he certified on December 18, 1981 that he
provided psychotherapy services to Clubert Kregal on December
4 and 18, 1981. I.G. Ex 1B.

Dr. Scott “knew or had reason to know" that he had not
provided psychotherapy services to Clubert Kregel on
November 2 and 16, 1981, and December 4 and 18, 1981,
as claimed. I.G. Ex 1B, 2, 3.

James Murphy did not have either an appointment or an office
visit with Dr. Scott on July 6 and 29, August ‘ll and 26, and
September 3 and 17, 1981, as claimed, I.G. Ex 35; TR IV/124,
129, 140.

Dr. Scott certified on August 27, 1981 that he provided
psychotherapy services to James Murphy on August 11 and 26,
1981; he certified on October 22, 1981, that he provided
psychotherapy services to James Murphy on July 6 and 29
and September 3 and 17, 1981. I.G. &x 1B.

Dr. Scott “knew or had reason to know” that he had not provided
psychotherapy services to James Murphy on July 6 and 29,

August 11 and 26, and September 3 and 17, 1981, as claimed.
I.G. Ex 1B, 2, 3.

Donald Wilkins was never a client of Dr. Scott and did not
have an appointment with him on. any of the dates claimed.
I.G. Ex 35; TR IV/140, 142.

Dr. Scott certified on August 21, 1981, that he provided
psychotherapy services to Donald Wilkins on August 7 and
21, 1981; Dr. Scott certified on October 22, 1981 that he
50.

51.

52.

53.

54.

55.

56.

-12-

provided psychotherapy services to Donald Wilkins on September
16 and 29 and October 2 and 16, 1981; Dr. Scott certified on
December 8, 1981 that he provided psychotherapy services to
Donald Wilkins on November 6 and 20, Dr. Scott certified on
December 24, 1981 that he provided psychotherapy services to
Donald Wilkins on December 7 and 21, 1981; Dr. Scott

certified on January 21, 1982 that he provided psychotherapy
services to Donald Wilkins on January 6 and 20, 1982. I.G.

Ex 18.

Dr. Scott “knew or had reason to know" that he had not
provided psychotherapy services to Donald Wilkins on
August 7 and 21, September 16 and 29, October 2 and 16,
November 6 and 20, and December 7 and 21, 1981; and
January 6 and 20, 1982, as claimed. I.G. Ex 1B, 2, 3.

Rhoda Sachs did not have either an appointment or an office
visit with Dr. Scott on September 4 and 18, October 9 and
30, November 11 and 25, and December 7 and 21, 1981; and
January 5 and 20, 1982, as claimed. I.G. Ex 9, 35, 36.

Rhoda Sachs purchased vitamins from Dr. Scott's office but
did not have an office visit with him on September 15 and
December 29, 1981. She paid for the vitamins with MEDI
stickers. I.G. Ex 9.

Dr. Scott certified on September 18, 1981, that he provided
psychotherapy services to Rhoda Sachs on September 4 and

18, 1981; he certified on December 30, 1981, that he provided
psychotherapy services to Rhoda Sachs on October 9 and 30,
November 12 and 25, and December 7 and 21, 1981; he certified
on January 21, 1982, that he provided psychotherapy services
to Rhoda Sachs on January 5 and 20, 1982. I.G. Ex 1B.

Dr. Scott "knew or had reason to know" that he had not provided
psychotherapy services to Rhoda Sachs on September 4 and 18,
October 9 and 30, November 12 and 25, and December 7 and 21;
and January 5 and 20, 1982, as claimed. 1.G. Ex 1B, 2, 3.

Cecilia Najera did not have either an appointment or an office
visit with Dr. Scott December 24, 1981, as claimed. I.G. Ex
10A, 10B, 35.

Cecilia Najera had an office visit with Dr. Scott on
December 8, 1981, and purchased vitamins from him on that
date. She paid for the office visit and the vitamins with
MEDI stickers. I.G. Ex 10A.
57.

58.

59.

60.

61.

62.

63.

64.

65.

66.

67.

68.

-13-

Cecilia Najera purchased vitamins from Dr. Scott's office
but did not have an office visit with him on December 17,
1981. She paid for the vitamins with MEDI stickers. I1.G,
Ex 10A, 10B, 35.

Dr. Scott certified on December 24, 1981, that he provided
psychotherapy services to Cecilia Najera on December 9 and
24, 1981. I.G. Ex 1B.

Dr. Scott “knew or had reason to know" that he had not provided
psychotherapy services to Cecilia Najera on December 24,
1981, as claimed. I.G. Ex 1B, 2, 3.

Michelle Najera did not have either an appointment or an
office visit with Dr. Scott on May 28, 1982, as claimed.
I.G. Ex 10A, 10B, 35, 36; TR IV/145.

Michelle Najera is Cecilia Najera's daughter. On June 1, 1982,
Cecilia Najera purchased vitamins from Dr. Scott and gave him
11 MEDI stickers toward the purchase of the vitamins. TR
IvV/145; I.G. Ex 1B, 10A.

Dr. Scott certified on June 3, 1982, that he provided psycho-
therapy services to Michelle Najera on May 28, 1982. I.G.
Ex 1B.

Dr. Scott "knew or had reason to know" that he had not
provided psychotherapy services to Michelle Najera on May
28, 1982, as claimed. I.G. Ex 1B, 2, 3.

Nikki Najera was never a client of Dr. Scott and did not
have an appointment with him on May 28, 1982, as claimed.
I.G. Ex 10A, 10B, 35, 36; TR IV/145.

Nikki Najera is Cecilia Najera's daughter. I.G. Ex 10A;

TR IV/145. On June 1, 1982, Cecilia Najera purchased
vitamins from Dr. Scott and gave him 11 MEDI stickers toward
the purchase of the vitamins.

Dr. Scott certified on June 3, 1982, that he provided
psychotherapy services to Nikki Najera on May 28, 1982.
I.G. Ex 18.

Dr. Scott “knew or had reason to know" that he had not
provided psychotherapy services to Nikki Najera on May
28, 1982, as claimed. I.G. Ex 1B, 2, 3.

Julienne Malecot did not have either an appointment or an
office visit with Dr. Scott on May 27, 1982, as claimed. I.G.
Ex 17A, 17B, 35, 36.
69,

70.

71.

72.

73.

74.

75.

76.

77.

78.

79,

- 14 -

Julienne Malecot is the daughter of Madeline Gunter and the
granddaughter of Rhoda Sachs. Madeline Gunter gave Dr. Scott
MEDI stickers assigned to Julienne Malecot in exchange for
vitamins. TR V/6-7; I.G. Ex 17A.

Dr. Scott certified on May 27, 1982, that he provided psychotherapy

services to Julienne Malecot on May 27, 1982.

Dr. Scott "knew or had reason to know" that he haa not provided
psychotherapy services to Julienne Malecot on 27, 1982, as
claimed. 1.G. Ex 1B, 2, 3.

Deborah Webb did not have either an appointment or an office
visit with Dr. Scott and did not have an office visit with
him on December 28, 1981, as claimed. 1.G. Ex 11, 35, 36.

Dr. Scott's office received ten (10) MEDI stickers from
Deborah Webb on January 26, 1982. These stickers and others
from her child, Owyhee, were used to retire a debit balance
resulting from the purchase of vitamins and a personal loan
from Dr. Scott. I.G. Ex ll.

Dr. Scott certified on January 28, 1982, that he provided
psychotherapy services to Deborah Webb on December 28, 1981.
I.G. Ex 1B.

Dr. Scott “knew or had reason" to know that he had not provided
psychotherapy services to Deborah Webb on December 28, 1981,
as claimed. I.G. Ex 1B, 2, 3.

Rue Burlingham did not have either an appointment or an office
visit with Dr. Scott on December 29, 1981, as claimed. I.G. Ex
12, 35, 36.

Rue_Burlingham had an office visit with Dr. Scott on January
8, 1982, at which time she gave him her two MEDI stickers for
December 1981. Ms. Burlingham had an office visit with

Dr. Scott on January 11, 1982, at which time she gave him
her two MEDI stickers for January 1982. She paid for
vitamins she purchased from Dr. Scott on January 11 with the
MEDI stickers. I.G. Ex 12.

Dr. Scott certified on January 14, 1982 that he provided

psychotherapy services to Rue Burlingham on December 29,
1981. 1I.G. Ex 1B.

Dr. Scott "knew or had reason to know" that he had not provided
psychotherapy services to Rue Burlingham on December 29,
1981, as claimed. I.G. Ex 1B, 2, 3.
80.

81.

82.

83.

84,

85.

86.

87.

88.

89,

- 15+

Barbara Stotts did not have either an appointment or an office
visit with Dr. Scott December 30, 1981, as claimed. I.G.
Ex 13A, 13B, 35, 36.

Barbara Stotts is the mother of Hadley Stotts. I.G. Ex 1B,
13A; TR IV/156~-158.

Barbara Stotts purchased vitamins from Dr. Scott's office
on December 24, 1981, but did not have an appointment or an
office visit with him on that date. She gave Dr. Scott 14
MEDI stickers, including two of Hadley's, and purchased
vitamins from Dr. Scott with the stickers. I.G. Ex 13A,
35, 36; TR IV/156-158.

Dr. Scott certified on December 30, 1981, that he provided
psychotherapy services to Barbara Stotts on December 30,
1981. I.G. Ex 1B.

Dr. Scott "knew or had reason to know" that he had not provided
psychotherapy services to Barbara Stotts on December 30,
1981, as claimed. I.G. Ex 1B, 2, 3.

Hadley Stotts was never a client of Dr. Scott and did not
have an appointment with him on May 27, 1982; as claimed.
I.G. Ex 13A, 13B, 35, 36,

Dr. Scott certified on June 3, 1982, that he provided
psychotherapy services to Hadley Stotts on May 27, 1982,
I.G. Ex 1B.

Dr. Scott "knew or had reason to know" that he had not provided
psychotherapy services to Hadley Stotts on May 27, 1982, as
claimed. 1I.G. Ex 1B, 2, 3.

Sharone Negev did not have either an appointment or an
office visit with Dr. Scott December 30, 1981, as claimed.
I.G. Ex 14A, 14B, 35, 36.

Sharone Negev had office visits with Dr. Scott on December
16, 1981, and January 20 and February 16, 1982. On January
20, she gave Dr. Scott three MEDI stickers (one from December
and two from January); on February 16, she gave him two MEDI
stickers (from February). She paid for the office visits

and purchased vitamins with the MEDI stickers. I.G. Ex 14A,
14B.
90.

91.

92.

93.

94,

95.

96.

97.

98.

99,

- 16-

Dr. Scott certified on January 20, 1982, that he provided
psychotherapy services to Sharone Negev on December 30,
1981. 1.G. Ex 1B.

Dr. Scott "knew or had reason to know" that he had not provided
psychotherapy services to Sharone Negev on December 30, 1981,
as claimed. I.G. Ex 1B, 2, 3.

Daryl Goldman did not have either an appointment or an
office visit with Dr. Scott on December 31, 1981, as claimed.
1.G. Ex 15, 35, 36.

Dr. Scott's office received six MEDI stickers from Daryl

Goldman on January 19, 1982 -- two from November, two from

December, and two from January. I.G. Ex 15.

Dr. Scott certified on January 21, 1982, that he had provided
psychotherapy services to Daryl Goldman on December 31,
1981, I.G. Ex 1B.

Dr. Scott "knew or had reason to know" that he had not provided
psychotherapy services to Daryl Goldman on December 31,
1981, as claimed. I.G. Ex 1B, 2, 3.

Christina Cannon did not have either an appointment or an
office visit with Dr. Scott and did not have an office visit
with him on December 31, 1981, as claimed. I.G. Ex 16, 35,
36.

