Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Civil Remedies Division
James Dustin Chaney, D.O.,
(OI File No. H-17-40326-9),
The Inspector General.
Docket No. C-17-1131
Decision No. CR5063
The Inspector General of the United States Department of Health and Human Services (the IG) excluded Petitioner, James Dustin Chaney, D.O., from participation in Medicare, Medicaid, and all other federal health care programs for ten years, based on his criminal conviction for an offense related to the unlawful manufacture, distribution, prescription, or dispensing of a controlled substance. Petitioner sought review of the exclusion. For the reasons stated below, I fully affirm the IG’s exclusion determination.
I. Background and Procedural History
By letter dated June 30, 2017, the IG notified Petitioner that he was excluded from participating in Medicare, Medicaid, and all federal health care programs under section 1128(a)(4) of the Social Security Act (Act) for a period of ten years, due to his conviction for a criminal offense related to the unlawful manufacture, distribution, prescription, or dispensing of a controlled substance. IG Exhibit (Ex.) 1. The IG relied on three aggravating factors to extend the term of Petitioner’s exclusion to ten years. Id. Petitioner timely requested a hearing before an administrative law judge (ALJ).
On October 11, 2017, I held a pre-hearing telephone conference, the substance of which is summarized in my October 16, 2017, Order and Schedule for Filing Briefs and Documentary Evidence (Order). Among other things, I directed the parties to file pre‑hearing briefs articulating their respective arguments as well as identifying witnesses and exhibits in support thereof. Order at 3.
The IG filed a brief (IG Br.) and six exhibits (IG Exs. 1-6), while Petitioner filed a brief (P. Inf. Br.) and nine exhibits (P. Exs. 1-9). The IG then submitted a reply brief (IG Reply).
II. Admission of Exhibits and Decision on the Record
In the absence of any objections, I admit into evidence IG Exs. 1-6 and P. Exs. 1-9.
The IG indicated he did not believe an in-person hearing to be necessary. IG Br. at 16. Petitioner requested an in-person hearing and offered the direct testimony of two witnesses. P. Inf. Br. at 8. However, neither party requested cross-examination of the other’s witnesses. Accordingly, an in-person hearing would serve no purpose, and the matter may be decided on the written record. See Civ. Remedies Div. Pro. § 19(d).
Whether the IG has a basis to exclude Petitioner from participation in federal health care programs under section 1128(a)(4) of the Social Security Act, and if so, whether the length of the exclusion, ten years, is reasonable. 42 C.F.R. § 1001.2007.
IV. Applicable Law
Section 1128(f) of the Act (42 U.S.C. § 1320a-7(f)) provides Petitioner with rights to a hearing before an ALJ and judicial review of the final action of the Secretary of Health and Human Services (Secretary). The right to a hearing before an ALJ is set forth in 42 C.F.R. §§ 1001.2007(a) and 1005.2, while the rights of both the sanctioned party and the IG to participate in a hearing are specified by 42 C.F.R. § 1005.3.
The Secretary must exclude from participation in federal health care programs any individual who has been convicted for an offense related to the unlawful manufacture, distribution, prescription, or dispensing of a controlled substance as defined under Federal or State law, if that individual: is or was a health care practitioner, provider, or supplier; holds a direct or indirect ownership or control interest in an entity that is a health care provider or supplier; or is or was an officer, director, agent or managing employee in any capacity in the health care industry. 42 U.S.C. § 1320a-7(a)(4).
Pursuant to section 1128(i) of the Act (42 U.S.C. § 1320a-7(i)), an individual is convicted of a criminal offense when: (1) a judgment of conviction has been entered against him or her in a federal, state, or local court whether an appeal is pending or the record of the conviction is expunged; (2) there is a finding of guilt by a court; (3) a plea of guilty or no contest is accepted by a court; or (4) the individual has entered into any arrangement or program where judgment of conviction is withheld. The statute does not distinguish between misdemeanor and felony convictions. There may be no collateral attack of the conviction that provides the basis of the exclusion. 42 C.F.R. § 1001.2007(d).
