Neil R. Hirsch, M.D., DAB No. 1550 (1995)

Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Appellate Division

In the Case of:

Neil R. Hirsch, M.D.,

Petitioner,
- v. -
The Inspector General.

DATE: November 27, 1995
Docket No. C-95-001
Decision No. 1550

FINAL DECISION ON REVIEW OF
ADMINISTRATIVE LAW JUDGE DECISION

The Petitioner, Neil R. Hirsch, M.D., appealed a June 2,
1995 decision by Administrative Law Judge (ALJ) Joseph K.
Riotto. Neil R. Hirsch, M.D., DAB CR379 (1995) (ALJ
Decision). In his decision, the ALJ affirmed the
Inspector General's (I.G.) exclusion of Petitioner for a
period of five years from participation in the title
XVIII (Medicare), the title XIX (Medicaid), the Maternal
and Child Health Services Block Grant, and the Block
Grants to States for Social Services programs.

As described more fully below, the ALJ found that
Petitioner had pled guilty to three felony offenses
concerning his participation in the ownership and
management of Health Care Providers of Arizona, Inc.
(HCPA); that HCPA was a prime contractor with the Arizona
Health Care Cost Containment System (AHCCCS), Arizona's
program for providing medical assistance to low-income
people; that HCPA was reimbursed by AHCCCS on a capitated
basis for providing services to AHCCCS enrollees; that
Arizona had a title XIX State plan; and that AHCCCS
received federal funding from title XIX as a
demonstration project approved under section 1115 of the
Social Security Act (the Act).

Based on the record, the ALJ concluded that Petitioner
had been convicted of a criminal offense related to the
delivery of an item or service under a State health care
program and that, consequently, sections 1128(a)(1) and
1128(c)(3)(B) of the Act mandated his five-year
exclusion. Because the ALJ determined that there were no
facts of decisional significance genuinely in dispute, he
granted the I.G.'s motion for summary disposition and
decided the case on the basis of the parties' written
submissions.

Petitioner appealed the ALJ Decision. Petitioner's
principal challenges concern: (1) whether AHCCCS, as a
section 1115 demonstration project, was a "State health
care program" as defined by section 1128(h)(1); (2)
whether the nature of Petitioner's offenses and the fact
that HCPA was reimbursed on a capitated, rather than fee-
for-service basis, mean that Petitioner's conviction was
not "related to the delivery of an item or service" as
required by section 1128(a)(1); and (3) whether the ALJ
was prejudiced against Petitioner and erroneously
admitted exhibits concerning Arizona's title XIX State
plan and section 1115 waivers.

Based on the analysis below, we conclude that the ALJ
correctly determined that the I.G.'s exclusion of
Petitioner was mandated by sections 1128(a)(1) and
1128(c)(3)(B). However, we also conclude that several of
the ALJ's Findings of Fact and Conclusions of Law (FFCLs)
should be modified based on Petitioner's arguments and
the record before us. We affirm and adopt, as modified,
those FFCLs. Below, first we describe the applicable
law, then we list the undisputed FFCLs, and finally we
discuss Petitioner's arguments and exceptions and our
modifications of certain FFCLs.

Applicable Law

Section 1128(a) of the Act mandates the exclusion of
certain individuals from participation in Medicare and
State health care programs. Petitioner's exclusion is
based on section 1128(a)(1), which provides for the
exclusion of "[a]ny individual or entity that has been
convicted of a criminal offense related to the delivery
of an item or service under Title XVIII or under any
State health care program." Section 1128(c)(3)(B)
provides that such a section 1128(a)(1) exclusion must be
for a minimum of five years.

Section 1128(h) defines "State health care program." It
provides:

Definition of a State health care program. For
purposes of this section . . . the term "State
health care program" means--

(1) a State plan approved under title XIX,

(2) any program receiving funds under title V
or from any allotment to a state under such
title, or

(3) any program receiving funds under title XX
or from any allotment to a State under such
title.

Title XIX of the Act establishes the Medicaid program,
which is a cooperative federal/state program for medical
assistance to low income people. In order to establish a
Medicaid program, a state must have a title XIX State
plan which has been approved by the Secretary of the
Department of Health and Human Services (DHHS). Sections
1901, 1903. The State plan requirements for the Medicaid
program are set forth in section 1902 of the Act. Once a
state has an approved State plan, it is entitled to
federal financial participation in its medical assistance
expenditures under that plan. Section 1903.

While section 1902 sets forth requirements for title XIX
State plans, those requirements may be waived under
certain circumstances. Section 1115 of the Act allows
the Secretary of the Department of Health and Human
Services to establish "demonstration projects" by waiving
State plan requirements for a variety of public
assistance programs, including the Medicaid program under
title XIX, while continuing to fund the project with
program appropriations. Section 1115 provides:

(a) In the case of any experimental, pilot, or
demonstration project which, in the judgment of the
Secretary, is likely to assist in promoting the
objectives of title . . . XIX . . . in a State or
States--

(1) the Secretary may waive compliance with
any of the requirements of section . . . 1902
. . . to the extent and for the period he finds
necessary to enable such State or States to
carry out such project, and

(2) costs of such project which would not
otherwise be included as expenditures under
section . . . 1903 . . . shall, to the
extent and for the period prescribed by the
Secretary, be regarded as expenditures under
the State plan or plans approved under such
title, or for administration of such State plan
or plans, as may be appropriate.

Background

The following FFCLs from the ALJ Decision were not
contested: 1/

2. Under section 1115 of the Act, a State's
experimental, pilot, or demonstration project which, in
the Secretary's judgment, is likely to promote the
objectives of Title XIX, may receive a waiver from the
Secretary from compliance with any of the requirements of
section 1902 of Title XIX to the extent necessary to
enable the State to carry out its project. Act, section
1115(a).

3. If the Secretary grants a section 1115 waiver, the
costs of the State's project which would not otherwise be
included as expenditures under section 1903, and which
would not otherwise be included as part of the cost of
projects under section 1110, shall be regarded as
expenditures under the State plan or plans approved under
Title XIX. Act, sections 1115(a)(1) and (2).

4. On October 1, 1982, the State of Arizona implemented
the Arizona Health Care Cost Containment System (AHCCCS),
a demonstration project approved under section 1115 of
the Act. 2/ P. Ex. 3; I.G. Br. at 6; P. Br. at 2.

5. AHCCCS received a section 1115 waiver from the
Secretary, which waived compliance with certain Title XIX
requirements. See P. Ex. 1; FFCL 2.

6. The costs of the AHCCCS program which would not
otherwise be included as expenditures under section 1903
of the Act, and which would not be included as part of
the costs of projects under section 1110, shall, to the
extent and for the period prescribed by the Secretary, be
regarded as expenditures under Arizona's Title XIX State
plan. Act, section 1115; FFCL 1-5.

7. AHCCCS contracts with providers for the provision of
hospitalization and medical care coverage to members.
Ariz. Rev. Stat. Ann. . 36-2903(A) (1993 and Supp. 1994).

8. A "prepaid capitated" payment system is one in which
a health care provider is paid based on a fixed rate per
member, notwithstanding the actual number of members who
receive care from the provider and the amount of health
care services provided to any member. Ariz. Rev. Stat.
Ann. . 36-2901(9) (1993 and Supp. 1994).

10. The director of AHCCCS is authorized to apply for
and accept federal funds available under Title XIX of the
Act in support of AHCCCS; such funds may be used only to
support persons who are defined as meeting Title XIX
eligibility requirements. Ariz. Rev. Stat. Ann. . 36-
2903.01(B)(5) (1993).

11. An AHCCCS contractor is required to comply with the
provisions of federal law and regulations governing the
Title XIX program, except for those requirements waived
by the federal government for the State in the State plan
for Medical Assistance. A contractor is required also to
comply with the provisions of Title 36, Chapter 29 of the
Arizona Revised Statutes (governing AHCCCS), and with all
applicable regulations promulgated by the Arizona
Department of Health Services. I.G. Ex. 8 at 6.

12. Another section of the Arizona statutes mandates
that the provisions relating to the operation of AHCCCS
will be suspended if, at any time, federal funding under
Title XIX is denied, not renewed or becomes unavailable.
Ariz. Rev. Stat. Ann. . 36-2919 (1993).

