Opposition Brief — Mayers v. Bowen

Iu the Supreme Court of the United States

OCTOBER TERM, 1987

WILLIAM J. MAYERS, ET UX., PETITIONERS

Vv.

Otis R. BOWEN, SECRETARY,

UNITED STATES DEPARTMENT OF HEALTH

AND HUMAN SERVICES

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

CHARLES FRIED

Solicitor General

RICHARD K. WILLARD

Assistant Attorney General

ANTHONY J. STEINMEYER

JOHN C. HOYLE

Attorneys

Department of Justice

Washington, D.C. 20530

(202) 633-2217

. 4 >} a

cw. 3%

QUESTIONS PRESENTED

The Civil Monetary Penalties and Assessment Act

(CMPAA), 42 U.S.C. (& Supp. III) 1320a-7a, pro-

vides for the imposition of monetary penalties and

assessments against persons who submit Medicare

claims for items and services that they know, or have

reason to know, were not provided as claimed. The

questions presented are:

1. Whether the CMPAA is, contrary to Congress’s

clearly expressed intent, a penal statute.

2. Whether petitioners knew, or had reason to

know, that the items and services for which they sub-

mitted Medicare claims had not been provided as

claimed.

Po erate Ss anannenre

TABLE OF CONTENTS

Page

EE UE aciiicstesitieictidinidthciremanninsnenaiiglucnininanaimceusanachecitemes 1

I anleleeapbesebnenianene 2

a seitialensenmellensicinga 2

cade ereheigheninbumpinnnertianmiennmeryneteense 11

Conclusion .............--.-- ; era detitalie ceia hi Rechcan cdilicadindinieniniabienadsidinins 19

TABLE OF AUTHORITIES

Cases:

Chapman v. United States, No. 85-2557 (10th Cir.

I I a i la sDiad i ilicce alam iiiseaiind 11, 13, 14, 15

Chicago, B. & Q. Ry. v. United States, 220 U.S. 559

RIE ER ATE SE OTE ON te FE 13

Griffon Vv. Dep’t of Health & Human Services, 802

of Bo EG Re | ee ee 11

Helvering Vv. Mitchell, 303 U.S. 391 (1938) ....11, 12, 13, 14

Hepner v. United States, 213 U.S. 103 (1909) -....... 13

National Independent Coal Operators’ Ass’n V.

Kleppe, 4238 US. 888 (1976) .................................. 13

Oceanic Steam Navigation Co. v. Stranahan, 214

Teens peenenlinn 13

Rex Trailer Co. v. United States, 350 U.S. 148

ao ceesnenevapece 13

Toepleman v. United States, 263 F.2d 697 (4th

Cir.), cert. denied, 359 U.S. 989 (1959) —_........... 14

United Sta... v. ITT Continental Baking Co., 420

RESTS RS FERS Somer a SO 13

United States v. Kordel, 397 U.S. 1 (1970) -........... 12

United States v. One Assortment of 89 Firearms,

I A oc aciriidchsiemhieennibasioanadendensatans 12, 13

United States v. One Lot Emerald Cut Stones, 461

F.2d 1189 (5th Cir.), aff’d, 409 U.S. 232 (1972) .. 11, 12,

14, 16

United States v. Turkette, 452 U.S. 576 (1981)...... 12

(111)

IV

Cases—Continued : Page

United States v. Ward, 448 U.S. 242 (1980) ..11, 12, 13, 16

United States ex rel. Marcus Vv. Hess, 317 U.S. 537

UII chs shosocaiehintniicnsctsltalaiaaiadteapiaaabichabaitidiogshtebaidinng 12, 18, 14, 15

Statutes and rule:

Civil Monetary Penalties and Assessment Act, 42

U.S.C. (& Supp. ITI) 1820a-7a...............................

2

42 U.S.C. (& Supp. III) 1820a-7 (c) -.....-.......... 7

42 U.S.C. (& Supp. ITI) 13820a-7a ...................... 2

42 U.S.C. (& Supp. III) 1820a-7a(a) -................ 2

42 U.S.C. 1820a-Ta(a) (1) (A) -........................... 10, 16

PE | EEN Sac ee 8

Omnibus Budget Reconciliation Act of 1981, Pub.

