Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Center for Tobacco Products,
Complainant
v.

D’Fredi Grocery Inc.
d/b/a Freddy Grocery,

Respondent.

Docket No. C-14-1043
FDA Docket No. FDA-2014-H-0555

Decision No. CR3277

Date: June 27, 2014

INITIAL DECISION AND DEFAULT JUDGMENT

The Center for Tobacco Products (CTP) filed an Administrative Complaint
(Complaint) against Respondent, D’Fredi Grocery Inc. d/b/a Freddy Grocery, that
alleges facts and legal authority sufficient to justify the imposition of a civil
money penalty of $500. Respondent did not answer the Complaint, nor did
Respondent request an extension of time within which to file an answer.
Therefore, I enter a default judgment against Respondent and assess a civil money
penalty of $500.

CTP began this case by serving the Complaint on Respondent and filing a copy of
the Complaint with the Food and Drug Administration’s (FDA) Division of
Dockets Management. The Complaint alleges that Respondent impermissibly sold
cigarettes to minors and failed to verify that a cigarette purchaser was 18 years of
age or older, thereby violating the Federal Food, Drug, and Cosmetic Act (Act), 21
US.C. § 301 et seq., and its implementing regulations, Cigarettes and Smokeless
Tobacco, 21 C.F.R. pt. 1140 (2012). CTP seeks a civil money penalty of $500.

On May 7, 2014, CTP served the Complaint on Respondent by United Parcel
Service, pursuant to 21 C.F.R. §§ 17.5 and 17.7. In the Complaint and
accompanying cover letter, CTP explained that within 30 days, Respondent should
pay the proposed penalty, file an answer, or request an extension of time within
which to file an answer. CTP warned Respondent that if it failed to take one of
these actions within 30 days, an Administrative Law Judge could, pursuant to 21
C.F.R. § 17.11, issue an initial decision ordering Respondent to pay the full
amount of the proposed penalty.

Respondent has not filed an answer within the time provided by regulation, nor
has it requested an extension. Pursuant to 21 C.F.R. § 17.11(a), 1am required to
“assume the facts alleged in the [C]omplaint to be true” and, if those facts
establish liability under the Act, issue a default judgment and impose a civil
money penalty. Accordingly, I must determine whether the allegations in the
Complaint establish violations of the Act.

Specifically, CTP alleges the following facts in its Complaint:

e Respondent owns Freddy Grocery, an establishment that sells tobacco
products and is located at 3412 Fairmount Avenue, Philadelphia,
Pennsylvania 19104. Complaint § 3.

e During an inspection of Respondent’s establishment on April 17, 2013, at
approximately 4:38 PM, an FDA-commissioned inspector observed that “a
person younger than 18 years of age was able to purchase a package of
Newport Menthol Gold Box 100s cigarettes... .” Complaint § 10.

e¢ On August 8, 2013, CTP issued a Warning Letter to Respondent regarding
the inspector’s observations from April 17, 2013. The letter explained that
the observations constituted a violation of a regulation found at 21 C.F.R.
§ 1140.14(a), and that the named violation was not necessarily intended to
be an exhaustive list of all violations at the establishment. The Warning
Letter went on to state that if Respondent failed to correct the violation,
regulatory action by the FDA or a civil money penalty action could occur
and that Respondent is responsible for complying with the law. Complaint
q 10.

e Though United Parcel Service records indicate that an individual named
“GL” received the Warning Letter on August 12, 2013, the FDA did not
receive a response to the Warning Letter from Respondent. Complaint

qi.

e During a subsequent inspection of Respondent’s establishment on January
20, 2014, at approximately 12:05 PM, FDA-commissioned inspectors
documented that “a person younger than 18 years of age was able to
purchase package of Newport Box 100s cigarettes . . . [.]” The inspectors
also documented that “the minor’s identification was not verified before the
sale... .” Complaint § 1.

These facts establish that Respondent is liable under the Act. The Act prohibits
misbranding of a tobacco product. 21 U.S.C. § 331(k). A tobacco product is
misbranded if distributed or offered for sale in any state in violation of regulations
issued under section 906(d) of the Act. 21 U.S.C. § 387c(a)(7)(B); 21 C.F.R

§ 1140.1(b). The Secretary issued the regulations at 21 C.F.R. pt. 1140 under
section 906(d) of the Act. 21 U.S.C. § 387(a); 21 U.S.C. § 387f(d)(1); 75 Fed.
Reg. 13,229 (Mar. 10, 2010). The regulations prohibit the sale of cigarettes to any
person younger than 18 years of age. 21 C.F.R. § 1140.14(a). The regulations
also require retailers to verify, by means of photo identification containing a
purchaser’s date of birth, that no cigarette purchasers are younger than 18 years of
age. 21 C.F.R. § 1140.14(b)(1).

Taking the above alleged facts as true, Respondent violated the prohibition against
selling cigarettes to persons younger than 18 years of age on April 17, 2013, and
January 20, 2014. 21 C.F.R. § 1140.14(a). On January 20, 2014, Respondent also
violated the requirement that retailers verify, by means of photo identification
containing a purchaser’s date of birth, that no cigarette purchasers are younger
than 18 years of age. 21 C.F.R. § 1140.14(b)(1). Therefore, Respondent’s actions
constitute violations of law that merit a civil money penalty.

CTP has requested a fine of $500, which is a permissible fine under the
regulations. 21 C.F.R. § 17.2. Therefore, I find that a civil money penalty of $500
is warranted and so order one imposed.

/s/
Steven T. Kessel
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

The Inspector General of the Social Security Administration,
v.
Cassandra Ballew,
Respondent.
Docket No. C-13-258
Decision No. CR3275

Date: June 27, 2014

DECISION

The Inspector General (I.G.) of the Social Security Administration (SSA) proposed to
impose on Respondent, Cassandra Ballew, a civil monetary penalty (CMP) and
assessment in lieu of damages totaling $171,478. The I.G. alleged that Respondent,
while serving as a representative payee for a beneficiary receiving Social Security
Disability Insurance Benefits (DIB) and Supplemental Security Income (SSI), converted
a “substantial portion” of those payments. The I.G. proposed to impose the maximum
CMP and assessment permitted under law. Respondent disputed the I.G.’s allegations
and filed a request for hearing before an administrative law judge. Because I conclude
that Respondent converted benefit payments that she should have known were for the use
and benefit of the beneficiary for whom she was serving as representative payee,
Respondent is liable for a CMP and an assessment. However, for the reasons explained
below, I reduce the CMP to $45,000 and assessment to $40,739.

I. Background and Procedural History

Brenda M. Gustke received DIB and SSI benefit payments. January 14-15, 2014 Hearing
Transcript (Tr.) 140. However, SSA decided that Ms. Gustke should receive her benefit
payments through a representative payee. Tr. 140-41, 149.
On February 5, 2010, Respondent applied to serve as Ms. Gustke’s representative payee.
SSA Exhibit (Ex.) 1. Respondent indicated on the application the following information:
Respondent is Ms. Gustke’s cousin; Ms. Gustke lives with Respondent; Ms. Gustke does
not owe Respondent any money; and Respondent does not expect Ms. Gustke to owe her
any money in the future. SSA Ex. 1, at 1. On April 5, 2010, SSA designated Respondent
as Ms. Gustke’s representative payee. SSA Ex. 2. In notices issued on June 14 and 16,
2011, SSA informed Respondent that she would no longer be Ms. Gustke’s representative
payee and that any money saved from the benefit payments must be returned to SSA.
SSA Ex. 7.

In December 2011, Ms. Gustke filed a complaint with the I.G. fraud hotline asserting that
Respondent took Ms. Gustke’s benefit payments and used that money to pay for home
repairs and appliances for Respondent’s house. Tr. 121-22; SSA Ex. 6, at2. An LG.
special agent conducted a criminal investigation into Ms. Gustke’s complaint, which
included interviewing Respondent. Tr. 122-24; SSA Exs. 6, at 5-8; 8; 9. As part of the
investigation, the local SSA office reviewed the information obtained during the
investigation to determine whether, under SSA rules, Respondent had misused any funds
entrusted to her as a representative payee. Tr. 124.

A technical expert at SSA’s office in Kalamazoo, Michigan, reviewed the evidence and
information provided by the I.G. special agent and, on June 26, 2012, issued a
determination that Respondent misused $40,738.70 of the $52,806.64 paid to her on
behalf of Ms. Gustke. Tr. 144; SSA Ex. 3, at 1-2. On June 28, 2012, SSA issued a notice
to Respondent that she needed to return $40,738.70 to SSA because she failed to spend
that money on Ms. Gustke. SSA Ex. 12, at 1-2. Ina July 10, 2012 notice, SSA informed
Respondent that because she had failed to return the money, SSA was allowed to institute
measures to collect $40,738.70 from her. SSA Ex. 12, at 3-4. Respondent disputed
SSA’s determination on July 19, 2012; however, the record does not include any
information as to the outcome of that administrative appeal. Tr. 145; SSA Ex. 13.

On September 27, 2012, the I.G. sent a letter to Respondent indicating that the I.G.
intended to initiate a CMP action against Respondent based on Respondent’s alleged
conversion of Ms. Gustke’s DIB and SSI benefit payments. SSA Ex. 14, at 1. The I.G.
offered Respondent an opportunity to submit a written statement or other information,
including information about Respondent’s ability to pay a CMP, to consider before
commencing the CMP action. SSA Ex. 14, at 2.

In a November 20, 2012 CMP notice, the I.G. proposed to impose on Respondent a
$90,000 CMP and an assessment in lieu of damages of $81,478. The I.G. indicated that a
CMP is authorized under 42 U.S.C. § 1320a-8. The LG. specifically alleged:
This proposal is based on [the I.G.’s] determination that while
acting as the representative payee for [Respondent’s] cousin,
Brenda Gustke, [Respondent] converted a substantial portion o
the benefits paid to [Respondent] for Ms. Gustke’s care.
Between April 2010 and June 2011, [Respondent] used Ms.
Gustke’s Social Security benefits to, among other things, repair
Respondent’s] garage, take [Respondent’s] family on vacation,
repair [Respondent’s] vehicle, buy household appliances, and
dine out multiple times a day with [Respondent’s] husband and
children. When [Respondent] applied to be Ms. Gustke’s
representative payee, SSA informed [Respondent] that all
benefits should be used for Ms. Gustke’s care or saved.
Respondent] [was] also notified that if [Respondent] used the
benefits for any other purpose, [Respondent] would be required
to return that money. As a result of [Respondent’s] misconduct,
Respondent] received and spent $40,739.00 in SSA benefits to
which [Respondent] [was] not entitled. In fact, [Respondent
continued to spend Ms. Gustke’s benefits even after SSA notified
Respondent] that [Respondent] [was] no longer Ms. Gustke’s
representative payee ....

