Civil Monetary Penalties, Assessments and Recommended Exclusions

SOCIAL SECURITY ADMINISTRATION

20 CFR Part 498

RIN 0960-AE23

Civil Monetary Penalties, Assessments and Recommended Exclusions

AGENCY: Office of the Inspector General (OIG), SSA.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This final rule establishes procedures to impose civil

monetary penalties and assessments against certain Old-Age, Survivors,

and Disability Insurance beneficiaries, Supplemental Security Income

recipients, third parties, physicians, medical providers, and other

individuals and entities who make false statements or representations

for use in determining any right to or amount of title II or title XVI

benefits under the Social Security Act. This final rule implements the

civil monetary penalty provisions of section 206(b) of the Social

Security Independence and Program Improvements Act of 1994.

EFFECTIVE DATE: This final rule is effective May 24, 1996.

FOR FURTHER INFORMATION CONTACT : Judith A. Kidwell, Office of the

Inspector General, (410) 965-9750.

SUPPLEMENTARY INFORMATION:

Background

We published a notice of proposed rulemaking (NPRM) in the Federal

Register on November 27, 1995, (60 FR 58305) which proposed to

establish procedures to implement the civil monetary penalty (CMP)

provisions of section 206(b) of the Social Security Independence and

Program Improvements Act of 1994, Public Law 103-296, which added

section 1129 of the Social Security Act (the Act), effective October 1,

1994. Section 108 of Public Law 103-296 made additional conforming

amendments to section 1129, effective March 31, 1995, to reflect the

Social Security Administration's (SSA) new status as an independent

agency.

The 60-day public comment period closed on January 26, 1996. We

received comments on the NPRM from only one commenter, a disability law

center. The comments, our responses, and the final rule, with several

technical changes we have made, are discussed below.

Since we have made only technical changes, we are adopting the

regulations as proposed.

Public Comments on the Proposed Regulations

The commenter was concerned that the regulations were overly broad

and that there were unaddressed problems at the SSA which would

increase the likelihood of an overbroad application of these rules to

claimants and their representatives. The substantive comments made by

the commenter and our responses are summarized below.

Comment: The commenter raised concerns that the proposed

regulations were overbroad in defining when a person has made or caused

to be made a statement, representation, or omission of material fact,

inasmuch as the basis and purpose statement in Sec. 498.100 does not

include an intent requirement.

Response: Section 498.100 has been developed to briefly catalog the

general types of penalty and assessment authorities that will be in

part 498. This section is not intended to include the legally operative

language to impose a penalty or assessment. Such language can be found

in Secs. 498.101 through 498.132.

Comment: The commenter expressed a concern that the definition of

material fact at Sec. 498.101 is not limited to facts that might have

made a difference in the eligibility decision.

Response: The definition of ``material fact'' which appears in the

NPRM is taken verbatim from section 1129(a)(2) of the Act.

Comment: Although the commenter acknowledged that Sec. 498.102

contains elements of intent, it raised a concern that the basis for

imposition of CMPs does not adequately link misstatements and omissions

to an intent to fraudulently obtain benefits.

Response: Section 498.102 carefully tracks the language of section

1129(a)(1) of the Act. In order to impose a penalty or assessment under

Sec. 498.102, the OIG must determine that an individual knew or should

have known that his or her statement or representation was false or

misleading or omitted a material fact, or that the individual made the

false or misleading statement with knowing disregard for the truth.

Comment: The commenter recited an example of an experience to

illustrate problems it perceived with this rule. The commenter also

expressed concerns that: (1) The vast majority of claimants do not

understand eligibility and reporting requirements; (2) because of staff

reductions, access to SSA staff for information is limited; (3) the

ability of SSA staff to completely and accurately relate program

requirements varies widely; (4) SSA pamphlets are difficult for persons

with learning disabilities and limited education or English skills; and

(5) SSA record keeping is such that it is not unusual for records to be

lost.

Response: Many of these comments are more appropriately directed to

the administration of SSA programs and are not within the scope of this

rule. However, we would like to point out that section 1129 of the Act

is directed toward those persons who defraud the SSA's programs or

receive benefits or payments to which they are not entitled, and that

steps have been taken to address due process concerns and ensure that

innocent persons are not penalized.

