SUBJECT:

Sou Kwei Arndt, R.Ph. and Sou K. Wong, Inc.,

Petitioner,

The Inspector General

Docket Nos. C-97-510 and
C-97-530
Decision No. CR692

I. Background

By letter dated June 20, 1997, the I.G. notified Petitioner Arndt that she was being excluded from participation in Medicare, Medicaid, Maternal and Child Health Services Block Grant and Block Grants to States for Social Services programs for a period of 10 years. The I.G. imposed this exclusion pursuant to section 1128(a)(1) of the Act based on Petitioner Arndt's conviction of a criminal offense related to the delivery of an item or service under the Medicaid program.

By separate letter dated June 20, 1997, the I.G. notified Petitioner Wong that it was being excluded from participation in the Medicare, Medicaid, Maternal and Child Health Services Block Grant and Block Grants to States for Social Services programs for a period of 10 years. The I.G. imposed this exclusion pursuant to section 1128(a)(1) of the Act based on Petitioner Wong's conviction of a criminal offense related to the delivery of an item or service under the Medicaid program.

By letter dated August 19, 1997, Petitioners contested the exclusions. These cases were originally assigned to Administrative Law Judge Mimi Hwang Leahy. By Order dated December 15, 1999, these cases were consolidated. On February 10, 2000, this consolidated case was reassigned to me for hearing and decision.

I convened a prehearing conference on March 7, 2000. During the conference, the parties stated that an in-person hearing would not be necessary in this case, and the parties indicated that they wished to proceed based on the written record. The parties submitted briefs. The I.G.'s brief was accompanied by 13 proposed exhibits (I.G. Exs. 1 - 13). Petitioner's brief in response was not accompanied by any proposed exhibits. Neither party submitted reply briefs. Petitioner did not object to my receiving into evidence the I.G.'s proposed exhibits, and therefore, I receive into evidence I.G. Exs. 1 - 13. 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 these cases are whether:

1. The I.G. is authorized, pursuant to section 1128(a)(1) of the Act, to exclude Petitioners from participating in Medicare, Medicaid, Maternal and Child Health Services Block Grant and Block Grants to States for Social Services programs; and,

2. An exclusion of 10 years for each Petitioner 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 10 years for each Petitioner 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. Petitioners were convicted of criminal offenses.

Petitioner Arndt was a licensed registered pharmacist practicing in the Commonwealth of Pennsylvania. I.G. Ex. 7. Petitioner Wong was a Pennsylvania corporation doing business as "The Medicine Shoppe" and operated by Petitioner Arndt. I.G. Ex. 8. Petitioner Arndt was the managing pharmacist at the Medicine Shoppe.

By Information dated May 9, 1996, Petitioner Arndt was charged with 12 felony counts of violating the Pennsylvania Controlled Substance, Drug, Device and Cosmetic Act, 35 P.S. § 780-113(a)(14), by illegally administering, dispensing, and/or delivering various controlled substances. I.G. Ex. 7. Petitioner Arndt was also charged, in the same Information, with four felony counts of Medicaid Fraud in violation of 62 P.S. § 1407(a)(1), by knowingly presenting claims for payment which were medically unnecessary under the Pennsylvania Medicaid program. Id.

By separate Information dated May 9, 1996, Petitioner Wong was charged with four felony counts of Medicaid Fraud in violation of 62 P.S. § 1407(a)(1), by knowingly presenting claims for payment which were medically unnecessary resulting in Petitioner Wong receiving monies to which it was not entitled from the Pennsylvania Medicaid program. I.G. Ex. 8.

On December 16, 1996, in the Westmoreland County Court of Common Pleas in Greensburg, Pennsylvania, Petitioner Arndt pled guilty to one count (count one of the May 9, 1996 Information) of violating the Pennsylvania Controlled Substance, Drug, Device and Cosmetic Act, 35 P.S. § 780-113(a)(14), and one count (count 13 of the May 9, 1996 Information) of violating 62 P.S. § 1407(a)(1). I.G. Ex. 9. On the same day and in the same court, Petitioner Wong pled guilty to all four counts described in the May 9, 1996 Information. I.G. Ex. 10. The Westmoreland County Court of Common Pleas in Greensburg, Pennsylvania, accepted Petitioners' pleas. I.G. Exs. 9, 10, 11, and 12.