SSA Ex. 15, at 1. After considering various aggravating and mitigating factors, the I.G.
concluded:

I have decided that the maximum [CMP] of $171,478.00 is
appropriate. That represents a penalty of $90,000.00, which
is $5,000.00 for each of the 18 monthly payments that
[Respondent] converted, plus an assessment in lieu of
damages of $81,478.00, which is twice the amount of the
overpayment [Respondent] received.

SSA Ex. 15, at 2.

In a letter dated December 14, 2012, Respondent, acting pro se, timely filed a request for
hearing with the Departmental Appeals Board (DAB), Civil Remedies Division (CRD) to
dispute the proposed CMP and assessment. SSA Ex. 10. Although Respondent denied
“all of the civil penalty against me,” she admitted “culpability to garage repair and
household appliances,” but asserted that a day trip to an amusement park and dining were
gifts from Ms. Gustke. SSA Ex. 10, at 2. Respondent also stated that she paid many of
Ms. Gustke’s necessary expenses, such as medical bills, money owed to the local court,
clothes, and personal items. Respondent indicated that she had allowed Ms. Gustke to
live at her home before Respondent became Ms. Gustke’s representative payee and,
following Ms. Gustke’s period of incarceration and a period of time when Ms. Gustke
was living in an apartment, she again permitted Ms. Gustke to live at Respondent’s home.
However, because Respondent’s “daughter refused to share her room again [with Ms.
Gustke],”” Ms. Gustke “decided she wanted a trailer, to sleep in only, [Ms. Gustke] had
fulltime access to [Respondent’s] house at all times.” SSA Ex. 10, at 3. Respondent
admitted that she charged Ms. Gustke $570 per month for rent, food, internet, and
toiletries, and that it was her idea for Ms. Gustke to pay to repair Respondent’s garage
roof, but points out that she did so in order to store Ms. Gustke’s possessions that were
located in a rental storage unit. Respondent asserted other items Ms. Gustke paid for,
such as appliances and dinners for Respondent and her family were at Ms. Gustke’s
urging. Respondent avers that Ms. Gustke had a permanent home with Respondent and
was surprised when Ms. Gustke moved away, not taking the trailer that Ms. Gustke had
purchased. SSA Ex. 10, at 3.

The CRD Director administratively assigned this case to me for hearing and decision. On
January 30, 2013, I convened a telephone prehearing conference; however, after Ms.
Ballew requested additional time to obtain counsel, I rescheduled the prehearing
conference for March 6, 2013, which was later rescheduled again to March 20, 2013. On
March 20, 2013, I held a telephone prehearing conference with the I.G.’s counsel and
Respondent, who decided to proceed pro se. At the conference, I set dates for the parties’
prehearing exchanges. I summarized the substance of that conference in a March 26,
2013 Order Scheduling Submission of Briefs and Documents (Order). The I.G.
submitted its prehearing exchange, which included a brief (SSA Br.), a list of proposed
witnesses, and 17 exhibits (SSA Exs. 1-17). Respondent also filed her brief (R. Br.), list
of proposed witnesses, seven exhibits (R. Exs. 1-7), and an objection to two of SSA’s
proposed witnesses and to SSA Ex. 6. Finally, SSA filed an objection to R. Exs. 1-5
because they were not authenticated and R. Ex. 7 because that document was not a
certified copy of the document it purported to be. Respondent subsequently submitted a
revised R. Ex. 7.

On October 30, 2013, I held another telephonic prehearing conference, the substance of
which I summarized in a November 1, 2013 Order Following Prehearing Conference. At
the conference I overruled Respondent’s objections concerning SSA’s proposed
witnesses and SSA Ex. 6. I also admitted SSA Exs. 1-17 into the record. Further, I
admitted R. Exs. 6 and 7 into the record, but reserved ruling on R. Exs. 1-5 until
Respondent could authenticate those exhibits during the hearing.

On January 14-15, 2014, I held a hearing at which I heard testimony from 12 witnesses.
Following testimony from the Respondent, I admitted R. Exs. 1-5 into the record. Tr. at 71,
74, 76, 77, 79-80. On February 12, 2014, CRD forwarded a copy of the hearing transcript
with a notice to the parties that post-hearing briefs were due 30 days after the parties received
the transcript and that reply briefs were due no later than 60 days after receipt of the
transcript. CRD informed the parties that there could be no extension of time to file reply
briefs.

Respondent mailed her post-hearing brief on March 10, 2014, and the I.G. mailed its post-
hearing brief on March 20, 2014. On April 7, 2014, the I.G.’s counsel sent an e-mail to
Respondent and the CRD attorney assigned to this case inquiring whether Respondent
submitted a post-hearing brief. CRD forwarded a copy of Respondent’s post-hearing brief by
e-mail to the I.G.’s counsel. On April 9, 2014, the LG. filed a motion requesting that I strike
Respondent’s post-hearing brief because there was no certificate of service indicating that
Respondent mailed the brief to the 1G. In the alternative, I.G. counsel requested an extension
of time to file the reply brief. Petitioner responded that she mailed a copy of her post-hearing
brief to 1.G. counsel at the time she mailed, by “two-day air mail” the post-hearing brief to
CRD. I was precluded by the regulatory deadline for briefs in 20 C.F.R. § 498.219(c) from
granting an extension of time to the IG. Neither party filed reply briefs. Because
Respondent provided a closing argument at the hearing (Tr. 264-68), I believe that LG.
counsel was on notice of Respondent’s arguments and could fully provide its position in its
post-hearing brief. Therefore, I will not strike Petitioner’s post-hearing brief because
including it in the record will not prejudice the LG.

This matter is now ready for decision. 20 C.F.R. § 498.220(c).
II. Issues

1) Whether Respondent violated 42 U.S.C. § 1320a-8(a)(3) by converting DIB and
SSI benefit payments made to her as representative payee for a beneficiary that
Respondent knew or should have known was not for the use and benefit of the
beneficiary.

2) Whether the I.G.’s proposed CMP of $90,000 and assessment of $81,478 is
reasonable and appropriate under the provisions of 42 U.S.C. § 1320a-8(a)(1), (c).

Ill. Jurisdiction

Individuals against whom the I.G. proposes to impose a CMP have a right to a formal
hearing on the record before the CMP is imposed. 42 U.S.C. § 1320a-8(b)(2).
Respondent filed a timely request for an administrative law judge hearing. 20 C.F.R.

§ 498.202. Administrative law judges at the Departmental Appeals Board (DAB)
adjudicate SSA CMP cases. See 20 C.F.R. § 498.201 (definition of ALJ); see also

20 C.F.R. §§ 498.202-220. The administrative law judge must “determine whether the
respondent should be found liable” for a CMP and/or assessment, and issue a decision in
which he “may affirm, deny, increase, or reduce the penalties or assessments proposed by
the Inspector General.” 20 C.F.R. §§ 498.215(a), 498.220(b). Therefore, I have
jurisdiction to hear and decide this case.
IV. Findings of Fact, Conclusions of Law, and Analysis!
A person is subject to a CMP and assessment if he:

having received, while acting in the capacity of a
representative payee pursuant to section 405(j), 1007,
1383(a)(2) of this title, a payment under subchapter II, VIII,
or XVI of this chapter for the use and benefit of another
individual, converts such payment, or any part thereof, to a
use that such person knows or should know is other than for
the use and benefit of such other individual shall be subject
to, in addition to any other penalties that may be prescribed
by law, a civil money penalty of not more than $5,000 for
each such conversion. Such person shall also be subject to an
assessment, in lieu of damages sustained by the United States
resulting from the conversion, of not more than twice the
amount of any payments so converted.

42 U.S.C. § 1320a-8(a)(3).

A, Respondent violated 42 U.S.C. § 1320a-8(a)(3) and is subject toa CMP and
assessment in lieu of damages because, while serving as Ms. Gustke’s
representative payee from April 2010 until June 2011, Respondent converted
portions of 18 of Ms. Gustke’s DIB and SSI benefit payments using those
funds in a way that she should have known was for a purpose other than the
use and benefit of Ms. Gustke.

Respondent and Ms. Gustke were cousins. SSA Ex. 1, at 1. In June 2009, Ms. Gustke
moved into Respondent’s house following the death of her mother. Tr. 83, 157. Ms.
Gustke had no money and Respondent allowed Ms. Gustke to live there rent free. Tr. 23.
When Ms. Gustke was approved to receive DIB and SSI benefit payments, SSA
determined that Ms. Gutke had to receive her benefits through a representative payee. Tr.
140-41, 149; SSA Ex. 3, at 3. In February 2010, Respondent submitted an application to
SSA to serve as Ms. Gustke’s representative payee, and on April 5, 2010, SSA appointed
Respondent as Ms. Gustke’s representative payee. SSA Exs. 1; 2, at 1-2. This
appointment is consistent with SSA’s preference for choosing a relative who
“demonstrates strong concern for the personal welfare of the beneficiary.” 20 C.F.R.

§ 404.2021(a)(1). Further, Respondent represented to SSA that Ms. Gustke “does not
owe me any money and I do not expect her to in the future.” SSA Ex. 1, at 1. However,
even if she did, SSA may have permitted the appointment because Respondent indicated

' My findings of fact and conclusions of law are set forth in italics and bold font.
that Ms. Gustke was living with Respondent and they were related. SSA Ex. 1, at 1; 20
C.F.R. § 404.2022(e).

After being appointed as the representative payee, Respondent established a “Payee
Checking Account” at Kellogg Community Federal Credit Union. SSA Exs. 4, at 1, 18-
19. Respondent controlled this payee account, into which Ms. Gustke’s benefits
payments were deposited. Tr. 63. The debit card for this account was in Respondent’s
name,” and in her possession. Tr. 163; SSA Ex. 8, at 14. In addition to having control of
the debit card, Respondent admitted that she made the decisions on how Ms. Gustke’s
benefits were spent and saved. Tr. 42-43; SSA Ex. 16.

From April 7, 2010, until April 1, 2011, Respondent received 16 physical United States
Treasury checks paid to the order of “Cassandra Ballew for Brenda M Gustke,” and
Respondent endorsed those checks for deposit.> Tr. 41-42; SSA Ex. 4, at 2-17. On May
3 and June 3, 2011, SSA directly deposited Ms. Gustke’s benefits into the account
Respondent established for Ms. Gustke. SSA Ex. 4, at 1, 18-19. These 18 payments
totaled $52,806.64. SSA Ex. 3, at 1; 4, at 1; 12, at 1, 3.

