Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Civil Remedies Division
In the Case of:
The Inspector General,
- v. -
Hanlester Network, et al.,
Respondents.
DATE: March 10, 1992
Docket No. C-448
DECISION ON REMAND
I issue this decision pursuant to a decision and remand order of an appellate
panel of the Departmental
Appeals Board. In January 1990, a group of nine cases brought by these Respondents
was assigned to me
for hearings and decisions. The parties agreed that they be consolidated and
I held a hearing in August,
1990. I issued a decision on March 1, 1991. The Inspector General (I.G.) filed
exceptions to my decision.
On September 18, 1991, the appellate panel issued its decision. In that decision,
the appellate panel
vacated some of my Findings of Fact and Conclusions of Law (Findings), substituted
its own Findings for
the vacated Findings, and directed that I conduct additional proceedings consistent
with its decision.
My March 1, 1991 decision contained 227 Findings. The I.G. filed exceptions
to Findings 202, 204, 217,
218, 219, 221, 223, 226, and 227. The appellate panel vacated all of the Findings
excepted to by the I.G.
The appellate panel affirmed and adopted all of the Findings not excepted to
by the I.G. It adopted seven
Findings of its own (AP 1 - AP 7), substituting five of these for my vacated
Findings 217, 218, and 219. 1/
The appellate panel remanded the cases to me for reconsideration of my Findings
202, 204, 221, 223, 226,
and 227, consistent with the analysis in the appellate panel's decision.
On September 24, 1991, I issued an Order on Remand in which I invited the parties
to file statements of
their positions on certain specified questions. On November 13, 1991, I held
a prehearing conference by
telephone with all parties. All parties advised me at that time that they did
not wish to offer additional
evidence. I set a schedule for briefing the issues on remand. I conducted an
oral argument on January 15,
1992. 2/
On January 29, 1992, the Secretary published regulations which, among other
things, affect the way in
which cases brought to challenge the I.G.'s exclusion determinations are to
be heard and decided by
administrative law judges. I provided the parties with the opportunity to file
additional briefs concerning
the impact that the regulations may have on these cases and the parties timely
filed briefs on this issue.
I base this decision on remand on the law, the evidence adduced at the August
1990 hearing, those
Findings which I issued on March 1, 1991, and which were accepted and affirmed
by the appellate panel,
the analysis in the appellate panel's decision and its Findings, and the parties'
arguments. I find that all of
the Respondents knowingly and willfully offered remuneration to physicians to
induce them to refer
program-related business in violation of section 1128B(b)(2) of the Social Security
Act (Act). I find that
the I.G. proved that all Respondents except Respondents Welsh and Huntsinger
knowingly and willfully
solicited or received remuneration in return for referring program-related business
in violation of section
1128B(b)(1) of the Act.
I conclude that the remedial purposes of section 1128 of the Act will be served
by permanently excluding
Respondents PPCL, Omni, and Placer from participating in Medicare and other
federally-funded health
care programs, including Medicaid. I exclude Respondent Hanlester for two years.
I do not find a
remedial need under section 1128(b) of the Act to exclude Respondents Lewand,
Tasha, Welsh,
Huntsinger, and Keorle, and I do not sustain exclusions against these Respondents.
3/
ISSUES
The issues to be decided on remand are whether:
1. Any Respondent knowingly and willfully offered or paid remuneration to
physicians to induce
them to refer program-related business in violation of section 1128B(b)(2) of
the Act;
2. Any Respondent knowingly and willfully solicited or received remuneration
in return for
referring program-related business in violation of section 1128B(b)(1) of the
Act; and
3. Exclusions from participating in federally-funded health care programs
should be imposed and
directed against any of Respondents and, if so, for what period of time.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
I make the following Findings on remand. These Findings are in addition to,
and do not substitute for, any
of the Findings I made in my March 1, 1991 decision and which were affirmed
by the appellate panel. 4/
As a convenience, I have organized these additional Findings by issue headings.
The headings are not
Findings and they do not alter the meaning of any of my Findings. 5/
A. Whether any Respondent knowingly and willfully offered or paid remuneration
to physicians
to induce them to refer program-related business in violation of section 1128B(b)(2)
of the Act
228. Under section 1128B(b)(2) of the Act, it is not a necessary element of
a violation that an offer or
payment be conditioned on an agreement to refer program-related business. Rather,
the issue in
determining a violation is whether a party knowingly and willfully offers or
pays remuneration to another
with the intent of exercising influence over the reason or judgment of that
person or entity in an effort to
cause that person or entity to refer program-related business. Appellate Panel
Decision at 18, 55; Social
Security Act, section 1128B(b)(2).
229. In sections 1128B(b)(1) and 1128B(b)(2) of the Act, the word "remuneration"
covers offering or
paying anything of value in any form or manner whatsoever. AP 4; Social Security
Act, sections
1128B(b)(1), 1128B(b)(2).
230. The phrase "to induce" in section 1128B(b)(2) of the Act connotes
an intent to exercise influence
over the reason or judgment of another in an effort to cause the referral of
program-related business. AP 3;
Social Security Act, section 1128B(b)(2).
231. An offer or payment may violate section 1128B(b)(2) of the Act even if
it is not conditioned on an
agreement to refer program-related business. AP 2; Social Security Act, section
1128B(b)(2).
232. Respondents offered potentially lucrative investments to physicians in
order to encourage them to
become limited partners in joint venture laboratories and to refer laboratory
tests to joint venture
laboratories. Findings 39 - 44, 51 - 53.
233. Respondents urged potential limited partners in joint venture laboratories
to refer tests to joint venture
laboratories by telling them that such referrals were necessary for the joint
ventures' success. I.G. Ex.
2.0/6; I.G. Ex. 3.0; Finding 44.
234. The intent of Respondents in creating joint venture laboratories was to
create entities which could be
marketed to physicians as attractive investments which would generate income
for Respondents and for the
physicians who purchased limited partnership shares. Findings 228, 229.
235. The key to Respondents' marketing strategy was that physician investors
would be influenced to refer
laboratory tests to the joint ventures' laboratories. Findings 39 - 43.
236. One element of the marketing strategy was to enlist as limited partners
in the joint ventures those
physicians who could potentially refer large numbers of tests to joint venture
laboratories. Findings 39 -
43.
237. As a means of persuading physicians to invest in joint venture laboratories
and to refer tests to those
laboratories, Respondents offered to sell limited partnership shares to physicians
at a relatively low price
and in small minimum quantities per investor. Findings 34 - 37.
238. As a means of persuading physicians to invest in joint venture laboratories
and to refer tests to those
laboratories, Respondents told physicians that, assuming the joint ventures
succeeded in attracting
significant numbers of partners and referred tests, they could earn relatively
high rates of return on their
investments. Findings 51 - 53.
239. As a means of persuading physicians to invest in joint venture laboratories
and to refer tests to those
laboratories, Respondents offered to physicians the opportunity to earn income
indirectly from referred
laboratory tests where they were legally barred from earning income directly
from those tests. Tr. at 1452 -
1453; Social Security Act, section 1833(h)(5)(A).
240. On Respondents' behalf, and as a means of persuading physicians to refer
tests to joint venture
laboratories, Respondent Hanlester told potential limited partner physicians
that failure by them to refer
tests would be a blueprint for failure of the joint ventures. I.G. Ex. 2.0;
I.G. Ex. 3.0; Finding 44.
241. As a means of persuading limited partners to refer tests to joint venture
laboratories, Respondents
PPCL, Omni, and Placer, on behalf of all Respondents except Respondents Welsh
and Huntsinger, made
substantial cash distributions to limited partners. Findings 197 - 199; See
Findings 11 - 12; 111 - 113.
242. The I.G. did not prove that payments by Respondents to joint venture limited
partners exceeded the
reasonable value of the investments made by the limited partners. See Findings
197 - 199.
243. Respondents discouraged limited partners from using referral sources for
laboratory tests other than
joint venture laboratories. Findings 44, 127 - 129; See Finding 233.
244. Respondents knowingly and willfully offered remuneration to physicians
with the intent of exercising
influence over these physicians' reason or judgment in an effort to cause them
to refer tests to joint venture
laboratories. Findings 228 - 243.
245. All Respondents except Respondents Welsh and Huntsinger knowingly and
willfully paid
remuneration to physicians with the intent of exercising influence over these
physicians' reason or
judgment in an effort to cause them to refer tests to joint venture laboratories.
Finding 238; See Findings 6,
11 - 12, 113.
246. Respondents violated section 1128B(b)(2) of the Act by knowingly and willfully
offering or paying
remuneration to physicians to induce them to refer program-related business.
Findings AP 2 - AP 4, 240,
241; Social Security Act, section 1128B(b)(2).
B. Whether any Respondent knowingly or willfully solicited or received remuneration
in return
for referring program-related business in violation of section 1128B(b)(1) of
the Act
247. Under section 1128B(b)(1) of the Act, a party may unlawfully solicit or
receive remuneration in
return for a referral of program-related business if that party solicits remuneration
from the party to which
it refers business with the expectation that the value of the remuneration will
exceed the legitimate value of
the business that is referred. Appellate Panel Decision at 48, 55; Social Security
Act, section 1128B(b)(1).
248. Under sections 1128B(b)(1) and 1128B(b)(2) of the Act, the direction in
which money payments
flow in a transaction is not determinative of whether "remuneration"
was paid. Rather, a party receives
"remuneration" from a transaction if he receives anything of value
in any form or manner whatsoever from
that transaction. AP 4; Social Security Act, sections 1128B(b)(1), 1128B(b)(2).
249. In section 1128B(b)(1) of the Act, the phrase "in return for"
connotes a connection between the
solicitation or receipt of remuneration and the referral of program-related
business. The phrase "in return
for" does not necessarily imply that the solicitation or receipt of remuneration
must be conditioned on an
agreement to refer or on any guaranteed flow of business. AP 5; Social Security
Act, section 1128B(b)(1).
250. The I.G. did not prove that Respondent Welsh was a general partner or
an executive in Respondent
Hanlester at the time that Respondents PPCL, Omni or Placer entered into laboratory
management
agreements with SKBL, or at the time Respondent Hanlester entered into a laboratory
support services
agreement with SKBL. See Findings 12, 146, 156, 160, 162.
251. The I.G. did not prove that Respondent Welsh derived any benefit from
the laboratory management
agreements or the laboratory support services agreement. See Finding 250.
252. The I.G. did not prove that Respondent Welsh derived any benefit from
the master laboratory
services agreement between Respondent Hanlester and SKBL. See Finding 143.
253. Respondent Huntsinger benefitted from the laboratory management agreements
between Respondents
PPCL and Omni and SKBL, because, as a consequence of those agreements, SKBL
entered into a contract
with Respondent Huntsinger to serve as medical director of PPCL and Omni's laboratories.
Finding 114.
254. Respondent Huntsinger benefitted from the laboratory management contact
between Respondent
PPCL and SKBL because he was a limited partner in Respondent PPCL, and he therefore
benefitted from
Respondent PPCL's management agreement with SKBL, as did other limited partners
in Respondent
PPCL.
255. Respondents PPCL, Omni, and Placer benefitted from the laboratory management
agreements with
SKBL because, under the agreements, SKBL was obligated to provide and compensate
all staff necessary
to operate joint venture laboratories. Findings 150, 161, 163.
256. Respondents PPCL, Omni, and Placer benefitted from the laboratory management
agreements with
SKBL because, under the agreements, SKBL was required to supervise the administrative
and operational
activities of the joint venture laboratories. Findings 151, 161, 163.
257. Respondents PPCL, Omni, and Placer benefitted from the laboratory management
agreements with
SKBL because, under the agreements, SKBL was required to provide all necessary
equipment not already
provided by Respondents PPCL, Omni, and Placer and to maintain and repair all
laboratory equipment.
Findings 152, 161, 163.
258. Respondents PPCL, Omni, and Placer benefitted from the laboratory management
agreements with
SKBL because, under the agreements, SKBL was required to conduct all billing
and collection activities
for the joint venture laboratories. Findings 153, 161, 163.
259. Respondent Welsh did not receive renumeration from SKBL in return for
referrals to SKBL.
Findings 12, 86; see I.G. Ex. 1.0.
260. Although Respondent Huntsinger benefitted financially from his relationship
with SKBL, and from
his limited partnership interest in PPCL, he did not receive renumeration in
return for referrals of program-
related business. Findings 6, 20, 113, 114; see findings 146, 160, 162.
261. A reason for Respondents PPCL, Placer and Omni to enter into management
agreements with SKBL
was that they expected to earn greater profits from the delegation of operating
responsibilities for the joint
venture laboratories to SKBL than they expected to earn from operating the joint
venture laboratories
independently. Findings 255 - 259.
262. The greater the number of tests which were referred by Respondents PPCL,
Omni, and Placer to
SKBL, the greater the income which was earned by all Respondents except Respondent
Welsh. Findings
12, 165.
263. All of the benefits which Respondents other than Respondents Welsh and
Huntsinger obtained from
the agreements between Respondents Hanlester, PPCL, Omni, Placer, and SKBL constitute
"remuneration"
within the meaning of section 1128B(b)(1) of the Act. Findings 229, 248.
264. The benefits which Respondents, other than Respondents Welsh and Huntsinger,
obtained from the
agreements between Respondents Hanlester, PPCL, Omni, Placer and SKBL were "in
return for" program-
related referrals under section 1128B(b)(1) of the Act, because there would
have been no reason to have
SKBL manage the joint venture laboratories unless referrals were made by the
laboratories to SKBL.
Findings 181 - 190.
265. In entering into agreements with SKBL, all Respondents, other than Respondents
Welsh and
Huntsinger, intended that the value of what they earned by virtue of the tests
processed pursuant to the
agreements would exceed the value of what they would have earned from those
tests had they not entered
into the agreements. Finding 261.
266. The value of the remuneration which all Respondents, other than Respondents
Welsh and Huntsinger,
expected to receive from SKBL exceeded the expected value of the benefits which
Respondents conferred
on SKBL. Findings 253 - 265.
267. All Respondents, other than Respondents Welsh and Huntsinger, knowingly
solicited remuneration
from SKBL in return for referring program-related business to SKBL, in violation
of section 1128B(b)(1)
of the Act. Findings 263 - 266.
268. All Respondents, other than Respondents Welsh and Huntsinger, knowingly
received remuneration
from SKBL in return for referring program-related business to SKBL, in violation
of section 1128B(b)(1)
of the Act. Findings 263 - 266.
C. Whether exclusions from participating in federally-funded health care programs
should be imposed and
directed against any of Respondents and, if so, for what period of time
269. Exclusions imposed and directed pursuant to section 1128 of the Act are
intended to protect
federally-funded health care programs and their beneficiaries and recipients
from future conduct which is
or might be harmful. Social Security Act, section 1128.
270. Exclusions imposed and directed pursuant to section 1128 of the Act are
not intended to compensate
for past wrongs. Social Security Act, section 1128.
271. Exclusions imposed and directed pursuant to section 1128 of the Act are
remedial and are not
intended to punish for wrongful acts. Social Security Act, section 1128.
272. The issue to be resolved in determining whether to impose an exclusion
pursuant to section 1128 of
the Act is whether a party manifests any propensity to engage in conduct in
the future which is either
illegal or harmful. Social Security Act, section 1128.
273. In deciding whether a party manifests any propensity to engage in conduct
in the future which is
either illegal or harmful, it is relevant to consider that party's past acts.
Social Security Act, section 1128.
274. A propensity by a party to engage in conduct in the future which is either
illegal or harmful may be
inferred from a party's past acts. Social Security Act, section 1128.
275. The fact that a party has engaged in illegal or harmful or potentially
illegal or harmful conduct does
not necessarily prove that party manifests a propensity to engage in illegal
or harmful conduct in the future.
Social Security Act, section 1128.
276. Section 1128(b) of the Act does not mandate an exclusion of every individual
or entity who has
engaged in conduct which authorizes the Secretary to impose and direct an exclusion
under section
1128(b). Social Security Act, section 1128(b).
277. Respondents PPCL, Omni, and Placer were created in order to offer or pay
remuneration to limited
partner physicians to influence their reason and judgment as to whether to refer
business to these
Respondents' joint venture laboratories. Findings 236 - 244, 246.
278. Respondents PPCL, Omni, and Placer could not operate as organized without
offering or paying
remuneration to limited partner physicians to influence their reason and judgment
as to whether to refer
business to these Respondents' joint venture laboratories. Findings 236 - 244,
246.
279. Respondents PPCL, Omni, and Placer could not operate as organized without
violating section
1128B(b)(2) of the Act. Findings 277 - 278.
280. A permanent exclusion of Respondents PPCL, Omni, and Placer is necessary
to meet the remedial
purpose of section 1128 of the Act. Finding 279; Social Security Act, section
1128.
281. Respondent Hanlester was the general partner in Respondents PPCL, Omni,
and Placer and had
exclusive authority to make management decisions for Respondents PPCL, Omni,
and Placer. Findings 18,
19, 25, 26, 31, 32.
