Hanlester Network, et al., Melvin L. Huntsinger, M.D., Ned Welsh, DAB No. 1347 (1992)

Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Appellate Division

In the Case of:
The Inspector General
- v. -        
Hanlester Network, et al., Melvin L. Huntsinger, M.D., Ned Welsh,
Respondents.   

DATE:  July 24, 1992
Docket No. C-448
Decision No. 1347


        FINAL DECISION ON REVIEW OF ADMINISTRATIVE LAW JUDGE
       DECISION ON REMAND

The Inspector General (I.G.) of the Department of Health and Human
Services and nine individual and corporate or partnership respondents
appealed to an Appellate Panel of the Departmental Appeals Board from a
decision on remand by Administrative Law Judge (ALJ) Steven T. Kessel.
See DAB CR181 (1992) (ALJR Decision or ALJ Decision on Remand).

The ALJ Decision on Remand concluded that all nine Respondents had
violated the anti-kickback statute, section 1128B(b) of the Social
Security Act (Act).  The ALJ concluded that permissive exclusions under
section 1128(b)(7) of the Act were necessary for some but not all of
Respondents.  We conclude here that the ALJ did not err in finding that
all Respondents violated the anti-kickback statute but did err in not
imposing exclusions on all Respondents.

Below, we first provide the general background of these appeals (Part
I), the issues on appeal (Part II), and a summary of our decision (Part
III).  We then present our analysis (Part IV)..I.  Background

In this section we (1) explain the procedural history and the legal
standard which applies, (2) highlight some significant aspects of the
transactions at issue, and (3) summarize the ALJ Decision on Remand. 1/

    A.  The Procedural History and Legal Standard for Determining a
    Violation of the Anti-kickback Statute

The anti-kickback statute proscribes (1) the offer or payment of "any
remuneration (including any kickback, bribe, or rebate) directly or
indirectly, overtly or covertly, in cash or in kind . . . to induce" the
referral of program-related business, and (2) the solicitation or
receipt of such remuneration "in return for" referrals. 2/

This case involves the complex interrelationships among the various
individual and corporate or partnership entities involved in the
creation and operation of three limited partnership clinical
laboratories formed in California during the late 1980's.  The issues
presented were whether Respondents offered or paid remuneration to
physician limited partners to induce the referral of program-related
business to the partnership laboratories and whether Respondents had
solicited or received remuneration "in return for" referrals by virtue
of their management agreement with a large laboratory that actually
performed the bulk of the tests referred to the partnership laboratories
(laboratories) by the physician limited partners.

The I.G. proposed permissive exclusions from participation in
federally-funded health care programs under section 1128(b)(7) of the
Act based on alleged.violations of the anti-kickback statute. 3/  These
nine Respondents had appealed their proposed exclusions to the ALJ, who
conducted a hearing and issued an initial decision on March 1, 1991.
The I.G. then appealed to an Appellate Panel, and we issued our first
decision on September 18, 1991.

In our first decision, we concluded that the ALJ had misread the
anti-kickback statute to require an agreement to refer program-related
business and had improperly evaluated whether to impose an exclusion on
those Respondents which he found had "committed acts described in"
section 1128B of the Act. 4/  In light of congressional intent in
enacting the anti-kickback statute, we rejected Respondents' argument
that the statute could not reach their transactions because they had
used business techniques which were common in the health care industry.
We concluded that it was necessary to evaluate all the circumstances
surrounding a particular transaction or relationship.  We stated --

 The plain meaning of the statutory language, as well as its
 context, purpose, and history, support a conclusion that a
 violation [of section 1128B(b)(2)] occurs whenever an individual
 or entity knowingly and willfully offers or pays anything of
 value, in any manner or form, with the intent of exercising
 influence over a physician's reason or judgment in an effort to
 cause the referral of program-related business . . . .

   *   *   *.      [Section 1128B(b)(1)] focuses on
   the substance rather than the form, of any
   transaction or relationship.

DAB 1275, at 2-3 (1991).  With regard to section 1128B(b)(1), we
concluded that the ALJ's findings that there had been neither a direct
payment to Respondents by the management contractor nor a guaranteed
flow of business to the management contractor were not determinative
factors.  We remanded this case to the ALJ for further proceedings
consistent with the applicable legal standard and instructed him as to
the factors to consider in determining whether an exclusion ought to be
imposed where he found violations.

    B.  Significant Aspects of the Transactions at Issue 5/

Respondents are:  (1) the Hanlester Network; (2) the Keorle Corporation;
(3) Pacific Physicians Clinical Laboratory, Ltd. (PPCL); (4) Omni
Physicians Clinical Laboratory, Ltd. (Omni); (5) Placer Physicians
Clinical Laboratory, Ltd. (Placer); (6) Kevin Lewand; (7) Gene Tasha;
(8) Ned Welsh; and (9) Melvin Huntsinger. 6/

The Hanlester Network was a California general partnership formed in
1987.  The Hanlester Corporation, (owned by Mr. Lewand and later renamed
Keorle Corporation), Mr. Tasha, and Mr. Welsh were the general partners.
Dr. Huntsinger was identified in a sales brochure as the medical
director for the Hanlester Network.  He owned 30 limited partnership
shares in one laboratory, and was the medical director of two of the
laboratories.

Between March 1987 and March 1988, the Hanlester Network issued private
placement memoranda offering limited.partnership shares in three
clinical laboratories serving defined communities in California.  The
Hanlester Network was the general partner in each of the laboratories.

The Hanlester Network marketed limited partnership shares only to
potential referral sources.  The investment required was nominal,
beginning at $1,500.  The private placement memoranda informed the
investors that they were the primary source of the partnership
laboratories' business.  Prospective investors were told that physicians
who regularly ordered outpatient tests were to be sought as limited
partners.  The number of investors was limited (35 per lab) so that each
investor's referrals had a measurable impact on his financial returns.
The Hanlester Network told prospective partners that if they did not
utilize the labs it would be "a blueprint for failure."  FFCL 44.  Thus,
it was made clear to the investors that any financial return, even
though based on the number of shares, was in large part dependent on the
volume of investor referrals.  Investors were barred from investing in
other clinical laboratories.  When an investor ceased to be a potential
referral source due to death, retirement, or relocation, the shares were
to be repurchased.  The investors were in fact the main source of
referrals.  The physician investors received substantial cash
distributions.  The laboratories monitored partner usage.  When a
physician investor's referrals were low, that physician was called,
typically by Dr. Huntsinger, who inquired why.  Dr. Huntsinger informed
some limited partners that their failure to make sufficient referrals
was damaging the interests of other limited partners.  Some of these
exchanges were heated, and some resulted in the repurchase of the
limited partner's shares.

Patricia Hitchcock was the Vice President of Marketing for the Hanlester
Network until November of 1988.  She made marketing presentations and
sold limited partnership shares on behalf of the Hanlester Network and
the laboratories.  Her compensation package provided for increased
income based on the volume of physician investor referrals to the
laboratories.  The scope of her marketing presentations exceeded the
parameters of the private placement memorandum. 7/.The Hanlester Network
had also contracted with SmithKline Bio-Science Laboratories, Inc.
(SKBL) to provide laboratory management services for the laboratories.
SKBL was responsible for the day-to-day operations, and 85 to 90 percent
of the work sent to the laboratories was performed by SKBL at its own
facilities.  The laboratories billed for all clinical laboratory work
done under the auspices of the partnership laboratories whether
performed at the laboratories or at SKBL's facilities.  Under the
management agreement, SKBL was entitled to 76 percent of the
laboratories' receipts.  In order to make distributions to the limited
partners, SKBL permitted the laboratories' shares to be calculated based
on expected rather that actual collections.

    C.  Summary of the ALJ's Decision on Remand

On remand, the ALJ found that:

     o  By offering and/or paying profit distributions to the limited
     partner physicians, all nine Respondents violated section
     1128B(b)(2).

     o  By soliciting or receiving remuneration from SKBL in return for
     referrals of laboratory tests, Respondents Hanlester Network, PPCL,
     Omni, Placer, Lewand, Tasha, and Keorle violated section
     1128B(b)(1).

The ALJ concluded that permanent exclusions of PPCL, Omni, and Placer
were necessary since the laboratories were created to offer or pay
remuneration to induce the referral of laboratory test work and could
not operate as organized without violating section 1128B(b)(2).  The ALJ
concluded that a two-year exclusion of Respondent Hanlester Network
would serve the remedial purposes of the anti-kickback statute.  The ALJ
found significant the Hanlester Network's role as general partner with
exclusive authority for management decisions for the laboratories.  The
ALJ also found that a principal function of the Hanlester Network was to
engage in activities which violated the statute.  Thus, the ALJ
concluded that until the Hanlester Network divested itself of the
management arrangement with the laboratories it posed a threat to the
integrity of the federally funded health care programs.  The ALJ further
concluded that there was no remedial need to exclude the remaining
Respondents -- Lewand, Tasha, Welsh, Huntsinger, and Keorle.  The ALJ's
conclusion that exclusions were not necessary for certain of the
Respondents was largely based on his finding that the.I.G. had not
proven that these Respondents manifested any propensity to engage in
illegal or harmful conduct in the future.  The ALJ also made a number of
findings concerning the effect of Respondents' reliance on legal advice
and their belief or knowledge concerning whether these transactions
would violate the anti-kickback statute.


II.  Issues on Appeal

All parties appealed the ALJ Decision on Remand.  We address the
arguments and exceptions of the Hanlester Respondents, the Inspector
General, Respondent Welsh, and Respondent Huntsinger separately.

The Hanlester Respondents raised the following arguments and exceptions:
8/

  (1)  Respondents did not violate (b)(2) in marketing and
  operating the joint ventures because their activity
  amounted only to encouragement, which remains legal
  under the Appellate Panel's test.

  (2)  Respondents did not violate (b)(1) because their
  management agreement with SKBL did not result in the
  payment of any remuneration to the Hanlester Respondents
  for referrals.

  (3)  No exclusions should have been imposed on the
  partnership laboratories and the Hanlester Network, even
  if they violated either section, because no remedial
  purpose is served.

In support of its position on these issues, the Hanlester Respondents
excepted to 20 findings of the ALJ on remand and proposed 44 new
findings to the Appellate Panel.

The I.G. raised the following arguments and exceptions:

  (1)  The ALJ did not have the authority to decline to
  impose any period of exclusion once he found that a
  violation occurred.

  (2)  The ALJ's finding that exclusions of certain
  Respondents would serve no remedial purpose is not
  supported by substantial evidence..In support of its
  position on these issues, the I.G. excepted to 17
  findings of the ALJ on remand and proposed 78 new
  findings to the Appellate Panel.

Respondent Huntsinger raised the following argument and exceptions:

  Respondent Huntsinger argued that no substantial
  evidence supported the ALJ's findings that he violated
  (b)(2) and contended that acts of other Respondents
  should not be imputed to him.  In support, he excepted
  to 16 findings of the ALJ on remand.  (Section (b)(1) is
  not an issue as to Respondent Huntsinger.)

Respondent Welsh raised the following argument:

  Respondent Welsh objected to the arguments of the I.G.
  in favor of imposing an exclusion on him on the basis
  that he is no longer in the health care industry and
  that the mitigating evidence on character in the record
  is stronger for him than for the other Respondents.


III.  Summary of this Decision

We conclude that:

o       The ALJ's finding that the Hanlester Respondents violated
section 1128B(b)(2) is supported by substantial evidence in the record.
The ALJ's finding in his first decision that Respondents "encouraged"
physician investors to refer by advising them that the laboratories'
success would depend on such referrals is not inconsistent with his
finding on remand that the scheme as a whole evidenced an intent to
induce referrals, under the applicable legal standard.  We also reject
Respondents' attempts to single out a variety of factors present in the
case as each insufficient to support a conclusion that Respondents acted
unlawfully.  The ALJ properly considered as a whole all relevant facts
and the inferences reasonably drawn from them.  Also, Respondents
mischaracterized the effect of particular factors they addressed.

o       The ALJ's finding that the Hanlester Respondents violated
section 1128B(b)(1) is supported by substantial evidence in the record.
In our first decision, we concluded that it is the substance of the
transaction which controls, not the direction in which the payments
flow.  The ALJ correctly analyzed the substance of the transactions,
concluding that the.    benefits SKBL conferred on Respondents (except
Respondents Huntsinger and Welsh) exceeded the benefits Respondents
conferred on SKBL and that Respondents intended the excess to be in
return for referrals.  Respondents' assertion that particular elements
of the transaction did not constitute remuneration is irrelevant, since
the issue is whether the excess over legitimate benefits in the
transaction viewed as a whole was intended as remuneration.  We also
reject Respondents' arguments that other statutory provisions and the
I.G.'s regulations support Respondents' position that their arrangement
with SKBL was legal.

o       The ALJ did not err in imposing permanent exclusions on the
Respondent laboratories or in imposing a two-year exclusion on the
Hanlester Network.  Such exclusions are reasonable in light of the
statutory purposes because the Respondent laboratories cannot operate
without violating the statute, and Respondent Hanlester Network was
intimately involved in creating and operating the partnerships.
Respondent Hanlester Network's exclusion is reasonable since its ties to
the laboratories persist and it did not demonstrate that it can function
as a trustworthy entity.  We reject the Hanlester Respondents' arguments
that no exclusion should be imposed because there was no evidence of
overutilization or increased cost to the programs or because the
potential for harm was no greater here than in any physician
self-referral arrangement.  Rather, we conclude that this scheme had and
continues to have significant potential for harm to the programs.

o       The issue of whether the ALJ had authority to decline to impose
any period of exclusion once he found a violation is moot since we
conclude that it is necessary to exclude all Respondents to effectuate
the statutory purposes.

o       The ALJ's conclusion that exclusions of certain Respondents
would serve no remedial purpose is not supported by substantial evidence
in the record and is based in part on erroneous legal conclusions.
Respondents did not show by a preponderance of the evidence that they
are trustworthy individuals.  A strong inference of untrustworthiness
arises from Respondents' violations of a criminal statute through a
scheme which had the potential for substantial harm to the program.
Respondents' evidence is not sufficient to overcome this inference
entirely.  The ALJ erred in equating a lack of propensity to commit.
unlawful acts with the trustworthiness needed to protect the programs,
improperly placing the burden on the I.G. (in order to justify any
exclusion) to show that Respondents were likely to harm the programs.
The ALJ's error was attributable in part to his misreading of a Supreme
Court decision as applying here, and as somehow justifying his view that
no exclusions should be imposed absent a showing of a propensity to
commit unlawful acts.  Further, we agree with the I.G. that, even if
Respondents did not know with certainty that their conduct would violate
the law, the evidence shows that Respondents were aware or should have
been aware that their conduct "danced close" to the edge of the law and
were aware or should have been aware that their scheme risked behavior
by physicians which would harm the programs.  ALJR Decision at 59.

o       The ALJ's finding that Respondent Huntsinger violated section
1128B(b)(2) of the Act is supported by substantial evidence in the
record as a whole, which shows that Respondent Huntsinger was aware that
the intended purpose of the partnerships was to offer remuneration to
physicians to induce referrals and that he acted in furtherance of this
purpose.  Respondent Huntsinger had substantial involvement in the
partnerships, and contacted physician partners, in effect offering them
economic benefits to induce increased referrals.

o       We reject Respondent Welsh's argument that no exclusion is
reasonable in light of his good character and the fact that he has left
the health care industry.  Good character is not sufficient to overcome
entirely the inference of untrustworthiness from his conduct found to
violate the Act.

o       In light of the above, we conclude that exclusions of two years
would not be excessive for Respondents Lewand, Tasha, and Keorle and
that exclusions of one year would not be excessive for Respondents
Huntsinger and Welsh.


IV.  Analysis

 A.              Did the ALJ err in finding that Respondents
 violated section 1128B(b)(2)?

In our first decision, we discussed the elements required to find a
violation of 1128B(b)(2).  The legal standards .articulated there are no
longer subject to dispute before us. 9/  Section 1128B(b)(2) provides:

 Whoever knowingly and willfully offers or pays any remuneration
 (including any kickback, bribe, or rebate) directly or
 indirectly, overtly or covertly, in cash or in kind to any
 person to induce such person --

  (A) to refer an individual to a person for the
  furnishing or arranging for the furnishing of any item
  or service for which payment may be made in whole or in
  part under [Medicare or Medicaid], or

  (B) to purchase, lease, order, or arrange for or
  recommend purchasing, leasing, or ordering any good,
  facility, service, or item for which payment may be made
  in whole or in part under [Medicare or Medicaid],

 shall be guilty of a felony . . . .