As required by section 1129 of the Act, the respondent will be

notified of a proposed penalty in a manner authorized by Rule 4 of the

Federal Rules of Civil Procedure. Additionally, except with respect to

affirmative defenses and mitigating circumstances, the burden of

persuasion is on the Government in CMP cases. Finally, the

[[Page 18079]]

SSA plans to go beyond the requirements of the statute to ensure due

process with respect to the CMP process. The statute requires only that

a person be given ``an opportunity for the determination to be made on

the record after a hearing at which the person is entitled to be

represented by counsel, to present witnesses, and to cross-examine

witnesses against the person.'' The SSA intends to enter into an

agreement with the Departmental Appeals Board (DAB) of the U.S.

Department of Health and Human Services to conduct the hearings in

these cases because of the DAB's expertise with CMP cases involving

Medicare and Medicaid fraud over a period of more than 10 years. SSA

plans to include an appeal to the appellate division of the DAB in the

administrative review process which will provide an additional

opportunity for the respondent to address legal issues before being

required to litigate in federal court.

Comment: The commenter expressed concerns that the imposition of

CMP magnifies the dilemma of the sometimes competing duties of zealous

representation, client confidentiality, and candor towards the

tribunal. The commenter opines that the rule will: (1) Interfere with

the obligation of advocates to determine the relevance or evidentiary

value of information being considered for admission for the record; (2)

require representatives to determine what is a material fact and what

is opinion; and (3) magnify the dilemma of competing duties of

representation, client confidentiality and candor towards the tribunal.

Response: As acknowledged by the commenter, attorneys and

paralegals supervised by attorneys are bound by federal and state codes

of professional conduct. We do not believe that ``zealous

representation'' would ever include knowingly assisting in presenting

or supplying false information to the SSA in order to obtain benefits

or payments for a client.

Comment: The commenter indicated that representatives should not be

required to submit potentially prejudicial reports or face CMP without

the availability of an enforceable subpoena for the report writer.

Response: The Inspector General (IG) has the authority under the

Inspector General Act of 1978, as amended, to obtain such information

through the issuance of subpoenas during a fraud investigation

involving the SSA's programs or operations. Additional subpoena

authority exists at sections 205(d) and 1129(i) of the Act.

Comment: The commenter expressed concerns that Sec. 498.109 does

not allow for a showing of good cause for a late request for a hearing,

and suggested that the OIG should send a second notice by certified

mail.

Response: The SSA's proposed hearing regulations which will be

published in the Federal Register in the near future will give the

administrative law judge the authority to grant a late request for a

hearing upon a showing of good cause. We have revised Sec. 498.109 of

this final rule to reflect this good cause exception.

Regulatory Procedures

Executive Order 12866

We have consulted with the Office of Management and Budget (OMB)

and have determined that these rules do not meet the criteria for a

significant regulatory action under Executive Order 12866. Thus, they

are not subject to OMB review.

Paperwork Reduction Act

These regulations impose no new reporting or record keeping

requirements requiring OMB clearance.

Regulatory Flexibility Act

We have determined that no regulatory impact analysis is required

for these final regulations. While the penalties and assessments which

the IG could impose as a result of section 1129 of the Act and these

regulations might have a slight impact on small entities, we do not

anticipate that a substantial number of these small entities will be

significantly affected by this rulemaking. Based on our determination,

the IG certifies that these regulations will not have a significant

economic impact on a substantial number of small business entities. Any

impact on small businesses would primarily be a result of the

legislation rather than these regulations. Therefore, we have not

prepared a regulatory flexibility analysis.

(Catalog of Federal Domestic Assistance Program Nos. 96.001, Social

Security-Disability Insurance; 96.002, Social Security-Retirement

Insurance; 96.004, Social Security-Survivors Insurance; and 96.006,

Supplemental Security Income Program)

List of Subjects in 20 CFR Part 498

Administrative practice and procedure, Fraud, and Penalties.

Approved: April 16, 1996.

David C. Williams,

Inspector General.

For the reasons set out in the preamble, part 498 of chapter III of

title 20 of the Code of Federal Regulations is amended as set forth

below:

PART 498--CIVIL MONETARY PENALTIES, ASSESSMENTS AND RECOMMENDED

EXCLUSIONS

1. The authority citation for part 498 is revised to read as

follows:

Authority: Secs. 702(a)(5), 1129, and 1140 of the Social

Security Act (42 U.S.C. 902(a)(5), 1320a-8, and 1320b-10).

