SUBJECT:

Michael D. Lawton, M.D.

Petitioner,

The Inspector General

DECISION

By letter dated September 30, 1999, the Inspector General (I.G.), United States Department of Health and Human Services (DHHS) notified Michael D. Lawton, M.D. (Petitioner) that he would be excluded from participation in the Medicare, Medicaid, and all federal health care programs.⁽¹⁾ The I.G. imposed this exclusion pursuant to sections 1892 and 1128(b)(14) of the Social Security Act (Act) because Petitioner failed to repay student loans borrowed through the Health Education Assistance Loan Program (HEAL). The I.G. informed Petitioner that this exclusion would remain in effect until his debt had been satisfied.

By letter dated June 23, 1999, Petitioner requested review of the I.G.'s exclusion determination. The I.G. moved for summary disposition. In an order dated February 28, 2000, I reserved my decision on whether or not an in-person hearing was necessary and I established a briefing schedule. On March 27, 2000, the I.G. filed an initial brief which included 26 proposed exhibits. On May 11, 2000, Petitioner filed his response brief, including two proposed exhibits and a motion for a change of venue. On May 31, 2000, the I.G. filed a reply brief. In an order dated August 2, 2000, I granted the parties an opportunity to submit further statements concerning the necessity of an in-person hearing. On August 31, 2000, the I.G. submitted a statement concerning the issues of fact in dispute. On September 5 and 11, 2000, respectively, Petitioner's statements concerning the need for an in-person hearing and the issues in dispute were received by the Civil Remedies Division (CRD). On September 14, 2000, the I.G. filed her reply to Petitioner's statements. In a ruling dated November 17, 2000, I concluded that Petitioner did not present any additional information regarding the testimony of witnesses which warranted an in-person hearing.⁽²⁾ Because I have determined that there are no facts of decisional significance in dispute, and that the only matters to be decided are the legal implications of the undisputed facts, I have decided the case on the basis of the parties' written submissions.

Both parties submitted briefs and the I.G. submitted a reply brief. The I.G. submitted 26 proposed exhibits. Petitioner objected to the I.G.'s proposed exhibit 9. The I.G.'s proposed exhibit 9 is an assignment of judgment dated February 24, 1999, which reflected that the Student Loan Marketing Association (SLMA) assigned its interest on that date to DHHS. In a response to Petitioner's objection, the I.G. submitted an explanation of the assignment process on January 9, 2001. I find that it has been adequately demonstrated that such document is true and accurate.⁽³⁾ I therefore accept into evidence I.G. Exhibits 1 through 26 (I.G. Exs. 1-26). In support of his case, Petitioner submitted two proposed exhibits (P. Exs. 1 and 2). I accept these exhibits into evidence without objection.

I conclude that Petitioner is subject to exclusion from participation in the Medicare and Medicaid programs until his HEAL debt has been satisfied and I therefore affirm the I.G.'s determination.

Medicare and state health care program exclusions imposed by the Secretary as a result of a health care practitioner's failure to repay a HEAL loan are governed by sections 1128(b)(14) and 1892 of the Act. In 1987, Congress enacted section 1128(b)(14) as a part of the Medicare and Medicaid Patient and Program Protection Act of 1987, Pub. L. 100-93 (MMPPPA). MMPPPA recodified and expanded the Secretary's existing authority to exclude a provider from participation in the Medicare and Medicaid programs including "any individual who the Secretary determines is in default on repayments of . . . loans in connection with health professions education made or secured, in whole or in part, by the Secretary and with respect to whom the Secretary has taken all reasonable steps available to the Secretary to secure repayment of such obligations or loans . . . ." Act, section 1128(b)(14). Section 1128(b)(14) applies to HEAL loans.

Section 1892 of the Act authorizes the Secretary to enter into an agreement with a health care practitioner who owes "a past-due obligation to the United States" to deduct from amounts otherwise payable to the debtor by the Medicare program "until such past-due obligation (and accrued interest) have been repaid . . . ." If an individual does not generate sufficient program reimbursement to satisfy the outstanding debt, or if he or she "refuses to enter into an agreement or breaches any provision of the agreement," the Secretary is directed by sections 1892(a)(2)(C)(ii) and 1892(a)(3)(B) of the Act to exclude the individual from participation in the Medicare program "until such time as the entire past-due obligation has been repaid." The Secretary's exclusion authority under section 1892 of the Act has been delegated to the I.G.⁽⁴⁾

Petitioner contends that he does not owe the contested HEAL loan sums. In particular, he asserts that his debt was discharged in 1994 in a bankruptcy proceeding in United States Bankruptcy Court, Central District of California. Petitioner's Responsive Brief (P. Br.) at 3. Petitioner also maintains that the I.G. has no authority to proceed against him in an exclusion action in that such action can occur only if the individual is engaged in a healthcare profession. Id. at 12-13. Petitioner also asserts that he has in fact paid all or most of the loans and disputes the amounts owed in repayment. Id. at 4. He has submitted canceled checks and statements purporting to show some payments made in 1987 and in 1989. P. Ex. 1. He also alleges that the I.G. delayed in bringing the exclusion to his detriment, as he believes some records relating to his repayment have been lost. Id. at 16-18.

