Maria Larkin (OI File No. H-18-41269-9), CR5409 2019

DECISION

The Inspector General (IG) of the United States Department of Health and Human Services excluded Maria Larkin (Ms. Larkin or Petitioner) from participation in Medicare, Medicaid, and all other federal health care programs for the statutory minimum period of five years under 42 U.S.C. § 1320a-7(a)(3). Ms. Larkin requested a hearing before an administrative law judge (ALJ) to dispute the exclusion. Based on the facts in this case, I conclude that § 1320a-7(a)(3) mandates Ms. Larkin’s exclusion for five years. Therefore, I affirm the IG’s determination.

I. Background

In a July 20, 2018 letter, the IG informed Ms. Larkin that her conviction in the United States District Court for the District of Nevada (District Court) may require the IG to exclude Ms. Larkin from participation in all federal health care programs. Petitioner Exhibit (P. Ex.) 2. Ms. Larkin responded that the IG should not exclude her under the mandatory exclusion authority in 42 U.S.C. § 1320a-7(a) because her crime was neither program related nor related to the delivery of a health care item or service. P. Ex. 3. 

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In a January 31, 2019 notice, the IG informed Petitioner that he was excluding her, effective 20 days after the date of the notice, from participation in all federal health care programs for five years based on 42 U.S.C. § 1320a-7(a)(3). IG Ex. 1. The notice explained that: 

This exclusion is due to [Petitioner’s] felony conviction . . . in the United States District Court, District of Nevada, of a criminal offense related to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct in connection with the delivery of a health care item or service, including the performance of management or administrative services relating to the delivery of such items or services, or with respect to any act or omission in a health care program (other than Medicare and a State health care program) operated by, or financed in whole or in part, by any Federal, State or local Government agency.

IG Ex. 1 at 1.   

Petitioner timely filed a request for hearing (Hearing Req.) along with seven exhibits (P. Exs. 1-7) to dispute the exclusion. This case was assigned to me and, on April 8, 2019, I issued an Acknowledgment, Prehearing Order, and Notice of Prehearing Conference (Prehearing Order). 

On April 12, 2019, Petitioner moved for a stay of the exclusion pending a decision in her case. The IG opposed Petitioner’s motion. On April 17, 2019, I denied Petitioner’s request for a stay of the exclusion indicating that I had no authority to issue such a stay. 

On April 24, 2019, I held a prehearing conference, which was summarized in my Prehearing Conference Summary and Order of that same date. At the conference, I stated that I would issue a decision on the record because the parties indicated that neither intended to provide witness testimony. Further, in order to expedite this case, I accepted Petitioner’s request for hearing and seven exhibits as Petitioner’s prehearing exchange; however, I required Petitioner to submit a short-form brief.

Following the conference, Petitioner submitted her short-form brief (P. Br.). The IG filed a short-form brief (IG Br.) and four exhibits (IG Exs. 1-4). Petitioner filed a reply brief (P. Reply) and an objection to IG Ex. 4 (P. Objection). The IG filed a sur-reply (IG Reply) and a response to the objection (IG Response).

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II. Issue

Whether the IG has a basis to exclude Petitioner for five years under 42 U.S.C. § 1320a-7(a)(3).

III. Jurisdiction

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

IV. Evidentiary Ruling

The IG did not object to any of Petitioner’s exhibits. Petitioner only objected to IG Ex. 4. For the reasons stated below, I overrule Petitioner’s objection and admit IG Exs. 1-4 and P. Exs. 1-7 into the record. 

Petitioner objected to IG Ex. 4, which is a Sentencing Memorandum filed by the United States Department of Justice in Petitioner’s criminal case. Petitioner argued that the factors considered in imposing a sentence go beyond “simply discussing the criminal offense for which she was convicted and the actions forming the basis of her conviction,” making much of this exhibit irrelevant. P. Objection at 2-3. Further, Petitioner considers the Sentencing Memorandum to be one-sided and, therefore, unfairly prejudicial. P. Objection at 2-3. 

In response, the IG asserted the Sentencing Memorandum deals with the facts and circumstances surrounding Petitioner’s conviction because it contains citations and summaries of the record in that proceeding. The IG stated that “Petitioner is correct that the purpose of a Sentencing Memorandum before a sentencing judge is different than the purpose for which the I.G. uses the same in this forum. The inclusion of additional information, however, does not render the exhibit irrelevant or immaterial.” IG Response at 3. The IG also pointed out that the IG’s brief did not cite to irrelevant portions of the Sentencing Memorandum.