L. No. 97-35, § 2105, 95 Stat. 789 ..............000.... 2

a cacipalateinacnlimenccniibianiene 2

ENE aT nn Se 2

ee OD i sccnscasiinmimnnniinntintnaniuiesion 3

42 U.S.C. (& Supp. ITI) 1896x (r) ........ 3

42 U.S.C. (& Supp. IIT) 18965x(s) .............................- 3

Iu the Supreme Court of the United States

OCTOBER TERM, 1987

—

No. 86-1887

WILLIAM J. MAYERS, ET UX., PETITIONERS

Vv.

OTIS R. BOWEN, SECRETARY,

UNITED STATES DEPARTMENT OF HEALTH

AND HUMAN SERVICES

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. Al-

All) is reported at 806 F.2d 995. The decision of

the Secretary of Health and Human Services (Pet.

App. C1-C7) is unreported. We are lodging with the

Court a copy of the opinion of the administrative

law judge, which is not reproduced in the appendix

to the petition for a writ of certiorari and is unre-

ported.

(1)

2

JURISDICTION

The judgment of the court of appeals was entered

on December 22, 1986. A petition for rehearing was

denied on February 26, 1987 (Pet. App. B1-B2).

The petition for a writ of certiorari was filed on

May 22, 1987. The jurisdiction of this Court is in-

voked under 28 U.S.C. 1254(1).

STATEMENT

1. The Civil Monetary Penalties and Assessment

Act (CMPAA), 42 U.S.C. (& Supp. III) 1320a-7a,

was added to the Social Security Act by the Omnibus

Budget Reconciliation Act of 1981, Pub. L. No. 97-

35, § 2105, 95 Stat. 789. The CMPAA authorizes

the Secretary of Health and Human Services to im-

pose civil monetary penalties and assessments against

any person who presents, or causes to be presented,

a claim for an item or service under the Medicare or

Medicaid programs that the person “knows or has

reason to know was not provided as claimed.” 42

U.S.C. (& Supp. III) 1320a-7a(a). The Secretary

may impose on such a person a penalty of “not more

than »2,000 for each item or service” falsely claimed

and “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.” [bid.

The penalty and assessment involved in this case

were imposed against petitioners for submitting false

claims for reimbursement under Part B of Medicare.

Part B of Medicare provides a voluntary subscrip-

tion program of supplementary medical insurance

covering, in general, 80% of the reasonable charges

for certain services not covered by Part A of Medi-

3

care. Eligible beneficiaries are reimbursed under

Part B for covered “medical and other health serv-

ices.” 42 U.S.C. 1895k(a)(1). That term is defined

to include, inter alia, “physicians’ services” and

“services and supplies * * * furnished as an incident

to a physician’s professional service” (42 U.S.C. (&

Supp. III) 1395x(s)).

2. Petitioner William Mayers was a_ licensed

chiropractor until his license was revoked by the

Florida Department of Professional Regulation in

March 1984 (IG Exh. 216). His wife, petitioner

Patricia Mayers, assisted him in the operation of

three chiropractic clinics in Ft. Myers, Florida.

Chiropractic services, with one exception inapplicable

here, are not reimbursable under the Medicare pro-

gram.’ Petitioners, however, sought to receive Medi-

care payments for their services. Indeed, “generat-

ing Medicare claims was the principal function of

[petitioners’] clinics.” Pet. App. C3.”

In order to obtain Medicare reimbursement, peti-

tioners engaged in a fraudulent scheme to disguise

their non-reimbursable chiropractic services as serv-

ices rendered by a physician or incident to a physi-

1 A chiropractor is included within the definition of “physi-

cian,” thereby permitting reimbursement for his services, but

“only with respect to treatment by means of manual manipu-

lation of the spine (to correct a subluxation demonstrated by

X-ray to exist) * * *.” 42 U.S.C. (& Supp. III) 1395x(r).

This case does not involve any claims for reimburseznent for

chiropractic treatment of this sort.

2 The Administrative Law Judge found (ALJ op. 9) that

petitioners, in order to attract Medicare patients and in

clear violation of Medicare guidelines, “advertised that Medi-

care beneficiaries would receive essentially free medical care

at their clinics, by not being charged the standard Medicare

co-payment.”