After SSA approved Ms. Gustke for DIB and SSI, Ms. Gustke moved to an apartment.
Tr. 158. However, following several weeks in jail, from April to May 2010, Ms. Gustke
moved back to Respondent’s residence in May 2010; however, this time Ms. Gustke slept
in a camper in Respondent’s backyard. Tr. 19-20, 84. Also in May 2010, Respondent
moved Ms. Gustke’s possessions from the apartment into a storage unit in preparation for
her move back to Respondent’s house. Tr. 20-21, 61; SSA Ex. 11, at 2.

The camper that Ms. Gustke moved into was purchased with Ms. Gustke’s money. Tr.
38-39. The camper presents an issue of misuse in this case. Although Respondent
indicates that Ms. Gustke had title to the camper (a claim that Ms. Gustke asserted was
not true (SSA Ex. 6, at 5), the record reflects that after the camper was purchased, the
title was not transferred from the seller into Ms. Gustke’s name and Ms. Gustke left the

> Ms. Gustke had a personal bank account that Respondent asserts was solely controlled
by Ms. Gustke. However, Respondent admitted that while Ms. Gustke was in jail in
2010, she used the debit card from Ms. Gustke’s account to pay for costs associated with
moving her possessions into storage. Tr. 59-61.

> All except for the first check were sent to Respondent’s home address as represented on
her application to be Ms. Gustke’s representative payee. Compare SSA Ex. 1, at 1 with
SSA Ex. 4, at 3-17. The initial check was sent to the apartment that Ms. Gustke was
renting in April 2010 (SSA Ex. 4, at 2); however, Respondent admitted that despite the
fact that the check was misdirected, she obtained control of that check and deposited it in
the account Respondent established for Ms. Gustke. Tr. 28-30.
camper (and the title document showing the previous owner’s name) in Respondent’s
backyard when she obtained a new representative payee. Tr. 38-39; R. Ex. 1, at 2-3.
Although Respondent does not appear to have retitled the camper in her name,
Respondent failed to properly title this significant purchase in Ms. Gustke’s name, which
is a failing on Respondent’s part to ensure Ms. Gustke had ownership of the camper,
especially since the camper is in Respondent’s possession. Nancy Whitehead, Docket
No. A-13-53, at 5 (HHS DAB June 25, 2013).

The situation related to the purchase and titling of the camper became more problematic
in August 2010 because Respondent began accepting from Ms. Gustke $450 a month in
rent and $100 a month for meals provided by Respondent. Tr. 21-22. Ms. Gustke also
provided Respondent with $25 a month in food stamps that she received and later paid an
additional $20 a month to share internet access with Respondent’s household. Tr. 24-25.
According to Respondent, these charges covered all of Ms. Gustke’s “living expenses,”
such as toiletries, electrical usage, detergents for laundry, etc., and entitled Ms. Gustke to
use Respondent’s house when not sleeping. Tr. 22, 46, 66. Even so, this amount of rent
was approximately the same as for the apartment that Ms. Gustke briefly rented following
her approval for DIB and SSI benefits; however, the difference in these two living
situations is that Ms. Gustke had purchased her principal place to sleep herself, i.e., the
camper. Tr. 24. Further, the camper did not have water and the heat was provided with a
space heater. Tr. 91.

Respondent’s mortgages on her husband’s house amount to $950 per month, and her
family’s (husband and two children) household expenses equal $600 a month. SSA Ex.
17. However, comparing this $1,550 per month expense to Ms. Gustke’s financial
contributions to Respondent’s household, she was paying nearly $600 a month to sleep in
her own camper. The disparity in costs charged to Ms. Gustke in comparison to the costs
incurred by Respondent is exemplified by the fact that the household internet service cost
$42 a month; however, Ms. Gustke paid $20, which is nearly half that expense. Tr. at 24.

Even if the situation involving the camper and the monthly rent/expenses could be
considered reasonable, Respondent’s further actions make it clear that she misused Ms.
Gustke’s benefit payments. Respondent purchased a clothes washer, clothes dryer, soft
water system, hot water heater, and dishwasher with Ms. Gustke’s money. Tr. 44-46, 57-
58; SSA Ex. 9, at 10 (debit card record of a $2,000 purchase at Lowes on March 14,
2011); SSA Ex. 11, at 19-22. These appliances were installed in Respondent’s house,
which Respondent asserts Ms. Gustke had full access to use. Tr. 46, 66. Respondent
asserts that Ms. Gustke was present at the time of the purchases and requested new
equipment so that she could better do her laundry. Tr. 44-47. Ms. Gustke did not take
the appliances with her when she moved from Respondent’s house and did not request
payment for them. Tr. 46. The appliances are still in Respondent’s house. Tr. 48.

Further, significant money from Ms. Gustke’s benefits was used for Respondent’s
daughter’s benefit. According to Respondent, Ms. Gustke decided to buy a laptop
computer. At the same time, Respondent allowed Respondent’s daughter to accept, as a
gift from Ms. Gustke, a laptop computer as well. Tr. 48-49; SSA Ex. 9, at 6 (debit card
record of a $1,183.34 purchase at Best Buy on August 21, 2010). Further, Respondent
used Ms. Gustke’s money to purchase tickets, through Ticketmaster, for Ms. Gustke and
Respondent’s daughter to go to a Selena Gomez concert. Tr. 58; SSA Ex. 9, at 11 (debit
card record of a $121.35 purchase through Ticketmaster on April 1, 2011, and a debit
card record of a $14.00 “Event Ticket Insurance” charge on April 2, 2014). Respondent
said Ms. Gustke wanted to take her daughter. Tr. 58.

In addition to the computer and concert tickets purchased for Respondent’s daughter,
Respondent also allowed Ms. Gustke to use her money in a way that benefited
Respondent’s family. Ms. Gustke paid for a trip for herself and Respondent’s whole
family to Michigan Adventure, an amusement park. See Tr. 73-74; 147-49, 171-72; R.
Ex. 2. Further, Ms. Gustke’s money was used to pay for repairs to Respondent’s truck,
which Respondent used to transport Ms. Gustke to various appointments and places. Tr.
50, 55-56; SSA Ex. 9, at 12 (debit records of $285.10 and $366.27 in charges at
Autozone on April 9 and May 2, 2011, respectively). Respondent also admitted that Ms.
Gustke’s benefit payments were used to take her family out to eat dinner multiple times a
week. Tr. 53-55; SSA Ex. 9, at 2-13 (numerous debit records from restaurants from May
2010 to June 2011). Respondent testified that despite this, Ms. Gustke still ate enough
food at Respondent’s house to justify the $100 per month food payment that Ms. Gustke
made to Respondent each month. Tr. 66.

Further, in April 2011, less than two months before Ms. Gustke obtained a new
representative payee, Respondent paid for repairs on her garage’s roof with Ms. Gustke’s
benefit payments so that Ms. Gustke could move her possessions from storage to the
garage. Tr. 43; SSA Ex. 11, at 1. This would allow Ms. Gustke to have access to those
possessions and would provide for the possibility that Respondent could convert the
garage into a place where Ms. Gustke could live. Tr. 43. LG. witness Jeffrey Bell
confirmed that Ms. Gustke told him that was the reason the garage roof was repaired. Tr.
115. Further, Respondent submitted a photograph of her garage filled with items that
another witness who testified thought looked like the items Ms. Gustke inherited from her
mother. R. Ex. 3; Tr. 75, 106. However, Ms. Gustke had a garage sale and sold these
possessions. Tr. at 252. Ms. Gustke alleged that she sold them before the garage roof
was repaired. SSA Ex. 8, at 10. In any event, Respondent should not have used Ms.
Gustke’s benefit payments to pay for a permanent repair to Respondent’s garage to
temporarily store Ms. Gustke’s possessions

When Ms. Gustke informed Respondent that Ms. Gustke’s father would be her new
representative payee, Respondent testified that instead of returning the balance of any
benefits remaining in the representative payee account to SSA, as SSA instructed in its
10

letter to Respondent, Respondent took Ms. Gustke shopping to spend down the balance.
Tr. 67. Although Respondent indicated that she was unaware of SSA’s notices and that
she took Ms. Gustke shopping, the debit records from the payee bank account show
sporadic purchases, rather than a day of shopping, through July 1, 2011. SSA Ex. 9, at
13-14. SSA sent the notices in mid-June 2011. SSA Ex. 7.

The Social Security Act provides that SSA may appointment representative payees for
beneficiaries as follows:

If the Commissioner of Social Security determines that the
interest of any individual under this subchapter would be
served thereby, certification of payment of such individual's
benefit under this subchapter may be made, regardless of the
legal competency or incompetency of the individual, either
for direct payment to the individual, or for his or her use and
benefit, to another individual, or an organization, with respect
to whom the requirements of paragraph (2) have been met
(hereinafter in this subsection referred to as the individual's
“representative payee”).

42 U.S.C. § 405(j)(1)(A); see also 42 U.S.C. § 1383(a)(2).

A representative payee has the responsibility to make certain that money from SSA is for
the “use and benefit” of the beneficiary and that it is spent in the beneficiary’s “best
interests.” 20 C.F.R. §§ 404.2035(a), 416.635(a). For this reason, creditors of the
beneficiary are precluded from serving as a representative payee unless “the creditor...
poses no risk to [the beneficiary] and whose financial relationship with [the beneficiary]
presents no substantial conflict of interest, and who is . . . [a] relative living in the same
household as [the beneficiary].” Jd. §§ 404.2022(e), 416.622(e); see also 42 U.S.C.

§§ 405G)(2)(C)@UID, (iii)), 1383(a)(2)(B) Gi) AID, (v)@).

Benefit payments are considered to “have been used for the use and benefit of the
beneficiary if they are used for the beneficiary’s current maintenance . . . [which]
includes costs incurred in obtaining food, shelter, clothing, medical care, and personal
comfort items.” 20 C.F.R. §§ 404.2040(a)(1), 416.640(a)(1). SSA exercises oversight of
representative payees and representative payees must submit on SSA’s request “a written
report accounting for the benefits received on [the beneficiary’s] behalf, and make all
supporting records available for review if requested by [SSA].” Id. §§ 404.2035(e),
416.635(e); see also 20 C.F.R. §§ 404.2025, 416.625. A representative payee who
misuses benefit payments is responsible for paying those funds back. 20 C.F.R.

§§ 404.2041(a), 416.641(a).