13. The section 1115 waiver enables AHCCCS to receive
Title XIX funds from the State as payments for services
furnished under it.

14. Payments made to AHCCCS pursuant to section
1115(a)(2) are indisputably payments made under Title
XIX, i.e., Medicaid payments. FFCL 9-13.

15. The AHCCCS program is a project approved under
section 1115 of the Act. FFCL 5, 13.

17. Petitioner, an ophthalmologist, was one of three
owners and principals of Health Care Providers of
Arizona, Inc. (HCPA). I.G. Ex. 1 at 3-5; I.G. Ex. 10 at
2; P. Ex. 2.

18. HCPA was incorporated on August 6, 1982, to deliver
health care to AHCCCS enrollees. I.G. Ex. 1 at 3-5; I.G.
Ex. 7 at 3.

19. HCPA was a prime contractor with AHCCCS from 1982 to
1984. I.G. Ex. 1 at 3-5; P. Ex. 2.

20. AHCCCS paid HCPA monthly capitation payments for the
delivery of health care to indigent Arizona citizens.
I.G. Ex. 1 at 3-5.

23. AHCCCS checks paid to HCPA were deposited into
HCPA's corporate checking account, which was controlled
by HCPA's principals, one of whom was Petitioner. I.G.
Ex. 1 at 4-5.

24. On or about July 28, 1989, a 17-count indictment was
filed in the Superior Court of the State of Arizona
(State court) against Petitioner and the two other
principals of HCPA. I.G. Ex. 7.

25. On April 6, 1992, Petitioner pled guilty to two
counts of facilitation of theft, in violation of Ariz.
Rev. Stat. .. 13-1004 and 13-1802(A)(2). Pursuant to a
plea agreement, these counts were amended and constitute
amended counts 14 and 16 of the indictment. See I.G. Ex.
1.

26. By signing and dating the statements attached to his
plea agreement, titled "Exhibit II, Factual Basis for
Amended Count 14" and "Exhibit III, Factual Basis for
Amended Count 16," Petitioner has admitted to the facts
set forth in these statements. I.G. Ex. 1 at 4, 5.

27. The factual basis for amended count 14 states that
Petitioner "aided [another principal's] theft of HCPA
monies in violation of A.R.S. 13-1802(A)(2) by signing
check number 2018 in the amount of $300.00 written on
HCPA's checking account payable to Oximetrix, Inc." I.G.
Ex. 1 at 4.

28. Petitioner signed check number 2018 to pay for an
electric surgical knife, "knowing that the equipment was
to be used for . . . non-AHCCCS cosmetic surgery
patients. Cosmetic procedures are not covered by
AHCCCS." I.G. Ex. 1 at 4.

29. The factual basis for amended count 16 states that
Petitioner "aided in Berton Siegel's theft of HCPA monies
by signing check #3748 in the amount of $10,000 written
on Health Care Providers of Arizona checking account to
Touche Ross Minneapolis." I.G. Ex. 1 at 5.

30. Check number 3748 was used to pay the balance on an
actuarial study which was to provide information for a
private health care organization owned by Berton Siegel
and Petitioner. Petitioner signed the check knowing that
the actuarial study was not used for HCPA's purposes.
I.G. Ex. 1 at 5.

32. Petitioner was a joint owner of Eyelites
International, Inc. (Eyelites), an optical company. I.G.
Ex. 1 at 3.

33. Via two subcontracts executed on or about August 9,
1983 and August 11, 1983, Eyelites became a HCPA
subcontractor to provide eyeglasses to HCPA's AHCCCS
members. I.G. Ex. 1 at 3; I.G. Ex. 7 at 13.

34. Neither Petitioner nor the other principal of
Eyelites signed the subcontract; instead, two employees
of the principals who had no association with Eyelites
were directed to sign the Eyelites' subcontracts. I.G.
Ex. 1 at 3.

35. AHCCCS regulations required HCPA's principals to
disclose to AHCCCS any subcontracts in which a HCPA
principal had a financial interest. I.G. Ex. 1 at 3.

36. On April 6, 1992, Petitioner pled guilty to one
count of fraudulent schemes and practices, wilful
concealment, in violation of Ariz. Rev. Stat. . 13-2311.
Pursuant to a plea agreement, this count was amended and
now constitutes amended count 10 of the indictment. See
I.G. Ex. 1.

37. By signing and dating the statement attached to his
plea agreement, titled "Exhibit I, Factual Basis for
Amended Count 10," Petitioner has admitted to the facts
set forth in this statement. I.G. Ex. 1 at 3.

38. The factual basis for amended count 10 states that
Petitioner "knowingly concealed the related party status
of Eyelites International, Inc. pursuant to a scheme or
artifice to defraud which enabled [Petitioner] to have
HCPA pay $60,000.00 to Eyelites between November 14, 1983
and February 8, 1984 . . . while [Petitioner's] financial
interest in Eyelites, International, Inc. remained
concealed from AHCCCS." I.G. Ex. 1 at 3.

39. Petitioner knowingly concealed from AHCCCS that
Petitioner, a HCPA principal, had a financial interest in
Eyelites' subcontract. FFCL 32-38.

43. Based on Petitioner's guilty plea, the State court
convicted Petitioner of two counts of facilitation of
theft and one count of fraudulent schemes and practices
and wilful concealment. I.G. Exs. 2, 3.

44. In accordance with the terms of Petitioner's plea
agreement, the State court judge granted Petitioner's
motion to dismiss counts 1-9, 11-13, 15, and 17 of the
indictment. I.G. Ex. 3 at 4.

47. Under section 1128(i)(3) of the Act, "an individual
or entity is considered to have been `convicted' of a
criminal offense -- (3) when a plea of guilty or nolo
contendere by the individual or entity has been accepted
by a Federal, State or local court. . . . "

48. Petitioner's guilty plea, and the actions taken by
the State court indicating acceptance of his plea,
constitute a "conviction" of Petitioner within the
meaning of section 1128(i)(3) of the Act. FFCL 36; 43-
47.

50. Under section 1128(a)(1) of the Act, a conviction
within the meaning of section 1128(i) mandates exclusion.
The administrative law judge is not authorized to look
behind the conviction to determine its validity.

51. The Secretary of HHS has delegated to the I.G. the
authority to determine, impose, and direct exclusions
pursuant to section 1128 of the Act. 48 Fed. Reg. 21,662
(1983).

52. An exclusion imposed and directed pursuant to
section 1128(a)(1) of the Act must be for a period of at
least five years. Act, sections 1128(a)(1),
1128(c)(3)(B); 42 C.F.R. . 1001.102(a).

53. Section 1128 of the Act is intended to protect the
integrity of federally-funded health care programs and
the welfare of program beneficiaries and recipients from
individuals and entities who have been shown to be
untrustworthy. See S. Rep. No. 109, 100th Cong., 1st
Sess. 1 (1987), reprinted in 1987 U.S.C.C.A.N. 682.

54. Neither the I.G. nor an administrative law judge is
authorized to reduce the five-year minimum mandatory
period of exclusion.

ALJ Decision at 3-9. We affirm and adopt these FFCLs.
The FFCLs to which Petitioner specifically excepted are
discussed in our analysis. We note that while Petitioner
did not specifically except to FFCL 55, his arguments
necessarily challenge that FFCL by implication. That
FFCL states:

55. The I.G. properly excluded Petitioner from
participation in the Medicare and Medicaid programs for
five years, as required by sections 1128(a)(1) and
1128(c)(3)(B) of the Act. FFCL 1-54.

We affirm and adopt FFCL 55 for the reasons explained
below.

Analysis

As the forum for administrative review of an ALJ's
decision in an exclusion case, we have a limited role.
The standard of review on disputed issues of fact is
whether the ALJ Decision is supported by "substantial
evidence on the whole record." The standard of review on
disputed issues of law is whether the ALJ Decision is
"erroneous." 42 C.F.R. . 1005.21(h); Joyce Faye Hughey,
DAB 1221, at 11 (1990); Lakshmi N. Murty Achalla, DAB
1231, at 7 (1991).

