DEPARTMENT OF HEALTH AND HUMAN SERVICES
Departmental Appeals Board

Civil Remedies Division

In the Case of:

The Inspector General, DATE: December 5, 1989

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Docket No. C-55

Corazon C. Hobbs, M.D., DECISION CR 57

Respondent.

DECISION AND ORDER

In this case, the Inspector General (I.G.) of the United
States Department of Health and Human Services (DHHS)
issued a Notice of Determination (Notice) on July 29,
1988, informing Corazon C. Hobbs, M.D. (Respondent) that
the I.G. was seeking civil monetary penalties of
$55,500.00, assessments totalling $3,005.77, and a five
year exclusion of Respondent from participation as a
medical provider in the Medicare, Medicaid, and other
federal and state health care programs. The I.G. alleged
that Respondent had violated the Civil Monetary Penalties
Law (CMPL) and its implementing federal regulations
(Regulations) by presenting false or improper claims for
Medicaid payment. The I.G. alleged that Respondent had
claimed to have provided 111 medical services ("office
visits"), during the period from August 1982 to October
1984, and that Respondent knew, had reason to know, or
should have known that the services were not provided as
claimed.

Respondent filed a timely answer (Request) denying the
I.G.'s allegations, challenging the proposed sanctions,
and requesting a hearing before an Administrative Law
Judge (ALJ).
APPLICAB:
I. Statutes.

This case is governed by the Civil Monetary Penalties Law
(CMPL), Section 1128A of the Social Security Act (Act),
42 U.S.C. 1320a-7a (42 U.S.C.A. 1320a-7a, West Supp.
1989).

II. e ations.

The governing federal regulations (Regulations) are
codified in 42 C.F.R. sections 1003.100 through 1003.133
(1988).

ACKGROUND

I. e ate Charges A i i
Conviction.

Respondent was indicted by the State of Hawaii on June
26, 1985 on 119 counts of Medicaid fraud and one count of
theft. J. Ex. 1. Respondent pleaded nolo contendere to
the one count of theft and the 119 fraud counts were
nolle prosequied "with prejudice" on February 21, 1986.
dg. Ex. 1. On May 13, 1986, the State of Hawaii released
Respondent from any claims or causes of action arising

' ghe citations to the record in this Decision and

Order are as follows:

May 1989 Stipulation J. Ex. 1/(no.)

of Facts
Supplemental Stipulations J. Ex. 2/(no.)
Second Supplemental J. Ex. 3/(no.)

Stipulations
Hearing Transcript Tr. (p.)
Respondent's Exhibits R. Ex. (no./p.)
Respondent's Brief R. Br. (p.)
Respondent's Reply Brief R. Rep. Br. (p.)
I.G.'s Exhibits I.G. Ex. (no./p.)
I.G.'s Brief I.G. Br. (p.)
I.G.'s Reply Brief I.G. Rep. Br. (p.)
ALJ Findings of Fact FFCL (no.)

and Conclusions of Law
April 18, 1989 ALJ ALJ Ruling (p.)

Ruling
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out of the 119 false claims submitted by Respondent. On
August 15, 1988, an order was entered granting the motion
to terminate supervision and dismissal of the first-
degree theft charge. R. Ex. 6. Of the 119 counts of
Medicaid fraud nolle prosequied by the State of Hawaii,
111 are the subject of this CMPL action.

As a result of the plea, Dr. Hobbs was obligated by the
court to serve 500 hours of community service. In
addition, pursuant to the "Release Agreement" with the
State of Hawaii, Respondent paid $1,123.61 in restitution
and $1,122.00 in costs. J. Ex. 1/12. On July 29, 1988,
the court dismissed the aforementioned charge of Theft in
the First Degree. J. Ex. 1/13. Under the facts of the
case, Respondent has not been convicted of a crime in
connection with the claims in this case. J. Ex. 1/14.

II. e 's ice ate’ t Oo se.

The I.G.'s Notice contained a schedule of false claims
identifying 111 claims which the I.G. alleged were not
provided as claimed. In addition, the Notice specified
the factors used by the I.G. in determining the amount
of penalties and assessments, and period of exclusion.
Penalties of $55,500.00 (or $500 per claim) were
proposed, along with assessments of $4,129.38 and an
exclusion of five years. A credit of $1,123.61 was
allowed as an offset against the assessments, leaving
assessments of $3,005.77. This credit reflects
restitution paid by Respondent to the State of Hawaii.

In his Post-Hearing Brief, the I.G. proposed penalties of
$111,000, an increase based on additional aggravating
circumstances. I.G. Br. 62, 63. The I.G. also stated
that the appropriate assessment figure should be revised
to $2,928.43. I.G. Br. 12.

III. Respondent's Request And Statement Of The Case.

Respondent refutes the I.G.'s allegations and seeks
dismissal of this case on several legal grounds. She
also asserted at the hearing that (1) she either provided
the services as claimed or (2) sincerely believed that
she had the right to bill for services rendered to her
patients over the telephone. Respondent also argues
that, if I find that liability was proven by the I.G.,
the mitigating circumstances she proved should
substantially reduce the amount of any penalties,
assessments, and period of exclusion.
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In addition to Respondent asserting that the 1.G. did not
prove his case, Respondent argues that: (1) the Medicaid
HRVS Codes and Medicaid Physician's Manual were not
adopted by the Hawaii Department of Human Services (DHS)
and, therefore, were not binding on Respondent; (2) the
I.G. is equitably estopped by reason of the Release
Agreement between the State of Hawaii and Respondent;

(3) the sanctions sought amount to double jeopardy;

(4) there is no legal basis for bringing this case; and
(5) the five year period of limitations bars the claims
in issue in this case.

IV. Prehearing Motions.

Prior to the hearing, Respondent filed a motion to
dismiss based on the doctrine of res judicata, collateral
estoppel, and issue preclusion, a motion in limine, and
briefs in support thereof. The I.G. filed responses and
briefs in opposition to Respondent's motions. I issued a
Ruling on April 18, 1989 denying Respondent's motion to
dismiss and granting Respondent's motion in limine in
part.

Vv. he Hearing.

A prehearing conference was held by telephone in this
case on November 30, 1988, and a Prehearing Order and
Notice of Hearing was issued on December 2, 1988,
summarizing all matters discussed at the conference. A
formal evidentiary trial-type hearing was held in
Honolulu, Hawaii from May 8, 1989 through May 11, 1989.
Both parties were represented by counsel at the hearing,
with five witnesses testifying on behalf of the I.G. and
six witnesses testifying on behalf of Respondent. Each
of the parties filed two post-hearing briefs and proposed
findings of fact and conclusions of law.

VI. Dismissal Of Corporate Party.

The Notice of Determination also named Corazon C. Hobbs,
M.D., Inc. as a party. However, this corporate entity no
longer exists. Tr. 67, 861. Respondent moved to dismiss
the corporate party. The I.G. consented to dismissing

2 Some of the proposed findings of facts and

conclusions of law which the parties offered were
rejected because they were not supported by the evidence,
needed to be modified, or were not relevant.
the corporate party, and I, therefore, grant Respondent's

Motion.

ISSUES
The issues are:
I. Liability.
1. Whether the I.G. is equitably estopped or

otherwise barred in this case by the Release
Agreement between the State of Hawaii and
Respondent, or barred by the previously existing
period of limitations in the Regulations.

Whether the I.G. proved that the 111 Medicaid
services in issue "were not provided as claimed."

Whether the I.G. proved that Respondent "knew,"
“had reason to know," or "should have known" that
the 111 Medicaid services at issue were not

provided as claimed, in violation of the CMPL and
Regulations.

II. The Amount of the Penalty, Assessment, and the
Period of Exclusion.

1.

Whether the I.G. proved the aggravating
circumstances alleged.

Whether Respondent proved any circumstances that
would justify reducing the amount of the
penalties, the assessments, or the period of
exclusion proposed by the I.G.

FINDINGS 0 3

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

3

Any part of this Decision and Order preceding

these Findings of Fact and Conclusions of Law which is
obviously a finding of fact or conclusion of law is
hereby incorporated into this section.
1. For the purposes of these proceedings, I have taken
judicial notice of the statutes of the United States and
the State of Hawaii, and the regulations of the
Department of Health and Human Services (DHHS). J. Ex.
1/l.

2. This proceeding is governed by section 1128A of the
Social Security Act (the Act), 42 U.S.C. 1320a-7a, and
regulations promulgated thereunder, 42 C.F.R. Part
1003.100 et seg. J. Ex. 1/2.

3. The six-year statute of limitations provided by
section 1128A(c)(1) of the Act is controlling in this
case.

4. The I.G. is not barred from bringing this action by
either the doctrine of equitable estoppel or the law of
partnerships.

5. Respondent Corazon C. Hobbs, M.D., has practiced
internal medicine in the Honolulu, Hawaii area since
1973, and entered private practice in 1977. Tr. 803-805.

6. Respondent signed an application to participate as a
provider of Medicaid services in Hawaii on December 14,
1977. As a provider of services for the Medicaid
program, Respondent was obligated to make herself aware
of program requirements and to keep such records as
necessary to disclose fully the extent of services
provided. I.G. Ex. 148; Tr. 804, 805.

7. Respondent's earnings from the Medicaid program, and
relative ranking in earnings among Medicaid internist-
providers, during the years relevant to this case, are as
follows:

1982 $90,402.33 Third
1983 $99,818.17 Fifth
1984 $76,560.04 Third
1985 $55,953.54 Ninth
1986 $60,046.55 Tenth
1987 $72,562.37 Eighth
1988 $56,567.87 Fourteenth

Tr. 350-355.
8. The number of internists in Hawaii who were Medicaid

providers increased from 320 in 1982 to 450 in 1988.
Tr. 355.
9, The Secretary of DHHS has delegated to the I.G. the
authority to take action under section 1128A of the Act.
ag. EX. 1/3.

10. The I.G. has redelegated to the Assistant I.G. for
Investigations the authority to take action under section
1128A. J. Ex. 1/4.

11. The Assistant I.G. for Investigations has
redelegated to the Deputy Assistant I.G. for the Civil
Fraud Division the authority to take action under section
1128A of the Act. J. Ex. 1/5.

12. In a Notice dated July 29, 1988, the Deputy
Assistant I.G. for the Civil Fraud Division, DHHS,
pursuant to 42 C.F.R. 1003.105, properly notified Corazon
Cadiz Hobbs, M.D. and Corazon Cadiz Hobbs, M.D., Inc.
(Respondents), under section 1128 of the Act, of the
proposed penalties, assessments, and period of exclusion.
J. Ex. 1/6.

13. In January 1985, an investigation of Dr. Hobbs's
billings was commenced by the Medicaid Fraud Control Unit
of the Office of the Attorney General for the State of
Hawaii. Tr. 603-605.

14. This investigation was initiated following a
telephone call from an employee of Dr. Mojtaba Motlagh, a
doctor who shared offices with Dr. Hobbs. Dr. Motlagh is
the husband of Dr. Hobbs. Tr. 605, 736.