On January 8, 1997, Petitioner Arndt was sentenced to serve two concurrent terms of 11½ to 23 months incarceration, ordered to pay restitution to the Pennsylvania Department of Public Welfare in the amount of $28,407.24, ordered to pay investigation costs of $5,000.00, and ordered to pay costs of prosecution and supervision. I.G. Ex. 11. On the same day, Petitioner Wong was sentenced and ordered to pay costs of prosecution and supervision. I.G. Ex. 12. Petitioners' convictions based on pleas of guilt as described above and the Westmoreland County Court of Common Pleas acceptance of Petitioners' pleas, constitutes a conviction under section 1128(i)(3) of the Act.

2. Petitioners were 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 Pennsylvania Medicaid program.

Petitioners do not challenge that they are subject to an exclusion under section 1128(a)(1) of the Act, and I so find. Section 1128(a)(1) of the Act applies to any individual or entity who is convicted of a criminal offense that is "related to the delivery of an item or service under" Medicare or any State health care program.⁽¹⁾ I find that Petitioners' convictions, as described above at Finding 1, are of crimes that are program related within the meaning of section 1128(a)(1) of the Act.

The May 9, 1996 Informations and the Affidavit in Support of Probable Cause For Arrest describe the crimes of which Petitioners were ultimately convicted. I.G. Exs. 7, 8, and 13. These documents describe Petitioner Arndt as knowingly presenting claims for payment to the Pennsylvania Department of Public Works which were for medically unnecessary services or merchandise under the Pennsylvania Medicaid Program and describe Petitioner Wong as also knowingly presenting claims for payment to the Pennsylvania Department of Public Works which were for medically unnecessary services or merchandise under the Pennsylvania Medicaid Program, resulting in Petitioner Wong receiving monies from the Medicaid program to which it was not entitled. Specifically, Petitioner Arndt, as managing pharmacist and on behalf on Petitioner Wong, submitted numerous claims to the Pennsylvania Department of Public Works for controlled substances to an undercover law enforcement official. I.G. Exs. 7, 8, and 13. These claims were determined to be medically unnecessary under the Pennsylvania Medicaid program. As a result of Petitioner Arndt's claim submissions, Petitioner Wong received monies from the Pennsylvania Medicaid program to which it was not entitled. I.G. Ex. 8. As Petitioners concede, the filing of fraudulent Medicare or Medicaid claims constitutes clear program-related misconduct. Alan J. Chernick, D.D.S., DAB CR434 (1996); see also Rasaly Saba Khalil, M.D., DAB CR353 (1995).

3. The I.G. is required to exclude Petitioners, inasmuch as Petitioners have been convicted of criminal offenses related to the delivery of items or services under Medicaid.

Section 1128(a)(1) of the Act mandates the I.G. to exclude any individual or entity who is convicted of an offense which is related to the delivery of an item or service under Medicare or any State health care program. The I.G. must exclude Petitioners, inasmuch as Petitioners were convicted of such offenses.

4. A 10-year exclusion of each 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 or entity who has been convicted of a criminal offense that is related to the delivery of an item or service under Medicare or under any State health care program. Act, sections 1128(a)(1), 1128(c)(3)(B). In this case, the I.G. determined to exclude Petitioners for a period of 10 years. This raises the issue of whether exclusions of 10 years are 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. 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 to which the regulations must adhere. 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. Petitioners were notified of their exclusions on June 20, 1997. Therefore, it would appear that the 1998 revisions of the regulations do not govern this case. I note that the October 2, 1998 changes to the regulations would appear not to 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 in this decision.

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

The I.G. established the presence of three aggravating factors against Petitioner Arndt and the presence of two aggravating factors against Petitioner Wong. The factors proved against both Petitioners are as follows:

1. The acts which were the basis for Petitioners' convictions resulted in financial loss to Medicare and the State health care programs of more than $1,500. 42 C.F.R. § 1001.102(b)(1) (pre-1998 version);

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

The additional factor established only against Petitioner Arndt is:

3. Petitioner's sentence for her 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 Petitioners' convictions resulted in financial loss to the Pennsylvania Medicaid program of more than $1,500.

