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Xanadu Adult Medical Day Care Center v. Department of Human Services

May 13, 2011


On appeal from the Department of Human Services, Division of Medical Assistance and Health Services.

Per curiam.


Submitted March 29, 2011

Before Judges Koblitz and Hayden.

Appellant Xanadu Adult Medical Day Care Center appeals from the final decision of the Division of Medical Assistance and Health Services (DMAHS), dated July 8, 2010, denying appellant's application to become a New Jersey Medical Care Provider. For the reasons that follow, we affirm.

In May 2009, DMAHS issued Xanadu a license to operate an adult medical day care center in Passaic County pursuant to N.J.A.C. 8:43F-1.1. In June 2009, Xanadu submitted an application to become a Medicaid provider.

John Laureda, Xanadu's administrator, prepared and submitted the Medicaid provider application, certifying that the information was true. Question 24 of the application asked:

Have any of the entities named in response to questions 1 or 16 or their officers or partners, or any of the individuals named in response to Question 11 ever been indicted, charged, convicted of, or pled guilty or no contest to any federal or state crime in this state or any other jurisdiction?

Laureda's response to question 24 was "no." By signing the application he acknowledged that his responses were "true, accurate, and complete." This certification was false as Laureda, named in the response to question 11, had been charged with criminal offenses. In 1989, Laureda was charged with conspiracy pursuant to N.J.S.A. 2C:5-2, leading to participation in the Pre-Trial Intervention Program. In 2003, he was charged with terroristic threats pursuant to N.J.S.A. 2C:12-3A, which was later downgraded to municipal court. N.J.S.A. 2C:43-12. He also pled guilty in 2004 to third-degree theft by failure to make required disposition of property received pursuant to N.J.S.A. 2C:20-9, for which he received jail time and probation. Laureda had made DMAHS aware of this as recently as March 2009, when he applied to, and was approved by, the Medicaid program to be the administrator of Xanadu.

The Medicaid provider application procedure mandates review by the Medicaid Fraud Division (MFD) of the Office of the State Comptroller. Upon review, the MFD discovered that, despite the certification on the application to the contrary, Laureda had a criminal record. DMAHS denied Xanadu's Medicaid application as a result of the false information.

Xanadu appealed the denial. The hearing at the Office of Administrative Law occurred on March 22, 2010. The Administrative Law Judge (ALJ) held that the applicant was responsible for verifying and investigating the information provided before certifying to its accuracy. Hence, she held that a false application was good cause for denying the application, even if the misrepresentation was unintentional. The ALJ noted that DMAHS had consistently denied applications containing false information. In response to Xanadu's argument that DMAHS must demonstrate some connection between an unintentional mistake and a potentially adverse effect for Medicaid, the ALJ stated,

The rationale of the regulation is to ensure a level of comfort with providers that will be responsible for public funds, compliance with complex federal and state regulations, and the delivery of medical services to New Jersey's poorest population. A false statement on an application diminishes that level of comfort for any number of reasons, including the provider's ability to correctly complete the various forms in order to ensure Medicaid compliance. [Internal quotation marks omitted.]

DMAHS adopted the ALJ's decision in its entirety in the final agency decision of the Director, dated July 8, 2010. The Director rejected Xanadu's arguments that Laureda misunderstood the question. The Director found that Xanadu submitted false or incorrect information in its application, which was "regulatory good cause for denial of the application." The Director elaborated:

The regulation does not require that the provider intended to deceive, manipulate, or defraud Medicaid, in order for an application to be denied. Rather, the mere submission of false information is grounds for denial. Indeed, a provider must be held to a high standard in order to preserve the integrity of the Medicaid program . . . . I am not persuaded that a provider who files an application with ...

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