In our first decision, we rejected the ALJ's conclusion that section
1128B(b)(2) requires proof that a respondent sought or obtained an
agreement from a provider precluding the provider from obtaining
services elsewhere.  We applied the plain meaning of the phrase "to
induce," i.e., to exercise influence over reason or judgment.  DAB 1275,
at 18, 59; AP 3.  We found that this meaning on its face was stronger
than simple encouragement, and particularly so in the context of this
statute where the inducement would be in the form of offering or paying
any remuneration.  DAB 1275, at 18-19.  We further found that the
overall purpose and context of the provision in the statute and the
legislative history clearly supported a broader reading of "to induce"
than that originally employed by the ALJ.  We discussed the case law and
determined that those cases which reached the issue supported our
understanding of the meaning of the provision.  See DAB 1275, at 35-41,
in particular the discussion at page 40 of United States v. Duz-Mor
Diagnostic Laboratory, Inc., 650 F.2d 223 (9th Cir. 1981), and United
States v. Greber, 760 F.2d 68 (3rd Cir. 1985), cert. denied, 474 U.S.
988 (1985).  In light of the fact that our understanding was derived
from the plain meaning of the statute and was supported by.context,
purpose, legislative history, and case law, we rejected efforts to
misuse canons of statutory construction in an attempt to reach a desired
result by imposing a strained reading of the phrase "offers . . . any
remuneration . . . to induce" referrals as meaning offers payments
conditioned on obtaining an agreement to make referrals.  DAB 1275, at
21-30. 10/

The ALJ suggested that he was not certain what set of facts would
constitute only encouragement but not the exercise of influence over
reason or judgment.  ALJR Decision at 23, n.15.  However, he concluded
that this did not matter because Respondents' conduct plainly exceeded
the standard set in our first decision. 11/  The ALJ stated that the
evidence before him in this case "establishes that Respondents
deliberately enticed" physician investments by offering "substantial
profits indirectly linked" to referrals.  ALJR Decision at 24.  In
addition, Respondents "made it plain [to the physician.investors] . . .
that their failure to refer business to the laboratories would cause the
ventures to fail."  Id.  The ALJ stated that Respondents "did exhort
physicians to refer tests . . . for pecuniary gain . . . ."  ALJR
Decision at 62.

We find that these facts, as well as those discussed below and
substantial evidence in the record as a whole, provide ample support for
the ALJ's conclusion that Respondents met the legal standards required
to prove a violation of (b)(2).

The Hanlester Respondents challenged the following FFCLs in this area:

235.  The key to Respondents' marketing strategy was that physician
investors would be influenced to refer laboratory tests to the joint
ventures' laboratories. 12/

240.  On Respondents' behalf, and as a means of persuading physicians to
refer tests to joint venture laboratories, Respondent Hanlester told
potential limited partner physicians that failure by them to refer tests
would be a blueprint for failure of the joint ventures.

241.  As a means of persuading limited partners to refer tests to joint
venture laboratories, Respondents PPCL, Omni, and Placer, on behalf of
all Respondents except Respondents Welsh and Huntsinger, made
substantial cash distributions to limited partners.

244.  Respondents knowingly and willfully offered remuneration to
physicians with the intent of exercising influence over these
physicians' reason or judgment in an effort to cause them to refer tests
to joint venture laboratories.

245.  All Respondents except Respondents Welsh and Huntsinger knowingly
and willfully paid remuneration to physicians with the intent of
exercising influence over these physicians' reason or judgment in an
effort to cause them to refer tests to joint venture laboratories.

246.  Respondents violated section 1128B(b)(2) of the Act by knowingly
and willfully offering or paying remuneration to physicians to induce
them to refer program-related business..The first three are essentially
findings about the structure of the joint ventures, while the last three
are conclusions about the liability of Respondents.  (We discuss the
facts relating to Respondents Huntsinger and Welsh separately). 13/

The Hanlester Respondents attacked the findings generally on the basis
that our decision did not accept the I.G.'s argument that "induce" was
the same as "encourage," and that the ALJ originally found that
Respondents "only" encouraged referrals.  However, the finding cited by
Respondents for this proposition (FFCL 81) simply states that
Respondents "encouraged" physician investors to refer to the joint
venture laboratories "by advising [them] . . . that the laboratory's
success would depend on such referrals." 14/  The ALJ, thus, did not
find that Respondents only encouraged referrals, but rather that one
form of encouragement offered by Respondents was advice that success
(which ultimately would benefit the.physician investors through
distributions) was dependent on their referrals.  Furthermore, when the
ALJ described this behavior as a form of encouragement, he believed that
the important distinction was between any form of encouragement as
opposed to an agreement precluding provider choice.  The same behavior
may also be described as evidence of Respondents' intent to offer
financial benefits to influence provider judgment.  For that reason, we
instructed the ALJ on remand to conduct a "reexamination of the
significance of the findings of fact previously made."  DAB 1275, at 60.
On remand, the ALJ did apply the corrected standard to the existing
findings and found that Respondents' conduct as a whole, including the
conduct described in FFCL 81, exceeded the test for unlawful inducement.

The Hanlester Respondents also argued that the ALJ misunderstood the
meaning of "to induce" as explained in our first decision, in that he
"created a concept of `influencing referrals' which is at odds" with our
explanation.  Respondents referred to the ALJ's use of the words
"influencing" or "persuading" in findings such as FFCLs 235, 240, and
241.  However, each of these FFCLs finds that a particular element of
the partnership laboratory arrangement (e.g., the overall marketing
strategy, the emphasis to physician investors on the likelihood of
failure if they did not refer tests to the laboratories, and the
substantial cash distributions) evidenced an intent to influence test
referrals.  The ALJ did not find that any one of these elements alone
necessarily demonstrated the required intent of "exercising influence
over these physicians' reason or judgment in an effort to cause them to
refer tests," but rather reached that conclusion on the basis of all the
facts.  FFCLs 244 and 245.  This approach is in accord with our
instructions to the ALJ on remand to examine and evaluate "all the
circumstances surrounding a transaction or relationship in order to
ascertain the parties' intentions."  DAB 1275, at 54.

The Hanlester Respondents went on to address a variety of factors
present in this case and to argue that each one was insufficient in
itself to support a conclusion that Respondents acted unlawfully.  The
overall answer to these contentions is again that the character of the
ventures here, and the intentions and actions of the parties in
structuring and operating them, must be viewed as a whole.  All relevant
facts and the inferences reasonably drawn from them by the ALJ must be
considered together, regardless of whether an individual fact standing
alone would suffice to demonstrate the prohibited intent.  See DAB 1275,
at 55-57.  However, we.also find that Respondents mischaracterized the
effect of the particular factors which they addressed.

For example, the Hanlester Respondents contended that the ALJ erred
because he erroneously perceived profiting from providing Medicare
services as wrongful.  H. Br. at 8-10.  Respondents did not provide any
citation from the ALJ Decision supporting this allegation, and we find
none.  The unlawful conduct here was not profiting by efficiently
providing services at a cost less than the rates paid by Medicare.  The
unlawful conduct was knowingly and willfully offering and paying
financial inducements to physicians to obtain referrals of Medicare
business.  Respondents' profit or loss in that process is irrelevant.

The Hanlester Respondents also analogized a laboratory in which
physicians have a financial interest to an in-house laboratory owned by
a physician who profits from performing his own tests.  However, in the
in-house laboratory, the physician is directly providing services for
the money received, is not making referrals, and is the only party
involved, so the anti-kickback statute is not implicated. 15/

The Hanlester Respondents argued that the ALJ incorrectly held that
"physician-owners may not profit from their laboratory testing if tests
are performed at their own laboratories."  H. Br. at 10.  The ALJ made
no holding about whether physicians may profit from doing their own
laboratory tests.  Nor did he impose an absolute prohibition of
physician referrals to all businesses in which they hold ownership
interests.  Rather, he applied the test of evaluating the total
arrangement to ascertain whether remuneration was being offered in this
instance for the purpose of influencing the physicians' judgment in
deciding where to refer tests.  He did not, nor do we, attempt to set
forth blanket rules relating to physician investments.  It is not our
role to undertake to develop regulatory guidance to non-parties.  Cf. 42
C.F.R. .1001.952 (safe harbor regulations).  Such an attempt would be
especially inappropriate when the focus of the statute is on the intent
of parties in offering.particular inducements, since intent is
necessarily determined individually. 16/

The Hanlester Respondents excepted to FFCL 241, which found that
Respondents (except Respondents Huntsinger and Welsh) made "substantial
cash distributions" as "a means of persuading limited partners to refer
tests."  Respondents made no specific argument and cited nothing in the
record to undercut this finding.  The fact of the cash distributions is
uncontested at this point (FFCLs 197-199); therefore, Respondents are
presumably objecting to the ALJ's finding on the purpose of the
distributions.  Respondents repeatedly asserted that the record showed
no evidence of influence over physician's judgment.  In support,
Respondents pointed out that not all physician investors made referrals
and yet they received distributions.  Further, Respondents argued that
although ownership may have encouraged them to refer to the joint
venture laboratories, "all other things being equal," their judgment was
not therefore influenced.  H. Br. at 11-13.  These arguments reflect a
misunderstanding of what it means to influence a physician's judgment.
A physician's judgment has been influenced whenever his choice of
laboratory would have been different in the absence of the financial
motivation provided by the offer of remuneration.  The anti-kickback
statute thereby assures public confidence, in that patients whose care
is financed through the federally-funded programs can trust their
physicians to select the laboratories to which their tests will be
referred without the fear that the physicians are trading off quality,
processing speed, or other values, for financial self-interest.

Furthermore, it is not necessary to a violation that a physician's
decision to perform a test or to select a particular laboratory be in
fact medically unsound or irresponsible.  Congress wished to protect
against even the potential for such results from kickback schemes.
Proof of overutilization could have properly led to an inference that
the distributions had the effect of influencing physician investors'
referrals, and therefore that they were probably intended to have that
effect.  However, the absence of overutilization does not prove the
absence of such an intent.  See DAB 1275, at 57; ALJR Decision at 25.
We have stated that, in determining intent, it "is relevant whether the
arrangement was.likely to lead physicians to select one laboratory over
another or to overutilize laboratory services because of the incentives
provided."  DAB 1275, at 57 (emphasis added).

Every potential evil against which the statute is directed need not be
realized in every case in order to prove a violation.  It is enough that
Respondents planned and operated a scheme which offered a substantial
risk of harm, because it provided significant incentives likely to
affect referral decisions.  It may be true, as the Hanlester Respondents
argued, that the selection of SKBL to manage the laboratories and
perform most of the testing was intended and perceived by potential
investors as assuring a known level of quality.  And, no doubt, evidence
of a disregard for quality might have been additional proof that
referrals were sought and obtained by means of financial inducements
alone.  However, the use of a well-known name in connection with
soliciting investors does not undercut the finding that Respondents
intended to influence physician choices by offering and paying
remuneration for referrals.  By involving a reputable laboratory as
manager, Respondents simply made it easier for physician investors to
select their laboratories over others not offering financial inducements
by reducing some of the risk of uncertain quality in switching to a
newly-opened laboratory.  (The risk was apparently not wholly eliminated
since there is evidence in the record of quality control complaints by
physician investors.) 17/.The Hanlester Respondents relied on the
testimony of several physician investors to demonstrate that their
investment in the laboratories did not influence their judgment in
ordering tests or cause them to overutilize.  However, a review of their
testimony does not establish that financial incentives were unimportant
to them in selecting laboratories. 18/

The Hanlester Respondents also contended that FFCL 235 (which found that
influencing physician investors to make referrals was "the key to
Respondents' marketing strategy") was flawed because it was based on
aspects of.the ventures' structure and operation which Respondents
viewed as not significant as markers of illegality.  Among these,
Respondents pointed to (1) the small size of the investments required
from prospective partners (FFCL 237), (2) the opportunity to earn money
indirectly on referred laboratory tests, (3) the limitation of partners
to potential referral sources, and (4) the encouragement and monitoring
of partners' usage.

(1)  Respondents argued that the nominal size of the investment required
to become a limited partner could not constitute an inducement to make
referrals, since at most it served only to make investing easier not to
induce later referrals. 19/  While Respondents acknowledged that low
minimum investments might have encouraged investments, they argued that
the total distributions from those minimum shares were so small that
they did not influence physicians' referral decisions, even though they
represented a 50 percent return on those investments.  Although some
physicians denied that the distributions on their investments influenced
their laboratory choices, the testimony of others suggests the
distributions possible even from the small investments required to join
the partnerships did affect their referral decisions.  Compare Dr.
ReVille (Tr. 1443) with Dr. Rubin (Tr. 773).  In any case, the ease of
investment had the effect of motivating more physicians to become
involved in the partnership laboratories.  The ALJ could reasonably
infer that part of the scheme was to try to ensure that those physicians
most likely to make referrals could easily invest.  In light of the
overall design of the partnerships to maximize limited partner
referrals, the ease of entry into the partnerships is simply one of many
factors about their structure (most of them uncontested factually) from
which the ALJ, having heard all the evidence and weighed the credibility
of the witnesses, drew inferences as to the purposes and motives of the
principals.  See ALJR Decision at 20, 25-26.

(2)  Respondents argued that the opportunity to profit from laboratory
test referrals is inherent in ownership.and therefore cannot be evidence
of illegal intent.  The mere fact that an opportunity to profit is
inherent in investing in a business does not mean that distribution of
profit cannot be used as the vehicle to offer or pay remuneration under
the anti-kickback statute.  For example, in the Bay State case, the
opportunity to earn money on a consulting contract, which would
otherwise be ordinary and lawful, nevertheless violated the
anti-kickback statute when it was intended to influence the referral of
program-related business.  Thus, the form in which the economic benefits
are couched (here, profit through ownership) is irrelevant.  See DAB
1275, at 24-26.  Furthermore, in this case, we find that substantial
evidence in the record supports the inference drawn by the ALJ that one
incentive to refer to the joint venture laboratories was to make money
indirectly from test referrals, because changes in Medicare law had
foreclosed other means of profiting from laboratory testing. 20/  It is
important to note, here, that the illegal intent required is an intent
to use economic self-interest to influence the physician in selecting a
laboratory, not necessarily an intent to violate the law.  Moreover,
offering an opportunity to obtain a substantial return on a small
investment to a limited group of physicians who are chosen based on
criteria that maximize their potential as referral sources and who are
instructed that the financial success of their investment depends on
their referrals is far more than offering profit which ordinarily
accrues from ownership.

(3) Respondents argued that the restriction of partnership offerings to
potential referral sources was innocuous, because (a) this limitation
simply served to increase access to physicians, and (b) the restrictions
helped Respondents comply with state securities laws requiring a certain
proportion of "sophisticated investors."

The anti-kickback statute does not permit obtaining "access" to
potential customers for laboratory services to be paid by Medicare or
Medicaid by the.expedient of offering financial inducements for
referrals, however useful such access may be to a new laboratory.
Respondents often stressed that their practices should not be found to
be illegal just because they were profitable or made good economic
sense.  However, neither is a practice immune from scrutiny or
necessarily legally permissible, merely because it is good business.
DAB 1275, at 23-24.  In fact, one reason Congress found it necessary to
act to prohibit kickback schemes is that they present temptation
precisely because they make business sense for the promoters, even
though they expose the federal program payors and beneficiaries to
potential harm.

While Respondents suggested several reasons why physicians make
knowledgeable and likely investors for laboratories, they failed to
point out any legitimate reason why they would not seek or accept
capital from other sources, even other sophisticated investors such as
physicians or attorneys, who were not potential customers.  Respondents
pointed to nothing in the state securities law which would have
prevented them from offering shares to investors who were not referral
sources.  In our first decision, we cited the restrictions on investors
to potential referral sources as a proper basis for drawing inferences
about the intent of the venture, and we find no error in the ALJ having
drawn such inferences concerning Respondents' intent to induce referrals
from this fact, along with the other facts discussed in his decision on
remand.  See DAB 1275, at 56.

