SUBJECT: Paulette White Jackson,

Petitioner,

The Inspector General

FINAL DECISION ON REVIEW OF
ADMINISTRATIVE LAW JUDGE DECISION

Paulette White Jackson (Petitioner) appealed a November 4, 2003 decision by Administrative Law Judge (ALJ) Anne E. Blair excluding Petitioner from participation in Medicare, Medicaid, Maternal and Child Health Services Block Grant and Block Grants to States for Social Services programs ⁽¹⁾ for four years. Paulette White Jackson, DAB CR1103 (2003) (ALJ Decision).

The Inspector General (I.G.) excluded Petitioner pursuant to section 1128(b)(1) of the Social Security Act (Act) based on Petitioner's June 14, 1999 entry into a plea agreement in the U.S. District Court, Middle District of Louisiana. The I.G. determined that Petitioner was convicted under federal law of a criminal offense, occurring after August 21, 1996, "relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct with respect to any act or omission in a program (other than a health care program) operated by or financed in whole or in part by any Federal, State, or local government agency." Section 1128(b)(1)(B) of the Act. Consequently, the I.G. proposed that Petitioner be excluded from Medicare for six years. ⁽²⁾

Generally, the ALJ found that Petitioner was convicted of a criminal offense within the meaning of section 1128(b)(1)(B) of the Act; that Petitioner's criminal offense occurred after August 21, 1996; and that the offense was related to financial misconduct with respect to an act or omission in a program (other than a health care program) financed in part by a federal government agency. The ALJ indicated that, pursuant to the program regulations, she did not have the authority to determine that the I.G. must eliminate the exclusion altogether. The ALJ did, however, determine that, in spite of the existence of two aggravating factors and no mitigating factors, the I.G.'s proposed six-year exclusion was unreasonable. The ALJ concluded, based on the circumstances of the proven aggravating factors, that a four-year exclusion was reasonable.

As discussed below, we summarily affirm the ALJ's factual findings, but consider Petitioner's arguments with respect to the ALJ's legal conclusions. We sustain the ALJ's conclusion that a four-year exclusion was reasonable, although we rely on a different rationale than that articulated by the ALJ regarding one element of the basis for exclusion and one conclusion of law.

Our decision is based on the record before the ALJ as well as the parties' briefs on appeal from the ALJ Decision. As part of her appeal submission, Petitioner also submitted four additional exhibits identified as "[Petitioner] Exhibits 7-10." The I.G. objected to Petitioner's attempt to place these exhibits in the record. I.G. Br. at 8. We conclude that these exhibits should not be included as evidence in the record.

In relevant part, the regulation at 42 C.F.R. § 1005.21(f) provides:

If any party demonstrates to the satisfaction of the DAB that additional evidence not presented at such hearing [before an ALJ] is relevant and material and that there were reasonable grounds for the failure to adduce such evidence at such hearing, the DAB may remand the matter to the ALJ for consideration of such evidence.

Petitioner did not demonstrate to the satisfaction of this Board that this new evidence is relevant and material to an issue before the Board or that there were reasonable grounds for Petitioner's failure to adduce such evidence (i.e., to produce it) before the ALJ. Thus, while we retain "[Petitioner] Exhibits 7-10" in the record, we neither admit them as evidence nor consider them in reaching our decision.

The ALJ Decision

On pages 5-9 of her decision, the ALJ made the following 23 findings of fact and conclusions of law (FFCLs) supporting her decision:

1. On September 15, 1983, Faith Home Health Services, Inc. (Faith Home Health) was certified in Louisiana as a home health agency (HHA) and was assigned Medicare provider No. 19-7106. I.G. Ex. 3.

2. During all relevant times, Petitioner, a registered nurse, was the President of Faith Home Health and maintained an 85% controlling interest in the company. I.G. Ex. 3. Petitioner's daughter and co-defendant in her criminal case, Detra Fairley, and two sons were also co-owners of Faith Home Health. Id.

3. Medicare pays participating HHAs for skilled and ancillary health services furnished to beneficiaries who are homebound, in medical need of skilled care on an intermittent basis, and who are under the care of a physician who has established a plan of care. I.G. Ex. 3.

