David E. Sheiner, D.P.M., DAB CR471 (1997)

Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

In the Case of: David E. Scheiner, D.P.M., Petitioner,
- v. -
The Inspector General.

Date: April 21, 1997

Docket No. C-96-450
Decision No. CR471

DECISION

I sustain the determination of the Inspector General (I.G.) to exclude Petitioner,
David E. Scheiner, D.P.M., from participating in Medicare and other federally-funded
health care programs, including Medicaid, for a period of five years. I find that the
I.G. was authorized to exclude Petitioner pursuant to section 1128(b)(1) of the Social
Security Act (Act) and that the duration of the exclusion is reasonable.

I. Background

On July 19, 1996, the I.G. notified Petitioner that he was being excluded from
participating in Medicare and other programs, including Medicaid, for a period of five
years. The I.G. advised Petitioner that he was being excluded pursuant to section
1128(b)(1) of the Act, because Petitioner had been convicted in a federal court of a
criminal offense related to fraud, theft, embezzlement, breach of fiduciary
responsibility, or other financial misconduct. The I.G. advised Petitioner that she
based the five-year term of the exclusion on the presence of factors in Petitioner's
case which the I.G. determined to be aggravating.

Petitioner requested a hearing and the case was assigned to me for a hearing and a
decision. The parties agreed that the case could be heard and decided based on their
written submissions, including briefs and exhibits. The I.G. submitted a brief, four
proposed exhibits (I.G. Exs. 1 - 4), and a reply brief. Petitioner submitted a brief.
The I.G. submitted two additional proposed exhibits with her reply brief, I.G. Ex. 5
and I.G. Ex. 6. Petitioner did not object to my receiving into evidence the I.G.'s
proposed exhibits. I hereby receive into evidence I.G. Exs. 1 - 6.

II. Issues, findings of fact and conclusions of law

The issues in this case are whether: (1) the I.G. is authorized to exclude Petitioner
pursuant to section 1128(b)(1) of the Act; and (2) the five-year exclusion imposed by
the I.G. is reasonable. I make the following findings of fact and conclusions of law
(Findings) to support my decision that the exclusion is authorized and reasonable. I
discuss each of these Findings in detail, below.

1. Petitioner is a doctor of podiatry.

2. Petitioner was indicted in the United States District Court for the Eastern
District of Pennsylvania. The indictment charged Petitioner, along with other
named individuals, with devising a scheme and artifice to defraud and obtain
money by means of knowingly making false and fraudulent pretenses,
representations, and promises. The alleged purpose of the scheme and artifice
was to obtain money from insurance companies by submitting false and
fraudulent medical bills to inflate the value of personal injury claims.

3. On November 2, 1994, Petitioner pled guilty to Counts 1, 2, and 8 of the
indictment. These three counts each alleged that Petitioner engaged in a
specified act of mail fraud in furtherance of his criminal scheme and artifice.

4. In agreeing to plead guilty to counts 1, 2, and 8 of the indictment,
Petitioner agreed that these offenses arose from his participation in a criminal
scheme that occurred between 1988 and 1991.

5. In agreeing to plead guilty to counts 1, 2, and 8 of the indictment,
Petitioner agreed that he had received payments of approximately $27,000 for
fraudulent medical bills.

6. In agreeing to plead guilty to counts 1, 2, and 8 of the indictment,
Petitioner agreed to pay restitution of $37,000 for unlawful proceeds he
obtained from his fraudulent scheme.

7. Petitioner was sentenced to pay restitution in the amount of $37,385.

8. Petitioner's participation in an unlawful scheme to defraud insurance
companies lasted about three years.

9. Petitioner's participation in the unlawful scheme caused losses to insurance
companies of at least $27,000, and these losses were in connection with
Petitioner's false claims for medical services provided by Petitioner.

10. Petitioner was sentenced to a term of imprisonment of 15 months.

11. Under section 1128(b)(1) of the Act, the I.G. is authorized to exclude any
individual or entity that has been convicted, under federal or State law, 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.

12. Where the I.G. determines to exclude an individual pursuant to section
1128(b)(1) of the Act, the term of the exclusion will be for a period of three
years, in the absence of aggravating or mitigating factors that would support
an exclusion of more or less than three years.

13. In a case involving an exclusion under section 1128(b)(1) of the Act, an
exclusion of more than three years may be justified where there exist
aggravating factors that are not offset by mitigating factors.

14. Petitioner was convicted under federal law, in connection with the
delivery of a health care item or service, of criminal offenses relating to fraud,
theft, embezzlement, breach of fiduciary responsibility, or other financial
misconduct.