(4) Respondents' argument in defense of pointing out the financial
necessity of investor referrals to limited partners and monitoring
physician investors' usage of the laboratories to increase referrals was
again based on the "business sense" of such activities in getting access
to and keeping the loyalty of customers.  H. Br. at 23-26.  It may well
be that any laboratory would find it beneficial to keep track of its
customers and follow up on a drop in their usage.  However, the ALJ
found more than that in this case.

The customers here had been told that their failure to make referrals
would be a "blueprint for failure" of the business in which they had a
financial stake.  FFCL 44.  In FFCL 240, to which the Hanlester
Respondents excepted, the ALJ found that this communication to potential
physician investors was made "as a means of persuading physicians to
refer tests."  Respondents admitted that their goal was to encourage
partners to switch their tests to the laboratories, but asserted that
this purpose.was the same as when they sought patronage from
non-investor physicians.  H. Br. at 23-25.  The difference is that the
risk of the business failing would not be a persuasive argument to a
customer who did not have a financial stake in its success.  This
"economic fact," as Respondents referred to it, actually highlights one
danger of this laboratory structure, i.e., that financial self-interest
would motivate physicians to patronize a laboratory that might otherwise
be unable to compete by marketing to disinterested customers on the
basis of quality or service. 21/  Similarly, the evidence which
Respondents cited that other laboratories used sales representatives to
contact potential customers to urge them to select their laboratories is
irrelevant where those laboratories were not offering distributions to
those potential customers. 22/  We therefore find that FFCL 240 is
supported by substantial evidence in the record.

On the subject of monitoring, the ALJ found that Respondent Huntsinger
made calls to physician investors to find out why their usage was low
and to tell them that their low usage relative to other partners was
hurting the partnership's interests.  FFCLs 125-129.  (However, .he did
not find that Respondent Huntsinger demanded an increase in order for
them to remain partners or threatened to oust them.  FFCLs 130-132.)
Respondents did not similarly follow up on non-partner customers.  Tr.
797-98.  The Hanlester Respondents argued again that all this activity
resulted from their concern to keep quality satisfactory, since the
physician investors might otherwise refer elsewhere.  H. Br. at 24; FFCL
50.  Respondents may have sought to prevent quality control from
interfering with their efforts to retain investors' referral streams,
but they also sought to induce continued referrals by other means,
including pointing out the effect of low usage on the financial
interests of other partners.  FFCL 129.  (They also sought to foreclose
other laboratories from competing against them on the basis of higher
returns by requiring investors to agree not to invest in other
laboratories.  See, e.g., I.G. Ex. 4.0, at 14.)

We find that the ALJ's conclusion that Respondents (other than
Respondents Huntsinger and Welsh, who are discussed separately below)
violated (b)(2) by knowingly and willfully offering or paying
remuneration to physicians to induce them to refer program-related
business is supported by substantial evidence in the record and that
Respondents' challenges to the findings supporting the ALJ's conclusion
are without merit.  We therefore affirm FFCLs 235, 240, 241, 244, 245,
and 246.  In our first decision, we remanded to the ALJ to consider all
of the facts and circumstances relating to these joint ventures to
determine whether Respondents had offered "any remuneration," which we
defined as "anything of value," in order "to induce" referrals, which we
said connoted "an intent to exercise influence over the reason or
judgment" of a referring physician.  The ALJ weighed the evidence and
found that an intent to induce referrals could be inferred from the
structure and operation of these joint ventures, including the fact that
Respondents were paying substantial cash distributions and relatively
high rates of return (FFCLs 238 and 241), warning about possible failure
absent physician investor referrals (FFCL 240), urging referrals and
discouraging alternatives (FFCLs 233 and 243), and presenting
opportunities to earn income otherwise barred by law on laboratory tests
(FFCL 239).  This evidence is more than sufficient to meet the standard
enunciated in our prior.decision. 23/  We therefore uphold the ALJ's
conclusion on section 1128B(b)(2).

 B.              Did the ALJ err in finding that Respondents
 violated section 1128B(b)(1)?

In our first decision, we also enunciated the elements required to find
whether Respondents violated section 1128B(b)(1) in their management
relationship with SKBL.  The legal standards articulated there, as with
those relating to section 1128B(b)(2), are no longer subject to dispute
before us.  Section 1128B(b)(1) provides:

 Whoever knowingly and willfully solicits or receives any
 remuneration (including any kickback, bribe, or rebate) directly
 or indirectly, overtly or covertly, in cash or in kind --

  (A) in return for referring an individual to a person
  for the furnishing or arranging for the furnishing of
  any item or service for which payment may be made in
  whole or in part under [Medicare or Medicaid], or

  (B) in return for purchasing, leasing, ordering, or
  arranging for or recommending purchasing, leasing, or
  ordering any good, facility, service, or item for which
  payment may be made in whole or in part under [Medicare
  or Medicaid],

 shall be guilty of a felony . . . .

In our first decision, we rejected the ALJ's analysis of this provision
to require the remuneration to be in the form of payments and to be
conditioned on an agreement to refer business.  DAB 1275, at 46-49.  We
discussed the meaning of the phrase "any remuneration" (both in (b)(1)
and (b)(2)) and determined that its scope was considerably broader.  We
pointed out the expansive.context, which the legislative history
demonstrated to be intended to broaden the reach of the anti-kickback
statute.  DAB 1275, at 25.  We concluded that "any remuneration"
referred to anything of economic value used with the proscribed intent
and did not depend on "the direction in which money payments flow in a
transaction."  DAB 1275, at 28; AP 4.  Therefore, the focus of the
analysis should be on whether the economic benefits sought or received
were intended to be in return for referring program-related business.
Among the relevant factors which we instructed the ALJ to consider were
the respective duties and compensation of the parties, SKBL's control
over the referring of tests to it from the laboratories, the value of
the use of money advanced by SKBL to Respondents, and whether the sum of
the benefits received by Respondents from SKBL exceeded the sum of
legitimate benefits, i.e., those benefits in return for services other
than referrals.  DAB 1275, at 57-58.  We also pointed out that it was
not decisive whether Respondents guaranteed SKBL a flow of referrals or
whether the management agreement also had some legitimate business
purposes.  DAB 1275, at 58.

The ALJ on remand applied this guidance to analyzing the relationship
between Respondents and SKBL, in which SKBL received 76% of the
laboratories' collections for managing the laboratories. 24/  Among the
benefits which the ALJ found that Respondents received from SKBL were
SKBL's assumption of the operating risks and management responsibilities
for the laboratories, SKBL's payment of anticipated receipts in advance,
and the use of SKBL's name for marketing to potential investors.  These
benefits exceeded the legitimate value of what Respondents provided to
SKBL, apart from a stream of referrals.  ALJR Decision at 29.  He found
that that arrangement was premised from its inception on the intent of
the parties that Respondent laboratories would refer tests to SKBL from
which SKBL would benefit financially, and in fact SKBL performed the
vast majority of the tests itself.  ALJR Decision at 28.  He found that
the remuneration received by Respondents from SKBL depended partly on
the volume of tests generated by the laboratories.  ALJR Decision at
28-29.  He also found that the purpose of at least some of the
remuneration, including the advance payments, was as an incentive in
order to assure that the physician investors would.continue to refer
tests to the laboratories, and thence to SKBL.  ALJR Decision at 29-30.
The ALJ acknowledged that Respondents may well have had other motives
for their management agreement with SKBL, in addition to obtaining
remuneration for their referrals.  However, the law requires only that
obtaining remuneration for referrals be a "not insignificant purpose" of
the remuneration to find a violation of the Act, regardless of whether
additional purposes for the remuneration also exist.  Greber; United
States v. Kats, 871 F.2d 105 (9th Cir. 1989).

We find that these facts, as well as those discussed below and
substantial evidence in the record as a whole, provide ample support for
the ALJ's conclusion that Respondents' conduct met the legal standards
required to prove a violation of section 1128B(b)(1).  (The ALJ did not
find a violation of (b)(1) by Respondents Huntsinger or Welsh.  We
discuss Respondents Huntsinger and Welsh separately below.)

The FFCLs to which the Hanlester Respondents excepted in this area are:

263.  All of the benefits which Respondents other than Respondents Welsh
and Huntsinger obtained from the agreements between Respondents
Hanlester, PPCL, Omni, Placer, and SKBL constitute "remuneration" within
the meaning of section 1128B(b)(1) of the Act.

264.  The benefits which Respondents, other than Respondents Welsh and
Huntsinger, obtained from the agreements between Respondents Hanlester,
PPCL, Omni, Placer and SKBL were "in return for" program-related
referrals under section 1128B(b)(1) of the Act, because there would have
been no reason to have SKBL manage the joint venture laboratories unless
referrals were made by the laboratories to SKBL.

265.  In entering into agreements with SKBL, all Respondents, other than
Respondents Welsh and Huntsinger, intended that the value of what they
earned by virtue of the tests processed pursuant to the agreements would
exceed the value of what they would have earned from those tests had
they not entered into the agreements.

266.  The value of the remuneration which all Respondents, other than
Respondents Welsh and Huntsinger, expected to receive from SKBL exceeded
the expected value of the benefits which Respondents conferred on
SKBL..267.  All Respondents, other than Respondents Welsh and
Huntsinger, knowingly solicited remuneration from SKBL in return for
referring program-related business to SKBL, in violation of section
1128B(b)(1) of the Act.

268.  All Respondents, other than Respondents Welsh and Huntsinger,
knowingly received remuneration from SKBL in return for referring
program-related business to SKBL, in violation of section 1128B(b)(1) of
the Act.

Part of the Hanlester Respondents' argument resurrected their contention
that no remuneration could have occurred because SKBL paid no money to
Respondents.  H. Br. at 32.  We have already resolved this issue by
holding that what is relevant is the substance of a transaction in which
benefits are exchanged, not the direction in which cash flows.  SKBL
earned most of the money collected from Medicaid and Medicare by
performing most of the laboratory tests in its own laboratories.  FFCL
190.  That SKBL put all receipts in accounts for the laboratories and
then withdrew its share, rather than collecting the receipts itself and
then paying the partnerships their share, is a mere formality, without
substantive effect.

The Hanlester Respondents contended that the advance payment of revenues
to the laboratories to be distributed to the physician investors was not
remuneration in return for referrals because (1) the change was a result
of management problems with SKBL, and (2) it was not SKBL's money.  It
is meaningless to insist, as Respondents did, that these sums were not
"owned" by SKBL.  SKBL controlled the laboratories' accounts and, under
the management agreements, was entitled to its monthly share of cash
receipts.  I.G. Ex. 4.1, at 5-6 (PPCL); I.G. Ex. 5.1, at 5-6 (Omni);
I.G. Ex. 6.1, at 6-7 (Placer).  It was not unreasonable for the ALJ to
infer that when SKBL deferred its withdrawals in order to increase the
funds available to the partnerships to make distributions to physician
investors, Respondents received remuneration that was in return for
their referrals.  ALJR Decision at 28.  Respondents did not assert that
SKBL did not continue to operate the laboratories and thereby incur
costs, while deferring its management fee.  Respondents cited testimony
of Kevin Lewand in support of their argument that the reason for the
change to advance payments was to resolve a dispute with SKBL concerning
management problems.  H. Br. at 32, 44-47; Tr. 2006-2015.  Even if this
were one reason for the advance payments, there is evidence in the
record the advances were necessary because without them payments to the
partners might have had to be delayed.  Tr. 2101.  Furthermore, we.have
already affirmed the ALJ's findings on SKBL's payment of advances to the
partnerships in his first decision, including that their purpose was to
"provide greater initial compensation for" the limited partners.  FFCL
174.  It was reasonable to infer that Respondents sought to advance the
payments from SKBL at least in part because delays in the limited
partners' distributions might have disrupted their referrals to the
laboratories.  The statutory requirement that remuneration be in return
for referrals is satisfied by finding that the advances "were made by
SKBL in order to assure that the limited partners continued to refer
business to the joint venture laboratories which would then be referred
to SKBL," regardless of any other motives also underlying the change in
the payment scheme.  ALJR Decision at 29.

The Hanlester Respondents also returned to the argument that profit
cannot prove illegality, i.e., an agreement between a referral source
and a provider cannot violate the law simply based on whether it is
advantageous.  H. Br. at 33.  As we have stated in regard to section
1128B(b)(2), it is not the profitability of the arrangement which is
relevant to our analysis.  The Hanlester Respondents violated the
statute by knowingly and willfully seeking economic benefits in return
for channeling to SKBL the referral stream of which they gained control
through the joint venture partnerships.  How successful they were in
negotiating those benefits is not at issue.  Respondents argued that 24
percent was not an excessive sum for them to receive in return for the
residual risk that the partnerships would fail.  H. Br. at 40-41.
However, Respondents did not point to any evidence of legitimate
services or benefits which Hanlester Network provided to SKBL (as
opposed to Hanlester Network's services to the limited partnerships)
other than "maintaining good relationships with the physician limited
partners."  H. Br. at 41.  Respondent Lewand testified that Hanlester
Network intended to set up the laboratories and turn them over to SKBL
as "turn key" operations, in which Respondents did not expect to have
ongoing operational duties except in relation to marketing and managing
the limited partnerships.  Tr. 2007.  This amounts primarily to
undertaking to keep the stream of referrals flowing.  The laboratories
had enough equipment and space to meet licensing requirements and
perform a limited number of tests.  SKBL provided their medical director
and undertook all operating expenses.  The laboratories were obligated
only to cover non-operating costs of the partnerships themselves (such
as legal and accounting expenses).  Therefore, the laboratories too
offered little of value to SKBL in return for their guaranteed share of
collections besides.their control of a stream of referrals from "loyal"
physicians.  It was not unreasonable for the ALJ to infer from these
facts that SKBL's management role was based essentially on its
anticipated receipt of referrals from the joint venture laboratories,
and that Respondents expected to receive greater benefits from SKBL than
if Respondents had operated laboratories performing their own tests, or
had sent out tests to reference laboratories with which they had no
contract benefitting them in return.  We therefore find no basis for
Respondents' attack on FFCLs 263, 264, 265, and 266.  The two other
challenged FFCLs, 267 and 268, are conclusions about Respondents'
violation of section 1128B(b)(1) in light of the findings upheld above,
and therefore are affirmed.

The Hanlester Respondents argued that the I.G. failed to prove that the
Hanlester Network's retention of 4 percent of collections for marketing
and the laboratories' retention of 20 percent for distribution to the
physician investors was "excessive" or "unreasonable," by any showing
that they exceeded comparable arrangements or fair market value.
However, the I.G. was not required to prove that the amount obtained by
Respondents through the management agreement with SKBL was greater than
provided for generally in such transactions, since we have pointed out
that common business practices are not necessarily legitimate.  The
meaningful comparison would be with management contracts that do not
involve the ability of a manager to channel referrals to itself, or with
a reference laboratory relationship which does not involve the element
of management control over the source laboratory's referral streams.
The ALJ found that the benefits gained by Respondents from this
arrangement were greater than those available from simply referring
tests to outside laboratories on a test-by-test basis.  This excess
value served to compensate Respondents for granting SKBL control over
the stream of test referrals.  ALJR Decision at 30.  Therein lies the
illegality.