Although the Federal Rules of Evidence are not binding in this proceeding (42 U.S.C. § 405(b)(1)), 42 C.F.R. § 1005.17 provides guidance as to admissibility of evidence: 

(c) The ALJ must exclude irrelevant or immaterial evidence.

(d) Although relevant, evidence may be excluded if its probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or by considerations

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of undue delay or needless presentation of cumulative evidence.

(e) Although relevant, evidence must be excluded if it is privileged under Federal law.

(f) Evidence concerning offers of compromise or settlement made in this action will be inadmissible to the extent provided in Rule 408 of the Federal Rules of Evidence.

(g) Evidence of crimes, wrongs or acts other than those at issue in the instant case is admissible in order to show motive, opportunity, intent, knowledge, preparation, identity, lack of mistake, or existence of a scheme. Such evidence is admissible regardless of whether the crimes, wrongs or acts occurred during the statute of limitations period applicable to the acts which constitute the basis for liability in the case, and regardless of whether they were referenced in the IG’s notice sent in accordance with § 1001.2002, § 1001.2003 or § 1003.109.

(h) The ALJ will permit the parties to introduce rebuttal witnesses and evidence.

As the IG indicated in response to the objection, sentencing memoranda have regularly been admitted and considered by ALJs. As one ALJ stated, “I find no unfair prejudice or confusion to justify excluding the sentencing memorandum. The document is an official court record, relevant to this inquiry, and thus admissible. . . . Of course, if I find that statements contained within the report are of questionable reliability, they should be afforded little, if any, weight.” Doantrang Thi Nguyen a/k/a Trang Doan Nguyen a/k/a Tracy Nguyen & AQ Pharm., Inc., DAB CR2191 at 2-3 (2010); see also Joshua D. Baron, M.D., DAB CR4914 at 2 (2017) (admitting a single page of a sentencing memorandum as relevant and material to the case). In fact, an ALJ considered the facts provided in a sentencing memorandum to determine whether a criminal conviction was in connection with the delivery of health care items or services. Nanette Neu, R.N., DAB CR429 at 9 (1996). In the absence of Departmental Appeals Board (DAB) cases to the contrary, I am persuaded that admission and consideration of relevant portions of the Sentencing Memorandum in IG Ex. 4 is appropriate. When considering this document, I will only give weight to matters that are relevant and are not otherwise contradicted by evidence in the record.

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V. Decision on the Record

At the prehearing conference, neither party expected to present witness testimony. Further, the parties confirmed in their briefs that they did not believe a hearing was necessary to take witness testimony. IG Br. at 14-15; P. Br. at 2. An in-person hearing being unnecessary, I decide this case based on the written record. Civil Remedies Division Procedures (CRDP) § 19(d).  

VI. Findings of Fact

1. From 1996 through 2009, Petitioner owned and operated Five Star Home Health Care, Inc. IG Ex. 2 at 2.
2. Five Star Home Health Care, Inc. provided home health care services. IG Ex. 2 at 2. 
3. Between 2004 and 2009, Five Star Home Health Care, Inc., had on average 50 employees and generated approximately $4 million a year. IG Ex. 4 at 3. 
4. Petitioner had the obligation to withhold tax money (i.e., income tax, Social Security tax, Medicare tax) from the salaries of the employees of Five Star Home Health Care, Inc. and pay that money to the federal government. IG Ex. 2 at 3.
5. From 2004 through 2009, Five Star Home Health, Inc. withheld the appropriate taxes, but Petitioner did not forward that money to the federal government. IG Ex. 2 at 3. 
6. In 2008, the Internal Revenue Service (IRS) assessed a penalty against Petitioner for willfully failing to pay the withheld money to the federal government for each quarter in 2004 through 2007. IG Ex. 2 at 3. 
7. Petitioner ultimately paid the penalty related to the final quarter in 2004. IG Ex. 2 at 3. 
8. In March 2010, Petitioner acknowledged that she willfully failed to pay withheld tax monies from January 2004 through December 2009. IG Ex. 2 at 3.
9. In June 2010, Petitioner consented to an assessment and collection of penalties in the amount of $541,431 for the last three quarters of 2008 and all four quarters in 2009. In September 2010, the IRS assessed additional penalties related to 2008 and 2009. IG Ex. 2 at 3-4.