4. Providers are reimbursed by Medicare on a cost-based system. 42 C.F.R. § 413.9(c)(3). Included in the computations for amounts paid to HHAs are overhead, such as rent, utilities, maintenance, consulting fees, and supplies. I.G. Ex. 3. Allowable costs are salaries, bonuses, and benefits, including paid days off, major medical, short term and long term disability for the employer and employees, along with related employer/employee non-qualified deferred compensation trust plan benefits. Id.

5. Medicare paid HHAs their costs periodically in the form of Periodic Interim Payments (PIP). See, e.g., 42 C.F.R. § 413.64(h). Faith Home Health was placed on the PIP methodology of payment by Medicare during the fourth quarter of 1994. I.G. Ex. 3. Prior to the fourth quarter of 1994, Faith Home Health was reimbursed on a fee for services basis. In a fee for services plan, medically necessary services were administered according to the plan of care established by the patient's physician. If the claims were processed, the payment would be made to the provider within a few weeks, but the claim itself could linger between 12 to 18 months before being processed and, thus, paid. I.G. Ex. 3.

6. Once on PIP, Faith Home Health received payments biweekly, from its fiscal intermediary, based on Faith Home Health's reported expenses. I.G. Ex. 3. Faith Home Health was required to submit a quarterly cost interim report to the Medicare fiscal intermediary. Id. A year-end summary called a Cost Report was also required to be submitted annually to the Medicare fiscal intermediary. The intermediary conducted a quarterly rate review and a year-end audit to reconcile allowable costs and set the reimbursement rates. Id.

7. Since October 1995, Palmetto GBA had conducted quarterly rate reviews and year-end audits to reconcile Faith Home Health's allowable cost and set its rate of reimbursement. I.G. Ex. 3.

8. The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum funding standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans. 29 U.S.C. § 1082.

9. ERISA requires plans to provide participants with plan information including important information about plan features and funding; provides fiduciary responsibilities for those who manage and control plan assets; requires plans to establish a grievance and appeals process for participants to get benefits from their plans; and gives participants the right to sue for benefits and breaches of fiduciary duty. 29 U.S.C. §§ 1001-1461.

10. Faith Home Health's first initial employer/employee non-qualified deferred compensation plan and trust (Plan) was established by Pension Administrators and Consultants, Inc. of Jacksonville, Florida. I.G. Ex. 3. Pension Administrators and Consultants, Inc. closed down and a second Faith Home Health Plan was subsequently established by Royal Benefits, Inc. and Dwight S. Cenac, who had owned Pension Administrators and Consultants, Inc. Royal Benefits, Inc. became the sponsor/owner of the Plan. Id.

11. Faith Home Health's Plan was regulated by federal law under ERISA. I.G. Ex. 3.

12. In or around November 1996, the fact that the Plan was subject to regulation under ERISA was disclosed to Petitioner and the other owners of Faith Home Health. I.G. Ex. 3.

13. Funds from a plan such as Petitioner's Plan could not be withdrawn for any purpose other than pension payments. Further, the regulations provide that "[a]ccrued liability related to contributions to a funded deferred compensation plan must be liquidated within one year after the end of the cost reporting period in which the liability is incurred. An extension, not to exceed three years beyond the end of the cost reporting year in which the liability was incurred, may be granted by the intermediary for good cause if the provider, within the one-year time limit, furnishes to the intermediary sufficient written justification for non-payment of the liability." 42 C.F.R. § 413.100(c)(2)(vii)(B).

14. About May 1995, Faith Home Health submitted a Medicare cost report for the year ending December 1994, claiming accrued liabilities to its Plan of approximately $67,472 for 1994 and part of 1995. See ALJ Ex. 1, at 6. Faith Home Health was reimbursed this expense in 1995. However, the Plan was not funded as Faith Home Health had indicated in the Medicare cost report. Instead, Faith Home Health requested an extension to fund the Plan and the Medicare fiscal intermediary, Palmetto GBA, approved the extension until December 1997. On July 21, 1996, Faith Home Health funded the Plan with $67,472 for 1994 and part of 1995. I.G. Ex. 3; ALJ Ex. 1, at 6.