Finally, Petitioner challenges the validity of the loans. He maintains that such loans are not valid and enforceable because the SLMA did not make the required insurance payments and thus such loans are unenforceable under 42 U.S.C. § 292f(a). Id. at 4. He also maintains that such loans did not comply with Federal Truth in Lending requirements. Id. at 8. He also questions the validity of the loans as certain information was not completed on the loans' documentation and his name was misspelled on a relevant loan document. Id.

1. Petitioner attended the University of Iowa Medical School from 1979 through 1982. I.G. Exs. 1-3.

2. On November 23, 1979, Petitioner executed a borrower's agreement and promissory note for a HEAL loan in the amount of $7,130 . I.G. Ex. 4.

3. On June 15, 1981, Petitioner executed a borrower's agreement and promissory note for a second HEAL loan in the amount of $10,000. I.G. Ex. 5.

4. On April 13, 1982, Petitioner executed a borrower's agreement and promissory note for a third HEAL loan in the amount of $10,000. I.G. Ex. 6.

5. DHHS records indicate that Petitioner owed over $50,000 on his loans in 1992. I.G. Ex. 17.

6. On June 15, 1992, the Superior Court, County of Orange, State of California entered a default judgment against Petitioner in favor of the SLMA in the amount of $57,467.03. I.G. Ex. 8.

7. SLMA formally assigned the June 15, 1992 judgment against Petitioner to DHHS, Debt Management Branch on February 24, 1999. I.G. Ex. 9.

8. Commencing in 1993 and continuing until at least 1998, DHHS contacted Petitioner to request that he enter into a repayment agreement or offset agreement to satisfy his unpaid HEAL loans. I.G. Exs. 17, 22.

9. Petitioner has not entered into a repayment agreement or other arrangement to satisfy the outstanding debt.

10. On December 22, 1994, the United States Bankruptcy Court, Central District of California issued a Discharge of Debts order which listed Petitioner's debt to DHHS in the amount of $57,085 for his defaulted HEAL loans as "fixed and liquidated." I.G. Ex. 12.

11. The "Discharge of Debts" order of the United States Bankruptcy Court has no effect in exclusion proceedings initiated by the I.G. under section 1128 of the Act.

12. Petitioner's HEAL loans remain in "default" status.

13. On September 30, 1999, the I.G. notified Petitioner of his exclusion, under section 1128(b)(14) of the Act, from participation in the Medicare and Medicaid programs, which would remain in effect until his HEAL loans were satisfied. I.G. Ex. 24.

14. Petitioner's unpaid HEAL loans are "loans" within the scope of section 1128(b)(14) of the Act.

15. The Secretary has taken all reasonable steps available to secure repayment of Petitioner's HEAL loans.

16. The Secretary has delegated to the I.G. the authority to determine and impose exclusions pursuant to section 1128(b) of the Act.

17. The I.G. properly excluded Petitioner under section 1128(b)(14) of the Act from participation in the Medicare and Medicaid programs for an indefinite period, lasting until such time as Petitioner satisfies the past-due indebtedness.

I find that the evidence establishes that Petitioner was enrolled as a student at the University of Iowa Medical School and that, beginning in 1979, he borrowed a total of $27,130 from the HEAL program to finance his medical education. He received a $7,130 loan, secured by a promissory note executed on November 23, 1979; a $10,000 loan, secured by a note executed on June 15, 1981; and a $10,000 loan, secured by a note executed on April 13, 1984. I.G. Exs. 1-6. Each promissory note detailed the interest rate, amount borrowed, and the date on which interest began to accrue. According to the terms of the promissory notes, Petitioner promised to repay the loans in periodic installments beginning the first day of the tenth month after he either ceased being a full-time student at a HEAL-recognized school or ceased being an intern or resident in an accredited program. Id. The amount of money repaid would include an interest amount based on the terms of the individual promissory notes. Id.