The Hanlester Respondents relied on FFCL 201 to argue that SKBL's
assumption of the operating risks did not constitute remuneration in
return for referrals.  H. Br. at 32.  Respondents asserted that since
FFCL 201 was not vacated in our decision, it was now binding.  However,
although that finding was not excepted to before us during the first
appeal and therefore was not vacated, the ALJ determined that his
finding was premised on his earlier narrow interpretation of the meaning
of "remuneration" and that the finding was no longer accurate.  ALJR
Decision at 28.  We instructed the ALJ to reexamine the significance of
his previous findings in.light of the definitions which we articulated,
and he has done so here.  Therefore, we conclude that the ALJ did not
err in considering the value to Respondents of SKBL's assumption of the
partnership laboratories' operating risks as one of the economic
benefits which Respondents received from SKBL. 25/

The Hanlester Respondents also argued that Congress intended
arrangements like this to be legal because it specifically exempted,
from the direct billing requirements, payments to referring
laboratories.  As we discussed in our first decision, the Deficit
Reduction Act of 1984, Public Law No. 98-369 (DEFRA), prevented doctors
from billing Medicare for clinical diagnostic laboratory tests performed
by other laboratories.  DAB 1275, at 49, n.31; section 1833 of the Act.
However, DEFRA also established an exception permitting independent
clinical laboratories to bill Medicare for tests which they sent out to
reference laboratories.  Section 1833(h)(5)(A)(ii) of the Act.  Since it
was legal for a laboratory to refer tests to another laboratory and
still bill Medicare for them, Respondents contended that their
arrangement with SKBL was "statutorily-approved."  H. Br. at 33.  The
use of a legal method of billing does not serve to immunize the total
arrangement here.  For example, if an internist were to send all his
neurology patients to one specialist in return for something of economic
value (whether money payments or less obvious exchanges, such as the use
of a car), such a kickback scheme would not be lawful just because both
doctors used proper methods to bill Medicare for the services provided.

The Hanlester Respondents bolstered their contentions concerning the
reference laboratory exception by claiming that a "shell lab" rule
evidenced both that Congress continued to permit reference laboratory
billing and that the restrictions which it added would have been
unnecessary if the anti-kickback statute already made reference
laboratory billing illegal.  H. Br. at 33.  The "shell lab" rule was
contained in the Omnibus Budget Reconciliation Act of 1989, Public Law
No. 101-239, and limited the availability of reference laboratory
billing.to rural hospitals and other laboratories which send out no more
than 30 percent of their tests.  Section 1833(h)(5)(A)(ii)(III) of the
Act.  This limitation was intended to redress abuses of the reference
laboratory billing exception, which had been intended to benefit small
laboratories which had to send out certain "difficult or sophisticated
tests," by parties who had --

 created laboratories that have only a limited capacity to do
 testing, or indeed have virtually no capacity to do testing, but
 that act as conduits for referrals to other laboratories.  This
 arrangement allows the owners and operators of the referring
 laboratory to obtain substantial discounts from the testing
 laboratory or to make other financial arrangements so that, even
 though there is a limit on Medicare payments, the referring
 laboratory is able to make inappropriate profits on testing done
 for Medicare patients.  This is likely to be an inducement for
 unnecessary testing and contravenes the intent of the direct
 billing requirement.

H.R. Rep. No. 247, 101st Cong., 1st Sess. 356 (1989), reprinted in 1989
U.S. Code Cong. & Admin. News 2082.  Far from reaffirming its support
for all reference laboratory arrangements, Congress was seeking once
again to stem abuses exploiting an exception to direct billing which had
been intended to serve a narrow purpose.

It was necessary for Congress to act in this area, despite the existence
of the anti-kickback statute, because not all laboratories referring out
large numbers of tests necessarily do so to a laboratory from which they
receive remuneration as clearly as the Respondents' laboratories did
here under the management agreement.  Congress presumably concluded that
laboratories that exist largely to channel test referrals are likely to
pose a risk of harm to the Medicare program, even absent remuneration
for the referrals.  In any case, the fact that Congress later more
narrowly targeted arrangements like Respondents under another provision
of the Act can hardly be support for the proposition that Congress
intended to exempt their arrangement from the broad reach of the
anti-kickback statute.  In fact, the legislative history affirms that
the "shell lab" rule "would not affect in any way the current statutory
provisions prohibiting kickbacks or payments made to induce" referrals.
Id.

Respondents argued that any remuneration which they received from SKBL
was exempt from the anti-kickback statute as a discount.  They argued
that if SKBL charged.its retail rates to the laboratories, these would
have approximated third party payee fee schedules, and that as a result
the laboratories would have had no profit.  Therefore, they reasoned
that any remuneration found from SKBL to the laboratories was tantamount
to a discount to the laboratories on SKBL's testing services.  H. Br. at
47-48.  The anti-kickback statute is expressly made inapplicable to --

     a discount or other reduction in price obtained by a provider of
     services or other entity . . . if the reduction in price is
     properly disclosed and appropriately reflected in the costs claimed
     or charges made by the provider or other entity under [Medicare or
     Medicaid].

Section 1128B(b)(3)(A) of the Act.

We see no reason to accept Respondents' novel characterization of the
relationship with SKBL as a discount, especially without any citation to
the record to support it.  Furthermore, Respondents offered no evidence
that any such discounts were disclosed or passed through to Medicare as
required to qualify for the exemption.  Rather, Respondents argued that
the requirement to reflect discounts appropriately in claims to Medicare
does not apply to clinical laboratory services, because they are paid on
the basis of a fee schedule.  H. Br. at 50.  Medicare payments for
clinical diagnostic laboratory services are made based on negotiated
rates, or the lesser of a fee schedule, certain limits set by test for
specific years, or the actual charges for the service provided.  Section
1833(a)(1)(D) of the Act.  The fee schedule is thus a ceiling on
payments.  If SKBL gave the laboratories discounts which reduced the
laboratory charges below the fee schedule, Medicare could have
benefitted from appropriate reductions in charges.  In any case,
Respondents did not explain why the existence of a fee schedule for
clinical diagnostic services would exempt them from the requirement to
disclose all discounts they received in order to come within the
kickback exception.

Respondents further suggested that their scheme should be treated as
protected by the discount provision of the "safe harbor" regulations,
even though management agreements are explicitly excluded from such
protection.  See 42 C.F.R. .1001.952(h)(3)(vi).  (The discount provision
of the regulations also contains a disclosure requirement, which
Respondents again did not address.  42 C.F.R. .1001.952(h)(1)(iii)(B).)
Respondents contended that the management agreement exception
was.irrational and targeted them directly, and should therefore be
disregarded.  H. Br. at 48-49.  The I.G. denied that the exception was
included out of spite, arguing that its intent was to keep the discount
provisions distinct from another safe harbor provision expressly
applicable to management agreements.  See 42 C.F.R. .1001.952(d).
Respondents did not attempt to claim protection under that safe harbor,
nor could they since it excludes management contracts in which the
compensation is determined "in a manner that takes into account the
volume or value of any referrals."  42 C.F.R. .1001.952(d)(5).  We find
the I.G.'s explanation of the safe harbor regulations plausible.  Even
if the management agreement exception to the discount safe harbor were
directed specifically at Respondents' arrangements, Respondents could
not claim the protection of the discount safe harbor provided in the
regulations (even though those regulations were not adopted until July
29, 1991), and yet ask us to ignore the limitation the Secretary has
placed on it.  56 Fed. Reg. 35,952 (July 29, 1991).  Respondents do not
meet the terms of the statutory discount exception, and they have not
shown that the regulatory safe harbor would have provided them any
greater protection, had it been in place at the time of their conduct.

We find substantial evidence in the record to support the ALJ's
conclusion that Respondents (other than Respondents Huntsinger and
Welsh) violated section 1128B(b)(1) by knowingly and willfully
soliciting and receiving remuneration in return for referring laboratory
tests to SKBL.  The ALJ's findings support the inference that one
purpose of the benefits solicited and received by Respondents was
remuneration in return for SKBL's access to the physician investors'
stream of tests, and that those benefits exceeded any benefits (other
than access to Respondents' limited partners' tests) provided by
Respondents to SKBL.  None of the arguments raised by the Hanlester
Respondents is sufficient to overcome this inference.  This evidence
more than meets the standard enunciated in our prior decision.  We
therefore uphold the ALJ's conclusion on section 1128B(b)(1) and affirm
his FFCLs 263 through 268.

 C.      Did the ALJ err in imposing permanent exclusions on the
 three joint venture laboratories and a two-year exclusion on the
 Hanlester Network?

In our first decision, we reviewed the ALJ's decision not to impose any
exclusion on the Respondents who were initially found to have violated
the Act based solely on the conduct of their agent, Ms. Patricia
Hitchcock, who.told potential investors that their opportunity to invest
(and to retain their shares) depended on their agreeing to send
referrals and tied the number of shares offered to the anticipated
volume of referrals.  FFCLs 211-213.  She acted on behalf of the
Hanlester Network and the partnership laboratories and was motivated by
her compensation package which made it "in her interest to convince
physicians that they must refer business" to the laboratories.  ALJ
Decision at 46; FFCL 71.  The ALJ held that the Hanlester Network and
the laboratories were vicariously liable for her acts as their agents,
but concluded that she was not the agent of the other Respondents and
that she acted on her own initiative without their approval.  ALJ
Decision at 44-47, 84-88.  We remanded to the ALJ to reconsider the
appropriate remedy, even if he did not find additional bases of
liability.  DAB 1275, at 51-53.  We expressed concern that the ALJ had
not given sufficient weight to the seriousness of the offense involved,
which is in the nature of a program-related crime, although we concluded
that a five-year exclusion was not mandatory or automatically warranted
(as the I.G. had argued).  DAB 1275, at 52; AP 6.  We instructed the ALJ
that the alleged lack of actual harm was a mitigating factor which must
be proved by the Respondents and which would not necessarily prevent
imposition of an exclusion depending on "the degree to which a
Respondent is willing to place the programs in jeopardy."  DAB 1275, at
52; AP 7.

On remand, the ALJ did find additional bases for liability, since he
found that all Respondents except Huntsinger and Welsh violated both
section 1128B(b)(1) and section 1128B(b)(2) through their own actions
(in addition to the vicarious liability mentioned above).  The ALJ
imposed permanent exclusions on the joint venture laboratories because
they could not function as they were structured without violating
section 1128B(b)(2), by continuing to seek to influence physician
investors through offering them remuneration to refer tests to the
laboratories.  ALJR Decision at 52-53.  The ALJ imposed a two-year
exclusion on the Hanlester Network, which he deemed sufficient time for
it to divest itself of involvement with the laboratories and to assure
that it undertakes no other unlawful activities.  ALJR Decision at
53-54.  The ALJ declined to impose any exclusions on the remaining
Respondents, for reasons discussed below in regard to the I.G.'s
exceptions.  ALJR Decision at 54-55.

The Hanlester Respondents argued that no exclusions should have been
imposed, because no evidence demonstrated overutilization or increased
cost and the potential for harm is no greater than in any self-.referral
arrangement.  H. Br. at 56-58.  As to the laboratories, Respondents
argued that the exclusions served no remedial purpose, because the
laboratories were already out of business. 26/  Respondents also argued
that the exclusions were unnecessary to the extent that they reflected
the findings of vicarious liability.  Respondents alleged that the
laboratories are defunct, that Ms. Hitchcock was never replaced, that
her representations were overridden by disclosures in the private
placement memos, and that her compensation package cannot be attacked
under the anti-kickback statute because of an employee exception
thereunder.  H. Br. at 53-56.

Respondents excepted to the following findings in this regard:

277.  Respondents PPCL, Omni, and Placer were created in order to offer
or pay remuneration to limited partner physicians to influence their
reason and judgment as to whether to refer business to these
Respondents' joint venture laboratories.

278.  Respondents PPCL, Omni, and Placer could not operate as organized
without offering or paying remuneration to limited partner physicians to
influence their reason and judgment as to whether to refer business to
these Respondents' joint venture laboratories.

279.  Respondents PPCL, Omni, and Placer could not operate as organized
without violating section 1128B(b)(2) of the Act..280.  A permanent
exclusion of Respondents PPCL, Omni, and Placer is necessary to meet the
remedial purpose of section 1128 of the Act.

283.  A principal function of Respondent Hanlester was to engage in
activities which violate sections 1128B(b)(1) and 1128B(b)(2) of the
Act.

285.  Until Respondent Hanlester divests itself of its management
arrangement with Respondents PPCL, Omni, and Placer, Respondent
Hanlester poses a threat to the integrity of federally-funded health
care programs to the same extent as do Respondents PPCL, Omni, and
Placer.

286.  The remedial purpose of section 1128 of the Act will be served in
these cases by excluding Respondent Hanlester for two years.

300.  The I.G. has proven that he is authorized to impose and direct
exclusions against Respondents Lewand, Tasha, Welsh, Huntsinger, and
Keorle by virtue of having proven that these Respondents engaged in
conduct which violated either section 1128B(b)(1) or 1128B(b)(2) of the
Act.

The Hanlester Respondents' arguments about the lack of overutilization
or proof of actual harm must fail.  Much of their argument returns to
the premise underlying most of their briefing in this case, i.e., that
widespread disruption in the health care industry must inevitably follow
if these partnerships are found to have violated the anti-kickback
statute or at least if any sanctions are imposed as a result of their
violations.  See H. Br. at 57-58.  As we have pointed out throughout, no
one aspect of these partnerships alone proves a violation; rather, the
ALJ properly based his conclusions on the totality of circumstances
surrounding the partnerships' organization and operation.  It is useless
for Respondents to reiterate that particular features might also occur
in innocent contexts, for example, that distributions occur in all
limited partnerships.  The ALJ did not find that these arrangements are
illegal because they are limited partnerships, but rather that
Respondents employed the limited partnership vehicle for illegal
purposes.  We have not held that all physician ownership relationships
violate the Act, nor even that all physician referrals to entities in
which they have some ownership interest violate the Act.
27/.Furthermore, the harm to the federally-funded health care programs
presented by this kind of scheme goes beyond the question of whether
particular tests were necessary or were properly performed.  Public
confidence in the integrity of the Medicare and Medicaid programs is
undermined when patients are referred on the basis, even in part, of a
provider's self-interest in receiving some remuneration as a result of
the referral.  The goal of eliminating this conflict of interest
complements that of preventing overutilization.  See DAB 1275, at 20.
There is no doubt that the testimony of some of the physician investors
discussed above demonstrates that they altered their decisions about
where to refer their patients as a result of investing in the
laboratories from which they anticipated distributions.  They therefore
selected "one laboratory over another . . . because of the incentives
provided."  DAB 1275, at 57.

As far as the impact of Ms. Hitchcock's conduct and compensation on the
reasonableness of the exclusion of the laboratories and of the Hanlester
Network, the ALJ.found it unnecessary to rely on this factor, because he
imposed exclusions based on other considerations.  ALJR Decision at
53-54.  The I.G. did not press for a longer period of exclusion for the
Hanlester Network based on Ms. Hitchcock's marketing activities.  We
therefore need not reach the issues raised by Respondents in regard to
vicarious liability as a basis for the exclusion of the laboratories and
Respondent Hanlester.  We note, however, that our first decision
rejected the suggestion that Ms. Hitchcock's resignation was adequate to
undo the effects of her representations on the structure and operation
of the partnerships (should they resume operations).  DAB 1275, at 53.
We also reject the argument that Respondents use of a compensation
package designed to provide incentives to Ms. Hitchcock to maximize
referrals from physician investors is immunized from consideration under
the anti-kickback statute.  The employee exception states that the
anti-kickback statute does not apply to "any amount paid by an employer
to an employee (who has a bona fide employment relationship with such
employer) for employment in the provision of covered items and
services."  Section 1128B(b)(3)(B) of the Act.  The violation here is
not analogous to the use of productivity incentives offered by an
independent laboratory to its sales staff to encourage them to promote
the laboratory to potential customers, as the Hanlester Respondents
contended, nor are Respondents charged with paying remuneration to Ms.
Hitchcock in return for her obtaining referrals.  H. Br. at 55-56.  The
violation here is the use of partnership distributions as an inducement
to potential customers to become investors and make referrals.  In that
context, the partnerships' use of incentives for its sales agent not
only to seek investors, but to benefit from those investors' referrals,
is relevant evidence that Respondents intentionally structured the
partnerships to induce referrals.

The FFCLs challenged by Respondents find that the laboratories could not
operate as organized without violating the Act because they were created
to (and must continue to) offer remuneration for the purpose of
influencing the limited partners to make referrals.  FFCLs 277, 278, and
279.  For the reasons discussed above, we reject Respondents position
that these findings amount to banning all physician ownership "in one
fell swoop."  H. Br. at 58.  Rather, we agree with the ALJ that the
violations here arose out of the entire structure and organization of
these laboratories, as specifically designed and operated by
Respondents, and therefore that a permanent exclusion is necessary and
.appropriate for the laboratories.  We therefore affirm FFCLs 277, 278,
279, and 280.