282. Respondent Hanlester's purpose was to facilitate the business and operations
of Respondents PPCL,
Omni, and Placer. Findings 33 - 63.
283. A principal function of Respondent Hanlester was to engage in activities
which violate sections
1128B(b)(1) and 1128B(b)(2) of the Act. See Findings 232 - 246, 265 - 268.
284. Respondent Hanlester did not prove that it had divested itself of its
management arrangement with
Respondents PPCL, Omni, or Placer.
285. Until Respondent Hanlester divests itself of its management arrangement
with Respondents PPCL,
Omni, and Placer, Respondent Hanlester poses a threat to the integrity of federally-funded
health care
programs to the same extent as do Respondents PPCL, Omni, and Placer.
286. The remedial purpose of section 1128 of the Act will be served in these
cases by excluding
Respondent Hanlester for two years.
287. Prior to January, 1989, Respondent Lewand made the principal legal and
business decisions for
Respondents Hanlester, PPCL, Omni, and Placer. Tr. at 1979 - 1996.
288. Respondent Lewand believed that the organization and activities of Respondents
Hanlester, PPCL,
Omni, and Placer did not violate the Act. Tr. at 2111.
289. Respondents Tasha, Welsh, Huntsinger and Keorle relied on Respondent Lewand's
judgment to
organize and manage Respondents Hanlester, PPCL, Omni, and Placer. See Finding
287.
290. The I.G. did not prove that Respondents Lewand, Tasha, Welsh, Huntsinger,
and Keorle organized
and operated Respondents PPCL, Omni, or Placer, or entered into or participated
in agreements with
SKBL, knowing or believing that their actions violated sections 1128B(b)(1)
or 1128B(b)(2) of the Act.
See Findings 287 - 289.
291. The I.G. did not prove that Respondents Lewand, Tasha, Welsh, Huntsinger,
and Keorle organized
and operated Respondents PPCL, Omni, or Placer, or entered into or participated
in agreements with SKBL
with reason to know that their actions violated sections 1128B(b)(1) or 1128B(b)(2)
of the Act.
292. The I.G. did not prove that Respondents Lewand, Tasha, Welsh, Huntsinger,
and Keorle organized
and operated Respondents PPCL, Omni, or Placer, or entered into or participated
in agreements with SKBL
in negligent disregard of the requirements of sections 1128B(b)(1) or 1128B(b)(2)
of the Act.
293. Respondents Lewand, Tasha, Welsh, Huntsinger, and Keorle reasonably could
have concluded that
their organization and operation of Respondents PPCL, Omni, or Placer, and their
entry into or
participation in agreements with SKBL did not violate sections 1128B(b)(1) or
1128B(b)(2) of the Act.
See Tr. at 1983, 2111, 2428 - 2453, 2473.
294. The I.G. did not prove that, based on their conduct in creating or managing
Respondents PPCL,
Omni, and Placer, Respondents Lewand, Tasha, Welsh, Huntsinger, and Keorle manifest
any propensity to
engage in illegal or harmful conduct in the future. Findings 287 - 293.
295. The I.G. did not prove that, based on the agreements between Respondents
PPCL, Omni, Placer, and
SKBL, Respondents Lewand, Tasha, Welsh, Huntsinger, and Keorle manifest any
propensity to engage in
illegal or harmful conduct in the future. Findings 287 - 294.
296. None of Respondents Lewand, Tasha, Welsh, Huntsinger, or Keorle have a
history of past violations
of laws governing Medicare or Medicaid.
297. Respondents Lewand, Tasha, Welsh, Huntsinger, and Keorle were in some
respects guided in their
organization and operation of Respondents Hanlester, PPCL, Omni, and Placer,
and their entry into and
participation in agreements with SKBL, by legal advice that their conduct was
not unlawful. See Tr. at
1983, 2024Z, 2289.
298. Respondents Lewand, Tasha, and Welsh proved that they have strong reputations
for integrity and
honesty. We Ex. 2 - 14; 18; Tr. at 930 - 931, 1444, 1584 - 1585, 2121, 2189.
299. The weight of the evidence in these cases does not establish that Respondents
Lewand, Tasha, Welsh,
Huntsinger, or Keorle demonstrate any propensity to engage in illegal or harmful
conduct in the future.
300. The I.G. has proven that he is authorized to impose and direct exclusions
against Respondents
Lewand, Tasha, Welsh, Huntsinger, and Keorle by virtue of having proven that
these Respondents engaged
in conduct which violated either section 1128B(b)(1) or 1128B(b)(2) of the Act.
Social Security Act,
sections 1128(b)(7), 1128B(b)(1), 1128B(b)(2).
301. Regulations published on January 29, 1992 provide that I do not have authority
to review the I.G.'s
exercise of discretion to exclude a party under section 1128(b) of the Act or
to determine the scope or
effect of the exclusion. 42 C.F.R. 1005.4(c)(5); 57 Fed. Reg. 3298, 3350 - 3351.
302. Regulations published on January 29, 1992 provide that I do not have authority
to decline to sustain
an exclusion against a party in any case where the I.G. has established that
he is authorized to impose and
direct an exclusion under section 1128(b) of the Act. 42 C.F.R. 1005.4(c)(6);
57 Fed. Reg. 3298, 3350 -
3351.
303. Regulations published on January 29, 1992 state that administrative law
judges do not have the
authority a. to review the I.G.'s exercise of discretion to exclude under section
1128(b) of the Act, or
determine the scope or effect of the exclusion; and b. to set the period of
exclusion at zero, or reduce a
period of exclusion to zero, in any case where the ALJ finds that an individual
or entity committed an act
described in section 1128(b) of the Act. 42 C.F.R. 1005.4(c)(5), (6); 57 Fed.
Reg. 3298, 3350 - 3351.
304. The Secretary did not intend that 42 C.F.R. 1005.4(c)(5) and (6) govern
my decision in these cases.
57 Fed. Reg. 3298, 3350 - 3351 (January 29, 1992).
305. There exists no remedial need to exclude Respondents Lewand, Tasha, Welsh,
Huntsinger, and
Keorle, and I do not exclude these Respondents. Findings 287 - 304.
ANALYSIS
In my March 1, 1991 decision, I found that Respondents organized and operated
three clinical laboratories
in limited partnership with numerous physicians. Respondents intended to enlist
as limited partners
physicians who were in a position to refer laboratory tests to the joint ventures
and to encourage these
limited partners to refer tests. Respondents expected to profit from the referrals
which limited partners
made to the laboratories. Respondents sought to persuade physicians to become
limited partners and to
make referrals through a variety of incentives, including offering them the
opportunity to invest for a
relatively small sum and offering attractive rates of return on investments.
I found that Respondents did not intend to compel limited partners to refer
business to joint venture
laboratories. I held that a promise to refer business was not a prerequisite
to becoming a partner in any of
the joint ventures. I concluded that Respondents did not condition the amount
of return on investment any
limited partner received on the volume of referrals made by that limited partner.
Respondents did not
discipline physicians who failed to refer tests after becoming limited partners.
Thus, while Respondents
may have exhorted physicians to refer tests to joint venture laboratories, they
did not intend to require them
to refer tests as a condition for participation. 6/ March 1, 1991 Decision at
42.
The I.G. alleged that Respondents' activities violated section 1128B(b)(2)
of the Act regardless whether
Respondents required referrals as a condition for participation or remuneration
or merely exhorted
physicians to refer tests. 7/ I disagreed with this contention. I found that
section 1128B(b)(2) proscribed
offers of agreements or agreements to refer business in the nature of kickbacks,
bribes, or rebates. 8/ I held
that the prohibitions in this section did not reach the arrangements between
Respondents and limited
partners (except to the extent that Respondents Hanlester, PPCL, Omni and Placer
were liable for the acts
of their agent, Patricia Hitchcock) because no offers of agreements, or agreements
to refer business, were
involved.
In my March 1, 1991 decision, I concluded that Respondents Hanlester, PPCL,
Omni, and Placer had
entered into agreements with SKBL which reposed in SKBL the duty to operate
the three joint venture
laboratories. Respondents agreed to compensate SKBL for its services by paying
it 76 percent of the
revenues of the laboratories. I found that, pursuant to these agreements, SKBL
opted to perform most of
the tests originally referred to the joint venture laboratories at its central
processing facilities. The joint
venture laboratories were staffed by SKBL employees. The three joint venture
laboratories maintained
only limited equipment.
The I.G. asserted that the arrangements with SKBL were "sham" arrangements,
designed to conceal
referrals of business to SKBL. I concluded that, in fact, the arrangements were
legitimate business
relationships in which SKBL assumed the risk of operating the joint venture
facilities in return for
Respondents giving them a substantial share of joint venture revenues. I found
that Respondents
nevertheless assumed substantial risks for the operation of the joint ventures.
The I.G. contended that the percentage of revenues retained by Respondents
from the joint ventures,
coupled with additional benefits which Respondents obtained by virtue of their
relationship with SKBL,
was "indirect remuneration" in return for test referrals, in violation
of section 1128B(b)(1) of the Act. 9/ I
disagreed with this contention, because I concluded that the common and ordinary
meaning of the term
"remuneration" in both sections 1128B(b)(1) and 1128B(b)(2) was a
payment from one party to another for
a quid pro quo. March 1, 1991 decision at 66 - 67. I found that, inasmuch as
SKBL had made no
payments to Respondents for referrals, and in fact, Respondents had made substantial
payments to SKBL,
Respondents could not be held to have solicited or received remuneration in
return for referring program-
related business pursuant to section 1128B(b)(1) of the Act.
Although I found that Respondents Hanlester, PPCL, Omni, and Placer had violated
section 1128B(b)(2)
of the Act by virtue of the acts of their agent, Ms. Hitchcock, I concluded
that no remedial purpose would
be served by excluding them. The I.G. contended that, at a minimum, five-year
exclusions should be
imposed against these Respondents because their violations were analogous to
criminal fraud against
federally-funded health care programs. I held that section 1128 of the Act is
a remedial law which
empowers the Secretary to impose and direct exclusions to protect the integrity
of federally-funded health
care programs and the welfare of these programs' beneficiaries and recipients.
10/ The purpose of an
exclusion is to protect these programs and their beneficiaries and recipients
from future misconduct by
untrustworthy providers. I concluded that exclusions could not be imposed lawfully
pursuant to section
1128 for reasons other than remedy. I concluded that there could exist situations
where parties committed
acts which provided the Secretary with authority to impose and direct exclusions
pursuant to section
1128(b), but where no remedial purpose would be served by imposing and directing
exclusions. I decided
that no exclusions should be imposed against Respondents Hanlester, PPCL, Omni,
and Placer, because the
I.G. had not proven that these Respondents posed a threat to the integrity of
federally-funded health care
programs or their beneficiaries and recipients.
The appellate panel premised its remand to me on three conclusions. First,
it concluded that sections
1128B(b)(1) and 1128B(b)(2) of the Act did not require offers of or agreements
to refer program-related
business as prerequisites to establishing violations of these sections. A party
could to be found to have
violated section 1128B(b)(2) where that party knowingly and intentionally induced
another party to refer
program-related business, regardless whether the party who was the subject of
the inducement had been
offered an agreement, or had actually agreed, to refer business. The appellate
panel concluded that the
phrase "to induce" in section 1128B(b)(2) meant an intent to exercise
influence over the reason or
judgment of another in an effort to cause the referral of program-related business.
Appellate Panel
Decision at 18. Therefore, the appellate panel remanded the cases to me so that
I could decide whether any
of Respondents knowingly and willfully offered or paid remuneration to physicians
to induce those
physicians to refer program-related business, without regard to whether any
of Respondents had offered or
entered into an agreement with physicians to refer program-related business.
Second, the appellate panel concluded that the term "remuneration"
in sections 1128B(b)(1) and
1128B(b)(2) did not mean a payment for a quid pro quo. It held that the term
"remuneration" meant
offering or paying anything of value in any form or manner whatsoever. Furthermore,
"the direction in
which money payments flow in a transaction is not determinative of whether remuneration
has been paid."
Appellate Panel Decision at 59. A party could be held to have unlawfully received
remuneration for a
referral under section 1128B(b)(1) if that party received a benefit in return
for the referral consisting of
anything of value in any form or manner whatsoever. Therefore, the appellate
panel remanded the cases to
me to so that I could decide whether any of Respondents knowingly and willfully
solicited or received
remunera-tion from SKBL in violation of section 1128B(b)(1) of the Act.
Third, the appellate panel concluded that I had not considered adequately all
of the ramifications of the
evidence relevant to the issue of whether an exclusion ought to be imposed against
Respondents Hanlester,
PPCL, Omni, and Placer. Although the appellate panel did not disagree with my
analysis of the remedial
purpose of section 1128 of the Act, it found that it was unclear from my decision
that I had given sufficient
weight to the "fact that Congress obviously thought that the misconduct
proscribed by section 1128B(b)
was a serious offense." Appellate Panel Decision at 52. The appellate panel
also was concerned that I may
have given undue weight in my decision to the failure of the I.G. to prove that
Respondents Hanlester,
PPCL, Omni, and Placer's unlawful actions had caused actual harm to federally-funded
health care
programs or to program beneficiaries and recipients. 11/ Therefore, the appellate
panel remanded the cases
to me so that I could reconsider whether an exclusion was necessary for Respondents
Hanlester, PPCL,
Omni, and Placer. 12/
Although in my March 1, 1991 decision, I did not find sections 1128B(b)(1)
and 1128B(b)(2) to have the
same meaning as that found by the appellate panel, it is not legitimate for
me now to question the appellate
panel's interpretation and application of the law. Furthermore, I do not consider
it appropriate for me now
to question the ramifications of the appellate panel's legal analysis. 13/ My
duty on remand is to apply the
law as found by the appellate panel to the facts as I have found them. I find
it worth noting, however, that
the appellate panel adopted and affirmed all of my original Findings except
those which it vacated. I have
not formed new conclusions on remand as to the nature and purpose of the joint
venture laboratories, as to
Respondents' relationship with SKBL, or as to Respondents' overall objectives.
Thus, although the
outcome of these cases on remand is very different from that which I had originally
decided, this outcome
emanates from my application of the appellate panel's interpretation of the
Act to my original Findings.
1. Respondents knowingly and willfully offered or paid remuneration to physicians
to induce them to
refer program-related business in violation of section 1128B(b)(2) of the Act.
I find it evident from application of the appellate panel's construction of
section 1128B(b)(2) to my fact
Findings that Respondents knowingly and willfully offered or paid remuneration
to physicians in violation
of this section. One need not look beyond the documents which Respondents gave
to prospective limited
partners in Respondents PPCL, Omni, and Placer to conclude that Respondents
violated section
1128B(b)(2), given the appellate panel's interpretation of the terms "to
induce" and "remuneration." The
way in which Respondents organized the laboratories and marketed limited partnership
shares to
physicians evidences an intent by Respondents to exercise influence over the
reason or judgment of
physicians in an effort to cause physicians to refer laboratory tests. I find
additional evidence of
Respondents' intent in the manner in which Respondents distributed income from
the laboratories to
limited partners.
The aim of Respondents' marketing activities was to convince physicians that
it was in their financial self-
interest to become limited partners in the joint venture laboratories and to
refer tests to those laboratories.
The critical element to success of the laboratories was that physician investors
would find it financially
attractive to refer tests to the laboratories. Findings 232 - 241. Respondents'
marketing strategy was to
enlist physician investors who were in a position to refer substantial quantities
of tests to joint venture
laboratories. Respondents made it easy for physicians to invest in the laboratories,
by offering them
investments for relatively small sums. They offered physicians the opportunity
to profit from referred
laboratory tests for Medicare beneficiaries from which they otherwise would
not earn any profit. The sales
brochure distributed by Respondents to prospective limited partners told them
that they could expect to
earn returns on their investments in excess of 50 percent. I.G. Ex. 3.0. That
same document told
physicians that failure by investors to refer tests to joint venture laboratories
was a "blueprint for failure of
the laboratories." Id.
In order to exercise influence over physicians' reason or judgment, Respondents
offered them remuneration
consisting of income from the joint ventures which at least indirectly related
to the volume of referrals
made by limited partners. In essence, Respondents told physicians that they
were being offered the
opportunity to invest in joint ventures that would produce an attractive rate
of return on investments,
provided that the participants referred tests to the joint venture laboratories.
This evidence comprises the
necessary elements of a violation under the appellate panel's interpretation
of section 1128B(b)(2).
Respondents unlawfully remunerated physicians for referrals under the appellate
panel's interpretation of
section 1128B(b)(2). Respondents' distributions to limited partners amounted
to a substantial rate of return
on limited partners' investments, exceeding 50 percent in 1988 and 1989. Findings
197 - 199. By virtue of
their management arrangement with SKBL, Respondents were able to compensate
limited partners based
on anticipated, rather than actual, joint venture revenues. In practice, this
meant that Respondents were
able to make greater initial distributions to limited partners than would have
been possible otherwise. The
reason Respondents made distributions in this manner was to provide an incentive
to limited partners to
retain their investments and to refer tests to the joint venture laboratories.