15. The I.G. is authorized to exclude Petitioner pursuant to section
1128(b)(1) of the Act.

16. The I.G. proved the presence of an aggravating factor, in that the acts
resulting in Petitioner's conviction, or similar acts, resulted in financial loss of
$1,500 or more to an insurance company.

17. The I.G. proved the presence of a second aggravating factor in that the
acts that resulted in Petitioner's conviction, or other similar acts, were
committed by Petitioner over a period of one year or more.

18. The I.G. proved the presence of a third aggravating factor in that the
sentence that was imposed on Petitioner for his crimes included a period of
incarceration.

19. Petitioner did not prove the presence of any mitigating factor.

20. The evidence which relates to the aggravating factors proved by the I.G.
establishes Petitioner to be untrustworthy to provide care to beneficiaries and
recipients of federally-funded health care programs.

21. A five-year exclusion of Petitioner is reasonable.

22. I do not have authority to hear and decide Petitioner's argument that the
I.G. abused her discretion in determining to exclude Petitioner.

III. Discussion

A. The relevant facts (Findings 1 - 10)

Petitioner is a doctor of podiatry. I.G. Ex. 1 at 1. He was indicted on federal
criminal charges in the United States District Court for the Eastern District of
Pennsylvania. I.G. Ex. 1. The indictment charges that Petitioner, along with other
named individuals, devised a scheme and artifice to defraud and obtain money by
means of false and fraudulent pretenses, representations and promises. Id. at 1 - 2.
The object of this scheme and artifice was to obtain money from insurance companies
by submitting false and fraudulent medical bills to inflate the value of personal injury
claims. Id. at 2. The indictment charges Petitioner with perpetrating this scheme and
artifice from in or about 1988 until in or about 1991. Id.

The indictment asserts specifically that Petitioner, along with another named
individual, prepared false and fraudulent medical bills, reports and progress notes,
describing fictitious medical treatments that they had purportedly provided to
personal injury patients. I.G. Ex. 1 at 2 1/. It asserts that Petitioner, along with the
other individual, caused to be mailed to insurance companies, and to attorneys who
represented these patients, the fraudulent bills, reports, and progress notes, to be used
to document these patients' claims. Id. at 3. The indictment charges that insurance
companies were induced to issue checks to Petitioner and the other individual, as
reimbursement for the fraudulent medical bills. Id. The indictment charges also that
Petitioner, along with other defendants, utilized the United States mails to further
their scheme and artifice. Id. at 3 - 6.

On April 19, 1994, Petitioner agreed to plead guilty to three counts of the indictment.
I.G. Ex. 3. Each of these counts alleges that Petitioner perpetrated a specified act of
mail fraud in furtherance of his scheme and artifice. I.G. Ex. 1 at 3 - 6. In agreeing
to plead guilty to these three counts, Petitioner admitted that the counts arose from
his participation in a scheme to defraud insurance companies by submitting fraudulent
and inflated medical bills to insurance companies. I.G. Ex. 3 at 1 - 3. Petitioner
admitted that the scheme transpired between 1988 and 1991. I.G. Ex. 3 at 1.
Petitioner admitted additionally that he had received approximately $27,000 in
payment of the fraudulent bills which he had submitted or caused to be submitted as
part of the scheme. I.G. Ex. 3 at 4. Petitioner agreed to pay restitution of $37,000
for the unlawful proceeds he had received from participating in the scheme. I.G. Ex.
3 at 2.

On November 10, 1994, Petitioner pled guilty to Counts 1, 2, and 8 of the indictment.
I.G. Ex. 2. Petitioner was sentenced to a term of imprisonment of 15 months. Id. at
2. He was sentenced to pay restitution of $37,385. Id. at 4.

The facts of this case establish that:

Petitioner participated in a scheme to defraud insurance companies by
submitting fraudulent bills and treatment records to those companies for
fictitious medical services that Petitioner alleged to have provided. This is
evident from the counts of the indictment to which Petitioner pled guilty, and
is evident also from Petitioner's agreement to plead guilty. I.G. Exs. 1, 2, 3.

Petitioner perpetrated his crimes over a period of about three years.

Petitioner's criminal acts caused substantial damages to insurers. Petitioner
admitted to having defrauded insurers in the amount of $27,000. I.G. Ex. 3 at
4. However, the evidence establishes that the damages he caused were
actually much greater than $27,000. Petitioner agreed to pay restitution in the
amount of $37,000, and was sentenced to pay restitution in the amount of
$37,385. I.G. Ex. 2 at 4; I.G. Ex. 3 at 2. Petitioner's agreement to plead
guilty recites that, for purposes of calculating Petitioner's sentencing guideline
range, the loss and attempted loss attributable to Petitioner is between
$120,000 and $200,000. I.G. Ex. 3 at 4.