4

cian’s service. Pet. App. A5. Petitioners hired a

series of three doctors to work at the clinics.

“[T]hese doctors were hired for the sole purpose of

obtaining the Medicare billing numbers of the physi-

cians,” * and each was required, as a condition of

employment, to permit rubber stamps to be made

bearing a likeness of his or her signature (ibid.).

The physicians had little contact with the patients,

all of whom received standardized chiropractic tests

and therapies (ibid.). In fact, Mayers specifically

informed the doctors that they were not to involve

themselves in or interfere with the clinics’ chiro-

practic services (ALJ op. 21).

Despite the noninvolvement of the physicians in

the day-to-day chiropractic services provided by the

clinics, these services were regularly billed to Medi-

care as having been rendered by or incident to the

services of the three doctors. Mayers’ announced

policy was to bill Medicare for an “office visit” to

one of the physicians “every time [a] patient

breathed his air conditioning and walked on his

carpet” (ALJ op. 9). Clerical personnel at the clin-

ics—who were specifically warned not to discuss bill-

ing practices with the doctors (id. at 8)—routinely

used the rubber stamps provided by the doctors to

complete Medicare claims forms. And they continued

to use the stamps of individual doctors even after

those doctors had left the clinics’ employ. Pet. App.

A6. From June 1982 to January 1984, petitioners

submitted claims in excess of $1.8 million seeking

* Mayers told clinic employees at the outset that he wanted

to obtain “a foreign-born physician who neither spoke nor

understood English too well, but who could sign documents”

(ALJ op. 7). All three physicians were of foreign extraction.

Pet. App. C4 n.3.

5

medicare reimvursement for chiropractic services

alleged to have been rendered by, or incident to the

services of, the three doctors. Petitioners received

payments on these claims in excess of $500,000. Pet.

App. C1-C3.

8. In May 1984, the Inspector General of HHS

charged petitioners under the CMPAA with submit-

ting claims for Medicare reimbursement for 2,702

items and services when they knew that the items

and services had not been provided by, or incident to

the professional service of, a physician. The total

amount that petitioners claimed for the 2,702 items

and services was $145,550, and they received reim-

bursements on those claims from the Medicare Part

B carrier in the amount of $24,697.73. Pet. App.

A1-A3. In every instance, the physician on whose

account reimbursement was claimed either was not

present at the clinic or was not employed by peti-

tioners on the date the item or service was allegedly

rendered (ALJ op. 10).* Nor were any other li-

censed medical doctors present or employed by peti-

tioners on these dates. The claims simply reflected

petitioners’ fraudulent practice of billing their clin-

ics’ services to the medical doctor most recently

employed by them if no medical doctor was employed

at the time the services were rendered. Ibid.

After conducting an extensive hearing, the Ad-

ministrative Law Judge (ALJ) issued a decision on

May 14, 1985, finding that the “Inspector General

has established that [petitioners’] claims for reim-

bursement for the 2,702 charged items or services

constitute violations of the [CMPAA]” (ALJ op.

* More than 95% of the items and services at issue here

were claimed to have been provided on dates after the respec-

tive physicians had left the employ of the clinic. IG Exhs.

6, 7, 8.

6

4-5). The ALJ further concluded that the 2,702

false claims singled out by the Inspector General

“were but a small element of a pattern of unlawful

behavior by [petitioners]” (id. at 5).

The ALJ found that “[t]he evidence in this case

clearly establishes that [petitioners] knew that the

2.702 charged items or services were not provided as

claimed” (ALJ op. 14). More specifically, he found

(id. at 18):

[Petitioners] knew that the items or services at

issue were not reimbursable unless they could be

represented as having been provided by or super-

vised by a licensed medical doctor. They knew

that none of the charged items or services was

provided by or supervised by a licensed medical

doctor. They deliberately presented claims to

Medicare for the charged items or services in a

manner designed to deceive the Carrier into be-

lieving that the claims were reimbursable.

As further proof of petitioners’ knowing attempt

to defraud the Medicare system, the ALJ pointed to

petitioners’ deliberate efforts to thwart the Inspector

General’s investigation by forging and backdating

documents so as to make it seem that the doctors had

specifically ordered and signed for the treatments

billed to Medicare. “The record establishes that

months after the dates of patients’ initial visits to

the clinics, and after [the three doctors] had ceased

their employment with [petitioners], [petitioners]

instructed several of their employees to generate or

alter documents to make it appear as if these medical

doctors had actually ordered or rendered the items

or services at issue” (ALJ op. 18).