2. Section 498.100 is amended by revising paragraphs (a) and (b)

introductory text and adding paragraph (b)(1) to read as follows:

Sec. 498.100 Basis and purpose.

(a) Basis. This part implements sections 1129 and 1140 of the

Social Security Act (42 U.S.C. 1320a-8 and 1320b-10).

(b) Purpose. This part provides for the imposition of civil

monetary penalties and assessments, as applicable, against persons

who--

(1) Make or cause to be made false statements or representations,

or omissions of material fact for use in determining any right to or

amount of benefits under title II or benefits or payments under title

XVI of the Social Security Act; or

* * * * *

3. Section 498.101 is amended by adding the following definitions

and revising the definition of ``Respondent'' to read as follows:

Sec. 498.101 Definitions.

* * * * *

Assessment means the amount described in Sec. 498.104, and includes

the plural of that term.

* * * * *

Material fact means a fact which the Commissioner of Social

Security may consider in evaluating whether an applicant is entitled to

benefits under title II or eligible for benefits or payments under

title XVI of the Social Security Act.

* * * * *

Respondent means the person upon whom the Commissioner or the

Inspector General has imposed, or intends to impose, a penalty and

assessment, as applicable.

* * * * *

4. Section 498.102 is amended by revising the section heading and

adding paragraph (a) to read as follows:

Sec. 498.102 Basis for civil monetary penalties and assessments.

(a) The Office of the Inspector General may impose a penalty and

assessment, as applicable, against any person whom it determines in

accordance with this part--

(1) Has made, or caused to be made, a statement or representation

of a

[[Page 18080]]

material fact for use in determining any initial or continuing right to

or amount of:

(i) Monthly insurance benefits under title II of the Social

Security Act; or

(ii) Benefits or payments under title XVI of the Social Security

Act; and

(2)(i) Knew, or should have known, that the statement or

representation--

(A) Was false or misleading; or

(B) Omitted a material fact; or

(ii) Made such statement with knowing disregard for the truth.

* * * * *

5. Section 498.103 is amended by adding paragraph (a) to read as

follows:

* * * * *

Sec. 498.103 Amount of penalty.

(a) Under Sec. 498.102(a), the Office of the Inspector General may

impose a penalty of not more than $5,000 for each false statement or

representation.

* * * * *

6. Section 498.104 is added to read as follows:

Sec. 498.104 Amount of assessment.

A person subject to a penalty determined under Sec. 498.102(a) may

be subject, in addition, to an assessment of not more than twice the

amount of benefits or payments paid as a result of the statement or

representation which was the basis for the penalty. An assessment is in

lieu of damages sustained by the United States because of such

statement or representation.

7. Section 498.106 is amended by revising the section heading and

adding paragraph (a) to read as follows:

Sec. 498.106 Determinations regarding the amount or scope of penalties

and assessments.

(a) In determining the amount or scope of any penalty and

assessment, as applicable, in accordance with Secs. 498.103(a) and

498.104, the Office of the Inspector General will take into account:

(1) The nature of the statements and representations referred to in

Sec. 498.102(a) and the circumstances under which they occurred;

(2) The degree of culpability of the person committing the offense;

(3) The history of prior offenses of the person committing the

offense;

(4) The financial condition of the person committing the offense;

and

(5) Such other matters as justice may require.

* * * * *

8. Section 498.108 is revised to read as follows:

Sec. 498.108 Penalty and assessment not exclusive.

Penalties and assessments, as applicable, imposed under this part

are in addition to any other penalties prescribed by law.

9. Section 498.109 is revised to read as follows:

Sec. 498.109 Notice of proposed determination.

(a) If the Office of the Inspector General seeks to impose a

penalty and assessment, as applicable, it will serve written notice of

the intent to take such action. The notice will include:

(1) Reference to the statutory basis for the proposed penalty and

assessment, as applicable;

(2) A description of the false statements, representations, and

incidents, as applicable, with respect to which the penalty and

assessment, as applicable, are proposed;

(3) The amount of the proposed penalty and assessment, as

applicable;

(4) Any circumstances described in Sec. 498.106 that were

considered when determining the amount of the proposed penalty and

assessment, as applicable; and

(5) Instructions for responding to the notice, including

(i) A specific statement of respondent's right to a hearing; and

(ii) A statement that failure to request a hearing within 60 days

permits the imposition of the proposed penalty and assessment, as

applicable, without right of appeal.