The evidence of record in this case supports the finding and conclusion that Respondent
did not fulfill her responsibilities as a representative payee and converted portions of all
of the 18 DIB and SSI payments made to her for Ms. Gustke’s use and benefit to a
purpose that was for other than Ms. Gustke’s use and benefit. The actions of Respondent
with regard to Ms. Gustke’s funds, as detailed above, are not generally disputed.
Respondent’s primary defense is that Ms. Gustke allegedly either asked to make all of
these purchases or agreed to make them. However, this is not an appropriate defense. As
stated by SSA’s technical expert who testified at the hearing in response to a question
from Respondent concerning Ms. Gustke’s alleged approval of the trip to Michigan
Adventure: “Ms. Gustke had a payee for a reason. You are the payee. You should not
have allowed her to make that decision... . And the fact that she approved that choice or
at was the mitigating circumstances that were, that was in your statement regarding

at, she wasn't capable of making that kind of decision. That's why we had you
appointed as payee.” Tr. 147, 149.

ac

Based on the evidence of record, I also conclude that Respondent should have known that
she should not have allowed Ms. Gustke’s benefit payments to be used for high rent, the
purchase of permanent appliances in Respondent’s house, repairs to the garage roof or
Respondent’s car. As an initial matter, Respondent signed an application to be a
representative payee in which she was on notice that the benefit payments must be used
for Ms. Gustke’s “current needs.” SSA Ex. 1. Further, when SSA appointed Respondent
to be the representative payee, it provided her with a detailed pamphlet that gave
guidance as to the use of the funds entrusted to her. SSA Ex. 2; see also Tr. 138-39.
Finally, Respondent was an experienced representative payee, for she is the payee for her
daughter. Tr. 15-16, 126, 146. However, despite SSA’s intention not to appoint a person
to be a representative payee who had a conflict of interest (20 C.F.R. § 404.2022(e)),
based in part on Respondent’s assurance that Ms. Gustke was not expected to owe
Respondent a debt in the future (SSA Ex. 1, at 1), Respondent ultimately became her
landlady and provider of various services, for which Respondent took compensation.
This was not a relationship that Respondent could consider what was in Ms. Gustke’s
best interests without potentially adversely affecting her own or her family’s interests.
See Nancy Whitehead, DAB CR2718, at 12 (2013), aff'd, Docket No. A-13-53, at 5 (HHS
DAB June 25, 2013). (“Respondent probably should not have set herself up as the
beneficiary’s landlord and/or mortgage holder, but, having done so, she was obligated to
operate at arm’s length and was not entitled to profit from the arrangement. [Footnote
omitted]. Her conduct was plainly improper and subjects her to penalty under [section
1320a-8].”).

B. Based on the factors in 42 U.S.C. § 1320a-8(c), I reduce the I.G.’s proposed
CMP to $45,000 or half of the proposed amount.

The I.G. proposed the imposition of a $90,000 CMP based on 18 monthly benefit
payments (i.e., April 2010 through June 2011) of which Respondent converted all or part.
12

SSA Ex. 15, at 2. I must consider the reasonableness of this proposal based on applicable
statutory requirements.

As a general parameter, a CMP may not be more than $5,000 for each payment that is
converted and misused. 42 U.S.C. § 1320a-8(a)(3). Therefore, Respondent is potentially
subject to a maximum CMP amount of $90,000, as proposed by the IG.

In addition to establishing the maximum CMP and assessment amounts, the statute
requires that the following factors be taken into account when determining the amount of
a CMP or assessment:

(1) the nature of the statements, representations, or actions
referred to in [42 U.S.C. § 1320a-8(a)] and the circumstances
under which they occurred;

(2) the degree of culpability, history of prior offenses, and
financial condition of the person committing the offense; and

(3) such other matters as justice may require.
42 U.S.C. § 1320a-8(c); see also 20 C.F.R. § 498.106(a).
1. The nature and circumstances of Respondent’s misconduct.

In regard to the first factor, the I.G. stated in his CMP notice that he considered the fact
that when Respondent applied to be Ms. Gustke’s representative payee, she agreed to use
all benefits for Ms. Gustke’s care, save unused benefits, and return any money SSA
determined that Respondent misused. SSA Ex. 15, at 1. The LG. also considered that
SSA provided Respondent with information on how to handle Ms. Gustke’s benefits, but
that Respondent converted money from Ms. Gustke’s initial payment and continued to
convert funds even after SSA notified Respondent that she was no longer Ms. Gustke’s
representative payee.

I share the I.G.’s concerns related to Respondent’s handling of Ms. Gustke’s benefit
payments. Respondent had a fiduciary duty to Ms. Gustke to make certain that all money
was used for her benefit. Unfortunately, Respondent came to view Ms. Gustke’s benefit
payments as part of the household income. It would be hard to believe that Respondent
would expect an individual living in a camper in her backyard to purchase multiple
appliances, fix the roof on the garage, and take her family to dinner multiple times a week
as well as on a vacation. I understand that Ms. Gustke was a cousin and not a stranger
who simply rented space. However, therein lies the problem.
13

Respondent was charging Ms. Gustke significant rent. This more than covered the costs
to Respondent of Ms. Gustke’s presence at her house during the day and the camper on
her property. However, Respondent failed to maintain an objective view of Ms. Gustke’s
benefits and she used those benefit payments to improve her house.

2. Respondent’s level of culpability, prior offenses, and financial
condition.

The second factor includes three parts. The I.G. considered each of these in its CMP
notice.

a. Culpability

[he I.G. considered Respondent very culpable because Respondent had been notified of
her duties as a representative payee and agreed to comply with those duties. However,
Respondent still converted over $40,000 in benefit payments, which included money that
was misused after Respondent was informed that she was no longer representative payee
for Ms. Gustke. SSA Ex. 15, at 2. Respondent did not consider herself very culpable
because she asserts that Ms. Gustke authorized all of the purchases that Respondent made
and agreed to the rent paid. I agree with the I.G. that Respondent is culpable because she
continually misused Ms. Gustke’s money on Respondent’s home or children. However, I
do not think that she is as culpable as the LG. indicates. The LG. appears to completely
believe Ms. Gustke as to what happened.

I do not fully believe Ms. Gustke’s version of events, as provided in her written statement
and the notes of her interview with an LG. special agent. Respondent established that
Ms. Gustke was a felon, significant drug abuser, and reputed liar. Tr. 104, 115, 239, 246;
see also R. Ex. 6. Ms. Gustke admitted to the LG. special agent that when she received
her first DIB/SSI check in April 2010, “she went on a crack binge.” SSA Ex. 8, at 10. In
fact, the reason that Ms. Gustke did not testify (and thus, was not cross-examined) in this
case is because she died from an overdose of prescription medication that she apparently
stole from her roommate. R. Ex. 7, at 2-3 (autopsy report). Ms. Gustke’s aunt testified, I
believe credibly, about Ms. Gustke’s history of drug abuse and stealing from her mother
to finance that habit. Tr. 244-53. For this reason, Ms. Gustke’s motivation in filing a
complaint of dire treatment by Respondent could be an effort to obtain additional funds
from SSA by asserting representative payee misuse. SSA Ex. 6, at 2 (“I would like to
know where all the money went_ Can I get it back”).

Although Respondent would have an obvious motive for dissembling in this case, she has
generally admitted the purchases that she made with Ms. Gustke’s money and has
consistently stated the basis for those purchases. I believe that Respondent wanted to
14

help her cousin, Ms. Gustke, as she did in 2009 when Respondent provided housing to
Ms. Gustke without charging rent. Tr. at 159-60. However, Respondent allowed herself
to believe that she was entitled to use of Ms. Gustke’s benefit payments to improve her
home, eat regularly at restaurants, and provide her daughter with gifts. Respondent is
culpable because she ultimately took for her own use, and that of her family, most of Ms.
Gustke’s benefit payments. This is egregious. However, I do not believe that she is as
culpable as stated by the I.G. in the CMP notice. The I.G.’s view appears to take Ms.
Gustke’s statements as true. Because I also credit some of Respondent’s assertions, I
view her conduct as less culpable than the I.G.

b. Prior Offenses

The I.G. also considered that Respondent has no prior offenses involving SSA. SSA Ex.
15, at 2. I agree that there is no evidence in the record to suggest that Respondent has a
prior offense related to Social Security programs.

c. Financial Condition

The I.G. considered Respondent’s financial condition and concluded that the proposed
CMP and assessment would not jeopardize her financial situation. The I.G. based this on
Respondent’s failure to provide financial information to the LG. before it issued the CMP
notice. SSA Ex. 15, at 2. The LG. urges that I adopt the same position because
Respondent has not submitted financial records in this proceeding. I agree with the I.G.
that Respondent has failed to provide significant documentation concerning her financial
situation. However, she provided a November 29, 2012 Discharge of Debtor issued by
the United States Bankruptcy Court for the Western District of Michigan. SSA Ex. 17.
Further, Respondent testified that she does not work due to health issues and taking care
of a special needs child who SSA has determined is disabled. Tr. 13-15. Respondent
also testified that her husband has an annual salary of about $32,000 a year, and the child
who receives Social Security benefits, also receives state benefits. Tr. 14-16. Based on
this information, I do not believe that Respondent has the financial ability to pay the
penalty proposed by the LG.

3. Other matters as justice may require.

In the CMP notice, the I.G. indicated that he considered that Respondent took a vacation
using Ms. Gustke’s benefit payments and purchased with that money several appliances
that Respondent still possesses. The I.G. considered these to be aggravating factors.
SSA Ex. 15, at 2. I agree and also consider aggravating that Respondent also possesses
Ms. Gustke’s camper.
15

4. I reduce the I.G.’s proposed CMP to $45,000.

As discussed above, Respondent is subject to a potential CMP of $90,000. I agree that a
substantial penalty is necessary to ensure that Respondent does not misuse other
beneficiary funds (Respondent serves as her daughter’s representative payee (Tr. 15)).
However, I am also mindful that my evaluation of the factors above involving
Respondent’s culpability and financial condition necessitates reduction in the penalty
amount. Based on those factors, a penalty of $2,500 per benefit payment that was subject
to conversion is reasonable, for a total CMP of $45,000.

D. I reduce the I.G.’s proposed assessment based on the factors in 42 U.S.C.
§ 1320a-8(c), and the amount of actual damages incurred by the United
States, which is $40,739.

The I.G. proposed to impose an assessment of $81,478 on Respondent, which constitutes
double the amount of benefit payments that SSA determined that Respondent misused.
SSA Ex. 15, at 2. However, SSA has only proven that Respondent has misused $40,739
and has not otherwise alleged damages.

SSA’s technical expert reviewed the documentation that Respondent provided SSA to
account for the use of Ms. Gastke’s benefits. See Tr. 144; SSA Ex. 11. SSA also
obtained bank records from the payee account set up for Ms. Gustke. SSA Ex. 9. The
technical expert provided a detailed examination of that documentation. SSA Ex. 3.
Respondent did not submit any additional documentation during this proceeding to
account for the money she spent. Further, Respondent did not testify in detail about the
money she spent on Ms. Gustke; Respondent merely made generalizations.