15. On February 21, 1985, a search warrant was executed
in the offices of Dr. Hobbs and approximately 1500
medical records were seized. Tr. 608-609.

16. Among the medical records seized were the medical
records for the 111 claims at issue in this case.
Tr. 609.

17. On June 26, 1985, Dr. Hobbs was indicted by the
State of Hawaii on 119 counts of filing false claims for
services to Medicaid recipients and one count of Theft in
the First Degree. J. Ex. 1/10.

18. On February 10, 1986, Dr. Hobbs pleaded nolo
contendere to the Count of Theft in the First Degree
referred to above. Acceptance of the plea was deferred
in accordance with an Order Granting Motion for Deferred
Acceptance of nolo contendere plea. The State of Hawaii
nolle prosequied "with prejudice" the 119 counts of
filing false claims to Medicaid recipients. J. Ex. 1/11.

19. As a result of the plea referred to above, Dr. Hobbs
was obligated by the court to serve 500 hours of
community service. In addition, pursuant to the Release
Agreement with the State of Hawaii, Respondent paid
$1,123.61 in restitution and $1,122.00 in costs. J. Ex.
1/12.

20. On July 29, 1988, the state court dismissed the
aforementioned charge of Theft in the First Degree.
J. Ex. 1/13.

21. Under the facts of this case, Respondent has not
been convicted of any Medicaid fraud or theft in
connection with claims submitted to the Medicaid fiscal
agent in the State of Hawaii. J. Ex. 1/14.

22. Respondent Corazon Cadiz Hobbs, M.D., Inc., the
corporate party, is dismissed as a party.

23. The Hawaii Department of Human Services (DHS) is the
designated state agency responsible for administering the
Medicaid program. DHS was previously known as the
Department of Social Services and Housing (DSSH).

Tr. 293.

24. At all times pertinent to this action, Hawaii
Medical Service Association (HMSA) was the designated
fiscal agent for the State of Hawaii Medicaid program.
J. Ex. 1/7.

25. HMSA is charged with processing and paying Medicaid
claims for reimbursement in Hawaii, and is also a private
insurance carrier and a member of Blue Cross/Blue Shield.
When Medicare beneficiaries are involved, Medicaid pays
as a secondary insurer for copayments and deductibles.
Tr. 94-96, 292-293.

26. In 1970, the Hawaii Medicaid program adopted the
1970 Relative Value Studies (HRVS) of the Hawaii Medical
Association. Tr. 297-298.

27. The HRVS was not formally adopted as a regulation by
DHS, but DHS did instruct HMSA to use the HRVS codes.
Tr. 299-300, 306-307, 311.
28. The Provider Agreement signed by Respondent
obligated her to use the correct HRVS codes in billing
Medicaid.

29. The HRVS contains certain codes and descriptions of
services signified by code numbers. I.G. Ex. 114.

30. The utilization of these codes allowed claims to be
processed by code number and replaced the use of long
verbal descriptions of services. Tr. 299-300.

31. From 1970 through 1985, there were no direct changes
in the HRVS to the definitions of procedure codes 90030,
90050 or 90060. Tr. 323-323.

32. Beginning in the 1970's, newsletters containing
information on the types of services covered under the
Medicaid program, and (2) billing instructions were sent
to providers every two to three months. These
newsletters were written by HMSA and approved by DHS.
Tr. 344-345.

33. On August 20, 1981, HMSA sent out a Medicaid
Newsletter which stated that telephone calls were not
covered under the Medicaid program. I.G. Ex. 147/5;
Tr. 343.

34. This newsletter was sent to all providers, including
Respondent, who were participating in the Medicaid
program at that time. Tr. 343.

35. In January 1983, the "Medicaid Physician Manual"
(Manual) produced by HMSA and approved by DHS, was sent
to all physicians in Hawaii who were Medicaid providers
at that time. Tr. 318.

36. A copy of the January 1983 Manual was sent to
Dr. Hobbs and she received it on February 3, 1983.
I.G. Ex. 149; Tr. 278, 338, 339, 535, 566.

37. The 1983 Manual repeated the earlier directive to
providers that telephone calls, including long-distance
calls, were not recognized as valid medical services and
should not be billed to the Medicaid program or the
patient. I.G. Ex. 115/3.

38. None of the Manuals have ever been adopted by any
rule or regulation under the Hawaii Administrative
Procedure Act, Hawaii Revised Statutes section 91-3 et
seq. J. Ex. 3/4.
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39. The Medicaid Physician's Manual and the HRVS codes
do not have to be formally adopted under the Hawaii
Administrative Procedure Act to bind providers.

40. Dr. Corazon C. Hobbs submitted or caused to be
submitted to HMSA the 111 claims for reimbursement listed
in the schedule that is attached to the I.G.'s Notice
(Schedule of Claims). J. Ex. 1/8.

41. The amounts claimed to HMSA, the amounts paid by
HMSA, and the date of service and HRVS Codes listed for
the 111 claims in issue are correctly stated in I.G.'s
Exhibit 121. J. Ex. 1/9.

42. The total amount claimed by Dr. Hobbs for the 111

claims presented to the Medicaid program was $2026.02.

Of this amount, $1030.22 was paid by HMSA to Dr. Hobbs.
I.G. Ex. 121.

43. The claims in issue were presented or caused to be
presented on three different types of forms -- Form 9,
HCFA 1490, and HCFA 1500. I.G. Ex. 1.1-111.1.

44. Claims 1, 2, 12, 13, 18-21, and 45-47 are on Form
9s. I.G. Ex. 1.1, 2.1, 12.1, 13.1, 18.1-21.1, 45.1-47.1.

45. Claims 3-11, 27-44, 77, and 95-101 are on HCFA 1490
forms. I.G. Ex. 3.1-11.1, 27.1-44.1, 77.1, 95.1-101.1.

46. Claims 14-17, 22-26, 48-76, 78-94, and 102-111 are
on HCFA 1500 forms. I.G. Ex. 14.1-17.1, 22.1-26.1,
48.1-76.1, 78.1-94.1, 102.1-111.1.

47. Information in regard to the type of service
rendered and location of the service appears in different
locations on these forms. I.G. Ex. 1.1-111.1.

48. On claim Form 9, the information as to the service
rendered by Respondent was placed by her or her staff on
a line where the words "OFFICE VISIT" were printed in
capital letters. I.G. Ex. 1.1.

49. On the other two types of forms submitted by
Respondent, the words "OFFICE VISIT" was handwritten by
her or her staff in the description column on the front
of the claim form. I.G. Ex. 3.1, 14.1.

50. Of the 35 claims filed on HCFA 1490 forms, 32 have
the letter "0", placed on the form by Respondent or her
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staff, which the form states as meaning the place of
service as "Doctor's Office", I.G. Ex. 3.1-11.1,
27.1-44.1, 77.1, 95.1-101.1.

51. All of the 65 claims filed on HCFA 1500 forms have
the number "3", placed on the form by Respondent or her
staff, which the form states as meaning the place of
service as "Doctor's Office". I.G. Ex. 14.1-17.1,
22.1-26.1, 48.1-76.1, 78.1-94.1, 102.1-111.1.

52. Ninety-seven of the 111 claims contain a
representation that the services were rendered in the
office of Dr. Hobbs. See FFCL 50 and 51.

53. The following codes in the HRVS pertain to "Office
visit:"

a. 90030 is described as, "Minimal service (e.g.
injection, immunization, minimal dressing)..."

b. _90050 is described as, "Limited examination,
evaluation, and/or treatment...."

c. 90060 is described as, "Intermediate
examination, evaluation and/or treatment, same or
new illness."

I.G. Ex. 114/2.

54. Seventy-six of the 111 claims have one of the HRVS
codes of 90030, 90050, or 90060, which the HRVS
designates as "office visit" codes, written on them. The
other 21 claims do not have a code written on them, but
do have the words "office visit" written or printed on
the claims. I.G. Ex. 1.1, 2.1, 12.1-26.1, 45.1-76.1,
78.1-94.1, 102.17-111.1.

55. Shanelle Baxa worked as a receptionist and secretary
for Dr. Hobbs, in Hawaii, from March 1982 until February
1985. Shanelle Baxa's legal name at the time she worked
for Dr. Hobbs was Ninfa D. Cadiz. Tr. 23-25.

56. Narcissa Ranchez worked as a medical assistant for
Dr. Hobbs, in Hawaii, from October 1982 to October 1984.
Tr. 545.

57. During Ms. Baxa's and Ms. Ranchez's employment with
Dr. Hobbs, there was a standard procedure for office
visits and a procedure for handling prescription refills
by telephone. Tr. 27, 545.
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58. The standard procedure when a patient came to the
office was to sign them in at the receptionist's desk,
pull the patient's medical chart, check their vital signs
(blood pressure, weight, and temperature), and write the
patient's vital signs and chief complaint in the medical
chart. The patients were then escorted to an examining
room and their medical chart was placed in a box on the
door to the room. Tr. 27, 28, 267, 545, 546.

59. The vital signs and chief complaint were not taken
on some occasions when an emergency patient or a child
was involved. These were exceptions to the standard
procedure used in Dr. Hobbs' office, and were rare.

Tr. 28, 273, 547, 548.

60. When Dr. Hobbs saw or examined a patient, she would
write the progress notes and prescription in the medical
chart, except on rare occasions when she would ask either
Ms. Baxa or Ms. Ranchez to write a prescription in the
patient's medical chart. Tr. 73, 539, 549.

61. It was standard office procedure in Dr. Hobb's
office, when a patient telephoned for a prescription
refill, to:

a. request the patient's name, medication, and the
name of the pharmacy;

b. pull the patient's medical chart;

c. obtain approval from Dr. Hobbs;

da. telephone the pharmacy with the prescription;

e. enter the prescription on the medical chart; and

f. place the chart on the medical assistant's desk
for billing.

Tr. 32, 33, 34, 43, 538.

62. A "p" was sometimes written beside the entry in the
medical chart to indicate a prescription Tr. 54.

63. In the cases where a doctor was covering for
Dr. Hobbs, only the covering doctor could write in the
medical record, regardless of whether it was an office
visit or a telephone prescription refill. Tr. 83.
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64. During Ms. Baxa's employment, there were occasions
when Dr. Hobbs answered the telephone and handled
prescription refills. Tr. 32.

65. In reviewing the 111 claims and the corresponding
medical records, the following criteria determine whether
a claim billed as a claim for an office visit was, in
fact, a claim for a telephone prescription refill:

a. the medical record entry is for a prescription,
has the letter "p" (prescription) written beside it,
and does not contain vital signs or a chief complaint
("ce");

b. the medical record indicates that this same
medicine had recently been prescribed; and

c. the medical record entry is in the handwriting of
an employee or a covering doctor, instead of
Dr. Hobbs.