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1. Petitioner failed to pay the IRS the imposed penalties, which exceeded $1.6 million. IG Ex. 2 at 4.   
2.  On September 4, 2012, a Grand Jury empaneled by the United States District Court for the District of Nevada indicted Petitioner due to various financial transactions she allegedly made in 2011. P. Ex. 3, Sub-Ex. A. 
3. On August 6, 2014, the Grand Jury issued a two-count Superseding Criminal Indictment, again related to financial transactions she made to evade payment of IRS penalties related to Five Star Home Health Care, Inc. P. Ex. 3, Sub-Ex. B. 
4. On November 16, 2016, the Grand Jury issued a Second Superseding Criminal Indictment charging Petitioner with Tax Evasion, under 26 U.S.C. § 7201, from June 2009 to about May 2011, due to concealing or attempting to conceal her access to personal funds and assets by: engaging in currency transactions in amounts less than $10,000 to prevent financial institutions from filing currency transaction reports; purchasing a home in someone else’s name; dealing extensively in cash, including causing checks to be drawn on a business account payable to certain individuals and directing those individuals to cash the checks and return the cash to Petitioner; changing the name of Five Star Home Health Care, Inc. to Five Star Healthcare, LLC; putting Five Star Healthcare, LLC in the name of another individual; and providing false information to the IRS regarding Five Start Home Health Care, Inc.’s ability to pay taxes withheld from employees’ salaries and penalties on previous failures to pay those withheld taxes to the federal government. IG Ex. 2 at 4-5.  
5. Petitioner pleaded not guilty to the charge and, after a trial, was convicted of the offense charged in the Second Superseding Indictment. IG Ex. 3 at 1. 
6. The District Court issued a Judgment in a Criminal Case on January 31, 2018, in which the District Court sentenced Petitioner to 12 months and a day of incarceration and ordered Petitioner to pay restitution in the amount of $1,153,633.50 to the IRS. IG Ex. 3 at 1-2, 6. 

VII. Conclusions of Law and Analysis

My conclusions of law are in bold and italics.   

The Social Security Act mandates exclusion of an individual from participating in all federal health care programs when the individual:

has been convicted for an offense which occurred after August 21, 1996, under Federal or State law, in connection

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with the delivery of a health care item or service or with respect to any act or omission in a health care program (other than those specifically described in [§ 1320a-7(a)(1)]) operated by or financed in whole or in part by any Federal, State, or local government agency, of a criminal offense consisting of a felony relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct.

42 U.S.C. § 1320a-7(a)(3). Therefore, the three essential elements necessary to support a mandatory exclusion in this case are: (1) the individual to be excluded must have been convicted of a felony offense related to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct; (2) the felony offense must be in connection with the delivery of a health care item or service; and (3) the felonious conduct must have occurred after August 21, 1996.

1. 1. Petitioner was convicted of a felony offense related to financial misconduct. 

An individual is considered to be convicted of a criminal offense for purposes of exclusion under 42 U.S.C § 1320a-7(a) when there has been: a judgment of conviction entered against the individual by a federal, state or local court; a finding of guilt against the individual by a federal, state, or local court; a plea of guilty or nolo contendere that has been accepted by a federal, state, or local court; or participation in a first offender, deferred adjudication, or other arrangement or program where judgment of conviction has been withheld. 42 U.S.C. § 1320a-7(i). The record shows that the District Court entered a judgment of conviction on January 31, 2018. IG Ex. 3. Therefore, Petitioner was convicted for exclusion purposes.

Further, Petitioner was convicted of a felony. Petitioner was convicted of violating 26 U.S.C. § 7201, which expressly provides that violating that law means that the person “shall . . . be guilty of a felony.”   

Finally, Petitioner’s felony tax evasion offense related to financial misconduct. See 42 C.F.R. § 424.535(a)(3)(ii)(B) (indicating that “income tax evasion” is an example of a financial crime). Petitioner’s criminal conduct primarily involved a failure to pay an IRS penalty, which had been imposed due to Petitioner’s failure to pay the federal government money withheld from the salaries of her company’s employees. In doing so, Petitioner resorted to: engaging in currency transactions in amounts less than $10,000 to prevent financial institutions from filing currency transaction reports; purchasing a home in someone else’s name; dealing extensively in cash, including causing checks to be drawn on a business account payable to certain individuals and directing those individuals to cash the checks and return the cash to Petitioner; changing the name of Five Star Home Health Care, Inc. to Five Star Healthcare, LLC; putting Five Star

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Healthcare, LLC in the name of another individual; and providing false information to the IRS regarding Five Start Home Health Care, Inc.’s ability to pay taxes withheld from employees’ salaries and penalties from previous failures to pay those withheld taxes to the federal government. IG Ex. 2 at 4-5. This obviously relates to financial misconduct and Petitioner does not dispute that. P. Reply at 1, 3.

