Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Civil Remedies Division
In the Case of:
James D. Payne, D.O.,
Petitioner,
- v. -
The Inspector General.
DATE: July 16, 1991
Docket No. C-314
DECISION
On September 6, 1990, the Inspector General (I.G.)
notified Petitioner that he was being excluded from
participation in the Medicare and State health care
programs. 1/ The I.G. informed Petitioner that he was
being excluded as a result of his convictions in federal
and state courts of criminal offenses relating to the
Medicare and Medicaid programs. Petitioner was advised
that the exclusion of individuals convicted of such
offenses is mandated by section 1128(a)(1) of the Social
Security Act (Act). The I.G. further advised Petitioner
that the law required that the minimum period of such an
exclusion be for not less than five years.
The I.G. informed Petitioner that he was being excluded
for a period of ten years due to his Medicare and
Medicaid convictions and to the fact that: 1) the
criminal acts resulting in his conviction in federal
court were committed over a significant period of time,
from on or about July 29, 1985, until on or about April
30, 1987; 2) Petitioner was ordered to make restitution
to Medicare of $18,817.30 and to Blue Cross/Blue Shield
of $13,960.72; and 3) Petitioner's sentence included
incarceration.
Petitioner timely requested a hearing, and the case was
assigned to me for a hearing and a decision. On November
19, 1990, I issued a prehearing Order setting a date for
the hearing in this case of April 9, 1991. On March 8,
1991, this case was reassigned to Administrative Law
Judge (ALJ) Constance T. O'Bryant for hearing and
decision. On April 3, 1991, this case was reassigned to
me. I held a hearing in Mason, Michigan, on April 9,
1991.
I have considered the evidence introduced by both parties
at the April 9, 1991 hearing. Based on the evidence and
applicable law, I conclude that the ten-year exclusion
imposed against Petitioner is reasonable. Therefore, I
am entering a decision in this case sustaining the
exclusion imposed and directed against Petitioner by the
I.G.
ISSUES
The issue in this case is whether the length of the ten-
year exclusion imposed and directed against Petitioner is
reasonable.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
1. Petitioner has been a physician since 1960.
Petitioner is a certified anesthesiologist. Tr. 178 -
179. 2/
2. At all relevant times between 1985 and 1987,
Petitioner practiced medicine, both as a general practice
family physician in a clinic in Bay City, Michigan, and
as an anesthesiologist in two hospitals in Bay City --
Bay Osteopathic Hospital and Samaritan Hospital. Tr. 179
- 180.
3. On October 16, 1989, Petitioner was charged
(pursuant to a criminal information filed in the U.S.
District Court, Eastern District of Michigan (district
court)) with two counts of mail fraud (18 U.S.C. 1341).
I.G. Ex. 1.
4. Both counts of the information alleged that between
July 29, 1985 and March 30, 1987, Petitioner filed
fraudulent claims for Medicare services by representing
that he had provided items or services on dates when he
was not present to provide such items or services. I.G.
Ex. 1.
5. The information further alleged that Petitioner
filed fraudulent Medicare claims, for which Medicare
reimbursed him $18,817.30 and Blue Cross Blue Shield of
Michigan (BCBSM) reimbursed him $13,960.72. I.G. Ex. 1.
6. On September 25, 1989, Petitioner pleaded guilty to
both counts of the information. I.G. Ex. 2.
7. On December 11, 1989, the district court suspended
imposition of sentence on Count II of the Information and
sentenced Petitioner (based on his guilty plea to Count
I) to: 18 months imprisonment and three years' probation.
I.G. Ex. 3.
8. The district court additionally imposed on
Petitioner: 1) a $30,000.00 fine; 2) the obligation to
make restitution to Medicare of $18,817.30 and to BCBSM
of $13,960.72; 3) the condition that Petitioner not
engage in the practice of medicine, surgery or
anesthesiology during the course of his probation; and 4)
a special assessment of $100. I.G. Ex. 3.
9. On August 26, 1987, a 19 count summons and complaint
was issued by the 74th Judicial District Court of the
State of Michigan (state court) against James D. Payne,
D.O., personally and as a corporate entity, and against
Alex Berehula. I.G. Ex. 5.