66. The medical record entries which correspond to 95
claims have no vital signs, no chief complaint, and are
in the handwriting of an employee. I.G. Ex. 1.2-3.2,
5.2-12.2, 14.2-18.2, 20.2-24.2, 26.2-30.2, 32.2-44.2,
47.2, 48.2, 50.2-58.2, 60.2-62.2, 64.2-67.2, 69.2-85.2,
87.2-100.2, 102.2-106.2, 109.2-110.2; Tr. 167, 549-551.

67. The medical record entries which correspond to four
claims have no vital signs, no chief complaint, and are
in the handwriting of a covering doctor. I.G. Ex. 31.2,
49.2, 68.2, 101.2; Tr. 83.

68. The medical record entries which correspond to five

claims have a chief complaint, but no vital signs and are
in the handwriting of an employee. I.G. Ex. 25.2, 45.2,

46.2, 86.2, 107.2; Tr. 79, 85, 92, 104.

69. The medical record entries which correspond to three
claims have no vital signs, no chief complaint, and are
in the handwriting of Dr. Hobbs. I.G. Ex. 13.2, 59.2,
63.2; Tr. 76, 87, 89.

70. The medical record entries which correspond to three
claims have a chief complaint, but no vital signs, and
are in the handwriting of Dr. Hobbs. I1.G. Ex. 19.2,
108.2, 111.2; Tr. 77, 104, 105.
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71. The medical record entry which corresponds to claim
four has no vital signs and no chief complaint. The
handwriting for this entry was not identified.

I.G. Ex. 4.2.

72. No vital signs are present on any of the medical
charts which correspond to the 111 claims in issue.
I.G. Ex. 1.2-111.2.

73. The medical records which correspond to 47 claims
have the letter "p" written beside the entry on the
medical chart. I.G. Ex. 1.2, 2.2, 4.2-8.2, 11.2, 12.2,
14.2, 18.2-21.2, 26.2-30.2, 36.2, 39.2-42.2, 45.2, 48.2,
49.2, 56.2, 58.2, 64.2, 67.2, 69.2, 71.2, 73.2, 75.2,
78.2, 80.2, 82.2, 83.2, 85.2, 86.2, 89.2, 90.2, 94.2,
96.2, 97.2, 100.2, 102.2, 103.2, 106.2-109.2; FFCL 62.

74. Of the 111 claims in issue, only eight have a "cc,"
meaning chief complaint, listed on the corresponding
medical chart. I.G. Ex. 19.2, 25.2, 45.2, 46.2, 86.2,
107.2, 108.2.

75. The medical record entries which correspond to
claims 13, 59, and 63 indicate that the medicine
prescribed on that occasion had been recently prescribed
for those same patients. I.G. Ex. 13.2, 59.2, 63.2;

Tr. 76-77, 87, 89.

76, Of the 111 claims in issue, the medical record entry
for all claims, except 13, 19, 31, 49, 59, 63, 68, 101,
108, and 111 are in the handwriting of an employee of

Dr. Hobbs. I.G. Ex. 1.1-12.2, 14.2-18.2, 20.2-30.2,
32.2-48.2, 50.2-62.2, 64.2-67.2, 69.2-100.2, 102.2-107.2,
109.2-110.2.

77. For claims 31, 49, 68 and 101, the medical record
entry is in the handwriting of doctors who covered

Dr. Hobbs' patients for her. I.G. Ex. 31.2, 49.2, 68.2,
101.2.

78. The medical record entry for claim 31 is in the
handwriting of a covering doctor, contains no vital signs
or chief complaint, and contains a prescription entry.
I.G. Ex. 31.2; Tr. 80.

79. The medical record entry for claim 49 is in the
handwriting of a covering doctor and was a prescription
refill for a lotion. I.G. Ex. 49.2; Tr. 85, 86.
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80. The medical record entries for claims 68 and 101 are
in the handwriting of a covering doctor, contain no vital
signs, and were for prescriptions which had been recently
prescribed by Dr. Hobbs. Tr. 101-103; I.G. Ex. 68.2,
101.2.

81. During their employment with Dr. Hobbs, Ms. Baxa or
Ms. Ranchez would usually fill out the claim forms,
although a sister of Dr. Hobbs would sometimes assist in
filling out forms after office hours. Tr. 26.

82. The person preparing the claim forms would work from
the medical records placed on the medical assistant's
desk. A claim form would be filled out, clipped to the
medical chart, and given to Dr. Hobbs for her review and
signature. A double hash mark was made on the left side
of the medical chart entry to indicate it had been
billed. Tr. 45, 55, 274, 552.

83. Dr. Hobbs admitted that she and her staff had billed
Medicaid for prescription refills called in over the
telephone since the beginning of her private practice in
1977. Tr. 43, 44, 553, 867, 868.

84. When an employee did not know the appropriate code
for a claim, they asked Dr. Hobbs. Tr. 121, 134, 136,
285.

85. During Ms. Baxa's employment, Dr. Hobbs sometimes
wrote the HRVS code in the margin of the medical record.
I.G. Ex. 15.2, 23.2, 119.2; Tr. 108.

86. Dr. Hobbs had a policy of using code 90060 for every
new illness of a patient. Tr. 555, 556, 874, 879.

87. Ten of the 111 claims in issue were billed using the
code 90060, and one using the code 90050. I.G. Ex. 121.

88. During Ms. Baxa's employment, Dr. Hobbs returned
claim forms which had been filled out by one of her
employees because she did not agree with the code used by
the employee. Tr. 276, 596.

89. Fifty-nine of the claims were on HCFA 1500 forms
containing a certification. I.G. Ex. 113.

90. Notice is given to a provider on the reverse side of
the HCFA 1500 form to refer to the HMSA Medicaid
Physician's Manual for complete instructions. I.G. Ex.
112.
-16-

91. On the reverse side of the 59 HCFA claim forms,
Block 25 contained a "Provider Statement" which:

a. certified that the information on the form was
true, accurate, and complete;

b. acknowledged that Dr. Hobbs understood that
payment of the claim would be from federal and state
funds; and

c. advised her that any false claims, statements,

documents, or concealment of material facts, would
subject her to prosecution under federal or state

laws.

I.G. Ex. 112.

92. The Provider Statement on these HCFA forms further
contained a requirement that Dr. Hobbs keep such records
as necessary to disclose fully the extent of services
provided to a patient. I.G. Ex. 112.

93. During Ms. Baxa's employment, there were occasions
when Dr. Hobbs was questioned by her employees about the
billing of telephone prescription refills to Medicaid.
Tr. 37, 38.

94. During Ms. Ranchez's employment, there were
instances when Dr. Hobbs told her staff to retrieve a
patient's medical record from the patient cabinet file
and to bill Medicaid for a telephone prescription refill.
Tr. 275, 553, 554.

95. In April 1985, following the execution of the search
warrant by the Hawaii State Medicaid Fraud Control Unit,
Dr. Hobbs stopped billing for prescription refills by
telephone. Tr. 885.

96. The I.G. proved that claims 1-18, 20-107, 109,
and 110 were for prescription refills taken over the
telephone, and were not for office visits.

97. The I.G, proved that Dr. Hobbs knew that the
Medicaid services for 94 claims were not provided as
claimed. I.G. Ex. 3.1, 4.1, 6.1-11.1, 14.1-17.1,
22.1-38.1, 40.1, 42.1-44.1, 48.1-51.1, 53.1-107.1, 109.1,
110.1.
-17 -

98, The I.G. proved that Dr. Hobbs should have known
that the Medicaid services listed on 108 claims were not
provided as claimed.

99. The I.G. proved that Dr. Hobbs had reason to know
that the Medicaid services listed on 108 claims were not
provided as claimed.

100. The I.G. did not prove that claims 19, 108, and 111
were not for office visits.

101. The I.G. did not prove that Dr. Hobbs should have
known, had reason to know, or knew that the Medicaid
services listed as claims 19, 108, and 111 were not
provided as claimed.

102. The amount of penalties and assessments, and the
length of exclusion from participation in the various
medical programs, is to be determined in a CMPL case by
reviewing:

a. the nature and circumstances under which the
requests for payment were made;

b. the degree of a respondent's culpability;

c. the existence of prior offenses;

d. Respondent's financial condition; and

e. any other matters that justice may require.
42 C.F.R. 1003.106, 1003.107.
103. The I.G. proved that it is an aggravating
circumstance that the claims presented by Dr. Hobbs were
for services provided over a lengthy period of time.
104. The I.G. proved that it is an aggravating
circumstance that there were a substantial number of

claims involved in this case.

105. The I.G. proved that the amount claimed for the
services at issue was substantial.

106. The I.G. proved that there was a pattern to the
claims submitted by Respondent.
- 18 -

107. The I.G. proved that it is an aggravating
circumstance that Dr. Hobbs knew that the some of the
claims for services were not provided as claimed.

108. The I.G. did not prove that there were other
factors to be considered.

109. The I.G. did not prove all of the aggravating
circumstances which he alleged.

110. The I.G. did not prove that at any time prior to

the presentment of an actionable claim, Respondent had

been held liable for criminal, civil, or administrative
sanctions in connection with a program of reimbursement
for medical services.

111. Dr. Hobbs proved that the services billed were all
of the same type.

112. Dr. Hobbs proved that circumstances exist which
would justify a small reduction in the amount of
penalties and a reduction in the period of the exclusion
imposed. Dr. Hobbs is a valuable resource to her
community. Although the telephone prescription refills
were not office visits and not reimbursable, Dr. Hobbs
was concerned about her patients and did render some
service to the patients in this case. Tr. 715, 716, 724,
728, 863.

113. Dr. Hobbs did not prove that the services were
provided within a short period of time.

114. Dr. Hobbs did not prove that 108 claims for
services were the result of an unintentional and
unrecognized error in the process by which she presented
claims.

115. Dr. Hobbs did not prove that the imposition of the
proposed penalties and assessments, without reduction,
would jeopardize her ability to continue as a health care
provider.

116. The appropriate amount of civil monetary penalties
in this case is $49,000.00, the appropriate amount of
assessments is $2,797.81, and the appropriate period of
exclusion is two years.
- 19 -

DISCUSSION
I. Th .G. is N i Es 1. ix-
s ute imitations ies In This c .

Respondent asserts that we need not deal with the merits
of this case because this proceeding is barred by the
Release Agreement she entered into with the State of
Hawaii in connection with the resolution of the criminal
charges brought against her. She argues that the
doctrine of equitable estoppel and principles of the law
of partnerships are applicable to this agreement. R. Ex.
7; R. Br. 3, 10-13. There is no merit to Respondent's
arguments. The doctrine of equitable estoppel does not
apply in this case. There has been no proof of any
misstatement or affirmative misconduct on the part of any
United States Government official, and no showing of
detrimental reliance. Heckler v. Community Health
Services of Crawford County, 467 U.S. 51 (1989); Wagner
v. Director Federal Emergency Management Agency, 847 F.2d
515, 519 (9th Cir. 1988).