The record further reflects that Petitioner did not fully repay the sums owed under the HEAL loan agreements. Petitioner disputes the amount of the debt owed and has submitted documentation to show that in fact he paid some installments in 1987 and in 1989. P. Exs. 1, 2. The I.G. concedes that Petitioner made payments in the amount of $14,933.69. Nevertheless, Petitioner's failure to fully repay the debt resulted in a default judgment against him in the amount of $57,467.03 in the Superior Court of California, County of Orange, on June 15, 1992. I.G. Ex. 8. The record therefore establishes that this was the amount owed in June 1992, which has since grown due to interest. Pursuant to the arrangement between DHHS and private lenders specified in the HEAL applications, Petitioner's defaulted HEAL debt was assigned to DHHS in State court and subsequently in federal court on February 24, 1999. DHHS made numerous attempts to obtain repayment including offering Petitioner repayment options and the opportunity to arrange an offset agreement. I.G. Exs. 7, 15-22. There is no evidence that Petitioner ever responded or repaid the debt.

Section 1128(b)(14) of the Act requires that the Secretary or his delegate take "all reasonable steps available to the Secretary to secure repayment" of the loans before excluding Petitioner from participation in the Medicare and Medicaid programs. "The term 'all reasonable steps available' means all reasonable and legitimate means of debt collection. In attempting to collect a debt, the Secretary must be reasonable only in the sense that she should not insist on repayment arrangements which are palpably unfair." James F. Cleary, D.D.S., DAB CR252 at 12-13 (1993).

The "reasonableness" standard also does not require the Secretary to excuse individuals from repayment obligations because of financial status, accept financial arrangements which do not accomplish the objective of repayment, or enter into relationships that are not in the public interest. Id. at 13; see also Rikantar Majauskas, D.O., DAB CR441 (1996). The Secretary has also interpreted the phrase "all reasonable steps available" by regulation which provides that "all reasonable administrative steps available to secure repayment" of a HEAL debt will have been achieved where the debtor has been offered a Medicare offset arrangement. 42 C.F.R. § 1001.1501(a)(2). Although an offset agreement is not a necessary element of "all reasonable administrative steps" it is conclusive proof that all reasonable steps have been taken by the Secretary. Charles K. Angelo, Jr., M.D., DAB CR290 at 12 (1993).

I find that the record establishes that Petitioner was accorded all reasonable opportunities to repay his HEAL debt. On June 15, 1992, the Superior Court for the State of California, County of Orange, issued a default judgment finding that Petitioner's HEAL loan was in default. I.G. Ex. 8. Thereafter, beginning on January 11, 1993, DHHS notified Petitioner that his HEAL debt was delinquent and that payment arrangements had to be made to resolve the debt. I.G. Ex. 5. Several additional notices followed. I.G. Exs. 7, 16-22. On nine occasions, DHHS presented Petitioner with the option of entering a repayment agreement. See I.G. Exs. 7, 15-22. On four occasions, DHHS offered Petitioner the option of executing an offset agreement whereby his Medicare/Medicaid reimbursements would be directly applied to his outstanding loan debt. See I.G. Exs. 7, 17, 21, 22. In each instance, however, Petitioner did not avail himself of any of these options and instead allowed his HEAL loan to grow to its present level.

In his defense, Petitioner, citing 42 U.S.C. § 292f, asserts that the I.G. has no jurisdiction to exclude him unless he is actively practicing his profession. P. Br. at 5. I find that such contention is in error. The exclusion provision of section 1128 of the Act applies to all individuals and entities without regard to whether they have been practicing as health care providers.

Petitioner also asserts that his HEAL debt was discharged in the bankruptcy action and thus there is no basis for an exclusion action. In considering whether a basis for the exclusion exists, I must determine whether Petitioner's loan is in default. The record reflects that the loan was never fully repaid. The regulations under 42 C.F.R. § 1001.1501 do not exempt one who has had such debt discharged in bankruptcy. On such basis, Petitioner's bankruptcy is irrelevant. Moreover, even considering the effect of the bankruptcy, dischargeability of a HEAL loan debt is governed by 42 U.S.C. § 292f(g). This statute permits discharge of the HEAL debt if three criteria are met: (1) seven years have passed from the date that repayment begins; (2) the bankruptcy court finds that non-discharge would be unconscionable; and (3) the court finds that the Secretary will not have waived his right to apply subsection (f) to the borrower and the discharged debt. See Hines v. United States, 63 B.R. 731, 734 (Bankr. D.S.D. 1986).