T

In calculating the appropriate penalty for peti-

tioner’s “systematic looting of the Medicare trust

fund” (ALJ op. 29), the ALJ cited the absence of

any “mitigating factors” and the presence of “sub-

stantial additional aggravating factors” (id. at 5).

First, the 2,702 items charged by the Inspector Gen-

eral “represented only the tip of the iceberg” of peti-

tioners’ fraudulent scheme, which “enabled them to

mulct Medicare of hundreds of thousands of dollars”

(id. at 21, 27). Second, the ALJ cited the “blatantly

unlawful conduct” of petitioners and “the patent

falseness of the claims at issue in this case” (id.

at 5, 29). And, finally, the ALJ cited “[petitioners’]

efforts to conceal from investigating agents the na-

ture and scope of their unlawful activities” (id. at

5). Out of a maximum penalty of $5,404,000 (2,702

x $2,000) and a maximum assessment of $291,100

(2 x $145,550), the ALJ “determined that an assess-

ment of $291,100 and a penalty of $1,500,000 coupled

with a 25 year suspension from the Medicare and

Medicaid programs are appropriate in this case”

(ibid. ).°

4. The Secretary affirmed the ALJ’s decision, con-

cluding that his “findings are fully supported by the

record” (Pet. App. C4). The Secretary agreed with

the ALJ that petitioners’ conduct “can only be char-

acterized as an extremely flagrant abuse of the Medi-

care program’ (id. at C2). More specifically, the

Secretary noted that the ALJ was correct in finding

that there was “clear evidence that [petitioners]

knew that their claims were false,” and that “[peti-

tioners] attempted to deceive investigative authori-

® The suspension, authorized by 42 U.S.C. 1820a-7(c), is

not at issue here.

8

ties by preparing false documents to cover up the

lack of involvement of licensed physicians in the

tests and treatments provided” (id. at C4 n.3). The

Secretary also approved the ALJ’s conclusion that the

2,702 items or services specifically charged by the In-

spector General “represented a small percentage of a

much larger pattern of filing false claims for Medi-

care reimbursement” (id. at C3). The Secretary ac-

cordingly concluded that-—petitioners’ “exceptions

raise no credible basis to revise the findings in the

initial decision or to reduce the amount of penalties

and assessments or the period of suspension” (id. at

C5).

5. Petitioners appealed the Secretary’s decision

to the United States Court of Appeals for the Elev-

enth Circuit. See 42 U.S.C. 1820a-7a(d). The court

of appeals unanimously affirmed. Pet. App. Al-A11.

As an initial matter, the court determined (id. at

A5):

The evidence presented to the Administrative

Law Judge supports the conclusion that: (1)

the Mayers operated a clinic designed solely to

provide chiropractic services; (2) the services

rendered at the clinic were clearly not reim-

bursable under Medicare, and (3) the Mayers

engaged in a fraudulent scheme to disguise these

non-reimbursable chiropractic services as serv-

ices rendered by a physician.

a. The court rejected petitioners’ argument that

the penalty imposed against them was criminal,

rather than civil, and hence that the proceedings

against them were constitutionally inadequate. The

court, noting that Congress clearly intended the pen-

alty to be civil, found that the amount of the penalty

was not so excessive as to make it punitive in pur-

9

pose or effect and to negate Congress’s intent. Pet.

App. A6-A9. The court noted that a number of civil

statutes provide for a remedy in excess of tangible

damages (id. at A8):

[Petitioners are] correct that the civil penalty

imposed does exceed the amount that was directly

disbursed as a result of [their] fraudulent con-

duct. [Petitioners], however, fail[] to recog-

nize that each fraudulent claim filed exacts an

immense toll from society. Just as punitive dam-

ages in tort law or treble damages under anti-

trust law encompass a civil remedy in excess of

the tangible damages sustained by a plaintiff,

here the government has made a determination

that activities in violation of the CMPAA result

in damages in excess of the actual amount dis-

bursed by the government to the fraudulent

claimant. Such a legislative determination is not

constitutionally infirm.