10. On October 9, 1989, Petitioner signed a plea
agreement in which he agreed to plead guilty to the state
criminal charges by admitting that he had filed a false
claim with Medicaid and with BCBSM. I.G. Ex. 6.
11. In pleading guilty to the state criminal charges,
Petitioner admitted that: 1) On November 3, 1986, he
billed Medicaid for medical services he had not rendered,
as he was travelling outside Michigan on the date of the
alleged service; and 2) he left instructions for an
office employee to see his patients while he was gone,
even though the office employee had no medical training.
I.G. Ex. 6/2-3.
12. In pleading guilty to the state criminal charges,
Petitioner also admitted that on January 21, 1987, he
improperly billed BCBSM for one hour and 16 minutes for
the administration of anesthesia, knowing that the
anesthesia had been administered for only 33 minutes.
I.G. Ex. 6/3.
13. On October 16, 1989, the state court accepted
Petitioner's plea. I.G. Ex. 7.
14. On December 11, 1989, the state court sentenced
Petitioner to: 1) five years probation on each count to
which he plead guilty; 2) a $50,000 fine on each count to
which he plead guilty; 3) costs of $500; 4) an oversight
fee of $30 a month; and 5) reservation of the right to
require defendant be incarcerated for up to one year as a
condition of probation, to be served concurrent to any
federal imprisonment imposed in the district court action
against Petitioner. I.G. Ex. 7/4; P. Ex. 7/22.
15. On December 11, 1973, Petitioner was indicted in
district court on 20 counts of making false statements
for payment under Medicare. I.G. Ex. 8.
16. On November 25, 1974, Petitioner pleaded nolo
contendere to two counts of the indictment and was
sentenced to two years' probation and fined $2,000 on
each count. I.G. Ex. 9.
17. On April 9, 1990, the Michigan Department of
Licensing and Regulation, Board of Osteopathic Medicine
and Surgery (licensing board), pursuant to a stipulated
consent order, revoked Petitioner's license to practice
medicine. Petitioner was also ordered to pay a $5,000
fine before reapplying for his license. I.G. Ex. 15.
18. The licensing board had previously revoked
Petitioner's license on September 3, 1976. On October 6,
1977, the licensing board modified its order and
suspended Petitioner's license for 100 days and placed
him on probation for two and one-half years. I.G. Ex.
15/4.
19. While there is a five-year minimum mandatory
exclusion for criminal offenses relating to the delivery
of an item or service under the Medicare and Medicaid
programs, there is no statutory maximum length of
exclusion.
20. The Secretary delegated to the I.G. the authority to
determine, impose, and direct exclusions pursuant to
section 1128 of the Act. 48 Fed. Reg. 21662, May 13,
1983.
21. On September 6, 1990, the I.G. excluded Petitioner
from participating in Medicare and directed that he be
excluded from participating in Medicaid, pursuant to
section 1128(a)(1) of the Act.
22. Petitioner's conviction occurred after the enactment
of the 1987 amendments instituting the mandatory
exclusion provision of section 1128(c)(3)(B). Congress
intended the mandatory minimum exclusion provision to
apply prospectively from the date of the statute's
enactment to all convictions occurring on or after the
effective date of the 1987 amendment.
23. Petitioner admits that he was convicted of an
offense related to the delivery of an item or service
relating to the Medicare and Medicaid programs.
Petitioner is contesting the ten year length of his
exclusion, not whether he is subject to the five-year
minimum mandatory exclusion provision of section
1128(c)(3)(B). P. Br. 1; Tr. 205 - 206.
24. Petitioner has been convicted, in both state and
federal courts, of several crimes against the Medicare
and Medicaid programs. Findings 3-6, 9-10, 13, 15, 16;
See 42 C.F.R. 1001.125(b)(1).
25. In allowing untrained personnel to treat his
patients, Petitioner endangered the health and safety of
those patients at a time when Petitioner was not present
in his office. Finding 11; Tr. 136-147, 156-160, 223-
224; See 42 C.F.R. 1001.125(b)(2).