15. For the Medicare cost years ending December 1995 and December 1996, Faith Home Health claimed on its respective Medicare cost reports to have incurred a liability in funding its Plan. Faith Home Health had already been reimbursed for funding the Plan in the form of its PIP payments. I.G. Ex. 3. However, Faith Home Health's PIP payment rate during the period from December 1995 through March 3, 1997, had been re-calculated several times and varied from an initial rate of $86,700 biweekly to amounts much lower than the initial biweekly amount. I.G. Ex. 3; ALJ Ex. 1. During this period, a portion of Medicare's periodic payments included reimbursement for Faith Home Health's Plan. The Medicare fiscal intermediary denied Faith Home Health's requests for extensions to liquidate liabilities for Plan years 1995 and 1996. I.G. Ex. 3.

16. From 1994 to 1997, Faith Home Health was paid cost reimbursements which, under federal regulations, could only be used to fund its Plan. See Finding 13, above. During this period, only $67,472, representing the 1994 expense, along with $5,529, representing a portion of the 1995 Plan expense, was ever deposited into the Plan account. This resulted in the Plan being underfunded as set forth under the minimum funding standards established by Title 29, United States Code, Section 1082. I.G. Ex. 3; ALJ Ex. 1.

17. Individual employee participants in the Plan were not notified of the underfunding of the Plan, as required by Title 29, United States Code, Section 1021(d)(1). I.G. Ex. 3.

18. In July 1999, a two-count indictment alleging pension plan violations was filed against Petitioner as a principal in Faith Home Health in the United States District Court, Middle District of Louisiana. ALJ Ex. 1, at 2.

19. After negotiation, the U.S. Attorney proposed that Petitioner plead to a misdemeanor violation of 29 U.S.C.
§ 1021(d)(1). See I.G. Exs. 6, 8; I.G. Ex. 7, at 22. Section 1021(d)(1) of 29 U.S.C. states the following:

If an employer maintaining a plan other than a multi employer plan fails to make a required installment or other payment required to meet the minimum funding standard under section 1082 of this title to a plan before the 60th day following the due date for such installment or other payment, the employer shall notify each participant and beneficiary . . . of such plan of such failure.

20. In August of 2000, Petitioner's counsel wrote to Petitioner about the U.S. Attorney's proposed plea agreement. Counsel told Petitioner, ". . . the plea would result in no jail time and you would keep your nursing license as well as Medicare/Medicaid eligibility." I.G. Ex. 8.

21. Petitioner in December of 2000 signed a plea agreement that stated the following:

The defendant acknowledges that the terms herein constitute the entire agreement and that no other promises or inducements have been made. The defendant acknowledges she has not been threatened, intimidated or coerced in any manner.

The defendant acknowledges that this Plea Agreement has been entered into knowingly, voluntarily, and with the advice of counsel and that she fully understands the agreement.

I.G. Ex. 6, at 4-5.

22. As part of the plea agreement, a Bill of Information was filed and the pending indictment was dismissed. The Bill of Information charged that from July 1996 until March 1998, the defendants, Petitioner and her daughter, violated the provisions of ERISA by failing to make a required installment or other payment and failing to meet the minimum required funding standard under 29 U.S.C. § 1082, on or before the 60th day following the due date for the payment, and further failing to notify each beneficiary or participant of such failure. I.G. Ex. 4. Petitioner was rearraigned on January 24, 2001, and the offense of failing to make a required payment to a pension plan, and failing to notify the beneficiaries of the failure, was explained to her in court. I.G. Ex. 7, at 20.

23. The court accepted Petitioner's plea. Judgment was entered against Petitioner by the United States District Court for the Middle District of Louisiana on June 14, 2001. Petitioner was sentenced to one year of probation. She was fined $300 and assessed $25. I.G. Ex. 2.

ALJ Decision at 5-9 (footnotes omitted).

