John N. Keesaer and SCM True Air Technologies, Inc., DAB CR5776 (2020)

DECISION

I sustain the determinations of the Inspector General (IG) to exclude Petitioners John N. Keesaer and SCM True Air Technologies, Inc., from participating in Medicare, state Medicaid programs, and other federally funded health care programs for a minimum period of five years.  Section 1128(a)(3) of the Social Security Act (Act) mandates the IG’s exclusion determinations. 

I.  Background

The IG filed a brief, a reply brief, and seven supporting exhibits that are identified as IG Ex. 1-IG Ex. 7.  Petitioner filed a brief.  Petitioner did not object to my receiving the IG’s exhibits into the record and I receive them.

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II.  Issues, Findings of Fact and Conclusions of Law

A.  Issue

The sole issue in this case is whether section 1128(a)(3) of the Act mandates that Petitioners be excluded from participating in Medicare, state Medicaid programs, and other federally funded health care programs.  The length of the exclusions imposed by the IG is not at issue inasmuch as the IG imposed the minimum exclusions – at least five years – that are mandated by section 1128(a)(3).  Act § 1128(c)(3)(B).

B.  Findings of Fact and Conclusions of Law

Section 1128(a)(3) of the Act mandates that the IG exclude any individual or entity who is convicted of a felony relating to fraud, theft, embezzlement, breach of fiduciary responsibility or other financial misconduct in connection with the delivery of a health care item or service.  The evidence offered by the IG unequivocally establishes that both Petitioners were convicted of such felonies.

Petitioner SCM is a corporation and Petitioner Keesaer was SCM’s President.  IG Ex. 5 at 2-3.  SCM was a manufacturer of medical supplies, including bariatric beds.  IG Ex. 5 at 2.  I take notice that a “bariatric bed” is a hospital bed that is designed to support patients whose weight exceeds the capacity of a traditional hospital bed.

Both Petitioners pled guilty to and were convicted of felonies.  IG Exs. 4-7.  On July 17, 2017, Petitioner SCM was convicted of the felony of failing to register a product with the Food and Drug Administration (FDA), with the intent to defraud or mislead, in violation of 21 U.S.C. §§ 331(p) and 333(a)(2).  IG Ex. 6 at 2.  This crime is a Class E felony.  21 U.S.C. § 333(a)(2); 18 U.S.C. § 3559(5).  On that same date, Petitioner Keesaer was convicted of the felony of obstruction of proceedings before departments, agencies, and committees, in violation of 18 U.S.C. § 1505 and 18 U.S.C. § 2.  IG Ex. 7 at 2.1

The convictions responded to a criminal scheme by Petitioners Keesaer and SCM to defraud purchasers, including the United States Department of Veterans Affairs (the VA), by selling to them bariatric beds that had not been registered with or approved by the FDA.  IG Ex. 4 at 2; IG Ex. 5 at 2-4.  Petitioner SCM sold defective beds to the VA that it manufactured using unregistered parts.  IG Ex. 4at 2-3.  Many of these beds were substantially unusable, with caulking and welding issues and dirty and rusting parts.  Id.  Petitioner Keesaer personally was involved in the manufacturing process of the beds that

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Petitioner SCM sold to the VA, and he supervised and directed the fraudulent sales of these and other bariatric beds.  IG Ex. 5 at 2-3.  Petitioner Keesaer, as President of SCM, wrote and sent a misleading letter to the FDA in an intentional effort to obstruct the FDA’s investigation of SCM’s sale to the VA of unregistered and misbranded bariatric beds.  Id. at 4.

As a consequence of their convictions, Petitioners SCM and Keesaer were ordered to pay restitution of more than $211,000 to the United States.  IG Ex. 6 at 6; IG Ex. 7 at 6.

The convictions in these cases plainly comprise all of the necessary elements of felonies described at section 1128(a)(3) of the Act.  First, as I have described, both Petitioners pled guilty to felonies.  Second, both Petitioners were “convicted” as is described by the Act.  Both Petitioners entered guilty pleas that were accepted in United States District Court.

Finally, both Petitioners were convicted of felonies relating to fraud, theft, embezzlement, breach of fiduciary responsibility or other financial misconduct in connection with the delivery of a health care item or service.  Petitioners schemed to unlawfully obtain reimbursement from the VA, among other purchasers, by selling bariatric beds that had not been approved for sale by the FDA and that were defective and unusable.  That is the essence of fraud.  Petitioner Keesaer feloniously and intentionally wrote and delivered a misleading letter to the FDA, actions that enabled the commission of fraud. 

Petitioners argue that the IG lacks authority to exclude them.  I find their arguments to be without merit.

Petitioner Keesaer asserts that his conviction for introduction and delivery of a misbranded device is a misdemeanor under federal law, not a felony, and therefore cannot be a basis for exclusion pursuant to section 1128(a)(3).  Informal Brief of the Petitioners (Petitioners’ brief) at 2-3.  However, and as I have discussed, Petitioner Keesaer also pled guilty to a felony that was instrumental in furthering the criminal scheme of selling unregistered and defected bariatric beds.  IG Ex. 5; IG Ex. 7 at 1.  That felony conviction plainly meets the criteria for exclusion.

Petitioner Keesaer acknowledges that his conviction for obstructing proceedings before departments, agencies, and committees constitutes a federal felony.  He argues that there is nothing on the face of the conviction that relates to fraud, theft, embezzlement, breach of fiduciary responsibility or other financial misconduct in connection with the delivery of a health care item or service.  Petitioners’ brief at 3-4.  That argument blinks reality.

Petitioner Keesaer’s obstruction was an essential and inextricable element of the fraud scheme that he and Petitioner SCM perpetrated against the VA.  He wrote a letter that

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was intended to mislead the FDA in its investigation of SCM’s fraudulent sales of bariatric beds to the VA.  Concealment of the fraud was the letter’s purpose.  But for the fraud, Petitioner Keesaer never would have felt the need to write this letter and never would have written it.

Petitioner SCM asserts that it was not convicted of a felony but rather, of a federal misdemeanor, and thus, it is not excludable pursuant to section 1128(a)(3) of the Act.  Petitioners’ brief at 4-5.  Petitioner SCM was convicted of a felony, its argument notwithstanding.

Petitioner SCM concedes that it was convicted of violating 21 U.S.C. § 331(p).  It asserts that the penalties for violation this section are set forth at 21 U.S.C. § 333(a)(1) (imprisonment for not more than one year and/or a fine of not more than $1,000).  These penalties, according to Petitioner SCM, meet the definition of a Class A misdemeanor conviction set forth at 18 U.S.C. § 3559(a)(6).  Petitioners’ brief at 4.

This argument misstates Petitioner SCM’s conviction.  The superseding indictment to which Petitioner SCM pled guilty charges Petitioner SCM with a crime falling within the reach of 21 U.S.C. §§ 331(p) and 333(a)(2).  IG Ex. 3 at 1.  When read together, these sections explicitly charge Petitioner SCM with a felony, a felony to which Petitioner SCM pled guilty.  IG Ex. 4; IG Ex. 6 at 1.

Petitioner SCM was not just convicted of unlawful failure to register a medical device with the FDA but of fraudulently failing to do so.  IG Ex. 6 at 2.  That is a felony.

Section 331(p) describes the offense (unlawfully failing to register a medical device with the FDA).  Section 333(a)(2) describes the penalty for a fraudulent section 331(p) conviction (imprisonment of not more than three years and/or a fine of not more than $10,000).  Under federal law, a conviction of a crime that carries with it a potential sentence of incarceration of more than one year, but less than five years, is a Class E felony.  18 U.S.C. § 3156(a)(3).