Petitioners concede that the acts that were the basis of Petitioners' convictions resulted in a financial loss to the Pennsylvania Medicaid program of more than $1,500. Petitioners were convicted of perpetrating a substantial fraud against the Pennsylvania Medicaid program. In the judgment of conviction that was entered against Petitioner Arndt, the Court of Common Pleas found that Petitioner Arndt's acts resulted in a loss to the Pennsylvania Medicaid program of $28,407.24 and ordered her to repay that amount as restitution. I.G. Ex. 11. A fair estimate of the damages caused is found in the amount ordered to be paid as restitution. Steven Alonzo Henry, M.D., DAB CR638 (2000). As established by her $28,407.24 restitution order, Petitioner Arndt's criminal acts clearly resulted in a financial loss to the Pennsylvania Medicaid program of more than $1,500. Furthermore, the evidence shows that Petitioner Wong was reimbursed by the Pennsylvania Medicaid program as a result of Petitioner Arndt's fraudulent claims in an amount well in excess of $1,500. This is established by the claims history from The Medicine Shoppe attached to the May 9, 1996 Information. I.G. Ex. 8.

ii. The acts resulting in Petitioners' convictions, or similar acts, were committed over a period of one year or more.

Petitioners concede that the acts that were the basis of Petitioners' convictions were committed over a period of one year or more. The May 9, 1996 Informations allege that Petitioners engaged in fraud against Medicaid over a period of time that began on or about January 9, 1992 and that continued up to or through March 31, 1995. I.G. Exs. 7 and 8. Petitioners' actions were deliberate and systematic and lasted over a three-year period. This more than three-year period is well over the one-year threshold necessary to establish the existence of this aggravating factor.

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

Petitioner Arndt was sentenced to a period of incarceration for her crimes. Petitioner Arndt was sentenced to two concurrent terms of 11½ to 23 months of incarceration. I.G. Ex. 11. Petitioner Arndt argues that her period of incarceration was served in alternate housing and not in jail. Specifically, Petitioner Arndt was sentenced to a period of confinement at the Alcohol Rehabilitation Center House (ARC House) with school release for her child. Petitioner Arndt argues that this confinement in ARC House does not amount to incarceration under the regulations.

Petitioner's argument is unpersuasive. Petitioner was not given the freedom to move wherever she wished. Although she was not literally behind bars, her freedom of movement was limited. The location of her incarceration does not change the fact that she was incarcerated. This conclusion is supported by the sentencing order of the Court of Common Pleas which states that Petitioner Arndt is to be "incarcerated for a period of not less than 11½ months nor more than 23 months at the ARC house." I.G. Ex. 11. I find that the I.G. has established this aggravating factor.

b. Petitioner Arndt 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 Arndt asserts a number of reasons why her exclusion should be held to be excessive. She argues that her guilty plea in 1997, more than 3½ years ago, failed to demonstrate that she would be an untrustworthy individual in the future. She asserts that the sentence to alternative housing was due to her lack of a prior record and her degree of contrition in pleading guilty. She also asserts that I should consider as mitigating factors that she has been crime free since her conviction and that she has family obligations.

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.

c. Ten-year exclusions are not unreasonable in light of evidence that relates to established aggravating factors.

Evidence relating to established aggravating factors proves Petitioners to have been highly untrustworthy. No mitigating factors were established to offset the aggravating factors. Ten-year exclusions are not unreasonable based on such evidence.

The two most serious aggravating factors, in my judgment, are those which address the duration and impact of Petitioners' crimes. Petitioners participated in fraud against Medicaid over a period of more than three years. Petitioners' fraud was persistent and deliberate, not random or impulsive. The financial impact of their crimes during this period was substantial. When such evidence is considered in its totality, it shows that Petitioners have been engaged in a systematic and massive fraud against the Pennsylvania Medicaid program. Additionally, Petitioner Arndt was sentenced to a period of incarceration of between 11½ to 23 months in the ARC House. The plain and unrebutted evidence of this case is that Petitioners knowingly and repeatedly submitted claims for payment which were medically unnecessary over a more than three-year period. Each of these submissions constituted a separate and deliberate act of fraud directed against Medicaid. Petitioners thus committed multiple individual crimes in furtherance of an overall criminal scheme. Such conduct is evidence of determined and protracted criminal activity and it evidences a high degree of untrustworthiness.

III. Conclusion

I find that the I.G. was authorized to exclude Petitioners pursuant to section 1128(a)(1) of the Act. I find that a 10-year exclusion for each Petitioner is reasonable.

Marion T. Silva

Chief Administrative Law Judge

1. The term "State health care program" includes a State's Medicaid program. Section 1128(h)(1) of the Act; 42 U.S.C. § 1320a-7(h)(1).