In her analysis, the ALJ set out four headings, as well as a number of subheadings, which effectively constitute 11 additional FFCLS supporting her decision. These FFCLs are:

A. Petitioner was convicted of a criminal offense occurring after August 21, 1996, relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct with respect to any act or omission in a program (other than a health care program) operated by or financed in whole or in part by any federal, State, or local government agency.

1. Petitioner was convicted of a criminal offense within the meaning of section 1128(b)(1)(B) of the Act.

2. The criminal activity to which Petitioner pleaded guilty occurred after August 21, 1996.

3. Petitioner's criminal offense was related to financial misconduct.

4. Petitioner's financial misconduct was with respect to an act or omission in a program (other than a health care program) financed in part by a federal government agency.

B. An ALJ is limited to determining whether the length of the proposed exclusion is reasonable; an ALJ cannot determine that the I.G. must eliminate the exclusion altogether.

C. An exclusion of six years is not reasonable in this case.

1. The I.G. proved the alleged aggravating factor that Petitioner's omissions and acts occurred over a one-year period.

2. The I.G. proved the aggravating factor listed at 42 C.F.R. § 1001.201(b)(2)(i) of a financial loss to a government program or another entity of $5,000 or more.

3. Petitioner has not shown the presence of any mitigating factors.

D. A six-year exclusion of Petitioner is not reasonable. The circumstances of the proven aggravating factors suggest a lesser exclusion length of four years is reasonable.

ALJ Decision at 9-15.

Our standard of review on a disputed conclusion of law is whether the ALJ Decision is erroneous. Our standard of review on a disputed finding of fact is whether the ALJ Decision is supported by substantial evidence on the record as a whole. 42 C.F.R. § 1005.21(h).

Exceptions

On appeal, Petitioner specifically excepted to FFCLs 5, 10-17 and 22. Additionally, based on the tenor of her arguments, we can infer that Petitioner has also excepted to FFCLs A.2., A.3., A.4., C.1., C.2. and D.

Petitioner asserted that Congress had amended the PIP methodology system after Faith Home Health "had fallen into the trap" set by, among others, Dwight S. Cenac, whom she identified as the sponsor/owner of both Faith Home Health's first and second Pension and Health Plans (Plan). Petitioner noted that Faith Home Health's first Plan was not subject to ERISA "when first placed on our books" and that its second Plan "was illegally placed" by Mr. Cenac's management firm. Petitioner asserted that by the time of the 1996 disclosure that the Plan was subject to ERISA regulations, it "was too late, the damage . . . had already occurred." Petitioner noted that, pursuant to 42 C.F.R. § 413.100(c)(2)(vii)(B), the Plan's Management Company had requested good cause extensions to liquidate Faith Home Health's liability. Petitioner further contended that the management firm overseeing the Plan maintained "double erroneous books, records and forms" and that Petitioner was unaware of this situation until August 1998. Petitioner argued that Faith Home Health was not properly instructed as to how to fund its Plan, nor was it ever provided a Plan payment schedule. Moreover, Petitioner maintained that she had never "informed the employees in writing of anything concerning the [Plan]." Rather, according to Petitioner, the Plan's Management Company was responsible for that service. Finally, Petitioner asserted that she pled guilty only to failing to notify her employees of the fact that their Plan was underfunded and not to underfunding the Plan. Petitioner Br. at 4-5.

Petitioner's arguments provide no basis for overturning the ALJ's factual findings, which are based on substantial evidence in the record. Accordingly, we summarily affirm and adopt the challenged factual findings (FFCLs 5, 10-17, 22, A.2., A.3., A.4., C.1., C.2. and D.), as well as the findings to which Petitioner did not take exception (FFCLs 1-4, 6-9, 18-21, 23, A.1., B. and C.3.).

Petitioner's arguments go primarily to the circumstances of and Petitioner's responsibility for the underfunding of the Plan and to the correctness of the ALJ's conclusion that Petitioner had engaged in financial misconduct. Below, we first discuss why we conclude that the circumstances of the underfunding are irrelevant. We then discuss why we uphold the exclusion, but modify the ALJ's key conclusion regarding the basis for the exclusion.