Dr. Scott's office sold Christina Cannon vitamins on December
9, 1981, charging her $30.74 plus $2.30 postage. Dr. Scott's
office received two (December) MEDI stickers enclosed in a
letter from Christina Cannon on January 9, 1982; in that letter
she also ordered more vitamins. Dr. Scott's office charged

her $45.58 plus $1.41 postage for these vitamins; she paid

with MEDI stickers. I1.G. Ex 16.

Dr. Scott certified on January 21, 1982, that he provided
psychotherapy services to Christina Cannon on December 31,
1981. 1.G. Ex 1B.

Dr. Scott "knew or had reason to know" that he had not provided
psychotherapy services to Christina Cannon on December 31,
1981, as claimed. I.G. Ex IB, 2, 3.
100.

101.

102.

103,

104,

105,

106,

107.

108,

109,

110.

lll.

-17-

Sidney Tanaban did not have either an appointment or an
office visit with Dr. Scott on May 26, 1982, as claimed.
I.G. Ex 18A, 18B, 35, 36.

Sidney Tanaban had an office visit and purchased vitamins
from Dr. Scott on May 11, 1982. Mr. Tanaban paid for the
offic visit and the vitamins with MEDI stickers. I.G. Ex
18a.

Dr. Scott certified on May 27, 1982, that he provided

psychotherapy services to Sidney Tanaban on May 5 and 26,
1982, I.G. Ex 1B.

Dr. Scott “knew or had reason to know" that he had not provided
psychotherapy services to Sidney Tanaban on May 26, 1982,

as claimed; Dr. Scott was reimbursed by Medi-Cal for these
claimed services. 1I.G. Ex 1B, 2, 3.

Akune Tanaban was never a client of Dr. Scott and did not
have an appointment with him on May 24, 1982, as claimed,
I.G. Ex 18A, 18B, 35, 36.

Sidney Tanaban is Akune Tanaban's father. I.G. Ex 18A, 1B;
TR IV/157-158.

Dr. Scott certified on May 27, 1982, that he provided
psychotherapy services to Akune Tanaban on May 24, 1982,
I.G. Ex 1B.

Dr. Scott "knew or had reason to know” that he had not provided
psychotherapy services to Akune Tanaban on May 24, 1982, as
claimed. I.G. Ex 1B, 2, 3.

Reginald Tanaban was never a client of Dr. Scott and did not
have an appointment with him on May 24, 1982, as claimed.
I.G. Ex 18A, 18B, 35, 36.

Sidney Tanaban is Reginald Tanaban's father. I1.G. Ex 18A, 1B;
TR IV/157-158,

Dr. Scott certified on May 27, 1982, that he provided

psychotherapy services to Reginald Tanaban on May 24, 1982.
I.G. Ex 1B.

Dr. Scott "knew or had reason to know" that he had not provided
psychotherapy services to Reginald Tanaban on May 24 1982,
as claimed. I.G. Ex 1B, 2, 3.°
112.

113.

114.

115.

116.

117.

118.

119.

120.

121.

- 18 -

Esther Campos did not have either an appointment or an
office visit with Dr. Scott on May 26, 1982, as claimed.
I.G. Ex 19A, 19B, 35, 36; TR VII/121-134, 141-146.

Esther Campos purchased vitamins from Dr. Scott but did not
have an office visit with him on May 6, 18, and 27, 1982.
She gave Dr. Scott two (May) MEDI stickers on May 18, 1982,
and he gave her a $40.00 credit toward the purchase of the
vitamins. I.G. Ex 19A.

Dr. Scott certified on May 27, 1982, that he provided
psychotherapy services to Esthér Campos on May 26, 1982.
I.G. Ex 1B.

Dr. Scott "knew or had reason to know" that he had not provided
psychotherapy services to Esther Campos on May 26, 1982, as
claimed I.G. Ex 1B, 2, 3.

Joti Frank did not have an appointment with Dr. Scott and
did not have an office visit with him on May 26, 1982, as
claimed. I.G. Ex 20A, 20B, 35, 36.

Joti Frank purchased vitamins from Dr. Scott but did not
have an office visit with him on May 13, 1982. At that
time she gave him two (May) MEDI stickers and gave her a
credit of $40.00 toward the purchase of the vitamins. I.G.
Ex 20A,

Dr. Scott certified on May 27, 1982, that he provided
psychotherapy services to Joti Frank on May 26, 1982. I.G.
Ex 1B. as

Dr. Scott “knew or had reason to know" that he had not provided
psychotherapy services to Joti Frank on May 26, 1982, as
claimed. I.G. Ex 1B, 2, 3.

Roberta Nasser did not have either an appointment or an
office visit with Dr. Scott on May 27, 1982, as claimed.
I.G. Ex 21, 35, 36.

Roberta Nasser had an office visit and purchased vitamins

from Dr. Scott on May 6, 1982. Ms. Nasser gave Dr. Scott

two (May) MEDI stickers. Dr. Scott credited her approximately
$40.00 for the two MEDI stickers toward the purchase of the
vitamins. I.G. Ex 21.
122.

123.

124.

125.

126.

127.

128.

129.

130.

- 19 -

Dr. Scott certified on May 27, 1982, that he provided
psychotherapy services to Roberta Nasser on May 13 and
27, 1982. 1.G. Ex 1B.

Dr. Scott "knew or had reason to know" that he had not provided
psychotherapy services to Roberta Nasser on May 27, 1982,
as claimed. 1.G. Ex 1B, 2, 3.

Patricia Pennington did not have either an appointment or
an office visit with Dr. Scott_on May 28, 1982, as claimed.
I.G. Ex 22, 35, 36.

Dr. Scott's office received two (May) MEDI stickers from
Patricia Pennington on June 1, 1982. On that date the
debit balance in her account with Dr. Scott was reduced by
$40.00. I.G. Ex 22. :

Dr. Scott certified on June 3, 1982, that he provided
psychotherapy services to Patricia Pennington on May 28,
1982. I.G. Ex 1B.

Dr. Scott "knew or had reason to know" that he had not provided
psychotherapy services to Patricia Pennington on May 28,

1982, as claimed; he was reimbursed by Medi-Cal for

these claimed services. I.G. Ex 1B, 2, 3.

Luigi Barzini (an alias used by Bureau of Medi-Cal Fraud
investigator Mario Piazza) did not have either an appointment
or an office visit with Dr. Scott on December 11 and 22,
1981; and January 13 and 28, 1982, as claimed. I.G. Ex 8A,
8B, 35, 36; TR I1I/33.

Luigi Barzini's office visit with Dr. Scott on February 17,
1982, lasted only one-half hour and not one hour, as claimed.
At the time of the visit Mr. Barzini obtained an order of
vitamins. Mr. Barzini gave Dr. Scott a MEDI sticker to pay
for the visit and part of the vitamin purchase. 1.G. Ex

8A, TR III/338.

Dr. Scott certified on December 23, 1981 that he provided
psychotherapy services to Luigi Barzini on December 11 and
22, 1981; Dr. Scott certified on January 28, 1982, that he
provided psychotherapy services to Luigi Barzini on January
13 and 28, 1982; Dr. Scott certified on February 18, 1982,
that he provided psychotherapy services to Luigi Barzini on
February 2 and 17, 1982. I.G.’Ex 1B.
137.

138.

139.

140,

141.

-21-

At the office visit on January 28, 1982, Dr. Scott instructed
Danny Brock to lie face up on a table and hold his arms
outward at an angle. Dr. Scott then applied pressure to

Mr. Brock's arms and legs in order to ascertain by the amount
of resistance whether the energy flow was good or bad. Dr.
Scott then told Mr. Brock to close his eyes (which he did
only partially) while Dr. Scott put a finger near the top

of Mr. Brock's head, and then Dr. Scott put his fingers on
the sides of Mr. Brock's head. Each time, Dr. Scott stared
into space for about a minute. Dr. Scott then repeated the
arm and leg resistance tests described above. Dr. Scott

told Mr. Brock that Dr. Scott had increased the energy flow
in Mr. Brock's body and that Mr. Brock was a lot stronger.
Dr. Scott also tested Mr. Brock for food allergies by
Placing food samples on Mr. Brock's stomach while Mr.

Brock lay on his back and raised his arms and legs. Pr.
Scott would, meanwhile, push down on the raised arm or leg
and by the amount of resistance determine whether the food
was good or bad for Mr. Brock. TR VI/134-138, 142.

The I.G. did not prove by a preponderance of the evidence
that Dr. Scott "knew or had reason to know" that the services
he provided to Danny Brock on January 28, 1982, were not
“psychotherapy” services, as claimed. TR VI/121-122; FFCL
140-142, infra.

Dr. Scott knew or had reason to know that he had not provided
psychotherapy services to Danny Brock on December 2 and 30,
1981, January 14 and February 4 and 18, 1982, as claimed.
I.G. Ex 1B, 2, 3.

The I.G. advanced a definition of “psychotherapy” as practiced
in California to mean the use of psychological methods to
assist a person to acquire greater human effectiveness or to
modify feelings, conditions, attitudes and behavior which

are emotionally, intellectually, or socially ineffectual or
maladjustive. I.G. Br/32.

Jack Blumenkrantz, Ph.D, a psychologist whom the I.G. called
to testify as an expert witness, said that in his opinion the
services rendered by Dr. Scott to Mr. Piazza and Mr.

Beall were not psychotherapy because psychologists do not

use kinesiology (laying on of hands), nutritional counseling
(including the application of vitamins), or the treatment

of allergies as techniques. Later, during cross-examination,
Dr. Blumenkrantz admitted that some respected psychologists
disagreed with his views on the use of nutritional counseling.
He also admitted that a psychologist takes into account all
131.

133.

134.

135.

136.

- 20 -

Luigi Barzini had an office visit with Dr. Scott on February
2, 1982. Dr. Scott massaged Mr. Barzini's chest, back,
thighs and legs, put objects (such as cigarettes, vodka,

and coffee beans) on Mr. Barzini's chest (while Mr. Barzini
was lying down) and had Mr. Barzini raise his arm while

Dr. Scott pushed on it (a technique Dr. Scott called
orthokinesiology), and also checked Mr. Barzini's
coordination while he and Mr. Barzini jogged in place.

TR III/314-316, 332-333, 335.

The I.G. did not prove by a preponderance of the evidence
that Dr. Scott "knew or had reason to know" that the
services he provided to Luigi Barzini on Febuary 2, 1982,
were not psychotherapy services, aS claimed. TR IV/121-122;
FFCL 136-138, infra.

Dr. Scott "knew or had reason to know" that he had not
provided psychotherapy services to Luigi Barzini on December
11 and 22, 1981; January 13 and 28 and February 17, 1982,

as claimed. I1.G. Ex 1B, 2,3.

Danny Brock (an alias used by Bureau of Medi~Cal investigator
Dan Beall) did not have either an appointment or an office
visit with Dr. Scott on December 2 and 30, 1981, January

14, and February 4 and 18, 1982, as claimed. 1I.G Ex 7A,

7B, 35, 36.

Dr. Scott certified on December 30, 1981 that he provided
psychotherapy services to Danny Brock on December 2 and 30,
1981; Dr. Scott certified on February 5, 1982, that he
provided psychotherapy services to Danny Brock on January
14 and 28, 1982; Dr. Scott certified on February 25, 1982,
that he provided psychotherapy services to Danny Brock on
February 4 and 18, 1982.