I conclude that this incentive
constitutes a knowing and willful payment of remuneration to physicians to induce
them to refer tests
under the appellate panel's interpretation of the Act.
The appellate panel found that further proof of unlawful intent might be drawn
from analysis of the relative
value of the remuneration offered or paid by Respondents to limited partners
in order to determine whether
excessive payments were offered or made to limited partners. 14/ The record
in these cases does not
contain sufficient evidence for me to conclude that the payments to limited
partners were "excessive" as the
appellate panel has used that term. There is evidence that joint venture shares
produced substantial profits
for limited partners. Findings 197 - 199. However, evidence that an investment
returns a substantial profit
to an investor does not by itself establish that the return to the investor
is excessive in terms of the risks
involved in the investment. In order for me to reach a conclusion that the return
is excessive, I would have
to have some credible evidence establishing a benchmark against which the profits
earned by limited
partners could be compared. No evidence which might establish that standard
for comparison was offered
by the I.G. For example, the record is devoid of evidence showing what profits
limited partners might
have derived from investing the value of partnership shares in alternative investments
such as real estate or
the stock market.
I do not read the appellate panel decision as requiring proof of excessive
returns as a prerequisite for
meeting the appellate panel's interpretation of section 1128B(b)(2). Under the
appellate panel's
construction, proof of excessive returns may be sufficient to prove unlawful
intent, but it is not required in
order to prove unlawful intent. I conclude that the evidence establishes unlawful
intent under the appellate
panel's interpretation, even though the I.G. did not prove that the returns
limited partners received on their
investments were excessive.
Respondents freely acknowledge that they encouraged physicians to participate
in and to refer laboratory
tests to the joint venture laboratories. They acknowledge that their encouragement
included offering
physicians an attractive investment opportunity and reminding physicians that
it was in their self-interest to
refer tests. They argue, however, that under the standard adopted by the appellate
panel, such
encouragement does not constitute an unlawful offer or payment of remuneration.
Respondents' argument rests on three premises. First, Respondents note that
the appellate panel
distinguished between the definition of "to induce" in section 1128B(b)(2)
advocated by the I.G. and the
definition it adopted, finding that its own definition was on its face a stronger
(and presumably, narrower)
definition of the term than the I.G.'s proffered definition. From this, Respondents
contend that their
encouragement of physicians to join the limited partnerships and to refer tests
to the partnership
laboratories does not meet the appellate panel's definition of an inducement
that is unlawful under the Act.
Second, Respondents assert that the appellate panel did not declare that physician-owned
laboratories are
per se unlawful under the Act. Respondents argue that the acts and practices
they engaged in typified the
business activities of physician-owned laboratories. Therefore, according to
Respondents, to find that their
actions constituted the unlawful offer or payment of remuneration under the
Act would effectively declare
all physician-owned laboratories to be in violation, a consequence not contemplated
by the appellate panel.
Hanlester Respondents' Brief on Remand at 17.
Third, Respondents contend that the facts of these cases do not establish unlawful
offers or payments of
remuneration. They argue that unlawful intent cannot be found given that I have
concluded that:
Respondents told potential investors that there existed a substantial element
of risk in their investments,
that returns on investments were neither advertised nor made to physicians based
on their individual
referrals, and that physicians were not threatened with discipline nor disciplined
for their failure to refer
tests. Respondents also argue there is no proof that their encouragement to
physicians resulted in
physicians overutilizing the laboratories. Respondents reason that overutilization
would be an indicator of
unlawful inducement and note that such evidence is singularly lacking here.
Respondents also contend that
the relatively small payments they made to physicians (averaging $750 annually
for an investment of
$1500) were too minimal to have the effect of inducing physicians to refer tests
to the laboratories.
I do not find Respondents' arguments to be persuasive, either separately or
in combination. For the reasons
which I have stated above, their acts meet the definition of unlawful conduct
adopted by the appellate panel
under section 1128B(b)(2).
It is true that the appellate panel did not adopt the I.G.'s asserted definition
of "to induce" as meaning
simply "to encourage" or "to influence." The appellate panel
also stated that the definition it adopted was
on its face stronger than that advocated by the I.G. The appellate panel did
not explain how its definition
of "to induce" was stronger than that advocated by the I.G. The parties
have not offered a distinction
which would separate the definition adopted by the appellate panel from that
advocated by the I.G.
There may be cases where application of the phrase "to exercise influence
over reason or judgment in an
effort to cause a desired action" to the evidence would produce a result
which differs from application of
the terms "to encourage" or "to influence" to the same evidence.
It may also be that in most or even in all
cases application of the definition adopted by the appellate panel produces
the same practical consequence
as would application of the definition of "to induce" advocated by
the I.G. 15/ However, it is unnecessary
for me to decide here whether the appellate panel's interpretation of the Act
is a more stringent standard
than that advocated by the I.G., or whether application of the appellate panel's
definition of "to induce" to
the evidence produces a different outcome than would result from application
of the I.G.'s proffered
definition to the evidence. The evidence in these cases establishes that Respondents
deliberately enticed
physicians to invest in the joint ventures by offering participants substantial
profits indirectly linked to
participants' referrals. It also establishes that Respondents made it plain
to physicians that their failure to
refer business to the joint ventures would cause the ventures to fail. I conclude
that this evidence satisfies
the appellate panel's test for unlawful conduct, regardless of that test's similarity
to, or difference from, that
advocated by the I.G.
In my March 1, 1991 decision, I expressed the concern that the practical consequence
of adopting the I.G.'s
definition of "to induce" would be to proscribe sweepingly as felonious
an array of common and rational
business activities in the health care industry. That was a principal reason
for my conclusion that Congress
intended the Act to have a much more limited reach than that advocated by the
I.G. The appellate panel
considered and rejected my concern. 16/ It is of no consequence to my decision
on remand in these cases
that the decision's practical effect might be to suggest that many or even all
arrangements with similar
features to those at issue here also violate the Act. Nor is it necessary or
even appropriate for me now to
decide whether that would be so.
I have not rescinded or recast any of my original Findings concerning Respondents'
activities. I agree with
Respondents' contention that they outlined the risks of the ventures to potential
participants. Respondents
are also correct in their assertion that they did not link directly distribution
of profits to limited partners to
the amount of referrals by those partners. I agree also that Respondents did
not discipline partners who
failed to refer tests to the joint venture laboratories. I do not depart in
any respect from my original
conclusion that Respondents did not intend to enter into agreements with physicians
to refer laboratory
tests. But these conclusions, expressed in my Findings and discussed in detail
in my March 1, 1991
decision, do not derogate from my conclusion now that, under the appellate panel's
test for violation,
Respondents unlawfully offered and paid remuneration to limited partner physicians.
I agree also with Respondents' assertion that the I.G. failed to prove that
physicians overutilized joint
venture laboratories as a consequence of their partnership. There is no evidence
in these cases that partners
in the joint ventures ordered excessive tests or made inappropriate medical
decisions based on their
partnership investments. There is, in fact, affirmative evidence to the contrary.
However, I do not find it
necessary, under the appellate panel's analysis, for me to premise my finding
of liability on a conclusion
that physicians overutilized joint venture laboratories, ordered excessive tests,
or made inappropriate
judgments as a consequence of their partnership involvement. 17/ The issue is
whether Respondents
violated the law by inducing physicians to refer tests, not whether Respondents
violated the law by
inducing physicians to refer unnecessary or excessive tests.
The question of whether the size of payments made to physicians by Respondents
was too small to serve as
an inducement to refer tests is answered by the evidence in these cases. Although
the amount of
remuneration paid by Respondents to individual investors was not large, it was
enough to influence these
physicians' judgments as to whether to become limited partners and to refer
tests. Tr. at 1452 - 1453. I do
not find that physicians became limited partners in the joint ventures solely
because of the quality and
convenience promised by Respondents. A significant incentive which Respondents
offered physicians for
becoming limited partners was pecuniary gain. 18/
For purposes of this analysis, I have so far treated Respondents Lewand, Tasha,
Welsh, Huntsinger, and
Keorle as if they all bore the same relationship to Respondents Hanlester, PPCL,
Omni, and Placer. This
generalization certainly works with respect to Respondents Lewand, Tasha, Welsh,
and Keorle. All of
these Respondents, except Respondent Huntsinger, were, at one time, principals
in Respondent Hanlester
and were involved in the conception and marketing of the joint ventures. 19/
I recognize that these
Respondents had different management responsibilities and that the extent of
their involvement with the
joint ventures varied considerably. For example, while there is evidence that
Respondents Welsh and
Huntsinger offered remuneration to physicians to participate in Respondent PPCL,
there is no evidence that
they paid remuneration to anyone. However, I conclude that each Respondent was
involved sufficiently in
the planning and marketing of the joint ventures to satisfy the legal standard
for violation of section
1128B(b)(2) found by the appellate panel. All of these Respondents were principals
in Hanlester.
Respondents Lewand and Tasha were involved actively in making management decisions
for Hanlester,
and, ultimately, the joint ventures. Respondent Welsh personally marketed limited
partnership shares for
Respondent PPCL.
The issue of personal liability is not so simple as regards Respondent Huntsinger.
Respondent Huntsinger
was not a principal in Respondent Hanlester. Technically, he was the agent of
SKBL. However, the
evidence proves that Respondent Huntsinger was involved actively with the other
Respondents in
promoting the joint venture laboratories. His involvement extended to joining
with other Respondents to
exhort physicians to refer tests to the laboratories. He contacted physicians
to determine their interest in
investing in the joint ventures. He permitted his name to be used in Respondents'
promotional literature as
Respondent Hanlester's medical director. Furthermore, he had a substantial financial
interest in assuring
that Respondents' plan to market and operate the joint ventures succeeded, in
that he both had a contractual
relationship with SKBL and owned 30 limited partnership shares in Respondent
PPCL. I find that this
evidence proves that Respondent Huntsinger participated in Respondents' efforts
to market and operate the
joint venture laboratories and that he manifested, along with the other Respondents,
the intent requisite to
establish a violation under the appellate panel's interpretation of section
1128B(b)(2).
2. Respondents except Respondents Welsh and Huntsinger knowingly and willfully
solicited or
received remuneration for referring program-related business in violation of
section 1128B(b)(1) of the
Act.
The inescapable conclusion resulting from examination of the relationship between
Respondents and
SKBL in light of the appellate panel's analysis of the law is that Respondents
unlawfully solicited or
received remuneration from SKBL. The exceptions to this conclusion of liability
are Respondents Welsh
and Huntsinger.
Respondents obtained substantial economic benefit from their relationship with
SKBL. Although this
benefit did not consist of a payment from SKBL to Respondents for referrals,
it meets the definition of
"remuneration" found by the appellate panel. The benefit which Respondents
obtained from SKBL was "in
return for" remuneration because it related to, and was driven by, the
referrals which SKBL obtained from
Respondents PPCL, Omni, and Placer. Findings 253 - 264. I also find that the
value to Respondents of the
benefit they received from SKBL exceeded the value to Respondents of the benefit
which they gave to
SKBL.
The appellate panel concluded that any economic benefit conferred on a party
could be "remuneration"
within the meaning of section 1128B(b), even if a payment was not involved.
The remuneration which
Respondents obtained from their agreements with SKBL, using the appellate panel's
definition of
"remuneration," included relief from the obligation of having to staff
and operate the joint venture
laboratories. Under the management agreement between SKBL and Respondents PPCL,
Omni, and Placer,
SKBL assumed the burden for administration and management of the laboratories.
20/ Remuneration also
included the value of SKBL's name and reputation as an enticement for enlisting
potential limited partners.
Respondents also received remuneration from SKBL in the form of advance payments
for test
reimbursement.
This remuneration was "in return for" referrals. From the inception,
the parties' intent was that the
laboratories would refer tests to SKBL and that Respondents and SKBL would benefit
financially from
these referrals. The management agreements and the manner in which the joint
venture laboratories were
equipped and operated by SKBL evidence that SKBL and Respondents contemplated
that most of these
laboratories' tests would be referred to SKBL's central processing facilities.
Findings 146 - 164, 181 - 190.
The parties' intent is confirmed by the fact that most tests sent by physicians
to the joint venture
laboratories were referred to SKBL's facilities. Finding 190.
The evidence also establishes a link between the volume of referrals to SKBL
generated by the joint
venture laboratories and the amount of benefits SKBL conferred on Respondents
as a consequence of these
referrals. There would have been no point to SKBL agreeing to manage the joint
venture laboratories if
these laboratories did not generate a sufficient volume of tests to make the
agreements economically
worthwhile for SKBL. It was in Respondents' self-interest to assure that SKBL
was in a position to process
a high volume of tests from the laboratories, inasmuch as the benefits they
derived from the management
agreements increased as the volume of tests referred to the laboratories and
processed by SKBL increased.
Furthermore, some of the benefits which SKBL conferred on Respondents, including
advances on
revenues, were made by SKBL in order to assure that limited partners continued
to refer business to the
joint venture laboratories which would then be referred to SKBL.
The benefit Respondents received from their relationship with SKBL exceeded
the legitimate value of that
which Respondents conferred on SKBL. Following the appellate panel's analysis,
I infer that the excess
benefit which Respondents derived from their relationship with SKBL confirms
that they received
remuneration in return for referrals in violation of section 1128B(b)(1).
The appellate panel did not define what it meant by "excess benefits."
See Appellate Panel Decision at 48,
58. The I.G. argues, and I agree that, given the context of its statement, the
instruction I derive from the
appellate panel's decision is that it intended that I compare the benefit Respondents
obtained from tests
referred to SKBL pursuant to the management agreements against what Respondents
would, or perceived
they would, have derived from processing the same tests themselves. Tr. 1/15/92
at 166-168. If I find that
Respondents obtained, or thought they would have obtained, a comparative economic
advantage from
referred tests, then I should infer that the advantage comprises an excess benefit
which is "in return for"
referrals.
Respondents were in the business of organizing and operating joint venture
laboratories for profit.
Decisions which Respondents made as to how to process laboratory tests were
motivated at least in part by
financial considerations. One obvious reason for Respondents entering into management
agreements with
SKBL was that Respondents believed that it made financial and business sense
to have SKBL manage the
joint venture laboratories and to assume the burden of processing tests. Respondents
believed that SKBL
could manage the laboratories more efficiently than could Respondents, and that
these efficiencies would
translate into greater profits for Respondents from the laboratories' business.
Thus, from Respondents'
perspective, the value that they derived from the management relationship with
SKBL exceeded the value
to them of processing on their own the tests which were referred to SKBL.
An alternative analysis of the appellate panel's "excess benefits"
standard under section 1128B(b)(1)
consists of measuring the value of the benefits Respondents received for referrals
of laboratory tests against
the fair market value which Respondents might have received for referring tests
to other laboratories,
including SKBL, in the absence of a management relationship. In other words,
if the relationship between
Respondents and SKBL produced a per-referral premium above and beyond that which
Respondents might
have realized from tests referred in the absence of a management relationship,
then the additional benefits
received by Respondents might be characterized as "excess" benefits
which are "in return" for referrals.
There is ample evidence, discussed supra, to show that Respondents derived
economic benefit from their
relationship with SKBL. Obviously, Respondents thought that it was in their
self-interest to enter into and
to continue that relationship. Respondents needed the relationship with SKBL
to maintain and cultivate
their relationships with limited partners. Respondents represented to limited
partners that, absent the
relationship with SKBL, the laboratories might not be able to perform the full
range of laboratory tests at
an acceptable level of quality. Respondents also needed advance payments from
SKBL for referrals as an
incentive to keep limited partners involved in the joint venture laboratories.
I can infer from this evidence
that the benefits which Respondents derived from their relationship with SKBL
exceeded that which they
would have derived from simply referring tests to SKBL or to other laboratories
on a test-by-test basis
absent a management arrangement. In that sense, the remuneration Respondents
received from SKBL
exceeded the value of that which Respondents conferred on SKBL.
I do not read the appellate panel's decision as requiring me to find that Respondents
derived excess benefits
from the tests they referred to SKBL as a prerequisite to concluding that Respondents
unlawfully solicited
or received remuneration from SKBL. The appellate panel concluded that the presence
of excess benefits
was a factor from which unlawful remuneration could be inferred. My conclusion
that Respondents
unlawfully solicited and received remuneration, given my Findings and the appellate
panel's analysis of the
Act, is buttressed by my conclusion that Respondents received excess benefits
from their referrals to
SKBL. However, I would conclude that Respondents had unlawfully solicited and
received remuneration
even if I had not found that they obtained excess benefits from their referrals.
