Bali S. Reddy, CR No. 394 (1995)

$05:Exclusion Case

Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

In the Case of:

Bali S. Reddy,

Petitioner,

- v. -

The Inspector General.

DATE: September 20, 1995
Docket No. C-95-029
Decision No. CR394


DECISION

On October 19, 1994, the Inspector General (I.G.) notified
Petitioner, Bali S. Reddy, that he was being excluded from
participating in the Medicare, Medicaid, Maternal and Child Health
Services Block Grant and Block Grants to States for Social Services
programs for three years. 1/ The I.G. told Petitioner that he was
being excluded under section 1128(b)(1) of the Social Security Act
(Act) based on his conviction of a criminal offense relating to
fraud, theft, embezzlement, breach of fiduciary responsibility, or
other financial misconduct.

Petitioner requested a hearing, and the case was assigned to
Administrative Law Judge Joseph K. Riotto for a hearing and
decision. Judge Riotto held a telephone prehearing conference in
this case on March 2, 1995. During the conference, both parties
agreed that the case could be decided by written submissions and
that an in-person evidentiary hearing was not necessary. The
parties agreed further that the only issue in the case is whether
the three-year exclusion the I.G. imposed against Petitioner is
reasonable. March 9, 1995 Order and Schedule for Filing Briefs and
Documentary Evidence. The parties submitted proposed exhibits and
briefs.

Due to Judge Riotto's ill health, the case was reassigned to me on
September 7, 1995. On September 14, 1995, I held a telephone
prehearing conference. During the conference, the parties
confirmed that Petitioner was not contesting the I.G.'s authority
to exclude him under section 1128(b)(1). Therefore, the only issue
in this case is whether the three-year exclusion imposed by the
I.G. is reasonable.

The I.G. submitted seven exhibits (I.G. Ex.(s) 1 - 7). Petitioner
did not object to the admission into evidence of I.G. Exs. 1 - 7.
However, I am admitting into evidence only I.G. Exs. 2 - 7. I am
not admitting I.G. Ex. 1 into evidence. I.G. Ex. 1 is a copy of
the I.G.'s October 19, 1994 notice letter to Petitioner, which is
already of record in this case. 2/ Petitioner submitted two
unmarked exhibits. The I.G. has not objected to Petitioner's
exhibits. I have marked these two exhibits as Petitioner's
exhibits (P. Ex.(s)) 1 and 2 and I have admitted them into
evidence.

I have considered the evidence, applicable law and regulations, and
the parties' arguments. I conclude that the I.G. had authority to
exclude Petitioner pursuant to section 1128(b)(1) of the Act. I
conclude also that there exist no mitigating factors in this case
which justify reducing the exclusion below the minimum three-year
period imposed by the I.G. Therefore, I sustain the three-year
exclusion which the I.G. imposed against Petitioner.


I. Issue, Findings of Fact, and Conclusions of Law

Only one issue has been raised in this case. That issue is whether
the three-year exclusion imposed against Petitioner by the I.G. is
reasonable. Below I make specific findings of fact and conclusions
of law in addressing and deciding this issue. In setting forth my
findings and conclusions, I cite to relevant portions of my
decision, at which I discuss my findings and conclusions in detail.

1. Regulations mandate that at least a three-year exclusion be
imposed pursuant to section 1128(b)(1) of the Act in a case where
there exist no mitigating factors. Pages 3 - 4.

2. Petitioner did not prove that mitigating factors exist in this
case. Pages 6 - 7.

3. I do not have the authority to declare a regulation to be ultra
vires the Act or the Administrative Procedure Act, nor do I have
the authority to declare a regulation, or the application of a
regulation to a particular individual, to be unconstitutional.
Pages 4 - 6.


II. Discussion

A. Governing law

The I.G. imposed Petitioner's exclusion pursuant to section
1128(b)(1) of the Act. This section permits the exclusion from
Medicare and Medicaid of individuals who have been convicted, in
connection with the delivery of a health care item or service or
with respect to any act or omission in a program operated by or
financed in whole or in part by any federal, State, or local
government agency, of a criminal offense relating to fraud, theft,
embezzlement, breach of fiduciary responsibility, or other
financial misconduct. Social Security Act, section 1128(b)(1).

