SUBJECT:

John E. Calhoon

Petitioner,

The Inspector General

I sustain the determination of the Inspector General (I.G.) to exclude Petitioner, John E. Calhoon, from participating in the Medicare program and other federally funded health care programs for a period of ten years. I find that a basis exists for the I.G. to exclude Petitioner pursuant to section 1128(a)(1) of the Social Security Act (Act). I find further that an exclusion of ten years is not unreasonable.

I. Background

On January 10, 1997, the I.G. notified Petitioner that he was being excluded from participating in Medicare and other federally funded health care programs. Petitioner requested a hearing and the case was assigned to me for a hearing and a decision. I stayed the case for a period of time in order to permit Petitioner to pursue appeals of the criminal conviction on which the I.G. based her exclusion of Petitioner. Eventually, with the concurrence of the parties, I determined that it would be appropriate for me to hear and decide Petitioner's case. I held a prehearing conference at which I established a schedule for filing legal briefs and documentary evidence. I also allowed the parties to request an in-person hearing during the course of the briefing schedule. Neither party requested an in-person hearing, and I am deciding the case based on the written record.

Pursuant to the briefing schedule, the parties simultaneously submitted initial briefs. The I.G.'s brief was accompanied by three proposed exhibits ((I.G. Ex. 1 - I.G. Ex. 3). Petitioner's brief was accompanied by seven proposed exhibits (P. Ex. 1 - P. Ex. 7). The parties also simultaneously submitted reply briefs. The I.G. objected to my receiving into evidence P. Ex. 3 - P. Ex. 7. Petitioner objected to my receiving into evidence I.G. Ex. 3. In addition, Petitioner submitted three additional proposed exhibits with his reply brief (P. Ex. 8 - P. Ex. 10).

I invited the I.G. to comment on the three additional proposed exhibits submitted by Petitioner. The I.G. objected to my receiving into evidence P. Ex. 8 - P. Ex. 10. On his own initiative, Petitioner submitted a supplemental brief. The I.G. objected to Petitioner's supplemental brief on the grounds that it was untimely filed. In addition, the I.G. made substantive comments in response to arguments made by Petitioner in the supplemental brief.

I am allowing all of the briefs submitted by the parties to be part of the record. In doing so, I conclude that neither party is prejudiced by my considering all of the arguments set forth in the briefs. In addition, I receive into evidence I.G. Ex. 1 - I.G. Ex. 3 and P. Ex. 1 - P. Ex. 10. In doing so, I overrule the I.G.'s objections to my receiving into evidence P. Ex. 3 - P. Ex. 10 and I overrule Petitioner's objection to my receiving into evidence I.G. Ex. 3. While some of the exhibits I am receiving into evidence may be of limited probative value, I conclude that admission of these exhibits is not prejudicial. However, as I discuss below, I rely only on those exhibits which I find to be probative as to the issues before me.

I base my decision in this case on the parties' arguments, the exhibits, and the applicable law.

II. Issues, findings of fact and conclusions of law

A. Issues

The issues in this case are whether:

1. The I.G. is authorized pursuant to section 1128(a)(1) of the Act to exclude Petitioner from participating in Medicare and other federally funded health care programs; and

2. An exclusion of ten years is unreasonable.

B. Findings of fact and conclusions of law

I make findings of fact and conclusions of law (Findings) to support my decision that an exclusion of ten years is authorized and is not unreasonable. I set forth each of my Findings below as a separate heading. I discuss each of my Findings in detail.

1. Petitioner was convicted of criminal offenses.

There is no dispute in this case that Petitioner was convicted of a series of related crimes. These crimes all stemmed from his employment as an accountant for Charter Medical Corporation (CMC), an entity which owns and operates psychiatric hospitals.