The circumstances of the underfunding are irrelevant.

In essence, Petitioner argued that she should not be excluded because there were extenuating circumstances that diminished her responsibility for the underfunding. ⁽³⁾ Notwithstanding the references to the underfunding in the ALJ's analysis of some of the elements of the basis for exclusion, however, Petitioner's argument has no bearing on whether there is a valid basis for the exclusion. As Petitioner correctly asserted, the offense to which she pled guilty was not underfunding the Plan, i.e., failing to meet the minimum funding standards. The Bill of Information upon which Petitioner's guilty plea was based states that Faith Home Health, of which Petitioner admitted she was the principal, had both failed to meet the minimum funding standards for the Plan and failed to notify the Plan beneficiaries of this failure. I.G. Ex. 4 at Paras. 2 and 4. However, the only statutory provision cited in the Bill of Information is 29 U.S.C. § 1021(d)(1), which falls under the section 1021(d) heading "Notice of failure meet the minimum funding standards." ⁽⁴⁾ Although the duty to notify under section 1021(d)(1) does not arise unless an employer has failed to meet the minimum funding standards, the underfunding was not the offense to which Petitioner pled guilty.

To the extent that the ALJ Decision implies that the basis for Petitioner's exclusion depends, at least in part, on a conviction for an offense of underfunding, however, that is harmless error since all of the elements necessary to impose an exclusion under section 1128(b)(1)(B) of the Act are satisfied based on Petitioner's guilty plea to the offense of failing to notify the Plan beneficiaries of the underfunding. ⁽⁵⁾ The court's acceptance of this guilty plea constituted a conviction of a criminal offense within the meaning of section 1128(b)(1)(B) of the Act. Since the Bill of Information stated that the failure to notify (as well as the underfunding itself) occurred "[f]rom in or about July 1996, up to and including March 1998," the offense to which Petitioner pled guilty occurred after August 21, 1996 since the failure to notify continued at least until March 1998. The offense of failing to notify the Plan beneficiaries of the underfunding itself clearly constituted financial misconduct. ⁽⁶⁾ Finally, as we discuss below, that financial misconduct was related to an omission in a program (other than a health care program) operated or financed by a federal government agency. Thus, the circumstances of the underfunding simply make no difference to the basis for the exclusion.

Moreover, although the ALJ noted that "the underfunding of the Plan included several Plan years" in concluding that the I.G. established the aggravating factor at 42 C.F.R. § 1001.201(b)(2)(ii), the ALJ also cited the Bill of Information. As indicated above, the Bill of Information states that the failure to notify occurred "[f]rom in or about July 1996, up to and including March 1998." Since the failure to notify - "the act that resulted in the conviction" - was committed "over a period of one year or more" as required by section 1001.201(b)(2)(ii), the circumstances of the underfunding do not affect the existence of this aggravating factor. ⁽⁷⁾

The ALJ's finding that Petitioner's financial misconduct was with respect to Medicare is not a basis for an exclusion under section 1128(b)(1)(B) of the Act.

In FFCL A.4., the ALJ concluded:

Petitioner's financial misconduct was with respect to an act or omission in a program (other than a health care program) financed in part by a federal government agency.

However, the ALJ's analysis underlying this FFCL incorrectly identified Medicare as the program to which Petitioner's financial misconduct was related, stating: "Faith Home Health's Plan was financed in part by a federal government agency; that is, Medicare." See ALJ Decision at 11.

Section 1128(b)(1)(B) of the Act specifies that the financial misconduct must be with respect to an act or omission in a program "other than a health care program" which is operated or financed in part by the federal government. (Emphasis added.) See also 42 C.F.R. § 1001.201(a)(2). Medicare is clearly considered a health care program under section 1128 and the implementing regulations. For example, section 1128(b) refers to excluding an individual or entity from "participation in any Federal health care program (as defined in section 1128B(f))." See also 42 C.F.R. § 1001.2. Section 1128B(f) defines "federal health care program" as including "any plan or program that provides health benefits, whether directly, through insurance, or otherwise, which is funded directly, in whole or in part, by the United States Government . . . ." Thus, the ALJ's determination that Petitioner's financial misconduct with respect to an act or omission in Medicare (by virtue of the fact that Faith Home Health's Plan was financed in part by Medicare) does not establish this element of the basis for exclusion under section 1128(b)(1)(B) since Medicare is not a program "other than a health care program."