1. 2. Petitioner’s felonious conduct was in connection with the delivery of a health care item or service.

In order for the IG to exclude Petitioner under 42 U.S.C. § 1320a-7(a)(3), the felony offense that was the basis of Petitioner’s conviction must have been for conduct in connection with the delivery of a health care item or service. To be “in connection with” the delivery of a health care item or service, there only needs to be a nexus or common sense connection to the delivery of a health care item or service. Charice D. Curtis, DAB No. 2430 at 5 (2011). Therefore, the delivery of health care items or services need not be the focus of the criminal conduct, just connected to it.   

Further, the Secretary of Health and Human Services (Secretary) interpreted this statutory provision to include “the performance of management or administrative services relating to the delivery of such items or services” as sufficient to mandate exclusion. 42 C.F.R. § 1001.101(c)(1). The DAB discussed this regulatory provision:

The regulatory language and its history support her exclusion. This language first appeared in a prior version of 42 C.F.R. § 1001.101 published in 1992, mandating exclusions for criminal offenses “related to the delivery of an item or service under Medicare or a State health care program, including the performance of management or administrative services relating to the delivery of items or services under any such program.” 57 Fed. Reg. 3330 (Jan. 29, 1992). In proposing that rule, the I.G. stated that mandatory exclusions under section 1001.101(a) “are broadly defined to include offenses relating to performance of management or administrative services relating to delivery of items or services under the program.” 55 Fed. Reg. 12,205, 12,206-07 (Apr. 2, 1990).

Curtis, DAB No. 2430 at 5-6. 

Petitioner argues in this case that her conviction lacks a nexus to the Medicare program or to patient care. More specifically, Petitioner indicates that the only connection that the tax evasion conviction in this case has with the delivery of a health care item or service is the fact that the tax evasion was committed by a health care provider. This, Petitioner urges, stretches the mandatory exclusion under 42 U.S.C. § 1320a-7(a)(3) too far.

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Petitioner also asserts that her “crime had no impact on the Medicare, or any other program’s trust fund, is unrelated to the substantive care rendered to any of Five Star’s patients and, thus, has no bearing on the integrity of a Federal health care program.” Hearing Req. at 4. 

Further, Petitioner points out that her conviction included an order to pay restitution to the IRS, which is an agency not connected to the delivery of a health care item or service. Finally, Petitioner argues that the money that Petitioner failed to pay the IRS was money that Petitioner held in trust for the IRS. Therefore, her failure to turn that money over to the IRS “could have no impact on or relation to Five Star’s delivery of health care items or services.”1  P. Reply at 2; see also P. Br. at 5.

The IG responded with the following argument:          

The evidence demonstrates that Petitioner evaded payment of Trust Fund Recovery Penalties through various manipulations of her health care business. For instance, Petitioner evaded payment of her tax penalties by causing checks to be issued from a business bank account payable to employees of her health care business and directing those employees to cash the checks and deliver the funds to her. I.G. Ex. 2 at 4; I.G. Ex. 4 at 5-6. Second, Petitioner obscured her income by claiming that she had closed her business, Five Star Home Health Care, Inc., when she had changed its name to Five Star Healthcare, LLC. I.G. Ex. 2 at 5; I.G. Ex. 4 at 3, 9. Petitioner’s evasion of payment of tax penalties was accomplished by provided [sic] false information to the IRS regarding her continued delivery of health care items or services under a new business name. I.G. Ex. 2 at 5; I.G. Ex. 4 at 14.

If Petitioner had merely closed her health care business as she represented to the IRS, leaving her without income or capital to pay the tax penalties, no offense would have been committed. A critical element of Petitioner’s offense was her

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continued operation of a health care business and personal income from the same. The six factual elements of her offense as described in Count 1 of the Second Superseding Indictment involve Petitioner’s health care business by name or the means by which she concealed her continued delivery of health care items and services, and her income from that business. In addition, Petitioner enlisted her employees to assist in the misconduct.