(b) Any person upon whom the Office of the Inspector General has

proposed the imposition of a penalty and assessment, as applicable, may

request a hearing on such proposed penalty and assessment.

(c) If the respondent fails to exercise the respondent's right to a

hearing within the time permitted under this section, and does not

demonstrate good cause for such failure before an administrative law

judge, any penalty and assessment, as applicable, becomes final.

10. Section 498.110 is revised to read as follows:

Sec. 498.110 Failure to request a hearing.

If the respondent does not request a hearing within the time

prescribed by Sec. 498.109(a), the Office of the Inspector General may

seek the proposed penalty and assessment, as applicable, or any less

severe penalty and assessment. The Office of the Inspector General

shall notify the respondent by certified mail, return receipt

requested, of any penalty and assessment, as applicable, that has been

imposed and of the means by which the respondent may satisfy the amount

owed.

11. Section 498.114 is added to read as follows:

Sec. 498.114 Collateral estoppel.

In a proceeding under section 1129 of the Social Security Act

that--

(a) Is against a person who has been convicted (whether upon a

verdict after trial or upon a plea of guilty or nolo contendere) of a

Federal or State crime charging fraud or false statements; and

(b) Involves the same transactions as in the criminal action, the

person is estopped from denying the essential elements of the criminal

offense.

12. Section 498.127 is revised to read as follows:

Sec. 498.127 Judicial review.

Sections 1129 and 1140 of the Social Security Act authorize

judicial review of any penalty and assessment, as applicable, that has

become final. Judicial review may be sought by a respondent only in

regard to a penalty and assessment, as applicable, with respect to

which the respondent requested a hearing, unless the failure or neglect

to urge such objection is excused by the court because of extraordinary

circumstances.

13. Section 498.128 is amended by revising the section heading,

paragraph (a), and adding paragraphs (b), (d), and (e) to read as

follows:

Sec. 498.128 Collection of penalty and assessment.

(a) Once a determination has become final, collection of any

penalty and assessment, as applicable, will be the responsibility of

the Commissioner or his or her designee.

(b) In cases brought under section 1129 of the Social Security Act,

a penalty and assessment, as applicable, imposed under this part may be

compromised by the Commissioner or his or her designee, and may be

recovered in a civil action brought in the United States District Court

for the district where the statement or representation referred to in

Sec. 498.102(a) was made, or where the respondent resides.

* * * * *

(d) As specifically provided under the Social Security Act, in

cases brought under section 1129 of the Social Security Act, the amount

of a penalty and assessment, as applicable, when finally determined, or

the amount agreed upon in compromise, may also be deducted from:

(1) Monthly title II or title XVI payments, notwithstanding section

207 of the Social Security Act as made

[[Page 18081]]

applicable to title XVI by section 1631(d)(1) of the Social Security

Act;

(2) A tax refund to which a person is entitled to after notice to

the Secretary of the Treasury under 31 U.S.C. Sec. 3720A;

(3) By authorities provided under the Debt Collection Act of 1982,

as amended, 31 U.S.C. 3711, to the extent applicable to debts arising

under the Social Security Act; or

(4) Any combination of the foregoing.

(e) Matters that were raised or that could have been raised in a

hearing before an administrative law judge or in an appeal to the

United States Court of Appeals under sections 1129 or 1140 of the

Social Security Act may not be raised as a defense in a civil action by

the United States to collect a penalty and assessment, as applicable,

under this part.

14. Section 498.129 is added to read as follows:

Sec. 498.129 Notice to other agencies.

As provided in section 1129 of the Social Security Act, when a

determination to impose a penalty and assessment, as applicable, with

respect to a physician or medical provider becomes final, the Office of

the Inspector General will notify the Secretary of the final

determination and the reasons therefore.

15. Section 498.132 is revised to read as follows:

Sec. 498.132 Limitations.

The Office of the Inspector General may initiate a proceeding in

accordance with Sec. 498.109(a) to determine whether to impose a

penalty and assessment, as applicable--

(a) In cases brought under section 1129 of the Social Security Act,

after receiving authorization from the Attorney General pursuant to

procedures agreed upon by the Inspector General and the Attorney

General; and

(b) Within 6 years from the date on which the violation was

committed.

[FR Doc. 96-9926 Filed 4-23-96; 8:45 am]

BILLING CODE 4190-29-P