We nevertheless conclude that the ALJ's factual findings support a conclusion that Petitioner's financial misconduct was with respect to an omission in a federally operated program that is not a health care program. As noted above, the singular offense of which Petitioner was convicted was related to financial misconduct. The financial misconduct was with respect to an omission under ERISA since the statute creating that program imposes the requirement for notification of underfunding that Petitioner, as a principal for Faith Home Health, failed to meet. ERISA is not a health care program since it does not provide health benefits. Moreover, ERISA is operated by a federal government agency, since it provides for federal oversight, by the Secretary of Labor, of employer pension plans (which may include health care plans). Thus, Petitioner's financial misconduct was with respect to an omission in a program, other than a health care program, operated by a federal government agency. Accordingly, we modify FFCL A.4. to read as follows:

Petitioner's financial misconduct was with respect to an act or omission in ERISA, a program (other than a health care program) operated in part by a federal government agency.

We note that this error has no bearing on the ALJ's subsequent finding in FFCL C.2. that the I.G. proved the aggravating factor listed at 42 C.F.R. § 1001.201(b)(2)(i) of a financial loss to a government program or another entity of $5,000 or more. Notwithstanding her conclusion in FFCL A.4. that the financial misconduct was with respect to Medicare, the ALJ found that the Plan, which qualifies as "another entity" under section 1001.201(b)(2)(i), suffered a financial loss of $5,000 or more. See ALJ Decision at 13-14.

Conclusion

Based on the preceding analysis, we affirm and adopt each of the FFCLs underlying the ALJ Decision, except FFCL A.4., which we modify as indicated above, and we sustain the ALJ Decision to exclude Petitioner for four years.

Cecilia Sparks Ford

Donald F. Garrett

Judith A. Ballard
Presiding Panel Member

1. Hereafter, we refer to these programs generally as "Medicare."

2. The mandatory minimum period of exclusion under section 1128(b)(1) of the Act is three years. The I.G.'s proposed exclusion added three additional years to this period based on the presence of two aggravating factors. See 42 C.F.R. § 1001.201(b)(2).

3. In reviewing this case, we have considered each and every argument presented by the parties. Although particular issues may not be discussed in detail in this decision, we have nevertheless considered all of the points in the parties' briefs in reaching the conclusions set forth here.

4. Section 1021, as a whole, is titled "Duty of disclosure and reporting."

5. The ALJ Decision identified those elements as follows:

The I.G. must prove four elements in order to show a basis for excluding Petitioner pursuant to section 1128(b)(1)(B) of the Act. The I.G. must show that: (1) Petitioner was convicted of a criminal offense; (2) the criminal offense occurred after August 21, 1996; (3) the criminal offense related to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct; and (4) the financial misconduct must be an act or omission in a program (other than a health care program) operated by or financed in whole or in part by any federal, State, or local government agency.

ALJ Decision at 9. The language of section 1128(b)(1) of the Act from which the fourth element was derived reads "financial misconduct with respect to any act or omission . . . ."

6. The ALJ rejected the I.G.'s contention that Petitioner's criminal offense was related to a breach of fiduciary responsibility, noting that Petitioner did not establish the Plan, nor was she a trustee of the Plan, but found that the offense was nevertheless related to "other financial misconduct." ALJ Decision at 10. We conclude that Petitioner's offense did involve a breach of fiduciary responsibility since section 1021(d)(1) imposes "on an employer maintaining a plan" a duty to notify employees of the failure to meet minimum funding standards, and Petitioner was a principal of the employer, Faith Home Health. Since breach of fiduciary responsibility is a type of financial misconduct, however, the ALJ correctly found financial misconduct.

7. Petitioner did not argue that this aggravating factor did not apply because of the nature of the offense (an "omission" rather than an "act").