Danny Brock had an office visit with Dr. Scott on January

28, 1982. Mr. Brock paid for his visit with a MEDI sticker
and offered to pay cash for certain vitamins he purchased

from Dr. Scott. Instead, Dr. Scott took a second MEDI sticker
from Mr. Brock in payment for the vitamins. Mr. Brock did

not see Dr. Scott again, but ordered more vitamins by letter
from Mr. Brock's purported new address 13/ in Oregon, offering
two MEDI stickers in payment. Dr. Scott filled the order on
February 23, 1982, crediting Mr. Brock $40 for the two MEDI
stickers toward the purchase of the vitamins. I.G. Ex 7A, 42;
TR VI/141-146.

137 Dan Beall, AKA Danny Brock, used the Oregon address as an

Investigative tool.
142.

143.

144,

145.

146.

- 22 +

sorts of things, including allergies, although he does not
diagnose and treat allergies. Dr. Blumenkrantz concluded
that psychology has accepted stress reaction, nutrition,
biofeedback, relaxation, and even massage as techniques,
but if he were to use them he would first have to take
additional courses of study. TR VI/18-20,. 116-118, 121.

Dr. Scott did not testify, but told State investigators

that he does not like to call what he does "psychotherapy.

He admitted that he did not talk with patients about their
childhood, but refers them elsewhere for that more traditional
kind of psychotherapy. He uses natural healing and described
his techniques as psychotherapeutic tools. He asks clients
what has been happening in their lives to help them relax.

He treats emotional stress, which might cause symptoms of
physical ailments. He helps clients rebalance their bodies
by correcting that which upsets the balance. For example,
his treatment of Luigi Barzini, who complained of back

pain, consisted of getting Mr. Barzini to relax through
applied kinesiology, (pressure to certain parts of the

body) and the use of vitamins (to reduce muscle spasms).

He said that he discussed food with Mr. Barzini because

food is needed to function and food affects the emotions

and the mind as well as the body. TR VI/130-132, 137, 161;
I.G. Ex 40, 44, 45.

Dr. Scott's office took MEDI stickers from Natalie Harary,
Lynn Keylor, Anne Peneff, Barbara Plourd, Lisa Short-
Ibrahaim, Curtis Smith, Sharon Sooter, and Genevra Warden

on occasions when they did not have "psychotherapy" sessions
with him. Dr. Scott's office used the stickers as credits
against amounts owed by these people toward the purchase of
vitamins. I.G. Ex 23, 24, 26-31.

Dr. Scott's office took MEDI stickers from Ophelia Simon and
credited her bill for vitamin purchases with a dollar value
for the stickers. Some of these stickers were for other
Medi-Cal beneficiaries, including James Murphy and Donald
Wilkins. I.G. Ex 6D; TR IV/130-139.

Dr. Scott's office took MEDI stickers from Lyland Mills and
credited his bill for vitamin purchases with a dollar value
for the stickers. Some of these stickers were for Evelynne
Mills, Lyland's wife. TR IV/80-81; I.G. Ex 6A.

Dr. Scott sent letters to Medi-Cal justifying reimbursement
for one-and-one-half hours of psychotherapy sessions which
he claimed he provided to James Murphy on August 26, 1981;
Clubert Kregal on November 16, 1981; and Barbara Stotts on
December 30, 1981. None of these people had office visits
or appointments with him on those dates. I.G. Ex 1B/9A,
6A, 31A; I.G. Ex 6C, 13BA, 13B.
147.

148,

149.

150.

151.

152.

- 23 -

The Respondent did not prove by a preponderance of the evidence
that the “psychotherapy" services which Dr. Scott claimed he
provided to Joti Frank on May 26, 1982 were performed on
another date. R Br Sept. 19, 1986, p. 5. Joti Frank's last
previous office visit was on March 3, 1982. In May, 1982,

her MEDI stickers were used to purchase vitamins. I.G. Ex 20A.

The Respondent did not prove by a preponderance: of the evidence
that the “psychotherapy” services which Dr. Scott claimed he
provided to Patricia Pennington on May 28, 1982, were performed
on another date. R Br Sept. 19, 1986, p. 5. Patricia
Pennington's last previous office visit was in September 1981.
Her May 1982 MEDI stickers weré used to reduce a debit balance
in her account with Dr. Scott, resulting from purchases of
vitamins. I.G. Ex 22.

The Respondent did not prove by a preponderance of the evidence
that the “psychotherapy” services which Dr. Scott claimed he
provided to Akune Tanaban on May 24, 1982 were performed on
another date. R Br. Sept. 19, 1986, p. 5. Akune Tanaban

was never a client of Dr. Scott's. Akune's father, Sidney
Tanaban, gave Akune's MEDI stickers to Dr. Scott in exchange
for vitamins. I.G. Ex 18A.

The Respondent did not prove by a preponderance of the evidence
that the “psychotherapy” services which Dr. Scott claimed he
provided to Esther Campos on May 26, 1982 were performed on
another date. R Br Sept. 19, 1986, p. 5. Esther Campos'

last previous office visit for a full hour was in January,
1982. In May, 1982, her MEDI stickers were used to purchase
vitamins from Dr. Scott. I1.G. Ex 19A.

The Respondent did not prove by a preponderance of the evidence
that the "psychotherapy" services which Dr.. Scott claimed he
provided to Roberta Nasser on May 27, 1982 were performed on
another date. R Br Sept. 19, 1986, p. 5. Robert Nasser's

last previous office visit was on May 6, 1982. On May 27,
1982, Dr. Scott certified that he provided psychotherapy to
Roberta Nasser on May 13 and 27, 1982. Dr. Scott was re-
imbursed for both of those claims. I.G. Ex 1 B, 21.

The Respondent did not prove by a preponderance of the evidence
that he would be unable, because of his financial condition,

to pay the penalties and assessments imposed on him in this
Decision and Order. R Ex G; TR VIII/6-55.
153.

154.

155.

156.

157.

158.

= 24 -

The Respondent did not prove by a preponderance of the evidence
that letters from clients indicating their satisfaction

with Pr. Scott's services should be a mitigating factor.

R Ex F.

It is a mitigating circumstance that Sharone Negev had an
office visit with Dr. Scott on December 16, 1981. I.G. Ex
14A, 14B; FFCL 88-91, supra.

Each of the 71 items or services proved false by the 1.G.
are subject to a determination under Section 1003.102 of the
Regulations.

The maximum civil money penalties that could be imposed in
this case is $142,000 ($2000 x 71 items or services). The
Inspector General proposed penalties of $80,000 for 73
allegedly false items or services. Subtracting the two
items or services not proved false and considering the
aggravating and mitigating factors, I would impose
penalties of $76,700.

The maximum assessment that could be imposed in this case

is $8,820 (double the amount falsely claimed). The Inspector
General proposed an assessment of $4,000 (45 percent of
$8,940, which is double the $4,470 claimed for 73 items or
services). Subtracting the claims for the two items or
services not proved false and considering the aggravating

and mitigating factors, I would impose assessments of

$3800, using the 45 percent factor.

The penalties and assessment in FFCL 156 and 157 total $80,500.
The I.G. agreed to offset this amount by $4,500, the amount of
restitution paid by Respondent to the State Medi-Cal

program. TR III/365. The remaining penalties and assessments

total $76,000.
- 25 -
DISCUSSION

Simply stated, the two central substantive issues to be decided

in this case are (1) whether the I.G. proved liability by a
preponderance of the evidence and, if so, (2) whether the amount

of the penalties and assessments proposed .by the I.G. is appropriate
(taking into account any aggravating or mitigating circumstances).

I. The 1.G.'s Burden of Proof in This Case Is To Prove Liability
By a Preponderance of the Evidence

The Respondent argues that this is a quasi-criminal proceeding and,
as such, the burden of proof in this case should be “beyond a
reasonable doubt" or "by clear and convincing evidence." I ruled

on November 22, 1985 that this is not a "quasi-criminal" proceeding.
Even if it were, section 1003.114(a) of the Regulations provides:

(a) To the extent that a proposed penalty and
assessment is based on claims and/or requests for
payment presented on or after August 13, 1981, the
Inspector General must prove by a preponderance of

the evidence that the respondent presented or cause

to be presented such claims and/or requests for
payment as described in §1003.102. [emphasis supplied]

Thus, since all the claims and the 73 services in issue were presented
after August 13,.1981, and section 1003.115 of the Regulations states
that the ALJ has no “authority to decide upon the validity of federal
statutes or regulations," the I.G.'s burden in this case is to prove
the elements of liability by a preponderance of the evidence.

II. Interpretation of the Elements of Liability in the CMPL and
Regulations

A. Generally

As stated earlier, the elements of liability are clearly set forth
in the CMPL and Regulations and I have separated these requisite
elements into seven parts solely for ease of discussion. 13/

Thus, for liability to be established in this case, the I.G. must
have proven by a preponderance of the evidence that: (1) the
Respondent (a “person") (2) “presented or caused to be presented"
(3) the Medicaid "claims" in issue (4) to the Medi-Cal program
("agency") (5) for medical ("psychotherapy") 14/ "items or services"
(alleged to be provided to Medi-Cal beneficiaries) when, in fact,

137 The earlier discussion entitled "The Governing Law and Regulations"
is incorporated herein by reference.

14/ The issue of what constitutes "psychotherapy" services under
California (MEDI-Cal) law is discussed later.
- 26 -

(6) reimbursable psychotherapy services were "not provided as
claimed" and (7) the Respondent “knew or had reason to know".
For liability to be established, the I.G. must have proven each
one of the individual elements of liability for each one of the
73 medical services in issue. All of the words and phrases in
each of the elements of liability are straightforward, need
little interpretation, and were not disputed by the parties
(except for the last one, i.e., whether the Respondent “knew or
had reason to know"). 15/

B. Defining Culpability or thi leaning of the Phrase

Knew _or Had Reason to Kno

In the CMPL and Regulations, the most difficult element of liability
to interpret or apply is the culpability standard, calling for a
medical provider to "know" or have “reason to know" that the

claims he presented were not provided as claimed. 16/

In arguing about the degree of culpability needed to be proven by
the I.G. in this case, the Respondent, citing United States v.
Mead, 426 F. 2d 118 (9th Cir. 1970), asserts that the Ninth
Circuit requires the I.G. to prove “intent to defraud". The Mead
case has no application here because it applies to the federal
False Claims Act and not the CMPL and Regulations. The Respondent
argues that Mead requires me to ignore the culpability standard
set forth in the CMPL and Regulations or argues that the standard
“knew" or had “reason to know" to require proof of “intent to
defraud." See R Br/27; R Rep Br 9. In other words, the Respondent
proposes a higher degree or culpabality than that set forth in the
CMPL and Regulations; “intent to defraud" goes beyond knowledge.
The Respondent's arguments are not persuasive. The CMPL and
Regulations do not require the I.G. to prove “intent to defraud."
Proof of knowledge or proof that the Respondent had "reason to
know" are all that the CMPL and Regulations require for liability
to attach. Regultions §1003.102(a)(1); CMPL §1320a-7a(1)(A). 17/
I am guided by the preamble to the Regulations which sheds some
light on the interpretation of the phrase “knows or had reason

to know," by declaring: “The statute sweeps within its ambit not
only the knowing, but the negligent. . .." 48 Fed. Reg. 38827,
38831 (Aug. 26, 1983). From this, I conclude that the phrase
“knows or has reason to know" encompasses a spectrum where liability
attaches on one end of the spectrum where a respondent files false
claims with knowledge that they are false and on the other

157 The Respondent argues, however, that the proof is insufficient
to establish these elements of liability. R Br/14 to 17, 22 to

31. These arguments concerning the sufficiency of the evidence

are addressed in the remaining sections of this Discussion.

16/ The CMPL and Regulations contain slightly different language
with identical meaning. The CMPL states the standard as "that
the person knows or has reason to know." §1320a-7a(1)(A) The
Regulations states the standard as "the person knew or had reason
to know". §1003.102(a)(1).