Respondents argue that there existed reasons other than economic reasons for
their decision to enter into a
management arrangement with SKBL. They assert that their management arrangements
with SKBL were
premised on Respondent Lewand's disinterest in managing the joint venture laboratories
and on SKBL's
reputation for high quality laboratory testing. I do not question that these
factors were an element of
Respondents' motivation for entering into the arrangements with SKBL. But there
were financial reasons
for the arrangements. Findings 143 - 190; March 1, 1991 Decision at 55 - 59.
Respondents contend that the manner in which they compensated SKBL for its
management services belies
any assertion that they received "remuneration" from SKBL in return
for referred laboratory tests. This
argument amounts to a restatement by Respondents of their assertions that SKBL
made no payments to
Respondents, and in fact, Respondents compensated SKBL for its management services.
I agree with
Respondents' assertions concerning who paid compensation to whom, and my conclusions
are reflected in
my Findings. See Findings 154 - 165. However, the appellate panel concluded
that "remuneration" under
section 1128B(b) includes any financial benefit, regardless of who pays whom.
And, as I find here, the
economic benefits Respondents received from their arrangements with SKBL comprise
"remuneration" as
the appellate panel has defined the term.
The theme which lies at the center of Respondents' arguments is their contention
that their relationship with
SKBL was rational and commonplace in the health care industry. They contend,
furthermore, that existing
law expressly contemplates laboratories being reimbursed by Medicare for referred
tests. 21/ They argue
that a finding that their relationship with SKBL constitutes unlawful solicitation
or receipt of remuneration
for referrals is tantamount to a finding that widespread and legitimate business
practices are illegal.
The fact that Respondents were motivated by the prospect of financial benefit
when they entered into
management agreements with SKBL reflected their rational business judgments.
See Findings 164, 166 -
167, 184 - 186. The relationship between Respondents and SKBL may have been
a manifestation of the
relatively common practice in the health care industry of small laboratories
referring tests to larger, more
efficient, laboratories. See Finding 185. I doubt that a laboratory in the business
of processing tests for
profit would ever refer tests to another laboratory for processing unless some
economic gain resulted to the
referring laboratory that exceeded that which could be derived from processing
the tests at its own
facilities. I also doubt that laboratories accept referred tests unless they
conclude that, by doing so, they
can derive profits from processing them. However, the appellate panel concluded
in its decision that, under
its interpretation of the Act, practices could well be unlawful even if those
practices were common in the
health care industry and economically efficient or beneficial. Thus, the remuneration
Respondents derived
from their relationship with SKBL was unlawful, even if it may have been generated
by rational or
efficiency-promoting business decisions and reflected a common practice among
clinical laboratories.
I agree with Respondents that statutes governing Medicare reimbursement envision
referrals of tests from
one laboratory to another. However, I conclude that implicit in the appellate
panel's decision is recognition
of the possibility that conduct might violate sections 1128B(b)(1) or 1128B(b)(2)
even if it involves claims
for reimbursement which are permitted under another provision of the Act. Therefore,
I do not find that
Respondents are saved from the conclusion that they unlawfully solicited or
received remuneration by the
fact that the Act permits laboratories to claim reimbursement for referred tests.
Respondents Welsh and Huntsinger are not liable for violations of section 1128B(b)(1).
As for Respondent
Welsh, the weight of the evidence does not establish that he either solicited
or received remuneration from
SKBL for referrals. First, the I.G. did not prove by a preponderance of the
evidence that Respondent
Welsh solicited remuneration for referrals from SKBL. Respondent Welsh testified
credibly that his duties
for Respondent Hanlester were to market joint venture shares to physicians.
Finding 86. The I.G. offered
no evidence to show that Respondent Welsh's responsibilities exceeded that to
which he testified.
Second, Respondent Welsh terminated his relationship with Respondent Hanlester
in the summer of 1987,
before management agreements between Respondents Hanlester, PPCL, Omni, and
Placer became
operative. The I.G. did not prove that, during the brief period that Respondent
Welsh was involved with
the other Respondents, he was meaningfully involved in negotiations with SKBL
and in the development
of the management agreements between Hanlester, PPCL, Omni, Placer and SKBL.
It is true that, in April
1987, he signed the master laboratory services agreement between Respondent
Hanlester and SKBL. I.G.
Ex. 1.0; Finding 143. However, this agreement alludes only to management of
laboratories by SKBL. It
makes no reference to test referrals from the laboratories to SKBL. The Master
Laboratory Services
Agreement contains as Exhibit "B" a draft Laboratory Management Agreement.
I.G. Ex. 1.0/10 - 21.
Presumably, Respondent Welsh was aware of this draft agreement and its contents
when he executed the
Master Laboratory Services Agreement. However, although the draft management
agreement reserves to
SKBL the right to determine whether to refer tests from the managed laboratory
to SKBL, it does not
specify the circumstances under which such referrals would occur. I am not convinced
that this document
proves that Respondent Welsh was aware of the circumstances under which referrals
might occur and,
given the context of Respondent Welsh's relationship to the other Respondents,
it is inadequate to establish
the requisite level of intent needed to prove a violation of section 1128B(b)(1).
Finally, the I.G. did not prove that Respondent Welsh received remuneration
from SKBL in return for
referrals from Respondents PPCL, Omni, and Placer. Inasmuch as Respondent Welsh
terminated his
relationship with Respondent Hanlester before the management agreements became
effective, he could not
have referred any tests to SKBL. Nor is there evidence that he received any
benefit from SKBL in return
for referred tests.
Neither do I find Respondent Huntsinger to be liable under section 1128B(b)(1).
Respondent Huntsinger
was not a principal in Respondent Hanlester and was not a party to any of the
management agreements.
Respondent Huntsinger was the medical director of Respondents PPCL and Omni.
He received substantial
compensation from SKBL for his services as medical director and for pathology
services. He also
indirectly benefitted from the relationship between Respondent PPCL and SKBL
in that he owned a
substantial number of limited partnership shares (30) in PPCL. However, the
weight of the evidence does
not establish that Respondent Huntsinger received these benefits in return for
test referrals. The I.G. did
not prove that, by virtue of his position as medical director, Respondent Huntsinger
was able to refer
laboratory tests from Respondent PPCL or Respondent Omni to SKBL. Thus, although
Respondent
Huntsinger may have benefitted from his relationship with SKBL, and from the
agreements between the
other Respondents and SKBL, the I.G. did not prove that any benefits he derived
were in "return for"
referrals.
At the January 15, 1992 oral argument of the remanded cases, the I.G. argued
that, even if Respondent
Huntsinger did not refer tests from Respondents PPCL and Omni to SKBL, he nonetheless
"arranged for"
or "recommended" the referral of tests from physicians to Respondents
PPCL and Omni and the referral of
tests from Respondents PPCL and Omni to SKBL. Therefore, according to the I.G.,
Respondent
Huntsinger violated section 1128B(b)(1)(B) of the Act. 22/
I do not find that this assertion is supported by the weight of the evidence.
There is no evidence to show
that Respondent Huntsinger manifested any control over the flow of tests from
Respondent PPCL or
Respondent Omni to SKBL, nor does the evidence demonstrate that Respondent Huntsinger
recommended
to anyone that tests be referred from Respondent PPCL or Respondent Omni to
SKBL. It is true that
Respondent Huntsinger pressured physicians to refer tests to Respondent PPCL.
However, absent evidence
that Respondent Huntsinger exercised some control over tests received by the
laboratories and used that
authority to influence judgment as to whether they would then be referred to
SKBL, I cannot conclude that
he either "arranged for" or "recommended" their referral
to SKBL.
Nor do I conclude that a purpose of the compensation Respondent Huntsinger
received from SKBL for his
services was to pay him for arranging for or recommending that tests be referred
by physicians to
Respondents PPCL or Omni. The I.G. asserts that Respondent Huntsinger received
substantial
compensation from SKBL for "referral fees" and that this compensation
is evidence that he was
compensated for test referrals, either by physicians to the laboratories or
from the laboratories to SKBL.
See Tr. at 2294; I.G. Ex. 8.0/3, 49.0, 49.1/2. It is unclear from the record
exactly what SKBL may have
meant by the term "referral fees." Respondent Huntsinger testified
credibly that the compensation he
received was for his services as medical director of Respondents PPCL and Omni,
and for pathology
services. Tr. at 2294 - 2295. I am not satisfied from the evidence before me
that SKBL compensated
Respondent Huntsinger either for tests referred by physicians to Respondents
PPCL and Omni or for tests
referred from Respondents PPCL and Omni to SKBL.
It is true that, as a limited partner in Respondent PPCL, Respondent Huntsinger
benefitted from tests which
that Respondent referred to SKBL to the same extent that any limited partner
benefitted from such
referrals. But, inasmuch as the evidence does not establish that Respondent
Huntsinger was in a position to
direct referrals of tests from Respondent PPCL to SKBL, he cannot be found to
be liable under section
1128B(b)(1) based merely on the fact that he benefitted from the arrangement
between Respondent PPCL
and SKBL.
3. Exclusions must be sustained against some, but not all, Respondents.
The I.G. contends that Respondents should be excluded for periods ranging from
three years for
Respondent Welsh to permanently for Respondents PPCL, Omni, and Placer. 23/
I find that the remedial
purpose of the Act will be served by excluding permanently Respondents PPCL,
Omni, and Placer. A
remedial purpose will be served by excluding Respondent Hanlester for two years.
There is no remedial
need to exclude the other Respondents, and I do not exclude them.
a. The remedial purpose of section 1128(b)
The I.G. asserts that proof that a party has engaged in conduct which authorizes
an exclusion under section
1128(b) is an irrebuttable presumption justifying an exclusion. Tr. 1/15/92
at 81, 85. 24/ The I.G.
concedes that there exists no support for his argument in either the language
of the Act or in legislative
history. I do not accept the I.G.'s contention that an irrebuttable presumption
justifying an exclusion arises
from proof of facts which authorizes the I.G. to impose and direct an exclusion
under section 1128(b).
Section 1128 of the Act is divided into two broad categories of conduct for
which exclusion must or may
be imposed and these categories are delineated under sections 1128(a) and 1128(b).
Section 1128(a)
mandates the Secretary to exclude individuals or entities who have been convicted
of crimes related to the
delivery of an item or service under Medicare or Medicaid or involving neglect
or abuse of a patient in
connection with the delivery of health care. Social Security Act, sections 1128(a)(1),
(a)(2). Implicit in
these mandatory exclusion provisions is Congress' conclusion that individuals
who have been convicted of
program-related crimes or patient neglect or abuse are untrustworthy.
By contrast, section 1128(b) of the Act permits the Secretary to exclude individuals
or entities who have
been convicted of certain offenses, or who have been sanctioned by certain state
or federal agencies, or
who have engaged in other specifically described conduct. Social Security Act,
section 1128(b)(1) -
(b)(12). The permissive exclusion subpart of section 1128 expresses the intent
of Congress not to mandate
exclusion for categories of conduct which do not per se establish that an individual
or entity is
untrustworthy. The Secretary is not required by this statute to exclude individuals
or entities even if he
determines they have been convicted of offenses, been sanctioned, or engaged
in conduct, as described by
the various subsections of section 1128(b). The preamble to section 1128(b)
states that:
The Secretary may exclude the following individuals and entities from participation
in . . . [Medicare]
and may direct that the
following individuals and entities be excluded from participation in . . . [Medicaid]: . . . .
(Emphasis added). 25/
The plain meaning of the word "may," under any conceivable definition,
is not "must" or "shall always."
See Eric Kranz, M.D., DAB 1286 (1991) (Kranz) at 11; Bernardo V. Bilang, M.D.,
DAB 1295 (1992)
(Bilang); See Tr. 1/15/92 at 83 - 85. 26/ Section 1128(b) enables the Secretary
to impose exclusions in
those cases where exclusions are reasonably needed as a remedy. But section
1128(b) also envisions cases
where exclusions are not reasonably necessary, even if the Secretary has the
technical authority to impose
exclusions. As the appellate panel held in Bilang at 8:
However, Congress did not require imposition of an exclusion on all providers
. . . [for whom an
exclusion is authorized under section 1128(b)], nor mandate any particular period
of exclusion in such
circumstances. This grant of discretion to the Secretary is inconsistent with
the I.G.'s apparent position that
. . . [an act which authorizes the imposition of an exclusion] creates a presumption
of culpability which
cannot be rebutted for any purpose.
I held in my March 1, 1991 decision that section 1128 of the Act is a remedial
statute. Section 1128(b)
must be applied in individual cases consistent with the decision in United States
v. Halper, 490 U.S. 435,
448 (1990), which sustains the principle that remedial statutes cannot be applied
constitutionally for
punitive ends. Exclusion cannot be imposed as retribution for prior wrongful
conduct or solely to deter
parties from engaging in misconduct. Those applications of exclusion would be
punishment rather than
remedy. 490 U.S. at 448.
The decision of whether an exclusion of any length is reasonable in a particular
case depends on
application of the remedial principles of the act to the evidence in that case.
The fundamental remedial
principle is whether an exclusion is reasonably necessary to insulate the integrity
of federally-funded health
care programs and the welfare of program beneficiaries and recipients from possible
future misconduct by
a party.
In my March 1, 1991 decision, I analogized the remedy of exclusion to the common
law remedy of
termination of contract based on a breach of contract. Exclusion can also be
analogized to the remedy of
debarment of a government contractor. Kranz. The remedial purpose of the Act
would not be served by
excluding parties under section 1128(b), in the absence of proof that those
parties posed a threat to the
integrity of federally-funded health care programs or to program beneficiaries
or recipients.
The appellate panel did not criticize my analysis of the Act's remedial purpose.
It neither stated nor
suggested that I had improperly identified the legal standard to be applied
in deciding whether to impose
and direct an exclusion. There is no support in the appellate panel's decision
for the I.G.'s contention that
the appellate panel directed me to impose exclusions against any Respondents.
The appellate panel
premised its remand to me on the remedy issue on its conclusion that I had not
weighed adequately the
evidence concerning Respondents PPCL, Omni, and Placer's unlawful conduct in
deciding whether these
Respondents posed a threat to the integrity of federally-funded health care
programs or to the welfare of
program beneficiaries or recipients.
It is therefore apparent from analysis of the language of the Act, from consideration
of its remedial purpose
in light of Halper, and from the appellate panel's decision, that section 1128(b)
does not mandate that an
exclusion be imposed against every individual or entity for whom an exclusion
is authorized. At bottom,
the issue of whether an exclusion of any particular length is reasonable may
be resolved only by deciding
whether there exists a preponderance of evidence establishing a party to be
untrustworthy so as to justify
exclusion of that party. The Act contemplates that in the appropriate case no
exclusion may be needed as a
remedy.
b. Administrative review of exclusion determinations under section 205(b) of the Act
Congress intended that hearings as to exclusions, conducted under section 205(b)
of the Act, would
encompass a full review of both whether events had transpired which authorized
the I.G., as the Secretary's
delegate, to determine to impose and direct an exclusion, and whether any exclusion
so determined
comported with the remedial objectives of the Act. Section 1128(f) of the Act
provides that a party
dissatisfied with a determination to impose an exclusion shall be entitled to
a hearing "to the same extent as
is provided in section 205(b)" of the Act. Section 205(b) provides for
a de novo hearing. Kranz; Bilang;
See Tr. 1/15/92 at 82 - 83. 27/
There is nothing in the letter of the Act or in its history which would suggest
that only some elements of an
exclusion determination are reviewable at a hearing. The rational interpretation
of the plain language of
section 205(b) is that all elements of an exclusion determination are reviewable.
This includes the two
issues of whether the I.G. has authority in a given case to impose an exclusion
and whether an exclusion of
any length is necessary to meet the remedial purpose of the Act.
At the January 15, 1992 oral argument, the I.G. advanced the novel contention
that section 205(b) does not
provide for a full review of the I.G.'s determination to impose an exclusion
in any case where a party has
engaged in conduct for which exclusion may be authorized under section 1128(b).
Tr. 1/15/92 at 82.
Stripped to its essentials, the I.G.'s argument is that Congress did not intend
to be reviewable the I.G.'s
decision to impose at least some exclusion in a case where exclusion is permitted
under section 1128(b).
As with his contention concerning the meaning of section 1128(b), the I.G. could
offer no authority for his
position, either in the language of the Act, in legislative history, or in case
law. Tr. 1/15/92 at 83.
Furthermore, the I.G.'s argument is rejected at least implicitly by the appellate
panels' decisions in Kranz
and Bilang.
The I.G. contends that, while the administrative law judge may take evidence
at a hearing and decide as to
the reasonableness of the length of an I.G. exclusion determination, he or she
may not question the I.G.'s
discretion to impose an exclusion in a given case. The I.G. argues that, regardless
whether an exclusion is
needed as a remedy, at least some exclusion must be sustained in every case
where the I.G. has authority to
impose an exclusion because the I.G. has nonreviewable discretion to impose
the exclusion. If this logic
were accepted, it would immunize even punitive exclusion determinations from
review under section
205(b) of the Act. 28/
Characterizing the I.G.'s determination to exclude a party as an issue of "discretion"
dodges the issue of
whether the consequence of that determination is, in a given case, unreasonable.