26. Petitioner defrauded the Medicare and Medicaid
programs of thousands of dollars over a lengthy period of
time. Findings 3-6, 9-13; See 42 C.F.R.
1001.125(b)(3).
27. Petitioner has not demonstrated any comprehension of
the seriousness of his offenses. See 42 C.F.R.
1001.125(b)(4).
28. Petitioner has not offered any evidence to show that
he would not again defraud the Medicare and Medicaid
programs if given the opportunity to do so. See 42
C.F.R. 1001.125(b)(4).
29. Petitioner received a lengthy sentence, including
incarceration and probation. Findings 7, 14; See 42
C.F.R. 1001.125(b)(5).
30. The criminal convictions which resulted in
Petitioner's exclusions are repeat offenses. Findings
15, 16; See 42 C.F.R. 1001.125(b)(7)
31. Petitioner's crimes against the Medicare and
Medicaid programs consisted of a scheme to fraudulently
represent that he had personally provided items or
services which, in fact, he never provided. Findings 4,
11, 12.
32. As an element of Petitioner's scheme, Petitioner
directed his office staff to provide items or services
for which they had no medical training or qualifications.
Finding 11, 25.
33. Petitioner falsely represented that he personally
had provided items or services which had in fact been
provided by his untrained and unqualified office staff.
Findings 4, 11, 25, 33.
34. Items or services which Petitioner falsely claimed
to have provided personally were in fact provided on
dates when Petitioner was not present in his office.
Findings 3-6, 9-11, 13.
35. The I.G. had authority to exclude Petitioner from
participating in Medicare and to direct that he be
excluded from participating in Medicaid. Findings 3-6,
9-13, Social Security Act, section 1128(a)(1) and
1128(c)(3)(B).
36. The ten-year exclusion imposed and directed against
Petitioner by the I.G. is not extreme or excessive.
Findings 1-35; Social Security Act, section 1128(a)(1)
and 1128(c)(3)(B); See 42 C.F.R. 1001.125(b)(1)-(7).
ANALYSIS
Petitioner does not dispute that he has been convicted of
a criminal offense related to the delivery of an item or
service under the Medicare and Medicaid programs, nor
does he dispute that he is subject to the five-year
minimum mandatory exclusion. Petitioner is contesting
only the ten-year exclusion which the I.G. imposed and
directed against him, asserting that it is unreasonable.
P. Br. 1 - 2. While Petitioner accepts that the minimum
mandatory exclusion provision applies to him, he does
question its applicability in light of the fact that the
conduct underlying Petitioner's conviction occurred
before the enactment of the minimum mandatory exclusion
provision. Tr. 13. However, Congress intended the
minimum mandatory exclusion provision to apply
prospectively from the date of the provision's enactment
to all convictions, such as Petitioner's, occurring on or
after the provision's 1987 effective date. See Betsy
Chua, M.D., DAB Civ. Rem C-139, aff'd DAB App. 1204
(1990).
In deciding whether or not Petitioner's exclusion is
reasonable, I must review the evidence with regard to the
exclusion law's remedial purpose. Section 1128 is a
civil remedies statute. The remedial purpose of section
1128 is to enable the Secretary to protect federally-
funded health care programs and their beneficiaries and
recipients from individuals and entities who have proven
by their misconduct that they are untrustworthy.
Exclusions are intended to protect against future
misconduct by providers.
Federally-funded health care programs are no more
obligated to deal with dishonest or untrustworthy
providers than any purchaser of goods or services would
be obligated to deal with a dishonest or untrustworthy
supplier. The exclusion remedy allows the Secretary to
suspend his contractual relationship with those providers
of items or services who are dishonest or untrustworthy.
The remedy enables the Secretary to assure that
federally-funded health care programs will not continue
to be harmed by dishonest or untrustworthy providers of
items or services. The exclusion remedy is closely
analogous to the civil remedy of termination or
suspension of a contract to forestall future damages from
a continuing breach of that contract.
Exclusion may have the ancillary benefit of deterring
providers of items or services from engaging in the same
or similar misconduct as that engaged in by excluded
providers. However, the primary purpose of an exclusion
is the remedial purpose of protecting the trust funds and
beneficiaries and recipients of those funds. Deterrence
cannot be a primary purpose for imposing an exclusion.