Petitioner raised 19 exceptions to the ALJ Decision. We
discuss these exceptions and Petitioner's related
arguments in three sections of the analysis. The
sections address:

o whether AHCCCS was a "State health care
program" as defined by section 1128(h)(1);

o whether the offenses for which Petitioner was
convicted were "related to the delivery of an
item of service" as required by section
1128(a)(1); and

o whether the ALJ was prejudiced against
Petitioner and erroneously admitted exhibits
concerning Arizona's title XIX State plan and
section 1115 waivers.

In each section, we discuss the basis for our conclusions
concerning these issues, Petitioner's arguments, and
Petitioner's exceptions to the related FFCLs. Based on
our analysis, we either adopt or modify and adopt those
FFCLs..

I. AHCCCS, which delivered items and services
under a State plan approved under title XIX,
was a State health care program as defined by
section 1128(h)(1).

We conclude that items and services provided by the
AHCCCS program were delivered under a State plan approved
under title XIX and that AHCCCS was a "State health care
program" as defined by section 1128(h)(1).

As to the facts, both parties agreed and the undisputed
FFCLs establish that AHCCCS was a demonstration project
approved under a section 1115 waiver (FFCL 4). Further,
both parties agreed and the undisputed FFCLs establish
that AHCCCS was partially funded by federal funds which
are appropriated for and paid to Arizona pursuant to
title XIX (FFCLs 6, 10, 14).

In Exception 5, Petitioner excepted to FFCL 1, in which
the ALJ found that "Arizona has in place a State plan
approved under Title XIX of the Act." Petitioner argued
that FFCL 1 is not supported by substantial evidence and
is erroneous, as a matter of law. We find that FFCL 1 is
supported by substantial evidence, for the following
reasons:

o Exhibit 12 consists of portions of the Arizona
title XIX State plan and of correspondence
between Arizona and the Health Care Financing
Administration (HCFA) concerning federal
approval of that State plan. It establishes
that, in 1982, the Governor of Arizona
submitted to HCFA for its approval "the State
Plan for Arizona Health Care Cost Containment
System under Title XIX of the Social Security
Act . . . ." I.G. Ex. 12, at 1. In response,
HCFA issued a "Transmittal and Notice of
Approval of State Plan Material" approving
AHCCCS as a new title XIX State plan effective
January 1, 1982. Id. at 5. 3/ Exhibit 12 also
reflects that Arizona was "in the process of
submitting a section 1115 waiver request" as to
certain items in the State plan. Id. at 2.

o Exhibit 13 consists of portions of the Arizona
title XIX State plan as it existed in 1992,
indicating that the State plan continued in
effect until at least after the time period in
question here. Exhibit 13 also reflects that
Arizona requested and received waivers,
pursuant to section 1115, of certain title XIX
requirements for State plans.

o The purpose of a section 1115 medical
assistance waiver is to relieve a state from
having to comply with specified portions of the
section 1902 requirements for title XIX State
plans. Section 1115(a)(1). Therefore, for a
medical assistance program, a section 1115
waiver would be unnecessary unless the state
also had an approved title XIX State plan.
Arizona could not operate AHCCCS pursuant to a
section 1115 waiver unless Arizona also had an
approved title XIX State plan.

o Petitioner did not dispute the findings in
FFCLs 6, 10, and 14 that Arizona receives
reimbursement for a portion of its expenses for
AHCCCS pursuant to title XIX. Title XIX
reimbursement is authorized by section 1903 for
"each State which has a plan approved under
this title." Section 1115(a)(2) provides that
a section 1115 waiver project's costs "which
would not otherwise be included as expenditures
under section . . . 1903" shall "be regarded as
expenditures under the State plan . . .
approved under such title." Therefore, an
approved title XIX State plan is a precondition
to payment of title XIX funds pursuant to a
section 1115 waiver. Payment of title XIX
reimbursement to Arizona for AHCCCS necessarily
means that Arizona has in place a title XIX
State plan for AHCCCS.

o Petitioner relied on two secondary sources
representing that Arizona had initially
declined to participate in title XIX and then
subsequently did so pursuant to a section 1115
waiver project. Exceptions at 27. However,
neither the ALJ nor the I.G. disputed that
AHCCCS was a demonstration project approved
under a section 1115 waiver. Rather, the fact
of AHCCCS's section 1115 waiver supports a
finding that Arizona necessarily had an
approved title XIX State plan.

o Arizona statutes, which govern the operation of
AHCCCS, also demonstrate that AHCCCS delivers
services under title XIX. Pursuant to Ariz.
Rev. Stat. Ann. . 36-2903.01(B)(5) (1993), the
director of AHCCCS is authorized to apply for
and accept federal funds available under Title
XIX of the Act in support of AHCCCS and such
funds may be used only to support persons who
are defined as meeting title XIX eligibility
requirements. FFCL 10. Pursuant to Ariz. Rev.
Stat. Ann. . 36-2919 (1993), the operation of
AHCCCS will be suspended if, at any time,
federal funding under Title XIX is denied, not
renewed or becomes unavailable. FFCL 12. As
explained above, a state must have an approved
State plan in order to participate in title
XIX.

Therefore, there is substantial evidence in the record
establishing that Arizona had in effect, at all times
relevant to this dispute, a State plan under title XIX
and that, pursuant to this State plan, Arizona received
title XIX reimbursement for the federal share of the
expenses it incurred for the operation of AHCCCS.

We also reject Petitioner's arguments in support of his
position that FFCL 1 is erroneous as a matter of law.
Petitioner argued that AHCCCS could not be "a State
health program within the definition of Section
1128(h)(1) of the Act, because to be approved under Title
XIX, the plan must fulfill all requirements imposed by
the law." Exceptions to Decision of Administrative Law
Judge (Exceptions) at 28. Petitioner contended that,
because Arizona had obtained a section 1115 waiver of
certain title XIX State plan requirements for AHCCCS,
AHCCCS could not, as a matter of law, be a State plan
approved under title XIX and therefore did not meet the
definition in section 1128(h)(1). Id.

We disagree. First, Petitioner framed the issue
incorrectly as a question of whether AHCCCS is a title
XIX State plan. The issue is correctly framed by
substituting the section 1128(h)(1) definition of "State
health care program" for that term as used in section
1128(a)(1). Thus framed, the issue is whether
Petitioner's conviction is for an offense related to the
delivery of an item or service under a State plan
approved under title XIX. For the following reasons, we
conclude that the items and services delivered to title
XIX recipients under AHCCCS are delivered under a State
plan approved under title XIX:

o The fact that compliance with certain
requirements of section 1902 were waived under
section 1115 for AHCCCS does not negate the
fact that AHCCCS was approved under and
administered in conformance with, or "under",
the unwaived requirements of section 1902 as
set forth in the Arizona title XIX State plan.

o Arizona's title XIX State plan governed
significant elements of the delivery of items
or services by AHCCCS. In the letter
transmitting its State plan, Arizona listed
section 1902 provisions for which it would seek
a section 1115 waiver. This list did not refer
to a range of fundamental title XIX
requirements, including the requirements for
statewideness (section 1902(a)(1)); for
adoption of resource and income standards for
recipients (section 1902(a)(17)); and for
compliance with section 1917 regarding liens
and other types of recovery of the costs of
medical assistance (1902(a)(18)), and most
fundamentally, the requirements for persons
eligible for title XIX services (section
1902(a)(10)). See I.G. Ex. 12, at 2.

Therefore, clearly items or services provided by AHCCCS
were provided under Arizona's State plan approved under
title XIX.

Second, Petitioner treated title XIX State plans and
section 1115 waiver projects as mutually exclusive but
pointed to nothing in the wording of the Act which
supports this reading. As authority for his position
that a project operating under a section 1115 waiver
cannot also be a program approved under a title XIX State
plan, Petitioner cited Crane v. Mathews, 417 F.Supp. 532,
536 (N.D. Ga. 1976). Petitioner asserted that Crane held
that, to be approved under Title XIX, a plan must fulfill
all requirements imposed by title XIX. Exceptions at 28.