Obviously, any
determination by the I.G. to impose an exclusion under section 1128(b) is a
discretionary act. However,
the issue before me in a case where an exclusion is challenged as unreasonable
is not whether the I.G.
abused his discretion, but whether, based on the evidence and the law, the exclusion
is reasonable. That
issue subsumes the possibility that, in the appropriate case, no exclusion is
reasonable. Even an exclusion
of very short duration may profoundly affect a party. In the absence of a remedial
justification, even an
exclusion of very short duration may be punitive. It is perfectly possible to
conclude that no exclusion is
remedially necessary in a particular case without finding that the I.G. abused
his discretion in deciding to
impose an exclusion. 29/
The purpose of the hearing in an 1128(b) exclusion case is not to decide whether
the I.G. correctly
determined to impose an exclusion. The I.G.'s decision to exclude is not really
at issue in such a hearing.
30/ What is at issue is whether the exclusion, measured against evidence adduced
by both parties, and the
applicable legal standards, is reasonable. The standards for ascertaining reasonableness
are objective, and
the exclusion should be judged on its merits, not in terms of whether the I.G.
properly exercised his
discretion. 31/
Although the I.G. did not identify any case law which discusses the scope of
administrative review under
section 205(b) in section 1128)(b) cases aside from the appellate panel's decision
in the present cases, there
are two decisions other than Kranz and Bilang which at least arguably raise
some questions as to whether
the scope of the administrative law judge's review under section 205 of an 1128(b)
exclusion includes the
authority to find that no exclusion should be imposed against a party. A careful
reading of these decisions
shows that they do not preclude administrative law judges from deciding, in
the appropriate case, that no
exclusion is remedially necessary. In Vincent Baratta, M.D., DAB 1172 (1990),
the petitioner appealed an
administrative law judge decision which in part sustained an exclusion imposed
against the petitioner under
section 1128(b)(4) of the Act, by arguing that the administrative law judge
had erroneously failed to
consider the question of whether the I.G. had abused his discretion by imposing
any exclusion against him.
The appellate panel considered, but did not decide, the question of whether
regulations then in effect
authorized the administrative law judge to decide whether the I.G. abused his
discretion under section
1128(b) by determining to impose the exclusion. The appellate panel decided
the case on other grounds.
The petitioner's argument in Baratta reflects the petitioner's own confusion
of "discretion" with
"reasonableness." It is apparent from the administrative law judge's
decision in Baratta that what the
petitioner couched as an argument concerning the I.G.'s alleged abuse of discretion
really was an assertion
that there was no remedial need for an exclusion. See Vincent Baratta, M.D.,
DAB CR62 (1990). The
petitioner had been excluded, pursuant to section 1128(b)(4)(A) of the Act,
premised on the revocation by
the State of Florida of his license to practice medicine. He contended that
no exclusion should have been
imposed, inasmuch as he remained licensed in New York, the State in which the
acts occurred which
resulted in the license revocation by Florida. This argument, when stripped
of its characterization as an
argument concerning the I.G.'s "discretion," translates into an argument
that the exclusion was not
remedially necessary. The argument is very similar to that made by the petitioners
in Kranz and Bilang.
As I note above, the I.G. conceded in Baratta that the administrative law judge
had the authority to reduce
the exclusion to "zero," if he found no remedial need for the exclusion.
In Joel Davids, DAB 1283 (1991), the appellate panel concluded that an administrative
law judge's
authority to review the length of an exclusion imposed by the I.G. did not involve
an "abuse of discretion"
standard. It observed in passing that the appellate panel in Baratta "concluded
that the ALJ was not legally
required by section 205(b) of the Act to review the I.G.'s exercise of discretion
in deciding to exclude
petitioner under a statutory standard that was clearly applicable." DAB
1283 at 5.
Neither Baratta nor Davids hold that in an 1128(b) case, the I.G.'s determination
to impose at least some
exclusion against a party is nonreviewable under a reasonableness standard.
The issue which prompted the
appellate panel's discussion of the standard of review under section 205(b)
in Baratta was whether the
administrative law judge in that case failed to exercise an alleged duty to
review the I.G.'s exercise of
discretion. In Davids, the appellate panel's dictum was framed in terms of whether
the administrative law
judge's review of the length of an exclusion amounted to a review of the I.G.'s
exercise of discretion. It
concluded that such review did not constitute a review of the I.G.'s exercise
of discretion.
Therefore, a decision as to the reasonableness of the length of an exclusion
-- including a decision that, in
light of the evidence adduced at a hearing, no exclusion is necessary as a remedy
-- involves an issue of
reasonableness which does not impinge on the I.G.'s exercise of discretion.
A finding that no exclusion is
remedially necessary in a particular case, based on the evidentiary record adduced
at the hearing and the
law, does not require a conclusion that the I.G. abused his discretion. The
authority for the administrative
law judge to make such a finding is within the scope of review contemplated
by section 205(b) of the Act.
c. Applicability of new regulations to these cases
Effective January 29, 1992, regulations published by the Secretary limit the
scope of my review of the
remedial necessity for section 1128 exclusion determinations by precluding me
from reducing any
exclusion to zero or from declining to impose an exclusion in any case where
I find that the I.G., as the
Secretary's delegate, has the authority to impose and direct an exclusion. These
regulations also forbid me
from reviewing the I.G.'s exercise of discretion to exclude a party pursuant
to section 1128(b). 42 C.F.R.
1005.4(c)(5), (6); 57 Fed. Reg. at 3350 - 3351.
The I.G. contends that the Secretary intended that these regulations apply
to all cases, including those
pending before me at the time of their publication. He argues that the regulations
preclude me from
declining to impose an exclusion against any of the Respondents in these cases,
or from reviewing the
propriety of the I.G.'s determination to exclude any of the Respondents. I disagree.
Whatever effect these
regulations may have on my authority in other cases, they are not applicable
here. 32/
The regulations became effective on January 29, 1992, the date of their publication.
57 Fed. Reg. at 3298.
33/ They do not state how they are to be applied in cases involving exclusion
determinations made prior to
the regulations' publication date. The I.G. contends that the regulations are
not intended to be applied
retroactively to alter parties' preexisting substantive rights. Nor, according
to the I.G., should the
regulations be applied in a way which would produce a manifest injustice to
the parties. He asserts,
however, that neither outcome would be the consequence of applying 42 C.F.R.
1005.4(c)(5) and (6) to
these cases. That is so, according to the I.G., because these regulations merely
codify the law which
predated their publication.
The I.G. also avers that the new regulations are only applicable to events
that are "prospective," meaning to
events which occur after the regulations' date of publication. Inspector General's
Brief on the Applicability
of Departmental Regulations Published January 29, 1992 at 23. He contends that
the regulations which are
set forth at 42 C.F.R. 1005.4(c)(5) and (6) can be applied "prospectively"
in these cases, because these
regulations govern my decision, which had not been issued as of the regulations'
effective date.
The I.G. uses this analysis to distinguish between the Part 1005 regulations
at issue here and regulations
governing exclusion determinations contained in Part 1001 of the new regulations.
See 42 C.F.R. Part
1001, 57 Fed. Reg. at 3330 - 3341. He reasons that Part 1001 of the new regulations
is not to be applied
retroactively to adjudicate the reasonableness of exclusion determinations made
prior to the regulations'
publication. On the other hand, according to the I.G., the Part 1005 regulations
do apply to pending cases,
because they apply only to my decision, which had not been made as of the regulations'
publication date,
and not to the I.G.'s exclusion determinations.
As a general matter, administrative rules should not be applied retroactively
unless their language
specifically requires retroactive application. Bowen v. Georgetown University
Hospital et al., 488 U.S.
204, 109 S. Ct. 468, 471 (1988); United States v. Murphy, 937 F. 2d 1032 (6th
Cir. 1991). Furthermore, I
must interpret regulations consistent with the intent of statutes and with the
requirements of due process.
See Jack W. Greene, DAB 1078 (1989) at 17. To the extent that I can apply these
regulations in a way
which is consistent with their language and which does not impose injustice
on parties, I should do so.
Given the regulations' silence as to how they are to be applied in pending cases,
I should apply them in a
way which avoids injustice. Application of these regulations to strip parties
of vested rights would be an
unfair retroactive application of the regulations. United States v. Murphy;
See Griffon v. United States
Department of Health and Human Services, 802 F. 2d 146 (5th Cir. 1986).
I do not agree that the regulations serve only to codify pre-existing law.
Nor do I agree that these
regulations can be applied to limit my authority to make decisions in these
cases without stripping
Respondents of previously vested rights. The I.G.'s analysis of the new regulations
is unsupported by the
letter of the Act, by the Act's interpretation in decisions issued by the Departmental
Appeals Board, and by
regulations which were in effect prior to January 29, 1992. Contrary to the
I.G.'s contention, these
regulations fundamentally change the rights of parties in exclusion cases brought
pursuant to sections
1128(b) and 205(b) of the Act. Application of the regulations in these cases
would insulate the I.G.'s
exclusion determinations from a full review of their remedial necessity, an
immunity which was not
conferred by preexisting law and regulations. The I.G.'s interpretation of the
new regulations would dictate
a retroactive protection of his exclusion determinations from administrative
review. That is not a
"prospective" application of the regulations.
The law in effect prior to publication of the regulations conferred on parties
the right to a full review of the
reasonableness of any exclusion determination made by the I.G. One issue encompassed
by that review
was whether, in the appropriate case, an exclusion of any length would be found
to be reasonably
necessary as a remedy. See parts 3a and b of this Analysis. I have until now
conducted these cases
pursuant to regulations or based on the principles of regulations which are
superseded by the newly
published regulations. See 42 C.F.R. Part 498; 42 C.F.R. Part 1003; Ruling on
Respondents' Motion and
Request for Ruling, May 8, 1990. The superseded regulations did not state or
suggest that my authority to
hear and decide cases under section 1128 was less than the full review contemplated
by Congress in section
205(b) of the Act.
The new regulations dramatically and substantively alter the rights of parties
who are subject to exclusion
determinations. The new regulations effectively do away with parties' rights
to a complete administrative
review of exclusion determinations under section 205(b) of the Act. These regulations
give the I.G.
nonreviewable authority to impose exclusions. The regulations assure that excluded
parties remain
excluded until the I.G., in his nonreviewable discretion, decides to reinstate
them. 34/ The consequence is,
that under the new regulations, the I.G. may exclude any party whom he has authority
to exclude under
section 1128(b), free from any administrative review of either his decision
to exclude that party or his
decision of whether or when to reinstate that party.
The effect of applying these regulations here would be to strip Respondents
of previously vested
substantive rights. The right to a full review of the I.G.'s exclusion determination
was, until publication of
the regulations, a fundamental precept of the administrative hearing process.
The removal of that right in
these cases profoundly will affect Respondents. If I were to accept the I.G.'s
analysis here, I would have no
choice but to sustain exclusions against all Respondents regardless of evidence
as to their trustworthiness.
Respondents would be deprived of administrative review of the determination
to exclude them. They
would remain excluded until the I.G., in his nonreviewable exercise of discretion,
decided to reinstate
them. This stripping of vested rights was not intended by the Secretary. Bowen
v. Georgetown University
Hospital, et al.; United States v. Murphy.
Furthermore, to apply these regulations in the manner urged by the I.G. would
cause a manifest injustice to
Respondents. United States v. Murphy. These cases have been litigated for more
than two years on the
premise that I would fully review the I.G.'s exclusion determination. I have
always held out to the parties
the possibility that, under applicable law and regulations, I could find that
Respondents engaged in conduct
which violated sections 1128B(b)(1) or 1128B(b)(2), but that I could find also
no legitimate reason to
impose an exclusion against some of them. 35/ This possible outcome fully comported
with the
requirements of the Act and the regulations effective during litigation of these
cases. It would be unjust to
turn the tables on Respondents at this time. I would have no choice but to do
so if I were expressly
directed to do so by the new regulations. However, given the silence of the
regulations as to their
retroactive applicability, I must assume that the Secretary did not intend that
the regulations be applied to
produce such manifestly unjust results. United States v. Murphy.
I do not accept the I.G.'s argument that these regulations are "prospective"
in that they apply only to
decisions which I issue after their publication date. While it is true that
the regulations contained in 42
C.F.R. 1005.4(c)(5) and (6) speak about what administra-tive law judges may
not do, they are not
procedural regulations which merely govern the form of decisions. The inevitable
consequence of these
regulations is to immunize from full administrative review the I.G.'s determination
to impose an exclusion.
In a hearing as to an exclusion under section 1128, the precipitating event
which generates the hearing
request and which the hearing concerns is the determination by the I.G. to impose
an exclusion against a
party. That determination is the "decision of the Secretary" which
is referenced in section 205(b) of the
Act. In these cases, the I.G.'s determination to exclude Respondents was made
as of December 15, 1989,
the date of the I.G.'s notice of proposed exclusions. Application of the new
regulations to my decision in
these cases would thus serve to insulate a determination made years prior to
the regulations' publication
date. That is not a "prospective" application of the regulations,
nor is it merely a procedural shift in the
hearing and decision process.
d. Unlawful conduct as evidence of a remedial need for an exclusion
The starting point for determining whether an exclusion ought to be imposed
under section 1128(b) and for
determining the reasonable length of any exclusion that is imposed is the conduct
which authorizes the
Secretary to impose an exclusion. Congress authorized but did not mandate exclusions
for such conduct,
suggesting that the conduct is evidence of untrustworthiness and support for
a conclusion that an exclusion
ought to be imposed. The fact that Congress identified specific conduct as grounds
for exclusion under
section 1128(b) demonstrates that it considered that conduct to be evidence
of lack of trustworthiness.
Appellate Panel Decision at 52 - 53; Bilang at 10. A fair reading of section
1128(b) is that conduct which
provides the Secretary with authority to impose an exclusion creates an inference
that an exclusion of at
least some duration is needed. The I.G. makes a prima facie showing of a remedial
need for an exclusion
under section 1128(b)(7) by proving, as he has in these cases, that a respondent
engaged in conduct which
is unlawful under section 1128B(b)(1) or 1128B(b)(2).
The reason that conduct which authorizes an exclusion will usually justify
a remedy is that, in most cases,
it evidences a propensity on the part of the perpetrator to engage in conduct
which is unlawful or harmful.
A party who demonstrates that he is willing to engage in palpably illegal or
harmful conduct plainly is an
untrustworthy individual. Evidence as to the conduct which authorizes the Secretary
to impose an
exclusion may establish a high degree of untrustworthiness and may in and of
itself justify a lengthy
exclusion. For example, I sustained a 15-year exclusion of the petitioner in
David Cooper, R. Ph., DAB
CR88 (1990). Exclusion was authorized pursuant to section 1128(b)(1) of the
Act, based on the
petitioner's conviction of a criminal offense consisting of conspiracy and fraud
directed against private
health insurers. I sustained the exclusion largely because the evidence established
the petitioner to have
been convicted of a protracted and massive conspiracy involving many identified
episodes of fraud. From
this, I inferred a propensity in the petitioner to engage in unlawful conduct
justifying the imposition of a
lengthy exclusion.
There are cases where a petitioner may be able to establish that, notwithstanding
his or her commission of
acts which authorize imposition of an exclusion, there exists no remedial need
for an exclusion. In
Anesthesiologists Affiliated, et al. and James E. Sykes, D.O., et al., DAB CR65
(1989), I found no
remedial need to impose an exclusion against two of the respondents (Sykes and
Sykes, D.O.), although I
had found that these respondents engaged in conduct for which an exclusion was
authorized. Those cases
were civil monetary penalty cases, for which remedial exclusions are authorized
under sections 1128A and
1128(b)(7) of the Act, based on findings of violation. The I.G. did not file
exceptions to my decision.
Petitioners also may be able to establish that there exists no remedial need
for a lengthy exclusion, despite
having engaged in conduct for which an exclusion is authorized. In Joyce Faye
Hughey, DAB CR40
(1990), aff'd DAB 1221 (1991), I reduced a five-year exclusion to one year.
The petitioner, like the
petitioner in Cooper, had been convicted of a criminal offense authorizing the
I.G. to impose an exclusion
under section 1128(b)(1) of the Act. I found that there were unique and "mitigating"
circumstances which
showed that the petitioner did not demonstrate a propensity to engage in unlawful
or harmful conduct in
the future. 36/ These included the petitioner's emotional state at the time
she committed her offense, her
otherwise unblemished record, the relatively small sum involved in the crime,
and the short duration of the
petitioner's criminal activity. See also Kranz and Bilang.
