821 F.2d 523 (10th Cir. 1987), 85-2557, Chapman v. United States, Dept. of Health & Human Services

Docket Nº:85-2557.
Citation:821 F.2d 523
Party Name:Medicare&Medicaid Gu 36,362 Harold CHAPMAN and Autumn Manor, Inc., Petitioners, v. UNITED STATES of America, DEPARTMENT OF HEALTH & HUMAN SERVICES, Respondents.
Case Date:June 15, 1987
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit

Page 523

821 F.2d 523 (10th Cir. 1987)

Medicare&Medicaid Gu 36,362

Harold CHAPMAN and Autumn Manor, Inc., Petitioners,

v.

UNITED STATES of America, DEPARTMENT OF HEALTH & HUMAN

SERVICES, Respondents.

No. 85-2557.

United States Court of Appeals, Tenth Circuit

June 15, 1987

Page 524

[Copyrighted Material Omitted]

Page 525

W. Boyd Evans, Charles H. Apt, III, of Glaves, Evans, Hoke & Apt, Wichita, Kan., for petitioners.

Richard K. Willard, Asst. Atty. Gen., Anthony J. Steinmeyer, John C. Hoyle, U.S. Dept. of Justice, Civil Div., Washington, D.C., Benjamin L. Burgess, Jr., U.S. Atty., Topeka, Kan., for respondents.

Before SEYMOUR, BARRETT and BALDOCK, Circuit Judges.

BARRETT, Circuit Judge.

After examining the briefs and the appellate record, this three-judge panel has determined unanimously that oral argument would not be of material assistance in the determination of this appeal. See Fed.R.App.P. 34(a); Tenth Cir.R. 34.1.8(c) and 27.1.2. The cause is therefore ordered submitted without oral argument.

This case requires us to interpret the Civil Monetary Penalties Law (CMPL) in the Social Security Act, 42 U.S.C. 1320a-7a (1986) (as amended). In particular, we must determine for the first time whether the monetary double assessments provided for under the CMPL must be calculated by or limited to the actual damages incurred by the government in cases in which such damages are ascertainable.

Appellant Harold Chapman was the president and principal stockholder of Autumn Manor, Inc., a Kansas corporation that owned and operated four nursing homes in Kansas. In August, 1982, Chapman submitted four cost reports to the Kansas Medicaid agency requesting reimbursement for care provided by the nursing homes to Medicaid beneficiaries during the one year period of July 1, 1981, to June 30, 1982. These four reports, one for each of the four nursing homes owned by Chapman, contained nineteen false line item cost entries for items and services purportedly provided by the nursing homes. The homes had not, in fact, provided the reported items or services. The aggregate amount involved in the nineteen false claims was $118,136. As a result of these false claims, the Kansas Medicaid agency made overpayments of $21,115 to Chapman and Autumn Manor, Inc. before a routine field audit of the four nursing homes revealed the fraud.

In criminal proceedings brought by the State of Kansas, Chapman was convicted by a jury on four counts of making a false writing. He was fined $20,000, representing $5,000 for each count. Chapman also received a suspended jail sentence on the condition that he divest himself of ownership and operation of all nursing homes.

In June, 1984, the Inspector General of the Department of Health & Human Services proposed the imposition of penalties and assessments against both Chapman and Autumn Manor, Inc. under the CMPL. The Inspector General sought a $2,000 penalty for each of the nineteen false Medicaid claims filed by Chapman and proposed an additional assessment of $118,136, for a total penalty and assessment of $156,136. Chapman requested a hearing before an Administrative Law Judge (ALJ) pursuant to the CMPL and in October, 1984, the ALJ issued a decision accompanied by a written memorandum imposing the penalty and assessment amounts proposed by the Inspector General. Chapman then filed exceptions to the ALJ's determination with the Secretary of Health & Human Services but the Secretary sustained the ALJ's decision. Chapman now brings this appeal.