The court also determined that the amount of the

penalty imposed on petitioners did not amount to an

unconstitutional application of the CMPAA. The

court explained that the “size of the penalty is a di-

rect result of [petitioners’] conduct.” Pet. App. A8.

Petitioners “chose fraudulently to request payment

for 2,702 items,” and there were numerous aggravat-

ing factors. These included the fact that “the 2,702

fraudulent claims were but a small part of a larger

pattern of activity” and that “[petitioners] attempted

to deceive investigators by fabricating documents

during the course of the investigation.” Jd. at A8-

AQ.

b. Petitioners made several other arguments,

apart from the alleged unconstitutionality of the

CMPAA, in an effort to avoid liability even on the

10

assumption that the statute imposed civil penalties.

Despite the statute’s clear language imposing liabil-

ity if a “person knows or has reason to know [that a

medical item or service] was not provided as

claimed,” 42 U.S.C. 1820a-7a(a) (1) (A), petitioners

argued that “actual knowledge” was required to es-

tablish liability. The court rejected this argument,

noting that petitioners failed to cite any authority

for the proposition that “actual knowledge” is re-

quired before Congress can impose a civil penalty.

Pet. App. A9.

The court also rejected petitioners’ contention that

the CMPAA and its implementing regulations are

“vague and ambiguous” (Pet. App. A9). The court

noted that the Medicare program explicitly covers

only one type of chiropractic sgh ae or not at is-

sue in this case—and that “no individual could rea-

sonably conclude that other services performed by a

Doctor of Chiropractic Medicine would be reimburs-

able” (id. at A10). The court also stated that the

elaborate scheme employed by petitioners to make it

appear that services were provided by medical doc-

tors when they were not, as well as petitioners’ ef-

forts to cover up the scheme once it was discovered,

“further refute[] their assertion that they believed

that all chiropractic services were covered by the

Social Security Act” (ibid.). Finally, the court

rejected as without merit petitioners’ claims that

(1) the Department of Health and Human Services

failed to respond to their inquiry concerning the

propriety of their conduct, (2) the ALJ heard evi-

dence beyond the scope of the government’s claims,

and (3) the ALJ’s decision was arbitrary and capri-

cious (id. at A10-A11).

PE mini

11

ARGUMENT

The decision of the court of appeals is correct and

does not conflict with any decision of this Court or of

any other court of appeals. In fact, it is consistent

with the decision of the only other appellate court

that has considered the prospective application of the

CMPAA. Chapman v. United States, No. 85-2557

(10th Cir. June 15, 1987). Further review is there-

fore not warranted.

1. Petitioners argue (Pet. 16-22) that the

CMPAA is a penal statute and, hence, unconstitu-

tional because it fails to provide procedures constitu-

tionally mandated for criminal prosecutions. A sim-

ilar argument was recently rejected by the Tenth

Circuit in Chapman v. United States, supra.* Both

courts properly concluded that in enacting the

CMPAA Congress intended to create a civil remedy

for Medicare fraud as an alternative to criminal

prosecution and that Congress properly chose the

penalty in accordance with that purpose.

The question whether “a particular statutorily de-

fined penalty is civil or criminal is a matter of statu-

tory construction.” United States v. Ward, 448 U.S.

242, 248 (1980); see also One Lot Emerald Cut

Stones v. United States, 409 U.S. 232, 237 (1972);

Helvering v. Mitchell, 303 U.S. 391, 399 (1938).

Congress’s unambiguous designation of the penalty

under the CMPAA as a civil penalty obviously pro-

vides strong evidence of Congress’s intent. See

6 In Griffon v. Dep’t of Health & Human Services, 802 F.2d

146 (1986), the Fifth Circuit held, as a matter of statutory

construction, that the CMPAA was not to be given retroactive

application. No question as to the constitutionality of the

CMPAA was decided in that case.

12

United States v. Turkette, 452 U.S. 576, 580 (1981).

Moreover, there is nothing in the legislative history

or statutory scheme that is inconsistent with Con-

gress’s clearly expressed intent that the CMPAA set

forth a civil rather than a criminal penalty.

