Kyle Ryan Marcotte, DAB CR6670 (2025)

DECISION

The Inspector General (IG) of the United States Department of Health and Human Services excluded Kyle Ryan Marcotte (Petitioner) from participation in Medicare, Medicaid, and all other federal health care programs for five 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 the IG has a basis to exclude Petitioner from program participation and the five-year mandatory exclusionary period must be imposed. The IG’s exclusion determination is affirmed.

I. Background and Procedural History

By letter dated July 31, 2024, the IG notified Petitioner that he was being excluded from participating in Medicare, Medicaid, and all Federal health care programs pursuant to section 1128(a)(3) of the Act for a minimum of five years, effective 20 days from the date of the letter. IG Exhibit (Ex.) 1. Petitioner was excluded due to a felony conviction in the United States District Court for the Middle District of Florida, Jacksonville

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Division (District Court), 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. IG Ex. 1.

The Civil Remedies Division (CRD) received Petitioner’s timely request for a hearing on September 30, 2024. Petitioner submitted six exhibits along with the request for hearing (P. Exs. 1-6). Departmental Appeals Board (DAB) E-File Dkt. Nos. 1a-1f. On October 7, 2024, the CRD issued my Standing Pre-Hearing Order (Standing Order) and a letter, at my direction, acknowledging receipt of Petitioner’s hearing request and notifying the parties that a telephone prehearing conference was scheduled for October 31, 2024.

At the prehearing conference, the parties agreed to a briefing schedule. On November 4, 2024, an Order Following Prehearing Conference and Setting Briefing Schedule (November 4, 2024 Order) was issued.

On December 6, 2024, the IG filed a brief (IG Br.) along with seven exhibits (IG Exs. 1‑7). Petitioner filed a brief (P. Br.) on February 17, 2025. The IG filed a reply brief (IG Reply Br.) on March 3, 2025.

II. Admission of Exhibits and Decision on the Written Record

Absent objection, IG Exs. 1-7 and P. Exs. 1-6 are admitted into the record.

Neither party identified witnesses nor provided written direct testimony. As stated in the November 4, 2024 Order, a hearing will be held only if a party asks to cross-examine a witness for whom the opposing party has provided written direct testimony and the witness’ proposed testimony is found to be relevant and non-cumulative. November 4, 2024 Order at 4; Civil Remedies Division Procedures § 19(d). Therefore, a hearing is not necessary, and this matter will be decided on the written record.

III. Issue

The issue to be decided is whether the IG had a basis to exclude Petitioner from participation in Medicaid, Medicare, and other federal health care programs under section 1128(a)(3) of the Act.

IV. Jurisdiction

Jurisdiction is proper under 42 C.F.R. §§ 1001.2007(a)(1)-(2), 1005.2(a); see also 42 U.S.C. § 1320a-7(f)(1).

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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. 42 C.F.R. § 1001.201(c). 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)-(d) 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

1. Petitioner owned Beaches Recovery, a substance abuse treatment facility and Tides Edge, a dedicated detox facility. Both facilities are located in Jacksonville Beach, Florida. DAB E-File Dkt. No. 1 at 5.
2. On July 2, 2019, the United States Attorney’s Office for the Middle District of Florida filed a criminal information in the District Court charging Petitioner with Conspiracy to Commit Money Laundering. IG Ex. 2.
3. The criminal information alleged that Petitioner had an agreement with “Person A” to send urine specimens from patients at Beaches Recovery to Laboratory A for urine drug testing. In exchange, Person A paid Petitioner 40% of the reimbursements received for conducting urine drug testing on Beaches Recovery patients. IG Ex. 2 at 4. It was also alleged that Petitioner brokered agreements

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between Person A and other treatment facilities to have their urine specimens sent to Laboratory A. As part of that agreement Petitioner received 10% of the insurance reimbursements and the treatment facilities received 30% of the reimbursements that Laboratory A received for conducting urine testing on specimens provided by the treatment facilities. IG Ex. 2 at 4.

4. In furtherance of the conspiracy, Petitioner deposited checks received from Person A into specified bank accounts. The funds were eventually transferred to Petitioner’s personal bank accounts. IG Ex. 2 at 6.
5. On July 9, 2019, Petitioner entered into a Plea Agreement where he agreed to plead guilty to Conspiracy to Commit Money Laundering and agreed that he knew about the plan’s unlawful purpose and voluntarily joined in it. IG Ex. 3 at 2.
6. A Preliminary Order of Forfeiture for Proceeds and Substitute Asset was filed in the District Court on November 9, 2023. Petitioner was held liable for an order of forfeiture in the amount of $10,220,281.42. IG Ex. 5 at 2.
7. On December 6, 2023, an Assistant United States Attorney filed a Rule 5K1.1 motion requesting a downward departure in sentencing based on Petitioner’s substantial assistance. IG Ex. 6.
8. The District Court accepted Petitioner’s guilty plea and adjudicated him guilty on January 2, 2024. IG Ex. 7. Petitioner was sentenced to three years of probation with one year of home confinement. Id. at 2.