The Hanlester Network was intimately involved in creating and operating
the partnerships and negotiating the management agreement with SKBL.  So
long as its ties to the laboratories persist, or so long as it has not
demonstrated that it will operate in compliance with the Act, there is
no assurance that the Hanlester Network could function as a trustworthy
entity in dealing with federally-funded programs.  Absent such
assurance, a two-year exclusion is reasonable to ensure that it will
divest its role in the laboratories and will not operate in violation of
the Act.  Respondents did not show any persuasive basis to change the
length of the exclusion imposed by the ALJ.  We therefore affirm FFCLs
283, 285, and 286.  (FFCL 300 is discussed below in regard to the I.G.'s
exceptions to the ALJ's failure to exclude the remaining Respondents.)

 D.      Did the ALJ err in declining to impose any period of
 exclusion on certain Respondents?

As discussed above, the ALJ, in his first decision, found only vicarious
liability and imposed no exclusions.  We instructed him to reconsider
the appropriate remedy based both on any additional liability he might
find as a result of our decision and on the concerns we expressed about
the weight to be given to the seriousness of the offense and the
relevance of proof of harm.  On remand, the ALJ found that five
Respondents (in addition to the Hanlester Network and the three
laboratories) violated section 1128B(b)(2):  Lewand, Keorle, Tasha,
Welsh, and Huntsinger.  The ALJ found that three of these also violated
section 1128B(b)(1):  Lewand, Keorle, and Tasha.  However, he concluded
that no remedial purpose would be served by excluding any of these
Respondents, because they did not demonstrate "a propensity to engage in
conduct in the future which is unlawful or harmful."  ALJR Decision at
54.

The I.G. argued that this result was erroneous for two reasons:  (1)
that the ALJ lacked authority to decline to impose any period of
exclusion once the I.G. exercised his discretion in proceeding against a
party and demonstrated that an exclusion was authorized under the Act,
and (2) that the evidence in the record sufficiently supported findings
that all Respondents were untrustworthy and should be excluded.  The
I.G. excepted to FFCLs 270-272 and 275-276, as erroneous as a matter of
law, and to FFCLs 288-295, 297-299, and 305, as also unsupported by
substantial evidence in the record..270.  Exclusions imposed and
directed pursuant to section 1128 of the Act are not intended to
compensate for past wrongs.

271.  Exclusions imposed and directed pursuant to section 1128 of the
Act are remedial and are not intended to punish for wrongful acts.

272.  The issue to be resolved in determining whether to impose an
exclusion pursuant to section 1128 of the Act is whether a party
manifests any propensity to engage in conduct in the future which is
either illegal or harmful.

275.  The fact that a party has engaged in illegal or harmful or
potentially illegal or harmful conduct does not necessarily prove that
party manifests a propensity to engage in illegal or harmful conduct in
the future.

276.  Section 1128(b) of the Act does not mandate an exclusion of every
individual or entity who has engaged in conduct which authorizes the
Secretary to impose and direct an exclusion under section 1128(b).

288.  Respondent Lewand believed that the organization and activities of
Respondents Hanlester, PPCL, Omni, and Placer did not violate the Act.

289.  Respondents Tasha, Welsh, Huntsinger and Keorle relied on
Respondent Lewand's judgment to organize and manage Respondents
Hanlester, PPCL, Omni, and Placer.

290.  The I.G. did not prove that Respondents Lewand, Tasha, Welsh,
Huntsinger, and Keorle organized and operated Respondents PPCL, Omni, or
Placer, or entered into or participated in agreements with SKBL, knowing
or believing that their actions violated sections 1128B(b)(1) or
1128B(b)(2) of the Act.

291.  The I.G. did not prove that Respondents Lewand, Tasha, Welsh,
Huntsinger, and Keorle organized and operated Respondents PPCL, Omni, or
Placer, or entered into or participated in agreements with SKBL with
reason to know that their actions violated sections 1128B(b)(1) or
1128B(b)(2) of the Act.

292.  The I.G. did not prove that Respondents Lewand, Tasha, Welsh,
Huntsinger, and Keorle organized and operated Respondents PPCL, Omni, or
Placer, or entered into or participated in agreements with SKBL in
negligent disregard of the requirements of sections 1128B(b)(1) or
1128B(b)(2) of the Act..293.  Respondents Lewand, Tasha, Welsh,
Huntsinger, and Keorle reasonably could have concluded that their
organization and operation of Respondents PPCL, Omni, or Placer, and
their entry into or participation in agreements with SKBL did not
violate sections 1128B(b)(1) or 1128B(b)(2) of the Act.

294.  The I.G. did not prove that, based on their conduct in creating or
managing Respondents PPCL, Omni, and Placer, Respondents Lewand, Tasha,
Welsh, Huntsinger, and Keorle manifest any propensity to engage in
illegal or harmful conduct in the future.

295.  The I.G. did not prove that, based on the agreements between
Respondents PPCL, Omni, Placer, and SKBL, Respondents Lewand, Tasha,
Welsh, Huntsinger, and Keorle manifest any propensity to engage in
illegal or harmful conduct in the future.

297.  Respondents Lewand, Tasha, Welsh, Huntsinger, and Keorle were in
some respects guided in their organization and operation of Respondents
Hanlester, PPCL, Omni, and Placer, and their entry into and
participation in agreements with SKBL, by legal advice that their
conduct was not unlawful.

298.  Respondents Lewand, Tasha, and Welsh proved that they have strong
reputations for integrity and honesty.

299.  The weight of the evidence in these cases does not establish that
Respondents Lewand, Tasha, Welsh, Huntsinger, or Keorle demonstrate any
propensity to engage in illegal or harmful conduct in the future.

305.  There exists no remedial need to exclude Respondents Lewand,
Tasha, Welsh, Huntsinger, and Keorle, and I do not exclude these
Respondents.

We do not address the question of the ALJ's authority to decline to
impose some exclusion despite finding a violation, because the issue is
moot in light of our decision below to impose exclusions of some length
on all Respondents.  (In any case, the I.G. could have, but failed to,
raise this issue in its earlier appeal in this case.)  We next discuss
whether exclusions should be imposed on each Respondent based on the
facts of this case and the proper legal standards.  We look first at the
legal principles which the ALJ enunciated in weighing the need for
exclusions and then briefly at the evidence regarding each Respondent.
We conclude that the ALJ erred in placing the burden on the I.G. (in
order to justify an exclusion) to demonstrate that Respondents had.a
propensity to commit unlawful acts.  The ALJ also erred in reading the
Supreme Court decision in United States v. Halper, 490 U.S. 435 (1989),
as requiring this result.  A proper understanding of the concept of
"trustworthiness" requires us to impose exclusions on all Respondents,
since they did not produce evidence sufficient to overcome the inference
of untrustworthiness which arises from their conduct violating the
statute.  We reject the idea that Respondents were so confused about the
state of the law that no sanction can fairly be imposed on them.

The ALJ acknowledged that the "starting point" for determining the
reasonableness of the length of a proposed exclusion is "the conduct
which authorizes the Secretary to impose an exclusion," since the "fact
that Congress identified specific conduct as grounds for exclusion under
section 1128(b) demonstrates that it considered that conduct to be
evidence of lack of trustworthiness."  ALJR Decision at 49.  Thus, the
proof that each Respondent violated section 1128B(b)(1) and/or section
1128B(b)(2) suffices to raise "an inference that an exclusion of at
least some duration is needed."  Id. From this point, however, the ALJ
narrowed his focus to whether the specific conduct involved in the
violation demonstrated "a propensity on the part of the perpetrator to
engage in conduct which is unlawful or harmful."  Id.  The ALJ pointed
out that in particular cases a respondent may be able to show by
"mitigating" circumstances that no remedial need exists for an exclusion
because there is no such "propensity."  (However, as we discuss below,
the ALJ's findings shifted this burden to the I.G. to prove the
existence of a propensity.)

The ALJ understood the existence of remedial need to be governed by the
principle which he derived from Halper, that "remedial statutes cannot
be applied constitutionally for punitive ends."  ALJR Decision at 37.
28/ .Consequently, he reasoned that exclusions "cannot be imposed as
retribution for prior wrongful conduct or solely to deter parties from
engaging in misconduct."  ALJR Decision at 37-38.

We conclude that Halper does not apply to the present cases for several
reasons.  First, no prior criminal convictions occurred.  Second, these
Respondents do not present the "rare case" of repeated small violations
triggering massive penalties in the nature of liquidated damages.
Third, the government is not seeking any monetary penalties here, much
less excessive recoveries.  Fourth, excluding providers who engage in
kickback schemes from dealing with federally-funded programs for a
reasonable period of time is inherently remedial and rationally related
to the proper functioning of the programs. 29/.We conclude that the ALJ
erred to extent he suggested that, in order to serve primarily remedial
ends, exclusions must have no ancillary benefits, including deterrent or
punitive impact on those who have harmed the programs.  We therefore
vacate FFCLs 270 and 271, which state that exclusions are not intended
to "compensate for past wrongs" or to "punish for wrongful acts,"
because they misstate the legal standard.  The period of exclusion must
not be excessive in light of the primarily remedial goals set by the
statute, but may serve other ends as well.

We have approved of the use of "trustworthiness" by ALJs as a useful
shorthand for expressing cumulative factors which show that a party's
participation in Medicare and Medicaid does not pose a risk to the
programs of a type which Congress intended exclusions to prevent.  Those
are the factors which correctly govern the assessment of whether a
particular period of exclusion is reasonable or excessive.  As the ALJ
recognized, Congress considered certain conduct as evidencing
untrustworthiness.  Therefore, a finding that a respondent has engaged
in.such conduct raises an inference that some exclusion is needed.  This
shifts the burden to the respondent to offer assurances of
trustworthiness sufficient to overcome that inference.  By determining
that the central issue in deciding whether to impose an exclusion is
"whether a party manifests any propensity" to engage in illegal or
harmful conduct, and by then finding that the I.G. did not prove that
respondents manifested such a propensity, the ALJ placed the burden on
the wrong party.  FFCLs 272, 275, 294, 295, and 299.  While a showing of
such a propensity or natural bent toward particular misconduct would be
an aggravating factor in considering the reasonable length of an
exclusion, a lack of propensity does not necessarily equate to
trustworthiness. 30/  Respondents would have to come forward with
affirmative evidence assuring their trustworthiness in order to overcome
the inference arising from their past acts.

Our first decision in these cases, as well as our decisions in other
cases, provide considerable guidance on proper considerations in
evaluating Respondents' trustworthiness, including, for example:

 -  the circumstances of the misconduct and the seriousness of
 the offense, in particular the commission of misconduct in the
 nature of a program-related crime, see DAB 1275, at 52;.   -
 "the degree to which a respondent is willing to place the
 programs in jeopardy," even if no actual harm is accomplished,
 id. at 52; 31/

 -  the failure to admit misconduct, or express remorse, or
 evidence rehabilitation, see e.g., Olufemi Okonuren, M.D., DAB
 1319, at 13 (1992); Robert Matesic, R.Ph. d/b/a Northway
 Pharmacy, DAB 1327, at 12 (1992); and

 -  the "likelihood that the offense or some similar abuse will
 occur again," see e.g., Matesic, at 8.  (The ALJ may have meant
 to encompass this idea within his treatment of "propensity.")
 32/

We next consider trustworthiness in relation to the evidence relating to
Respondents Lewand, Keorle, and Tasha.  We have discussed the overall
nature of the partnerships and why they violate the anti-kickback
statute both as they were planned and in their operations elsewhere.
Those facts are relevant here, since these Respondents were the primary
actors and agents in the planning and operation of the partnerships.  We
have also affirmed above the findings that these Respondents separately
violated sections 1128B(b)(1) and 1128B(b)(2),.both of which constitute
serious offenses in the nature of program-related crimes.  We therefore
begin with an inference that some period of exclusion is required to
provide assurances of trustworthiness before these Respondents are again
permitted to participate in the program.  Below, we discuss the
individual activities and responsibility of these Respondents.

It is uncontested that Respondent Lewand "made the principal legal and
business decisions" for the Hanlester Network, PPCL, Omni, and Placer
during the relevant time period.  FFCL 287.  He took an active role in
preparing the private placement memoranda.  See, e.g., Tr. 1989-1990.
He was the principal person involved in negotiating the management
agreement structure with SKBL.  See e.g., Tr. 2092.  Clearly, if the
Hanlester Network "deliberately enticed" limited partners to refer to
the laboratories by offering financial inducements and arranged its
relationship with SKBL to provide a stream of advance payments to use as
an incentive to maintain referrals from the partners, the Hanlester
Network acted as the creature of Respondent Lewand.  Cf. ALJR Decision
at 24 and 30.  The ALJ has already determined that Respondent Keorle is
the corporate "alter ego" of Respondent Lewand.  ALJR Decision at 64.
Therefore, Respondent Keorle's trustworthiness derives from that of its
principal and does not require separate discussion.

While Respondent Lewand was the planner and architect of the
partnerships, Respondent Tasha was the primary player in their
operation.  Thus, he oversaw the marketing of the partnerships,
supervised Ms. Hitchcock, and was in charge of the monitoring of
partners' usage.  See e.g., Tr. 785-86, 795-97, 946, 953, 2231, 2342.
Respondent Tasha remained active in the partnerships despite receiving
the Fraud Alert, which the ALJ acknowledged did constitute at least
"notice that the I.G. considered his [Tasha's] conduct . . . to be a
potential violation of the Act."  ALJR Decision at 60.  While we agree
with the ALJ that the Fraud Alert "did not represent the Secretary's
final interpretation of the Act," we do not agree with the ALJ's
assessment that Respondent Tasha's heavy involvement in these
enterprises at the time of its issuance meant that he could reasonably
take no steps in response.  See ALJR Decision at 60-61.  It is
reasonable to infer untrustworthiness from his failure to show any
effort to change the operations, or to notify the limited partners, or
otherwise to seek to reassess his compliance with the law.

A major factor in the ALJ's conclusion not to impose exclusions was the
suggestion that Respondents.understandably failed to realize that they
risked violating the Act by their conduct. 33/  See, e.g., FFCLs 288,
290, 291, 292, and 293.  In this regard, the ALJ seriously
mischaracterized our first decision as "announc[ing] definitions of the
terms `to induce' and `remuneration' which had not previously been
adopted by any court." 34/  Our understanding of these terms in their
context in this statute was derived from their plain meaning, and was
supported by the legislative background, and the case law.  We found
that the statute was not ambiguous and did not require resort to outside
sources and that, where courts had reached the issues before us, their
holdings were consistent with ours.  DAB 1275, passim.  The lack of
ambiguity undercuts the heavy emphasis which Respondents have repeatedly
placed on the idea that vast uncertainty surrounded the meaning of the
anti-kickback statute.  The hope of a segment of the private bar or of
some promoters of business ventures that an interpretation might be
obtained that would narrow the reach of the statute on its face is not
enough to demonstrate that they were entirely unaware that the
anti-kickback statute on its face would impact partnerships with
features like those of the laboratories here.  Cf. ALJR Decision at 57.

The ALJ also appears to have relied as proof of uncertainty on certain
points which we rejected in our first decision.  For example, we
rejected the contention that decade-old opinion letters signed by HCFA
officials had any relevance here; they do not address the circumstances
at issue, they disclaim any official status on their face, and
Respondents did not claim to have relied on them.  DAB 1275, at 44.
Nevertheless, the ALJ.reverted to referring to them as evidence that
Respondents could not have determined that "a finding of unlawful
conduct would be the likely outcome."  ALJR Decision at 56-57 (emphasis
in original). 35/  Similarly, the ALJ again gave great weight to
evidence that a "substantial minority" of physicians participate in
joint ventures to which they make referrals; he inferred that those
participants, and by extension Respondents here, were neither "conscious
participants in kickback schemes or indifferent to the law's
prohibitions."  ALJR Decision at 58-59.  Our first decision pointed out
that "`[c]ommon' does not necessarily mean `legitimate,'" especially in
an industry that Congress found to be rife with fraud.  DAB 1275, at
23-24, 56.