Furthermore, the relationship of the United States and
the states in the administration of the Medicaid program
is not a legal partnership. Harris v. McRae, 448 U.S.
297, 309 (1980); Rowley on Partnerships (1960),

pp. 89-93.

Respondent also asserts that most of the 111 claims in
issue are time-barred because the previously existing
five-year period of limitations in the Regulations
controls in this case, rather than the six-year statute
of limitations enacted in 1987.

On August 18, 1987, the CMPL was amended to include a
six-year statute of limitations. Prior to this date,
there was no statute of limitations expressly provided in
the CMPL itself, but a five-year period of limitations
was provided for in the Regulations. Congress specified
that the six-year statute of limitations added to the
CMPL would apply to all actions initiated by the I.G.
after September 1, 1987.

This action was initiated after September 1, 1987, and
all the claims in issue were presented within six years
preceding the I.G.'s Notice. Accordingly, Congress
having intended the new six-year statute of limitations
to apply in all CMPL actions initiated after September 1,
1987, I conclude that the six-year statute of limitations
- 20 -

applies to this action. Inspector General v. Donald 0.
Bernstein, D.O., DAB Docket No. C-40 (1989).

Il. There Are Only Two Elements Of Liability in Dispute
in This Case.

The CMPL provides that any person who presents a false or
improper claim for Medicare or Medicaid reimbursement
shall be subject to (1) a civil money penalty of not more
than $2,000 for each item or service, (2) an assessment
of not more than twice the amount claimed for each item
or service, and (3) an exclusion from participating in
the Medicare and Medicaid programs.

The I.G. has the burden of proving by a preponderance of
the evidence all elements of liability under the CMPL and
Regulations for each claim in issue. The I.G. must prove
that (1) a "claim" (2) was "presented or caused to be
presented" (3) by a respondent (4) to the Medicare or
Medicaid programs (5) for "a medical or other item or

service" (6) when he or she "knew", "had reason to know",
or “should have known" (7) that the items or services in
issue were "not provided as claimed." CMPL 1320a-7a(1)

(A) (B) (C); Regulations 1003.102(a) (1).

The only two elements of liability in dispute in this
case are: (1) whether Respondent provided the services
"as claimed" and, if not, (2) whether she "knew," "had
reason to know" or "should have known" that the services
claimed were "not provided as claimed."

III. Tf I.G. Prov i i

During the period in issue, Medicaid paid for "office
visits," but did not pay for medical services provided
by telephone. Telephone calls were not considered valid
medical services. Tr. 348; I.G. Ex. 115/3. Respondent
admitted that she billed Medicaid for filling or
refilling prescriptions by telephone and had done so
from the inception of her private practice of internal
medicine in 1977 until Medicaid executed its search
warrant in 1985. Tr. 43, 44, 553, 867, 868, 885.

The word "visit" is defined "to go to see (as a physician
or dentist) for professional services." Webster's Third
New International Dictionary (1976).
-21-

Accordingly, the term "office visit" means to physically
enter an office for a visit. Respondent conceded during
her cross-examination that even she views the concept of
an “office visit" as physical presence in the office.

Question: How many patients would visit your office
on the average day (during the time period 1982 to
1984)?

Answer: . . . about maybe 50, 60.

Question: And you didn't include people who called
in on the phone in that figure because visiting an
office means physically coming to an office doesn't
it? Isn't that what you were thinking just now?

Answer: Yes.
Tr. 863-864.

For the period in issue, Respondent's standard office
procedure for handling patients who actually came into
the office was as follows: Upon entering the office, the
patient was asked to write his or her name on a sign-in
sheet.” The medical assistant would then pull that
patient's medical chart from the file cabinet, summon the
patient, take the patient's blood pressure, temperature,
and weight, and record the vital signs and the patient's
chief complaint. The patient then would be led into one
of the examining rooms, and the medical record would be
put in a box on the door of that examining room. Tr. 27,
28, 267, 545, 546. Thus, I used these three criteria to
determine whether a patient had been present in Dr.
Hobbs' office: the recordation of the vital signs and
chief complaint, and whether Dr. Hobbs herself or one of
her staff members wrote the entry in the medical record.

The medical records and the testimony of three former
employees establish that, with respect to 108 of the 111
claims in issue, the services for which Respondent billed
Medicaid were solely for the filling or refilling of
prescriptions by telephone. FFCL 96. The I.G. did not
prove that claims 19, 108, and 111 were not for an
"office visit" as claimed because Dr. Hobbs wrote a chief

The sign-in sheets were used to establish the
order in which patients were examined. They had no
other purpose and were not retained as office records.
Tr. 848.
- 22 -

complaint on the medical records corresponding to these
claims. FFCL 101.

The evidence shows that the criteria for an office visit
were not met in these 108 instances.

Three former employees who worked for Respondent during
1982-1984 testified.® I found that they testified
convincingly, and provided credible evidence, regarding
the practices in Respondent's office. I reject
Respondent's contention that their testimony was
“incredible and riddled with exceptions". Ms. Shanelle
Baxa worked in the office from March 23, 1982 to February
1985 as a secretary and receptionist. Tr. 24, 25.

Ms. Narcissa Ranchez was employed by Dr. Hobbs as a
medical assistant from October 1982 through October 1984.
Tr. 545. Ms. Trinidad Tugauen replaced Ms. Ranchez as a
medical assistant, and worked for Dr. Hobbs from

October 1, 1984 through October 1987. Tr. 264, 265, 270.

Ms. Baxa testified that exceptions to taking the vital
signs and chief complaint occurred "not too often."

Tr. 28, 31. Ms. Ranchez testified that all but
approximately 10 percent of the patients physically
coming into the office would have vital signs taken.
Tr. 547, 548. In other words, about 90 percent of the
patients would have vital signs taken. Ms. Tugauen
testified that 95 to 96 percent of the time vital signs
were taken for patients visiting the office. Tr. 273.

Ms. Ranchez also testified that the two principal
exceptions to taking down vital signs occurred with
patients with an emergency condition, or a patient who
had a very recent visit (within 2 weeks). Tr. 546.
However, even if a patient came in with an emergency, an
indication of the chief complaint would be put in the
medical record. Tr. 142, 290, 547, 548. Respondent did
not credibly rebut this testimony.

When Respondent saw the patient, it was she who wrote the
progress notes and prescription (if any) in the medical
record herself. Tr. 73. Ms. Baxa testified that "not
too often" would Ms. Baxa write a prescription in the
medical record for someone who came into the office.

Tr. 539. Likewise, Ms. Ranchez testified that it would

é Throughout their testimony, Respondent's counsel

objected on relevancy and other grounds. I overruled his
objections and I sustain those rulings now.
- 23 -

be "rare" for someone other than Respondent to write a
prescription in the medical record for a patient who came
into the office. Tr. 549.

The standard office procedure for handling prescription
refills by telephone was very different from the
procedure used for patients who came into the office.
When a patient would telephone the office for a
prescription refill, the person who answered the
telephone would obtain the following information: patient
name, medication, and pharmacy. The person would then
pull the medical chart for that patient, obtain approval
from Respondent to authorize a refill of the prescription
(except where Dr. Hobbs herself answered the telephone),
and telephone the prescription to a pharmacy. Tr. 32,
33, 43. The person would then enter the prescription on
the medical record, and place the medical record on the
medical assistant's desk (sometimes called the "billing
table") for preparation of a claim. This practice was
followed throughout the employment of Ms. Baxa. Tr. 34.
The same procedure was attested to by Ms. Ranchez.

Tr. 538.

In conclusion, the documentary evidence in the record,
corroborated by the testimony of Ms. Baxa, Ms. Ranchez,
and Ms. Tugauen, proves that “office visit" services were
not rendered as claimed on 108 of the 111 claims in
issue. Respondent admitted that she submitted or caused
to be submitted all 111 claims. J. Ex. 1/8. The term
"office visit" appears in writing or in print on all 111
claims. Thus, the I.G. proved that 108 claims which list
"office visit" services as being rendered were for
services other than an “office visit" and that "office
visit" services were "not provided as claimed".

Iv. e I.G. Proved w wow
To Know" w o q

Not Provided As Claimed.

The current standard of knowledge in the CMPL required
for liability to attach is that a respondent "knows or
should know" that an item or service is not provided as
claimed. " The statute sweeps within its ambit not only

7 The standard of knowledge in the CMPL prior to

December 22, 1987 was that a respondent "know" or had
“reason to know." The "should know" standard became law
(continued...)
- 24 -

the knowing, but the negligent. . . ." 48 Fed. Reg.
38827, 38831 (Aug. 26, 1983).

A. The I.G. Proved Tha ondent "H, wr"
That 108 of the 111 Claims in Issue Were Not For "Office

Visits" As Claimed.

The “reason to know" standard employs the "reasonable
person" (objective jowledge) concept. The "reason to
know" standard attaches where a respondent has sufficient
information to create an obligation to investigate and
find out whether certain services are billable under the
Medicare or Medicaid programs. See, The Inspector
General _v. George A. Kern, DAB Docket No. C-25 at p. 6
(1987); and the Restatement of Torts (2d) (at section 12)
(1965).

Thus, to the extent that Respondent submitted improper
claims which she could have known were improper had she
investigated, she is liable under the CMPL for presenting
claims in which the services were "not provided as
claimed." She is liable under this standard whether or
not her awareness at the time she signed or submitted a
claim would support a finding that she knew the services
were not provided as claimed.

1. Responden d
Requirements F. Submitti ims.

The first major category of duties for every provider of
services arises by reason of a contractual arrangement
between the provider and the Medicaid program. Every
medical provider must sign a Provider Agreement in order
to participate in the Medicaid program.

Respondent signed her Provider Agreement in 1977 and
agreed to make herself aware of program requirements and

7 (...continued)
on December 22, 1987, as a result of an amendment to the
CMPL, enacted by section 4118(e) of the Omnibus Budget
Reconciliation Act (OBRA) of 1987, Pub. L. 100-203. The
legislation stated that the amendment would "apply to
activities occurring before, on, or after the date of

[OBRA's] enactment .. ." Section 4118(e)(3) of OBRA.
See, The Inspector General v . Dean G. Hume, DAB Docket

No. C-50 at pp. 18-21 (1989).
~ 25 -

to keep such records as necessary to disclose fully the
extent of services provided. FFCL 28.

The second major category of duties arise by reason of
Medicaid instructions to all Medicaid providers. HMSA
issued instructions to medical providers with regard to
what items and services the Medicaid program would
reimburse, and which items and services were not
reimbursable (in the form of a Provider Manual ~-- which
is called the "Medicaid Physician Manual" in Hawaii --
and newsletters).

In January 1983, the "Medicaid Physician Manual" was
produced by HMSA, reviewed and commented upon by DHS, and
published with the approval and on the instructions of
DHS. I.G. Ex. 115, Tr. 317, 333, 334. Respondent
received a copy of the Manual on February 3, 1983.8

FFCL 36. The Manual stated explicitly:

Telephone calls - excluded. Telephone calls,
including long-distance calls, are not recognized as
valid medical services and should not be billed to
the Medicaid program or the patient.