Section 1128(c)(3)(B) of the Act (42 U.S.C. § 1320a-7(c)(3)(B)) provides that an exclusion imposed under section 1128(a) of the Act (42 U.S.C. § 1320a-7(a)) shall be for a minimum period of five years. The exclusion is effective twenty days from the date of the notice of exclusion. 42 C.F.R. § 1001.2002(b). The period of exclusion may be extended based on the presence of specified aggravating factors. 42 C.F.R. § 1001.102(b). Mitigating factors are considered as a basis for reducing the period of exclusion only if aggravating factors justify an exclusion of longer than five years. 42 C.F.R. § 1001.102(c).
The standard of proof is a preponderance of the evidence. 42 C.F.R. § 1001.2007(c). Petitioner bears the burden of proof and the burden of persuasion on any affirmative defenses or mitigating factors; the IG bears the burden on all other issues. 42 C.F.R. § 1005.15(b).
V. Findings of Fact, Conclusions of Law, and Analysis
My conclusions of law are set forth in bold and followed by pertinent findings of fact and analysis.
- A. Petitioner’s request for hearing was timely, and I have jurisdiction.
There is no dispute that Petitioner timely requested a hearing. I therefore have jurisdiction to hear and decide this case. See 42 C.F.R. §§ 1001.2007(a)(1)-(2), 1005.2(a); see also 42 U.S.C. § 1320a-7(f)(1).
- B. There is a basis for Petitioner’s exclusion pursuant to section 1128(a)(4) of the Act.
Section 1128(a)(4) mandates that the Secretary exclude from program participation any individual or entity convicted of a felony criminal offense “relating to the unlawful manufacture, distribution, prescription, or dispensing of a controlled substance.” See 42 C.F.R. § 1001.101(d). As discussed below, the IG has established, by preponderance of the evidence, the elements necessary to exclude Petitioner.
On July 10, 2014, a grand jury indicted Petitioner with two counts of violating 21 U.S.C. § 846 and one count of violating 21 U.S.C. § 856(a). IG Ex. 2. On July 24, 2015, in a second indictment,1 a grand jury indicted Petitioner with two counts of violating 21 U.S.C. § 846, one count of violating 21 U.S.C. § 856(a), one count of violating 18 U.S.C. § 1956(h) (Count 4), one count of violating 18 U.S.C. § 1349, and one count of violating 18 U.S.C. §§ 1035, 2. IG Ex. 3.
- 1. Petitioner was convicted under federal or state law of a criminal offense that occurred after August 21, 1996, within the meaning of section 1128(a)(4).
Petitioner opened and began operating a pain treatment center in Kentucky in or around December 2010. IG Ex. 4 at 2. In so doing, he opened savings and checking accounts and hired another physician (Prescribing Physician) to help see patients. Id. Petitioner subsequently became aware, in or around the summer of 2012, that Prescribing Physician was over-prescribing controlled substances, having dispensed what appeared to be high dosages thereof to patients, including fairly new ones. Id. at 3. However, Petitioner declined to take action, characterizing his own conduct as “willfully blind.” Id. Rather than immediately close the clinic after discovering Prescribing Physician’s misdeeds, Petitioner continued to receive Medicaid funds, which he disbursed to himself and used to satisfy other operating expenses. Id.
On July 24, 2015, the United States charged Petitioner in a six-count indictment with conspiring to unlawfully distribute and dispense controlled substances. IG Ex. 3 at 7. Petitioner subsequently pleaded guilty to Count 4, Conspiracy to Commit Money Laundering. IG Ex. 4. On September 12, 2016, the U.S. District Court accepted Petitioner’s plea, dismissed the remaining counts against him, sentenced him to thirty months imprisonment with one year of supervised release, and ordered him to pay $1,100 in assessments and fines. IG Ex. 5.
Petitioner originally conceded he was convicted of a criminal offense that would properly subject him to a minimum period of exclusion, see Request for Hearing at 2, but now appears to contest his conviction was related to the unlawful manufacture, distribution, prescription, or dispensing of a controlled substance. P. Inf. Br. at 2. The basis for this claim is the government’s agreement in the plea agreement to calculate the offense level, for purposes of determining Petitioner’s sentencing guideline range, without using the underlying offense conduct related to his conviction. IG Ex. 4 at 4. But Petitioner mischaracterizes this fact. To calculate the offense level for an individual convicted of conspiracy to launder money, the U.S. Sentencing Guidelines (USSG) require consideration of the underlying criminal offense from which money was laundered, in
this case distributing and unlawfully dispensing controlled substances. IG Ex. 4 at 4; USSG § 2S1.1(a)(1). Alternatively, however, the USSG allows the base offense level for money laundering to be calculated using the offense levels for theft, property destruction, and fraud found at USSG § 2B1.1. USSG § 2S1.1(a)(2). Here, for purposes of achieving a plea deal, the parties simply agreed to calculate Petitioner’s sentencing guideline range using USSG § 2S1.1(a)(2) rather than (a)(1). IG Ex. 4 at 4, Par. 5(b). The mere fact that the government agreed to use § 2S1.1(a)(2) to calculate the sentencing guideline range does not mean Petitioner’s conviction is not related to distributing and unlawfully dispensing controlled substances.