Evidence offered by a party to assure that misconduct will not be repeated
in the future must be balanced
against evidence as to the seriousness of the misconduct. In some cases, the
misconduct may be so extreme
-- and the potential for harm resulting from recurrence of that misconduct may
be so large -- that a lengthy
exclusion ought to be imposed to protect against even a slight possibility that
a party might again commit
such misconduct in the future. For example, I sustained a 15-year exclusion
of the petitioner in Bernard
Lerner, M.D., DAB CR60 (1989). The Secretary was authorized to exclude the petitioner
in that case
pursuant to section 1128(b)(3) of the Act, based on the petitioner's conviction
of a criminal offense related
to unlawful possession and distribution of controlled substances, including
narcotics. The I.G. proved that
some of the individuals involved in the petitioner's scheme to distribute narcotics
included petitioner's
patients. The petitioner asserted that his misconduct was a facet of his own
substance abuse disorder. He
proved that he had remained substance-free since his conviction. I held that,
nevertheless, the potential
harm which could result from a relapse by the petitioner was so great that a
substantial margin of safety
needed to be created to protect the welfare of program beneficiaries and recipients.
On that basis, I
sustained the exclusion.
However, it is not the harm caused by a party's prior misconduct which justifies
the imposition of an
exclusion. Inasmuch as an exclusion is not punishment, it cannot be employed
as redress for past harm.
Rather, it is the propensity of a party to engage in unlawful or harmful conduct
in the future which is the
justification for an exclusion. That propensity may be inferred from past misconduct,
but it does not
necessarily follow in every case.
Thus, in determining the reasonable length of any exclusion to be sustained
under section 1128(b)(7), my
analysis begins with examining the conduct which authorizes the imposition of
the exclusion. But this
analysis is not limited to determining whether a party engaged in conduct which
is unlawful or harmful and
for which an exclusion is authorized. In order to assure that any exclusion
which I impose is legitimately
remedial, I must analyze the circumstances of the unlawful or harmful conduct
and any other evidence
which the parties offer that addresses the question of whether a party manifests
a propensity to engage in
conduct which is unlawful or harmful.
e. The length of exclusions to be imposed against Respondents
i. Respondents PPCL, Omni, and Placer
In my March 1, 1991 decision I found that, although these Respondents were
liable for violating section
1128B(b)(2), there existed no remedial need to exclude them. I premised my conclusion
on my finding
that these Respondents' liability was only the vicarious consequence of unlawful
conduct by their former
agent, Patricia Hitchcock. I found that, inasmuch as these Respondents had severed
their relationship with
Ms. Hitchcock, there no longer existed any danger that they would threaten the
integrity of federally-
funded health care programs or the welfare of program beneficiaries and recipients.
My conclusion that no remedy was necessary for these Respondents reflected
my finding that, apart from
their vicarious liability for Ms. Hitchcock's acts, these Respondents had not
engaged in any conduct which
violated section 1128B(b)(1) or 1128B(b)(2). I have now reached a different
conclusion as to these
Respondents' liability based on applying the appellate panel's interpretation
of the Act to the evidence in
these cases.
These Respondents' liability under section 1128B(b)(2) emanates both from the
representations they made
to limited partners and from the way in which they were organized as joint ventures.
Respondents PPCL,
Omni, and Placer's attempt to exercise influence over the reason and judgment
of limited partners through
the offering and payment of remuneration to limited partners was an essential
and integral element of their
business operations. A principal purpose of Respondents PPCL, Omni, and Placer
was to influence the
judgment of the limited partners concerning their decisions to refer laboratory
tests. The evidence
establishes a pattern of exhortation of limited partners by these Respondents
to refer tests to joint venture
laboratories as an essential prerequisite to generating profits from tests.
But for referrals of tests from
limited partners, Respondents PPCL, Omni, and Placer could not exist. See Findings
42 - 44. In fact,
Respondents told potential limited partners that failure by them to refer tests
to joint venture laboratories
would be a blueprint for failure for the laboratories. Finding 44.
Respondents PPCL, Omni, and Placer cannot operate as joint venture limited
partnerships without
contravening the appellate panel's interpretation of section 1128B(b)(2). I
find that the unlawful offering
and payment of remuneration to limited partners by these Respondents is an integral
and necessary element
of these Respondents' structure and operations. I can see no way for these Respondents
to operate, as
currently structured, without continuing to violate section 1128B(b)(2). For
example, an integral part of
these Respondents' operations is that they offered limited partnerships only
to physicians who were in a
position to refer tests. These limited partnerships, by their own admission,
could not function without test
referrals by their partners. Thus, they must continue to exhort partners to
refer tests as a premise for their
survival. See Finding 44. For that reason, these Respondents must be excluded
permanently from
participating in Medicare and Medicaid. 37/
ii. Respondent Hanlester
In my March 1, 1991 decision, I concluded that Respondent Hanlester did not
violate either section
1128B(b)(1) or 1128B(b)(2). Now, based on application of the appellate panel's
interpretation of the Act
to the evidence, I conclude that this Respondent violated both sections. There
thus exists authority to
exclude this Respondent. I find that the remedial purpose of the Act will be
served by excluding it for two
years.
The purpose for creating Respondent Hanlester was to establish a vehicle to
exercise control over and to
operate joint venture laboratories, including Respondents PPCL, Omni, and Placer.
Respondent Hanlester
played a critical role in marketing and managing these other Respondents. The
record establishes that
Respondent Hanlester was authorized to make all management decisions on these
Respondents' behalf.
Respondent Hanlester was integral to and an inseparable part of the decisions
and acts which comprised
Respondents' unlawful conduct.
Like Respondents PPCL, Omni, and Placer, Respondent Hanlester's very existence
encompassed conduct
which violated sections 1128B(b)(1) and 1128B(b)(2). Respondent Hanlester coordinated
and set the
marketing policies for the joint venture laboratories. It issued the private
placement memoranda for these
joint ventures. It was a party to the management agreements with SKBL.
I conclude that, given its structure and purpose, and given the appellate panel's
interpretation of the Act,
Respondent Hanlester is an untrustworthy entity for which exclusion is justified.
On the other hand, I see
no need to impose an exclusion of ten years, the length determined to be necessary
by the I.G.
Unlike Respondents PPCL, Omni, and Placer, Respondent Hanlester is not a health
care provider which
solicits or receives test referrals. Its role is limited to ownership and management
of entities. Once it is
divested of its involvement in Respondents PPCL, Omni, Placer, or other, similar
entities, it would pose no
threat to federally-funded health care programs, because it would not be involved
in business activities
which are unlawful. The I.G. has not offered any evidence which shows that Respondent
Hanlester is
poised to become involved in unlawful activities besides those that are at issue
here. I find that a two-year
exclusion of this Respondent is reasonable to assure that it has divested itself
of involvement in
Respondents PPCL, Omni, and Placer, and to assure that it is involved in no
other unlawful activities.
iii. Respondents Lewand, Tasha, Welsh, Huntsinger, and Keorle
In my March 1, 1991 decision, I found that none of these Respondents violated
section 1128B(b)(1) or
1128B(b)(2). Applying the appellate panel's interpretation of the Act to my
Findings, I now find that all of
these Respondents violated section 1128B(b)(2). I also find that Respondents
Lewand, Tasha, and Keorle
violated section 1128B(b)(1). However, the evidence in these cases does not
satisfy me that any of these
Respondents are untrustworthy. None of these Respondents demonstrates a propensity
to engage in
conduct in the future which is unlawful or harmful to Medicare, Medicaid, or
to program beneficiaries or
recipients.
These cases are very different from the vast majority of cases in which the
I.G. imposes and directs
exclusions under section 1128(b), and in which I am asked to decide as to the
reasonableness of those
exclusions. In the overwhelming majority of cases involving exclusions determined
and imposed under
section 1128(b), the acts committed by parties for which exclusion is authorized
are known by those parties
to be unlawful at the moment of their commission. In those cases, it is virtually
self-evident that the parties
committing such acts manifest a propensity to engage in unlawful behavior. The
present cases are very
different in that the conduct engaged in by Respondents was not plainly unlawful
at the time of its
commission. In planning, marketing, and operating the Hanlester joint ventures,
Respondents Lewand,
Tasha, Welsh, Huntsinger, and Keorle swam in a sea of legal uncertainty. These
Respondents neither
sought to violate the law nor to engage in conduct which came close to violating
the law.
Nor is there evidence that these Respondents deliberately or recklessly engaged
in conduct which was
harmful or potentially harmful to federally-financed health care programs or
to program beneficiaries and
recipients. There is nothing of record which would support a finding that Respondents
sought to inflate
costs to the programs, or to encourage medically unnecessary tests. There is
no evidence which
demonstrates that Respondents sought to influence physicians to order tests
of substandard quality. To the
contrary, the evidence shows that Respondents stressed that physicians participating
in the joint ventures
should not order tests which were medically unnecessary or of substandard quality.
In most cases, proof that a party has engaged in unlawful conduct establishes
a propensity in that party to
engage deliberately or, at the least, negligently in unlawful or harmful behavior.
The burden certainly falls
on the excluded party to show that he was unaware of the unlawfulness of his
acts and not reckless or
negligent. See Part 3d of this Analysis, supra. I find that Respondents Lewand,
Tasha, Welsh, Huntsinger
and Keorle have met that burden here. The weight of the evidence establishes
that these Respondents
neither knew that their acts were illegal at the time of their commission nor
acted in negligent disregard of
the law. These Respondents, like many other similarly situated entrepreneurs,
engaged in conduct which
had not been established at the time of its commission to be illegal or harmful.
That is very different from
those cases in which parties have been shown to engage in conduct which was
known to be illegal or
harmful at the time of its commission.
Respondent Lewand testified credibly that, based on his own experience and
the legal advice that he
received, he thought that the joint venture and management arrangements which
he and other Respondents
engaged in did not violate the Act. Tr. at 2111; Finding 288; See Finding 297.
Respondent Lewand
provided the organizational skill, experience, and leadership for the Hanlester
enterprises. The other
Respondents looked to him for advice and counsel and relied on his judgment.
I find it reasonable to
conclude that the other Respondents relied on Respondent Lewand's judgment and
decisions for guidance
as to what was legitimate. I do not conclude that the other Respondents made
conscious evaluations of the
lawfulness of their conduct. On the other hand, none of the other Respondents
is an attorney with years of
experience in the health law field, as is Respondent Lewand.
Until these cases, no judicial or quasi-judicial authority has ever concluded
that conduct such as that
engaged in by Respondents violated the Act. This underscores my conclusion that
Respondents did not
know that their acts violated the law. As I observed in my March 1, 1991 decision,
every case in which a
court found a violation of section 1128B(b)(1) or 1128B(b)(2) involved traditionally
unlawful or unethical
arrangements such as bribes, kickbacks, or rebates. See March 1, 1991 Decision
at 69 - 74. The appellate
panel's decision in these cases announces definitions of the terms "to
induce" and "remuneration" which
had not previously been adopted by any court. These definitions are critical
to my findings that
Respondents engaged in unlawful conduct.
Respondents proved that, until now, not only had no authority held the conduct
at issue here to be illegal,
but that there has been considerable dispute as to whether such conduct is illegal.
Given the history of
uncertainty as to whether such conduct is or is not lawful, I do not find Respondents
culpable for their
violations of the Act to the same degree as the case where there is no such
uncertainty.
Saying that a person who researched the law might reasonably have concluded
that the conduct at issue
here could be found to be illegal is not the same thing as saying that the same
person should have
concluded that a finding of unlawful conduct would be the likely outcome. Until
this decision, there has
been substantial controversy -- even within this Department -- as to whether
the kind of conduct
Respondents engaged in might be illegal. It has only been recently that officials
in this Department
asserted that the kinds of relationships engaged in by Respondents were inherently
suspect. See Ha Ex. 16,
17, 20. The uncertainty and shifting views expressed by Department officials
has contributed to confusion
and uncertainty within the private bar as to what is or is not unlawful. Tr.
at 2439 - 2440. 38/
The I.G. now contends that, while there may have been uncertainty in the health
care industry as to whether
parties would be prosecuted for violating the antikickback law, there has never
been uncertainty as to what
conduct violates the law. Tr. 1/15/92 at 74. He contends that sections 1128B(b)(1)
and 1128B(b)(2) are
plain and unambiguous. From this, apparently, he asserts that there never has
been serious disagreement as
to what constitutes a violation of the Act. I disagree with this contention.
To assert, as the I.G. asserts,
that, until now, there has been no dispute as to how sections 1128B(b)(1) and
1128B(b)(2) are to be
interpreted is to blink at reality.
I agree that the Act can be interpreted unambiguously. But that is not the
same as saying that different,
unambiguous, interpretations of the identical statutory language are beyond
reason. How the Act's
language is interpreted has a profound impact on the ultimate decision of whether
conduct constitutes a
violation. Consider for example, the meaning of the word "remuneration"
in sections 1128B(b)(1) and
1128B(b)(2). No court has ever stated the definition of that word as it is used
in sections 1128B(b)(1) or
1128B(b)(2). In my March 1, 1991 decision, I found the meaning of "remuneration"
to be the same as the
definition of that word contained in Webster's Third New International Dictionary
(1969). See March 1,
1991 decision at 66 - 67. The appellate panel found a very different meaning
of "remuneration." Appellate
Panel Decision at 24 - 26. Application of the appellate panel's definition of
"remuneration" to the evidence
produces the opposite result from application of meaning which I found of "remuneration"
to the evidence.
See part 2 of this Analysis, supra. But for the appellate panel's definition
of "remuneration," none of
Respondents would be found to have violated section 1128B(b)(1). I am not suggesting
that the meaning
of "remuneration" which I found is closer to congressional intent
than that which was found by the
appellate panel. But the different interpretations of the same statutory language
which I and the appellate
panel adopted demonstrate the obvious fact that adjudicators have differed as
to the meaning of basic
statutory terms, and that, up until now, the meaning of those terms has not
been settled within this
Department or elsewhere.
Respondents did not offer substantial evidence as to their thought processes
in assessing whether their
conduct might be held to be illegal under the Act. I do not find that Respondents
made an intensive
investigation of the legal ramifications of their acts and concluded, reasonably,
that they were not in danger
of violating section 1128B(b)(1) or 1128B(b)(2). From the evidence, I do not
find that Respondents were
aware of any particular legal interpretation of the Act, aside from relying
on Respondent Lewand's
leadership. However, the evidence is that Respondents would not have been put
on reasonable notice as of
the time they formed Respondents PPCL, Omni and Placer that their conduct in
creating and operating
such ventures was likely to be found in violation of the Act. Given the environment
in which Respondents
operated, I do not infer that they disregarded the law, regardless whether they
conducted a thorough
investigation. Such an investigation would have produced, at best, equivocal
results.
That is amply demonstrated by the pervasiveness in the health care industry
of the very activities which
these Respondents engaged in. As the I.G.'s own expert admitted, the joint venture
laboratories were "plain
vanilla" health care joint ventures which typified the kinds of joint ventures
engaged in by physicians and
other health care providers. Tr. at 180 - 181. The I.G. estimates that up to
twelve percent of the physicians
in the United States have invested in health care joint ventures to which they
refer patients. "AMA to
Caution Doctors About Lab Self-Referrals," The Washington Post, December
12, 1991; Tr. 1/15/92 at 84.
In some states, such as Florida, the percentage of physicians who are involved
in such joint ventures is as
high as 40 percent. Id. Management agreements where compensation to the manager
is based on a
percentage of revenues earned by the managed facility are very common in the
health care industry. Tr. at
2435.
I do not infer from the pervasiveness of physician health care joint ventures
that a substantial minority of
physicians in this country are either conscious partici-pants in kickback schemes
or indifferent to the law's
prohibitions. Nor do I infer that the entrepreneurs who have organized such
joint ventures are by and large
conscious or reckless lawbreakers. The facts suggest the more reasonable inference
that, at least until now,
there has been confusion in the provider community as to whether physician self-referral
joint ventures are
unlawful. It is also quite reasonable to infer that many of the participants
in these joint ventures have
assumed that their involvement violated no law. Likewise, I do not infer that
participants in health care
management arrangements are, by virtue of their participation in such arrangements,
conscious or reckless
lawbreakers. This bolsters my conclusion that Respondents could not have been
expected to know that
their conduct would be declared to be illegal.
The I.G. argues that, if Respondents did not deliberately engage in unlawful
conduct, they danced close to
the line and should be held accountable for their willingness to flirt with
the possibility that their actions
were illegal. I would be inclined to infer that Respondents are prone to recklessly
disregard the
consequences of their actions if I found that they had sought to come as close
as possible to violating the
law, without actually committing violations. But I do not find this to be a
fair characterization of
Respondents' conduct. The evidence in this case does not demonstrate that there
was a clear line of
demarcation between lawful and unlawful conduct that Respondents sought to approach
but not to cross.
To the contrary, the evidence suggests that, at least until now, there has been
considerable dispute as to
where the line lies. 39/
The I.G. asserts that "mistake of law" is not a legitimate defense
to the imposition of a remedy. He argues
that Respondents should not be allowed to avoid imposition against them of exclusions,
based on an
argument that they misunderstood the law or were unaware of its potential ramifications.