17/ It should be noted that proof of actual knowledge may also
Be considered to be an aggravating factor. Regulations §101.106(b)(2).
- 27 -
end of the spectrum where a respondent files false claims in a
negligent manner.

The Respondent argues that there is no "spectrum" in that the

phrase requires proof of “intent to defraud.” The I.G. argues

that proof of simple negligence is sufficient (but adds no explanation)
The CMPL and Regulations do not state the.degree of negligence
necessary for liability to attach (e.g., gross or simple negligence)
and do not actually define the phrase “knew or had reason to know."
Thus, it is appropriate to interpret the breadth of the phrase

so as to determine its limits.

(1) The Meaning of the Term “Knew (or "Knows")

It seems obvious that Congress in using the term "knows" and

likewise the drafters of the Regulations in using the term "knew"
were applying the plain meaning of the term. I thus conclude

that the term "knew" (or knows) refers to conscious knowledge

of a fact (or subjective knowledge). Accordingly, on one end of

the spectrum we have the requirement that the I.G. prove conscious
knowledge of the fact that a service was not provided as claimed. 18/

(2) The Meaning of the Term “Reason to Know"

In analyzing the term “reason to know", the Second Restatment of
Torts (at §12) states:

“Reason to know" means that the actor has knowledge of
facts from which a reasonable man of ordinary intelligence
or one of the superior intelligence of the actor would
either infer the existence of the fact in question or
would regard its existence as so highly probable that

his conduct would be predicated upon the assumption

that the fact did exist.

Thus, "reason to know" employs the reasonable man’ (objective
knowledge) concept.

In discussing the objective knowledge concept, Dean Prosser,

in Keeton and Prosser on Torts, states that one of the most
difficult questions (in connection with negligence) "is that of
what the actor may be required to know." The Second Restatement
of Torts defines knowledge as the belief in the existence of a
fact, which coincides with the truth." Second Restatement of Torts,
§290, Comment b. Dean Prosser states that so far as objective
knowledge goes, "it seems clear that the actor must give to his
surroundings the attention which a standard reasonable man would
consider necessary under the circumstances and that he must use
such senses as he has to discover what is readily apparent.”

187 For a discussion of subjective knowledge and objective knowledge,
see Seavy, “Negligence-Subjective or Objective," 41 Harv. L. Rev.
1, 17: see, also, Second Restatement of Torts §§289, 290.
- 28 -

In Ackerman v. Gulf Oil Corp., 555 F. Supp 93 (1982), the term
“reason to know" was analyzed. The court cited the Restatement
of Torts and stated that:

"Reason to know" indicates or denotes that the actor has,
within his knowledge, facts from which a reasonable person
of ordinary prudence and intelligence might infer the
existence of a certain fact in question. Alternatively,
the actor would regard the existence of the particular
fact in quesion as so legally probable that he would base
his conduct upon the assumption that the fact existed.

The court then concluded:

Mrs. Filder was in possession of information from which a
reasonable person would have inferred the fact of causation.
Accordingly, her conduct should have been governed by the
assumption that such fact of causation existed. Therefore,
she had reason to know the cause of her physical damage, and
cannot be excused for her failure to file suit in a timely
fashion.

(3) A Respondent as a Reasonable Medical Provider

The foregoing discussions concerning objective and subjective
knowledge have direct applicibility here. Thus, a respondent
is liable for false claims of which he had subjective or
objective knowledge (within the meaning of the discussions),
including those claims prepared by his agents or employees.

Moreover, a Respondent, who is a reasonable medical provider
submitting claims and exercising ordinary care, at the very
least would have made himself familiar with the the rules

and regulations for presenting Medi-Cal claims. He would have
determined whether the claims he submitted to Medi-Cal were for
reimbursable services and whether the services claimed were
actually provided. He would have checked the claims presented
against his own ledger cards to ensure that the services for
which he billed Medi-Cal were actually provided on those dates.
Ignorance is no defense; a respondent becomes liable for remaining
ignorant, especially, as here, when he, as a reasonable medical
provider, has an obligation to conduct an intelligent inquiry
concerning his submission of Medicaid claims. 19/

In addition, the Respondent in this case is liable under the CMPL
and Regulations for the acts of his employee, Gail Hartman,
because she (1) had authority to file Medicaid claims and (2) was

197 See discussion in "Keeton and Prosser" on knowledge and care

required of professionals such as psychologists (at pp. 185 to 193).
- 29 -

presenting those claims according to the specific instructions of
the Respondent. He clearly knew what she was doing (subjective
knowledge) because he told her what to do. Even if he did not
know what she was doing he had reason to know (objective knowledge)
since he signed the forms after she prepared them. I1.G. Ex 46/5;
TR III/311; TR IV/129. 20/ Thus, the Respondent had a duty to
ensure that those claims being presented by Gail Hartman were for
services provided as claimed because he caused the claims in

issue to be presented.

C. Summary of the Proof viz-a-viz the Elements of
Liability .

With regard to all the elements of liability, I find that the
I.G. has proven well beyond a preponderance of the evidence that:

(1) The Respondent was the acting party and there can
be no doubt that the Respondent is a "person" within the
meaning of the CMPL and Regulations. I.G. Ex 1A, 1B,
45/5, 46/6, 16, 18. The Respondent also signed the
claims in issue. I.G. Ex 45/5, 46/10.

(2) The Respondent “presented or caused to be presented"
the forty-six (46) claims at issue in this case for seventy-
three (73) services. I.G. Ex 1A, 1B, 2, 45, 46.

(3) The forty-six (46) claims in issue for seventy-three
(73) services are Medicaid “claims”.

(4) The seventy-three (73) services in issue are a “medical
or other item or service" that the Respondent claimed in each
and every case to have provided to medi-Cal beneficiaries for
either one (1) hour or one and one-half (1 1/2) hours of
psychotherapy. I.G. Ex 1, 88/A-26; see also, CMPL §1320a~
Ta(h)(3).

(5) the claims in issue were received by CSC, the fiscal
intermediary of the Medi-Cal program ("agency"). I.G. Ex
1B. (The Respondent was also paid by CAC. I.G. Ex 2.)

(6) Except in two instances, reimbursable psychotherapy
services were "not provided as claimed."

(7) And, except in two instances, the Respondent "knew or
had reason to know" the above. In fact, the Respondent had
actual (subjective) knowledge in almost all the instances at
issue.

The proof in the record supporting these findings is discussed next.

20, See, Panama R. Co. v. Bossee, 249 U.S. 41, (1919); 53
Am Jur 2d, Master Sf Servant §404; Forrester v. Southern Pac. Co.,

134 P. 753, 764, 36 Nev. 247 (1913); Curtis, Liability of Employers
for Punitive Damages Resulting From Acts of Employees, 54 Chi-
Kent L. Rev. 829-850 (1978). See also, Kellerman v. Askew, 541 F.

2d 1089 (5th Cir. 1976) King v. Horizon Corp., 701 F. 2d 1313
(10th Cir. 1983) (inadequate amount of supervision).
- 30 -

III. The Law concerning Requirements and Prodcedures for the
Submission and Processing of the Medicaid Claims in Issue

At all times relevant to this case, CSC issued instructions to
Medicaid providers, such as the Respondent, in the form of a
"Provider Manual“. The CSC Provider Manual in evidence (I.G.

Ex 38), which was taken from the Respondent's office, makes it
clear that (1) reimbursable psychology (including "psychotherapy" )
services are limited by California law to two per month for each
Medi-Cal beneficiary and (2) there must be a valid MEDI sticker
affixed to each claim for each psychotherapy service. CAC §§51502,
51304; TR II/247-250; I.G. Ex 5. The CSC Provider Manual sets
forth the law for the submission of Medi-Cal claims, including the
procedure codes for psychotherapy services. The procedure code
for one hour of psychotherapy is 2361; the code for one and one
half hour of psychotherapy is 2362. CAC §51503.3(g); I.G. Ex 38
at A-23. The Respondent was familiar with the procedure codes

and the law for billing the Medi-Cal program. I.G. Ex 45, 46; TR
III/317; TR IV/133. The CSC Provider Manual states that “direct
patient care" must be rendered in order for psychotherapy to be
reimbursable. I.G. Ex 38/A-24, to A-26; TR IV/66-67.

Under the Medi-Cal program, psychotherapy is a covered service
when provided by a licensed psychologist. CAC §§51309(a), 51232.
The Respondent was licensed in California as a psychologist during
the time in issue. TR IV/32; I.G. Ex 44/2. He had offices in
three locations: San Francisco, Larkspur, and Willits. I.G. Ex
45/2. Section 59999(a)(10) of title 22 of the California
Administrative Code expressly provides that the Medi-Cal program
does not pay a psychologist for viatamins or vitamin or nutritional
supplements. A psychologist is not licensed to prescribe drugs.
TR VI/31; Cal. Bus. & Prof. Code §2904. The Respondent was not
licensed as a physician. TR IV/33.

Medi-Cal beneficiaries are issued Medi-Cal cards for each month
with two types of stickers affixed to them: POE stickers, and
MEDI stickers. 21/ There are only two MEDI stickers on each
beneficiary's Medi-Cal card each month which can be used for
psychology services. TR II/260-61; TR IV/137-39 CAC §51304.

A claim for psychology services must have a MEDI sticker for that
beneficiary affixed to the claim form itself for each service
before the claim can be paid. TR II/261. All the claims in
issue filed by the Respondent for psychology services had to have
MEDI stickers on them and did, in fact, have MEDI stickers on
them. Id.; I.G. 1.

217 POE stickers are to be given to physicians and hospitals for
their services and are not relevant to this case.
- 31-

The originals of the Medi-Cal claims submitted by the Respondent
contain the following language on the back:

The services listed on this form have been
personally provided to the patient by the

provider. ... The provider understands that
payment of this claim will be from Federal and/or
State funds, and that any falsification, or
concealment of a material fact, may be procesecuted
under Federal and/or State laws.

CAC §51502(a). See 1.G. Ex 37/2.
The front of the form just above the signature line reads:

This is to certify that the information contained
above is true, accurate, and complete and that
the provider has read, understands, and agrees to
be bound by and comply with the statements and
conditions contained on the back of this form.

MEDI stickers are not to be treated as cash, or used as a credit

for providing non-covered services. CAC §51486(a); TR II/269;
III/300-02. It is not proper to use the MEDI stickers of persons
other than the patient receiving psychology services. CAC §51486(b);
TR II/265; IV/33, 35. In fact, the law (CAC §51486) expressly
provides:

{a) No provider shall remove more labels from a
Medi-Cal card than are necessary to submit a
claim for reimbursement for each service, drug,
or item provided.

(b) No provider shall remove any label from a
Medi-Cal card to bill for any service provided to
any person other than the beneficiary identified
on the card.

The only types of psychology services that are covered by the
Medi-Cal program include individual psychotherapy (one-half hour,
one hour, or one and one-half hours), group therapy, family therapy,
psychodiagnostic services and case conferences. Id. The procedure
codes for these services are set out in the Medi~Cal regulations

at CAC §51505.3(g). In order to be reimbursed for psychotherapy
services, the psychologist must spend a particular amount of time
with the patient, providing psychotherapy. TR IV/66~67; I.G. Ex
38/A-26.
-32-

IV. The Respondent's Records, His Medi-Cal Participation,
and His Abuse of MEDI Stickers

The Respondent saw both private clients and Medi-Cal clients as

a licensed psychologist during the time period in issue. For the
years 1980 to 1982, the Respondent was paid about $100,000 by the
Medi-Cal program. TR V/18, TR VII/49, 50; I.G. Ex 44:

A thorough study of the Respondent's records, combined with the
testimony of Mario Piazza, Dan Beall, and Esther Campos, prove
that the Respondent had knowledge of the fact that most of the
services in issue were not provided as claimed. I find that, in
the majority of cases, the Respondent either sold vitamins instead
of performing reimbursable "psychotherapy" services or the client
was not present in the Respondent's office on the claimed date of
service. There were many cases where the Respondent took the
MEDI sticker of a person (a friend or relative of one of his”
clients) and used that sticker to apply to the sale of vitamins
or to apply to the balance of one of his clients.