IG Reply at 3-4. 

I agree with the IG that Petitioner’s financial misconduct, as charged in the Second Superseding Criminal Indictment, shows how Petitioner used her home health agency, over the course of approximately two years, to evade paying the penalty the IRS imposed on her for failing to forward to the IRS money withheld from employee salaries for income taxes, Social Security taxes, and Medicare taxes. Even after Petitioner slightly changed the name of her home health agency, in order to convince the IRS that Five Star Home Health Care, Inc., was no longer in business, her home health agency continued to provide services to the Department of Veterans Affairs. IG Ex. 4 at 14. Further, Petitioner’s efforts to use her home health agency to evade taxes could only be done due to her managerial and administrative authority over Five Star Home Health Care, Inc. See IG Ex. 2 at 4-5. Therefore, there is certainly a nexus and a common sense connection between Petitioner’s criminal offense and the delivery of health care items or services.

It is interesting that Petitioner argues that her conviction merely involved tax evasion, indicating that offense could not have any effect on the Medicare program. However, it is worth noting that the legislative history bears out that, by enacting 42 U.S.C. § 1320a-7(a)(3), Congress wanted to protect federal programs from untrustworthy individuals. As stated by the U.S. Court of Appeals for the Fourth Circuit:  

In fact, the legislative history to § 1320–7(a)(3) as it was originally enacted indicates that it was specifically intended to protect federal programs from untrustworthy individuals and to “provide a clear and strong deterrent against the commission of criminal acts.” S. Rep. 100–109, at 5 (1987), reprinted in 1987 U.S.C.C.A.N. 682, 686.

Morgan v. Sebelius, 694 F.3d 535, 538 (4th Cir. 2012) (footnote omitted); see also Manocchio v. Kusserow, 961 F.2d 1539, 1541-1542 (11th Cir. 1992).

Petitioner’s efforts to evade taxes show her to be extremely untrustworthy. See IG Ex. 2 at 4-5; IG Ex. 4 at 4-14. It calls into question her fitness to be a provider of health care services in any federal health care program. Further, Petitioner’s efforts to avoid paying

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money withheld from her employees’ salaries necessarily harmed the Medicare program since some of those taxes were Medicare taxes, which were needed to support that program. IG Ex. 2 at 3. This is probably why the Secretary, when tasked by statute with determining which felony crimes are detrimental to the best interests of the Medicare program or its beneficiaries (42 U.S.C. §§ 1395u(h)(8), 1395cc(b)(2)(D)), concluded that a conviction for income tax evasion was one such crime. 42 C.F.R. § 424.535(a)(3)(ii)(B).           

1. 3. Petitioner’s criminal conduct occurred after August 21, 1996.

To be excluded under 42 U.S.C. § 1320a-7(a)(3), Petitioner’s felony offense must have occurred after August 21, 1996. The undisputed facts in this case show that Petitioner’s conviction was based on conduct starting no earlier than 2004 and ending in 2011. IG Ex. 2 at 3-4; IG Ex. 4 at 2.

1. 4. Petitioner is subject to exclusion under 42 U.S.C. § 1320a-7(a)(3); therefore, Petitioner must be excluded for at least five years.

I conclude that Petitioner’s conviction meets the elements of a mandatory exclusion under 42 U.S.C. § 1320a-7(a)(3), and, therefore, the IG had to impose a minimum of a five-year exclusion on Petitioner. 42 U.S.C. § 1320a-7(c)(3)(B); 42 C.F.R. §§ 1001.102(a), 1001.2007(a) (the reasonableness of a five-year length of exclusion imposed under § 1320a-7(a) is not an appealable issue).

VIII. Conclusion

I affirm the IG’s determination to exclude Petitioner from participating in Medicare, Medicaid, and all other federal health care programs for a five-year minimum period under 42 U.S.C. § 1320a‑7(a)(3).

1. Petitioner relies on Kabins v. Sebelius, No. 2:11-cv-01742-JCM-RJJ, 2012 WL 4498295 (D. Nev. Sep. 28 2012).  However, the District Court did not publish this opinion, making it unlikely that the District Court expected it to establish principals under which other cases ought to be adjudicated.  In any event, that opinion “did not overturn the Secretary’s analytical approach to exclusion cases,” and was based on the specific crime committed in that case and the facts related to the criminal conduct.  Aiman M. Hamdan, M.D., DAB No. 2955 at 7 (2019).
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