The I.G. relies on
the United States Supreme Court's decision in Boyce Motor Lines, Inc. v. United
States, 342 U.S. 337, 340
(1952).
Boyce Motor Lines holds that defendants in a criminal prosecution could not
avoid a finding of liability
based on their assertion that they were misled by imprecise language in a statute.
342 U.S. at 340. The
Boyce Motor Lines decision does not address the question of whether a party's
misunderstanding of the law
might be a basis for not imposing a civil remedy against that party. I agree
that Respondents cannot avail
themselves of the "mistake of law" defense as a defense against liability
under section 1128B(b)(1) or
1128B(b)(2). However, the issue here is remedy, not liability. As to the issue
of remedy, the state of the
law at the time that violations occurred and the parties' reasonable perceptions
of the law can be relevant to
the question of propensity to engage in misconduct in the future.
The I.G. argues that Respondent Tasha continued his involvement with and management
of the Hanlester
enterprises after the May 1989 publication of the I.G.'s Fraud Alert, which
effectively warned that conduct
such as that engaged in by Respondents could be held to be illegal. I.G. Ex.
101.0. From this, the I.G.
contends that at least Respondent Tasha was on notice that his conduct could
be held to be illegal. I do not
disagree that Respondent Tasha may have had notice that the I.G. considered
his conduct after May 1989
to be a potential violation of the Act. But that is not to say that he knew
that his actions were illegal. The
I.G. does not have the authority to make the final decision, on behalf of the
Secretary, that conduct is
illegal. The fact that as of May 1989 the I.G. was expressing the view that
conduct such as that engaged in
by Respondents could be held to be illegal may have cleared up confusion as
to where some officials in the
Department stood as to how the Act should be interpreted. But it did not represent
the Secretary's final
interpretation of the Act.
It would be naive to expect any individual involved in an operation such as
the Hanlester enterprises to
simply renounce his involvement solely based on the I.G.'s contention as to
what the Act might imply. The
record in this case shows Respondent Tasha to have been heavily involved in
the enterprises as of May
1989. Indeed, he had purchased Respondent Lewand's interest in January 1989.
Extrication between May
and December 1989, when the I.G. sent his notice of violations to Respondents,
would not have been
simple.
In its decision, the appellate panel criticized my conclusion that, in the
absence of evidence of actual harm
resulting from their conduct, no exclusion should be imposed or directed against
Respondents PPCL,
Omni, or Placer. It directed me to consider evidence as to the presence or absence
of actual harm resulting
from unlawful conduct in terms of "aggravation" and "mitigation,"
with the burden of proving
"aggravation" falling on the I.G., and the burden of proving "mitigation"
falling on Respondents.
Appellate Panel Decision at 52 - 53. The appellate panel also concluded that,
inasmuch as Congress was as
concerned with potentially harmful conduct as it was with actually harmful conduct,
I should not restrict
my remedial analysis to the question of whether the Respondents' unlawful activities
caused harm. Id.
Although, strictly speaking, the appellate panel's direction applies only to
my consideration of a remedy for
Respondents PPCL, Omni, and Placer, I have considered this with respect to the
other Respondents as well.
As I find at parts 3a and d of this Analysis, supra, exclusions under section
1128 are not intended to be
redress for past acts by a party. The remedy is designed to protect the programs
and their beneficiaries and
recipients from parties who might commit harmful or unlawful conduct in the
future. I do not read the
appellate panel's directive to me as being inconsistent with this analysis.
Evidence as to whether
Respondents' conduct is or is not harmful must be analyzed for "aggravation"
or "mitigation" in terms of
whether Respondents' conduct infers a propensity by them to engage in future
harmful conduct.
It would be substantial evidence of untrustworthiness, if, for example, the
evidence established that
Respondents urged physicians to refer tests to joint venture laboratories regardless
of medical necessity for
those tests. Similarly, evidence of untrustworthiness could be inferred if Respondents
urged physicians to
refer tests to joint venture laboratories regardless of the quality of results
of those tests. The I.G. offered no
such evidence. There is, however, evidence that Respondents qualified their
representations to physicians
to discourage them from referring unnecessary tests or from ordering services
which were of inferior
quality. This evidence "mitigates" an inference of untrustworthiness
which I might otherwise draw from
Respondents' acts.
I do not infer from the acts of Respondents Lewand, Tasha, Welsh, Huntsinger,
and Keorle that they
manifest any propensity to engage in harmful conduct in the future. As I found
in my March 1, 1991
decision, the I.G. offered no evidence to show that the conduct of any of these
Respondents was harmful to
federally-funded health care programs or to program beneficiaries and recipients.
There is no evidence in
the record of these cases to show that these Respondents knew or had reason
to know that their conduct
would cause harm. Most important, the evidence establishes that these Respondents
undertook affirmative
steps to avoid harm.
While these Respondents did exhort physicians to refer tests to joint venture
laboratories for pecuniary
gain, they also told physicians that it would be unethical for them to make
referrals which were not
medically justified. They qualified their exhortations by advising physicians
that it would be unethical for
them to refer business to the laboratories where there existed no medical need
for referrals. See I.G. Ex.
4.0/017. They advised potential partners that they were obligated under California
law to disclose to
patients at the time of making any referral to a joint venture laboratory that
they were owners in an entity to
which referrals were being made. See I.G. Ex. 4.0/018. They required limited
partners in the joint venture
laboratories to post a sign in their offices disclosing their ownership interest.
Id. Respondents also advised
potential partners that, if management agreements with SKBL or other national
laboratory corporations
were terminated, the joint venture laboratories would be unable to furnish quality
testing and analyzing
services. Finding 50; See I.G. Ex. 4.0/028. They stated that in that event,
"referring physicians will be
ethically required to refer their patients to another clinical laboratory resulting
in a loss of clientele and
continuing business for the [joint venture]." Id.
Furthermore, while Respondents may have advertised to potential limited partners
that the joint ventures
were attractive financial opportunities, they also stressed that the services
to be offered by the joint
ventures would be of a high quality. See I.G. Ex. 3.0/2. Respondents expressly
linked the potential for
success of the joint venture laboratories to the laboratories' ability to provide
timely and high quality
services. Finding 49. I am convinced that Respondents intended that the joint
venture laboratories provide
high quality services. One motivating factor for Respondents' management relationship
with SKBL was
the quality of services that SKBL could offer.
There is no evidence in these cases to show that physicians actually referred
medically unnecessary tests to
joint venture laboratories, or opted to refer tests to those laboratories in
lieu of or to laboratories which they
believed would furnish a better quality of service. More important, there is
affirmative proof that limited
partners did not refer unnecessary tests to joint venture laboratories, or refer
tests to the laboratories despite
having misgivings as to the quality of the results. Limited partner physicians
called as witnesses by the
I.G. testified that they did not increase the volume of tests that they ordered
after becoming limited
partners. Tr. at 773, 1472 - 1473.
Respondents Lewand, Tasha, and Welsh introduced unrebutted evidence as to their
reputations. Further-
more, aside from the conduct at issue here, none of these Respondents have ever
been found to engage in
unlawful or harmful conduct. I would not consider evidence as to these Respondents'
reputations and lack
of misconduct to be significant proof of trustworthiness in the face of evidence
establishing that these
Respondents had deliberately engaged in conduct which they knew, or suspected
might be, illegal or
harmful. However, the I.G. did not offer evidence of such misconduct, and, in
its absence, evidence as to
these Respondents' reputation supports my conclusion that they are trustworthy.
I have treated Respondents Lewand, Tasha, Welsh, Huntsinger, and Keorle collectively
for purposes of this
discussion. I recognize, as I have previously, that each of these Respondents
played a different role in the
organization and marketing of the joint ventures and in the management relationship
with SKBL.
However, there is no credible evidence in the record of these cases which shows
that any of them manifests
untrustworthiness which would justify sustaining an exclusion.
Each of the individual Respondents (Respondents Lewand, Tasha, Welsh, and Huntsinger)
testified in
these cases. I carefully observed each Respondent's demeanor and credibility
throughout his testimony. I
am convinced that these are trustworthy individuals or persons who would not
deliberately or negligently
engage in illegal, harmful, or potentially illegal or harmful conduct. I was
impressed by their ethics and by
their intent to act lawfully. At bottom, I do not believe that these Respondents
are individuals who
manifest any propensity to either willfully or negligently jeopardize the integrity
of federally-funded health
care programs or the safety and welfare of program beneficiaries and recipients.
Under these
circumstances, exclusions of these Respondents can be only retributive.
Respondent Welsh was far less involved than other Respondents in the Hanlester
enterprises. He
terminated his relationship after only a few months. He is relatively less responsible
than the other
individual Respondents for the operation of the joint ventures. He had no responsibility
for the
management relationship with SKBL.
Respondent Huntsinger had little or no involvement in the management of the
joint ventures or in the
management relationship with SKBL. As I hold above, he is liable for violation
of section 1128B(b)(2) in
that he participated in some of the marketing activities on behalf of the joint
ventures and allowed his name
to be used in connection with promotional literature which unlawfully induced
physicians to participate in
the joint ventures. However, it is apparent that he was not an active participant
in management decisions.
He relied on the advice of others as to the lawfulness of his actions. 40/
Respondent Keorle is the alter ego of Respondent Lewand. Tr. at 1958. Its trustworthiness
derives from
Respondent Lewand's trustworthiness. The evidence shows that Respondent Keorle
had no involvement
with any other Respondents in the conduct at issue after January 1989. It presently
owns no interest in
Respondent Hanlester. Although Respondent Keorle is presently involved with
health care limited
partnerships other than Respondents PPCL, Omni, and Placer, there is no evidence
of record as to the
nature of its involvement. See Tr. at 1958 - 1959. Nor is there any evidence
concerning the entities with
which Respondent Keorle is involved. Id. Absent such evidence, I draw no inference
that Respondent
Keorle, by virtue of its activities, is an untrustworthy provider.
In its decision, the appellate panel also criticized my conclusion that Respondents
PPCL, Omni and Placer
should not be excluded because it found that I had given inadequate weight to
evidence of Ms. Hitchcock's
actions as evidence of these Respondents' untrustworthiness. Appellate Panel
Decision at 53. The
appellate panel suggested that failure by Respondents PPCL, Omni, and Placer
to take action to correct Ms.
Hitchcock's unauthorized representations to physicians could be evidence that
these Respondents were
untrustworthy. At part 3ei of this Analysis, supra, I sustain permanent exclusions
of Respondents PPCL,
Omni, and Placer, based on the considerations which I set forth in that section.
I have not evaluated the
need to exclude these Respondents in light of Ms. Hitchcock's acts because it
is unnecessary for me to do
so in order for me to reach my conclusion as to the reasonable length of the
exclusion.
The appellate panel did not direct me to analyze the trustworthiness of Respondents
Lewand, Tasha,
Welsh, Huntsinger, and Keorle in light of Ms. Hitchcock's conduct. The I.G.
has not urged that I sustain
exclusions against any of these Respondents on the ground that he negligently
supervised Ms. Hitchcock or
failed to take action to correct misrepresentations which she made and which
he knew about. However, I
consider it relevant to consider these Respondents' relationships with Ms. Hitchcock
as an aspect of my
analysis of their trustworthiness.
In my March 1, 1991 decision, I found that Ms. Hitchcock had made unauthorized
representations to
potential limited partners in joint venture laboratories that the number of
shares they would be permitted to
purchase would be contingent on the amount of business that they would be willing
to refer to the
laboratories. Finding 96. I also found that Ms. Hitchcock made unauthorized
representations to at least
some potential limited partners that limited partners who did not refer business
to joint venture laboratories
would be pressured to either increase their referrals or sell back their shares
to Respondent Hanlester.
Finding 98.
I have carefully considered the concerns which the appellate panel expressed
concerning Ms. Hitchcock's
statements as a potential reason for finding that Respondents Lewand, Tasha,
Welsh, Huntsinger, and
Keorle are untrustworthy. There is no evidence to show that these Respondents
were negligent in their
supervision of Ms. Hitchcock. Nor is there evidence to suggest that they should
have taken steps to correct
her misrepresentations, but failed to do so.
As I found in my March 1, 1991 decision, Respondents and their attorney were
careful to counsel Ms.
Hitchcock to limit her representations to potential partners to the contents
of the joint venture laboratories'
private placement memoranda. The I.G. did not prove that Respondents knew that
Ms. Hitchcock was
making unauthorized representations to potential limited partners. Findings
104 - 106. Nor is there any
evidence of record to show that Respondents learned about these unauthorized
representations after the fact
and failed to take action to correct them. Given the absence of evidence to
show that Respondents
Lewand, Tasha, Welsh, Huntsinger, and Keorle knew that Ms. Hitchcock made unauthorized
representations, I do not infer that Respondents either recklessly or negligently
failed to correct Ms.
Hitchcock's representations. Therefore, I do not conclude that Respondents Lewand,
Tasha, Welsh,
Huntsinger, or Keorle are untrustworthy based on statements made by Ms. Hitchcock
to prospective limited
partners.
Furthermore, several of these Respondents would not have been in a position
to take action concerning Ms.
Hitchcock's representations had they known about them. Respondent Welsh disassociated
himself from the
other Respondents and Ms. Hitchcock in the summer of 1987. The evidence does
not show that he
exercised any supervisory authority over Ms. Hitchcock. Respondent Huntsinger
was not Ms. Hitchcock's
supervisor, nor was he involved in Respondents' management. Respondents Lewand
and Keorle had no
involvement with the Hanlester enterprises after January, 1989.
I consider it important to stress that my finding that Respondents Lewand,
Tasha, Welsh, Huntsinger, and
Keorle are trustworthy does not reflect any conclusion that exclusions should
not generally be considered
as an appropriate remedy under section 1128(b)(7) for violations of sections
1128B(b)(1) or 1128B(b)(2).
These cases are unique in several respects. They are the first cases in which
physician self-referral joint
ventures have been challenged under the Act. They are the first cases in which
the Act has ever been
applied to arrangements other than kickbacks, bribes, or rebates. My decisions
in these cases are premised
on an unprecedented legal analysis of what may comprise a violation of the Act.
The evidence
demonstrates that these Respondents acted in a manner which until now, was not
accepted generally as
unlawful. There is nothing in the record of these cases to show that these Respondents
are untrustworthy.
Therefore, the fact that I find no remedial need to impose exclusions against
these Respondents should not
be interpreted as a predilection by me to not exclude parties found in the future
to have violated section
1128B(b)(1) or 1128B(b)(2).
The I.G. argues that, by concluding that there exists no remedial need to exclude
these Respondents, I am
sending a message to health care entrepreneurs and providers that they can hide
behind clever and novel
kickback schemes to avoid lengthy exclusions. He asserts that, in the future,
as the I.G. addresses other
kinds of arrangements, the logical defense will be for excluded parties to contend
that they were unaware
that their conduct was illegal and harmful, and, therefore, they are trustworthy.
I disagree that, by not
excluding these Respondents, I am inviting parties to flaunt the law or to hide
behind the excuse that they
are unaware of the law's reach. The appellate panel's interpretation of the
Act, as applied to the facts of
these cases, suggests that any provider who invests in enterprises to which
he refers business should beware
the possibility that he is acting in violation of law. So should the entrepreneur
who organizes such
enterprises. Parties who act in disregard of possible violations in the future
cannot contend credibly, as
have these Respondents, that they acted in an atmosphere of uncertainty.
If my decision in these cases should deter others from engaging in conduct
similar to that engaged in by
these Respondents, that is a legitimate ancillary benefit to which the Secretary
and the I.G. are entitled.
But I cannot exclude a party solely in order to send the "right" message
to other, similarly situated, parties.
An exclusion premised on that consideration would be unlawful under the Halper
standard.
CONCLUSION
Based on the decision of the appellate panel and on my Findings of Fact and
Conclusions of Law, I find
that Respondents Lewand, Tasha, Welsh, Huntsinger, Hanlester, Keorle, PPCL,
Omni, and Placer
unlawfully offered and paid remuneration to induce referrals of program-related
business in violation of
section 1128B(b)(2) of the Act. I find that Respondents Lewand, Tasha, Hanlester,
Keorle, PPCL, Omni,
and Placer unlawfully solicited or received remuneration in return for referrals
of program-related business
in violation of section 1128B(b)(1) of the Act. I find that the I.G. did not
prove that Respondents Welsh
and Huntsinger unlawfully solicited or received remuneration in return for referrals
of program-related
business in violation of section 1128B(b)(1) of the Act.
I find that the remedial purpose of section 1128(b) of the Act will be served
in these cases by excluding
permanently Respondents PPCL, Omni, and Placer from participating in federally-funded
health care
programs, including Medicare and Medicaid. I find that the remedial purpose
of section 1128(b) will be
served by excluding Respondent Hanlester for two years. I can discern no remedial
purpose for excluding
Respondents Lewand, Tasha, Welsh, Huntsinger, and Keorle, and therefore I do
not sustain the I.G.'s
exclusion of these Respondents.