On January 14, 1994, a 14-count superseding indictment was issued against Petitioner in the United States District Court for the Middle District of Georgia. I.G. Ex. 1. The indictment charged that Petitioner had been responsible for preparing and filing cost reports seeking Medicare reimbursement for psychiatric hospitals (Charter Hospital - Mobile, Charter Springs, Charter of Tampa Bay, Charter Glade Hospital, Charter of Corpus Christi, Charter Sugar Land, Charter Hospital of Lake Charles, and Charter Woods Hospital) that were subsidiaries of CMC. I.G. Ex. 1 at 1 - 2. The indictment charged further that the amount of Medicare reimbursement that individual hospitals operated by CMC obtained was based on the cost reports that were prepared by Petitioner or under his direction. I.G. Ex. 2 at 2 - 3.

Count 1 of the superseding indictment charged that, beginning on or about May 29, 1987 and continuing through March 23, 1990, Petitioner devised a scheme and artifice to defraud the Health Care Financing Administration (HCFA) of money by various false and fraudulent pretenses, representations, and documents. I.G. Ex. 1 at 3 - 4. These alleged acts included:

• Mailing false and fraudulent cost reports to intermediaries who were acting on behalf of HCFA;

• Creating separate ledgers, consisting of an external ledger which was intended to give intermediaries false data concerning CMC's expenses and an internal ledger which was used within CMC to document the true nature of CMC's expenses; and

• Generating internal documents within CMC known as "reserve cost reports" which were used to allocate to subsidiary hospitals money that CMC received from Medicare for fraudulently claimed expenses.

Id. Count 1 of the superseding indictment charged additionally that, on or about May 15, 1989, Petitioner perpetrated the alleged fraud by knowingly placing in the mail a cost report for Charter of Corpus Christi that was addressed to Blue Cross and Blue Shield of Texas. Id. at 5.

Counts 2 and 3 of the superseding indictment charged Petitioner with additional acts of perpetrating the alleged fraud by knowingly placing in the mail cost reports for subsidiary hospitals of CMC that were sent to Medicare intermediaries. I.G. Ex. 1 at 5 - 6. Counts 4 - 14 of the superseding indictment charged Petitioner with knowingly making or causing to be made, or using or causing to be used, false cost reports to be submitted to Medicare for various subsidiary hospitals. Id. at 6 - 13.

A trial ensued in United States District Court. Either at trial or prior to trial the United States Attorney moved to dismiss Counts 10 and 11 of the superseding indictment. I.G. Ex. 2 at 1. On February 2, 1995, Petitioner was found guilty of Counts 1 - 7, 9, and 12 - 14 of the superseding indictment. Id. Petitioner was found not guilty of Count 8 of the superseding indictment. Id.

2. Petitioner was convicted, within the meaning of section 1128(a)(1) of the Act, of criminal offenses related to the delivery of items or services under the Medicare program.

Section 1128(a)(1) of the Act applies to any individual who is convicted of a criminal offense that is "related to the delivery of an item or service under" the Medicare program. I find that Petitioner's convictions, as are described above at Finding 1, are of crimes that are program-related within the meaning of section 1128(a)(1) of the Act.

The superseding indictment describes the crimes of which Petitioner was ultimately convicted. I.G. Ex. 1. The superseding indictment describes an elaborate scheme by which Petitioner systematically defrauded the Medicare program of money by submitting false cost reports on behalf of the corporation which employed him. Medicare was the direct target of Petitioner's criminal conduct.

As a matter of law, an attempt to defraud federally funded health care programs is an offense within the meaning of section 1128(a)(1) of the Act. Greene v. Sullivan, 731 F. Supp. 835; 838 (E.D. Tenn. 1990). In establishing an offense to be program-related, it is not necessary to prove that a specific item or service was involved or that care was actually delivered to a beneficiary. It will suffice to show that the Medicare program was a direct target of the offense. Id.

Petitioner argues, in effect, that he is not guilty of the offenses of which he was charged and convicted. He asserts that he was tried for and convicted of making false statements. He argues that, in fact, there was no credible evidence offered at his trial that he made false statements. To the contrary, according to Petitioner, the only theory on which he could have been convicted is that he concealed facts from Medicare intermediaries which should have been disclosed to these entities rather than providing them with information that he knew to have been false. According to Petitioner, this offense falls within the permissive exclusion provisions of the Act. Petitioner's initial brief at 1; see P. Ex. 7.