I.G. Ex. 115/3.

Earlier, on August 20, 1981 (prior to all of the claims
in issue) this same policy was stated in a Medicaid
Newsletter: "Telephone calls are not covered under the
Medicaid program." I.G. Ex. 147/5. In general, these
newsletters were sent out every two to three months
starting in the 1970's. Tr. 344, 345. As with the other
documents mentioned above, the newsletters were written

® Due to the importance of the Medicaid Physician
Manual, HMSA requested providers to fill out a receipt
for the document and return it to HMSA. Tr. 338. A
receipt for the Medicaid Physician Manual was located in
the HMSA file for Corazon C. Hobbs, M.D., and was
admitted into evidence as I.G. Ex. 149. Tr. 339. The
receipt, which was dated February 3, 1983, bares a
signature which was identified as the Respondent's
signature by three of her former employees. Tr. 278,
535, and 566. The lay identification of the Respondent's
handwriting was allowed into evidence under Rule
901(b) (2) of the Federal Rules of Evidence. See, U.S. v.
Dreitzler, 577 F.2d 539 (9th Cir. 1978), cert. denied,
440 U.S. 921 (1979).

- 26 -

by HMSA and sent to DHS for the agency's approval.
Tr. 345.

Procedure codes are a substitute for language on the
claims. Code numbers are also relevant in determining
whether Respondent misrepresented the services she
provided. These codes, which must be followed by medical
providers, are communicated to them through the Manual,
newsletters, and memoranda sent to them by HMSA with the
prior approval of DHS. Tr. 27, 295, 332. The term
"office visit" appears on each of the 111 claims in
issue. FFCL 48, 49. The procedure codes listed in the
Manual for the services described as "office visit" are
listed on 76 of the claims in issue. FFCL 54.

2. i -Ni Claims Have Certificatio
Accuracy.

I held in Kern, supra (at pp. 60-62), that the duty to
investigate springs from the certifications of truth and
accuracy on the claim form itself. Fifty-nine of the
claims at issue in this case were accompanied by such a
certification. 1I.G. Ex. 112, 113. Thus, in addition to
the duty to investigate generated by the Provider
Agreement, the Manual, newsletters, and the terms and
codes used and written by Respondent or her staff on the
claim, Respondent was also made aware of her duty to
investigate by the certification statement on these 59
claims.

I find and conclude that Respondent is liable under the
CMPL for 108 claims that were not provided as claimed
because of her duty to investigate and assure that these
claims were proper. This does not contradict my finding
that she actually knew that 94 of the claims were
improper (discussed in C, infra).

9 fr am not persuaded by Respondent's arguments that

because the HRVS codes and Medicaid Physician's Manual
were not formally adopted by the State of Hawaii pursuant
to the Administrative Procedure Act, they are not binding
on Respondent. United States v. Larm, 824 F. 2d 784 (9th
Cir. 1987).
- 27 -

B. The I.G. Proved That Respondent Should Have Known
That 108 Of The 111 Claims In Issue Were Not For "Office
Visits" as claimed.

The “should know" standard is quite similar to the
"reason to know" standard, except that the duty to
inquire (the duty to ascertain the truth and accuracy of
a claim) exists at all times and does not require any
special circumstances to bring attention to the duty. The
Restatement of Torts (24) (at section 12) states:

The words "should know" are used throughout the
Restatement of this Subject to denote the fact that a
person of reasonable prudence and intelligence or of
the superior intelligence of the actor would
ascertain the fact in question in the performance of
this duty to another, or would govern his conduct
upon the assumption that such fact exists.

In enacting the "should know" amendment in 1987, Congress
indicated in the legislative history that the legislation
was a clarification of the existing standard and that the
"should know" standard of knowledge placed on Medicaid
and Medicare providers the duty to ascertain the truth
and accuracy of claims submitted by them:

Providers who bill the Medicare, Medicaid and MCH
programs have an affirmative duty to ensure that the
claims for payment which they submit, or which are
submitted on their behalf by billing clerks or other
employees, are true and accurate representations of
the items or services actually provided.

H. Rep. No. 100-391, 100 Cong., 2d Sess., pp. 533~535
(1987).

Respondent argued that "her evidence was that other
physicians in the community don't pay attention to the
billing details, read the Provider's Manual, nor read the
reverse side of the claims forms in order to become aware
of all of the intricate details of what is compensable
and what is not." R. Br. 5. She also argued that the
Medicaid rules were ambiguous and that, accordingly, the
claims in issue should be viewed as a simple mistake. R.
Br. 7.

I am not persuaded by these arguments. The "should know"
standard includes reckless disregard for the consequences
of a person's acts and simple negligence in preparing,
presenting, or in supervising the preparation and
- 28 -

presentation of claims. Mayers v. U.S. tt.
and Human Services, 806 F.2d 995 (11th Cir. 1986), cert.

denied, 484 U.S. 822 (1987). Respondent was obliged to
pay attention to her billing, read the Manual and
bulletins, and resolve any ambiguities before submitting
claims which were not proper. Her submission of improper
claims which she should have known were improper makes
her liable, and she is no less liable if she refused to
inform herself adequately. Also, Respondent's
characterization of her actions as a "simple mistake"
would have some validity if she had written "telephone
prescription refill" on the claim, but instead she used
the words and codes for an "office visit." Thus, I find
and conclude that Respondent is liable on 108 claims.

c. The I.G. Proved That Respondent "Knew" That 94 of the
111 Claims In Issue Were Not Provided As Claimed.

The I.G. established liability in this case under the
"reason to know" and "should have known" standards of
knowledge. Culpability under these is not as great as
the "knows" standard. It should be noted, however, that
in 94 of the 108 cases where liability was established,
the I.G. also proved that Respondent had actual
knowledge.

Respondent's actions demonstrate that she had the
requisite degree of awareness to constitute conscious
knowledge in 94 instances where she was claiming
reimbursements as an "office visit" for services that
were not an "office visit". As I stated in The Inspector
General v. Jimmy Paul Scott, DAB Docket No. C-15 at p. 27
(1986), it was decided that Congress, in using the term
"knows" and the drafters of the Regulations in using the
term "knew," were referring to conscious knowledge of a
fact (or subjective knowledge) .

Respondent personally signed the 94 claims in question.
On 32 of the claims, a "3" appears, meaning that the
claim was for an "office visit" in the doctor's office.
FFCL 50. On the remaining 65 claims, a handwritten "0"
appears, meaning that the claim was for an "office visit
in the doctor's office." FFCL 50, 51. (Of these 65
claims, three have been eliminated. I determined that
the I.G. did not prove that two of these 65 claims were
not for office visits. I.G. Ex. 108.1, 111.1. The I.G.
did not prove that Respondent personally signed the third
claim. I.G. Ex. 52.1) In addition, all 94 claims where
I determined she "knew" have the words "office visit"
printed or handwritten on them. Thus, Respondent knew

-~ 29 -

she was claiming reimbursements for an "office visit in
the doctor's office." The information on the medical
records which were attached to the claims when Respondent
signed them did not contain the information which would
have been there if the patient had been physically
present in the office for the billed service. It was
office procedure to clip the claim to the pertinent
medical record when Respondent reviewed and signed the
claims. Tr. 45. The medical records should have
contained both vital signs and the chief complaint, but
they did not. Thus, Respondent "knew" that an "office
visit" had not occurred and that the patient was not seen
in the doctor's office. Even though she "knew" that only
telephone services had been provided by her, she claimed
reimbursement for office visits because she "thought that
every service you give should be reimbursable." Tr. 810.

Vv. The Appropriate Amount of the Penalty, Assessment,
and Exclusion is not arrived at by Formula.

A. The ALJ Must Consider the Aggravating and Mitigating
Factors and Other Considerations.

The CMPL and Regulations require the ALJ to consider
aggravating and mitigating circumstances in deciding the
appropriate amount of the sanctions that should be
imposed in any case where the I.G. has established
liability.

Specifically, the CMPL and Section 1003.106 of the
Regulations require me to examine: (1) the nature of the
claims or requests for payment and the circumstances
under which they were presented, (2) the degree of
culpability of Respondent, (3) the history of prior
offenses of Respondent, (4) the financial condition of
Respondent, and (5) such matters as justice may require.
Section 1003.106(b) of the Regulations contains some
general guidelines for the interpretation and application
of these aggravating and mitigating factors.

The I.G. must prove, by a preponderance of the evidence,
any aggravating circumstances; Respondent must prove,
by a preponderance of the evidence, any mitigating
circumstances. 42 C.F.R. 1003.114(a), 1003.114(c).

The Regulations provide that, in cases where mitigating
factors preponderate, the penalty and assessment should
be set appropriately below the maximum permitted by law,
and where aggravating factors preponderate, the penalty
and assessment should be set at or close to the maximum
permitted by law. 42 C.F.R. 1003.106(c)(2). Therefore,
- 30 -

in determining the appropriate penalty, assessment, and
period of exclusion, I must apply these factors to the
108 claims for which liability has been established.

While the CMPL and Regulations require consideration of
aggravating and mitigating factors to determine the
appropriate amount of the penalty, assessment, and the
length of exclusion to be imposed in a given case, there
is no formula set forth for computing them, and there is
little guidance to be found in the CMPL and its
legislative history (except with regard to assessments,
see 48 Fed. Reg. 38827 (Aug. 26, 1983). Hume, supra, at
pp. 21-29. The preamble to the Regulations state that
"fixed numbers" have been "eliminated" as "triggering
devices." This emphasizes that discretion is preferable
to a mechanical formula. Id. The preamble further
states: "as we gain more experience in imposing sanctions
under the statute, we may further refine the guidelines,
but at this early stage we believe that increased
flexibility is preferable."

The ALJ must also keep in mind that the purpose of a
civil monetary penalty in a CMPL case is deterrence and
protection of the Medicare and Medicaid programs, rather
than retribution or punishment. See, Mayers v. U.S.
Department of Health and Human Services, 806 F.2d (11th
Cir. 1986), cert. denied, 484 U.S. 822 (1987); Chapman v.
United States of America, Department of Health and Human
Services, 821 F.2d 523 (10th Cir., 1987). The dual
purpose of deterrence is to encourage others to comply
with the law and to discourage a respondent from
committing the wrong again. Thus, to arrive at an
appropriate penalty that would be a deterrent, rather
than retribution, the ALJ must consider the factors
outlined in the Regulations, weigh the gravity of the
wrong done by a respondent, and attempt to prevent the
wrong from being committed again by a given respondent
and other providers.