B. The governing law (Findings 11 - 13)

The I.G. excluded Petitioner pursuant to section 1128(b)(1) of the Act. As of July
19, 1996, the date that the I.G. imposed the exclusion, section 1128(b)(1) provided
that the I.G. had authority to exclude an individual who:

has been convicted, under Federal or State law, 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.

The version of section 1128(b)(1) that was in effect as of July 19, 1996 did not
provide for a minimum exclusion where the I.G. elected to impose one, or for a
minimum mandatory exclusion. 2/

Petitioner asserts that the I.G. has authority to exclude an individual only if that
individual is convicted of a criminal offense that is related to the delivery of an item or
service under a federally-funded health care program, such as Medicare or a State
Medicaid program. I do not agree with this argument. Under section 1128(a)(1) of
the Act, the I.G. is mandated to exclude an individual who is convicted of a program-
related offense of the type described by Petitioner in his argument. However, the
I.G.'s exclusion authority is not limited to exclusions for convictions of program-
related offenses. The other parts of section 1128, including section 1128(b)(1),
authorize the I.G. to impose exclusions for a far broader range of offenses than the
program-related offenses that are described in section 1128(a)(1).

Section 1128(b)(1) plainly provides that an exclusion may be imposed where an
individual is convicted of an offense relating to fraud, theft, embezzlement, breach of
fiduciary responsibility, or other financial misconduct, that is committed in connection
with the delivery of a health care item or service. There is no requirement in this
section that the offense be directed against a government-funded program, although
conviction of an offense against a government-funded program would constitute an
additional basis for an exclusion under section 1128(b)(1).

The purpose of an exclusion imposed under any of the parts of section 1128 of the
Act, including section 1128(b)(1), is remedial, and not punitive. An exclusion is
reasonable insofar as it is intended to protect federally-funded health care programs
and the beneficiaries and recipients of those programs from an individual who has
demonstrated by his or her conduct that he or she is not trustworthy to provide care
under those programs.

The Secretary has published regulations which establish criteria for determining the
length of exclusions imposed pursuant to the version of section 1128(b)(1) that was in
effect as of the date of the imposition of the exclusion against Petitioner. The criteria
identified by these regulations are the factors that the Secretary has determined are
relevant in measuring the trustworthiness of an excluded individual or entity. The
governing regulation for an exclusion imposed pursuant to section 1128(b)(1) is 42
C.F.R. § 1001.201.

The regulation provides that an exclusion imposed pursuant to section 1128(b)(1) will
be for a period of three years, unless there exist aggravating or mitigating factors
which would support the imposition of an exclusion of more than or less than three
years. 42 C.F.R. § 1001.201(b)(1). The aggravating factors which, if present in a
case involving an exclusion imposed under section 1128(b)(1) of the Act, may
establish a basis for an exclusion of more than three years, are stated at 42 C.F.R. §
1001.201(b)(2). The mitigating factors which, if present in a case involving an
exclusion imposed under section 1128(b)(1) of the Act, may offset aggravating
factors, or which may establish a basis for an exclusion of less than three years, are
stated at 42 C.F.R. § 1001.201(b)(3). The regulation makes it plain that only
evidence which relates to one or more of the defined aggravating or mitigating factors
may be considered as a basis for increasing or shortening an exclusion.

Although 42 C.F.R. § 1001.201 establishes the exclusive criteria for determining the
length of an exclusion imposed under section 1128(b)(1) of the Act, it does not direct
that an exclusion of any particular length be imposed in a case where aggravating or
mitigating factors are established. The administrative law judge must weigh any
evidence which relates to one or more of the defined aggravating or mitigating factors
to decide what the evidence shows as to an excluded individual's trustworthiness to
provide care.

C. Application of the governing law to the relevant facts (Findings 14 -
22)

1. The I.G.'s authority to exclude Petitioner (Findings 14 - 15)

The I.G. is authorized to exclude Petitioner under section 1128(b)(1) of the Act.
Petitioner was convicted in a federal court of criminal offenses relating to fraud, theft,
embezzlement, breach of fiduciary responsibility, or other financial misconduct
committed in connection with the delivery of health care items or services. The
gravamen of the scheme and artifice to which Petitioner pled guilty was fraud against
health insurers arising from fictitious claims by Petitioner for health services
purportedly provided by him.