Petitioner's reliance on the dicta from Crane is
misplaced. In Crane, the plaintiffs challenged the
Secretary's granting of a section 1115 waiver which
allowed Georgia to impose copayments on Medicaid
recipients who were statutorily exempt from copayments
under section 1902(a)(14). In the portion of the
decision on which Petitioner relied, the Court discussed
the interaction of title XIX and section 1115 waivers and
said:

Title XIX of the Social Security Act, 42 U.S.C. .
1396 et seq., provides for the establishment of
cooperative federal-state programs, commonly called
"Medicaid", to provide payment for "necessary
medical services" rendered to certain "(needy)
individuals, whose income and resources are
insufficient to meet the costs of (these) services."
42 U.S.C. . 1396. States which choose to
participate in the Medicaid program must submit to
the Secretary of Health, Education, and Welfare a
"state plan" which fulfills all requirements of the
Act. See 42 U.S.C. 1396a. If the state submits a
plan which fulfills all requirements set out in
section 1396a and implementing federal rules, then
the Secretary must approve it. Georgia
participates in the Medicaid program under such an
approved state plan. While state requirements under
Title XIX are mandatory upon the states, Title XI of
the Act, section 1115, 42 U.S.C. s 1315, provides a
mechanism whereby such requirements may be waived in
certain circumstances.

Crane, 417 F.Supp. at 536 (emphasis added).

Contrary to Petitioner's assertions, the Court did not
say that, in order to be approved under title XIX, a
State plan must fulfill all requirements of title XIX.
Rather the Court said that, when a State plan fulfills
all the requirements of section 1902 of the Act (42
U.S.C. . 13396a), the Secretary must approve that State
plan. The Court went on to explain that title XIX
mandatory requirements may be waived by the Secretary
under certain circumstances, i.e., when the Secretary
finds, under section 1115, that a waiver of section 1902
requirements is likely to promote the objectives of title
XIX. Nowhere does the Court indicate that, if some State
plan requirements have been waived pursuant to section
1115 so that the plan does not fulfill all the
requirements of section 1902, the State plan may not be
approved.

Petitioner also argued that a section 1128(a)(1)
exclusion is a punitive remedy and therefore section
1128(h)(1) should be narrowly construed and no exclusion
imposed unless the I.G. established the applicability of
section 1128(h)(1) beyond a reasonable doubt. Exceptions
at 22. Petitioner contended that construing section
1128(h)(1) to include AHCCCS would constitute an
expansive interpretation of the definition of "State
health care program."

This argument has no merit. Section 1128(a)(1) is not
punitive, but remedial. Its purpose is to protect "State
health care programs" and Medicare from untrustworthy
individuals. Larry White, R.Ph., DAB 1346, at 3 (1992);
Janet Wallace, L.P.N., DAB 1326, at 12-14 (1992);
Manocchio v. Kusserow, 961 F.2d 1539 (11th Cir. 1992)
(holding that an exclusion under section 1128(a)(1) was
remedial rather than punitive and, therefore, the Double
Jeopardy and Ex Post Facto Clauses of the United States
Constitution did not apply). This purpose can best be
achieved if medical assistance programs operated with a
section 1115 waiver are protected against individuals who
Congress determined to be untrustworthy. A section 1115
waiver of a section 1902 requirement is granted only
after the Secretary finds that the waiver will further
the objectives of title XIX. Therefore, programs which
operate under both a section 1115 waiver and a title XIX
State plan are medical assistance programs; they are
administered pursuant to the unwaived portions of a
state's title XIX State plan; they serve the goals of
title XIX, and they receive federal reimbursement
pursuant to title XIX. To construe section 1128(h)(1) in
a way which would place such programs beyond the federal
mandates designed to protect the federal fisc and title
XIX recipients would contravene Congressional intent.

For the preceding reasons, we reject Petitioner's
Exception 5. We affirm and adopt FFCL 1 as written:

1. Arizona had in place a State plan approved under
Title XIX of the Act.

Petitioner filed several additional exceptions related to
this issue. Below, we consider those exceptions and
either adopt or modify and adopt the ALJ's FFCLs.

In Exception 8, Petitioner excepted to the conclusion in
FFCL 16 that "AHCCCS is considered to be a State Health
care program." Petitioner objected that the appropriate
standard was not whether AHCCCS was "considered" to be a
State health care program but rather whether it met the
definition in section 1128(h)(1). Based on the preceding
analysis, we adopt the following modified version of FFCL
16:

16. For title XIX recipients, the items and
services provided by AHCCCS are delivered under a
State plan approved under title XIX. AHCCCS is a
State health care program within the meaning of
section 1128(h)(1). FFCL 13-15.

In Exception 6, Petitioner excepted to the FFCLs on the
grounds that the ALJ failed to consider that AHCCCS was
approved under section 1115 and not approved under title
XIX. We reject this exception on the grounds that we
have concluded that Arizona had a State plan approved
under title XIX, under which items and services were
delivered.

In Exception 3, Petitioner objected that the ALJ failed
to cite the text of section 1128(h)(1). In Exception 17,
Petitioner objected to FFCL 49, in which the ALJ used the
term "Medicaid" instead of the statutory language in
section 1128(h)(1). Petitioner argued that the ALJ's
failure to properly quote and consider the wording of the
relevant statutes resulted in erroneous application of
law. We agree with Petitioner that the better practice
is to cite and use the specific statutory language that
is being applied and that the ALJ's analysis would have
been more complete if he had used the text of section
1128(h)(1) rather than substitute the general term
"Medicaid." While we do not regard this as a material
error on the ALJ's part, we adopt the following modified
version of FFCL 49. 4/

49. Petitioner was convicted of a criminal offense
related to the delivery of an item or service under
a State health care program, that is, under a State
plan approved under title XIX, within the meaning of
sections 1128(a)(1) and 1128(h)(1) of the Act. FFCL
36-48.

Petitioner objected to FFCLs 21 and 41 in which the ALJ
found that funds paid to HCPA were federal funds or title
XIX funds. Exceptions 9, 13. Petitioner argued that the
nature of the funds was irrelevant to the legal
definition of State health care program. We do not
agree. Title XIX funds are paid only if a state has an
approved State plan. Section 1903. The payment of such
funds is evidence that Arizona had such a plan for AHCCCS
and the existence of a title XIX plan is relevant to
whether AHCCCS meets the definition of State health care
program. Therefore, we modify 5/ and adopt FFCL 21 and
affirm and adopt FFCL 41:

21. Parts of the monthly contract payments made to
HCPA were federal funds under Title XIX. FFCL 10,
14-19.

41. Petitioner used Title XIX funds paid to HCPA by
AHCCCS to pay Eyelites under the fraudulently
obtained subcontract. Petitioner misappropriated
Title XIX funds by directing such monies to
Eyelites, a HCPA related party. I.G. Ex. 1 at 4.
FFCL 32-40.

Petitioner also argued that the fact that sections
1128(h)(2) and (3) are framed in terms of "any program
receiving funds" under title V or title XX, but section
1128(h)(1) is not, shows that the source of funds is
irrelevant in this case. Exceptions at 25. We do not
agree. Title V and title XX are block grant programs
which do not operate pursuant to State plans while title
XIX is an entitlement program which can operate only
pursuant to a State plan. The language of section
1128(h) merely reflects the difference between the
structure of the two types of programs.

For the preceding reasons, we conclude that items and
services provided to title XIX eligible individuals by
the AHCCCS program were delivered under a State plan
approved under title XIX and that AHCCCS is a "State
health care program" as defined by section 1128(h)(1).

II. Petitioner was convicted of an offense related
to the delivery of an item or service as
required by section 1128(a)(1).

Section 1128(a)(1) mandates the exclusion of an
individual who has been convicted of an offense "related
to the delivery of an item or service" under Medicare or
a State health care program. Petitioner argued that the
nature of Petitioner's offenses and the fact that HCPA
was reimbursed on a capitated, rather than fee-for-
service basis, mean that Petitioner's offenses were not
"related to the delivery of an item or service" as
required by section 1128(a)(1). Below, we describe the
felonies to which Petitioner pled guilty, Petitioner's
arguments as to why these offenses were not related to
the delivery of an item or service, and our analysis as
to why they were related. In the course of our analysis,
we consider the related FFCLs to which Petitioner
excepted and either adopt or modify and adopt those
FFCLs.

In 1992, Petitioner pled guilty to and was convicted of
three felonies under Arizona law. Two of the felonies
involved facilitation of theft based on Petitioner's
admission that he signed checks drawn on HCPA funds to
pay for medical equipment and an actuarial study which
would not be used by HCPA. The third felony involved
fraudulent schemes and practices and wilful concealment
and was based on Petitioner's admission that, "pursuant
to a scheme or artifice to defraud," he knowingly failed
to disclose his ownership interest in a HCPA
subcontractor as required by AHCCCS regulations. FFCL
38.

