Thomas P. Sher, DAB CR6560 (2024)

DECISION

The Inspector General (IG) of the United States Department of Health and Human Services excluded Thomas P. Sher (Petitioner) from participation in Medicare, Medicaid, and all other federal health care programs for 32 years pursuant to section 1128(a)(3) of the Social Security Act (Act) (42 U.S.C. § 1320a-7(a)(3)). For the reasons discussed below, I find that the IG has a basis to exclude Petitioner from program participation and the 32-year exclusion period is not unreasonable.

I. Background and Procedural History

By letter dated November 30, 2023, the IG excluded Petitioner from participating in Medicare, Medicaid, and all Federal health care programs pursuant to section 1128(a)(3) of the Act for a minimum of 32 years, effective 20 days from the date of the letter. IG Exhibit (Ex.) 1. Petitioner was excluded due to felony convictions in the United States District Court, District of New Jersey (District Court), related to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct, in connection with the delivery of a health care item or service, or with respect to any act or omission in a health care program. IG Ex. 1. The IG identified three aggravating factors to support the 32-year exclusion.

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On January 30, 2024, the Civil Remedies Division (CRD) received Petitioner’s timely request for hearing before an administrative law judge (ALJ) to contest the exclusion imposed by the IG. Petitioner submitted supporting documents along with the request for hearing. Departmental Appeals Board (DAB) E-File Dkt. No. 1. These documents are marked as Petitioner’s Exhibits 1 and 2 (P. Exs).1 On February 13, 2024, CRD issued an Acknowledgment Notice, my Standing Prehearing Order, and the CRD Procedures.

The prehearing conference was held on March 6, 2024. An Order Following Prehearing Conference and Setting Briefing Schedule (Prehearing Order) was issued on March 13, 2024. An Order to Show Cause (OSC) was issued on July 23, 2024, due to the IG’s failure to timely file a pre-hearing exchange. On August 7, 2024, the IG responded to the OSC, filing a Motion for Leave to File Out of Time and its prehearing exchange, including a brief (IG Br.) and four exhibits (IG. Exs. 1-4). On August 9, 2024, the OSC was discharged and the IG’s motion was granted. Petitioner filed a brief (P. Br.) on August 23, 2024.

The IG filed a reply on August 28, 2024.

II. Admission of Exhibits and Decision on the Written Record

Absent objections, IG Exs. 1-4 and P. Exs. 1-2 are admitted into evidence.

Neither party identified witnesses. In their respective briefs, both parties indicated that an evidentiary hearing is unnecessary to decide the case. IG Br. at 10; P. Br. at 5. Therefore, this matter will be decided on the written record. See Prehearing Order ¶ 7.

III. Issues

1) Whether the IG has a basis to exclude Petitioner from participation in Medicaid, Medicare, and any federal healthcare programs under section 1128(a)(3) of the Act; and

2) Whether the 32-year exclusion imposed by the IG is unreasonable.

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IV. Jurisdiction

I have jurisdiction to adjudicate this case. 42 C.F.R. §§ 1001.2007(a)(1)-(2), 1005.2; see also 42 U.S.C. § 1320a-7(f)(1).

V. Legal Authorities

The Act requires the Secretary of Health and Human Services (Secretary) to exclude certain individuals from participation in any federal health care programs, as defined in Section 1128B(f) of the Act. Act § 1128(a). The Secretary has delegated this exclusion authority to the IG. 42 C.F.R. § 1001.101.

Section 1128(a)(3) mandates the exclusion of any individual convicted of a criminal offense related to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct in connection with the delivery of a health care item or service, or with respect to any act or omission in a health care program other than Medicare or Medicaid, operated by, or financed in whole or in part by any federal, state, or local agency. The Act requires a minimum exclusion period of five years when the exclusion is mandated under section 1320a-7(a). 42 U.S.C. § 1320a-7(c)(3)(B).

The IG has the burden of proving the basis for the exclusion and the existence of any aggravating factors. 42 C.F.R. §§ 1005.15(b)(2), 1001.102(b). Petitioner bears the burden of proof and the burden of persuasion on any affirmative defenses or mitigating factors. 42 C.F.R. §§ 1005.15(b)(1), 1001.102(c). The standard of proof is a preponderance of the evidence, and there may be no collateral attack of the conviction that provides the basis of the exclusion. 42 C.F.R. §§ 1001.2007(c), 1005.15(d).

An excluded individual may request a hearing before an ALJ, but only on the issues of whether the IG had a basis for the exclusion and whether an exclusion longer than the required minimum period is unreasonable in light of any applicable aggravating and mitigating factors. 42 C.F.R. §§ 1001.2007(a), 1005.2(a).

VI. Findings of Fact

At all times relevant to this decision, Thomas Sher was a resident of New Jersey and a firefighter with the Margate City Fire Department. IG Ex. 2 at 2.