Before considering Chapman's arguments regarding these civil sanctions imposed upon him by the ALJ, it will be helpful to review the penalty and assessment provisions of the CMPL. Because the Department of Justice often lacks the resources to pursue cases of fraud against the Medicaid and Medicare programs, the act allows the Secretary of Health and Human Services to seek civil remedies as an alternative to criminal prosecution. See S.Rep. No. 139, 97th Cong., 1st Sess. 461-62 (1981), reprinted at 1981 U.S.Code Cong. & Ad.News 396, 727-28; H.R. Rep. No. 97-158, 97th Cong., 1st Sess., Vol. II, 344 (1981). The act provides for the imposition of civil monetary penalties and assessments

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through administrative proceedings upon anyone making false or improper claims for Medicare or Medicaid payments. According to the statute, any person or entity presenting a claim for Medicaid or Medicare benefits for medical items or services that they know or have reason to know were not provided ...

shall be subject, in addition to any other penalties that may be prescribed by law, to a civil money penalty of not more than $2000 for each item or service. In addition, such a person shall be subject to an assessment of not more than twice the amount claimed for each such item or service in lieu of damages sustained by the United States or a state agency because of such claim. 42 U.S.C. Sec. 1320a-7a(a).

In determining the amount and scope of a penalty or assessment imposed pursuant to this section, 42 U.S.C. Sec. 1320a-7a(c) provides that the Secretary shall take into account ...

(1) the nature of claims and the circumstances under which they were presented,

(2) the degree of culpability, history of prior offenses, and financial condition of the person presenting the claims, and

(3) such other matters as justice may require.

In addition to the statute, the Secretary of Health and Human Services issued rules further explaining how mitigating and aggravating circumstances should be considered by the Inspector General in determining the amount of penalty and assessments imposed upon a violator. Among other things, the guidelines indicate that where substantial mitigating circumstances are present, the penalty and assessment should be set at an amount sufficiently below the maximum permitted by the statute to reflect that fact. The guidelines further instruct that where substantial aggravating circumstances are present, the amount of the penalty and assessment should be set at an amount sufficiently close to the maximum permitted by the statute to reflect that fact. 45 C.F.R. 101.106(c) (1984).

I.

Chapman argues in this appeal, as he did in his appeal to the Secretary, that the Inspector General and the ALJ erred in imposing an assessment of $118,136 for the nineteen false claims he filed. Specifically, Chapman points out that while the nineteen false line cost entries add up to $118,136, the actual overpayment to Autumn Manor, Inc. was only $21,115. Moreover, the State of Kansas immediately recouped the $21,115 by offsetting it against the amount it owed Autumn Manor, Inc. for legitimate claims. Chapman argues that it is inappropriate for the government to measure the assessment by twice the amount falsely claimed when the actual losses are substantially less, when the actual losses have been recouped, and when the only real expense is the small administrative cost incurred by the government in recouping the overpayment.

In formulating this argument, Chapman begins by noting that the purpose of the CMPL is to both penalize the person who files false claims and to compensate the government for losses incurred as a result of false claims. He points out that the provision in the statute for "a civil monetary penalty of not more than $2,000 for each item" represents the maximum penalty that may be awarded under the statute and that the provision allowing for an assessment of "not more than twice the amount claimed ... in lieu of damages" represents the maximum amount the government may receive in compensation for losses incurred as a result of false claims.

Chapman argues that the purpose of the double assessment provision is to insure that the government is made completely whole where damages are not readily ascertainable. He cites to the Secretary of Health and Human Services's comments on the CMPL in which the Secretary explained, "The amount of actual damages sustained as a result of fraud has often been difficult to prove.... Congress clearly intended to obviate the need for the government to prove the amount of damages

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in order to make an assessment." 48 Fed.Reg. 38,830 (1983). Chapman argues that where, as here, the actual losses are readily ascertainable, there is no reason to grant an award of twice the amount claimed.

No court has specifically considered this aspect of the assessment provision of the CMPL. Chapman points out, however, that the act bears a close resemblance to the False Claims Act, 31 U.S.C. Sec. 3729 (1983), which also provides for a $2,000 penalty per false claim and an assessment of double damages. Chapman also relies on two cases wherein the False Claims Act has been judicially scrutinized. In United States, ex rel. Marcus v. Hess, 317 U.S. 537, 551-552, 63...

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