In its 1987 amendments to section 1128(a)(1), Congress
sought to ensure that a broad range of crimes involving
delivery of items or services under protected health care
programs would result in an exclusion from participation
in those programs. See Jack W. Greene, DAB 1078, at 11
(1989) (discussion of revised language and legislative
history of section 1128(a)(1) in the "Medicare and
Medicaid Patient and Program Protection Act of 1987,"
Pub. L. No. 100-93), affirmed Greene v. Sullivan, 731 F.
Supp. 835 (E.D. Tenn. 1990)). In applying section
1128(a)(1), the Board has repeatedly held that an offense
is "related" to the delivery of an item or service under
a State health care program as long as there is a common
sense connection or nexus between the offense for which a
petitioner was convicted and the delivery of an item or
service under a covered program. See, e.g., Thelma
Walley, DAB 1367 (1992); Niranjana B. Parikh, M.D., DAB
1334 (1992), Berton Siegel, D.O., DAB 1467 (1994).
Therefore, the Board has determined that an offense
committed by someone providing billing or accounting
services could be related (Greene, DAB 1078, at 7;
Michael Travers, M.D., DAB 1237, at 9 (1991), affirmed
Travers v. Sullivan, 791 F. Supp. 1471, 1481 (E.D. Wash.
1992); that no showing of harm to a protected program was
necessary in order for an offense to be related (Paul R.
Scollo, D.P.M., DAB 1498, at 9 (1994)); that an offense
could be related even if the services were actually
provided by an entity different from the individual being
excluded (Napoleon S. Maminta, M.D., DAB 1135, at 7
(1990)); and that an offense could be related even if no
service or item was actually delivered (Francis
Shaenboen, R.Ph., DAB 1249, at 4 (1991)).

The Siegel case involved a section 1128(a)(1) exclusion
of one of the other co-owners of HCPA. In Siegel, the
Board concluded that Dr. Siegel's conviction of the crime
of facilitation of theft of HCPA funds was related to the
delivery of an item or service. The Board reasoned that
Dr. Siegel's misuse of HCPA funds for the purchase of
non-HCPA equipment resulted in less funds being available
to pay for covered services delivered to AHCCCS patients
and that the theft of funds which he facilitated was a
misappropriation of those funds. Berton Siegel, D.O.,
DAB 1467, at 6.

Petitioner, however, contended that there was no nexus
between his criminal offenses and the delivery of an item
or service for three reasons: first, HCPA was paid on a
capitated basis without regard to the delivery of any
specific item or service; second, the funds at issue
belonged solely to HCPA as an independent contractor, not
as an agent of Arizona; and third, HCPA, not AHCCCS or
HCFA, was the victim of Petitioner's offenses.

Petitioner's first argument is based on the undisputed
fact that AHCCCS reimbursed HCPA on a capitation rather
than a fee-for-service basis. Petitioner contended that,
under a capitation system, AHCCCS made payments to HCPA
without regard to delivery of any item or service.
Exceptions at 33. Petitioner argued that consequently
his offenses did not relate to or follow from the
delivery of any identifiable item or service and did not
affect reimbursement for any service or item. He
asserted: "All payments from AHCCCS to HCPA would have
been made regardless of how the funds of HCPA were
spent." Id. at 34.

We reject this argument. 6/ In arguing that offenses
committed under a capitation reimbursement system would
not fall within section 1128(a)(1), Petitioner ignored
the fact that section 1128(a)(1) merely requires that an
offense be "related to" delivery of an item or service.
As explained above, this language does not require the
actual delivery of an identified item or service. In
this case, HCPA contracted to ensure the delivery of a
range of medical items and services to AHCCCS enrollees
in exchange for capitation payments from AHCCCS. 7/ A
theft of the funds paid by AHCCCS to HCPA for the
provision of these items and services is plainly related
to delivery of such items and services. It is irrelevant
that HCPA did not have to submit separate claims for
specific services and items provided to title XIX
recipients. HCPA's right to AHCCCS capitation payments
arose from its contractual duty to ensure delivery of
items and services to title XIX recipients. Theft of
these funds potentially harmed its ability to do so.
Therefore, with respect to the need to protect the
program, we see no meaningful distinction between an
offense in a capitation system and in a fee-for service
system.

Further, Petitioner's offense of fraudulent schemes and
practices and wilful concealment is similarly connected
to the delivery of items and services. In Petitioner's
plea, he admitted that he--

. . . knowingly concealed the related party status
of Eyelites . . . pursuant to a scheme or artifice
to defraud which enabled Neil R. Hirsch . . . to
have HCPA pay [on a capitated basis] $60,0000.00 to
Eyelites between November 14, 1983 and February 8,
1984 for approximately 63 pairs of eyeglasses for
HCPA's AHCCCS patients for an average cost of
approximately $952.38 per pair while Neil R.
Hirsch's . . . financial interest in Eyelites .
. . remained concealed from AHCCCS.

I.G. Ex. 1, at 3. 8/

Therefore, Petitioner admitted that he acted pursuant to
a scheme to defraud which enabled him to be paid, by
HCPA, over $900 per pair of glasses. While Petitioner
protested that, under a capitation system, it is
inappropriate to calculate a price per item, the apparent
gross disparity between the price and the item and
Petitioner's admission that he acted "pursuant to a
scheme or artifice to defraud" is relevant here. This
disparity indicates that this crime, like the crimes of
facilitation of theft, enabled Petitioner to benefit to
the potential detriment of HCPA and HCPA enrollees.

We also reject Petitioner's argument that there was no
nexus between the offenses and the delivery of an item or
service because the money involved belonged to HCPA and
not AHCCCS. Petitioner asserted that HCPA was an
independent contractor rather than an agent of Arizona;
that AHCCCS did not have a right to recoup capitation
payments if it had confirmed enrollment for a recipient;
and that the funds in HCPA's account were not public
funds held in trust. Petitioner concluded therefore that
he did not misuse public funds. Regardless of whether
these payments became HCPA funds once they were placed in
a HCPA bank account, the undisputed fact remains that, in
exchange for these payments, HCPA contracted to ensure
the delivery to title XIX recipients of certain health
care items and services. Under HCPA's contract with
AHCCCS, the corporate officers of HCPA had an obligation,
during the term of the contract, to use HCPA's funds for
that purpose and not for the benefit of themselves and
their separate private practices. That obligation is
evidenced by the terms of Petitioner's guilty plea.
Petitioner pled guilty to facilitation of theft under
Arizona Revised Statutes . 13-1004 for aiding "Berton
Siegel's theft of HCPA's monies in violation of A.R.S.
13-1802(A)(2)." I.G. Ex. 1, at 4. Section 13-
1802((A)(2) provides that a person commits theft "if
without lawful authority, such person knowingly:"

Converts for an unauthorized term or use . . .
property of another entrusted to the defendant or
placed in the defendant's possession for a limited,
authorized term or use.

Therefore, the fact that these funds may have been the
legal property of HCPA does not mean that they no longer
had any relation to the reason they were paid by AHCCCS
to HCPA. Rather, these funds were entrusted to HCPA and
Petitioner and HCPA's co-owners to ensure the provision
of items and services under a State health care program.

Finally, we reject Petitioner's argument that there was
no nexus between his criminal conduct and the delivery of
an item or service because the victim of his offense was
HCPA, not AHCCCS or HCFA, which administers title XIX on
the federal level. Petitioner maintained that payments
made to HCPA were not affected by his offenses and AHCCCS
was not obligated to pay HCPA any additional sums because
of his offenses. Petitioner contended that these
payments became "private funds" which were too far
removed from the delivery of an item or service for there
to be a common sense connection between the offense and
delivery of HCPA services. Exceptions at 38.