The Respondent kept meticulous records. It is these very records
that demonstrate the Respondent's scheme to submit false claims.

I note a very important distinction. I make no finding as to
whether the Respondent "knew or had reason to know" that he did
not provide therapeutic services to his clients. I make a
finding that the Respondent “knew or had reason to know" that he
did not provide reimbursable "psychotherapy" services as claimed.
This distinction is based on the fact that the Respondent knew
what Medi-Cal reimbursed and armed with that knowledge submitted
false claims. I find that the record is not so clear, however,
with regard to two instances where the I.G. acknowledges that the
Respondent actually performed services, but argues that those
services were not reimbursable "psychotherapy" services; The I.G.
did not prove its case on this issue by a preponderance of the
evidence (as will be discussed, infra). In summary, with regard
to the majority of the 73 services in issue, the Respondent
clearly had knowledge (or "reason to know") that the services
that he claimed payment for were not provided as claimed. With
regard to just two of the 73 services in issue, the record does
not justify a finding that when the Respondent actually performed
services, those services were not reimbursable “psychotherapy”
services.

There were two kinds of records kept in the Respondent's office.
There were (1) billing account records (containing (a) pink slips
or vouchers and (b) ledger cards), and (2) patient files (containing
(a) yellow receipts or vouchers and (b) patient notes). I.G. Ex 45
at 3, 6A-31. 1I.G. Ex 6A-31. Vouchers were written either for
patient visits, (I.G. Ex 8A/l) or for sales of vitamins (Id.

7/4). The pink copy of each receipt was kept in the billing

account record; the white copy was given to client; the yellow

copy was placed in the patient's file. TR III/317-319; VII/117;
- 33-

I.G. Ex 46/18, 39, 40. Entries were made on ledger cards that
corresponded to each transaction (either for office visits or for
sales of vitamins). These entries reflected the type of service,
the voucher number that had been issued to the client, the charge
for that service, the method of payment, and the running balance.
I.G. Ex 6D/2-6. There were two different types of services
reflected in the ledger cards: “Ov"s, (i.e., office visits, TR
Iv/39) and "Supp."s, (i.se., Sales of supplements or vitamins, Id.)
It is most important to note that these entries on the ledger
card, the entries on the vouchers (or receipts) in the billing
account record, and the vouchers in the patient files are all
consistent with each other. TR III/350-53; IV/44, 53-54, 69-71.

In the billing account records (both on the ledger cards and on some
of the receipts) of Medi-Cal beneficiaries, the Respondent treated
MEDI stickers as having a value of $20.00. During the revelant

time period, Gail Hartman was the Respondent's secretary and
receptionist and did the Respondent's Medi-Cal billing according

to his instructions. I1.G. Ex 45, 46. The Respondent and Gail
Hartman told clients that a sticker could be applied for up to
$20.00 worth of credit against vitamin purchases or for one

office visit. When the Bureau of Medi-Cal investigator pointed out
to Respondent that his office was being reimbursed $28.67 for these
MEDI stickers, Dr. Scott did not have a ready explanation for this
discrepancy. 1.G. Ex 45. Gail Hartman was familiar with the
procedure codes and the provider manual. TR II/268; TR II1/300;
I.G. Ex 44/1; TR VII/114, 116, 124, 126. MEDI stickers were
credited against the client's balance, which generally had accumulated
from the sale of vitamins. Id.

My review of the billing account records in evidence reveals

that the I.G. proved well beyond a preponderance of the evidence that
the Respondent treated MEDI stickers as being worth $20.00 worth
of credit. See I.G. Ex 6A/31. A particularly clear example is
I.G. Exhibit 6B, where the entry for December 2, 1981, at page 2,
reflects the receipt of two December MEDI stickers, which are
treated as $40.00 in credit against the patient's outstanding
balance. See also, entries for November 10, 1981; May 20,

1981, Similarly, the ledger card in I.G. Ex 16, expressly states
that two MEDIs were worth $40.00 in credit. See entry for June 8,
1982, Id./2.

The record proves that the Respondent actually told clients that
MEDI stickers could be used in payment for the vitamins he sold
(such as when he told this to Dan Beall when he was undercover and
known as Danny Brock - TR VI/142) (and when he told this to Mario
Piazza when he was undercover as Luigi Bargini - TR III/338). In
addition, for some of the Respondent's clients, MEDI stickers

were the only form of payment (see I.G. Ex 6B/2, 3, 1.G. Ex
6D/2-7; I.G. Ex 9/2). For others, payment was accepted in a
combination of MEDIs and cash. I.G. Ex 10A; I.G. Ex 13A.
- 34 -

As stated above, I find that the record demonstrates that the
Respondent kept careful records and that all the entries in the
patient files, the entries on the ledger cards, and the vouchers
are consistent with each other. In other words, the entries in
the patient files and the “OV" vouchers match the “OV" entries in
the ledger cards. The "supp." vouchers match “supp."-entries on
the ledger cards. See, TR III/350-353; IV/39, 44-45.

All of the patient files and billing account records put into
evidence in this proceeding were seized pursuant to a search
warrant of the Respondent's office executed by the California
Bureau of Medi-Cal Fraud. I1/201-209; TR III/345, 347-348. (See
I.G. Ex 5 - search warrant return.) The bulk of the Respondent's
records were kept at the Respondent's office in San Francisco, at
649 Irving Street. I.G. Ex 46 at 7, 19; I.G. Ex 45 at 2. 22/

There were some records that were not found in the search. With
respect to certain beneficiaries (in whose names claims at

issue in this proceeding were filed) no billing account records
or patient files or both were found in the search. These missing
files were sought in discovery by the I.G. on August 22, 1985.

By letter dated September 27, 1985, the Respondent's attorney,
Mr. Gould, indicated that the requested files were not in the
possession of the Respondent. Accordingly, I infer that those
files now in evidence reflect all of the files that the Respondent
had relating to the beneficiaries named in the claims in issue.
(The Respondent objects to the use of the Respondent's records in
this case. These objections are addressed in a later section in
this Discussion.) 23/

I find that the record establishes that the Respondent knew that

the Medi-Cal program did not pay for vitamins and that he told

Mr. Piazza so (in Piazza's undercover identity as Luigi Barzini).
“TR III/334. He also told this to Esther Campos, one of his

patients who testified at the hearing. TR VII/141, 144. I.G. Ex

45/21. Cf. id. at 30. The Respondent's secretary, Gail

Hartman, also knew that the Medi-Cal sticker was to be used

solely for psychotherapy services and not for the sale of vitamins

("supps"). I.G. Ex 46/12, 15, 18; TR III/311.

227 The Respondent and Gail Hartman also kept appointment books;
(I.G. Ex 35, 36, 46) TR II/235~240; TR IV/93 and all of the
appointment books found in the search were seized. TR II/240;
IV/87, 89.

23/ Pursuant to my Ruling dated November 22, 1985, the patient
files that were admitted into evidence, with the exception of the
ones for Mr. Barzini (I.G. Ex 8B) and Mr. Brock (1.G. Ex 7B),
were sanitized to indicate only the names of the clients and
dates of their transactions in order to protect the client's
privacy.
- 35 -

Vv. The Evidence in the Record Establishes that the
Respondent "Knew or Had Reason to Know" the Claims
in Issue were Not Provided As Claimed, Except in
Two (2) Instances

A. Generally

In 71 of the 73 items or services as claimed, Dr. Scott did not have
a scheduled appointment or an office visit with the named Medi-

Cal beneficiary on the date listed. I.G. Ex 1B, 6A-22, 35, 36.

With regard to 25 of the 71 services claimed, the alleged date

was one for which Dr. Scott's appointment books showed no appointments.
Id. Thus, the Respondent's records provide strong proof that the
claims at issue not only were false, but that Dr. Scott knew or

had reason to know that they were false. In addition to the lack

of documentation supporting the claimed service dates, these records
show that 27 of the items or services claimed were purportedly

for Medi-Cal beneficiaries who never were clients of Dr. Scott.

This was confirmed by one of the beneficiaries, Evelynne Mills,

in a taped interview with Medi-Cal investigator Mario Piazza.

See FFCL 38 and I1.G. Ex 47. Twelve of the items or services

claimed were listed under her name. Six other beneficiaries,

named in another 15 items or services falsely claimed, were also
conspicuous by the absence of billing ledger cards, receipts, or

any other evidence of their having been a client of Dr. Scott's.
These were Donald Wilkins (FFCL 48), Nikki Najera (FFCL 64),

Hadley Stotts (FFCL 85), Akune Tanaban (FFCL 104), Reginald

Tanaban (FFCL 108), and James Murphy. 24/

Dr. Scott needed the MEDI stickers of these non-clients in order
to make his fictitious claims appear legitimate, so he obtained
them from relatives or other persons closely associated with the
beneficiaries. MEDI stickers which only Evelynne Mills could use,
for psychotherapy and other specified therapeutic services, were
given to Dr. Scott by her husband, Lyland, in exchange for a
credit balance of $300 in Lyland's account with Dr. Scott. FFCL
145. Similarly Ophelia Simons gave Dr. Scott MEDI stickers
assigned to Donald Wilkins and James Murphy in exchange for a
credit balance which she used to purchase vitamins. FFCL 144.
Ms. Simons was a co-defendant with Dr. Scott and Gail Hartman in
a State Medi-Cal criminal action involving false claims. 25/
I.G. Ex 49, TR VIII/100.

247 James Murphy did tell Mario Piazza that he saw Dr. Scott
once, in 1980. TR IV/140. There was no record of an office
visit with Dr. Scott in 1980 or at any time.

25/ The parties here stipulated that the $4500 restitution which

Dr. Scott paid, as part of the agreement by which he pled no contest
to the State charges, would be deducted from any penalties and
assessments I might impose. TR III/365. I have done so. FFCL 158.
- 36 -

MEDI stickers which could legally be used only by Michelle and
Nikki Najera, Hadley Stotts, Akune and Reginald Tanaban, Julienne
Malecot and Owyhee Webb were given to Dr. Scott by the parents of
these children in exchange for credits to the account balances of
the parents, and used to purchase vitamins. FFCL 61, 65, 69, 73,
82, 101. In addition to the situations mentioned above in this
and preceding paragraphs, the record contains numerous instances
of Medi-Cal beneficiaries giving their MEDI stickers to Dr. Scott
in exchange for credits toward the purchase of vitamins. FFCL 42,
52, 56, 57, 61, 73, 77, 89, 97, 113, 117, 121, 129, 136, 143,
144, 145, 150. The MEDI stickers so obtained were placed on the
claims on which Dr. Scott falsely certified that he provided
psychotherapy services in exchange for the MEDI stickers.

As noted in my Findings and in the Discussion above, most of the
claims at issue were false because Dr. Scott did not have an
office visit with the named client (beneficiary) on the indicated
date claimed, and, thus, he knew or had reason to know that he was
not entitled to be reimbursed for having provided psychotherapy
services to the client on that date as claimed. In two instances,
however, Dr. Scott did have an office visit with the named

client on the date claimed.