The purpose of the assessment in a CMPL case is to enable
the United States to recover the damages resulting from
false or improper claims. The assessment includes
amounts paid to a respondent by the Medicare and Medicaid
programs and the costs of investigating and prosecuting
unlawful conduct. See 48 Fed. Reg. 38831 (Aug. 26,
1983). See, H.R. Rep. No. 97-158, 97th Cong., lst Sess.
329, 461-462 (1981), 1981 U.S. Code Cong. & Admin. News
727-28.
-31-

1. -G. ed t the N nd Ci

of the Claims and Services at Issue Were aggravating
Circumstances.

The guidelines at section 1003.106(b) (1) of the
Regulations state that an aggravating circumstance exists
where the requests for payment were of several types,
occurred over a lengthy period of time, were large in
number, indicated a pattern of making such requests for
payment, or the amount was substantial. Again, the
guidelines do not indicate what period constitutes a
"lengthy" period, what number of requests is a "large"
number, or what amount is a "substantial amount." See,
48 Fed. Reg. 38827 (Aug.26, 1983). These judgments are
left to the discretion of the ALJ.

The guidelines, at section 1003.106(b) of the
Regulations, state that it is a mitigating circumstance
if the nature and circumstances of the requests for
payment were all of the same type, occurred within a
short period of time, were few in number, and the total
amount requested from Medicaid recipients was under
$1,000. The Regulations do not specify what constitutes
a “short period of time" or how to evaluate the number of
claims.

Since examples of aggravating circumstances in the
guidelines are stated in the disjunctive, only one need
be proven by the I.G. to establish the nature and
circumstances of the claim at issue to be considered
aggravating. Conversely, since examples of mitigating
circumstances in the guideline are stated in the
conjunctive, all must be proven by Respondent in order
for the nature and circumstances of the claims at issue
to be considered mitigating. Here, Respondent did not
prove all of them.

Although the I.G. did not prove all of the aggravating
circumstances which he alleged, he did establish more
than one aggravating circumstance in this case. The I.G.
proved that the claims for services at issue were
provided over a lengthy period of time, were a
substantial number, and involved a substantial amount
claimed.

Respondent presented or caused to be presented 108 claims
for services that were not provided as claimed, and
Respondent submitted these claims with regularity from
1982 to 1985. The total amount claimed by Respondent on
these claims was $1,960.71, which is a substantial
-32-

amount. Thus, the I.G. proved that the amounts claimed
for the services at issue was substantial.

The I.G. also proved that there was a pattern to the
claims submitted. Consistently, Respondent indicated
that the service provided was an "office visit" although
the medical record showed that the service was a
prescription refill handled solely by telephone.

The I.G. did not prove that there were several types of
services involved in this case. All of the services at
issue were telephone prescription refills billed as
"office visits."

2. : v 2 ili of
dent W. A vating Circumstance.

One of the most complex of the factors to be considered
by the ALJ in determining the amount of the penalty is
the "degree of culpability." Hume, supra, at p. 24. The
guidelines in the Regulations indicate that this factor
relates to the degree of a respondent's knowledge and
intent. Knowledge is an aggravating factor, and
"unintentional or unrecognized error" is a mitigating
factor if a respondent "took corrective steps promptly
after the error was discovered." Regulations, section
1003.106(b)(2). Thus, the determination of the degree of
culpability involves an inquiry into the degree of a
respondent's knowledge. See, 48 Fed. Reg. 38831 (Aug.
26, 1983).

The I.G. proved that Respondent "knew" that, in 94 of
the claims in issue, the services were not provided as
claimed. She had reason to know and should have known
that 108 of the claims in issue were not provided as
claimed. It is an aggravating circumstance that
Respondent had a reckless disregard for the Medicare and
Medicaid program requirements, in that she knowingly
ignored the requirements when presenting claims to
Medicare and Medicaid. Respondent's testimony with
respect to program requirements that "she thought every
service should be reimbursable", coupled with her
response that “it doesn't belong to my realm of interest"
demonstrates a dangerously arrogant and reckless attitude
for a provider of services to the Medicaid program.

Tr. 891-92.

I conclude that Respondent did not prove that her
presentment of claims was a result of unrecognized and
-33-

unintentional error or prove that corrective steps were
taken promptly after the error was discovered.

3. he I.G. Did Not Vv isto:
Offenses as an Aggravating Circumstance.

The next factor discussed in the Regulations is "prior
offenses." The guidelines in section 1003.106(b) state
that an aggravating circumstance exists if, prior to the
presentation of the improper claims at issue, a
respondent had been held liable for criminal, civil, or
administrative sanctions in connection with one of the
programs covered by the CMPL or any other medical
services program. This guideline would clearly prevent
consideration of mere allegations of past wrongdoing. A
respondent must have been held liable, subjected to
actual sanctions, and the claims must not have been the
subject of the instant proceeding. The preamble makes
clear that prior offenses are not an aggravating
circumstance, unless there has been a final agency
determination or a final court adjudication. 48 Fed.
Reg. 38832 (Aug. 26. 1983).

The I.G. did not prove that any sanctions had been
imposed against Respondent.

4. Respondent Did Not Prove That Her Financial Condition
Is a Mitigating Circumstance.

The regulations state that the financial condition of a
respondent should constitute a mitigating circumstance if
the penalty or assessment, without reduction, would
jeopardize the ability of a respondent to continue as a
health care provider. Thus, it is clear that the ALJ
may consider a respondent's financial condition.
Furthermore, the guidelines at section 1003.106 (b) (4)
note that the ALJ must consider the resources available
to a respondent. This indicates that financial
disclosure by a respondent is a key requirement in
evaluating a respondent's financial condition.
Respondent has the burden of proving by a preponderance
of the evidence that her financial condition would
prevent her from being able to pay the penalty and
assessment imposed in this case.

Respondent did not adduce any evidence pertaining to her
current financial condition. Accordingly, there is no
basis in the record upon which to limit the sanctions
proposed, on grounds of financial condition.
- 34 -

5. Respondent Proved That Her Service To Her Patients Is
A Mitigating Circumstance.

As I stated in Hume, supra, at p. 27, the CMPL and the
Regulations also contain an umbrella factor: “other
matters as justice may require." The Regulations do not
provide further detail, except to indicate that
consideration of other matters should be limited to those
which relate to the purpose of civil money penalties and
assessments. 42 C.F.R. 1003.106(b) (5).

The I.G. proved by a preponderance of the evidence that
Respondent repeatedly violated the requirements of the
Medicare and Medicaid programs and, as a result, received
improper reimbursement. The I.G. asserts that the
proposed penalty should be increased in this case because
Respondent admitted that she had been billing for
telephone prescription refills since the inception of her
private practice. However, this action was brought on
the basis of 111 claims, of which Respondent was given
proper notice. There was no other evidence introduced in
regard to other claims and such claims might well be
barred by the statute of limitations in the CMPL.
Accordingly, I have not considered any evidence other
than that relating to this action and the 111 claims in
issue,

The record establishes that Respondent has provided
substantial services to indigent patients and they are
well satisfied with her services. FFCL 112.

B. The Amount of the Penalty, Assessment, and
Record.

The I.G. in his post-hearing brief requested that I
increase the penalties proposed to the amount of
$111,000.00, impose the assessments totalling $2,928.43,
and impose an exclusion of five years.

After weighing all of the evidence in this case,
inclusive of the existence of aggravating and mitigating
circumstances, I conclude that the imposition of the
penalties and assessments sought by the 1.G. is slightly
excessive. Also, I conclude that a five-year exclusion
from participation in the Medicare and State health care
programs is not reasonable.
- 35 -

I conclude that based on the record in this case, giving
special weight to the contribution of Respondent to her
community and based on my experience in other CMPL cases,
a penalty of $49,000.00 is a sufficient deterrent under
the circumstances of this case, and $2,797.81 is
sufficient to compensate the Government.'° I further
conclude that an exclusion for a period of two years is
sufficient to ensure the integrity of the Medicare and
State health care programs.

10 The total amount claimed by Respondent on the

111 claims in issue was $2,026.02. I found that
Respondent is not liable on claims 19, 108, and 111,
totalling $65.31. Thus, the total claimed for which she
is liable is $1,960.71. I.G. Ex. 121. The maximum
assessment is $3921.42 (2 x $1960.71). Allowing a credit
of $1,123.61 for payment of restitution by Respondent,
the maximum assessment is $2797.81.

1 Following the hearing, I invited the parties to
address the issue of whether the recent United States
Supreme Court decision in United States v. Halper, 109 S.
Ct. 1892 (1989), is applicable to the facts of this case.
In Halper, the Supreme Court held that under some
circumstances the imposition of a civil money penalty may
violate the Double Jeopardy Clause of the Sixth Amendment
to the United States Constitution. The Court held that
the imposition of a penalty under the False Claims Act,
31 U.S.C. 3729-3231, could constitute prohibited double
jeopardy in the narrow circumstance where there existed a
prior federal criminal conviction for the false claims
for which the civil penalty was imposed and where there
was not even a remote relationship between the amount of
the penalty and the cost to the government resulting from
the false claims. This case is distinguishable from
Halper, because Respondent was charged on State charges
and not on federal charges, Respondent was prosecuted in
State court and not federal court, and Respondent was not
"convicted." Double jeopardy does not apply to a
subsequent federal prosecution based on facts which led
to a state conviction. Abbate v. United States, 359 U.S.

187 (1959); and Cha Vv. Ss. D Pane} lealth d_ Human
Services, supra, 806 F.2d at 529. Therefore, Halper does

not apply to this case and, in particular, has no
limiting effect on the amount of the penalties,
assessments, or exclusions I may impose.
- 36 -

ORDER

Based on the entire record, the CMPL, and the
Regulations, it is hereby Ordered that:

(1) Respondent pay civil monetary penalties totalling
$49,000.00;

(2) Respondent pay assessments totalling $2797.81;

(3) Respondent be excluded for a period of two years
from the Medicare and Medicaid programs; and

(4) The corporate party, Corazon C. Hobbs, M.D., Inc.,
be dismissed as a party to this case.

/s/

Charles E. Stratton
Administrative Law Judge


DEPARTMENT OF HEALTH AND HUMAN SERVICES
Departmental Appeals Board

Civil Remedies Division

In the Case of: ) DATE: November 28, 1989
)
Elias Goldstein, D.c., )
) Docket No: C-104
Petitioner, )
) DECISION CR 56
- ver )
)
The Inspector General. )
)

DECISION OF ADMINISTRATIVE LAW JUDGE

On December 14, 1988, the Inspector General (the I.G.)
notified Petitioner that he was being excluded from
participation in the Medicare program and State health
care programs for five years.' The 1.G. told Petitioner
that he was being excluded as a result of his conviction
in a Florida court of a criminal offense related to
fraud, theft, embezzlement, breach of fiduciary
responsibility, or other financial misconduct.

Petitioner was advised that exclusion from participation
in Medicare and Medicaid of individuals or entities
convicted of such an offense is permitted by section
1128(b) (1) of the Social Security Act. The I.G. stated
that the five-year exclusion imposed and directed against
Petitioner was based on factors which included: (1) the
length of the period of time during which the criminal
acts resulting in Petitioner's conviction occurred;

(2) the amount of the financial damage resulting from
Petitioner's criminal activity; and (3) the fact that the
sentence resulting from Petitioner's conviction included
incarceration.