Indeed, the count to which Petitioner pleaded guilty specifically described the proceeds he conspired to launder stemmed from “the unlawful dispensation and unlawful distribution of controlled substances . . . .” IG Ex. 3 at 7-8. I therefore have no difficulty concluding that Petitioner was convicted of a criminal offense that occurred after August 21, 1996 which related to the unlawful manufacture, distribution, prescription, or dispensing of a controlled substance, as contemplated by 42 U.S.C. § 1320a-7(a)(4).
- 2. Petitioner must be excluded for a minimum of five years.
Because I have concluded that a basis exists to exclude Petitioner under 42 U.S.C. § 1320a-7(a)(4), Petitioner must be excluded for a minimum period of five years. 42 U.S.C. § 1320a-7(c)(3)(B); 42 C.F.R. §§ 1001.102(a), 1001.2007(a)(2). Petitioner has conceded a five-year exclusion period is appropriate. P. Inf. Br. at 4, 12. Moreover, the IG has no discretion to impose a lesser period of exclusion, and I may not reduce the period of exclusion below five years.
- 3. The IG has proven three aggravating factors exist to support an exclusion period beyond the five-year statutory minimum.
The regulations establish aggravating factors that the IG may consider to lengthen the period of exclusion beyond the five-year minimum for a mandatory exclusion. 42 C.F.R. § 1001.102(b). In this case, the IG applied three aggravating factors to impose a ten-year term of exclusion: (1) the sentence imposed by the court included incarceration; (2) the acts that resulted in the conviction were committed over a period of one year or more; and (3) Petitioner was subject to an adverse action by any government board or agency based on the same conduct for which he was excluded. IG Ex. 1 at 2; 42 C.F.R. §§ 1001.102(b)(2), (5), (9). I must uphold the IG’s determination as to the length of exclusion so long as it is not unreasonable. 42 C.F.R. § 1001.2007(a)(1)(ii). Here, as outlined below, the IG’s determination is reasonable.
- a. The IG established the sentence imposed against Petitioner included a period of incarceration.
The IG determined the aggravating factor found at 42 C.F.R. § 1001.102(b)(5) is applicable because Petitioner’s criminal conviction resulted in a sentence of incarceration. IG Ex. 1 at 2. The record demonstrates that the District Court sentenced Petitioner to a thirty-month term of imprisonment for the conviction upon which the IG’s exclusion is based. IG Ex. 5 at 2. Petitioner does not concede the application of this aggravating factor, but neither does he explicitly dispute it. P. Inf. Br. at 4. Therefore, I conclude the IG reasonably applied this aggravating factor in determining Petitioner’s period of exclusion.
- b. The IG established that Petitioner was subject to an adverse action by a government agency or board for the same set of circumstances that resulted in the imposition of the exclusion.
The IG determined the aggravating factor found at 42 C.F.R. § 1001.102(b)(9) to be applicable because Petitioner was “the subject of any other adverse action by any Federal, State, or local government agency or board, if the adverse action is based on the same set of circumstances that serves as the basis for the imposition of the exclusion.” IG Ex. 1 at 2. The record reflects that Petitioner surrendered his license to practice osteopathy to the Kentucky Board of Medical Licensure in December 2016 because of the conviction resulting in this exclusion action. IG Ex. 6 at 1-4. The Kentucky board incorporated Petitioner’s admissions contained in his plea agreement from that conviction as the basis for his suspension. Id. Again, Petitioner does not explicitly dispute this aggravating factor. P. Inf. Br. at 4. Accordingly, I conclude the IG reasonably applied this aggravating factor in determining Petitioner’s period of exclusion.