B.) Two Instances Where Services were Actually
Performed On the Date Claimed

The two instances in question involve visits by Mario Piazza and
Dan Beall, investigators of the Bureau of Nedi-Cal Fraud acting
as undercover agents. Both testified at the hearing and their
account of what happened on the two dates in question is set out
in my Findings. FFCL 131, 137. In addition, during a taped
interview with Bureau of Medi-Cal Fraud investigators, Dr. Scott
described his treatment of Luigi Barzini (Mario Piazza). FFCL
142. The issue is whether the I.G. proved by a preponderance
of the evidence that Dr. Scott knew or had reason to know
that the services he provided were not "psychotherapy."

Expert witnesses who testified for the I.G. and Dr. Scott had
opposing views as to whether the treatment of Barzini and Danny
Brock (Dan Beall) constituted "psychotherapy". Dr. Jack
Blumenkrantz, Ph.D., a psychologist, (the I.G.’s expert witness

on the issue), held the opinion that it was not; Dr. Richard

Kunin, M.D., a psychiatrist, (the Respondent's expert witness on
this issue), felt that it was. While I found Dr. Kunin's testimony
to be extremely interesting, I gave it little weight concerning this
- 37 -

issue because Dr. Kunin never persuaded me that he could speak
authoritatively on the subject of what a psychologist does as
"psychotherapy" in California, according to California law.

He was, however, well versed on psychology and psychotherapy
as a concept in general.

Dr. Blumenkrantz had practiced and taught psychology and was a
member of the body which certified psychologists in California,
so he could, and did, speak with considerable authority on this
issue.

Despite the authority of the I.G.'s expert, I found that the I.G.
ultimately failed to prove by a preponderance of the evidence

that Dr. Scott knew or had reason to know that he had not provided
“psychotherapy” services to Barzini and Brock. Dr. Blumenkrantz
admitted during re-cross examination that techniques like those

used by Dr. Scott are thought by some psychologists, including
respected ones, to be "psychotherapy". FFCL 141. Moreover, as

my findings indicate, the definition of psychology in the California
Professional Code is very broad. FFCL 140.

Thus, since the testimony of the I.G.'s own expert is that respected
psychologists believe these techniques to be “psychotherapy,” the
I.G. has not proven that Dr. Scott is liable for filing false

claims in these two instances on the grounds that the services
provided were not “psychotherapy”

C. Instances Where ocrvices were Performed on Another Date
Close to the Date Claimed (Alleged Clerical Errors)

In addition to the two instances discussed above, where Dr. Scott
had an office visit on the date claimed, I found six instances
where Dr. Scott provided services to the named individual on
another date in the same month as the claimed date. The question
is whether these were "psychotherapy" services.

1) Services not proven by the Respondent to be
psychotherapy

Five of these instances were office visits which the Medi-Cal
undercover agents had with Dr. Scott. Mario Piazza had office
visits with Dr. Scott on December 23, 1981, and January 5 and 19,
1982, 26/ Dr. Scott falsely claimed psychotherapy sessions with
Luigi Barzini (Piazza) on December 22, 1981, and January 13 and
28, 1982. Dan Beall had office visits with Dr. Scott on December
17 and 23, 1981. Dr. Scott falsely claimed psychotherapy sessions
with Danny Brock (Beall) on December 2 and 30, 1981. Thus, there
are potentially five parallel service dates for five of the dates
falsely claimed.

267 The billing ledger card and the office visit receipt indicate
that the January 19, 1982 visit lasted only 3/4 hour. There is a
procedural code for either 1/2 hour or one hour, but not 3/4
hour. Moreover, Mr. Piazza testified that the visit lasted one
hour. TR III/133.
- 38 -

Although I find the Respondent liable under the CMPL for the
dates falsely claimed, I would have considered it a mitigating
circumstance if the Respondent had proven by a preponderance of
the evidence that the services he provided on the five parallel
dates were "psychotherapy" services reimburseable under Medi-Cal.
Looking once again at the testimony of the two agents, of the two
expert witnesses, and of Dr. Scott, I find that Respondent did
not meet the necessary burden of proof.

This finding may seem to conflict with my earlier holding that
Dr. Scott was not proven to have filed false claims for office
visits with Barzini (Piazza) on February 2, 1982, and Brock
(Beall) on January 28, 1982, but it does not. There is no conflict
because the burden of proof has shifted. In my earlier holding,
I found that the I.G. had not shown by a preponderance of the
evidence that Dr. Scott knew or had reason to know that the
services he provided to Barzini and Brock on those dates were not
“psychotherapy” services. I did not find that the services were
psychotherapy or even that Dr. Scott legally might be entitled to
reimbursement for those services under Medi-Cal. Dr. Scott might
have a mistaken, but sincere and even well-founded conviction,
that he provided “psychotherapy” services, so that he is not
liable under the CMPL and Regulations. At the same time, what
may be a sincere and well-founded conviction on the part of Dr.
Scott does not make the services he provided to Barzini and Brock
on those five dates "psychotherapy", by a preponderance of the
evidence.

2) Services assumed to be "psychotherapy"

There was one instance in which a client had an office visit

with Dr. Scott which would be mitigating if Dr. Scott provided
psychotherapy services on that date. Sharone Negev had an office
visit with Dr. Scott on December 16, 1981; Dr. Scott claimed
reimbursement as though he had provided psychotherapy services on
December 30, 1981.

I find the office visit on December 16, 1981 to be mitigating.
Thus, these services mitigate the services falsely claimed to

have been provided on December 30, 1981. The I.G. did not allege,
much less prove, that Dr. Scott claimed reimbursement for services
to Sharone Negev on December 16, 1981. Given the possibility of
simple clerical error to explain the erroneous date of service
claimed, for the purposes of mitigation I accord Dr. Scott the
benefit of any doubt as to whether he provided psychotherapy on
that date.

I emphasize here, as I did in the preceding section, that I do not
find that Dr. Scott actually provided psychotherapy services on
that date. The I.G. did not prove that he did not provide
- 39 -

psychotherapy. The I.G. had this burden of proof because it based
its proof on the falsity of the claims on the Respondent's office
records. These records prove that Dr. Scott provided services on
the date in question. There is no testimony or other proof that
"psychotherapy" services were not provided during that office
visits. The experiences of Medi-Cal investigators Piazza and
Beall and Medi-Cal beneficiary Esther Campos were not- offered as
proof of what happened during the office visits of other clients,
nor does the taped interview of the Medi-Cal investigators with
Dr. Scott shed any light. TR IV/21, 22; I.G. Ex 45.

3. No other dates are mitigating.

Respondent argued in effect in his September 19, 1986 brief on
mitigating circumstances (p. 5) that in four other instances
"psychotherapy" services were performed on dates other than the
date of service. As I set out in greater detail in my findings,
one of these involved Akune Tanaban, who was never a client of
Dr. Scott's and whose father gave Akune's MEDI stickers to Dr.
Scott in exchange for vitamins. Two others, Esther Campos and
Joti Frank, only purchased vitamins from Dr. Scott on the dates
in question, using their MEDI stickers. The fourth, Patricia
Pennington, had not been in for an office visit for approximately
eight months, but on the date in question and other dates,
routinely sent or brought in her MEDI stickers to reduce a long-
standing large debit balance resulting from the purchase of
vitamins. If these are the "services" for which Dr. Scott was
billing, the circumstances were aggravating, not mitigating.

D. There was no Ambiguity or Lack of Proof Regarding
Certain Claims for Services Allegedly Provided to
Luigi Barzini and Esther Campos

The Respondent argued that the evidence purporting to prove that
Dr. Scott's claim that he provided psychotherapy services to
Luigi Barzini (Piazza) on December 11, 1981 was false was
insufficient because Mr. Piazza's testimony about that claim was
ambiguous. R Br/28.

Responding to my question about the duration of the Medi-Cal
investigation of Dr. Scott, Mr. Piazza testified:
- 40 -

Let's see. As a private patient, I started
October lst and as a Medi-Cal patient, it
started sometime in December; at the very
beginning of December. (TR III/306.)

After further questioning, Mr. Piazza made it clear that the
investigation began in October and continued through February,
and that his first office visit with Dr. Scott as a Medi-Cal
patient was December 23, 1981. The Respondent does not specify
exactly what was ambiguous about Mr. Piazza's testimony, but
apparently read the testimony above to mean that Mr. Piazza
initially testified that the office visit was at the beginning of
December.

There is no ambiguity. Mr. Piazza testified in at least two other
places that his visit with Dr. Scott in December 1981 was on the 23rd,
TR III/313, 319. Dr. Scott's office records show only one office
visit for Luigi Barzini (Piazza) in December 1981--the 23rd.

What may have been a reference by Mr. Piazza to an early December
transaction with Dr. Scott's office may be explained by Piazza's
testimony that on December 3, 1981, Luigi Barzini (Piazza) had a
telephone conversation with Gail Hartman at which time she scheduled
the December 23 appointment, among other things. TR III/311-313.

The Respondent also argued that there was no evidence that Esther
Campos was not in Dr. Scott's office on May 26, 1982, or that she
purchased vitamins from Dr. Scott on that date, using MEDI~stickers.
The Respondent relied on testimony by Esther Campos that Dr.

Scott's secretary told her in 1981 that Medi-Cal did not pay for
vitamins and that when Ms. Campos found that out, she started to
pay for her vitamins "and the Medi-Cal sticker was just for the
visit." TR VII/141, 145.

Ms. Campos went to Dr. Scott for approximately eleven months,
starting in July 1981. I.G. Ex 19A. She testified she could not
remember when she paid cash and when she used her MEDI stickers
to pay for vitamins, but Dr. Scott took MEDI stickers from her in
exchange for vitamins even after his secretary told her Medi-Cal
did not pay for vitamins. TR VII/144-146. Dr. Scott's office
records show that he did not have a one hour office visit with
her after January 1982, and only two half-hour visits, in March
and April, 1982, I.G. Ex 19A. During that time, through May 27,
1982, she purchased vitamins with cash and MEDI stickers. Id.
Clearly, Dr. Scott did not provide "psychotherapy" services or any
other services to her on May 26, 1982. Id
- 41-

VI. The Respondent's Evidentiary and Due Process Defenses,
Objections, and Motions

The Respondent defends this case primarily by collateral, evidentiary,
and due process attacks against the 1.G.'s case. 27/ Although
numerous and scattered, most of the Respondent's evidentiary and

due process arguments can be broken down into just a few general
catagories for purposes of discussion (as does the Respondent in

his briefs and proposed findings and conclusions). 28/ The Respondent
(1) alleges "delay", resulting in a denial of due process, (2)

attacks the admissibility evidence and testimony in the record
presented by the I.G. (on numerous grounds, including a motion

to strike almost all the evidence in the record because it

is the fruit of an "illegal search"), and (3) attacks the I.G.'s
characterization and interpretation of the evidence. With one

major exception, there is little or no actual rebuttal evidence
presented by the Respondent. The Respondent admits, in effect,

in his "Brief on Mitigating Circumstances," (at p. 4) that if the

ALJ rejects the Respondent's sufficiency of evidence and due

process arguments, and the I.G.'s evidence is accepted, the
Respondent's liability for filing false or improper claims has

been proven.

No matter how numerous or how difficult, or whether they appear

to have merit on their face, due process arguments should always
be considered seriously because “the right to be heard before

being condemned to suffer grievous loss" is a basic principle of
our law. Mathews v. Eldridge, 424 U.S. 319, 333 (1976) (quoting
Justice Frankfurter in Joint Anti-Fascist Refugee Comm. v. McGrath,
341 U.S. 123, 168 (1951). Moreover, “fundamental fairness" must

be employed in this action. Regulations, §1003.115(a).