Petitioner argues that the I.G. has no authority to exclude him, inasmuch as Petitioner
was not convicted of an offense against or involving a federally-funded health care
program. However, as I discuss at part III.B. of this decision, the I.G.'s exclusion
authority is not limited to exclusions for convictions of program-related offenses. The
I.G. is authorized to exclude Petitioner because Petitioner was convicted of an offense
that is described under section 1128(b)(1) of the Act.

2. Whether the exclusion is reasonable (Findings 16 - 22)

The five-year exclusion that the I.G. imposed against Petitioner is reasonable. The
evidence relating to the aggravating factors established by the I.G. pursuant to 42
C.F.R. § 1001.201(b)(2) proves that Petitioner is a highly untrustworthy individual.
Petitioner offered no evidence to establish the presence of any mitigating factors
described in 42 C.F.R. § 1001.201(b)(3). A five-year exclusion will serve as a
reasonable protection for federally-funded health care programs and the beneficiaries
and recipients of those programs in view of the unrebutted evidence of Petitioner's
lack of trustworthiness.

The I.G. proved the presence of three aggravating factors, consisting of the following:

The acts resulting in Petitioner's conviction, or similar acts, caused financial
loss of $1,500 or more to a government program or to one or more other
entities. 42 C.F.R. § 1001.201(b)(2)(i). Petitioner's fraud caused very
substantial losses to be incurred by entities other than government programs.
Petitioner admitted to having defrauded health insurers of $27,000. That
amount comprises only a portion of the financial damages that Petitioner's
fraud caused non-government entities. He was sentenced to pay restitution of
more than $37,000. For sentencing purposes, the total loss or attempted loss
attributed to Petitioner was estimated at between $120,000 and $200,000.

The acts that resulted in Petitioner's conviction, or other similar acts, were
committed by Petitioner over a period of one year or more. 42 C.F.R. §
1001.201(b)(2)(ii). Petitioner admitted to having perpetrated his crimes over
a period of about three years, beginning in 1988 and ending in 1991.

The sentence that was imposed on Petitioner for his crimes included a
period of incarceration. 42 C.F.R. § 1001.201(b)(2)(iv). Petitioner was
sentenced to 15 months' imprisonment.

The evidence which relates to the aggravating factors established by the I.G. proves
Petitioner to be a highly untrustworthy individual. Petitioner's lack of trustworthiness
is established by his approximately three-year involvement in a massive scheme to
defraud insurers. Petitioner's protracted involvement in that scheme demonstrates
that he is capable of engaging in well-organized and complex fraud. His fraud was
persistent and deliberate, not random or impulsive. The extent to which Petitioner
persisted in defrauding insurers is established by the large losses he caused insurers to
incur.

As I find above, Petitioner has not offered any evidence to prove the presence of a
mitigating factor. There is no evidence in this case to offset the evidence relating to
the aggravating factors proved by the I.G., and, hence, there is nothing which would
suggest that Petitioner is trustworthy to provide care.

Petitioner argues that, in this case, the exclusion is unnecessary, because it
unreasonably burdens Petitioner and does not protect the public welfare. Petitioner's
Brief at 6 - 7. Essentially, Petitioner asserts that the stigma attached to his
conviction, his incarceration, along with a State-imposed 60-month suspension of
Petitioner's license to practice podiatry, is sufficient protection and that additional
protection is not warranted. Additionally, Petitioner asserts that he is remorseful for
his crimes.

None of these assertions relate to any of the mitigating factors described by 42 C.F.R.
§ 1001.201(b)(3) and, therefore, even if true, they are not relevant. Furthermore, I
am not persuaded that these contentions, even if relevant and probative, overcome the
evidence of untrustworthiness established by the evidence relating to aggravation. On
balance, this evidence of aggravation proves a five-year exclusion to be reasonable,
even if I consider Petitioner's assertions about the imposition against him of other
sanctions and his remorse.

Petitioner asserts additionally that the I.G. delayed unreasonably in determining to
impose an exclusion against him. Petitioner argues that the I.G. delayed imposing an
exclusion by about 18 months from the date that Petitioner pled guilty. Petitioner's
Brief at 5 - 6. Petitioner asserts that the I.G. has a duty to impose an exclusion
promptly upon learning about conduct that might be a basis for an exclusion and that
she failed to exercise that duty here.

This argument is, essentially, an argument that the I.G. ought to be estopped from
excluding Petitioner because she delayed in making an exclusion determination in
Petitioner's case. The timing of a determination by the I.G. to exclude an individual is
an act of discretion. I have no authority to decide whether the I.G. exercised her
discretion reasonably. 42 C.F.R. § 1005.4(c)(4).
Moreover, it is not apparent from the record of this case that the I.G. delayed her
determination to impose an exclusion of Petitioner. There is no evidence which
establishes the date when the I.G. first learned of Petitioner's conviction.