VII. Analysis and Conclusions of Law

1. Petitioner was convicted of a criminal offense because the District Court accepted his guilty plea, adjudicated him guilty, and issued a judgment of conviction.

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

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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). Petitioner concedes that he was convicted of a felony offense. P. Br. at 1. In addition, the District Court accepted Petitioner’s guilty plea and imposed judgment on January 2, 2024. IG Ex. 7. Accordingly, Petitioner has been “convicted” of a felony offense as defined by the regulations.

2. Petitioner was convicted of a felony that was related to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct, in connection with the delivery of a healthcare item or service.

Section 1128(a)(3) of the Act requires the exclusion of individuals convicted of felony convictions related to “fraud, theft, embezzlement, breach of fiduciary responsibility or other financial misconduct.” 42 U.S.C. § 1320a-7(a)(3). Here, Petitioner pled guilty to a single count of conspiracy to commit money laundering in violation of 18 U.S.C. §§ 1956(h). IG Exs. 3, 7.

Petitioner argues that the IG is unable to prove this element of the exclusion because there was no healthcare fraud involved in his case. P. Br. at 5, 6. However, the Departmental Appeals Board has ruled that the plain language of section 1128(a)(3) does not require that the individual be convicted of the exact crime of healthcare fraud; nor does it require government funding for the items or services related to the crime. Rather, the plain text of the regulation “encompasses felonies relating to health care fraud.” Ellen L. Morand, DAB No. 2436 at 8-9 (2012) (citing Charice D. Curtis, DAB No. 2430 at 4-5 (2011)) (emphasis in original). Additionally, the term “other financial misconduct” is broad and encompasses a range of financial offenses, including conspiracy to commit money laundering. By including “other financial misconduct” as well as “fraud, theft, embezzlement, [and] breach of fiduciary responsibility,” Congress clearly intended to broadly encompass financially related losses. Charice D. Curtis, DAB. No. 2430 at 4. I find that Petitioner’s conviction of conspiracy to commit money laundering constitutes “other financial misconduct.”

To determine whether an offense is related to the delivery of a health care item or service, one must look to whether there is a “common sense connection” between the offense of which a petitioner was convicted and the delivery of a health care item or service. Erik D. DeSimone, R.Ph., DAB No. 1932 (2004); see also Quayum v. U.S. Dep’t of Health & Human Servs., 34 F. Supp. 2d 141, 143 (E.D.N.Y. 1998); Friedman v. Sebelius, 686 F.3d 813, 820 (D.C. Cir. 2012) (describing the phrase “related to” in another part of section 1320a-7 as “deliberately expansive words,” “the ordinary meaning of [which] is a broad one,” and one that is not subject to “crabbed and formalistic interpretation”) (internal quotation marks omitted).

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The evidence submitted by the IG proves that Petitioner’s conviction was related to the delivery of a health care item or service. Petitioner sent patient urine samples to specific laboratories in exchange for 40% of the insurance reimbursements. In other words, Petitioner received what amounts to kickbacks for submitting urine drug tests, administered to patients at his recovery facilities, to specific laboratories for payment. There is a commonsense connection between these actions and the delivery of a health care item or service. The evidence shows that Petitioner’s conviction was related to the delivery of a health care item or service within the meaning of the law.

3. Petitioner’s arguments amount to a collateral attack on the underlying conviction that is impermissible under the regulations.

Petitioner disputes the validity of his plea, arguing that the conspiracy to commit money laundering did not actually occur, since his alleged co-conspirators were acquitted of the charges against them and more than one person is necessary for the existence of a conspiracy. P. Br. at 13. Petitioner also argues that this is a rare and exceptional case where the prohibition on collateral attacks does not apply. P. Req. for Hrg. at 16. Petitioner correctly notes that the essence of a conspiracy is an agreement by two or more persons to engage in some type of criminal conduct. P. Req. for Hrg. at 15 (citing U.S. v. Pemberton, 85 F.4th 862, 867 (7th Cir. 2023)). Despite Petitioner’s alleged co-conspirators being acquitted of the conspiracy charges, this exclusion is based on the existence of Petitioner’s conviction, which remains intact. When an exclusion is based on a criminal conviction, an ALJ has no authority to review the basis for the conviction and Petitioner has no right to collaterally attack the conviction on substantive or procedural grounds. 42 C.F.R. § 1001.2007(d). The District Court’s acceptance of Petitioner’s guilty plea falls within the definition of 42 C.F.R. § 1001.2007(d). See also 42 U.S.C. § 1320a-7(i). Therefore, Petitioner may not collaterally attack the underlying facts of the conviction in this forum.

4. Petitioner must be excluded for a minimum of five years.

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). Because I have determined that Petitioner has been convicted of an offense under 42 C.F.R. § 1001.101(c) that requires exclusion, a five-year exclusion must be imposed.

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VIII. Conclusion

The IG has proven, by a preponderance of the evidence, that Petitioner was: 1) convicted of a criminal offense; 2) related to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct; 3) in connection with the delivery of a healthcare item or service. Therefore, Petitioner shall be excluded from participating in Medicare, Medicaid, and other federal health care programs for the mandatory five-year period. The five-year exclusion imposed by the IG is AFFIRMED.