SSA’s technical expert testified, on cross-examination, the following: “I can't determine
how it [the benefit payments] was spent. I can just show that it was not - there was no
proof to indicate it was on [Ms. Gastke], on [Ms. Gastke’s] current needs or that it was
spent properly.” Tr. 147. It is the obligation of a representative payee to keep records
and be able to account, with documentation, for how the money paid to a beneficiary was
spent. 20 C.F.R. §§ 404.2025, 404.2035(e), 416.625, 416.635(e). Asa result, I find that
the technical expert’s computation of the money misused is accurate based on the
information in the record. I cannot consider Respondent’s generalized assertions about
money spent on Ms. Gustke. A representative payee must be able to show documentation
of how the money was spent.

In determining the assessment, I considered the factors from 42 U.S.C. § 1320a-8(c)
already addressed above, and the relevant provision regarding an assessment, which
states:
16

Such person shall also be subject to an assessment, in lieu of
damages sustained by the United States resulting from the
conversion, of not more than twice the amount of any
payments so converted.

42 U.S.C. § 1320a-8(a)(3). The regulations on this subject do not provide additional
explanation as to what this provision means. See 20 C.F.R. § 498.104. Therefore, I will
interpret this statute by a plain reading of the text.

The assessment is to be made in place of damages sustained by the United States
resulting from a representative payee’s conversion of benefit payments intended for a
beneficiary. However, Congress capped the potential liability for damages at double the
amount of benefit payments converted. While an assessment may be as much as double
the amount of the converted payments, in order for such an assessment to be made, the
1.G. must prove that damages exist to support such an assessment.

In the present case, the IG. has not asserted the existence of damages in excess of the
amount of money that the I.G. alleged was converted by Respondent. In such a situation,
there is no basis for imposing an assessment that is more than the actual amount of
benefit payments that were converted. I do not believe that the factors I considered above
from 42 U.S.C. § 1320a-7b(c) require a further adjustment to the assessment in this
matter. Therefore, I reduce the I.G.’s proposed assessment to $40,739.

Order

Based on the evidence of record, and consistent with my findings of fact and conclusions
of law, I hereby order the following:

1. Respondent is LIABLE under 42 U.S.C. § 1320a-8(a)(3) to pay a CMP and
assessment;

2. The L.G.’s proposed CMP is REDUCED to $45,000;
3. The L.G.’s proposed assessment is REDUCED to $40,739; and
4. Respondent is directed to pay a total of $85,739 in the manner specified by the

1.G. in his CMP notice (SSA Ex. 15, at 3) or in any other manner prescribed by the
1.G. following the issuance of this decision.

/s/
Scott Anderson
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Carrie Cera-Hill, M.D.
(PTAN: 263954YMG3),

Petitioner,
v.
Centers for Medicare & Medicaid Services.
Docket No. C-14-812
Decision No. CR3274

Date: June 27, 2014

DECISION

I deny the motion of the Centers for Medicare & Medicaid Services (CMS) to dismiss the
hearing request of Petitioner, Carrie Cera-Hill, M.D. Petitioner filed her request timely.

I grant CMS’s motion for summary judgment on the merits. Petitioner has established no
ground for me to change the effective date of her participation in Medicare to August 29,
2012.

I. Background and Ruling on Motion to Dismiss

In this case Petitioner seeks to challenge the effective date of her enrollment as a
Medicare supplier. CMS filed motions to dismiss Petitioner’s hearing request and, in the
alternative, for summary judgment on the merits. It accompanied its motions with a brief
and 14 proposed exhibits that it identified as CMS Ex. 1 — CMS Ex. 14. Petitioner did
not reply to CMS’s motions but she advised me that she was relying on her hearing
request plus the supporting documentation that she filed with her hearing request. I
receive CMS Ex. 1 — CMS Ex. 14 into the record. I am identifying Petitioner’s hearing
request and all of her supporting documents (which appear to duplicate some of CMS’s
exhibits) as a single exhibit, for purposes of the record, P. Ex. 1. I receive all of the
parties’ exhibits into the record.

CMS argues that Petitioner did not file her hearing request timely — within 60 days of her
receiving notice of reconsideration in this case — and has not shown good cause for her
failure to do so. However, I find that Petitioner in fact did submit a timely hearing
request.

Petitioner filed applications for Medicare enrollment and reassignment of her benefits on
November 26, 2012. On April 17, 2013, a Medicare contractor notified Petitioner that
er applications had been approved and that the effective date of her participation in
Medicare would be October 28, 2012. CMS Ex. 6 at 3.

Petitioner was dissatisfied with this effective date determination and requested
reconsideration. On May 26, 2013, the contractor sent a notice to Petitioner’s employer,
Advanced Dermatology, in Aurora, Colorado, informing Petitioner that the request for
reconsideration was denied. CMS Ex. 10 at 4.' The letter advised Petitioner that she had
a right to request a hearing before an administrative law judge but that this right must be
exercised within 60 calendar days of Petitioner’s receipt of the notification. Id.

Subsequently, the Practice Manager of Petitioner’s employer asked that the notice of the
reconsideration determination be sent to another address in Centennial, Colorado. In
response to that request the contractor re-sent its denial notice to the Centennial,
Colorado address, but dated January 9, 2014. CMS Ex. 14 at 1-2. Petitioner then filed
her hearing request on March 11, 2014.

The hearing request was filed within 60 days (presumed to be within 65 days of the
mailing date) of the copy of the reconsideration determination that the contractor sent to
Petitioner’s Centennial Colorado address. The earlier notice of reconsideration was sent
to an address in Aurora, Colorado. However, all of the previous communications
between the contractor and Petitioner were sent to the Centennial, Colorado address and
in fact, that is the address from which Petitioner corresponded with the contractor. CMS
has offered no explanation for sending the reconsideration notice initially to a different
address and offered no facts to show that Petitioner would have received the notice at that
address. Indeed, the record is devoid of any explanation for the contractor’s sending the
notice to Aurora, Colorado. In light of that, I find that the notice that was sent to

' For reasons that are not clear Petitioner filed an additional reconsideration request on
August 5, 2013. On November 4, 2013, the contractor advised Petitioner that it had
already processed Petitioner’s prior reconsideration request and that it had issued a
determination, referring specifically to the May 26, 2013 denial letter. CMS Ex. 13.
Petitioner’s Centennial, Colorado mailing address was the first effective notice of
reconsideration sent to Petitioner and her hearing request was timely based on the mailing
date of that notice.

I therefore turn to the merits of the case.
IL. Issue, Findings of Fact and Conclusions of Law
A. Issue

The issue in this case is whether Petitioner is entitled to an earlier effective date of
Medicare participation than that determined by CMS via its contractor.

B. Findings of Fact and Conclusions of Law

Regulations governing a practitioner’s participation in Medicare state that the effective
date of the practitioner’s participation is the /ater of the following two dates: the date of
filing of a Medicare enrollment application that is subsequently approved or the date that
the practitioner begins furnishing services at a new practice location. 42 C.F.R.

§ 424.520(d). Petitioner filed her application to participate on November 26, 2012.
Under the foregoing regulation that is the earliest effective date that she may participate.”

Petitioner makes the equitable argument that the “late” filing of her application to
participate was due to clerical error by her employer’s office staff and she, in effect,
requests that I waive the regulatory provision governing effective date of participation.
P. Ex. 1. [have no authority to do that. The regulations do not grant me discretion to
waive the effective date requirement.

/s/
Steve T. Kessel
Administrative Law Judge

> The contractor incorrectly told Petitioner that her “effective date” of participation was
October 28, 2012, 30 days prior to the date she filed her application. This is based on a
misreading of the regulations by the contractor, something that contractors apparently do
routinely when advising practitioners of their effective dates of participation. However,
the error in this case is harmless because the contractor may — as it did here — allow a
participant to file claims for services rendered up to 30 days prior to the participant’s
effective date of participation. That, effectively, is what the contractor did here.


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Rey R. Palop, M.D.,
(PTAN: 090100011),
(NPI: 1750349239),
Petitioner,
v.
Centers for Medicare & Medicaid Services.
Docket No. C-14-570
Decision No. CR3273

Date: June 24, 2014

DECISION

Petitioner, Rey R. Palop, M.D., is a physician, licensed to practice in the
Wisconsin, who has participated in the Medicare program as a supplier o

State of
services. In

2008, he was convicted of felony drug fraud. He did not timely report his conviction to

the Medicare contractor, which initially approved his 2009 application to
Medicare benefits. Having learned of the conviction and his failure to rej

reassign his
port it as

required, the Centers for Medicare & Medicaid Services (CMS) retroactively denied that
application and his Medicare enrollment. Petitioner appeals the retroactive denial.

CMS has filed a motion for summary judgment, which Petitioner opposes. However,

because CMS presents no witnesses and has not asked to cross-examine

Petitioner’s sole

witness, an in-person hearing would serve no purpose. See Acknowledgment and Pre-

hearing Order at 5 ({ 8) and 6 ({ 10). This matter may therefore be deci

led based on the

written record, without considering whether the standards for summary judgment are

satisfied.
CMS properly denied Petitioner Palop’s 2009 enrollment application, because, within the
ten years preceding his filing it: 1) he was convicted of a felony that CMS determined is
detrimental to the best interests of the Medicare program and its beneficiaries; and 2) he
did not report that conviction to the Medicare contractor.

Background

2006 Enrollment Application. On March 24, 2006, Petitioner Palop applied for
enrollment in the Medicare program. CMS exhibits (Exs.) 1, 2. In responding to
questions on his application, he acknowledged that the State of Wisconsin brought an
“adverse legal action” against him on October 17, 2005, but wrote that the action — a
“felony or misdemeanor conviction . . . relating to the unlawful manufacture, distribution,
prescription, or dispensing of a controlled substance” — had been dismissed in June 2005.
CMS Ex. | at 5.

The Medicare contractor, Wisconsin Physicians Service Insurance Corporation (WPS),
asked for more information about the adverse legal action. CMS Ex. 3. In response to
the query, Petitioner Palop submitted two documents from the Wisconsin Medical
Examining Board:

e A “Final Decision and Order,” dated March 17, 2004, indicating that Petitioner
Palop was charged with eleven felony counts of “obtaining controlled substances
by fraud,” in violation of Wisconsin state law (§ 961.43(1)(a) Wis. Stats.).
According to this document, Petitioner wrote prescriptions for the controlled
substance, Fioricet. The drugs were meant for his wife, but he used a fictitious
patient name, apparently to conceal the extent of her drug consumption.’ His wife
then presented the fraudulent prescriptions at local pharmacies. The medical
board reprimanded Petitioner Palop for unprofessional conduct, limited his license
to practice medicine, and ordered him to complete a course in medical ethics.
CMS Ex. 4 at 1-2.

e A “Reinstatement of DEA Registration,” indicating that Petitioner Palop
completed his ethics course and allowing him to reapply for and hold DEA (Drug
Enforcement Administration) registration. CMS Ex. 4 at 3.