We disagree for the following reasons. First, as we have
previously held, section 1128(a)(1) only requires that an
offense be "related to" delivery of an item or service
under a protected program, not that the program be the
"victim" or be directly or actually harmed. Scollo, DAB
1498, at 11. Second, under the facts presented by this
case, we would not conclude that HCPA was the only victim
of Petitioner's offenses. Certainly, HCPA was a primary
victim as reflected by the Court's order requiring
Petitioner to make restitution to HCPA. However, it is
fair also to conclude that title XIX recipients, AHCCCS,
and HCFA were victimized by Petitioner's crimes. The
theft of HCPA's funds potentially diminished its ability
to provide appropriate services to title XIX recipients.
The theft of HCPA's funds meant that state and federal
funds which had been entrusted to HCPA for the provision
of such services were unlawfully diverted thereby
injuring AHCCCS and HCFA. The court's order of
restitution of funds to HCPA appropriately addressed the
injury of all four of these entities by restoring to HCPA
funds that had been entrusted to it to use to provide
items and services to title XIX recipients.

Petitioner's additional exceptions to FFCLs addressing
whether Petitioner's offenses were related to the
delivery of an item or service indicate at most harmless,
technical errors in the ALJ Decision.

In Exception 11, Petitioner excepted to FFCL 31, in which
the ALJ concluded that Petitioner had misappropriated
AHCCCS funds. Petitioner contended that the money at
issue belonged to HCPA and therefore this FFCL was not
supported by substantial evidence. We modify and adopt
this FFCL to avoid any ambiguity the wording may have
created concerning the technical ownership of the funds
in the HCPA bank account.

31. By signing checks on HCPA's checking account
for the purchase of equipment for non-AHCCCS
patients and for services for a non-AHCCCS
organization, Petitioner misappropriated funds that
had been entrusted to HCPA by AHCCCS to pay for
health care to indigent Arizona citizens who were
enrolled in the AHCCCS program. FFCLs 23-30.

In Exception 7, Petitioner argued that FFCL 9 was
incomplete and misleading because HCPA was not "prepaid."
9/ Petitioner argued that this finding was prejudicial
because it allowed the ALJ to ignore the fact that funds
paid to HCPA belonged to HCPA and not AHCCCS. We agree
with Petitioner that the I.G. did not contest
Petitioner's representation that HCPA was not prepaid and
therefore this portion of FFCL 9 is not supported by the
record. However, as explained in our analysis, the fact
that the funds may have become HCPA's upon payment from
AHCCCS does not mean that Petitioner, as an owner of
HCPA, could convert those funds for uses not authorized
by HCPA's contract with AHCCCS. Therefore, the fact that
HCPA was not prepaid is not relevant to whether
Petitioner's crimes were related to the delivery of an
item or service. In order to correctly reflect the
evidence in the record, we adopt the following modified
version of FFCL 9:

9. AHCCCS operates on a capitated basis. Ariz.
Rev. Stat. Ann. . 36-2904(A) (1993 and Supp. 1994).

In Exception 12, Petitioner excepted to FFCL 40, in which
the ALJ found that, under its contract with Eyelites,
HCPA paid $60,000 for 69 pairs of eyeglasses. Petitioner
argued that this finding is incomplete, misleading and
demonstrates prejudice because the payment was a
capitated payment made on the basis of enrollment not
pairs of glasses. While is appropriate to recognize that
the subcontract payment was made on a capitated basis, we
conclude, as explained above, that this does not mean
that the price per pair of glasses is irrelevant here.
We modify FFCL 40, however, to reflect the capitated
nature of the payment and Petitioner's full admission
that he received this subcontract payment pursuant to a
scheme to defraud.

40. Under its subcontract, HCPA paid $60,000 to
Eyelites between November 14, 1983 and February 8,
1984 on a capitation basis for HCPA's AHCCCS
patients, who received approximately 63 pairs of
eyeglasses with an average cost of approximately
$952.38 per pair of glasses. In his plea agreement,
Petitioner admitted that "a scheme or artifice to
defraud" "enabled" him to receive these payments.
I.G. Ex. 1 at 3.

In Exception 14, Petitioner excepted to FFCL 42, in which
the ALJ found that Petitioner caused AHCCCS funds to be
used for private non-title XIX purposes. Petitioner
argued that this finding was incorrect, misleading and
showed prejudice because the funds belonged to HCPA, not
AHCCCS. As discussed above, we conclude the ALJ properly
found that AHCCCS funds were entrusted to HCPA for the
provision of items and services to title XIX recipients.
We modify this FFCL as follows to avoid any ambiguity
about the technical ownership of the funds in the HCPA
bank account:

42. Petitioner caused funds which had been paid to
HCPA by AHCCCS to ensure the delivery of items and
services to title XIX recipients to be used for
private, non-Medicaid purposes. FFCL 25-41.

In Exception 15, Petitioner argued that FFCL 45 is
incomplete and misleading because it does not say that
Petitioner's restitution was to HCPA, not AHCCCS. As
explained above, the fact that restitution was paid to
the HCPA Bankruptcy Trustee does not mean there is no
connection between Petitioner's offenses and the delivery
of an item or service under AHCCCS. Restitution to HCPA
restored, to the extent of the restitution, HCPA's
ability to provide items and services to title XIX
recipients pursuant to its contract with AHCCCS.
Therefore, we adopt the following modified FFCL:

45. The State court placed Petitioner on three
years probation, commencing July 31, 1992, and
ordered him to pay restitution in the amount of
$40,000 to the HCPA Bankruptcy Trustee. In
addition, the court ordered Petitioner to pay
$50,000 as reimbursement, a fine of $14,000, and
other assessments and fees. I.G. Ex. 3 at 3.

For the preceding reasons, we conclude that the ALJ
Decision correctly held that Petitioner's offenses were
related to the delivery of an item or service.

III. The ALJ did not err in admitting I.G. Exhibits 12
and 13, and the ALJ's rulings and decision do not
establish that the ALJ was prejudiced.

Petitioner argued that the ALJ erred by ordering
supplemental briefing and by admitting I.G Exhibits 12
and 13. Exceptions 2, 13, 18. Petitioner also asserted
that the ALJ's rulings and conduct during the course of
the proceeding demonstrate that the ALJ was prejudiced
against Petitioner and acted unfairly towards Petitioner.
Exceptions 18, 19.

Below we review the sequence of events in the case before
the ALJ. We then discuss Petitioner's arguments and
explain why we conclude that it was not an error to admit
Exhibits 12 and 13 and why we conclude that the ALJ did
not act prejudicially towards Petitioner. We also
consider Petitioner's exceptions related to these issues.

On September 28, 1994, Petitioner appealed the I.G.'s
decision to exclude him pursuant to section 1128(a)(1)
and requested a hearing on this exclusion. The ALJ set a
Prehearing Conference for October 25, 1995 to discuss
with the parties how the case would proceed. Prior to
that conference, Petitioner filed a discovery request
seeking 13 categories of documents including all waiver
requests submitted by Arizona and Illinois, all DHHS
responses to such waiver requests, and the State plan for
Arizona approved under title XIX. Petitioner's Request
for Discovery.

After the October 25, 1995 conference, the ALJ set a
briefing schedule under which the parties were to address
the merits of the issues, the need for a hearing, and
Petitioner's discovery request. Pursuant to this
schedule, the I.G. filed a Motion for Summary
Disposition, a Memorandum in Support of the Inspector
General's Motion for Summary Disposition, and 11
exhibits. The Petitioner then filed Petitioner's
Response to the Inspector General's Motion for Summary
Disposition, Petitioner's Motion for Summary Disposition,
and Petitioner's Objection to Certain Exhibits
(specifically, Petitioner objected to I.G. Exhibits 7, 9,
and 11). The I.G. did not reply to Petitioner's
response.

On March 6, 1995, the ALJ conducted a second Prehearing
Conference and issued an order based on that conference.
In that order the ALJ (1) reserved judgment on
Petitioner's objections to I.G. Exhibits 7 and 11 and
excluded I.G. Exhibit 9; (2) noted that Petitioner had
withdrawn his discovery request on the basis of the
I.G.'s representation that all the documents considered
by the I.G. in making the determination to exclude
Petitioner were already included in the record; (3)
requested the parties to submit supplemental briefing and
"any documentary evidence" in support of the arguments in
the briefing on the question of "whether the AHCCCS plan
may be deemed a state plan approved under Title XIX of
the Act." ALJ Order for Supplemental Briefing at 4. The
I.G. was ordered to file its supplemental brief first and
the Petitioner was ordered to respond to the I.G.'s
submission.