Where deterrence becomes the primary purpose, section
1128 no longer accomplishes the civil remedies objectives
intended by Congress. Punishment, rather than remedy,
becomes the end.
[A] civil sanction that cannot fairly be said
solely to serve a remedial purpose, but rather
can be explained only as also serving either
retributive or deterrent purposes, is
punishment, as we have come to understand the
term.
United States v. Halper, 490 U.S. 435, 448 (1989).
Therefore, in determining the reasonableness of an
exclusion, the primary consideration must be the degree
to which the exclusion serves the law's remedial
objective of protecting program recipients and
beneficiaries from untrustworthy providers. An exclusion
is not excessive if it does reasonably serve these
objectives.
The hearing in an exclusion case is, by law, de novo.
Social Security Act, section 205(b). Evidence which is
relevant to the reasonableness of the length of an
exclusion will be admitted in a hearing on an exclusion
whether or not that evidence was available to the I.G. at
the time the I.G. made his exclusion determination.
Evidence which relates to a petitioner's trustworthiness
or the remedial objectives of the exclusion law is
admissible at an exclusion hearing even if that evidence
is of conduct other than that which establishes statutory
authority to exclude a petitioner.
The purpose of the hearing is not to determine how
accurately the I.G. applied the law to the facts before
him, but whether, based on all relevant evidence, the
exclusion comports with legislative intent. Because of
the de novo nature of the hearing, my duty is to
objectively determine the reasonableness of the exclusion
by considering what the I.G. determined to impose in
light of the statutory purpose and the evidence which the
parties offer and I admit. The I.G.'s thought processes
in arriving at his exclusion determination are not
relevant to my assessment of the reasonableness of the
exclusion.
Furthermore, my purpose in hearing and deciding the issue
of whether an exclusion is reasonable is not to second-
guess the I.G.'s exclusion determination so much as it is
to decide whether the determination was extreme or
excessive. 48 Fed. Reg. 3744 (Jan. 27, 1983). Should I
determine that an exclusion is extreme or excessive, I
have authority to modify the exclusion, based on the law
and the evidence. Social Security Act, section 205(b).
The Secretary has adopted regulations to be applied in
exclusion cases. The regulations specifically apply to
exclusion cases for "program-related" offenses
(convictions for criminal offenses relating to Medicare
or Medicaid). The regulations express the Secretary's
policy for evaluating cases where the I.G. has discretion
in determining the length of an exclusion. The
regulations require the I.G. to consider factors related
to the seriousness and program impact of the offense and
to balance those factors against any factors that may
exist demonstrating trustworthiness. 42 C.F.R.
1001.125(b)(1)-(7). In evaluating the reasonableness of
an exclusion, I consider as guidelines the regulatory
factors contained in 42 C.F.R. 1001.125(b).
The evidence in this case establishes that Petitioner is
a manifestly untrustworthy individual. Petitioner
engaged in protracted fraud against the Medicare and
Medicaid programs. His unlawful conduct not only
jeopardized the financial integrity of these programs, it
imperiled the health and safety of Petitioner's patients.
Petitioner is a repeat criminal offender who has on more
than one occasion been convicted of defrauding federally-
funded health care programs. Petitioner was convicted
once in the early 1970's for Medicare fraud. Based on
this conviction, he was placed on probation, fined, and
had his license suspended. Findings 15, 16. Apparently
learning nothing from this experience, Petitioner then
perpetrated additional crimes against Medicare and
Medicaid. He was subsequently convicted in both state
and federal courts of fraud against these programs.
These crimes involved large sums of money and took place
over a lengthy period of time. Findings 3-6, 9-13.
Furthermore, Petitioner placed large numbers of program
recipients and beneficiaries at risk by allowing
untrained individuals to treat his patients. Findings
11, 25. Petitioner persisted in his criminal behavior
for a lengthy period even though by his own assertion he
did not "need the money". P. Ex. 1/Appendix 1.