Petitioner’s submissions were apparently sufficient to satisfy WPS, because, in a letter
dated April 10, 2006, the contractor welcomed him into the Medicare program. CMS Ex.
5.

' Another physician had already prescribed Fioricet for her. According to Dr. Palop, the
physicians they consulted would not increase the dosage because of “standards of care’
issues and clinician imposed limitations regarding the use of narcotic pain medications . .
..” P.Ex. Lat 1.
November 6, 2009 Enrollment Application. On November 6, 2009, Petitioner Palop filed
another enrollment application, in order to reassign his benefits to a different supplier.
CMS Ex. 6. Ina letter dated December 2, 2009, WPS approved the application, with an
effective billing date of November 5, 2009. CMS Ex. 9.

March 23, 2013 Revalidation Application. Every five years, currently-enrolled suppliers
must recertify the accuracy of their enrollment information by filing a new enrollment
application. 42 C.F.R. § 424.515. In revised enrollment applications, signed May 30,
2013 and July 2, 2013, Petitioner Palop admitted that an adverse legal action had been
imposed against him. He wrote that, on October 10, 2008, he pled guilty/no contest to
one count of obtaining a controlled substance by fraud, which is a felony. He again
explained that he prescribed the drugs to treat his wife’s pain. He successfully completed
probation and the court issued a discharge certificate on November 23, 2012. CMS Ex.
11 at 11-12, 25; CMS Ex. 13 at 3-6.

Retroactive Enrollment Denial and Appeal. By letter dated August 27, 2013, WPS
advised Petitioner that his November 6, 2009 enrollment application was retroactively
denied. The contractor advised Petitioner that it denied the application, because, when he
filed it, he was not in compliance with Medicare requirements. 42 C.F.R.

§ 424.530(a)(1). First, within the preceding ten years, he had been convicted of a felony
that CMS has determined is detrimental to the best interests of the program and its
beneficiaries. 42 C.F.R. § 424.530(a)(3). Second, he did not report his conviction to
WPS within thirty days, as required by regulation. 42 C.F.R. § 424.516(d)(1)(ii). CMS
Ex. 14.

Petitioner requested reconsideration. In a reconsidered determination, dated November
22, 2013, an enrollment specialist for the new Medicare contractor, National Government
Services (NGS), upheld the revocation. CMS Ex. 18. Petitioner timely appealed, and
that appeal is now before me.

The parties have filed briefs (CMS Br.; P. Br.), and CMS filed a reply brief (CMS
Reply). CMS submitted 18 exhibits (CMS Exs. 1-18), and Petitioner submitted five
exhibits (P. Exs. 1-5). In the absence of any objections, I admit into evidence CMS Exs.
1-18 and P. Exs. 1-5.
Discussion

CMS appropriately denied Petitioner’s November 2009 enrollment
application, because, within the preceding ten years, Petitioner had been
convicted of a felony offense detrimental to the best interests of the Medicare
program and its beneficiaries and because he failed to report timely that
conviction to the Medicare contractor.”

CMS, acting on behalf of the Secretary of Health and Human Services, may deny a
supplier’s Medicare enrollment if, within the preceding ten years, the supplier was
convicted of a federal or state felony offense that CMS “has determined to be detrimental
to the best interests of the [Medicare] program and its beneficiaries.” 42 C.F.R.

§ 424.530(a)(3); see Social Security Act (Act) §§ 1842 (h)(8) (authorizing the Secretary
to refuse to enter into an agreement with a physician who has been convicted of a felony
offense that the Secretary determines is “detrimental to the best interests of the program
or program beneficiaries”) and 1866(b)(2)(D) (authorizing the Secretary to refuse to enter
into an agreement after she ascertains that the practitioner was convicted of a felony that
she “determines is detrimental to the best interests of the program or program
beneficiaries”).

Petitioner argues that section 424.530(a)(3) applies only to crimes that are violent,
financial, or program-related, and his was none of these, so his enrollment should not be
denied. P. Br. at 2-4. In fact, the regulatory definition of offenses “detrimental to the
best interests of the program and its beneficiaries” is broader than Petitioner claims. It
includes “felonies outlined in section 1128 of the [Social Security] Act.” 42 C.F.R.

§ 424.530(a)(3)(i)(D). Among the crimes listed in section 1128 are felony convictions
“relating to the unlawful manufacture, distribution, prescription, or dispensing of a
controlled substance.” Act § 1128(a)(4). Petitioner’s conviction for felony drug fraud is
thus detrimental the best interests of the Medicare program and its beneficiaries and
justifies denial of his enrollment application.

At the time of his conviction, suppliers were required to report, within 90 days, any
changes to the information they furnished on their enrollment applications. 42 C.F.R.

§ 424.520(b) (2008).° No one disputes that Petitioner Palop was convicted of a felony in
October 2008, but he did not report the conviction to WPS until March 2013, when he

> | make this one finding of fact/conclusion of law.

* Effective January 1, 2009, the time period was shortened to 30 days and the relevant
section redesignated section 424.516. 73 Fed. Reg. at 69,726, 69,940. So, to enroll in the
Medicare program (or to maintain active enrollment), a physician must report any
adverse legal action within 30 days of its occurrence. 42 C.F.R. § 424.516(d).
answered the questions on his revalidation application. Thus, his failure to report timely
also justifies denial of his enrollment application.

Petitioner complains that the enrollment denial is retroactive, which means that neither he
nor the supplier to which he assigned his benefits will be paid for services he rendered. I
note first that this was a problem of Petitioner’s own making. Had he reported the
conviction, as required, the contractor could have acted accordingly. Moreover, as the
Departmental Appeals Board has observed, section 424.530(a)(1) authorizes denial “at
any time” the supplier is found not to be in compliance with enrollment requirements. In
the Board’s view, this permits CMS “to deny an application previously approved in error
where CMS discovers the supplier did not meet [enrollment] requirements at the time of
enrollment.” US Ultrasound, DAB No. 2302 at 6-7 (2010).

Petitioner also complains that the 2009 application form did not explicitly ask him about
any adverse legal actions, a purported omission that, in his view, relieved him of
responsibility for reporting. P. Br. at 5. I note first that, by November 2009, he had long
since violated the reporting requirement. Moreover, when he enrolled in the program he
promised to abide by the Medicare laws, regulations and program instructions. He
acknowledged that those laws, regulations, and instructions were available through the
Medicare contractor. CMS Ex. | at 13. He thus knew or should have known that he was
obliged to report his conviction. See Gulf South Med. & Surgical Inst., and Kenner
Dermatology Clinic, Inc., DAB No. 2400 at 9 (2011) and cases cited therein (holding
that, as participants in the program, suppliers have a duty to familiarize themselves with
Medicare requirements).

Finally, Petitioner attacks the quality of the reconsideration proceedings. Specifically, he
complains that he was not afforded a contractor hearing as he requested. P. Br. at 4. But
the regulations do not entitle him to a hearing at the reconsideration level. If a request for
reconsideration is properly filed, CMS (or its contractor) “[r]eceives written evidence and
statements that are relevant and material to the matters at issue’; it considers the initial
determination, the findings on which that determination was based, the evidence
considered in making that determination, and “any other written evidence submitted. . . .”
42 C.F.R. § 498.24 (emphasis added). Based on this written record, CMS makes its
reconsidered determination. Id.*

* T recognize that the quality of the reconsidered determination here leaves something to
be desired. Nevertheless, the purpose of administrative review is to correct agency errors
and reach the correct decision, based on the evidence presented. Here, Petitioner has
been fully apprised of the bases for CMS’s actions and has not complained about the
adequacy of the notice provided. The matter has been full briefed, and, the law and
undisputed facts lead to one conclusion. Petitioner is absolutely not entitled to prevail, no
matter what the shortcomings of the reconsidered determination. My remanding the case
—to allow CMS to present a more thorough determination — would unnecessarily prolong
Conclusion

Because, within ten years preceding November 2009, Petitioner was convicted of a
felony offense detrimental to the best interests of the Medicare program and its
beneficiaries; and because he failed to report that conviction timely, CMS properly
denied his November 2009 Medicare enrollment application and his Medicare
enrollment.

/s/
Carolyn Cozad Hughes
Administrative Law Judge

these proceedings, requiring all parties to expend additional time and resources to achieve
the same result.


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Center for Tobacco Products,
Complainant,
v.
Alike Inc. d/b/a Alex’s C-Store,
Respondent.

Docket No. C-14-993
FDA Docket No. FDA-2014-H-0506

Decision No. CR3272

Date: June 24, 2014

INITIAL DECISION AND DEFAULT JUDGMENT

The Center for Tobacco Products (CTP) initiated the above-captioned matter when it
filed an Administrative Complaint for Civil Money Penalties (Complaint) with the
Departmental Appeals Board, Civil Remedies Division (CRD) and the Food and Drug
Administration’s (FDA) Division of Dockets Management. CTP seeks to impose civil
money penalties under the Federal Food, Drug, and Cosmetic Act (Act) and the Act’s
implementing regulations.

The Complaint alleges the following facts. Respondent owns an establishment that sells
tobacco products and is located at 2860 East Ledbetter Drive, Dallas, Texas 75216.
Complaint § 3. CTP documented violations while conducting two inspections of the
establishment. Complaint J 9. During an inspection, an FDA-commissioned inspector
observed that:

2

[A] person younger than 18 years of age was able to purchase a package of
Marlboro Gold Pack cigarettes on May 25, 2013, at approximately 10:42
AM; and. . . the minor’s identification was not verified before the sale, as
detailed above, on May 25, 2013, at approximately 10:42 AM.

Complaint § 10.

On June 6, 2013, CTP issued a warning letter to Respondent specifying the violations that
the inspector observed. The letter warned Respondent that if it failed to correct the
violations, civil money penalties could be imposed on it and that it was Respondent’s
responsibility to ensure compliance with the law. Complaint 10.

Gregory Achilike responded to the warning letter on Respondent’s behalf in an undated
letter that CTP received on June 18, 2013. Mr. Achilike reported that:

Respondent would do its best to ensure that tobacco products are not sold to
a minor again. Mr. Achilike also stated that employees would check the
identification of all tobacco purchasers under the age of 27, and that signs
were posted in the establishment to inform customers that they must
produce identification to purchase tobacco and to inform employees of the
legal age for purchasing tobacco.

Complaint § 11.