A.) There was No Denial of Due Process to the Respondent
by the I.G.'s Initiation of These Proceedings on
March 1, 1985

Oliver Wendell Holmes stated some 62 years ago, in Frank v. Mangum,
237 U.S. 309, 347 (1914):

whatever disagreement there may be as to the scope
of the "due process of law," there can be no doubt
that it embraces the fundamental conception of a
fair trial with opportunity to be heard.

27/ Other evidentiary and due process defenses were raised in
the answer or in prehearing motions. More were raised at the
hearing (in fact, they were peppered throughout the transcript).
Most of these defenses are restated in the Respondent's post-
hearing briefs or in his proposed findings and conclusions.

28/ For other evidentiary, procedural, or due process questions
addressed or disposed of during the prehearing process, see the
November 22, 1985 Ruling, and various written summaries confirming
Rulings. For others not addressed in the Respondent's briefs,

see generally, TR/I to VIII.
- 42 -

The Respondent makes several principal due process arguments.
First, the Respondent argues that the I.G.'s “unreasonable delay"
in starting this proceeding resulted in depriving the Respondent
“of procedural due process." R Rep Br/l; R Br/l to 21. Second,
the Respondent argues, more particularly, that he was denied his
"right to cross-examine the witnesses against him" because the
delay resulted in witnesses (several beneficiaries) "not being
available for cross-examination", and that if they had been present
they might have supported his case. R Rep Br/l. Third, the
Respondent also argues that the delay resulted in only partial
evidence being presented to the ALJ and resulted in the failure
of recollection of the remaining witnesses.

For several reasons, I conclude that the Respondent's claims
are without factual or legal merit and that the Respondent
has had the opportunity of a full and fair hearing.

First, this case was timely filed. Although (1) the Respondent
is understandably frustrated by having to deal with actions
brought against him by arms of both the California State government
and the federal government against him, and (2) there was a lapse
in time from when the State Medi-Cal investigation and State
criminal case were completed to when this case was initiated by
the I1.G., this case, nevertheless, was initiated within the time
limitations set forth in §1003.132 of the Regulations. Moreover,
once this action was filed, the Respondent contributed to delay.
At the Respondent's request, the hearing in this case was put off
from the original date it was scheduled in October of 1985. When
the hearing did begin in December of 1985, it soon became clear
that it could not be completed in the allotted time, and was
continued until February 1986. This date was put off again, at
the Respondent's request, until May 1986, when the hearing was
completed. Furthermore, even if there were merit to the Respondent's
claim that there was a delay in this case constituting a denial
of due process, the Respondent would have to demonstrate that he
was substantially prejudiced. See Ka Fung Chan v. INS, 634 F.

2d 248, 258 (5th Cir. 1981). The Respondent did not demonstrate
this.

Second, the Respondent was not denied due process by not having

the right to cross-examine witnesses against him because the I.G.
proved liability not with hearsay statements of beneficiaries,

but with the Respondent's billing account records, the testimony

of Medi-Cal investigators, and the actual testimony of a beneficiary.
The direct testimony of beneficiaries supported the I.G.'s case;

they all (Ms. Campos and Messrs, Beall and Piazza) testified that
the Respondent accepted MEDI stickers in payment for the vitamins
they bought. TR III/338; VI/142; VII/114.

Any hearsay statements of beneficiaries were merely the frosting
on the cake; they were cumulative and corroborating statements.
Moreover, the Respondent failed to meet his burden of showing
- 43 -

that the beneficiaries were actually unavailable. Richardson v.
Perales, 402 U.S. 389 (1971). 29/ The Respondent put into evidence
several Affidavits of Andrew Kangas, an investigator he hired to
locate beneficiaries. REx D. I find that Mr. Kangas did not
make a complete search. He made no attempt to find Sharone
Negev, despite the fact that the I.G. investigator found her
through the telephone directory. TR VII/45. There is no evidence
that Mr. Kangas looked for Patricia Pennington or Sidney Tanaban,
There is nothing to indicate that the Mr. Kangas ever actually
sought to find Roberta Nasser at the address provided to the
Respondent by the I.G. or to find Rue Burlingham or Deborah Webb.
See R. Ex. D/2, 3, 6. Mr. Kangas went to Miss Mills' residence
once, on December 6, 1985, but never followed up. Accordingly, I
find that with a more complete search, he might have located the
following beneficiaries: Webb, Negev, Sidney Tanaban, Pennington,
Sachs, and Cecilia Najera. See R Br/n 6. There is evidence in
the record that the Respondent was not really interested in
finding the beneficiaries and that this defense was perhaps an
attempt to distract me from the realization that the testimony of
these witnesses would not have helped the Respondent case. Where
the location of certain beneficiaries was known, the Respondent
made no effort to call them as witnesses. The Respondent was
clearly aware of Ms. Cecilia Najera's whereabouts, knew that she
was available, and did not call her. TR IV/144-145, VI/155.

Finally, with regard to the Respondent's arguments concerning the
failure of the Medi-Cal Fraud investigators to have independent
recollection of the facts concerning their investigation of the
Respondent, I find that, while they had trouble remembering exact

dates of occurences without referring to their report of investigation,
the investigators had excellent recall of the substance of the

matters testified to and I find them to be credible witnesses,

It is worth noting that there is no absolute right to witnesses

by the Respondent where they would not be helpful to his case,

and where he actually chose not to call other similarly situated
witnesses. Even in criminal cases, the right to the testimony

of such witnesses is not absolute. United States v. Valenzuela-Bernal,
458 .S. 858, 867 (1982). A defendant has to make a plausible
showing of how the witness’ testimony would have been both material
and favorable for a court to find that due process has been

denied. Id. Martin-Mendoza v. INS, 499 F. 2d 918 (9th Cir.

1974), cert. denied, 419 U.S. 1113 (1975); Arthur Murray Studio

of Washington, Inc. v. FTC, 458 F. 2d 622, 624 (5th Cir. 1972). 30/

29/ Since the burden of producing these witnesses is on the Respondent,
‘the fact that the Inspector General did not find or produce them
is irrelevant.

30/ It should also be noted, contrary to the Respondent's assertions,
that the doctrine of laches is not applicable here because (1)

there is an express period of limitations in the Regulations and

(2) the well-established rule is that laches does not run aqainst

the United States. United States v. Summerlin, 310 U.S. 414, 416
(1940).
- 44 -

B.) The Search of the Respondent's Office and the Seizure
of His records by Medi-Cal Investigators (1) Was a
Valid Search and Seizure and (2) is Collateral to

This Proceeding

The Respondent's next major defensive argument involves objections
to how most of the records and documents in evidence were originally
obtained by Medi-Cal investigators. The Respondent argues that

most or all the 1.G.'s documentary evidence and the testimony of
most of the I.G.'s witnesses should be stricken because it was
obtained from an illegal search and seizure.

Most of the evidence in the record that is damaging to the Respondent
consists of his own business records. The Respondent's records

that are in evidence in this case (ise. billing account records,
patient files, other office records) were obtained through

a search conducted by California Medi-Cal fraud investigators.

A copy of the search warrant and return are in evidence in this

case. I.G. Ex 4A/5.

The Respondent argued that these records cannot be used by the
I.G. to prove liability because they were the fruits of an

illegal search. The Respondent argued that the search was flawed
essentially for two reasons. First, the Respondent argued that the
search warrant contained no indication on its face that there was
probable cause for issuance of the warrant. TR 11/178-179.
Second, the Respondent argued that the special agent in

charge of the search (special agent Mario Piazza) “substituted

his own judgment" for that of the Magistrate who issued the
warrant in that the special agent took only certain records
referred to in the warrant rather than all the records referred to
in the warrant. TR V/175-200 and TR II/192.

The I.G. argued that the validity of the search warrant was not
properly an issue in the case since it was not raised in the
previous State criminal proceeding and, therefore, was waived.

TR II/179-180. The I.G. also argued that even if the State court
had found the evidence to be the fruits of an illegal search
warrant, the evidence would be admissible in this proceeding
because it is a federal administrative proceeding. The I.G.
cited the case of United States et. al v. Janis, 428 U.S. 433
(1976) as support. TR V/151-152. The 1.G. also argued that the
search warrant was offered by the I.G. only to show what items
had been taken from Dr. Scott's office, not to establish the
validity of the warrant. TR II/179.

I find and conclude that the evidence in this record presented

by the I.G. should not be stricken. The search was a valid

search. The facts surrounding the search were thoroughly testified
to in the hearing in this case. First, there is ample evidence
that probable cause existed for issuance of the warrant; the
affidavit which was submitted to the Magistrate in support of the
= 45 -

warrant specifically stated facts which constituted probable
cause. I.G. Ex 4B/4~7; TR V/189-190. Second, the special agents
who conducted the search gave the required Miranda warnings and
presented a copy of the warrant prior to conducting the search.
I.G. Ex 45, 1 and 32, and FFCL 36. Third, there are no facts

in the record that support the Respondent's assertion that the
search was conducted without "judicial authorization.” There is
substantial evidence to support a contrary conclusion. The
search warrant itself specified what items were to be searched
for and seized. I.G. Ex 4A. The special agents took nothing
that was not identified in the warrant (or in “Exhibit I," (1.G.
Ex 4-C) attached to the warrant). TR II/189, TR V/199-205.
Moreover, there is evidence that the Magistrate who issued the
warrant was aware that the agents were not planning to take
everything specified in the warrant. TR V/204. It would be
unreasonable to conclude that because an investigator did not
seize every item referred to in a warrant, he was on a "frolic"
of his own, exercising his own judgment rather than that of the
Magistrate. TR V/179. It is, in fact, reasonable for an investigator
to exercise judgment in gathering evidence. It is the very
nature of an investigators' job to do so. Moreover, it is particularly
clear that his action was reasonable under the circumstances of
this case where to gather all the voluminous records would have
been impracticable. TR V/201.

Moreover, even if the warrant and search were flawed, challenges
to the warrant and the search itself are barred in this proceeding
by the doctrines of laches and waiver, in that the Respondent
failed to raise the issue of the validity of the search in the
State criminal court (the court having jurisdiction to decide

the issue). (See TR II/176 and TR V/156).

Furthermore, even if the warrant and search were flawed and the
Respondent had not waived his right to raise the issue here, the
evidence would still be admissible in this case under the doctrine
of Janis, supra. In Janis the Court held that evidence illegally
seized by state law enforcement officials and, therefore,
inadmissible in a state criminal proceeing was, nevertheless,
admissible in a federal civil proceeding. The Court stated that
the reason for the exclusionary rule was to deter illegal conduct
by law enforcement officers. The Court reasoned that it was
unlikely that exclusion of the evidence from the federal civil
Proceeding would deter illegal law enforcement conduct by officials
of a separate sovereign, the state. Thus, the Court concluded,
the societal benefit of determining illegal law enforcement
conduct was outweighed by the societal benefit of allowing the
- 46 -

evidence. Janis, supra, pp. 453454, cf. Plymouth Sedan v. Pennsylvania,
380 U.S. 693 (1965). 31/

The Respondent's attempt to distinguish the Janis case on grounds
that the State investigators were essentially federal agents is

to no avail. TRV/152. The Respondent argued that since the

State investigators’ salaries derived from federal funds, they

were effectively federal employees or agents. TR V/153-155.

This argument is unconvincing. The investigators were employed

by the Medi-Cal Fraud unit of the California Attorney General's
Office. There is no evidence in the record that they were paid,
supervised, or directed in any way by the federal government. TR
V/153. That some of the funds used to pay their salaries ultimately
came from federal sources is not sufficient to alter their character
as State employees or not sufficient for me to find the requisite
"control" over the State case by the federal government. See

United States v. Montana, 440 U.S. 147 (1979). Nor is the doctrine
of equitable estoppel applicable here. See United States v.