The record of this case is devoid of evidence that
Petitioner can now or at any time in the near future be
trusted with federal funds or with the welfare of program
beneficiaries and recipients. I find nothing to suggest
that Petitioner even acknowledges that he engaged in
illegal or wrongful conduct. I am not persuaded that
Petitioner would not in the future engage in such
conduct, if provided with the opportunity to do so.
Petitioner provided no credible explanation for his
criminal conduct either to me or to the judges who heard
his pleas to criminal charges. The state court judge who
sentenced Petitioner on his 1989 conviction was skeptical
that Petitioner had learned his lesson. That judge
stated:
[W]e have somebody [Petitioner] who is clearly
able to avoid it, has no financial need for
taking the money, has done it before and been
caught and does it again, and I'm supposed to
make a finding in the fact of that that it's
not likely that he's again going to engage in a
course of offensive conduct. And it's not
easy.
P. Ex. 7/21. The judge also noted that Petitioner
"expresses remorse for negligence, but no remorse for
what he did which is a lot further than negligence."
P. Ex. 7/19.
While Petitioner acknowledges some "legal" responsibility
for the fraudulent activities for which he was convicted,
he blames his difficulties on his office staff or on
unjust Medicare and Medicaid reimbursement formulas. Tr.
182, 183, 185, 187 - 189, 195, 221 - 222; P. Ex. 6/9.
Petitioner persists in asserting that the actions for
which he was convicted were simply a case of inadvertence
or oversight on the part of a busy practitioner. Tr. 190
- 191, 221; P. Ex. 1/Appendix 1, 6/9, 7/17. Petitioner
also asserts that he was not in fact away from his office
on the dates for which he falsely claimed to have been
present and to have treated patients. He testified that
on those occasions when he was absent he had made
provisions for two other doctors to treat his patients.
Tr. 192 - 193; P. Br. 4. These assertions are belied by
the admissions which Petitioner made in pleading guilty
to federal and state criminal charges. They were also
persuasively contradicted by the credible testimony of
one of Petitioner's former employees, Andrea Rahn. Tr.
142, 145, 156, 159 - 160.
Petitioner testified at the hearing before me that he had
an affidavit that Andrea Rahn was "out to get" him. Tr.
195. However, Petitioner did not introduce this
affidavit as evidence in this hearing, even though Ms.
Rahn testified and Petitioner was notified in advance of
the hearing of the I.G.'s intent to call her as a
witness. I find not credible Petitioner's assertion that
he possessed an affidavit impugning Ms. Rahn's motives.
Furthermore, this assertion by Petitioner supports my
conclusion that he is an untrustworthy and dishonest
individual.
The evidence in this case proves that over a period of
almost twenty years, Petitioner made claims on numerous
occasions to government health care programs for services
he did not render. Further, Petitioner has showed a
callous disregard for the health and safety of his
patients by allowing unqualified persons to treat them,
which action could have led to tragic consequences for
beneficiaries and recipients of the Medicare and Medicaid
programs. There is no evidence in this case that
Petitioner accepts responsibility for the gravity of his
offenses or the harm which he has caused. Instead,
Petitioner has chosen to blame others for his crimes or
to characterize his actions as being inadvertence or
oversight. Petitioner has offered no evidence that he
has tried to rehabilitate himself or his conduct. The
best that he can say for himself is that he is substance
free and has worked hard and in a competent manner. See
P. Br. 7. Given the evidence, I conclude that the ten-
year exclusion imposed and directed by the I.G. against
Petitioner is not extreme or excessive.
CONCLUSION
Based on the evidence and the law, I sustain the ten-year
exclusion which the I.G. imposed and directed against
Petitioner.
Steven T. Kessel
Administrative Law Judge
1. "State health care program" is defined by section
1128(h) of the Social Security Act to cover three types
of federally-financed health care programs, including
Medicaid. I use the term "Medicaid" hereafter to
represent all State health care programs from which
Petitioner was excluded.
2. The parties' exhibits, briefs, and transcript of
the hearing will be referred to as follows:
I.G.'s Exhibits I.G. Ex. (number/page)
Petitioner's Exhibits P. Ex. (number/page)
I.G. Brief I.G. Br. (page)
Petitioner's Brief P. Br. (page)
Transcript Tr. (page)