- c. The IG established the criminal acts resulting in Petitioner’s conviction lasted a period of one year or more.
Petitioner disputes the IG’s application of the aggravating factor found at 42 C.F.R. § 1001.102(b)(2), that the acts that resulted in the conviction, or similar acts, were committed over a period of one year or more. P. Inf. Br. at 2-3. He argues the acts for which he was convicted did not begin until the summer of 2012, when he became aware of the Prescribing Physician’s conduct, and ended in January 2013, when he sold his practice. Id. This argument is unavailing because Petitioner was convicted for participating in a criminal conspiracy. It is axiomatic that conspiracies are continuing offenses, where a defendant who joins such a conspiracy is responsible for the acts of his co-conspirators, and continuously violates the law so long as the conspiracy is in existence. See Smith v. U.S., 568 U.S. 106, 111, 133 S. Ct. 714, 719 (2013) (citations omitted). Here, Petitioner pleaded guilty to participating in a conspiracy to commit money laundering, as described in Count 4 of the second indictment against him, in
which his involvement began “[o]n or about a day in December 2010 . . . and continu[ed] through on or about January 1, 2013 . . . .” IG Ex. 3 at 7-8; IG Ex. 4 at 2-3.
Petitioner misstates the nature of his involvement in the criminal offense at issue; his criminal behavior did not begin when he noticed Prescribing Physician’s over‑prescription of controlled substances in the summer of 2012, as he now argues. See P. Inf. Br. at 2-3. Instead, as he admitted when he submitted a guilty plea to resolve the criminal action against him, the conspiracy began when he opened his practice and hired Prescribing Physician. IG Ex. 4 at 2. At that time, beginning in late 2010, Petitioner took several steps in furtherance of the conspiracy to which he later admitted. He procured loans to help finance start-up costs for his practice, which he later paid off with proceeds from the illegally prescribed narcotics. Id. He hired Prescribing Physician, his co‑conspirator. Id. And, critically, he continued to take in proceeds even after being put on notice as to Prescribing Physician’s illegitimate prescribing habits, and used them to pay operating costs to keep his practice running, as well as making cash payments to himself and others. Id. at 3. The wording of Petitioner’s plea agreement and the elements of the offense with which he was charged clearly demonstrate that Petitioner participated in a criminal conspiracy that began in late 2010 and continued to early 2013.
To the extent Petitioner now wishes to disavow his plea and contest the period of time he was actually involved in criminal conduct, the Departmental Appeals Board (Board) has found that by entering a guilty plea to a count of an indictment, that party has admitted the facts contained in that count of the indictment. Farzana Begum, M.D., DAB No. 2726 (2016).
Finally, Petitioner may not collaterally attack his conviction by relying on extraneous facts, including the content of his sentencing hearing, to claim his role in the conspiracy was smaller than stated in the indictment, or in his plea agreement. See Laura Leyva, DAB No. 2704 (2016). For these reasons, I conclude the IG reasonably applied this aggravating factor in determining Petitioner’s period of exclusion.
- 4. Petitioner has not established any mitigating factors exist in this case upon which I may rely to reduce the exclusion period.
Petitioner contends his exclusion period should be reduced because the IG failed to properly consider the mitigating factor2 at 42 C.F.R. § 1001.102(c)(3). P. Inf. Br. at 4-7.
He contends that his cooperation with federal or state officials resulted in others being convicted or excluded, or additional cases being investigated, or a civil money penalty being imposed. He makes two3 separate arguments to demonstrate the IG failed to properly consider this regulatory mitigation factor. Id.
Petitioner first argues his cooperation with state or federal investigators and officials resulted in additional cases being investigated. P. Inf. Br. at 4-5. This argument is without merit. The cooperation agreement Petitioner offered as evidence explicitly states an ongoing investigation of James Alvin (“Ace”) Chaney, M.D., and Ace Clinique was already underway when he began cooperating with the state of Kentucky. P. Ex. 3 at 1. Petitioner entered into this cooperation agreement in September 2010. But, as he himself declared under penalty of perjury, the investigation into James Chaney, Lesa Chaney, and Ace Clinique was initiated by authorities in June 2010. P. Ex. 6 at 2-3. Petitioner’s cooperation therefore could not have led to the investigation of these parties. See Stacey R. Gale, DAB No. 1941 at 10-11 (2004) (“[T]he regulation is designed to authorize mitigation for significant or valuable cooperation that yielded positive results for the state or federal government in the form of a new case actually being opened for investigation.”)