Furthermore, Respondents Lewand, Keorle, and Tasha were not simply
physicians who participated in a joint venture, but were the moving
forces behind creating and structuring these partnerships.  In fact, a
number of the physicians approached about the partnerships raised
concerns about the legality of these schemes under the federal
anti-kickback statute, demonstrating that the medical community was
aware of at least their relevance to such a self-referral arrangement.
See, e.g., Tr. 779, 1809.

It would be disingenuous for us to insist that no reasonable person
could have reached a conclusion different from ours as to whether this
particular scheme fell squarely within the ambit of the anti-kickback
statute.  First, while we have found that the plain.meaning of the
statute controls here, the ALJ was not alone among commentators in
seeking to read in some narrower interpretation.  See, e.g., United
States v. Greber: A New Era in Medicare Fraud Enforcement?, 3 J.
Contemp. Health L. & Pol'y 309 (1987); Adams and Klein, Medicare and
Medicaid Anti-Fraud and Abuse Law:  The Need for Legislative Change, 2
Health Span 19 (1985).  Second, applying even the correct legal
standards to the particular elements of these ventures required a close
analysis.  However, we do not see how any reasonable person, aware of
the statutory language and its purpose, could have concluded that the
anti-kickback statute would not impinge, at least potentially, on this
scheme, or that the organizers would not run the risk of crossing the
line into illegality.

Respondents may not be culpable to the same degree as the case where
there is absolute certainty as to how the statute will apply to
particular facts.  Cf. ALJR Decision at 56.  A deliberate intention to
break the law without regard for consequences might have been an
aggravating factor, so that culpability in that case would have been
greater.  By no means, however, did the existence of differing opinions
as to the scope or enforcement of the statute absolve Respondents of all
culpability, or more to the point, provide assurance of their future
trustworthiness in complying with the Act.

The ALJ rejected the analysis that Respondents "danced close to the
line," because he found that there had been "considerable dispute as to
where the line lies."  ALJR Decision at 59.  But see, Boyce Motor Lines
v. United States, 342 U.S. 337 (1952).  But it is only in those areas
where the precise division between lawful and unlawful conduct is still
in the process of definition, as when a law is being applied in a new
context (such as here since the anti-kickback statute was being newly
applied to clinical laboratory self-referral arrangements), that a party
could violate the law through willful and knowing action, without
simultaneously having deliberately intended to break the law.  If the
"willingness to flirt" with a violation can have no consequences simply
because the providers did not know to a certainty whether their actions
would result in a finding of a violation, then other providers have no
incentive to act with caution until they see a provision enforced in
precisely the same circumstances.  Cf. DAB 1275, at 40, n.25.  Here,
unrebutted evidence in the record indicates Respondents' awareness that,
at the very.least, they were operating in an area of legal risk, for
example:

 --  Respondents Lewand, Keorle, and Tasha were heavily involved
 in setting up and crafting these arrangements.

 --  These Respondents' much-vaunted familiarity with the health
 care industry makes it implausible that they were unaware of the
 impact of changes in the anti-kickback statute on that industry.
 (For example, Respondent Lewand testified that he was a founder
 and legal counsel to the California Clinical Laboratory
 Association.  Tr. 1952-53, 2418.)

 --  Respondent Lewand was fully aware of the existence of the
 anti-kickback law, attended conferences concerning its
 interpretation, and engaged in heated discussions with other
 attorneys about the factors which might increase the risk of
 prosecution.  Tr. 2024Z-24Z-3, 2152, 2154-55. 36/  He was aware
 of or had provided articles used by the marketing
 representative, Ms. Hitchcock, in discussing the scope of the
 anti-kickback statute with prospective physician investors.  Tr.
 986-87, 1004-11.  (The articles themselves provided "warning
 signs," which should have alerted Respondents to their legal
 risk, such as when a "joint venture has no purpose for existing
 other than as a conduit for patient referrals" and when "a
 physician is offered money or any other form of compensation in
 exchange for doing nothing more than referring a patient or for
 some nominal work or investment."  I.G. Ex. 75.1, at 5.)

 --  The terms of the private placement memoranda, which so
 carefully disclaim the intention of promoting overutilization
 while describing laboratories that could succeed only if the.
 investors actively referred their testing to the laboratories
 and eschewed investment in any competing laboratories, support
 an inference of Respondents' awareness of the potential
 incentives to overutilization.  I.G. Exs. 4.0, 5.0, 6.0.

 --  Some of the physicians who were approached questioned
 whether the planned ventures might violate the anti-kickback
 statute.  See, e.g., Tr. 779, 986-87, 1004-11, 1809.

 --  The marketing techniques employed by Respondents blurred any
 distinction between investors and referral sources, for example,
 Ms. Hitchcock's compensation package motivated her to promote
 partners' usage as well as to sell shares and the monitoring
 system set up by Respondent Tasha using Respondent Huntsinger
 targeted specifically decreases in partners' referrals.  See,
 e.g., Tr. 2213-14.

The ALJ recognized that in our first decision we noted that Respondents
"may well have tailored their arrangement to maximize their financial
returns, despite knowing that they were at least close to an area
proscribed by federal law."  ALJR Decision at 59, n.39, quoting DAB
1275, at 23, n.13.  However, the ALJ did not read this language as
compelling a finding that Respondents knew that their acts might be
illegal.  The ALJ is correct that we declined to make factual findings
in our first decision in order to permit the ALJ to reassess the
evidence in light of a corrected legal analysis.  However, in light of
the discussion above, we find that the record does not support the ALJ's
finding that Respondents Lewand, Keorle, and Tasha "reasonably could
have concluded" that their activities did not violate the Act.  We
therefore vacate FFCL 293.

In regard to the ALJ's finding that the I.G. did not prove that
Respondents acted in negligent disregard of the Act's requirements, we
conclude that the I.G. did not have the burden to prove this.  In his
discussion, the ALJ properly stated that the burden is on the excluded
party to show that his conduct was not reckless or negligent.  ALJR
Decision at 55.  The ALJ stated that Respondents had met that burden,
but his specific FFCL placed the burden on the I.G.  FFCL 292; see also
FFCLs 290, 291.  Moreover, the basis for the ALJ's statement and for
FFCL 293 appears to be his erroneous analysis of the lack of clarity in
the law, which we discussed above..Culpability does not relate solely to
whether a respondent is aware that his conduct is a criminal violation
under a particular statute.  Since Respondents knew and represented that
the partnerships could succeed only if the limited partners referred
substantial numbers of tests to them, it can reasonably be inferred that
they knew their conduct had the potential of motivating physicians to
make referrals out of self-interest rather than concern for the best
interests of their patients.  We find that the emphasis in the marketing
documents on advising physicians not to order tests that were
unnecessary or medically unsound shows that Respondents were well aware
that the structure of their venture was likely to provide an incentive
to investors to do just that.  See I.G. Exs. 4.0, 5.0, 6.0.  The ALJ
erred in using these self-serving disclaimers as evidence of the absence
of negligent disregard by Respondents for the potential harm to the
programs.  See ALJR Decision at 55.  We therefore vacate FFCL 292.

We also vacate FFCLs 290 and 291, which found that the I.G. did not
prove Respondents to have reached a higher level of intent than that
required by law to find a violation.  Although such proof might have
supported a longer exclusion, it is not required to support imposition
of some exclusion.  The FFCLs to a certain extent support reduction of
the length of the exclusions originally proposed by the I.G., but are
not necessary to support the reduction, are potentially confusing, and
raise a burden question we do not need to address here.

We vacate FFCL 288, which found that Respondent Lewand believed his
conduct did not violate the Act, because we find the facts discussed
above undercut Respondent Lewand's assertion that he believed his
conduct not to be in violation.  We affirm FFCL 289, which found that
Respondents Tasha, Welsh, Huntsinger, and Keorle relied on Respondent
Lewand to organize and manage the partnerships, but we do not conclude
that their reliance on Respondent Lewand as an organizer and manager has
any bearing on their culpability.  We vacate FFCL 276 as moot in light
of our conclusion below that some period of exclusion is reasonable for
all Respondents.  We also vacate FFCLs 272, 275, 294, 295, and 299,
because they mistakenly place a burden on the I.G. to show a
"propensity" in order to justify imposition of even a minimal exclusion,
rather than on Respondents to provide affirmative assurances of
trustworthiness to justify reducing the length of the exclusion to
zero..       E.      Is the length of the exclusions imposed reasonable?

Having found a need to exclude the laboratories and the Hanlester
Network, we further conclude, based on the same facts and
considerations, that the ALJ had no reasonable basis for declining to
impose exclusions on Respondents Lewand, Tasha, and Keorle.  Hanlester
Network was the brainchild of Lewand, who structured and organized the
laboratories in such a way that they could not operate without violating
the law.  Keorle was simply the corporate alter ego of Lewand.  Tasha
was the principal involved in marketing the partnerships and relating to
SKBL.  If Respondent Hanlester cannot demonstrate in less than two years
that it will not again undertake to organize an illegal scheme, it is
only reasonable to require at least as long for Hanlester's principals
to demonstrate that they will not do so through some other entity.

While the facts might well justify longer exclusions for Respondents
Lewand, Keorle, and Tasha, the I.G. did not challenge the two-year
exclusion imposed on the Hanlester Network. 37/  Since Respondent
Hanlester Network was the vehicle through which these Respondents acted,
it would be inappropriate to exclude them for a longer period.
Therefore, we find that the two-year exclusion of the Hanlester Network
sets a benchmark for the exclusions of the other parties.  The facts in
regard to each of the parties are clearly sufficient to support
exclusions of at least the durations imposed here..While we generally
defer to an ALJ on matters centering on the assessments of witnesses'
credibility, we have found sufficient facts in the FFCLs already
affirmed by us to support exclusions of at least two years for these
Respondents, and additional unrebutted evidence which also supports our
decision.  Even assuming that the character testimony and Respondents'
own testimony on their reputation and on the legal advice they received
were wholly credible, that would not suffice to reduce the reasonable
period of exclusion below two years in light of the findings and
evidence we discuss above. 38/  Therefore, we do not consider it
necessary to remand again to the ALJ to consider the appropriate period
of exclusion.  Another remand would be particularly inappropriate in
light of the long procedures which have already occurred in this case.
We therefore conclude that Respondents Lewand, Keorle, and Tasha each
should be excluded from participation in Medicare and Medicaid for two
years.

 F.      Should the ALJ have imposed exclusions on Respondents
 Huntsinger and Welsh?

Respondent Huntsinger challenged FFCLs 228 through 240, 243, 244, and
246.

228.  Under section 1128B(b)(2) of the Act, it is not a necessary
element of a violation that an offer or payment be conditioned on an
agreement to refer program-related business.  Rather, the issue in
determining a violation is whether a party knowingly and willfully
offers or pays remuneration to another with the intent of exercising
influence over the reason or judgment of that person or entity in an
effort to cause that person or entity to refer program-related business.

229.  In sections 1128B(b)(1) and 1128B(b)(2) of the Act, the word
"remuneration" covers offering or paying anything of value in any form
or manner whatsoever..230.  The phrase "to induce" in section
1128B(b)(2) of the Act connotes an intent to exercise influence over the
reason or judgment of another in an effort to cause the referral of
program-related business.

231.  An offer or payment may violate section 1128B(b)(2) of the Act
even if it is not conditioned on an agreement to refer program-related
business.

232.  Respondents offered potentially lucrative investments to
physicians in order to encourage them to become limited partners in
joint venture laboratories and to refer laboratory tests to joint
venture laboratories.

233.  Respondents urged potential limited partners in joint venture
laboratories to refer tests to joint venture laboratories by telling
them that such referrals were necessary for the joint ventures' success.

234.  The intent of Respondents in creating joint venture laboratories
was to create entities which could be marketed to physicians as
attractive investments which would generate income for Respondents and
for the physicians who purchased limited partnership shares.

235.  The key to Respondents' marketing strategy was that physician
investors would be influenced to refer laboratory tests to the joint
ventures' laboratories.

236.  One element of the marketing strategy was to enlist as limited
partners in the joint ventures those physicians who could potentially
refer large numbers of tests to joint venture laboratories.

237.  As a means of persuading physicians to invest in joint venture
laboratories and to refer tests to those laboratories, Respondents
offered to sell limited partnership shares to physicians at a relatively
low price and in small minimum quantities per investor.

238.  As a means of persuading physicians to invest in joint venture
laboratories and to refer tests to those laboratories, Respondents told
physicians that, assuming the joint ventures succeeded in attracting
significant numbers of partners and referred tests, they could earn
relatively high rates of return on their investments.

239.  As a means of persuading physicians to invest in joint venture
laboratories and to refer tests to those laboratories, Respondents
offered to physicians the opportunity to earn income indirectly from
referred .laboratory tests where they were legally barred from earning
income directly from those tests.

240.  On Respondents' behalf, and as a means of persuading physicians to
refer tests to joint venture laboratories, Respondent Hanlester told
potential limited partner physicians that failure by them to refer tests
would be a blueprint for failure of the joint ventures.

243.  Respondents discouraged limited partners from using referral
sources for laboratory tests other than joint venture laboratories.

244.  Respondents knowingly and willfully offered remuneration to
physicians with the intent of exercising influence over these
physicians' reason or judgment in an effort to cause them to refer tests
to joint venture laboratories.

246.  Respondents violated section 1128B(b)(2) of the Act by knowingly
and willfully offering or paying remuneration to physicians to induce
them to refer program-related business.

Respondent Huntsinger argued the record did not include substantial
evidence to support a finding that he violated section 1128B(b)(2).
(The ALJ concluded that he did not violate section 1128B(b)(1), and the
I.G. did not challenge that conclusion.)  FFCL 268.  Respondent
Huntsinger emphasized that none of the other Respondents were his agents
and that therefore he should not be liable for their acts.  In
discussing the evidence, Respondent Huntsinger asserted that the only
actions of which he had been accused involved (a) his initial contacts
with potential investors and (b) his follow-up contacts with partners
who were not making referrals.  Huntsinger Brief (Hunt. Br.) at 6.  He
described the first set of acts as too "vague and general" to constitute
"offers of remuneration in exchange for referrals" and the second set as
"proper calls in the ordinary course of business."  Hunt. Br. at 8.  He
argued that his position as medical director of the laboratories was one
that the licensing laws required and could not therefore be a basis for
a violation.  Id. at 15.  He complained that no finding was made naming
"exact words" by which he violated the Act.  Id. at 16.  Finally, he
asserted that he believed, based on legal advice, that the ventures were
legal.  Id. at 13.

Four of the FFCLs to which Respondent Huntsinger excepted restate our
findings on the proper legal standards to use in applying the
anti-kickback statute.  Respondent.Huntsinger presented no basis for
challenging these findings.  We see no reason to alter the findings
which we made in our first decision, and we reaffirm them here.  While
the language used by the ALJ in these findings is not identical to that
in the Appellate Panel findings on which they rely, Respondent
Huntsinger did not show any prejudice from any such differences.
Therefore, we affirm FFCLs 228 through 231.

A number of the FFCLs to which Respondent Huntsinger excepted go to the
structure of the partnerships and their purpose as "a means of
persuading physicians to invest . . . and to refer."  See, e.g., FFCLs
232-240.  Respondent Huntsinger presented no argument concerning the
accuracy of these FFCLs, but rather challenged their relevance to him.
(The accuracy of those also challenged by Respondent Hanlester has
already been discussed above.)  We do not find it necessary to determine
the extent to which specific actions by other Respondents can be
attributed to Respondent Huntsinger.  Nor is it necessary to find that
Respondent Huntsinger structured the partnerships with the purposes
described in these findings.  Rather, we focus on whether Respondent
Huntsinger was aware of the nature and operation of the partnerships and
of those features which we have already found caused those ventures to
violate the anti-kickback statutes.  If he was aware that the intended
purpose of the ventures was to offer any remuneration to physicians to
induce referrals, and he acted in furtherance of that purpose, then he
knowingly and willfully violated the Act, as the ALJ found.  See FFCL
246.

Respondent Huntsinger became a limited partner in PPCL at the outset and
owned 30 shares.  FFCL 20.  It is reasonable to infer that as a limited
partner he was aware of the representations in the private placement
memorandum and of the overall structure of the limited partnership.  See
FFCLs 14-19, 33-63.