On March 23, 1995, the I.G. filed its Supplemental Brief
and I.G. Exhibits 12 and 13, containing correspondence
concerning approval of the Arizona title XIX State plan
and portions of that State plan. On March 31, 1995
Petitioner filed his Response to the Inspector General's
Brief, objecting that the I.G. had "unfairly controlled
documents to surprise and prejudice Petitioner" and that
Exhibits 12 and 13 should be stricken.

Petitioner argued that the ALJ committed a prejudicial
error when he admitted I.G. Exhibits 12 and 13, for the
following reasons. First, Petitioner said the ALJ should
be limited to the record on which the I.G. based her
decision, which did not include Exhibits 12 and 13, and
the I.G. should not be permitted to change her position
as to the relevance of these documents. Second,
Petitioner contended, when the ALJ requested additional
briefing and exhibits, the ALJ was thereby "sending a
message" that the record was insufficient to support a
mandatory exclusion and offering the I.G. a chance to
correct a defect in its case. Third, Petitioner said,
when Petitioner had previously sought to discover from
the I.G. materials about Arizona's title XIX State plan
and waivers, the I.G. had contended that those documents
were not relevant to this proceeding. According to
Petitioner, the manner in which the I.G. presented
Exhibits 12 and 13 "deprived Petitioner from the
opportunity to fully respond" to the exhibits.
Exceptions at 13. Fourth, Petitioner argued, the I.G.
introduced only portions of the Arizona title XIX State
plan and waivers while fundamental fairness requires
that, if one party submits portions of a document into
evidence, the adverse party should be entitled to submit
additional portions of the document. Petitioner
contended that he could not introduce portions of these
documents because the I.G. had refused to produce them in
discovery. Petitioner relied on Dick v. United States,
339 F.Supp 1231 (D.C. Dist. 1972), for the proposition
that, where both parties do not have equal access to
documents, the opportunity to submit documents that the
adversary will not produce is meaningless. Finally, in
his reply brief, Petitioner noted that the I.G.'s brief
had referred to an "institutional assumption" that AHCCCS
was an approved State plan under title XIX. Petitioner
argued that a determination based on such an
"institutional assumption" constituted a denial of due
process.

These arguments have no merit, for the following reasons:

o The proceeding before the ALJ is a de novo
proceeding, not a review of whether the I.G.
properly imposed an exclusion based on the
record before the I.G. 42 46 C.F.R. ..
1005.15(f), 1005.20(a). Petitioner pointed to
nothing in the Act or regulations which limits
the ALJ to the record before the I.G. at the
time of the I.G. determination.

o The ALJ properly viewed the question of whether
AHCCCS is a "State health care program" as
defined by section 1128(h)(1) as a mixed
question of fact and law. Section 1902
establishes requirements for title XIX State
plans; section 1115 provides for waivers of
section 1902 provisions; section 1128(h)(1)
defines "State health care program." Applying
these provisions requires legal analysis but
also raises a factual question regarding
whether any particular state has an approved
title XIX State plan.

o Based on the record before him, the ALJ
properly determined that additional questions
needed to be addressed in order to determine
whether section 1128(h)(1) applied and that the
resolution of these questions could be aided by
documentary evidence regarding Arizona's
program. He therefore properly requested that
both parties supplement the record. See 42
C.F.R. . 1005.4(b)(3).

o Contrary to what Petitioner argued in his reply
brief, the ALJ did not improperly use Exhibits
12 and 13 as "extrinsic aids" to statutory
construction; rather, he used them to make
factual findings concerning the nature of
Arizona's program.

o While the I.G. may have initially based the
exclusion on a "legal assumption," this is
irrelevant where the I.G. ultimately produced
documentary evidence to establish that Arizona
had a State plan approved under title XIX and
where Petitioner had a meaningful opportunity
to rebut this evidence. The ALJ gave both
parties an opportunity to file supplementary
memoranda and documentary evidence, and
Petitioner was given an opportunity to respond
to the I.G. supplemental submission.

o The mere facts that the I.G. did not produce
Exhibits 12 and 13 pursuant to Petitioner's
discovery request and that those exhibits
contain only a portion of the State plan does
not mean that Petitioner had no meaningful
opportunity to rebut this evidence after it was
produced during the ALJ proceeding. Documents
concerning any Arizona State plan submittal,
HCFA's approval of any plan, and any waivers
under section 1115 are public records available
to Petitioner under the federal Freedom of
Information Act upon request from HCFA, which
administers the Medicaid program. Similarly,
information on AHCCCS should be available from
the State of Arizona pursuant to its public
records law, or from State officials. There is
no basis for viewing the I.G. as somehow the
sole source of relevant information on AHCCCS
and its relationship to any Medicaid State
plan. Indeed, given the I.G.'s statement that
it based its view of AHCCCS on an
"institutional assumption," there is no reason
to think that the I.G. had these documents in
her possession at the time of Petitioner's
discovery request.

o Petitioner did not seek additional time to
respond to Exhibits 12 and 13. While he
alleged that the documents were incomplete and
did not show what the I.G. said they showed,
Petitioner did not request that any additional
parts of the documents be included in the
record, nor did Petitioner renew his discovery
request. Petitioner's motion to strike
Exhibits 12 and 13 was based on allegations of
unfair surprise, allegations which have no
merit in light of the procedures set by the
ALJ, which provided Petitioner adequate
opportunity to respond.

Thus, we conclude that the ALJ acted properly in
developing the record here, that Petitioner had an
adequate opportunity to respond, and that Petitioner was
not denied due process.

We also reject Petitioner's further arguments that the
ALJ was prejudiced generally against Petitioner. In
Exception 19, Petitioner argued that the ALJ's prejudice
was demonstrated by the ALJ's failure to consider
applicable provisions of the statute; the ALJ's failure
to address arguments raised by Petitioner; the ALJ's
evidentiary rulings; the ALJ's reliance on the case of
Berton Siegel, D.O., and the ALJ's unfair comments.

Petitioner's allegation that the ALJ was biased lacks
merit. The law has long been well-settled that, in order
to disqualify a judge, prejudice or bias must stem from
an extrajudicial source. The Supreme Court has held
that:

The alleged bias and prejudice to be disqualifying
must stem from an extrajudicial source and result in
an opinion on the merits on some basis other than
what the judge learned from his participation in the
case . . . .

United States v. Grinnell Corp., 384 U.S. 563, 583
(1966); see also Tynan v. United States, 376 F. 2d 761
(D.C. Cir. 1967), cert. denied, 389 U.S. 845 (1967);
Duffield v. Charleston Area Medical Center, 503 F.2d 512,
517 (4th Cir. 1974).

Petitioner argued that the ALJ was prejudiced against him
because the ALJ had presided in Siegel. 10/ Petitioner
argued that as a result of his participation in Siegel,
the ALJ had prejudged this case and that it was improper
for the ALJ to cite the Siegel decision. We disagree
that the ALJ's participation in Siegel constitutes an
extrajudicial source which biased the ALJ. The ALJ's
reliance on the holding in Siegel does not constitute
"prejudice" to Petitioner. Prejudice would result if the
ALJ used factual information which he gained in the
course of the Siegel case and which was not part of the
record in this case to reach his decision. While
Petitioner alleged that the ALJ's statement that federal
funds were paid directly to HCPA "comes out of the
decision in Berton Siegel" (Exceptions at 47), Petitioner
provided no cites to either decision for this allegation
so we are unsure of the text to which Petitioner is
referring. Possibly, Petitioner was referring to the
portion of the discussion in which the ALJ paraphrased
his understanding of Petitioner's argument concerning who
was the victim of Petitioner's offenses. 11/ However, in
his discussion, the ALJ repeatedly acknowledges that
payments to HCPA were made by AHCCCS and nowhere does he
say that payments were made to HCPA by HCFA. ALJ
Decision at 11, 12. Therefore, we do not see the basis
for Petitioner's allegation that the ALJ improperly
relied on a finding of direct federal payment in the
Siegel case and used that finding to Petitioner's
detriment.