Petitioner also argues that even if his cooperation did not lead to additional cases being investigated, it did result in others being convicted or excluded. P. Inf. Br. at 4-7, 10-11. 42 C.F.R. § 1001.102(c)(3)(i) requires that Petitioner prove by preponderance of the evidence that “[his] cooperation with Federal or State officials resulted in . . . [o]thers being convicted . . . .” Petitioner argues that his efforts resulted in the convictions of Ace and Lesa Chaney, the prosecution having depended heavily on his cooperation and role as an insider and family member. P. Inf. Br. at 4-6. To corroborate his claim, Petitioner cites the cooperation agreement he signed with the Perry County Commonwealth’s Attorney in September 2010 (P. Ex. 3), his own declaration (P. Ex. 6), a declaration from his criminal defense lawyer (P. Ex. 7), a trancript of his testimony in another criminal proceeding (P. Ex. 4), evidence of convictions of the subjects of the cooperation agreement (P. Ex. 8), and evidence of the exclusion of Ace Chaney (P. Ex. 5).
On balance, having considered this evidence, I cannot conclude by preponderance of the evidence that these convictions and exclusion are the result of Petitioner’s cooperation. As the IG correctly argues, to prove cooperation sufficient to meet 42 C.F.R. § 1001.102(c)(3), Petitioner cannot rely on “mere” cooperation. IG Reply at 4-5. Instead, the Board has looked to see whether Petitioner’s cooperation, in particular, has led to the conviction of others, indiciae of which could be demonstrated by reference to said cooperation in a sentencing transcript, or a downward departure in sentence as a
result of the cooperation. See Hussein Awada, M.D., DAB No. 2788 at 14 (2017); Begum, DAB No. 2726 at 13 (agreeing with ALJ’s analysis that in order to establish the mitigating factor, petitioner needed to show that information “she provided the government . . . was instrumental in obtaining” a conviction) (emphasis in original). The Board’s approach is consistent with the plain language of the regulation, which requires Petitioner prove that: (1) Petitioner cooperated with federal or state officials; and (2) Petitioner’s cooperation resulted in others being convicted. 42 C.F.R § 1001.102(c)(3)(i).
Here, Petitioner relies on his testimony from the criminal trials of other individuals. P. Ex. 4. Petitioner also relies on a declaration from his criminal defense attorney, Mark Wohlander, who declares that Petitioner testified against these individuals and that his testimony was “important” to achieving the convictions. P. Ex. 7 at 2-3. Mr. Wohlander also asserts that Petitioner’s plea agreement resolving his criminal case was made in part in exchange for his cooperation. Id. at 2. However, the plea agreement contains no reference to Petitioner’s cooperation against any other individuals. IG Ex. 4.
As discussed above, the timing of Petitioner’s involvement as a cooperator demonstrates he was brought in after an investigation had begun. While Petitioner claims his testimony “went directly to the heart of the government’s allegations,” P. Inf. Br. at 7-8, the documents Petitioner relies upon simply do not demonstrate that Petitioner was instrumental to obtaining the convictions at issue. Even his own defense attorney can at best state, based on his “limited knowledge,” that it “appeared” Petitioner’s cooperation was “an important aspect of” the investigation and indictment of James and Lesa Chaney. P. Ex. 7 at 2.
Despite Petitioner’s characterization of the value of his cooperation, there is a notable absence of any evidence of record corroborating that valuation. Petitioner received no credit or acknowledgment in the plea agreement for his cooperation; indeed, while the plea agreement recommended several applicable sentencing guideline adjustments, Petitioner’s cooperation with law enforcement is not included as part of the proposed guideline calculations. IG Ex. 4 at 4-5. Petitioner’s own lawyer confirmed the prosecutor in Petitioner’s case did not subsequently seek a downward departure from the sentencing guidelines, instead arguing Petitioner should serve a sentence within those guidelines. P. Ex. 7 at 3; see Baldwin Ihenacho, DAB No. 2667 at 7 (2015) (finding ALJ could reasonably conclude prosecution’s lack of requested downward departure in sentence undercut Petitioner’s asserted level of cooperation).