On March 13, 2019, Petitioner was indicted by Grand Jury for one count of Conspiracy to Commit Health Care Fraud and Wire Fraud and four counts of Health Care Fraud. IG Ex. 2. The indictment alleged that Petitioner and others conspired to unlawfully enrich themselves by submitting false and fraudulent claims for compounded medications to Pharmacy Benefits Administrator (PBA) and by receiving a percentage of the funds that

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PBA paid to the Compounding Pharmacy for those compounded medications. IG Ex. 2 at 6. PBA then billed the State of New Jersey based on claims that were submitted on behalf of the State Health Benefits Program and the School Employees’ Health Benefits Program and billed other insurance plans for the amount paid to pharmacies under those other plans. IG Ex. 2 at 3-4.

On September 8, 2022, a jury found Petitioner guilty of four felonies: one count of Conspiracy to Commit Health Care Fraud pursuant to 18 U.S.C. § 1349 (count one of the indictment), and three counts of Health Care Fraud pursuant to 18 U.S.C. § 1347 and 18 U.S.C. § 2 (counts 19, 20, and 21 of the indictment). IG Exs. 3, 4.

On July 13, 2023, the District Court adjudicated Petitioner guilty of the four felonies and sentenced him to 96 months of incarceration with the United States Bureau of Prisons. IG Ex. 4. at 1. Petitioner was also ordered to pay $6,867,850.31 in restitution to the New Jersey Division of Pension & Benefits and $192,037.97 in restitution to the New Jersey Employer Group Waiver Plan for a total of $7,059,888.28 in restitution. IG Ex. 4 at 2, 7.

VII. Analysis

1. Petitioner is subject to exclusion because he was convicted of criminal offenses, related to fraud, that were committed in connection with the delivery of a health care item or service.

In order to prevail, the IG must prove, by a preponderance of the evidence, that Petitioner was convicted under federal or State law, of a criminal offense that occurred after August 21, 1996, consisting of a felony relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct that was committed in connection with the delivery of a health care item or service. 42 U.S.C. § 1320a-7(a)(3); 42 C.F.R. § 1001.101(c)(1).

The regulations provide that 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, regardless of 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 nolo contendere is accepted by a court; or (4) the individual has entered into a first offender program, deferred adjudication program, or other arrangement where a judgment of conviction is withheld. 42 U.S.C. § 1320a-7(i).

The evidence shows, and Petitioner concedes,2 that he was convicted of felony offenses, in District Court, on July 13, 2023. P. Br. Petitioner’s acts of submitting fraudulent

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claims for compounded medications to the New Jersey PBA and convictions for Health Care Fraud and Conspiracy to Commit Health Care Fraud were directly related to fraud in connection with the delivery of a health care item or service. Therefore, the IG has a legal basis to exclude Petitioner from participating in federal health care programs.

2. The IG has identified three aggravating factors that support an exclusion beyond the five-year minimum, and Petitioner has identified no applicable mitigating factors.

Exclusions imposed under section 1128(a)(3) carry a five-year mandatory minimum exclusion period. Act § 1128(c)(3)(B) (42 U.S.C. § 1320a-7(c)(3)(B)); 42 C.F.R. § 1001.102(a). The IG may extend the five-year exclusion period based on the application of the aggravating factors listed in 42 C.F.R. § 1001.102(b). If any of the aggravating factors set forth in 42 C.F.R. § 1001.102(b) justifies an exclusion longer than five years, then the mitigating factors listed at 42 C.F.R. § 1001.102(c) may be considered as a basis for reducing the period of exclusion to no less than five years. The IG bears the burden of persuasion with respect to aggravating factors and Petitioner bears the burden of persuasion with respect to mitigating factors. 42 C.F.R. § 1005.15(c). In this case, the IG has proposed a 32-year exclusion based on three aggravating factors which are addressed below. Petitioner did not identify any mitigating factors.

The IG identified the following aggravating factors as a basis for imposing a 32-year exclusion against Petitioner: loss to a government program or other entities as a result of Petitioner’s criminal conduct was greater than $50,000; the acts resulting in Petitioner’s conviction, or similar acts, were committed over a period of one year or more; and the sentence imposed included incarceration. IG Ex. 1.

The District Court ordered Petitioner to pay $7,059,888.28 in restitution, which is over 141 times the $50,000 threshold for the application of this aggravating factor. IG Ex. 4 at 7. Petitioner argues that while he was ordered to pay over $7 million in restitution, only $930,000 is directly attributable to his actions. P. Br. at 4. However, the United States Court of Appeals, Third Circuit has confirmed the restitution amount attributable to Petitioner as $7,059,888.28. P. Br. at 2; see USA v Sher, No. 23-2337, 2024 U.S. App. LEXIS 19099 * | 2024 WL 3617295. It is well-established that an amount ordered as restitution constitutes proof of the amount of financial loss to a government program. See, e.g., Juan de Leon, Jr., DAB No. 2533 at 2 (2013); Craig Richard Wilder, DAB No. 2416 at 2 (2011). The IG acted within its authority in applying the restitution amount as an aggravating factor.