1 "state health care program" is defined by section
1128(h) of the Social Security Act to include any State
Plan approved under Title XIX of the Act (such as
Medicaid). I use the term "Medicaid" hereafter to
represent all State health care programs from which
Petitioner was excluded.
Petitioner requested a hearing, and the case was assigned
to me for a hearing and a decision. I held a hearing in
Ft. Lauderdale, Florida, on August 8, 1989. Based on the
evidence introduced at the hearing, and on applicable
law, I conclude that there exists a basis in law and fact
to impose and direct a substantial exclusion against
Petitioner. However, given the presence of mitigating
evidence, the five-year exclusion imposed and directed
against Petitioner by the I.G. is excessive. A three-
year exclusion will satisfy the remedial purpose of the
exclusion law. Therefore, I am modifying the exclusion
imposed and directed against Petitioner to a period of
three years.

ISSUE
The issue in this case is whether the exclusion imposed
and directed against Petitioner by the I.G. is
reasonable.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
1. Petitioner isa ljcensed chiropractor in the State of
Florida. Tr. at 128.
2 The exhibits, transcript of the hearing, and the
parties' briefs will be cited as follows:
I.G.'s Exhibit I.G. Ex. (number) / (page)
Petitioner's Exhibit P. Ex. (number) / (page)
Transcript Tr. at (page)
Brief in Support of I.G.'s Brief at (page)
the Inspector
General's Decision
Petitioner's P.'s Brief at (page)
Post-Hearing
Memorandum
Reply Memorandum of I.G.'s Reply Brief at (page)
the Inspector

General

(continued...)
2. Petitioner was charged with criminal offenses in the
State of Florida. I.G. Ex. 3.

3. On May 27, 1988, Petitioner was convicted on five
counts of the criminal information filed against him.
I.G. Ex. 4.

4. In Count Two, Petitioner was convicted of grand theft
from Metropolitan Life Insurance Company. I.G. Ex. 3/2;
4/1.

5. This theft began on or about September 1, 1982, and
ended on or about November 30, 1982, and the amount
stolen by Petitioner was $100.00 or more. I.G. Ex. 3/2;
4/1.

6. In Count Three, Petitioner was convicted of grand
theft from United States Fidelity and Guaranty Company.
I.G. Ex. 3/3; 4/1.

7. This theft began on or about September 1, 1983, and
ended on or about May 31, 1984, and the amount stolen by
Petitioner was $100.00 or more. 1.G. Ex. 3/3; 4/1.

8. In Count Four, Petitioner was convicted of an
additional count of grand theft from United States
Fidelity and Guaranty Company. I.G. Ex. 3/3; 4/1.

9. This theft began on or about November 1, 1983, and
ended on or about December 31, 1983, and the amount
stolen by Petitioner was $100.00 or more. I.G. Ex. 3/3;
4/l.

10. In Count Fifteen Petitioner was convicted of
criminal fraud of Travelers Insurance Company. I.G. Ex.
3/9; 4/1.

11. This fraud involved Petitioner's filing of a false
insurance claim on a policy that had been issued by
Travelers Insurance Company to Arthur Williams. I.G. Ex.
3/9; 4/1.

2(...continued)

Petitioner's Reply to P.'s Reply Brief at (page)
Brief in Support of
the Inspector General's
Decision
12. This fraud began on or about April 1, 1985, and
ended on or about August 31, 1985. I.G. Ex. 3/9; 4/1.

13. In Count Sixteen, Petitioner was convicted of an
additional count of criminal fraud of Travelers Insurance
Company. I.G. Ex. 3/9; 4/1.

14. This fraud involved Petitioner's filing of a false
insurance claim on a policy that had been issued by
Travelers Insurance Company to David Friedland. I.G. Ex.
3/9; 4/1.

15. This fraud began on or about April 1, 1985, and
ended on or about August 31, 1985. I.G. Ex. 3/9; 4/1.

16. Petitioner was convicted under Florida law of
criminal offenses relating to theft and fraud in
connection with the delivery of a health care item or
service. Findings 3-15.

17. On June 6, 1988, Petitioner was sentenced to serve
three years' probation on each count of his conviction,
the terms of probation to run concurrently. I.G. Ex. 5.

18. Additionally, Petitioner was sentenced to 90 days'
incarceration. I.G. Ex. 5.

19. Petitioner was also sentenced to pay restitution in
the amount of $2,130.00 to the Florida Department of
Insurance Fraud. I.G. Ex. 5.

20. The criminal offenses for which Petitioner was
convicted are criminal offenses as described in section
1128(b)(1) of the Social Security Act. Social Security
Act, section 1128(b) (1).

21. The Secretary of the Department of Health and Human
Services (the Secretary) had authority to impose and
direct an exclusion against Petitioner from participating
in Medicare and Medicaid, pursuant to section 1128(b) (1)
of the Social Security Act. Social Security Act, section
1128(b) (1).

22. The Secretary delegated to the I.G. the duty to
impose and direct exclusions pursuant to section 1128 of
the Social Security Act. 48 Fed. Reg. 21662 (May 13,
1983).

23. On December 14, 1988, the I.G. notified Petitioner
that he was being excluded from participation in the
~5-

Medicare and Medicaid programs as a result of his
conviction of a criminal offense related to fraud, theft,
embezzlement, breach of fiduciary responsibility, or
other financial misconduct within the meaning of section
1128(b) (1) of the Social Security Act.

24. Petitioner was told that he was being excluded from
participation in Medicare and Medicaid for a period of
five years.

25. Petitioner was further advised that the length of
his exclusion was, in part, based on the following
circumstances: (1) the criminal acts that resulted in
Petitioner's conviction were committed over a period
exceeding one year; (2) financial damage resulting from
Petitioner's criminal activity exceeded $1,500.00; and
(3) the sentence resulting from Petitioner's conviction
included a period of incarceration.

26. The exclusion provisions of section 1128 of the
Social Security Act establish neither minimum nor maximum
exclusion terms in circumstances where the I.G. has
discretion to impose and direct exclusions. Social
Security Act, section 1128(b) (1)-(14).

27. The Social Security Act mandates a five-year
exclusion from participation in the Medicare and Medicaid
programs for an individual convicted of a criminal
offense related to the delivery of an item or service
under the Medicare or Medicaid programs. Social Security
Act, sections 1128(a)(1), (c) (3) (B).

28. The crimes committed by Petitioner are
distinguishable from offenses mandating five-year
exclusions by the fact that they were perpetrated against
private health care insurers, rather than against the
Medicare and Medicaid programs. Findings 3-16; Social
Security Act, sections 1128(a) (1), (b)(1).

29. A remedial objective of section 1128 of the Social
Security Act is to protect program beneficiaries and
recipients and program funds by mandating or permitting
the Secretary to disqualify or to direct disqualification
from participation in Medicare and Medicaid of those
individuals and entities who demonstrate by their conduct
that they cannot be trusted to administer program funds.
Social Security Act, section 1128.

30. An additional remedial objective of section 1128 of
the Social Security Act is to deter individuals and
entities from engaging in conduct which jeopardizes the
integrity of federally-funded health care programs.
Social Security Act, section 1128.

31. The offenses of which Petitioner was convicted are
serious criminal offenses, which resulted in his
incarceration. Findings 16-17.

32. Petitioner perpetrated the conduct which resulted in
his conviction over a period of more than one year, a
lengthy period of time. Findings 4-15.

33. The amount of money stolen-by Petitioner was
substantial. Finding 19.

34. Given the seriousness of Petitioner's criminal acts,
an exclusion is appropriate in this case. Findings 4-15;
32-34; Social Security Act, section 1128.

35. The investigation which led to Petitioner's
convictions began in 1986. Tr. at 134-135.

36. Since the inception of the investigation of
Petitioner, there have been no additional complaints
concerning his billing practices. Tr. at 139.

37. Petitioner's claims for reimbursement have been
audited by private insurers since 1986. Tr. at 136-137.

38. There have been no findings by private insurers that
Petitioner has engaged in fraudulent practices concerning
his reimbursement claims since 1986. Tr. at 139.

39. Petitioner's billing activity since 1986 serves to
mitigate the need for a lengthy exclusion in this case.
Findings 36-39; see 42 C.F.R. 1001.125(b) (6).

40. In light of the mitigating factors that are present
in this case, a five-year exclusion of Petitioner is
excessive. Findings 31-39; Social Security Act, section
1128.

ANALYSIS

There is no dispute in this case that Petitioner was
convicted of criminal offenses relating to theft and
fraud in connection with the delivery of health care
items or services. Therefore, the I.G. has authority,
pursuant to section 1128(b)(1) of the Social Security
Act, to impose and direct an exclusion against Petitioner
from participating in the Medicare and Medicaid programs.
The only contested issue is the reasonableness of the
length of the exclusion -- five years -- that the I.G.
determined to impose and direct against Petitioner.

In order to decide whether the I.G.'s exclusion
determination is reasonable in a particular case, I must
judge that determination in light of the evidence
presented and the intent of the exclusion law. The
purpose of the hearing is not to determine how accurately
the I.G. applied the law to the facts before him, but
whether, based on all relevant evidence, the exclusion
comports with the legislative purpose. The hearing is,
by law, de novo. Social Security Act, section 205(b).
In a hearing on an exclusion, evidence which is relevant
to the reasonableness of the exclusion will be admitted
and considered, even if that evidence was not available
to the I.G. at the time the exclusions were imposed and
directed.

An exclusion will be held to be reasonable where, given
the evidence of the case, it is shown to fairly comport

with legislative intent. "The word 'reasonable' conveys

the meaning that... [the I.G.] is required at the

hearing only to show that the length of the = .
exclusion] determi : Wi (o) xt:

excessive." (Emphasis added). 48 Fed. Reg. S744 (Jan.
27, 1983). However, should I determine, based on the

law and the evidence, that an exclusion is not reason-
able, I have the authority to modify the exclusion.
Social Security Act, section 205(b).

The I.G. excluded Petitioner from participating in
Medicare and directed that he be excluded from
participating in Medicaid pursuant to section 1128(b) (1)
of the Social Security Act. Section 1128(b)(1) gives the
Secretary the discretion to impose and direct exclusions
against individuals convicted of crimes, including theft
and fraud, in connection with the delivery of a health
care item or service. This section does not prescribe
the minimum or maximum length of the exclusion that may
be imposed.

Congress intended the exclusion law to be remedial in
application. The law was intended to protect trust funds
from the misconduct of larcenous individuals and
entities. The exclusion law also embodied Congress!
conclusion that the Secretary had a duty to protect
program beneficiaries from individuals or entities whose
conduct demonstrated that they posed a threat to
beneficiaries' and recipients' well-being.