Respondent Huntsinger permitted his name to be used as the medical
director of the Hanlester Network (although in fact he never became a
principal in or employee of the Hanlester Network).  See FFCL 13.  He
was medical director of the partnerships laboratories under contract
with SKBL.  See FFCLs 113, 114.  Substantial evidence in the record
supports the ALJ's determination that he "was involved actively in
promoting the joint venture laboratories."  ALJR Decision at 27.  There
is evidence in the record that Respondent Huntsinger, as a medical
doctor, was able to initiate contacts with potential investors for the
partnerships that the sales agent could not otherwise have achieved.
See, e.g., Tr. 2238-40,.2296-97.  Even the testimony cited in Respondent
Huntsinger's brief demonstrates that he outlined generally to
prospective investors the involvement of SKBL and the expectation that
partners would be making referrals.  Hunt. Br. at 6-7; Tr. 1510-11,
1521-22, 1551-52.  Further, as the ALJ noted, he acted out of his
"substantial financial interest" in his efforts to further the plan that
investors be induced to make referrals, since he would benefit both as
an owner of a large number of shares and as medical director of PPCL and
Omni if the marketing strategy succeeded.  ALJR Decision at 27.

The findings which were already affirmed in our first decision establish
that Respondent Huntsinger's monitoring of usage went beyond ordinary
concern for unhappy customers.  The ALJ found that Respondent Huntsinger
called limited partners in PPCL and Omni laboratories to inform them
that they were not referring sufficient business compared to other
partners and were thereby "hurting the interests" of other partners.
FFCLs 125-129; see also Tr. 1560-64.  These findings demonstrate
pressure based on the financial interests of the partners, not mere
inquiries about quality control problems.  While Respondent Huntsinger
claimed that, out of 180 partners, the I.G. was only able to locate "1
or 2 who felt pressured by Huntsinger," we do not find that it was
necessary to a finding that Respondent Huntsinger violated section
1128B(b)(2) that the I.G. prove that he pressured large numbers of
partners, or even all of those whose usage was low.  It is sufficient
that he sought to induce the referrals of certain limited partners
knowingly and willfully by emphasizing that low usage was contrary to
the financial interest of themselves and their fellow partners, i.e., by
offering economic benefits.  We find that these facts, and the record as
a whole, provide substantial evidence to support FFCLs 232-240, 243, and
244, in relation to Respondent Huntsinger, and we therefore affirm them.

We reject Respondent Huntsinger's suggestion that the ALJ was required
to specify the "exact words" by which Respondent Huntsinger violated the
Act.  Rather, we agree that his words and actions as a whole, in light
of what he knew about the nature and operation of the partnerships, were
sufficient to support the finding that he violated section 1128B(b)(2),
and we therefore affirm FFCL 246.

Respondent Huntsinger's assertion that he relied on legal advice is not
sufficient to preclude imposition of any exclusion.  He did not on
appeal point to evidence of any.specific legal advice as to whether the
partnerships violated the anti-kickback statute.  We have already found
that there was no reasonable basis for a conclusion that the
partnerships as structured and operated were legal or without legal
risk.  His culpability is less than those Respondents who took the most
active role in structuring these arrangements, but he remains
responsible for his own choice to act in an area proscribed by federal
statute.  It is also unavailing for Respondent Huntsinger to assert that
his involvement in the laboratories was legal because they were required
by licensing laws to have a medical director.  The illegality here is
not in simply serving as a medical director of a laboratory, but in
actively participating in promoting a scheme through which laboratories
were set up to induce selected physician investors to make referrals or
face pressure and then to pass their referrals through to a reference
laboratory which could benefit from the referral stream and in turn
provide secure returns to the physicians, who could not otherwise profit
from those test referrals.  As medical director, he stood at the center
of the referral stream and was active in conveying the demand to
physicians to keep up referrals.

The I.G. proposed a seven-year exclusion for Respondent Huntsinger.  In
light of the two-year period imposed on the Hanlester Network, a
reasonable exclusion for Respondent Huntsinger should be proportionally
shorter.  We therefore modify the ALJ Decision on Remand, to reflect our
conclusion that an exclusion of one year from participation in Medicare
and Medicaid for Respondent Huntsinger is reasonable.

Respondent Welsh did not except to any specific FFCLs, but rather argued
that it was unreasonable to impose the exclusion proposed by the I.G. on
him in light of the mitigating evidence he presented.  He argued that
even the I.G.'s witnesses testified to his good character on
cross-examination and that he was unlikely to engage in harmful conduct
in the future, since he "severed his ties to the clinical lab
profession."  Welsh Br. at 2.

Respondent Welsh was a general partner in the Hanlester Network during
the time that these ventures were being planned and formed.  He was
"involved in the conception and marketing" of the limited partnership
laboratories.  ALJR Decision at 26.  He personally sold shares in PPCL
to potential investors.  ALJR Decision at 27, Tr. 1484.  The ALJ found
that Respondent Welsh "knowingly and willfully offered remuneration to
physicians" to induce referrals and thereby violated section
1128B(b)(2). .FFCLs 244, 246.  The ALJ did not find that Respondent
Welsh violated section 1128B(b)(1).

The evidence as to his good character may be relevant to mitigating the
length of exclusion which is reasonable, but cannot overcome entirely
the inferences to be drawn from his past acts.  The I.G. does not
dispute Respondent Welsh's character and praised his conduct at the
hearing.  I.G. Br. at 33.  However, this factor was reflected in the
reduced period of exclusion proposed for Respondent Welsh in relation to
other Respondents (three years, as opposed to ten years for Respondents
Lewand, Keorle and Tasha).  We accept the I.G.'s conclusion that
Respondent Welsh should be excluded for a proportionally shorter time,
but we are bound to apply those considerations in light of the two-year
exclusion imposed on the Hanlester Network and Respondents Lewand,
Keorle, and Tasha.  Therefore, we modify the ALJ Decision on Remand, to
reflect our conclusion that an exclusion of one year from participation
in Medicare and Medicaid for Respondent Welsh is reasonable. 39/

Having discussed the evidence relating to each of the Respondents above,
we affirm FFCL 300 that the I.G. proved that each Respondent violated at
least one section of the Act, so that the I.G. is authorized to impose
and direct exclusions against the Respondents.  In light of our
determinations above that some period of exclusion is required against
each Respondent, we vacate FFCL 305, which found that there was no
remedial need to exclude Respondents Lewand, Tasha, Welsh, Huntsinger,
and Keorle..  G.      Should we adopt the findings proposed by the
parties?

The parties proposed a number of FFCLs, none of which we adopt.  We have
not found it necessary, in light of the extensive discussion of the
issues in these cases in our two decisions, to explain why each
individual proposed FFCL has been rejected.  For convenience, we have
listed below the main reasons we reject the FFCLs and the proponent and
number of the FFCLs to which each reason applies.  Hence, all FFCLs
proposed by the parties are rejected on one or more of the following
grounds:

o  They are erroneous, do not follow from the record, are unsupported by
any cited evidence in the record, or conflict with findings already
conclusively affirmed by us.

 Respondent Hanlester's proposed FFCLs 1, 2, 4, 5, 6, 7, 8, 9,
 12, 13, 16, 17, 18, 19, 25, 26, 30, 39, 42, 43, and 44.

 The Inspector General's proposed FFCLs 4, 6, 8, 9, 10, 19, 27,
 37, 38, 39, 58, 60, 65, 66, 67, 68, 69, 72, 73, 74, 75, 76, 77,
 and 78.

o  They are irrelevant, are speculative, or, even where we may not
disagree with their substance, are unnecessary to make as findings in
order to resolve any contested issue before us.

 Respondent Hanlester's proposed FFCLs 3, 7, 9, 10, 11, 13, 14,
 15, 16, 17, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32,
 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, and 44.

 The Inspector General's proposed FFCLs 2, 3, 4, 5, 6, 7, 8, 9,
 10, 11, 12, 13, 14, 15, 16, 17, 18, 20, 21, 22, 23, 24, 25, 27,
 28, 29, 30, 31, 32, 33, 40, 41, 42, 43, 44, 45, 46, 47, 48, 49,
 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63, 64, 67,
 68, 69, 70, and 71.

o  They duplicate in whole or in part findings made by us or by the ALJ,
or simply state those findings in language more favorable to the
proponent.

 Respondent Hanlester's proposed FFCLs 21, 22, 23, 29, 33, 34,
 36, 37, 38, 39, 42, 43, and 44.

 The Inspector General's proposed FFCLs 1, 26, 34, 35, 36, and
 51..                       Conclusion

The following FFCLs in the ALJ Decision on Remand are affirmed:

 FFCLs 228, 229, 230, 231, 232, 233, 234, 235, 236, 237, 238,
 239, 240, 241, 243, 244, 245, 246, 263, 264, 265, 266, 267, 268,
 277, 278, 279, 280, 283, 285, 286, 289, 297, 298, and 300.

The following FFCLs in the ALJ Decision on Remand are vacated:

 FFCLs 270, 271, 272, 275, 276, 288, 290, 291, 292, 293, 294,
 295, 299, and 305.

For the reasons discussed above, we adopt the following additional
FFCLs:

 AP 8.  The length of an exclusion should be the period
 reasonably necessary to provide assurance that a Respondent is
 trustworthy, in light of all the facts and circumstances,
 including the seriousness of the offense, the circumstances of
 the misconduct, and the likelihood that misconduct would occur
 in the future.

 AP 9.  Respondents did not show by a preponderance of the
 evidence that they reasonably could have concluded that their
 activities did not violate or risk violating the anti-kickback
 statute.

 AP 10.  Some physicians raised concerns that the proposed
 arrangements for the partnership laboratories violated the
 anti-kickback statute.  Tr. 779, 1809.

 AP 11.  Respondent Lewand was a founder of and legal counsel to
 the California Clinical Laboratory Association.  Tr. 1952-53,
 2418.

 AP 12.  Respondent Lewand was aware of the existence of the
 anti-kickback statute, attended conferences concerning its
 interpretation, and had heated discussions about factors which
 might increase the risk of prosecution.  Tr. 2024Z-24Z-3, 2152,
 2154-55.

 AP 13.  Ms. Hitchcock used articles in her sales presentations
 which were provided by or shown to Respondent Lewand, which
 alert the reader to factors. which increase the risk of a
 violation.  Tr. 986-87, 1004-11; I.G. Ex. 75.0 and 75.1.

 AP 14.  The remedial purpose of section 1128 of the Act will be
 served by excluding Respondent Lewand for two years.

 AP 15.  The remedial purpose of section 1128 of the Act will be
 served by excluding Respondent Keorle for two years.

 AP 16.  The remedial purpose of section 1128 of the Act will be
 served by excluding Respondent Tasha for two years.

 AP 17.  The remedial purpose of section 1128 of the Act will be
 served by excluding Respondent Huntsinger for one year.

 AP 18.  The remedial purpose of section 1128 of the Act will be
 served by excluding Respondent Welsh for one year.

We have not adopted any FFCL on the correct interpretation of the Halper
decision, in light of our conclusion in the analysis that it is not
applicable to this case.

 


       ___________________________
       Judith A.
       Ballard

 


       ___________________________
       Donald F.
       Garrett

 


       ___________________________
       Cecilia Sparks
       Ford Presiding
       Board Member


1.  The decisions issued thus far by the ALJ and the Appellate Panel
total 225 pages.  We do not attempt here to do more than introduce the
reader to the issues presented.  We refer to the first appellate
decision (DAB 1275) for a thorough discussion of the legislative history
of the anti-kickback statute and the relevant case law and the legal
standard which applies.

2.  We use the terms "refer" or "referral" to include any form of
program-related business listed in the anti-kickback statute.

3.  Section 1128(b) authorizes permissive exclusions from Medicare
(Title XVIII of the Act) and several "State health care programs"
including Medicaid (Title XIX of the Act).  We use the term Medicaid to
refer to all the covered State health care programs.

4.  We considered the I.G.'s exceptions to nine of the ALJ's 227
Findings of Fact and Conclusions of Law (FFCLs).  We vacated the FFCLs
to which the I.G. excepted and modified the ALJ Decision to add seven
appellate FFCLs (AP1 - AP7) which were consistent with our
determinations concerning the legal standard.  While the ALJ
incorporated the Appellate FFCLs by reference in his decision on remand,
the ALJ also restated and rephrased our conclusions in additional FFCLs
and in his analysis.  To the extent the ALJ used language different from
that used by the Appellate Panel, the language of the original Appellate
FFCLs controls.

5.  This section highlights aspects of the transactions at issue which
are useful in understanding our decision.  This section is not a
substitute for the ALJ's detailed FFCLs which were affirmed here or in
our first decision.  For a comprehensive summary of the factual
background, see DAB 1275, at 4-8.

6.  We use the term Respondents to refer to all or only to certain
Respondents, as the context indicates.  We use the term Hanlester
Respondents to refer generally to all the Respondents except Ned Welsh
and Melvin Huntsinger, M.D.  We sometimes use the term to refer only to
the Hanlester Network and the partnership laboratories.

7.  The original ALJ decision found that the Hanlester Network, PPCL,
Omni, and Placer had violated section 1128B(b)(2) by virtue of the acts
(albeit unauthorized) of their agent Ms. Hitchcock, but imposed no
exclusions.

8.  The Hanlester Respondents expressly preserved a number of issues for
judicial review.  They requested that we reconsider these issues.  We
decline to do so.

9.  Throughout this decision, any summary of our findings and analyses
from our first decision is intended solely for the convenience of the
reader and does not modify or alter conclusions in that decision.

10.  Therefore, as we discuss below, we also reject the ALJ's
characterization of our first decision as "announcing" new meanings for
or giving novel interpretations of terms in the statute.  See, e.g.,
ALJR Decision at 56-59.

11.  Some situations clearly fall on the side of mere encouragement,
while others may require a closer case-by-case analysis.  For example, a
marketer who calls all doctors in a certain area and asks them to send
tests to a particular laboratory or inquires why they are not using that
laboratory may be encouraging referrals, but is not improperly inducing
them if he offers no concrete motivation to the doctors' financial
self-interest.  In our first decision, we also pointed to promotional
drug samples or hospital recruitment lunches as involving offers of some
tenuous economic value but unlikely to suffice to show an intent to
influence judgment by economic motives.  However, we agree with the ALJ
that the facts here show the use of economic motivation in an effort to
influence physicians' judgment in referrals so clearly that this case
does not present the need to carefully explore where the line may lie
between "mere encouragement" and inducement.  For the same reason, we
find it unnecessary to address Respondents' argument that the statute
must be void for vagueness if the ALJ was not able to detail those
situations where it would not apply because conduct did not go beyond
encouragement.  Respondent Hanlester's Appeal from Remand and Supporting
Brief (H. Br.) at 7, n.1.  We find no vagueness in its application to
these Respondents' conduct.

12.  All citations are omitted from text of FFCLs.

13.  We note here that the Hanlester Respondents did not except to FFCL
239, which found that Respondents, as a means of persuading physicians
to invest and refer, offered them "the opportunity to earn income
indirectly from referred laboratory tests where they were legally barred
from earning income directly from those tests."  (Only Respondent
Huntsinger excepted to this finding.)  Under the holding in United
States v. Bay State Ambulance and Hospital Rental Service, Inc., 874
F.2d 20 (1st Cir. 1989), knowingly and willfully offering an otherwise
unavailable opportunity to make money, with the purpose of obtaining
referrals as a result, suffices to show a violation of section
1128B(b)(2).

14.  The Hanlester Respondents also relied on six findings of the ALJ,
which we affirmed in our first decision, as support for their contention
that their intent was merely to encourage referrals rather than to
influence physicians' judgment.  H. Br. at 27-28; FFCLs 46-50, 62.  All
six FFCLs are findings about the representations which Respondents made
to prospective investors in the private placement memoranda.
Essentially, they find that Respondents represented that patronage would
be voluntary, that returns would not be tied to referral levels, that
SKBL would assure the quality necessary to keep limited partners
referring tests, and that California law prohibited compensation or
consideration for referrals.  As noted below, the ALJ properly looked at
the structure and operation of the partnerships, rather than being bound
by the self-serving assertions in the marketing documents.