Petitioners argue (Pet. 17-19) that the CMPAA is

a penal statute because Congress intended to reach

criminal conduct. That argument, however, simply

ignores the numerous occasions on which this Court

has held that Congress may impose both a criminal

and a civil penalty in respect to the same act or

omission. See United States v. One Assortment of 89

Firearms, 465 U.S. 354, 359-360 (1984); United

States v. Ward, 448 U.S. at 250; One Lot Emerald

Cut Stones v. United States, 409 U.S. at 235; United

States ex rel. Marcus v. Hess, 317 U.S. 587, 549

(1943). See also United States v. Kordel, 397 U.S. 1

(1970). This Court held almost 50 years ago, for ex-

ample, that Congress acted constitutionally in im-

posing discrete civil and criminal penalties for tax

fraud. Helvering v. Mitchell, 303 U.S. at 399; com-

pare 26 U.S.C. 6653(b) (civil fraud) with 26 U.S.C.

7206 (criminal fraud). These cases establish that as

long as there is a remedial purpose to support it,

Congress may choose to impose a civil monetary pen-

alty as well as criminal sanctions for the same con-

duct. And Congress’s remedial purpose is evident in

the CMPAA. The statute is intended to reimburse

the government for losses incurred as a result of

false Medicare and Medicaid claims and for expenses

incurred in investigating such claims, as well as to

facilitate the operation of the Medicare and Medicaid

programs by deterring others from making false

claims. Pet. App. A6-A8.'

7 That deterrence is also a goal of criminal] statutes does not

mean that Congress may not similarly use civil penalties to

13

Petitioners further argue (Pet. 19-22) that the

amount of the penalty authorized by the CMPAA and

imposed against them is so punitive as to convert the

CMPAA into a criminal statute. But the amount of

the penalty is large oniy because petitioners’ fraud

was great. This Court has held that “[o]nly the

clearest proof that the purpose and effect of the

forfeiture are punitive will suffice to override Con-

gress’ manifest preference for a civil sanction.”

United States v. One Assortment of 89 Firearms, 465

U.S. at 365 (original quotation marks omitted). No

such proof exists with respect to the CMPAA. See

Chapman v. United States, slip op. 11-12.

This Court has repeatedly upheld monetary pen-

alties designated by Congress as civil sanctions

against contentions that they were punitive in effect

and hence had to be considered criminal in spite of

Congress’s intent. See, e.g., United States v. One

Assortment of 89 Firearms, 465 U.S. at 362-366;

United States v. Ward, 448 U.S. at 248-251; Rex

Trailer Co. v. United States, 350 U.S. 148, 151-154

(1956); United States ex rel. Marcus v. Hess, 317

U.S. at 548-552; Helvering v. Mitchell, 303 U.S. at

402-403; Chicago, B. & Q. Ry. v. United States, 220

U.S. 559, 577-579 (1911); Oceanic Steam Naviga-

tion Co. v. Stranahan, 214 U.S. 320, 338-339 (1909) ;

Hepner v. United States, 213 U.S. 103, 108-111

(1909). Petitioners have not suggested any unique

deter persons from interfering with federal policies and pro-

grams. See, e.g., National Independent Coal Operators’ Ass’n

v. Kleppe, 423 U.S. 388, 401 (1976); United States v. ITT

Continental Baking Co., 420 U.S. 228, 2832 (1975); Oceanic

Steam Navigation Co. v. Stranahan, 214 U.S. 320, 337-338

(1909).

14

features of the CMPAA that would distinguish peti-

tioners’ challenge here from those rejected by this

Court in the above-cited cases.

Petitioners do assert (Pet. 22) that the penalty

under the CMPAA is disproportionate to the dam-

ages sustained by the government. But it is well set-

tled that a civil penalty need not be limited to the

amount of the government’s actual damages. See

Chapman v. United States, slip op. 11-12; see also

United States ex rel. Marcus v. Hess, 317 U.S. at

550 (recovery of penalty plus double damages for

filing false claims); Helvering v. Mitchell, 303 U.S.

at 401 (50% addition to tax deficiency if any por-

tion of the deficiency is due to fraud) ; United States

v. One Lot Emerald Cut Stones, 461 F.2d 1189 (5th

Cir.), aff'd, 409 U.S. 232 (1972) (forfeiture of

goods for violating customs laws by failing to declare

goods valued at about $50,000, where duty on the

goods would have been $335.89); Toepleman v.