Petitioner has offered no evidence of a Federal Rule of Criminal Procedure Rule 35 motion in the wake of the convictions that resulted from his purported cooperation, as would be expected if his testimony was as crucial as he claims. And while the U.S. District Court judge who sentenced Petitioner considered some mitigating factors in imposing a below-guideline sentence, it is clear from the transcript the judge did not consider Petitioner’s cooperation one of those mitigating factors. P. Ex. 8.
For these reasons, I find that the Petitioner has not met his burden to prove by a preponderance of the evidence that his cooperation led to the conviction of others and thus deserves to be considered in mitigation.
- 5. A ten-year exclusion period is not unreasonable.
I must uphold the IG’s determination as to the length of exclusion unless it is unreasonable. 42 C.F.R. § 1001.2007(a)(1)(ii). It is important to note that it is the quality of the aggravating (or mitigating) factors that is most important when considering the length of exclusion, and not the sheer number of aggravating factors that are present in a given case. As the Secretary stated in the preamble to the final rule establishing the exclusion regulations:
We do not intend for the aggravating and mitigating factors to have specific values; rather, these factors must be evaluated based on the circumstances of a particular case. For example, in one case many aggravating factors may exist, but the subject’s cooperation with the OIG may be so significant that it is appropriate to give that one mitigating factor more weight than all of the aggravating. Similarly, many mitigating factors may exist in a case, but the acts could have had such a significant physical impact on program beneficiaries that the existence of that one aggravating factor must be given more weight than all of the mitigating. The weight accorded to each mitigating and aggravating factor cannot be established according to a rigid formula, but must be determined in the context of the particular case at issue.
57 Fed. Reg. 3271, 3314-15 (Jan. 29, 1992).
The conspiracy Petitioner participated in lasted for several years. During this time, he became aware that his employee, Prescribing Physician, was over-prescribing controlled substances, but did nothing. Petitioner enjoyed the fruits of this scheme without taking into account the serious harm he was causing his community by allowing his patients to abuse controlled substances. As the sentencing court noted, over-prescription of pain medication contributed to what it described as “the carnage taking place in our community . . . .” P. Ex. 8 at 8. The sentencing court thought Petitioner’s conduct severe enough to impose a sentence of incarceration, despite his lack of criminal history. Finally, the suspension of Petitioner’s medical license based on his criminal acts further demonstrates that Petitioner lacks trustworthiness to participate in government health care programs.
I conclude that the three proven aggravating factors are entitled to significant weight. The length of exclusion imposed by the IG is reasonable and warranted.
The IG properly excluded Petitioner from participating in Medicare, Medicaid, and other federal health care programs. So long as the period of exclusion is within a reasonable range, based on demonstrated criteria, I have no authority to change it. Joann Fletcher Cash, DAB No. 1725 at 7 (2000), citing 57 Fed. Reg. 3298, 3321 (1992). Petitioner pleaded guilty to involvement in a conspiracy to commit money laundering in connection to the illegal dispensing of schedule II and III narcotics. I find that the ten-year exclusion falls within a reasonable range.
Bill Thomas Administrative Law Judge
1. Although the IG, in its brief, describes this as a “superseding indictment,” it is not specifically identified as such in the July 24, 2015 indictment, and I will therefore refer to it as the “second indictment” or the “July 24, 2015 indictment.” IG Ex. 3.
- back to note 1 2. Under the governing regulations, I may only consider three mitigating factors: (1) a petitioner was convicted of three or fewer misdemeanor offenses and the resulting financial loss to the program was less than $5,000; (2) the record in the criminal proceedings demonstrates that a petitioner had a mental, physical, or emotional condition that reduced his culpability; and (3) a petitioner’s cooperation with federal or state officials resulted in others being convicted or excluded, or additional cases being investigated, or a civil money penalty being imposed. 42 C.F.R. § 1001.102(c). Petitioner does not assert the first two mitigating factors are present.
- back to note 2 3. Petitioner asserts he meets all three criteria for mitigation contained in 42 C.F.R. § 1001.102(c), but in fact only argues the first two, making no mention of the imposition of a civil money penalty on another individual as the result of his cooperation. See P. Inf. Br. at 4-7.
- back to note 3