It is not unreasonable for an excluded individual to question the length of an exclusion
on the ground that, because of the late date of the imposition of the exclusion, the
exclusion establishes a date when the individual may apply for reinstatement that is so
far off in the future that the exclusion is effectively punitive, and not remedial. The
evidence here is that Petitioner perpetrated his last criminal act in 1991. He pled
guilty in November 1994. The exclusion was imposed in July 1996, for a term of five
years, meaning that Petitioner will not be eligible to apply for reinstatement until early
August 2001. Thus, Petitioner will not be eligible for reinstatement until about 10
years after the date that he perpetrated his last criminal act.

I have considered whether the five-year exclusion is unreasonable, given that
Petitioner will not be eligible for reinstatement until about 10 years after he last
committed a crime. I conclude that, although the relatively remote date of
Petitioner's crimes mutes substantially the force of the evidence of aggravation, the
level of untrustworthiness manifested by Petitioner in committing those crimes is so
great that the exclusion is reasonable. 3/ The crimes that Petitioner engaged in
manifested a great deal of calculation and determination. The evidence establishes
Petitioner to be an individual who is capable of executing a complex and protracted
criminal scheme. There is no credible evidence in the record of this case to prove that
Petitioner does not now remain capable of criminal behavior, or to prove that
Petitioner will not be capable of engaging in such behavior prior to the date when he
will be eligible for reinstatement.

As I note above, I recently heard and decided the case of an exclusion of Petitioner's
co-perpetrator. Frank A. DeLia, D.O., DAB CR465 (1997). In that case, I found
that the exclusion of five years was unreasonable and I modified it to a term of three
years. Id. at 8 - 10. Each case must stand or fall on its own merits. I do not find that
my rationale in DeLia directs a particular outcome in another case. However, the
excluded individual in DeLia was Petitioner's co-perpetrator. For that reason, I
believe it appropriate to explain why I am sustaining the five-year exclusion in this
case, as opposed to my decision to modify the exclusion to a term of three years in
DeLia.

In DeLia, I found that, as in this case, the excluded individual perpetrated his last
crime in 1991. I observed that the evidence as to aggravation was, in some respects,
diluted by that fact. DAB CR465 at 9. I did not conclude, however, that the five-
year exclusion was necessarily unreasonable because of the remote date of the
excluded individual's last crime. I based my decision as to reasonableness primarily
on the fact that, in DeLia, there was strong evidence of mitigation.

In DeLia, as opposed to this case, the evidence of mitigation offset the evidence of
aggravation. The excluded individual cooperated with prosecuting authorities and his
cooperation led to the conviction of other individuals. That is a mitigating factor
which is not present in this case. See 42 C.F.R. § 1001.201(b)(3)(iii). I found that
not only did a mitigating factor exist, but that the extent and quality of cooperation
given by the excluded individual demonstrated efforts by that individual to become
trustworthy, which offset the evidence of aggravating factors proved by the I.G.
DAB CR465 at 9 - 10. The excluded individual cooperated with prosecuting
authorities over an extended period of time and, in doing so, jeopardized his own
safety.

IV. Conclusion

I conclude that the I.G. was authorized to exclude Petitioner, pursuant to section
1128(b)(1) of the Act. I find the five-year exclusion to be reasonable and I sustain it.


______________________
Steven T. Kessel
Administrative Law Judge


* * * Footnotes * * *

1. The other named individual, Frank A. DeLia, was the petitioner in another
case which I decided, Frank A. Delia, D.O., DAB CR465 (1997). At Part III.C.2. of
this decision, I discuss the evidence which distinguishes this case from DeLia.
2. On July 31, 1996, Congress amended section 1128 of the Act. One of the
amendments to section 1128 creates a new section 1128(a)(3) which mandates a
minimum exclusion of at least five years for any felony conviction for an offense
formerly described by section 1128(b)(1), occurring after the date of enactment of the
1996 amendments. Section 1128(b)(1) is retained, but provides permissive exclusion
authority for misdemeanor convictions only. I am not considering this case under the
1996 amendments to section 1128, inasmuch as Petitioner was convicted prior to July
31, 1996, the date of enactment of the 1996 amendments.
3. Had the evidence established that Petitioner engaged in crimes more recently
than in 1991, I would have been inclined to sustain an exclusion of more than five
years in this case.