United States, 263 F.2d 697 (4th Cir.), cert. denied,

359 U.S. 989 (1959) (monetary penalties of $164,000

and $60,000 assessed under the False Claims Act

despite absence of any calculable damages).

The amount of money that petitioners succeeded

in wrongfully extracting from the Medicare program

before getting caught is not a true measure of the

damages suffered by the government. Medicare, by

necessity in light of its size, is run—like the federal

tax system—largely on the honor code. There is a

huge cost involved in ferreting out fraud over and

above the amounts actually obtained by the wrong-

doers. Pet. App. A8. Congress could reasonably set

a monetary penalty of $2,000 per false item or serv-

ice claimed, plus an assessment of double the amount

fraudulently sought, without regard to how much the

15

wrongdoer actually profited, in order to ensure that

the government is made completely whole and to

deter others from committing similar acts. See

United States ex rel. Marcus vy. Hess, 317 U.S. at

549-551.

The amount of the penalty and assessment imposed

on petitioners was less than a third of that author-

ized by the CMPAA.* A penalty and assessment of

$5,695,100 would have been permitted by the statute.

The ALJ’s decision to impose a penalty and assess-

ment of $1,791,100 was fully justified in light of the

numerous aggravating factors present here. The

2,702 items or services charged by the Inspector Gen-

eral constituted “only a small portion of a pattern

of claims for items or services by [petitioners] that

[petitioners] knew were not provided as claimed.”

ALJ op. 21. Petitioners billed Medicare for fees in

excess Of $1.8 million, falsely attributed as services

rendered by the three doctors, and petitioners were

reimbursed over $500,000 for these alleged services

(id. at 9). Moreover, the submission of the false

claims was not the consequence of an innocent mis-

take, but was part of a “systematic looting of the

Medicare trust fund,” carried out over a lengthy

period of time, which enabled petitioners “to mulct

Medicare of hundreds of thousands of dollars” (id.

at 21, 29). In addition, when investigators began

to catch up with their scheme, petitioners forged and

backdated documents in an effort to mislead the in-

vestigators into thinking that the services had been

provided as claimed. Given the numerous and severe

aggravating factors present in this case, the remedial

purpose of the statute was properly served by im-

8In Chapman, the penalty imposed was 57% of the maxi-

mum amount authorized by the statute. Slip op. 8.

16

posing a civil monetary penalty commensurate with

the scheme perpetrated by petitioners to defraud the

Medicare program of funds needed for its continued

operation.

2. Petitioners appear to argue (Pet. 12-16) that,

even if the CMPAA is not a penal statute, the statu-

tory standard of knowledge or intent necessary for

a finding of liability—that the “person knows or has

reason to know [that an item or service] was not

provided as claimed” (42 U.S.C. 1320a-7a(a) (1)

(A))—is constitutionally deficient. This argument

seems to be based on the proposition that a specific

intent to defraud is necessary before a civil monetary

penalty may be imposed. Petitioner cite no support

for such a proposition, and, indeed, there is none.

Congress may make a legislative judgment as to what

intent requirement is appropriate. Indeed, this Court

has upheld civil monetary penalties and forfeitures

under statutes that do not require the government to

prove any scienter on the part of the violator. See

United States v. Ward, 448 U.S. 242, 244-246

(1980) ; id. at 256 (Blackmun, J., concurring) ; One

Lot Emerald Cut Stones v. United States, 409 U.S.

232 (1972) (per curiam). In the CMPAA, Congress

explicitly -stated the intent requirement that it

deemed appropriate. As the court of appeals con-

cluded (Pet. App. A9), that intent requirement is

clear and was clearly satisfied in this case.