Petitioner's argument begs the question of whether he was convicted of offenses that fall within the definition of program-related offenses contained in section 1128(a)(1) of the Act. The unrebutted evidence offered by the I.G. plainly establishes that Petitioner was convicted of the offenses as charged and described in Counts 1 - 7, 9, and 12 - 14 of the superseding indictment. Given that Petitioner was convicted of offenses that are within the purview of section 1128(a)(1), his assertion that he is not really guilty of such offenses is irrelevant, inasmuch as the exclusion authority that is conferred by section 1128(a)(1) derives from an individual's conviction of a program-related offense and not from the underlying conduct that might be the basis for a conviction.

Petitioner argues also that, in fact, the claims for costs which were at issue in his criminal case did not relate to Medicare items or services in that they were not for items or services that were delivered to patients. Rather, according to Petitioner, the costs at issue involved royalty fees, advertising expenses, and interest expenses. Petitioner asserts that the royalty fees and advertising expenses were unrelated to patient care. And, according to Petitioner, the interest expenses were not reimbursed in any event due to cost limitations.

I am not persuaded by these arguments that Petitioner's crimes were unrelated to Medicare items or services. Whether claims for Medicare reimbursement are for items or services that are alleged to have been provided to beneficiaries or for allegedly reimbursable overhead items or indirect costs, they nevertheless affect potentially the sum total of funds available to pay Medicare reimbursements and program costs. A false claim for an indirect cost may ultimately affect the total amount of Medicare trust fund money available to pay for items or services even if the claim is not for actual patient care. In that sense, any false claim against Medicare is "related to" the delivery of Medicare items or services.

3. The I.G. is required to exclude Petitioner inasmuch as Petitioner has been convicted of a criminal offense related to the delivery of an item or service under Medicare.

Section 1128(a)(1) of the Act mandates the I.G. to exclude any individual who is convicted of an offense which is related to the delivery of an item or service under Medicare. The I.G. must exclude Petitioner inasmuch as Petitioner was convicted of such offenses.

4. A ten-year exclusion of Petitioner is not unreasonable in light of the presence of aggravating factors and the absence of any mitigating factors.

An exclusion of at least five years is mandatory for any individual who has been convicted of a criminal offense that is related to the delivery of an item or service under Medicare. Act, sections 1128(a)(1), 1128(c)(3)(B). In this case, the I.G. determined to exclude Petitioner for a period of ten years. That raises the issue of whether an exclusion of ten years is unreasonable given the evidence in this case.

The Secretary of the United States Department of Health and Human Services has published regulations which establish the criteria for determining the length of exclusions imposed pursuant to section 1128 of the Act. The regulation which sets forth the applicable criteria for an exclusion imposed pursuant to section 1128(a) is 42 C.F.R. § 1001.102. The applicable criteria are expressed as either aggravating or mitigating factors. The relevant aggravating factors are stated at 42 C.F.R. § 1001.102(b). The relevant mitigating factors are stated at 42 C.F.R. § 1001.102(c). An exclusion may be imposed for a period of more than five years where there exists an aggravating factor or factors not offset by any mitigating factor or factors.

The aggravating and mitigating factors that are set forth in the regulation function as rules of evidence for deciding the length of exclusions. Evidence which does not pertain to one of the specific aggravating or mitigating factors is not relevant and may not be used to decide whether an exclusion of a particular length is reasonable.

The regulation does not prescribe the weight that is to be given to evidence that relates to an aggravating or a mitigating factor. While the regulation tells the decision maker what criteria may be used to determine the length of an exclusion, it does not tell the decision maker how to weigh relevant evidence to arrive at an exclusion that is reasonable in a given case.