During a subsequent inspection, FDA-commissioned inspectors documented the
following at Respondent’s establishment:

[A] person younger than 18 years of age was able to purchase a package of
Marlboro Gold Pack cigarettes on October 12, 2013, at approximately

9:22 AM; and... the minor’s identification was not verified before the sale, as
detailed above, on October 12, 2013, at approximately 9:22 AM.

Complaint § 1.

In compliance with 21 C.F.R. §§ 17.5 and 17.7, CTP served Respondent with the
Complaint on April 29, 2014, via United Parcel Service (UPS). CTP charged Respondent
with violating 21 C.F.R. § 1140.14(a) (sale of tobacco products to a minor) and 21 C.F.R.
§ 1140.14(b)(1) (failure to verify the age of a person purchasing tobacco products by
means of photographic identification containing the bearer’s date of birth). Complaint

4 1, 10. CTP asked the CRD to impose a $500 civil money penalty based on three
alleged violations of the regulations in a 24-month period. Complaint § 13.
3

The Complaint provided detailed instructions related to filing an answer and requesting
an extension of time to file an answer. Complaint J 14-18, 20-22. The Complaint stated
that failure to file an answer could result in the imposition of a civil money penalty
against Respondent. Complaint § 19. Further, after CTP filed the Complaint, CRD sent
Respondent an Initial Order informing Respondent of the requirement to file an answer to
avoid a default judgment. CRD sent a form answer along with the Initial Order that
Respondent could fill out and file with CRD. Respondent neither filed an answer nor
requested an extension of time within the 30-day time period prescribed in 21 C.F.R.

§ 17.9.

If a respondent does not file an answer within 30 days of a properly served complaint, the
regulations provide that:

[T]he presiding officer shall assume the facts alleged in the complaint to be
true, and, if such facts establish liability under the relevant statute, the
presiding officer shall issue an initial decision within 30 days of the time
the answer was due, imposing:

(1) The maximum amount of penalties provided for by law for the

violations alleged; or

(2) The amount asked for in the complaint, whichever amount is smaller.

21 C.F.R. § 17.11(a). Further, a failure to file a timely answer means that “the
respondent waives any right to a hearing and to contest the amount of the penalties and
assessments” imposed in the initial decision. 21 C.F.R. § 17.11(b).

Accepting the facts alleged in the Complaint as true, I find that those facts establish
Respondent’s liability under the Act. See 21 U.S.C. §§ 333(f)(9), 387c(a)(7)(B), 387£(d);
21 C.F.R. §§ 1140.1(b), 1140.14. I also find that CTP’s request to impose a $500 civil
money penalty is permissible. See 21 C.F.R. § 17.2.

Therefore, Respondent is directed to pay a civil money penalty in the amount of $500.
This initial decision becomes final and binding upon both parties 30 days after the date of
its issuance. 21 C.F.R. § 17.11(b).

It is so ordered.

/s/
Scott Anderson
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Young Okoro Anyanwu
(OI File No. 6-09-4062 1-9),

Petitioner,
v.

The Inspector General.

Docket No. C-14-250
Decision No. CR3269

Date: June 20, 2014

DECISION

The Inspector General (I.G.) of the United States Department of Health and Human
Services excluded Petitioner, Young Okoro Anyanwu, from participating in Medicare,
Medicaid, and all other health care programs pursuant to 42 U.S.C. § 1320a-7(a)(1) for a
period of 10 years effective November 20, 2013. Petitioner requested a hearing before an
administrative law judge to dispute the exclusion. For the reasons explained below, I
conclude that the I.G. has a basis to exclude Petitioner due to his criminal convictions for
health care fraud, conspiracy to pay and receive illegal remuneration, and paying illegal
remuneration. Further, based on the existence of two significantly aggravating factors
and the absence of any mitigating factors, I affirm the I.G.’s determination to exclude
Petitioner for 10 years.

I. Case Background
In a letter dated October 31, 2013, the I.G. notified Petitioner that, pursuant to 42 U.S.C.

§ 1320a-7(a)(1), he was being excluded from participation in Medicare, Medicaid, and all
federal health care programs for a period of 10 years effective November 20, 2013. I.G.
Ex. 1. The I.G. based the exclusion on Petitioner’s conviction of a criminal offense in the
United States District Court for the Middle District of Louisiana (District Court) related
to the delivery of an item or service under Medicare or a state health care program,
including the performance of management or administrative services relating to the
delivery of items or services, under any such program. The I.G. also cited two
aggravating factors: (1) Petitioner’s criminal conduct caused a loss to a Government
program of $5,000 or more, and (2) the court’s sentence of Petitioner included a term of
incarceration. I.G. Ex. 1.

Petitioner, proceeding pro se, filed a request for a hearing with the Civil Remedies
Division (CRD) to dispute the exclusion. The CRD Director administratively assigned
this case to me for hearing and decision, and on December 18, 2013, I convened a
prehearing conference by telephone, the substance of which is summarized in my
December 20, 2013 Order and Schedule for Filing Briefs and Documentary Evidence
(Order). Pursuant to the Order, the I.G. electronically filed a brief (IG. Br.) on January
27, 2014, with 1.G. Exs. 1 through 5, and certified that he sent a copy to Petitioner by
first-class mail. Petitioner, who is currently incarcerated, apparently did not receive a
copy of the I.G.’s brief, and, presuming that the I.G. had not filed its prehearing brief,
submitted a motion to dismiss the case for “want of prosecution.” Because the I.G. had
indeed filed his prehearing brief, I denied Petitioner’s request, but directed the I.G. to re-
serve his brief on Petitioner ensuring that all prison policies for sending mail were
followed and extended the deadline for Petitioner to file his brief and for the I.G. to file
is reply. The I.G. reserved his brief and Petitioner subsequently filed a brief (P. Br.) on
March 17, 2014, with no exhibits attached. The LG. filed a reply brief (I.G. Reply) on
April 29, 2014. Petitioner then filed a response (P. Response) to the I.G.’s reply brief on
May 8, 2014. The I.G. did not file an objection to my consideration of Petitioner’s
response. Thus, while not part of my Order, I will accept Petitioner’s response into the
record. I consider the record closed as of May 8, 2014.

II. Decision on the Record

Petitioner did not object to any of the I.G.’s proposed exhibits. Therefore, I admit I.G.
Exs. 1-5 into the record.

Neither party expressly requested a video hearing and, in any event, neither party
explained why an in-person hearing would be necessary. Order 4/4. Because no hearing
is necessary, I issue this decision based on the written record.
III. Issues
This case presents the following issues:

1. Whether the LG. has a basis to exclude Petitioner based on his conviction for
an offense related to the delivery of an item or service under Medicare or a
state health care program; and

2. If there is a basis for the exclusion, whether a 10 year exclusion period is
unreasonable.

IV. Jurisdiction

I have jurisdiction to decide the issues in this case. 42 C.F.R. §§ 1001.2007(a)(1)-(2),
1005.2(a); see also 42 U.S.C. § 1320a-7(f)(1).

V. Findings of Fact, Conclusions of Law, and Analysis

1. Petitioner pled guilty to two counts of health care fraud, one count of
conspiracy to pay illegal remuneration, and one count of paying illegal
remuneration, and the District Court issued a Judgment in a Criminal Case
based on Petitioner’s guilty plea.

On July 7, 2010, a federal grand jury indicted Petitioner on 15 counts of health care fraud
(18 U.S.C. § 1347), one count of conspiracy to pay and receive illegal remuneration

(18 U.S.C. § 371), and one count of paying illegal remuneration (42 U.S.C. § 1320a-7b).
1.G. Ex. 2. According to the indictment, Petitioner owned and operated Lobdale Medical
Services and, along with his co-conspirators, filed claims for payments for durable
medical equipment that was not medically necessary and induced the referrals of
Medicare beneficiaries to Lobdale Medical Services through illegal kickbacks. I.G. Ex.
2, at 5-10. Petitioner allegedly performed these acts from about October 2008 to April
2009. I.G. Ex. 2, at 11.

Petitioner agreed to plead guilty to two counts of health care fraud (Counts 3 and 12), one
count of conspiracy to pay and receive illegal remuneration (Count 16), and one count of
paying illegal remuneration (Count 17), and entered that guilty plea in the District Court
on August 13, 2012. I.G. Exs. 3-4.' The District Court accepted Petitioner’s plea,
entered judgment against him, and dismissed the remaining counts upon the

' The Plea Agreement reached between Petitioner and the United States indicates that
there was an agreed-upon factual summary attached thereto and filed with the District
Court. See I.G. Ex. 3, at 7. That factual summary, however, was not submitted as
evidence in this case.
Government’s request. I.G. Exs. 4-5. The District Court sentenced Petitioner to 36
months of incarceration; two years of supervised release at the conclusion of his
incarceration; and payment of $485,552.48 in restitution. I.G. Ex. 5. The District Court
ordered Petitioner’s restitution amount to be disbursed to the Centers for Medicare &
Medicaid Services (CMS) as well as BlueCross BlueShield of Louisiana. I.G. Ex. 5, at 6.

2. Petitioner’s convictions require exclusion under 42 U.S.C. § 1320a-7(a)(1)
because his criminal conduct related to the delivery of a health care item or
service under the Medicare or Medicaid programs.

An individual must be excluded from participation in any federal health care program if
the individual was convicted under federal or state law of a criminal offense related to the
delivery of an item or service under Medicare or a state health care program. 42 U.S.C.

§ 1320a-7(a)(1). Petitioner argues that his conviction is currently under appeal and may
have a successful outcome, and he disputes the legality of the proceedings leading to and
following his guilty plea. P. Br. at 2-4.

Individuals are “convicted” of an offense “when a judgment of conviction has been
entered against the individual or entity by a Federal, State, or local court, regardless of
whether there is an appeal pending . . . [.]” 42 U.S.C. § 1320a-7(i)(1). In the present
matter, the District Court issued a judgment of conviction and sentenced Petitioner
pursuant to that conviction. I.G. Ex. 5. Moreover, for the purposes section 1320a-7, the
fact that Petitioner pled guilty and that plea was accepted by a court (1.G. Ex. 4) is also
sufficient to conclude that he was “convicted.” 42 U.S.C. § 1320a-7(i)(3).

As noted above, Petitioner pled guilty to two counts of causing “false or fraudulent
claims to be submitted to Medicare” on January 22, 2009 (Count 3) and on February 17,
2009 (Count 12) in violation of 18 U.S.C. § 1347.2 By pleading guilty to health care

> 18 U.S.C. § 1347 provides in relevant part:

(a) Whoever knowingly and willfully executes, or attempts to execute, a
scheme or artifice —

(1) to defraud any health care benefit program; or

(2) to obtain, by means of false or fraudulent pretenses,
representations, or promises, any of the money or property
owned by, or under the custody or control of, any health care
benefit program,
fraud, Petitioner acknowledged that his criminal conduct was done “in connection with
the delivery of or payment for health care benefits, items, or services ....” 18 U.S.C.