The evidence shows that the acts that resulted in Petitioner’s criminal convictions took place from July 2014 through April 2016. IG Ex. 2 at 5. This aggravating factor is significant because it shows that Petitioner’s actions were not a temporary lapse in

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judgment, but knowing and willing engagement in the criminal activity for approximately 21 months.

It is undisputed that the District Court sentenced Petitioner to 96 months of incarceration. IG Ex. 4 at 2. This is a significant period of incarceration and indicative of the District Court recognizing the severity of Petitioner’s fraudulent acts. The IG acted well within its authority in identifying Petitioner’s incarceration as an aggravating factor.

3. Based on the three aggravating factors and lack of mitigating factors, I find that the 32-year exclusion imposed by the IG is not unreasonable.

In determining whether the length of exclusion is unreasonable, I must determine whether the length of the exclusion falls into a “reasonable range” based on the evidence before me. Here, Petitioner engaged in a fraudulent billing scheme for over one year causing over $50 million in damages to government health care programs, and over $7 million of that amount has been attributed to Petitioner.

Petitioner argues that he served as an independent sub-recruiter of patients seeking benefits and that he fell to the bottom of the scale of culpability in the overall scheme. P. Br. at 2. According to Petitioner, a 32-year exclusion is unreasonable, and a more reasonable exclusion period should be calculated using the level of culpability and the actual amount of fraud attributable to Petitioner, which Petitioner argues is $930,000. Based on his calculations, and without citing authority, Petitioner surmises that his exclusion should not exceed 4.5 years. P. Br. at 4. Despite the U.S. Court of Appeals, Third Circuit decision affirming the $7,059,888.28 in restitution imposed by the District Court, Petitioner argues that the Third Circuit’s opinion should be viewed as supportive of Petitioner’s argument that the exclusion proportionate to the fraud loss of $7 million should not exceed 4.5 years. P. Br. at 3. However, Petitioner’s reasoning is flawed. The Secretary is required to exclude any individual convicted of a criminal offense related to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct in connection with the delivery of a health care item or service for at least five years. See 42 U.S.C. 1320a-7(a)(3). The regulations permit extending the exclusion period based on the facts and circumstances of each individual case and provide specific aggravating factors that may be used to increase an exclusion. Despite Petitioner’s arguments, exclusions are not calculated using perceived degrees of culpability or proportionality to co-conspirators’ offenses.

Petitioner argues that in Alla Mikhli, DPM v. The Inspector General, CR1631 (2007), the petitioner received a 10-year exclusion after engaging in criminal conduct for three years and nine months and causing $120,000 in losses to federal and state health care programs. P. Br. at 4. Petitioner suggests that he should be subject to a lesser exclusion period because his criminal acts took place for a shorter amount of time than the petitioner in the Mikhli matter. However, in the Mikhli case, the petitioner was sentenced to five months

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of incarceration, a substantially shorter period of incarceration than Petitioner’s 96-month sentence and was ordered to pay substantially less restitution than Petitioner. Mikhli, CR 1631 at 3. The facts in the Mikhli case are not analogous to Petitioner’s case, and even if the facts were analogous, the decision of the ALJ is not binding on my decision.3

Petitioner argues that based on his current age, a 32-year exclusion constitutes a de facto lifetime exclusion. However, I am unable to consider Petitioner’s age as a factor in determining if an exclusion is reasonable, as it is not one of the mitigating factors identified in the regulations. Petitioner also argues that the imposition of the exclusion is a punitive measure. However, it is well established that the imposition of an exclusion is a remedial measure, rather than a punitive action, used by the IG to protect the integrity of federal health care programs. Edward L. Fuentes, DAB No. 2988 at 9 (2020). Petitioner seemingly downplays his role in a scheme that defrauded millions of dollars from government health care programs that are purposed to help people receive their health care needs. However, the underlying facts of Petitioner’s convictions and the sentence imposed by the District Court cannot be ignored.

Based on the circumstances and the lack of mitigating factors, I find that a 32-year exclusion is not unreasonable in this case, considering the absence of mitigating factors and the presence of three aggravating factors which include over $7,000,000 in restitution, a 96-month period of incarceration, and the long duration of the criminal activity that Petitioner engaged in.

VIII. Conclusion

For the foregoing reasons, I find that the IG has proven, by a preponderance of the evidence, that Petitioner was convicted of an offense that requires exclusion under section 1128(a)(3) of the Act. I also find that a 32-year exclusion from participation in Medicare, Medicaid, and all other federal health care programs is not unreasonable based on the circumstances of this case.