Section 1128 of the Act is a remedial statute. Congress intended
that it be applied to protect the integrity of federally funded
health care programs, and the welfare of program beneficiaries and
recipients, from individuals and entities who have been shown to be
untrustworthy. Exclusions imposed pursuant to section 1128 have
been found reasonable only insofar as they are consistent with the
Act's remedial purpose. Robert Matesic, R.Ph., d/b/a Northway
Pharmacy, DAB 1327, at 7 - 8 (1992); Rosaly Saba Khalil, M.D., DAB
CR353, at 9 (1995); Dr. Abdul Abassi, DAB CR390, at 3 (1995).

Prior to 1993, there were no regulations governing the
administrative adjudication of exclusions imposed pursuant to
section 1128. Before then, administrative law judges and appellate
panels of the Departmental Appeals Board had held that the criteria
by which they evaluated the trustworthiness of excluded parties,
and the reasonableness of exclusions, derived from the Act itself.
These criteria encompassed any evidence relevant to an excluded
party's trustworthiness to provide care. Matesic, DAB 1327, at 7
- 8.

In January 1993, regulations at 42 C.F.R. Part 1001 became binding
on administrative law judges and appellate panels of the
Departmental Appeals Board. 42 C.F.R. Part 1001; 42 C.F.R.
1001.1(b). Among other things, the regulations at 42 C.F.R. Part
1001 direct the I.G. to exclude an individual who has been
convicted of a criminal offense relating to fraud, theft,
embezzlement, breach of fiduciary responsibility, or other
financial misconduct committed in connection with the delivery of
a health care item or service. 42 C.F.R. 1001.201(a). The
regulations direct further that, in the absence of certain
enumerated aggravating or mitigating factors, the length of the
individual's exclusion is to be three years. 42 C.F.R.
1001.201(b).

As a consequence of the regulations, in any case in which the
reasonableness of an exclusion is at issue, I am obligated to
decide whether an exclusion of a particular length is reasonably
necessary to protect the integrity of federally financed health
care programs and the welfare of the programs' beneficiaries and
recipients by using only the aggravating and mitigating factors
contained in the regulations. Abassi, DAB CR390, at 4; Khalil, DAB
CR353, at 10. The regulations limit the factors which I may
consider as relevant to an excluded party's trustworthiness to
provide care. I may no longer, for example, consider evidence
relating to a party's rehabilitation, as evidence of that party's
trustworthiness. See Matesic, DAB 1327, at 7 - 8. Such evidence
does not fall within any of the aggravating or mitigating factors
contained in the regulations. Abassi, DAB CR390, at 4.

B. The reasonableness of Petitioner's exclusion

Petitioner is not contesting whether or not the I.G. had a basis
upon which to exclude him. 3/ Petitioner is contesting only the
reasonableness of his three-year exclusion. In support of his
contention, Petitioner makes a number of arguments in which he
asserts that the regulations at 42 C.F.R. Part 1001 are either
ultra vires or unconstitutional. Petitioner asserts also that
mitigating factors exist in his case. 4/

Specifically, Petitioner argues that the regulations governing his
case, as set forth at 42 C.F.R. Part 1001, are invalid for the
following reasons: 1) the regulations are ultra vires the Act; 2)
they subject him to double jeopardy in violation of his Fifth
Amendment rights under the United States Constitution; and 3) they
violate his due process rights under the Fifth Amendment.
Additionally, Petitioner challenges the regulation at 42 C.F.R.
1001.1(b), which assertedly binds administrative law judges, the
Departmental Appeals Board, and federal courts, on the following
grounds: 1) the regulation was issued without following procedures
prescribed by the Administrative Procedure Act; 2) it does not
follow the proper delegation of authority to or from the Secretary
of the Department of Health and Human Services (Secretary); and 3)
it was published in violation of President Clinton's moratorium on
newly published regulations. P. Br. at 3 - 14.

Many of the arguments Petitioner has raised were considered by
administrative law judges prior to 1993. At that time,
administrative law judges determined that the Part 1001 regulations
did not apply to administrative hearings. Bertha K. Krickenbarger,
R.Ph., DAB CR250 (1993); Tajammul H. Bhatti, M.D., DAB CR245
(1992); Sukumar Roy, M.D., DAB CR205 (1992); Steven Herlich, DAB
CR197 (1992); Stephen J. Willig, M.D., DAB CR192 (1992); Aloysius
Murcko, D.M.D., DAB CR189 (1992); Charles J. Barranco, M.D., DAB
CR187 (1992). In those decisions, the administrative law judges
concluded that the Secretary did not intend that the Part 1001
regulations apply to govern administrative adjudications of I.G.
exclusion determinations. One reason for the conclusion cited in
these decisions was the concern that these regulations, if they
were found to govern administrative adjudications, might be found
to be either ultra vires the Act or unconstitutional. It was
concluded that the Secretary did not intend the Part 1001
regulations to be applied in a way that might result in an ultimate
decision that the regulations were ultra vires the Act or
unconstitutional.