§ 1347(a). Petitioner also pled guilty to conspiring to pay and actually paying illegal
kickbacks and bribes for referrals of Medicare beneficiaries to his company in violation
of 42 U.S.C. § 1320a-7b(b)(2)(A). Submitting a false claim to Medicare is, of course,
“related to” the delivery of an item or service under the Medicare program. See Jack W.
Greene, DAB No. 1078 (1989), aff'd, Green v. Sullivan, 731 F. Supp. 835 (E.D. Tenn.
1990); Michael Travers, M.D., DAB No. 1237 (1991), aff'd, Travers v. Sullivan, 791 F.
Supp. 1471, 1481 (E.D. Wash. 1992) and Travers v. Shalala, 20 F.3d 993 (9th Cir.
1994).‘ In addition, paying unlawful kickbacks and bribes (and conspiring to do so) for
the referral of Medicare beneficiaries is “related to” the delivery of a health care item or
service under the Medicare program because it results in improper furnishing of durable
medical equipment paid for by the Medicare program. See LG. Ex. 2, at 11-12.
Accordingly, I conclude that the criminal conduct for which Petitioner was convicted was
related to the delivery of a health care item or service under the Medicare program. See
42 U.S.C. § 1320a-7(a)(1). The record fully supports Petitioner’s mandatory exclusion.
LG. Exs. 2-5.

Although “Petitioner acknowledged during the prehearing conference that the U.S.
District Court for the Middle District of Louisiana entered a conviction against him and
that the conviction was for a crime related to the delivery of an item or service under the
Medicare or Medicaid programs” (Order § 1), Petitioner raises numerous challenges to
his exclusion. Petitioner now claims that his guilty plea was “coerced by an

in connection with the delivery of or payment for health care benefits,
items, or services, shall be fined under this title or imprisoned not more
than 10 years, or both....

3 42 U.S.C. § 1320a-7b(b)(2)(A) states:

Whoever knowingly and willfully offers or pays any remuneration
(including any kickback, bribe, or rebate) directly or indirectly, overtly or
covertly, in cash or in kind to any person to induce such person —

(A) to refer an individual to a person for the furnishing or arranging
for the furnishing of any item or service for which payment may be
made in whole or in part under a Federal health care program . . .

shall be guilty of a felony and upon conviction thereof, shall be fined not
more than $25,000 or imprisoned for not more than five years, or both.

* Administrative decisions cited in this decision are accessible on the internet at:
http://www.hhs.gov/dab/decisions/index.html.
unscrupulous lawyer” because that lawyer warned Petitioner that an individual from
Africa, like Petitioner, would not fare well before a Louisiana jury. P. Response at 1.
Petitioner has also argued that his conviction is currently on appeal and therefore not
“final.” P. Br. at 3. Further, Petitioner argues that the District Court judge who
sentenced Petitioner and his wife has ordered additional briefing in a habeas corpus
proceeding involving Petitioner’s wife, who was Petitioner’s co-defendant. According to
Petitioner, this means that the District Court judge “has called into question the entire
proceeding.” P. Br. at 2. Petitioner also asserts that there are pending post-conviction
proceedings that should be resolved prior to the adjudication of this case. P. Br. at 5.

I have considered Petitioner’s arguments and determined that they either amount to
impermissible collateral attacks on his conviction, which can play no role in the case
before me, or are otherwise irrelevant because they address his wife’s convictions, not his
own. 42 C.F.R. § 1001.2007(d). Whatever tactical discussions Petitioner’s lawyer had
and the truth or falsity of his warnings to Petitioner are not relevant in this proceeding.
Further, if Petitioner is successful in his appeal, he may seek reinstatement from the I.G.
42 C.F.R. 1001.3005(a)(1). However, a pending appeal has no effect on determining
whether Petitioner was “convicted” for purposes of the present proceeding. See

42 U.S.C. § 1320a-7(i)(1) (an individual against whom a judgment of conviction has been
entered is still consider “convicted” for purposes of section 1320a-7 even if an appeal of
that judgment is pending).

3. Petitioner must be excluded for a minimum of five years.

I have concluded that a basis exists to exclude Petitioner pursuant to 42 U.S.C. § 1320a-
7(a)(1), therefore Petitioner must be excluded for a minimum of five years. 42 U.S.C.
§ 1320a-7(c)(3)(B).

4. The I.G. has established two aggravating factors in this case that support an
exclusion period beyond the five-year statutory minimum.

The regulations establish aggravating factors that the I.G. may consider to lengthen the
period of exclusion beyond the five-year minimum for a mandatory exclusion. 42 C.F.R.
§ 1001.102(b). Only if an aggravating factor justifies an exclusion longer than five years
may mitigating factors be considered as a basis for reducing the period of exclusion to no
less than five years. 42 C.F.R. § 1001.102(c).

In this case, the I.G. advised Petitioner in the October 31, 2013 exclusion notice that there
were two aggravating factors that justified excluding him for more than five years: first,
the acts resulting in his convictions, or similar acts, caused, or were intended to cause, a
financial loss to a Government program of $5,000 or more, and second, the sentence
imposed by the court included incarceration. I.G. Ex. 1; 42 C.F.R. § 1001.102(b)(2), (5).
The LG. cited to the restitution order of approximately $485,500 against Petitioner as
well as his 36 month prison sentence. I.G. Ex. 1, at 1-2.

i. The LG. has established the aggravating factor stated in 42 C.F.R.
§ 1001.102(b)(1), financial loss to a Government program of $5,000 or
more.

The I.G. has provided evidence that demonstrates the acts resulting in Petitioner’s
criminal conviction caused a financial loss to a government program of $5,000 or more.
See 42 C.F.R. § 1001.102(b)(1). Petitioner pled guilty to two specific instances of
submitting false Medicare claims, one for $5,235 (Count 3), and one for $7,650 (Count
12). 1.G. Ex. 2, at 8, 10. In addition, the record shows that the District Court sentenced
Petitioner to pay restitution totaling $485,552.48 to CMS and BlueCross BlueShield of
Louisiana. I.G. Ex. 5, at 6. It is well-established that an amount ordered as restitution
constitutes proof of the amount of financial loss to a government program. See e.g., Juan
de Leon, Jr., DAB No. 2533, at 5 (2013); Craig Richard Wilder, DAB No. 2416, at 9
(2011). Regardless of whether the restitution order is joint and several among Petitioner
and his co-conspirators — although there is no evidence that it is — the District Court’s
sentence of Petitioner plainly establishes that he is responsible for the total restitution
amount. I.G. Ex. 5, at 6; see also United States v. Ingles, 445 F.3d 830, 839 (Sth Cir.
2006) (affirming joint and several restitution order where one co-defendant was
ultimately responsible for more restitution than other co-defendant). In addition, the
regulations provide that the entire amount of restitution is what provides a basis for an
aggravating factor. See 42 C.F.R. § 1001.102(b)(1) (“the entire amount of financial loss
to... programs. . . will be considered regardless of whether full or partial restitution has
been made.”). Therefore, the LG. has sustained its burden of proving financial loss to a
government program of $5,000 or more.

ii. The L.G. has established the aggravating factor stated in 42 C.F.R.
§ 1001.102(b)(5), the sentence imposed against Petitioner included a
period of incarceration.

The record demonstrates, and Petitioner does not dispute, that the District Court
sentenced Petitioner to 36 months of imprisonment. I.G. Ex. 5, at 3. Indeed, Petitioner is
currently incarcerated in the Federal Prison Camp in Florence, Colorado, pursuant to the
sentence that the court imposed. See P. Br. at 1. I conclude, therefore, that the I.G. has
proven this aggravating factor. See 42 C.F.R. § 1001.102(b)(5).

iii. There are no mitigating factors in this case.
Because | found that aggravating factors are present in this case, I next consider whether

there are any mitigating factors under 42 C.F.R. § 1001.102(c)) to offset the aggravating
factors. The regulations specifically outline what factors may be considered mitigating
and none of Petitioner’s arguments relate to any of those mitigating factors. See

42 C.F.R. § 1001.102(c). Petitioner has not argued that any mitigating factors exist.
Accordingly, I find that Petitioner has not met his burden to establish any mitigating
factors that would justify reducing the period of exclusion.

5. A 10-year exclusion period is not unreasonable.

I must next assess whether the I.G.’s determination to exclude Petitioner for 10 years is
unreasonable based upon the established aggravating factors and no mitigating factors.
See 42 C.F.R. § 1001.2007(a). My evaluation does not follow a specific formula for
weighing those factors, but rather considers the weight to be accorded each factor based
on the circumstances surrounding them in this case. Sushil Aniruddh Sheth, M.D., DAB
No. 2491 (2012).

The District Court ordered Petitioner to pay restitution of $485,552.48. I.G. Ex. 5, at 6.
Even though the court dismissed several counts for which Petitioner was indicted, the
District Court held Petitioner financially responsible for the full amount that he and his
co-conspirators fraudulently billed the Medicare program. LG. Ex. 5, at 6. In fact,
Petitioner agreed to pay the full amount of restitution as part of his plea agreement. I.G.
Ex. 3, at 6. The District Court’s restitution order against Petitioner represents an amount
more than 97 times the $5,000 threshold for the loss to be considered aggravating. See
42 C.F.R. § 1001.102(b)(1). Restitution in an amount so substantially greater than the
regulatory standard is an “exceptional aggravating factor” entitled to significant weight
when assessing the reasonableness of the length of exclusion. Jeremy Robinson, DAB
No. 1905 (2004); Donald A. Burstein, Ph.D., DAB No. 1865 (2003).

Petitioner’s sentence of 36 months of incarceration for his crimes constitutes the other
piece of aggravating evidence. I.G. Ex. 5, at 3. A prison sentence of as little as nine
months is considered to be relatively substantial. Jason Hollady, M.D., DAB No. 1855,
at 12 (2002). Petitioner’s sentence is four times longer than that and represents a
substantial period of time, which indicates the seriousness of his offenses.

I find that the two proven aggravating factors are entitled to significant weight.
Petitioner’s crime had a substantial financial impact on the Medicare program. His
crimes resulted in a lengthy term of imprisonment. Ample evidence exists that Petitioner
is an untrustworthy individual who should be excluded for a lengthy period. A 10-year
exclusion is not unreasonable.
VI. Conclusion

For the foregoing reasons, I affirm the I.G.’s determination to exclude Petitioner from
participating in Medicare, Medicaid, and all federal health care programs for 10 years
pursuant to 42 U.S.C. § 1320a-7(a)(1).

/s/
Scott Anderson
Administrative Law Judge