Petitioner has not established that he satisfied the second criterion. "The burden on initiating an inquiry into the dischargeability of a HEAL loan under section 292f(g) falls upon the debtor, not the creditor." United States v. Wood, 925 F.2d 1580, 1583 (7^th Cir. 1991). To initiate an inquiry into the dischargeability of a HEAL debt in Chapter 7 bankruptcy, Petitioner must first file an adversarial complaint to determine dischargeability of the HEAL loan. Id.; see also 42 C.F.R. § 60.35(g)(1). Where there is no adversarial inquiry filed, DHHS does not make an appearance in the bankruptcy proceeding in defense of the HEAL debt exemption from the general discharge. Such an appearance is not necessary. The dischargeability requirements for HEAL debts are self-executing. Where an individual seeking discharge of his or her HEAL debt fails to obtain a special finding by the bankruptcy judge that non-discharge would be unconscionable, the HEAL debt will be unaffected by the general discharge and the individual will remain liable for the debt. Wood, 925 F.2d at 1583. A bankruptcy court's general discharge, which lists DHHS as a creditor whose claim has been liquidated by the discharge order, has no effect on the HEAL debt if the bankruptcy judge has made no special findings. Id. at 1582-83. Petitioner has not shown that such special finding was made in his case.

Petitioner also challenges other aspects of the validity of the debt. Petitioner maintains that he did not default because there was "no insurance policy in effect." P. Br. at 4, 5. Under the regulations, there may be a one-time charge to the lender for default insurance, which charge may be passed on to the borrower. 42 C.F.R. § 60.14(a)(2). Such action does not affect the validity of the loan or the borrower's obligations. Petitioner also maintains that the loans did not comply with Federal Truth in Lending requirements and that the forms were not completely or correctly filled out. P. Br. at 4, 8. Petitioner's claims as to these issues lack legal or factual basis. Moreover, insofar as Petitioner sought to discharge these debts in the 1994 bankruptcy proceeding, he conceded the validity of the claim.

Finally, Petitioner maintains that he has been disadvantaged by the I.G.'s delay in bringing the exclusion action. P. Br. at 7. The I.G. has discretion to determine when to impose an exclusion. Laurence Wynn, M.D., DAB CR344 (1994). Petitioner has not demonstrated that such delay was unreasonable as Petitioner was afforded many opportunities to repay his debt over this period. Moreover, to establish estoppel by laches, a party must establish that he changed his position to his detriment and prejudice through reliance upon the unreasonable delay in instituting actions against him. Akers v. State Marine Lines, Inc., 344 F.2d 217 (5^th Cir. 1965). Petitioner has not demonstrated that he has been harmed. Finally, it has been held that estoppel lies against the government, if at all, only if the party can show affirmative misconduct by the government. INS v. Hibi, 414 U.S. 5 (1973). Petitioner has not made such showing.

I therefore find that the I.G. properly excluded Petitioner under section 1128(b)(14) of the Act from the Medicare and Medicaid programs. See Mohammad H. Azarpira, D.D.S., DAB CR372 (1995) (exclusion is reasonable where petitioner failed to respond to instructions on how to enter into repayment agreement; failed to provide information necessary to enter into an offset agreement; made his first payment only after exclusion; and never made payments large enough to pay even the accruing interest on his HEAL loans). The regulations provide that an exclusion remains in effect until the default is cured or the obligations have been resolved to Public Health Service's satisfaction. 42 C.F.R. § 1001.1501(b). The debt remains unpaid and Petitioner has not entered into a repayment or offset agreement. The exclusion, therefore, is proper and remains in effect.

Joseph K. Riotto

Administrative Law Judge

1. In this decision, I use the term "Medicaid" to include any State health care program which receives federal funds as defined by section 1128(h) of the Social Security Act.

2. In my November 17, 2000 ruling, I also denied Petitioner's request for issuance of subpoenas duces tecum and addressed his assertions that I was not competent to hear and decide this case.

3. On such basis, I therefore deny Petitioner's December 27, 2000 "Application for Order Compelling Production of Documents concerning I.G. Ex. 9" and I deny his "Motion to Dismiss Due to Outrageous Misconduct by the I.G." based on his claim that I.G. Ex. 9 was fraudulent.

4. My decision here does not address Petitioner's exclusion under section 1892 of the Act for two reasons. First, I have found Petitioner's exclusion to be authorized under section 1128(b)(14) of the Act, and I need not consider whether it is also authorized under section 1892. Second, it is not clear whether I have the authority to review an exclusion imposed by the I.G. under section 1892. See Rikantar (Rik) Majauskas, D.O., DAB CR441 (1996).