However, there is an overall statutory purpose that the regulations must adhere to. An exclusion is not intended to be a punishment. The purpose of any exclusion that is imposed under section 1128 of the Act is to protect federally funded health care programs and beneficiaries and recipients of those programs from an individual who has been shown not to be trustworthy. Therefore, in deciding the length of an exclusion that is imposed pursuant to section 1128, the question that must be considered is: what is reasonably necessary to protect the programs and their beneficiaries and recipients from an untrustworthy individual? In a case involving an exclusion that is imposed pursuant to section 1128(a)(1), the factors that are contained in 42 C.F.R. § 1001.102(b) and (c) state the criteria which may be used to answer this question.

The regulations which govern the imposition of exclusions were revised effective October 2, 1998. Petitioner was notified of his exclusion on January 10, 1997. Therefore, it would appear that the 1998 revisions of the regulations do not govern this case. I note that there appear not to have been changes to the regulations which would affect the outcome of this case. However, in order to assure that my decision is consistent with the requirements of law and due process, I am applying the pre-1998 regulations here.

a. The I.G. proved the presence of aggravating factors.

The I.G. established the presence of three aggravating factors in this case. These are as follows:

1. The acts which were the basis for Petitioner's conviction resulted in financial loss to Medicare of more than $1,500. 42 C.F.R. § 1001.102(b)(1) (pre-1998 version);

2. The acts resulting in Petitioner's conviction, or similar acts, were committed over a period of one year or more. 42 C.F.R. § 1001.102(b)(2) (pre-1998 version); and

3. Petitioner's sentence for his crimes included a period of incarceration. 42 C.F.R. § 1001.102(b)(4) (pre-1998 version).

i. The acts which were the basis for Petitioner's conviction resulted in financial loss to Medicare of more than $1,500.

Petitioner was convicted of perpetrating a substantial fraud against the Medicare program. There is ample evidence to support the conclusion that the amount of that fraud exceeded $1,500. For example, in the judgment of conviction that was entered against Petitioner, the district court found that the "loss amount" caused by Petitioner's fraud was between $20,001 and $50,000. I.G. Ex. 2 at 5. On appeal, the court of appeals reached what appears to be an alternate finding. Rather than calculating the quantity of loss, the court of appeals relied on Petitioner's admission that, in making the false statements, he intended that the government suffer a loss in the amount of $31,000. The court of appeals found that Petitioner's admission was sufficient to establish a measure of his culpability, and it did not overrule the district court's finding that the "loss amount" was between $20,001 and $50,000. United States v. Calhoon, 97 F. 3d 518, 531 (11^th Cir. 1996).

Petitioner argues that no money was lost by the Medicare program as a consequence of his conduct. As support for this contention, he cites to remarks made by the Assistant United States Attorney who prosecuted him, which Petitioner alleges, are to the effect that not one dollar was paid out by the Medicare program for allegedly false claims submitted by Petitioner. Petitioner's initial brief at 3; see P. Ex. 4.

Contrary to Petitioner's contention, the Assistant United States Attorney in Petitioner's criminal prosecution did not admit that no money was paid out by the Medicare program as a consequence of Petitioner's fraud. The remarks that Petitioner relies on are part of an argument in which the Assistant United States Attorney asserts that it would not be necessary for the government to prove that payments were made by Medicare as a consequence of fraud in order for it to establish a basis to convict Petitioner. P. Ex. 4. However, the Assistant United States Attorney neither stated nor suggested that Petitioner's fraud did not, in fact, cause a loss to the Medicare program.

ii. The acts resulting in Petitioner's conviction, or similar acts, were committed over a period of one year or more.

The counts of the superseding indictment of which Petitioner was convicted establish that Petitioner committed the acts resulting in his conviction over a period of more than a year. Count 1 of the superseding indictment alleges that Petitioner engaged in fraud against Medicare over a period of time that began on or about May 29, 1987 and that continued up to or through March 23, 1990. I.G. Ex. 1 at 3. Petitioner asserts that March 23, 1990 was the termination date of his employment and that in fact the eight offenses of which he was convicted occurred between December 29, 1987 (Count 5) and August 29, 1989 (Counts 3 and 14). Petitioner's reply brief at 3. Even if I were to accept Petitioner's assertion that the acts resulting in his conviction occurred between December 29, 1987 and August 29, 1989, this twenty-month period is well over the one-year threshold necessary to establish the existence of this aggravating factor.

iii. Petitioner's sentence for his crimes included a period of incarceration.