This policy was evident in Congress' original enactment
of the exclusion law in 1977. Successive revisions of
the law have continued to express legislative purpose in
progressively stronger terms.?

There are two ways that exclusions imposed and directed
pursuant to this law advance the law's remedial purpose.
First, the law insulates federally funded health care
programs from untrustworthy providers until such time as
they demonstrate that they can again be trusted to deal
with trust fund monies, beneficiaries and recipients.
Second, exclusions serve as examples to deter individuals
and entities from engaging in unlawful conduct which
jeopardizes the integrity of federally funded health care
programs. See House Rep. No. 95-393, Part II, 95th
Cong., 1st Sess., reprinted in 1977 U.S. Code Cong. &
Admin. News, 3072.

The remedial objective of deterrence may only be
satisfied in a particular case by excluding an individual
for a period of time, even where the evidence establishes
that that person no longer poses a serious threat to the
integrity of federally funded health care programs. On
the other hand, exclusions fashioned solely to achieve
the objective of deterrence may, given the evidence ina
particular case, be punitive. Therefore, judging the
reasonableness of an exclusion requires a balancing of
the remedial considerations in light of the evidence.

Aside from this legislative policy, there is no statutory
formula to calculate exclusions in cases involving

3 The exclusion law in effect prior to August 1987,

required the Secretary to suspend from participation in
the Medicare and Medicaid programs any physician or other
individual who had been convicted of a criminal offense
related to that person's participation in the delivery of
medical care or services under Medicare, Medicaid, or
block grants to states. The law did not specify minimun
exclusion terms. The 1987 amendments extended the reach
of the law to entities, added new categories of mandatory
exclusions, specified a minimum five-year exclusion for
cases in which mandatory exclusions were imposed, and
enumerated circumstances in which the Secretary had
discretion to impose exclusions. Social Security Act,
section 1128(a)(1)-(2); (b)(1)-(14).
permissive exclusions. The I.G. argues that the felonies
for which Petitioner was convicted are, but for the fact
that they were perpetrated against private health care
insurers, indistinguishable from offenses which would
mandate a minimum five-year exclusion pursuant to section
1128(a)(1) of the Social Security Act. Therefore,
according to the I.G., the same policy considerations
should apply to this case and a five-year exclusion of
Petitioner is reasonable. I.G.'s Brief at 6.

The I.G. correctly notes that the only distinction
between the offenses of which Petitioner was convicted
and those for which an exclusion of at least five years
is mandated is that in Petitioner's case, the offenses
were perpetrated against private insurers and in those
cases in which exclusion is mandated, the offenses must
be perpetrated against either Medicare or Medicaid.
However, this is a meaningful distinction. Congress
elected to require that individuals or entities convicted
of offenses against Medicare or Medicaid be excluded for
a minimum period. It did not enact this requirement for
individuals or entities convicted of offenses directed
against private health insurers. By not mandating
exclusions of parties convicted of the latter class of
offenses, Congress intended that the Secretary weigh all
relevant remedial considerations on a case-by~case basis.
Therefore, the five-year exclusion imposed against
Petitioner in this case cannot be justified by simply
equating Petitioner's offenses with the kinds of offenses
for which exclusions of at least five years are mandated.

That is not to suggest that there is no benefit to
comparing the facts of this case with circumstances which
mandate exclusions. Congress made evident its concern
that certain conduct posed a serious threat to the

* Section 1128(a) (1) of the Social Security Act

mandates exclusion of an individual or entity who is
convicted of an offense related to the delivery of an
item or service under the Medicare program. The
exclusion law requires a minimum exclusion of five years
for an individual or entity who is excluded pursuant to
section 1128(a)(1). Social Security Act, section
1128(c)(3)(B). Criminal offenses consisting of theft or
fraud against Medicare or Medicaid have been found to
fall within the purview of section 1128(a)(1). Jack W.
Greene v. The Inspector General, Civil Remedies Docket
No. C-56 (1989), appeal docketed, Appellate No. 89-59,
Decision No. 1078 (1989)._

-10-

integrity of federally financed health care programs.
The similarities between the offenses for which
Petitioner was convicted with those for which exclusion
is mandated suggest that this case is a case where a
legitimate basis exists to impose and direct a
significant exclusion.

The Secretary has adopted regulations to be applied in
exclusion cases. The regulations specifically apply only
to exclusions for "program-related" offenses (convictions
for criminal offenses related to Medicare and Medicaid).
However, they do express the Secretary's policy for
evaluating cases where permissive exclusions may be
appropriate. Thus, the regulations are instructive as
broad guidelines for determining the appropriate length
of exclusions in cases where the Secretary has authority
to exclude individuals and entities. In determining the
exclusion to be imposed, the regulations require the I.G.
to consider factors related to the seriousness and
program impact of the offense and to balance those
factors against any mitigating factors that may exist.

42 C.F.R. 1001.125(b) (1)-(7).

The evidence in this case establishes that Petitioner was
convicted of five felony offenses involving theft or
fraud against private health care insurers. These are
serious criminal offenses, and their seriousness is in
some respects underscored by the facts that the offenses
were committed over a relatively lengthy period of time,
involved a substantial amount of money, and that the
sentence imposed on Petitioner included a period of
incarceration. See 42 C.F.R. 1001.125(b) (1),(3),(5), and
(6). I conclude from this evidence, as well as from the
similarity between offenses committed by Petitioner and
offenses which mandate exclusion, that a significant
exclusion is merited in this case. An exclusion will
serve to protect the integrity of federally funded health
care programs by deterring other providers of services
from engaging in the criminal conduct for which
Petitioner was convicted.

However, there also exists evidence in this case which
establishes that a five year exclusion is not necessary
to achieve the exclusion law's remedial objectives. The
evidence establishes that, since 1986, when Petitioner
first became the subject of an investigation, he has
rendered thousands of services under the intensive
scrutiny of health care insurers without evidence of
additional unlawful conduct. The absence of dishonest
conduct by Petitioner shows that: (1) he has learned that
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unlawful conduct will not be tolerated and (2) there
exists little danger that Petitioner is now likely to
engage in theft or fraud against Medicare or Medicaid.
Thus, while a five-year exclusion would certainly serve
the purposes of deterrence, its effect on Petitioner
would be punitive, given his record beginning in 1986 as
an honest provider of services.

The I.G. objects to my considering any evidence generated
after the investigation which led to Petitioner's
conviction. According to the I.G., "(A)ctions taken
subsequent to the investigation, such as steps taken to
increase . . . [Petitioner's] record-keeping system, are
likely products of the investigation rather than of
voluntary remorse and, consequently, are not mitigating."
I.G.'s Reply Brief at 6. The I.G. cites as support for
this contention Social Security Administration Appeals
Council decision in an exclusion case, In the Case of
Jaimie Blasquez, M.D., Case No. 000-97-0016 (1986).

I disagree with the I.G.'s contention. As is noted
supra, an administrative hearing in an exclusion case is
a de novo hearing. Social Security Act, section 205(b).
The purpose of the hearing is to test the reasonableness
of the exclusion, and not the accuracy of the I.G.'s
exclusion determination. If I accepted the I.G.'s
analysis, then the hearing would essentially become an
appellate review of the I.G.'s determination. This
circumscribed review would deny the Petitioner the rights
given to him by section 205(b) of the Social Security
Act.

Furthermore, the Blasquez decision does not support the
I.G.'s argument. The Blasquez case involved an exclusion
imposed for a program~-related crime pursuant to the
statute which predated the current exclusion law.’ The
administrative law judge who heard that case identified a
number of mitigating factors which in his opinion
established that the exclusion imposed against the
petitioner in Blasquez was unreasonable. These included:
the need for petitioner's services, the unsophisticated
nature of petitioner's office operation, the "hard time"

5 The Secretary would not have had authority to

exclude Petitioner pursuant to the law which was in
effect as of the date of the Blasquez decision. See note
3, supra. The Blasquez decision does not address the
remedial objectives which would be served by an exclusion
imposed pursuant to the present exclusion law.
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petitioner served in prison, the personal trauma
petitioner experienced in selling his residence in order
to make restitution for his crimes, petitioner's
participation in community service, and the nature of
petitioner's violations, and his age.

The Appeals Council analyzed each of the factors
identified by the administrative law judge and concluded
that these factors neither singly nor collectively
established that the exclusion imposed on petitioner was
unreasonable. It did not hold that it was improper for
the administrative law judge to have considered evidence
as to these factors. Indeed, the Appeals Council in
Blasquez reaffirmed that a hearing in an exclusion case
is de novo, stating that "(U)nder the regulations, the
hearing before an administrative law judge is a de novo
proceeding so that he must consider the question of the
length of the period of . . . [exclusion] under the
eriteria of the regulations . .. as if it had not been
previously considered." Blasquez at 4.

In deciding that the administrative law judge's decision
as to the reasonableness of the exclusion was not
supported by the record, the Appeals Council in Blasquez
observed that "(M)itigating factors basically entail
those considerations or conditions which occur prior to a
criminal investigation such as a practitioner's mental
health, advanced age, or a catastrophic situation within
his immediate family requiring great financial
sacrifice." Blasquez at 6. It is apparent from the
context of this observation that, in discussing
"mitigating factors," the Appeals Council was referring
to evidence which explains a petitioner's motivation for
committing a crime. This evidence is relevant in an
exclusion case, because a petitioner's motivation will
shed light on the likelihood that he will repeat the
offenses of which he was convicted. Logically, evidence
as to motivation will consist of evidence arising prior
to the date that an investigation into a petitioner's
conduct is initiated.

However, evidence as to a petitioner's motivation is only
a part of the spectrum of evidence which can potentially
be considered on the issue of trustworthiness. The
evidence which I admitted concerning Petitioner's post-
investigation billing practices is relevant because it
relates to Petitioner's propensity to repeat the crimes
of which he was convicted. That evidence is not made
irrelevant by virtue of the fact that it was generated
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after the date Petitioner became aware that he was under
investigation.

I conclude that in this case the remedial objectives of
the exclusion law would best be served by a three-year
exclusion. An exclusion of three years will function as
an effective deterrent. The imposition of a three-year
exclusion also takes into consideration evidence which
establishes that Petitioner is unlikely to repeat his
unlawful conduct.

CONCLUSION

Based on the evidence of this case and the law, I
conclude that the I.G. had authority to exclude
Petitioner from participating in Medicare and to direct
that Petitioner be excluded from participating in
Medicaid. I conclude further, that based on the evidence
of this case, a substantial exclusion is justified.
However, I conclude that the five-year exclusion imposed
and directed by the I.G. is excessive. The remedial
purpose of the exclusion law will be served by a three-
year exclusion. Therefore, pursuant to section 205(b) of
the Social Security Act, I modify the exclusion imposed
and directed against Petitioner to a term of three years.

The terms and conditions of the notice to Petitioner from

the I.G., dated December 14, 1988, otherwise remain in
full force and effect.

/s/

Steven T. Kessel
Administrative Law Judge