However, the regulations published on January 22, 1993, make clear
that these regulations govern administrative hearings as to
exclusions imposed under section 1128 of the Act. Jose Ramon
Castro, M.D., DAB CR259 (1993); 42 C.F.R. 1001.1(b). As a
delegate of the Secretary, I have no independent authority to rule
on the validity or constitutionality of regulations issued by the
Secretary. Moreover, the regulation at 42 C.F.R. 1005.4(c)(1)
specifically precludes me from ruling on the validity of the
regulations Petitioner challenges. Thus, I am without authority to
consider Petitioner's arguments as to whether the regulations are
lawful or constitutional.

Petitioner asserts also that mitigating factors exist in this case.
Petitioner asserts specifically that: 1) his conviction was not
program-related; 2) he has divested all ownership in the laboratory
which was implicated along with Petitioner in the criminal charges
which resulted in Petitioner's conviction; and 3) he has cooperated
with the Michigan State Attorney General's Office (State) in the
prosecution of a number of kickback schemes. P. Br. at 2.

Under the regulations defining the mitigating factors I am allowed
to consider, it is irrelevant whether Petitioner's conviction was
program-related or whether Petitioner has divested his ownership in
the laboratory that was implicated along with Petitioner in the
criminal charges that resulted in Petitioner's conviction.
The regulations list only four factors which I may consider as
mitigating and a basis for reducing Petitioner's three-year
exclusion. These factors are whether: 1) an individual was
convicted of three or fewer misdemeanors with a loss to the victims
of the crime aggregating less than $1500; 2) the sentencing court
determined that the convicted individual had a mental, emotional,
or physical condition before or during the commission of the
offense that reduced the individual's culpability; 3) the convicted
individual's cooperation with federal or State officials resulted
in others being convicted, excluded, or subjected to a civil money
penalty; or 4) no alternative sources of the types of items or
services provided by the convicted individual are available. 42
C.F.R. 1001.201(b)(3)(i) - (iv).
Only Petitioner's third assertion, that he has cooperated with
State officials in the prosecution of kickback schemes, might, if
proved, constitute a mitigating factor under the regulations. 42
C.F.R. 1001.201(b)(3)(iii).

Petitioner has the burden of proving a mitigating factor under 42
C.F.R. 1001.201(b)(3)(iii). His burden here consists of
proving: 1) that he cooperated with State officials; and 2) that
his cooperation resulted in the conviction, exclusion, or
imposition of a civil money penalty against another individual or
individuals. Abassi, DAB CR390, at 7.

There is some evidence of record that Petitioner may have
cooperated with State officials. P. Ex. 1; I.G. Ex. 6 at 7.
However, there is no evidence of record that Petitioner's
cooperation with State officials resulted in the conviction,
exclusion, or imposition of a civil money penalty against any other
individual or individuals. See Abassi, DAB CR390, at 8.

I conclude that Petitioner did not prove the presence of a
mitigating factor within the meaning of 42 C.F.R.
1001.201(b)(3)(iii). Assuming that Petitioner proved that he has
cooperated with State officials, Petitioner has not proved that his
cooperation with State officials resulted in others being
convicted, excluded, or subjected to a civil money penalty.


III. Conclusion

I conclude that the I.G. was authorized to exclude Petitioner for
three years. In the absence of mitigating factors, the regulations
governing this case mandate that the I.G. exclude Petitioner for
three years. Thus, I sustain Petitioner's three-year exclusion.


Steven T. Kessel
Administrative Law Judge

1. Unless the context indicates otherwise, in this decision I
use the term "Medicaid" to represent all programs other than
Medicare from which Petitioner was excluded.

2. Paragraph 8(f) of the March 9, 1995 Order and Schedule for
Filing Briefs and Documentary Evidence directed specifically that
the parties should not file such record documents as exhibits in
this case.


3. Petitioner admits that he was convicted of one count of an
attempt to offer or pay a kickback or bribe in connection with the
furnishing of goods and services for which payment may be made by
health care insurance or by a health care corporation.
Petitioner's brief (P. Br.) at 2 - 3.

4. The I.G. has not alleged that aggravating factors exist in
this case.