Petitioner was sentenced to a period of incarceration for his crimes. I.G. Ex. 2 at 2.

b. Petitioner did not prove the presence of any mitigating factors.

The mitigating factors that are specified in the pre-1998 version of 42 C.F.R. § 1001.102 can be summarized as follows: (1) the excluded individual was convicted of three or fewer misdemeanor offenses with an aggregate financial impact on federally funded health care programs of less than $1,500; (2) the record of the excluded individual's criminal case establishes that the trial or sentencing court determined that the individual's culpability was diminished due to a mental, emotional, or physical condition; and (3) the excluded individual cooperated with federal or State prosecuting authorities in a way that led to the exclusion of or imposition of administrative remedies against other individuals. 42 C.F.R. § 1001.102(c)(1) - (3) (pre-1998 version).

Petitioner asserts a number of reasons why his exclusion should be held to be excessive. Petitioner's initial brief at 2 - 3. These include the following:

1. The I.G. has treated Petitioner differently than she has treated other excluded individuals;

2. Petitioner's conduct caused no loss to the Medicare program (I discussed this argument above, at Finding 4.a.i.);

3. The acts which resulted in Petitioner's conviction occurred more than ten years ago;

4. Petitioner has not engaged in any illegal conduct either prior to the commission of the acts that are the basis for his conviction or subsequently;

5. Petitioner is no longer employed in the health care industry;

6. Petitioner is not seeking employment in the health care industry;

7. The cost reports that Petitioner caused to be submitted and which were the basis for his indictment and conviction comprised only a small percentage of the total reports that he caused to be submitted and, therefore, did not demonstrate a pattern of unlawful conduct by Petitioner.

8. Petitioner was sentenced to the shortest period of incarceration called for by applicable sentencing guidelines;

9. A State disciplinary proceeding concerning Petitioner's license to practice as an accountant resulted in a recommendation by a State administrative law judge that Petitioner's professional license be suspended but not revoked; and,

10. Petitioner is not guilty of the offenses of which he was charged and convicted.

None of these asserted reasons relates to any of the mitigating factors stated in the pre- 1998 version of 42 C.F.R. § 1001.102(c) (or, for that matter, in the version of the regulation that became effective on October 2, 1998). Therefore, I may not consider any of these alleged reasons to be a factor which mitigates the length of Petitioner's exclusion.

However, some of these asserted reasons do address the weight that I may give to evidence that relates to aggravating factors and to Petitioner's trustworthiness. I discuss these asserted reasons, and the evidence which supports them, below, to the extent that they address the weight that I may give to evidence that is relevant to aggravating factors.

c. A ten-year exclusion is not unreasonable in light of evidence that relates to established aggravating factors.

Evidence relating to established aggravating factors proves Petitioner to have been a highly untrustworthy individual. A ten-year exclusion is not unreasonable based on such evidence.

The two most serious aggravating factors, in my judgment, are those which address the duration and impact of Petitioner's crimes. Petitioner participated in fraud against Medicare over a period of at least 20 months. The financial impact of his crimes during this period was substantial. When such evidence is considered in its totality, it reveals Petitioner to have engaged in a systematic and massive fraud against the Medicare program.

Petitioner asserts that he submitted cost reports that were found to be fraudulent only eight times over a 20-month period. He argues that these submissions comprised only a small portion of the total number of reports he submitted or caused to be submitted during this period. Consequently, he asserts, there can be no finding that he engaged in a pattern of unlawful conduct.