_______________________
Steven T. Kessel
Administrative Law Judge
1. Although the appellate panel did not specifically state which of its Findings
substituted for my vacated
Findings 217, 218, and 219, it is apparent from the text and context of the
appellate panel's Findings that
the substituted Findings are AP 1 - AP 5. Findings AP 6 and AP 7 are Findings
which are relevant to the
issue of remedy and which contain legal conclusions which supplement legal conclusions
that I made in
my March 1, 1991 decision.
2. In this decision, I cite to the transcript of the January 15, 1992 oral
argument as "Tr. 1/15/92 at
(page)."
3. My decision not to exclude these Respondents is in part premised on my conclusion
that the Secretary
did not intend to apply to these cases 42 C.F.R. 1005.4(c)(5) and (6); 57 Fed.
Reg. 3298, 3350 - 3351
(January 29, 1992).
4. The Findings which were adopted and affirmed by the appellate panel are
Findings 1 - 201, 203, 205 -
216, 220, 222, and 224 - 225.
5. There are 227 numbered Findings in my March 1, 1991 decision. All of those
Findings not vacated
by the appellate panel in its decision are incorporated by reference in this
decision. I also incorporate by
reference the appellate panel's Findings AP 1 -AP 7. In its decision, the appellate
panel suggested that I
might wish to reorganize or renumber my March 1, 1991 Findings in my decision
on remand. After
considering this suggestion, I conclude that to do so could be confusing. Therefore,
I designate my first
Finding in this decision as Finding 228, and I number all additional Findings
sequentially.
6. However, I held that Respondents Hanlester, PPCL, Omni, and Placer had,
through the acts of their
agent Patricia Hitchcock, told physicians that the number of shares that they
would be permitted to
purchase in joint venture laboratories would be based on the volume of business
that they would be
expected to refer to the laboratories. Findings 67 -72, 90 - 98, 211 - 212.
7. Section 1128B(b)(2) states, in relevant part:
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 . . . [program-related business] . . . shall be guilty of a felony.
8. The appellate panel concluded that I held that section 1128B(b)(2) prohibits
"agreements by health
care providers which precluded them from making choices which were in the financial
or quality of care
interest of federally-funded health care programs and their beneficiaries and
recipients." Appellate Panel
Decision at 14, quoting my March 1, 1991 decision at 62. At times, the appellate
panel seemed to suggest
in its decision that I had found that the Act prohibited a special category
of agreements, that being
agreements which "precluded choice," as opposed to other forms of
agreements. In fact, I used the terms
"agreements" and "agreements which precluded choice" interchangeably
throughout my decision. I cannot
envision any agreements which do not preclude choice. I had intended to distinguish
between agreements,
which preclude choice, and acts of encouragement, which may influence, but which
do not preclude,
choice. I regret any confusion which may have been caused by my phrasing. On
the other hand, it is
apparent from the appellate panel's decision that it would not have interpreted
the Act differently had I
expressed myself more clearly.
9. Section 1128B(b)(1) of the Act provides that:
Whoever knowingly and willfully solicits or receives any remuneration (including
any kickback, bribe,
or rebate) directly or indirectly, overtly or covertly, in cash or in kind --
(A) in return for referring
[program related business], . . . shall be guilty of a felony.
10. Although the I.G. charged Respondents with violating sections 1128B(b)(1)
and 1128B(b)(2) of the
Act, the section which authorizes the Secretary to impose and direct exclusions
for violations of these
sections is section 1128(b)(7).
11. The appellate panel held that, in deciding on a remedy:
the degree of untrustworthiness is evidenced by the degree to which a respondent
is willing to place the
programs in jeopardy, even if a scheme is ultimately unsuccessful.
Appellate Panel Decision at 52.
12. It is apparent from the appellate panel's remand that I am to decide also
whether to impose
exclusions against any of the other Respondents, should I find on remand that
they violated sections
1128B(b)(1) or 1128B(b)(2) of the Act.
13. In my March 1, 1991 decision, I concluded that Congress intended that sections
1128B(b)(1) and
1128B(b)(2) be applied narrowly to prohibit traditionally unethical agreements
in the nature of bribes,
rebates and kickbacks. I stated my concern then that a broader reading of the
Act would overreach what
Congress intended to prohibit and would effectively prohibit an array of common
and rational transactions
in the health care industry.
14. The appellate panel found that:If the I.G. proved that the payments to
limited partners were excessive
in terms of the risks involved and the return of alternative investments in
general, however, this would
indicate that the excess value could act as an inducement.
Appellate Panel Decision at 56.
15. Although the appellate panel found that its definition of "to induce"
was on its face stronger than that
advocated by the I.G., there are obvious similarities between the definition
advocated by the I.G. ("to
induce" means "to influence" or "to encourage") and
that adopted by the appellate panel ("to induce"
means "an intent to exercise influence over the reason or judgment of another").
Those similarities are
most evident in the appellate panel's use of the phrase "to exercise influence"
as part of its definition of "to
induce." The appellate panel did not attempt to delineate those circumstances
where application of its
definition of "to induce" to the evidence might produce a different
outcome from application to the
identical evidence of the I.G.'s asserted definition of "to induce."
16. The appellate panel stated:
To the extent that some arrangements that violate the statute have beneficial
aspects, they may
nevertheless fall within the broad proscription. In protecting federal funds
spent to purchase health care,
Congress was free to proscribe practices which held the potential for abuse
even if some innovative or
efficient arrangements were foreclosed as a result. Thus, it does not avail
to argue that the law cannot
mean what it says because on its face it may impact some "common"
and "legitimate" practices in the
health care industry. "Common" does not necessarily mean "legitimate."
Appellate Panel Decision at 23 - 24.
17. Indeed, I would not have found "overutilization" to be a necessary
element of a violation even under
the much narrower test for violation which I expressed in my March 1, 1991 decision.
18. As I read the appellate panel's decision, the amount of remuneration offered
or paid to a physician
can be evidence of an intent to unlawfully induce that physician to make referrals.
However, the amount of
remuneration offered or paid cannot be dispositive of the issue of intent under
the appellate panel's
analysis, because the appellate panel concluded that the word "remuneration"
in sections 1128B(b)(1) and
1128B(b)(2) means the payment of "anything of value in any form or manner
whatsoever." Appellate
Panel Decision at 59 (emphasis added). Thus, even a minimal payment would meet
the appellate panel's
definition of "remuneration." Furthermore, such payment would violate
section 1128B(b)(2) if it was
intended to influence the reason or judgment of the payee concerning his or
her decision to make referrals.
It would violate section 1128B(b)(1) if it was "in return for" referrals,
even if there was not an agreement
to make referrals.
19. In saying this, I recognize that Respondent Welsh terminated his relationship
with the other
Respondents in the summer of 1987 and that Respondent Lewand sold his interest
in Respondent Hanlester
to Respondent Tasha in early 1989. The departure of these Respondents from the
enterprise does not
derogate from my conclusion that they were sufficiently involved in the conception
and marketing of the
joint venture laboratories to be liable under section 1128B(b)(2).
20. Respondents note that my Finding 201, in which I found that SKBL's assumption
of the risk for
operating the joint venture laboratories did not constitute remuneration to
Respondents, was not challenged
by the I.G. nor vacated by the appellate panel. However, that Finding was premised
on my conclusion that
"remuneration" meant a payment for a quid pro quo. The appellate panel
overturned that conclusion.
21. Respondents cite 42 U.S.C. 13951 (h)(5)(A), which permits a laboratory
to claim reimbursement
from Medicare for tests which it refers to another laboratory, even though it
did not perform the tests.
22. Section 1128B(b)(1)(B) makes it unlawful for a party to solicit or receive remuneration:
in return for purchasing, leasing, ordering, or arranging for or recommending
purchasing, leasing, or
ordering any good, facility, service, or item for which payment may be made
in whole or in part under title
XVIII or a State health care program.
23. The I.G. determined to exclude Respondent Welsh for three years, Respondent
Huntsinger for seven
years, and Respondents Lewand, Tasha, Hanlester, and Keorle for ten years. The
I.G. determined to
exclude permanently Respondents PPCL, Omni, and Placer.
24. The statutory authority for exclusions in these cases is section 1128(b)(7)
of the Act, a subpart of
section 1128b, which permits the Secretary to impose and direct exclusions against
parties whom he finds
to have violated either section 1128B(b)(1) or 1128B(b)(2).
25. The I.G. concedes that there are many individuals who are engaging in conduct
which is
indistinguishable from that engaged in by Respondents against whom the I.G.
has elected not to determine
to impose and direct exclusions. Tr. 1/15/92 at 83 - 84.
26. The Bilang and Kranz cases involved exclusions imposed under section 1128(b)(4)
of the Act on
providers whose State licenses to provide health care had been revoked by State
licensing boards for
reasons pertaining to their professional competence, performance, or financial
integrity. The principles
which govern hearings concerning those exclusions are equally applicable to
all hearings involving
exclusions imposed and directed under section 1128(b).
27. Section 205(b) provides in relevant part that:
Upon request by any . . . individual . . . who makes a showing in writing
that his or her rights may be
prejudiced by any decision the Secretary has rendered, he shall give such .
. . individual reasonable notice
and opportunity for a hearing with respect to such decision, and, if a hearing
is held, shall, on the basis of
evidence adduced at the hearing, affirm, modify, or reverse his findings of
fact and such decision.
28. The I.G. has changed his position as to the administrative law judge's
authority under section 205(b)
of the Act. Prior to these cases, the I.G. argued that administrative law judges
"clearly [have] the authority
to determine that `the exclusion should be reduced up to [and] including a finding
that the exclusion period
should be zero.'" Vincent Baratta, M.D., DAB 1172 (1990) at 7 (quoting
from the I.G.'s brief to the
appellate panel).
29. Regulations have always provided that the reasonableness of the length
of an exclusion is reviewable
based on evidence adduced at a hearing. 51 Fed Reg. 34770 (September 30, 1986).
30. Occasionally the excluded parties assert that the I.G. abused his discretion
by excluding them and not
excluding other similarly situated parties. I have on several occasions held
that I lack authority to review
the I.G.'s decision to exclude based on a "selective enforcement"
standard. The issue of "selective
enforcement" is an issue of discretion which is distinguishable from the
issue of whether an exclusion
imposed against a particular party is reasonable.
31. Unfortunately, there has been persistent confusion as to the issue of the
I.G.'s "discretion" in
exclusion cases. In hearings as to exclusions imposed under section 1128(b),
the I.G. frequently calls his
special agents as witnesses to testify as to their thought processes in recommending
an exclusion of a
particular length. This evidence appears to be offered to show that the agents
based their recommendations
on the criteria the I.G. employs to determine exclusions. This usually prompts
a vigorous cross-
examination by the excluded parties, and, occasionally, rebuttal evidence intended
to show that the I.G.'s
agents' analysis was incorrect. I have repeatedly instructed the parties in
these hearings that this evidence
is irrelevant because it has nothing to do with the issue of whether the exclusion,
as measured against the
evidence and the Act's remedial purpose, is reasonable.
32. The new regulations expressly prohibit administrative law judges from deciding
that regulations are
ultra vires. 42 C.F.R. 1005.4(c)(1). My conclusion that the Secretary did not
intend that 42 C.F.R.
1005.4(c)(5) and (6) apply to the I.G.'s exclusion determinations in these cases
is not a finding that the
regulations are ultra vires.
33. Respondents contend that, under the Administrative Procedure Act (APA),
5 U.S.C. 553(d), a final
regulation may not be effective less than 30 days after the date of its publication.
They assert that these
regulations are not effective until February 27, 1992. They urged me to issue
a decision in these cases
before that date so as to avoid the question of whether these regulations apply
retroactively to the exclusion
determinations at issue here. I have made every effort in these cases to decide
them as quickly as possible.
I advised the parties on several occasions that I was acutely aware of the need
to decide these cases
expeditiously. The fact that I was unable to issue a decision before February
27 reflects the size of the
record and the complexity of the issues. Furthermore, even if Respondents are
correct in asserting that,
under the APA, no regulation is effective less than 30 days after its publication,
I am bound here by the
Secretary's instruction to me that the regulations are effective upon publication.
Any decision by me to the
contrary would be tantamount to a finding that the Secretary's instruction is
ultra vires the APA. I am
without authority to make that decision.
34. 42 C.F.R. 1001.3001 - 1001.3004; 57 Fed. Reg. at 3342 - 3343. A decision
by the I.G. not to
reinstate an excluded party is not reviewable, either administratively or in
the courts. 42 C.F.R.
1001.3004(c); 57 Fed. Reg. 3343. The new regulations provide no guarantee that
a party whose exclusion
is reduced by a hearing decision will be reinstated. They provide only that
such party "may request
reinstatement once the reduced exclusion period expires." 42 C.F.R. 1001.3001(b);
57 Fed. Reg. at 3342.
35. The I.G. asserts that the right to a complete review of the I.G.'s exclusion
determination was never a
meaningful right, because practice in administrative hearings has always been
to sustain at least some
exclusion against parties excluded pursuant to section 1128(b) of the Act, where
an exclusion has been
found to be authorized. Even if that were so, that would not mean that the parties'
right to a full review is a
meaningless right. But, in fact, I have opted not to impose exclusions in cases
where an exclusion was
authorized by sections 1128(b)(7) or 1128A of the Act. I did not impose exclusions
against some of these
Respondents in my March 1, 1991 decision. Nor did I impose exclusions against
two of the respondents in
Anesthesiologists Affiliated, et al. and James E. Sykes, D.O. et al., DAB CR65
(1989).
36. In its decision, the appellate panel spoke of evidence which is either
"aggravating" or "mitigating."
See Appellate Panel Decision at 52 - 53. The terms "aggravating" and
"mitigating" circumstances are
sometimes employed in criminal cases to describe factors bearing on the length
of a criminal punishment.
I do not consider these terms to be meaningful here as terms which relate to
punishment. Rather, I consider
"aggravating" evidence to be evidence that shows a greater propensity
by a party to engage in unlawful or
harmful conduct in the future. I consider "mitigating" evidence to
be evidence that shows a reduced
propensity by a party to engage in unlawful or harmful conduct in the future.
In justifying the length of an
exclusion, the I.G. has the burden of proving "aggravating" circumstances.
In proving a proposed
exclusion to be excessive, the excluded party has the burden of proving "mitigating"
circumstances.
37. In its remand to me, the appellate panel in effect directed me to examine
whether Respondents
PPCL, Omni, and Placer had eliminated the vestiges of unlawful conduct by Ms.
Hitchcock. The appellate
panel was apparently concerned that, if Ms. Hitchcock had offered unlawful inducements
to refer to limited
partners, these Respondents had not taken corrective action after severing their
relationship with Ms.
Hitchcock. I find it unnecessary to explore this issue on remand with respect
to Respondents PPCL, Omni,
and Placer,because I have sustained permanent exclusions of these Respondents
based on other
considerations. However, Ms. Hitchcock's relationship with Respondents Lewand,
Tasha, Welsh,
Huntsinger, and Keorle is relevant for remedial considerations, and I have discussed
that relationship infra.
38. In one case, a United States district court held that interpretations of
the Act by Departmental
officials rendered the Act ambiguous, precluding a criminal prosecution for
alleged violations of the Act.
United States v. Richard Levin, et al., No. 89-1 (E. D. Ky. November 28, 1990).
39. In its decision, the appellate panel noted that "Respondents may well
have tailored their
arrangements to maximize their financial returns, despite knowing that they
were at least close to an area
proscribed by federal law." Appellate Panel Decision at 23 n.13. I do not
read this footnote excerpt as a
finding by the appellate panel that Respondents knew at least that they were
close to violating the law. The
quoted language is part of a footnote which relates to the issue of whether
the Act is overly broad, and not
whether these Respondents had knowledge that their acts might be illegal. The
appellate panel expressly
did not make findings based on the evidence of record in these cases.
40. I do not base my decision not to exclude Respondents Welsh and Huntsinger
on my finding that
these Respondents are liable for violating section 1128B(b)(2), but not section
1128B(b)(1), of the Act.
Proof of violation of either section 1128B(b)(1) or 1128B(b)(2) provides the
requisite authority to impose
an exclusion under section 1128(b)(7). But, as I have taken pains to point out
in this decision, the issue of
whether to impose an exclusion against a party, and for what length of time,
may only be resolved by
analyzing that party's trustworthiness. I have examined these Respondents' trustworthiness
by looking at
their conduct in the overall setting of these cases. My review included looking
at these Respondents'
relationship, or lack thereof, with SKBL, regardless of the issue of their liability.
My conclusion as to their
trustworthiness would not change whether or not I found that they were liable
for violating section
1128B(b)(1).