15.  Of course, other laws may govern the legality of in-house physician
laboratory operations.

16.  In the later Stark Bill, Congress took the approach of prohibiting
all self-referrals to physician-owned laboratories regardless of intent,
eliminating this element.  Pub. L. No. 101-239, .6204(a) (1989).

17.  See, e.g., Hearing Transcript (Tr.) 2008-11.  In fact, one
representative of SKBL testified that an attraction of the limited
partnership structure was to create greater loyalty among physicians,
because "they would have an economic incentive to remain in the
laboratory and they'd be a little more forgiving of occasional errors."
Tr. 418-419.  This testimony supports the inference drawn by the ALJ
that the scheme was intended to influence physicians to make referral
choices different than they would have made on the basis of quality
considerations.  (Where we cite evidence from the record that provides
additional support to findings or inferences of the ALJ which we accept,
we do not make new FFCLs.  Where we base an inference different from
those drawn by the ALJ on evidence in the record which is either
uncontradicted or shown by a preponderance of the evidence but which is
not the subject of an FFCL, we do make new FFCLs in the conclusion part
of this decision.)

18.  Dr. Rubin testified that before the laboratories were established
he did most of his laboratory work in-house and sent the rest to SKBL,
and warned the salesperson that he would not divert tests from his own
laboratory to the joint ventures.  Tr. 763-767.  When the laboratories
came into operation, he continued the same practice of sending the
laboratory work that he did not do in-house to SKBL (but through the
joint ventures), and "assumed that . . . someday I would get a dividend
if they made any money."  Tr. 767.  Since SKBL performed the actual
laboratory tests for him throughout, a reasonable inference is that Dr.
Rubin was influenced to channel his tests through the laboratories
during his partnership with them because of the prospect of financial
returns.  Further, Dr. Mandilawi stated that he switched from SKBL to
one of the laboratories in order to benefit from his laboratory work
(and earlier stated that the benefit that he anticipated from the
partnership laboratories was financial).  Tr. 1793-94.  Dr. Luster
described his understanding of the offer of investment as allowing him
to "make some money, the idea being we could also refer our laboratory
work to them."  Tr. 1450-51.  He testified that he invested to recoup
some of the income he lost when Medicare switched to direct billing of
laboratory tests.  Tr. 1451-53.  He denied ordering unnecessary tests
simply to make money but answered the question of whether the
distributions from the limited partnerships had any influence on where
he sent tests, by acknowledging he would not "make a ton of money with
the laboratories" but would make more than Medicare's drawing fee.  Dr.
Carrell responded to complaints that he was not using the partnership
laboratory enough by saying he "would use it as much as [he] could," but
that he was unhappy because the prices to his private patients were
higher than elsewhere and the turnaround time was slow.  Tr. 1485-89.
Certainly none of this amounts to proof that financial incentives did
not intrude into the physicians' decisions about where to send tests.

19.  We note that, although the Hanlester Respondents made this argument
in their brief, Respondents (except Huntsinger) did not except to FFCL
237, which found that the ease of investment (a minimum investment of 3
shares at $500 each) was intended "as a means of persuading physicians
to invest . . . and to refer."  H. Br. at 16-17.  Even if they had
challenged it, Respondents did not show that this finding was not
supported by substantial evidence.

20.  See, e.g., Tr. 1452-53.  (Dr. Luster states that he "became a
limited partner because it offered an opportunity to make some money,
but also the -- at that time Medicare was changing the regulations
wherein the doctor couldn't charge a drawing, handling, and
interpretation fee in addition to lab work . . . When Medicare came
forward with that regulation, that obviously indicated an income loss
for me, and this was a way to help recoup some of that.")

21.  The Hanlester Respondents cited nothing in the record to suggest
that these laboratories were designed in response to an unmet need for
such services in the communities involved.  Competing laboratories were
available in this community.  (Respondents stated in their private
placement memorandum that the market was in fact highly competitive.
I.G. Exhibit (Ex.) 4.0, at 2.)  Furthermore, as noted above, SKBL itself
was already serving these markets, and even some of the same physicians,
directly.  Although Respondents portray themselves as reasonable
businessmen simply responding to the exigencies of economic reality, the
"key to their marketing strategy" was to avoid the discipline of the
market by using financial incentives to obtain physician loyalty, rather
than to offer a new service competing on the basis of price or quality.

22.  The Hanlester Respondents referred to testimony of Dr. Soloway who
directed a laboratory in Las Vegas and who testified that it would not
be unusual for sales representatives to try to get physicians to change
their referral patterns.  Tr. 1399-1400.  However, Dr. Soloway went on
to say that "the only unusual thing is when you pay a kickback to do
it."  Tr. 1400.

23.  We note that the Hanlester Respondents invited us to refer to their
briefs before the ALJ on remand for their arguments in regard to
additional assertions by the I.G. which Respondents did not address
before us because they were not relied on by the ALJ.  We find no need
to review or discuss contentions not relied upon by the ALJ and not
pressed before us.  The question before us is not whether the I.G.
proved every fact which he initially alleged, but whether the facts
proved before the ALJ support his conclusion that section 1128B(b)(2)
was violated.

24.  These shares reflected the division of collection ultimately
provided, although earlier versions of the management agreement with
PPCL provided for an 80% share to SKBL.  DAB 1275, at 7; FFCLs 154 and
155.

25.  FFCL 201 is not inconsistent with the ALJ Decision on Remand.  By
itself, assumption of the operating risks does not constitute improper
remuneration.  It is only one of the economic benefits to be considered
in determining whether there is an excess of benefits given over those
legitimate benefits received, which excess may constitute remuneration
in return for referrals.

26.  The I.G. disputed the assertion that the laboratories were defunct,
since the only evidence cited by the Hanlester Respondents is a
statement by Respondent Tasha that the laboratories were "virtually out
of business."  Tr. 2226 (emphasis added); Inspector General's Notice of
Appeal (I.G. Br.) at 88-89.  This representation does not suffice to
ensure that the partnerships would not resume operations immediately, if
we overturned the exclusions as Respondents requested.  If they are
permanently dissolved, then imposing a permanent exclusion presents no
hardship to the laboratories and protects the program from any
resumption of their illegal activities.  In any case, they could not
operate lawfully as they did previously without violating the "shell
lab" rule.

27.  Congress has struggled at length with the obvious potential for
conflict of interest in self-referral situations.  Most recently,
Congress banned all physician referrals to laboratories in which they
have ownership interests, concluding that, in the clinical laboratory
context, the risk of harm outweighed the benefits of these ventures.
Pub. L. No. 101-239, .6204(a) (1989).  This legislation can hardly be
used, as Respondents attempted, as evidence that no clinical laboratory
self-referral scheme could have violated the anti-kickback statute prior
to the outright bar.  H. Br. at 12-13, 57.  In other contexts,
physician-owned ventures may present benefits or be structured to
minimize risks.  For example, the safe harbor provisions shelter certain
ventures.  Others may fall outside the safe harbor regulations but still
not violate the anti-kickback statute upon weighing of the kind of
case-by case factors discussed in our first decision.  Here, however,
Respondents did not show, for example, that their venture was organized
by physicians to serve an unmet need in the community (especially since
SKBL was already offering laboratory services in these communities), or
that they diluted the risks of economic inducement by maximizing
participation by investors who were not referral sources.  Nor did they
show any other benefits or protections to the program outweighing the
manifest dangers of physician referrals influenced by self-interest.  As
we have stated before, it is not our role to speculate on what evidence
might be adequate to show a violation in other factual settings.  DAB
1275, at 54.

28.  In Halper, a provider filed numerous false claims, totalling $585.
He was convicted of criminal violations and fined $5,000.  Then, he was
prosecuted under civil statutes which provided for penalties of $2,000
for each violation, which would have resulted in $130,000 in penalties.
The Supreme Court agreed with the District Court that such a penalty
would be so excessive in relation to the harm as to constitute a second
punishment for the same offense.  The Court carefully limited its
holding to "the rare case . . . where a fixed-penalty provision subjects
a prolific but small-gauge offender to a sanction overwhelmingly
disproportionate to the damages he has caused."  490 U.S. at 449.  The
Court upheld its precedents that permitted the government to recover
more than its actual damages in civil sanctions as "rough justice."  490
U.S. at 441-42, 446, 449.  Furthermore, the Court's discussion of when a
civil sanction serves solely as punishment is relevant only to cases
involving prior criminal convictions.

 Nothing in today's ruling precludes the Government from seeking
 the full civil penalty against a defendant who previously has
 not been punished for the same conduct, even if the sanction
 imposed is punitive.  In such a case, the Double Jeopardy Clause
 simply is not implicated . . . .  In other words, the only
 proscription established by our ruling is that the Government
 may not criminally prosecute a defendant, impose a criminal
 penalty on him, and then bring a separate civil action based on
 the same conduct and receive a judgment that is not rationally
 related to the goal of making the Government whole.

490 U.S. at 450-51 (emphasis added).

29.  A permissive exclusion (or a mandatory one exceeding five years)
must, of course, be set for a period of time which is reasonable in
light of the remedial goals of section 1128 of the Act.  The analysis
required in determining whether the length proposed by the I.G. is
excessive is similar in some respects to that performed under Halper in
double jeopardy situations.  Furthermore, even in cases where double
jeopardy could be an issue because a respondent has had a prior criminal
conviction, courts have held that exclusions are mainly intended to
protect federally-funded health care programs from fraud and abuse, not
solely to achieve the punitive ends of retribution or deterrence.  The
goals of exclusions are "clearly remedial and include protecting
beneficiaries, maintaining program integrity, fostering public
confidence in the program, etc."  Greene v. Sullivan, 731 F. Supp. 838,
840 (E.D. Tenn. 1990) (upholding a mandatory exclusion after a criminal
conviction).  The goal of protecting the public, as with professional
license revocation situations, is remedial, even though the impact on
the individual may be considerable (the pharmacist in Greene argued that
he would be put out of business).  731 F. Supp. at 839, 840.  While it
may carry the "sting of punishment" to the respondent, an exclusion may
nevertheless serve remedial ends.  Manocchio v. Kusserow, 961 F.2d 1539
(11th Cir. 1992).  The court in Manocchio emphasized the overall purpose
of the sanction legislation, which is on the "legitimate nonpunitive
goal" of protecting "present and future Medicare beneficiaries from the
abusers of these programs," even if the result is "rough remedial
justice."  Id., at 1542.  In Manocchio, a five-year exclusion was upheld
as remedial, even though the violation involved a false claim of only
$62.40.

30.  We have used the term "propensity" only when weighing whether a
provider offered mitigating evidence that there was no propensity to
engage in particular conduct that would increase the likelihood of
future offenses.  Compare John R. Crawford, Jr., M.D., DAB 1324 (1992),
with Joyce Faye Hughey, DAB 1221 (1991).  In both of these cases, we
imposed some period of exclusion, but in Hughey we accepted the ALJ's
conclusion that the provider had demonstrated credibly that she was
unlikely to engage in misconduct under ordinary circumstances and showed
remorse.  In Crawford, however, we found that the provider's "systematic
fraudulent behavior over two years" precluded him from demonstrating a
"lack of propensity to engage in future unlawful conduct."  Crawford, at
12-13.  Respondents do not benefit from the comparison of these two
cases, since they perpetrated a kickback scheme stretching over several
years and involving over a hundred providers and for which they have
pointed to no demonstration of remorse whatsoever.

31.  Respondents argued at length that their misconduct did not actually
result in costs to the program, since the I.G. had not proven
overutilization by the limited partners.  However, the ALJ stated
correctly that "it is not the harm caused by a party's prior misconduct
which justifies the imposition of an exclusion."  ALJR Decision at 51.
The purpose of an exclusion is to protect the public from dealing with
untrustworthy providers and thereby to foster public confidence that the
program funds are handled with integrity.  This purpose is remedial,
regardless of whether actual harm or cost to the programs is proven in a
particular instance of misconduct from which an exclusion results.

32.  If so, it is not at all clear to us why Respondents Lewand and
Tasha, whose business over a number of years has been the establishment
of health care ventures and whose structuring of at least three of those
ventures has been shown here to have been in violation of the law, can
now be trusted not to undertake other questionable ventures.  At the
least, there is evidence that Respondent Lewand, through Respondent
Keorle, is involved in other health care limited partnerships, and no
evidence as to whether those ventures are structured lawfully.  ALJR
Decision at 64-65.

33.  The I.G. mistakenly characterized this as a "mistake of law"
defense.  I.G. Br. at 36.  The ALJ, however, did not suggest that any
uncertainty about the scope of the law prevented Respondents from
meeting the "knowing and willful" scienter required to establish a
violation.  The ALJ relied instead on this uncertainty theory for the
more limited purpose of justifying not imposing an exclusion, on the
basis that Respondents were less likely to repeat their violations
because (according to the ALJ) Respondents did not act in negligent
disregard of a legal standard which they understood to apply to their
conduct.

34.  The ALJ focused exclusively on the word "remuneration," while we
emphasized the meaning of the phrase "any remuneration" along with the
expansive phrases that follow it.

35.  Respondents need not have known what the "likely outcome" would be
to have been aware that they were entering an area of questionable
legality.  The Levin case does not serve to give any greater weight to
the HCFA letters here.  Cf. United States v. Levin, Crim. No. 89-1 (E.D.
Ky. 1990).  In that case, opinion letters issued by HCFA officials
apparently specifically sanctioned the practice challenged in that case
as not being abusive or violative of any HCFA reimbursement policy, and
the court does not refer to any disclaimers in those letter such as
appeared in those at issue here.  Consequently, the court held that the
government could not as a matter of law establish criminal intent beyond
a reasonable doubt.  In the present cases, the letters do not directly
sanction the totality of Respondents' scheme and contain disclaimers on
their face as to their authoritativeness.  In addition, the I.G. was not
required to prove intent beyond a reasonable doubt in order to impose an
administrative sanction.

36.  It is not enough to preclude imposition of an exclusion that
Respondent Lewand reached the erroneous conclusion that the only
constraint on limited partnership was that the return to investor must
be "based on a return of his investment, and not on the usage that he
was providing."  Tr. at 2024Z.  Such a restriction appears nowhere in
the federal anti-kickback statute.  To the contrary, the provisions
prohibit "any remuneration . . . [offered, paid, solicited or received]
directly or indirectly, overtly or covertly, in cash or in kind."
Sections 1128B(b)(1) and (2) of the Act.

37.  The I.G. originally sought a longer period of exclusion for the
Hanlester Network, but has not contested the two-year period on appeal
to us.  Because the conduct involved here is in the nature of a
program-related crime, for which a minimum five-year exclusion would be
mandated if a criminal conviction had been obtained first, we would have
been inclined to find a longer exclusion reasonable.  However, the
two-year exclusion imposed on the Hanlester Network, which the I.G. is
not contesting before us, sets a ceiling on the length of exclusions to
be imposed on other Respondents.  Whatever circumstances we might have
considered relevant as "mitigating" or "aggravating" if we were setting
periods of exclusion initially in this case, no mitigating factors have
been demonstrated that would persuade us to reduce the exclusion periods
below those which we now find proportional to the Hanlester Network's
two-year exclusion.

38.  We therefore affirm FFCLs 297 and 298, in deference to the ALJ's
assessment of credibility, although we might have found the testimony on
these issues less persuasive.  We see no reason to disturb the findings,
in any case, since they are not sufficient to affect the reasonableness
of imposing exclusions of the length we set here.  (In light of the
discussion below, we affirm both findings in regard to Respondents
Huntsinger and Welsh as well.)

39.  As we discussed with regard to the "defunct" partnership
laboratories, evidence that a respondent has left the clinical
laboratory business does not preclude imposition of an exclusion, since
otherwise they are free to reenter the industry and resume unlawful
conduct at any time.  If anything, the harsh impact of an exclusion is
reduced when a party no longer needs to participate in federally-funded
health care programs as part of his livelihood.  Although Respondent
Welsh asserted that he has not engaged in any health care practice since
1987, he did not point to any corroborative evidence in the record to
support this.  It is reasonable to impose a one-year period of exclusion
to assure that he will not reenter the field immediately and resume
unlawful activities.  In this way, the programs are protected, until he
provides assurances at the point when he wishes to reenter the field
that he will comply with its