It may be true that Petitioner did not commit fraud every time he submitted a cost report. It may also be true that he submitted only a small number of fraudulent reports over a long period of time and that these fraudulent reports are but a small percentage of the total number of reports that Petitioner submitted. But, notwithstanding all of that, the plain and unrebutted evidence of this case is that Petitioner submitted fraudulent cost reports repeatedly over at least a 20-month period. Each of these submissions constituted a separate and deliberate act of fraud directed against Medicare. Petitioner thus committed multiple individual crimes in furtherance of an overall criminal scheme. I.G. Ex. 1. Such conduct is evidence of determined and protracted criminal activity and it evidences a high degree of untrustworthiness.

As I discuss above, there is compelling evidence that Petitioner's crimes had a financial impact on the Medicare program of more than $1,500. The total impact of Petitioner's crimes was at least between $20,001 and $50,000. I.G. Ex. 2 at 5. And, the impact may have been greater than that amount.

The I.G. offered evidence that CMC entered into a settlement with the I.G. to resolve allegations that CMC made false claims against Medicare. I.G. Ex. 3. The total amount of the settlement is $948,365. The settlement agreement contains a schedule which states a total impact on the Medicare program of unlawful claims by CMC of approximately $900,000. Id. at 7 - 11. The losses itemized in the settlement agreement occurred during the time when Petitioner served as a director of reimbursement for CMC and relate to reports that Petitioner either submitted or caused to be submitted. Id.; see I.G. Ex. 1.

I do not find that the record shows Petitioner caused Medicare to suffer all of the losses that are itemized in I.G. Ex. 7. Moreover, I make no finding as to the precise amount of the losses caused by Petitioner beyond that which is contained in the judgment of conviction that was entered against Petitioner. See I.G. Ex. 2 at 5. Petitioner was not a party to the settlement agreement and makes no admission as to its accuracy. Furthermore, the financial documents, reports, and claims which are the basis of that agreement are not part of the record of this case. For these reasons I do not find that the settlement agreement is reliable evidence of the total impact on Medicare of Petitioner's crimes. On the other hand, the agreement corroborates the trial court's finding that Petitioner's crimes caused damages to the program of between $20,001 and $50,000 and it contains at least a credible suggestion that the impact may have been greater than that amount.

Petitioner argues that, in other cases, individuals whose crimes resulted in sentences of restitution for more than the $20,001 to $50,000 losses caused by Petitioner were excluded for less than ten years. From this, he asserts that it would not be fair to exclude him for a ten-year period. Indeed, Petitioner asserts that he was not required to pay any restitution in his case.

I am not persuaded by Petitioner's argument, for the following reasons. First, the issue before me is not whether Petitioner's exclusion should be calculated based on a precise formula which relates the exclusion to the exact amount of damages caused by the excluded party's crimes or to the exact amount of restitution that a court orders an excluded person to pay. The issue is whether the exclusion is unreasonable. Second, there may have been other factors at play in those cases cited by Petitioner - including mitigating factors - that are not under consideration here. At bottom, in a de novo proceeding such as this one, I draw inferences as to an excluded party's trustworthiness based on the evidence in that case which relates to the aggravating or mitigating factors that are established in the case.

What is important to me here is that Petitioner's crimes had a substantial financial impact on Medicare. The specific dollar amount of those crimes is not nearly so important as is the fact that the crimes had a substantial impact. And, the conclusion that I draw that Petitioner is not trustworthy emanates not just from a measure of the financial impact of Petitioner's crimes, but from that evidence coupled with evidence as to the duration of those crimes.

One additional factor that Petitioner raises is that more than ten years has elapsed between the commission by Petitioner of his crimes and the present. Petitioner appears to be saying that evidence which might arguably show Petitioner to have been untrustworthy as of 1989 loses its impact due to the long passage of time between then and now and the absence of evidence that Petitioner engaged in unlawful conduct during the intervening period.

I am not unsympathetic to this argument. On previous occasions in other cases I have commented that the regulations may not take into account that evidence of lack of trustworthiness may lose its impact if diminished by the passage of time. However, I must follow the regulations as they are written. There is nothing in the regulations which would allow me to take a lapse of time into account as is urged by Petitioner.

Steven T. Kessel

Administrative Law Judge