Petitioner argued that the ALJ's rulings, which favored
the I.G., showed that the ALJ was prejudiced. We
disagree. The ALJ's rulings do not meet the requirement
of an extrajudicial source for showing bias. See Ex
Parte American Steel Barrel Co. and Seaman, 230 U.S. 35
(1913); In Re International Business Machine Corp., 618
F.2d 923, 929 (2d Cir. 1980); see also Annotation,
Disqualification of Federal Judge, 2 A.L.R. Fed. 917, at
927 (1969), noting: "It has been uniformly held or
recognized in civil proceedings that adverse rulings made
by the judge in the case or proceeding itself do not
constitute a sufficient basis for his disqualification
under the statute [pertaining to disqualifications of
federal judges]."

In the regulatory provisions pertaining to the authority
of the ALJ, the only reference to an ALJ's conduct
provides that the ALJ "will conduct a fair and impartial
hearing." 42 C.F.R. . 1OO5.4(a). For the following
reasons, we conclude that Petitioner allegations do not
show that the hearing was unfair:

o Petitioner alleged that the ALJ's prejudice was
demonstrated by his failure to refer to the
text of the statutes at issue, by his failure
to consider Petitioner's arguments, and by his
misstatement of Petitioner's arguments. While
we have acknowledged that the ALJ Decision
would have been clearer and more responsive to
Petitioner's arguments if the ALJ had relied on
the text of the statutes, we do not think that
this demonstrates extrajudicial prejudice on
the part of the ALJ. The issues presented by
the case have been complex. A failure to
address that complexity with perfect clarity is
not tantamount to prejudice.

o Petitioner alleged that the ALJ's evidentiary
rulings demonstrated prejudice. We conclude
that his evidentiary rulings were appropriate.
Therefore, we do not regard his rulings as
evidence of prejudice. 12/

o Petitioner alleged that the ALJ made "unfair
comments." As examples he cited the portion of
the discussion in which the ALJ wrote that
Petitioner's offenses "directly diminished"
HCPA's ability to provide health services (ALJ
Decision at 16, 18) and the ALJ's referral to
the individual price of glasses under the
Eyelites subcontract. Neither of these
observations by the ALJ constitutes prejudice.
As to the price of the glasses, we conclude
that Petitioner himself, by the terms of his
plea, made this relevant to the consideration
of whether his offense was related to the
delivery of an item or service. As to the
"directly diminished" phrase, as we held in
Scollo, DAB 1498, at 9 and the decision here,
it is not necessary to show that the offense
actually harmed a protected program or its
beneficiaries. Here, the theft of funds
potentially diminished HCPA's capacity to
provide items and services. Under section
1128(a)(1), that is sufficient. The fact that
the ALJ drew a further inference from the
evidence does not constitute prejudice.

In Exception 10, Petitioner also excepted to FFCL 22, in
which the ALJ found that, between October 1, 1982 and
September 30, 1984, HCPA's sole source of income was
payments by AHCCCS and interest derived therefrom.
Petitioner argued that this finding was based on the
unproven allegations of I.G. Exhibit 7, the indictment
filed against Petitioner. Petitioner alleged that 14 of
the 17 counts in the indictment were dismissed and the
remainder amended. Petitioner neither specifically
denied the finding in the FFCL, nor explained why his
plea agreement could not reasonably be considered an
admission of this particular count. Further, from the
actual terms of his plea agreement, it can be inferred
that the funds in HCPA's corporate account were solely
derived from capitation payments from AHCCCS. I.G. Ex.
1, at 4-5. Thus, we affirm and adopt FFCL 22.

In Exception 16, Petitioner excepted to FFCL 46 as
irrelevant. That FFCL states:

46. As part of his plea agreement, Petitioner
stipulated that he was "on notice that as a result
of his plea he is subject to exclusion from Medicare
and other State health care programs as a health
care provider for a minimum period of at least five
years." I.G. Ex. 1 at 6.

Petitioner argued that he did not waive his right to
contest an exclusion.

Whether Petitioner, in his plea agreement, agreed to
waive his right to contest the exclusion was not the
point of the ALJ finding. However, the fact that
Petitioner had specific notice at the time of his plea
that, as a result of his plea, he would be subject to a
mandatory five-year exclusion is relevant. It undercuts
Petitioner's argument that the Act does not clearly make
his offenses subject to section 1128(a)(1) and therefore
he did not have adequate notice of the consequences of
his decision to plead guilty. Thus, we affirm and adopt
FFCL 46.

In sum, we conclude that the ALJ properly admitted
Exhibits 12 and 13, and was not prejudiced against
Petitioner.

Conclusion

For the reasons stated above, we affirm the ALJ Decision.
We affirm and adopt the FFCLs, as modified above.

___________________________
Cecilia Sparks Ford

___________________________
M. Terry Johnson

__________________________
Judith A. Ballard
Presiding Board Member

1.
We have retained the original numbering scheme of the
FFCLs. The FFCLs to which Petitioner objected are
considered later in the decision.

2.
The ALJ Decision identified the year of AHCCCS
implementation as 1992. However, since the materials
cited for this FFCL reflect that 1982 was the year of
implementation, we correct this obvious typographical
error.

3.
Petitioner also took exception to the admission of
Exhibits 12 and 13. We discuss this exception in the
third section of the analysis.

4.
In the following section of our analysis, we explain
why we adopt the portion of FFCL 49 concerning whether
the offenses were "related to the delivery of an item or
service."

5.
We modify FFCL 21 to reflect that only part of the
monthly contract payments made to HCPA were made from
federal funds. Under title XIX, a state has to match
federal funds with a state share and that state share
would have been paid to HCPA also.

6.
We note preliminarily that Petitioner's assertion that,
under title XIX, capitation reimbursement can be made
only if a state has obtained a waiver is not accurate.
Section 1903(m), added to title XIX in 1976, provides for
reimbursement for title XIX services on a capitation
basis pursuant to contracts with health maintenance
organizations and other types of capitated providers.
Therefore, capitation reimbursement, as opposed to fee-
for-service reimbursement, may be made under title XIX
without a waiver so long as the standards set forth in
section 1903(m) concerning the provider and the contract
terms with the provider are met.

7.
The contract between HCPA and AHCCCS, the authenticity
of which is undisputed, provided that, in exchange for
AHCCCS payments, HCPA would--

. . . furnish personnel, facilities, equipment,
supplies, pharmaceutical, and other items and
expertise necessary for, or incidental to, the
provision of the medical care services specified
in Appendix A at locations specified in Appendix
A to AHCCCS members enrolled with the Contractor.

Article I, Arizona Health Care Cost Containment System
Contract, I.G. Ex. 8, at 2.

Appendix A specifies that the services HCPA agreed to
provide include "out-patient health services, laboratory
and x-ray services, pharmacy services, medical supplies,
medical equipment and prosthetic devices, inpatient
hospital services, emergency services, emergency
ambulance and medically necessary transportation,
emergency dental care and extraction, early and periodic
screening, diagnostic and treatment service, and all
other services which may be provided under AHCCCS."

8.
We put the phrase "on a capitated basis" in brackets
where an asterisk appears in the agreement because
another asterisk at the bottom of the page indicates that
this phrase was to be inserted there. Initials under
this addition indicate that the parties agreed to
incorporate it into the agreement.

9.
Under its contract with AHCCCS, HCPA had the right to
be prepaid if it posted a bond to guarantee its
performance under the contract. Because HCPA did not
post such a bond, Arizona delayed payments to HCPA for 30
days "to offset any damages accruing to the State by
reason of a breach by the Contractor . . . ." Arizona
Department of Health Services Arizona Health Care Cost
Containment System Contract, I.G. Ex. 8, at 57.

10.
While Petitioner also argued that the I.G. had
attempted to prejudice the ALJ against Petitioner,
Petitioner did not allege that the I.G. did this outside
of the judicial proceedings before the ALJ.

11.
"According to Petitioner, HCPA, and not AHCCCS, was the
victim of his crimes since the federal funds at issue
were directly paid in trust to HCPA." ALJ Decision at
16.

12.
Petitioner pointed out that the ALJ excluded I.G.
Exhibit 9 in his March 20, 1995 Order for Supplemental
Briefing but then, in footnote number 2 in the ALJ
Decision, the ALJ admitted I.G. Exhibits 8-10. We
conclude that the footnote inclusion of I.G. Exhibit 9
was an oversight on the ALJ's part. We therefore delete
I.G. Exhibit 9 from the record.