In any event, petitioners’ argument on this point

is entirely hypothetical, since this case does not pre-

sent the question whether the government may im-

pose a civil penalty without a finding of “actual

knowledge.” The Secretary specifically affirmed the

finding of the ALJ that petitioners “knowingly sub-

mitted false claims.” Pet. App. C2; ALJ op. 19. As

described above (and in much greater detail in the

17

ALJ’s decision),? the record amply supports that

finding. Petitioners set up a scheme under which

Medicare was routinely billed for services that could

not conceivably be said to have been rendered by a

physician or to have been incident to a physician’s

professional service.° The physicians under whose

names the bills were submitted were either no longer

employed by petitioners or were not at the clinic

when the services in question were rendered (ALJ

op. 10)." And once petitioners learned that HHS

® Because petitioners have not included the ALJ’s decision

in the appendix to their petition, we are separately lodging a

copy of that decision with the Court. Even a cursory reading

of that decision eliminates any doubt that petitioners know-

ingly and intentionally sought to defraud Medicare. See, e.g.,

ALJ op. 5, 7, 9, 12-14, 17-19.

1° Petitioners’ suggestion (Pet. 10 n.10) that a chiropractor

could be considered a physician for purposes of the claims

submitted is without any support. As the court of appeals

held (Pet. App. Al0):

[T]he Social Security Act unambiguously provides that

a chiropractor’s services are not routinely covered. Such

services are covered “only with respect to treatment by

means of manual manipulation of the spine (to correct a

subluxation demonstrated by X-ray to exist) which he is

legally authorized to perform by the State or jurisdic-

tion in which such treatment is provided.” 42 U.S.C.

§ 1395x(r) (1982). In light of the explicit detail in

ich Congress narrowly defined reimbursable chiro-

practic services, no individual could reasonably conclude

that other services performed by a Doctor of Chiropractic

medicine would be reimbursable.

11 These physicians were selected, in the first place, because

they did not speak English well and would therefore be less

likely to understand and object to petitioners’ billing prac-

tices. ALJ op. 7.

18

officials were investigating their claims, they took

elaborate measures, including the falsification of

documents, to mislead the investigators (id. at 18).

In short, petitioners’ scheme abounded with the

badges of fraud, and they would be liable for civil

penalties even if the CMPAA required a showing of

scienter, which it plainly does not.

Finally, petitioners contend (Pet. 11-16) that re-

view by this Court is warranted because the court

of appeals, at one point in its decision (Pet. App.

AQ), equated the statutory intent standard “knows

or has reason to know” with “knew or should have

known.” We doubt that the court of appeals can be

said to have committed error in this respect, since it

quoted the statutory standard correctly (id. at A9)

and was, in the passage to which petitioners refer,

merely summarizing the ALJ’s findings and the gist

of petitioners’ argument. In any event, if there was

any error, it was quite plainly harmless. If one

assumes that there is a difference between the

phrases “had reason to know” and “should have

known,” it is that the latter term implies that the

actor has a duty to ascertain all pertinent informa-

tion, while the former refers to the actor’s having

information from which a person of reasonable in-

telligence would infer that a certain fact exists. This

possible distinction between the two terms, however,

has absolutely no bearing on the outcome of this case.

The government’s case against petitioners did not

rest on the theory that petitioners negligently failed

to ascertain information. Rather, as described above,

the record establishes that petitioners had actual

knowledge that the claims they were submitting were

false. This case therefore presents no question as to

19

the content of the “reason to know” branch of the

statutory formula.”

CONCLUSION

The petition for a writ of certiorari should be

denied.

Respectfully submitted.

CHARLES FRIED

Solicitor General

RICHARD K. WILLARD

Assistant Attorney General

ANTHONY J. STEINMEYER

JOHN C. HOYLE

Attorneys

JULY 1987

12 Petitioners err in asserting (Pet. 3, 11) that the court

of appeals’ decision in this case “has since been directly con-

tradicted and rejected by the Secretary.” In Inspector Gen-

eral v. Silver, No. C-19 (HHS Grant Appeals Bd. Apr. 27,

1987) (reprinted in Pet. App. D1-D31), the Secretary posited

a “subtle distinction” between the “reason to know” standard

and the “should know” standard, stating that the court of

appeals in the instant case had confused the two terms by

treating them “as if they were equivalent.” Pet. App. D30,

D31. The Secretary went on to note, however, that the instant

case “involves a mundane case of clear fraud * * * and [that]

the court’s ‘error,’ such as it was, had no [e] ffect on its hold-

ing” (id. at D30). Thus, far from repudiating the decision

below, the Secretary specifically approved the court’s holding

(id. at D23, D30).

ov. s. covernwant printine orrice; 1987 181483 40437