Bureau of Revenue, 531 P. 2d 212 (N.M. Ct. App. 1975).

317 Moreover, two generally well know principles of law are that (1)
a conviction or acquittal of criminal charges does not preclude a
civil action like the one here, and (2) successive state and

federal criminal prosecutions are not precluded. Schweiker v.
Hansen, 450 U.S. 785 (1981); United States v. Lasky, 000 F. 2d

765, 768 (9th Cir. 1978), cert. den. 444 0.8. 979 ti979). See

TR V/158, 159.
-47-

C.) The Evidence in This Record Which was Presented by
the I.G. is Reliable, Substantial, and has Probative
Value

The Respondent's next major defense (made up of numerous objections
or motions), in effect, is that the evidence in the record presented
by the I.G. is insufficient, unreliable or otherwise not probative
of the issues of liability and aggravating circumstances. The
Respondent also argues that the I.G. improperly characterized

and interpreted the evidence.

In general, the Regulations provide that all relevant evidence is
allowed into the record in this case with certain stipulations
designed to ensure fairness. Section 1003.118 of the Regulations
provide that: (a) written direct testimony may be used at the
hearing in the discretion of the ALJ, and witnesses must be available
at the hearing for cross-examination by all parties, §1003.118(a);
(b) stipulations of fact may be used, §1003.118(b); (c) (although
technical rules of evidence do not apply) the ALJ must apply

rules or principles designed to assure production of the most
credible evidence available and to subject testimony to test by
cross-examination, when necessary, §1003.118(c).

The Respondent argues that most of the 1.G.'s evidence is unreliable
hearsay not subject to cross-examination. The Respondent argues
that the I.G.'s use of unsworn hearsay statements by beneficiaries
to establish liability Is unfair because these statements are
unreliable, uncorroborated, and not authenticated. The Respondent
requests that such statements be given no probative value and

that the claims to which they relate be dismissed. As _ stated
earlier in this Discussion, hearsay is admissible in this proceeding
as long as it is credible, trustworthy, reliable and used ina

fair manner. See, 5 U.S.C. §556(d); Catholic Medical Center v.
NLRB, 589 F. 2d 1166 (2d Cir. 1978); National Labor Relations

Board v. McLure Associates, Inc., 556 F. 2d 725 (4th Cir. 1975);
DAVIS, supra at §§16.4 16.5, 16.6, 16.7, and 16.8. Generally,

with regard to the admission of written statements of persons in
lieu of testimony, the dispositive case is Richardson v. Perales,
supra, which holds that where a respondent fails to attempt to
confront a witness, the witness' statement may be, substantial
evidence, even though it is hearsay.

For the reasons stated earlier in this Discussion, the Respondent's
arguments about the I.G.'s submission and use of the hearsay
statements of beneficiaries (Respondent's clients) have no merit.
More importantly, in asserting these objections and defenses
concerning the use of hearsay, the Respondent completely ignores

or misses the main thrust of the I.G.'s case concerning liability,
which rests firmly upon the non-hearsay testimony of two
- 48 -

California Medi-Cal Fraud investigators and the Respondent's

own records. The majority of the records in evidence which

are relied upon by the I.G. are business records. These records,

the Respondent's billing account records and patient files (discussed
in detail earlier), fall within the business records exception to

the hearsay rule found at Rule 803 (6), (7), of the Federal Rules

of Evidence. These records are also admissions because they were
used by the Respondent and kept by him in the ordinary course of
business. Mario Piazza, one of the Medi-Cal Fraud Unit investigators,
testified that the Respondent and Gail Hartman identified these
records as the Respondent's business records.

For the reasons stated above, I find these records to be trustworthy
and reliable. See Calhoun v. Bailor, 626 F. 2d 145, 148 (9th

Cir. 1980), cert. den, 452 U.S. 906 (1981). Finally, the Respondent
made no attempt to controvert his own business records. He could
have testified or called Gail Hartman to testify. Also, With

regard to the hearsay statements of the beneficiaries, Mario

Piazza's testimony is helpful and the other beneficiaries' statements
are corroborated by the Respondent's business records. TR IV/139

to 142; 157 to 158, see also I.G. Ex 6A, 6D, 13A/1, 13, 43.

VII. The Amount of the Proposed Penalties and Assessments
Tas Modified) are Reasonable and Appropriate Under
the Circumstances of this Case.

Since I found and concluded that the Respondent is liable for
penalties and assessments (because the I.G. proved liability by a
preponderance of the evidence) I must decide the appropriateness of
the proposed penalties and assessments, as modified by the evidence
in the record. 32/

A. Aggravating Factors

The Act and Regulations provide that, in determining the amount

or scope of any penalty or assessment, the Secretary shall take

into account: (1) the nature of the claims and the circumstances
under which false claims were presented; (2) the degree of
culpability, history of prior offenses, and financial condition

of the person presenting the claims; and (3) such other matters

as justice may require. See, Regulations §1003.106. The

Regulations require me to balance any aggravating factors against any

327 The Respondent's argument that the penalties are disproportionate
to the offense committed by the Respondent is unsupported. Moreover,
§1003.115(c) of the Regulations states that the A.L.J. "does not

have authority to decide upon the validity of Federal statutes or
regulations."
- 49 -

mitigating factors. The Regulations provide that, where there
are substantial aggravating circumstances, the amount of each
penalty and assessment be set near or at the maximum amount.
Finally, §101.106(b)(4) provides that Respondent's resources will
be considered.

I conclude that there exist these aggravating factors:

1.

Dr. Scott obtained MEDI stickers from clients in
excess of those needed to claim reimbursement for
the psychotherapy services he allegedly gave clients
during their office visits.

Dr. Scott obtained MEDI stickers from clients for
months when those clients did not have office visits.

Dr. Scott obtained MEDI stickers from clients
assigned by Medi-Cal to other beneficiaries.

Dr. Scott sold vitamins to clients in exchange for
MEDI stickers which he later affixed to claims,

even though he knew that Medi-Cal did not reimburse
providers for vitamin sales; he falsely claimed that
he had provided psychotherapy services.

Dr. Scott claimed psychoterapy services to Medi-Cal
beneficiaries who were not his clients (when he knew
he never had an office visit with them).

Dr. Scott claimed psychotherapy services in sessions
lasting an hour and a half each, and wrote special
letters justifying the length of the sessions in
instances where the beneficiary-subject of the claim
was not his client and never had an office visit
with him.

Dr. Scott submitted false claims, for which he is liable
under the CMPL and Regulations, for a substantial period
of time (approximately nine months) and accepted MEDI
stickers in exchange for vitamins for an even longer
period.

In a letter sent to Danny Brock (I.G. Ex 42), the
Respondent wrote a note (TR VI/178-82) clearly stating
the MEDI stickers were being accepted in payment for
vitamins. I.G. Ex 42/2 7A/3.

Dan Beall (A.K.A. Danny Brock) testified that during his
visit to the Respondent's office, the Respondent told

him that (Beall) needed certain vitamins. TR VI/142-43,
When Mr. Beall said he had only $5.00, Dr. Scott responded:
- 50 -

Well, you still have two stickers. You didn't

come earlier this month; the sticker will pretty

much cover the cost of these two vitamins I want

to give you. They are about equal to what an

office visit would cost. So I will give you the
vitamins and take a Medi-Cal sticker for that, and then
I will just take a Medi-Cal sticker for this visit.

TR VI/142-43.

B. Mitigating Factors

The only mitigating factor which I found is that even though Dr.
Scott is liable under the CMPL and Regulations for a false claim
of "psychotherapy" services to Sharone Negev on December 30,
1981, he did give her an office visit on December 16, 1981, for
which he apparently did not file a claim.

The Respondent argued that Dr. Scott's financial condition should
be taken into account as a mitigating circumstance, citing the
testimony of Dr. Scott's accountant that Dr. Scott would have to
"close shop" and move into an apartment to pay the then proposed
penalties and assessments of $84,000. TR VIII/23. The financial
information on which the accountant based his opinion was not
audited, but was supplied by Dr. Scott. A hand written "balance
sheet" submitted by the Respondent showed a “net worth" of
$101,797, consisting largely of the Respondent's equity in
various real estate properties. R Ex G. 33/

I do not think that the "financial condition” portrayed by the
Respondent's accountant is a basis for mitigating the $76,000
penalties and assessments which I am imposing in this case. The
basis for the financial statement is neither objective nor reliable.
For example, in the unaudited statement purporting to show Dr.
Scott's assets as of December 31, 1985, the real estate in Willits,
California, is shown to be worth $104,000. R Ex G; see, also,
attachment to Respondent's brief of September 22, 1986. In an
application for a real estate mortgage loan dated September 14,
1985, the Respondent declared the “present market value" of the
Willits property to be $140,000. 1I.G. Ex 48. There are other
discrepancies. Apparently, the Respondent uses greatly different
estimates of his assets, depending on his purpose. Thus, the
Respondent did not produce any reliable evidence of his alleged
financial condition, much less establish by a preponderance of
ene evidence that he could not pay penalties and assessments of
6,000.

337 I kept the record of the record of the hearing open for two
weeks in May 1986 to permit the Respondent time to furnish a final
financial report. When the Respondent finally offered the Report,
three months later, his “net worth" was shown as $91, 244. I did

not accept the delinquent report as evidence, but I allowed the
Respondent to attach it to his September 22, 1986 brief on mitigating
circumstances. See my Order of September 2,1986.
-51-

The Respondent also submitted a number of letters from clients.
REx F. Most of them are addressed to the lawyer who represented
Dr. Scott in the State criminal false claims case and apparently
were written in March 1983 (judging by their dates), around the
time that Dr. Scott entered his plea of no contest in that case.
The tone of the letters is that these clients, including one of
the Medi-Cal beneficiaries involved in this case, were satisfied
with the treatment which they received from Dr. Scott.

These letters might have been useful, and perhaps even mitigating,
if the issue here had been whether Dr. Scott rendered services
which were popular with his clients. The issue in the 71 claims
here is whether Dr. Scott rendered ary service to the named client
on the date, as claimed. His culpability is not lessened because
on other occasions or with other clients he rendered pleasing, even
useful services.

C. The Penalties and Assessments (As Modified) are
Supported by the Record

The total amount of penalties and assessments that could be imposed
are much greater than what I am imposing. The penalties are
intended to serve as a deterrent to future unlawful conduct by a
particular respondent or by other participants in the Medicare or
Medicaid programs. In its report on the CMPL, the House Ways and
Means committee found that “civil money penalty proceedings are
necessary for the effective prevention of abuses in the Medicare
and Medicaid program. . . ." H.R. Rep. No. 97-158, 96th Cong.,
Ist Sess. Vol. III, 327, 329 (1981). I conclude that penalties
of $76,700 are a sufficient deterrent, based on the proof in the
record.

The purpose of assessments in CMPL cases is to enable the United
States to recover the damages resulting from false claims; this
includes the reimbursement actually paid to a respondent and

the costs of investigating and prosecuting the unlawful conduct.
The assessments are "in lieu of damages." The assessments enable
the United States to recoup damages without having to assume the
burden of establishing actual damages. 48 Fed. Reg. 38831 (Aug.
26, 1983). I conclude that assessments of $3,800 are appropriate
in this case.
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ORDER

Based on the evidence in the record and the CMPL and Regulations,
it is hereby Ordered that the Respondent:

(1) pay penalties $76,700 and
(2) pay an assessments of $3,800,

(3) be given a $4,500 credit for restitution already paid to Medi-

Cal, leaving a combined total of $76,000.
/s/

Charles E. Stratton
Administrative law Judge