Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Civil Remedies Division
In the Case of: Leonard S. Dino, R.Ph., Petitioner,
- v. -
The Inspector General
DATE: May 3, 1993
Docket No. C-359
Decision No. CR260
DECISION
The above-captioned case has come before me pursuant to the timely request
for hearing filed by Leonard
Dino, R. Ph. (Petitioner), on March 8, 1991. Petitioner challenged the basis
and reasonableness of the
sanctions imposed against him by the Inspector General (I.G.) of the Department
of Health and Human
Services. At issue is the I.G.'s determination that, as a consequence of Petitioner's
conviction in the United
States District Court for the Eastern District of Missouri on three counts of
mail fraud, one count of
conspiracy, and one count of causing the receipt in interstate commerce of adulterated
and misbranded
drugs and delivering said drugs for pay, Petitioner should be excluded from
participating in various
federally funded health care programs, including the Medicare and Medicaid programs,
1/ for a period of
six years, pursuant to section 1128(b)(1) of the Social Security Act (Act).
Petitioner's exclusion took effect
January 23, 1991.
Primarily what I considered in deciding this case are the pleadings and jurisdictional
documents submitted
by the parties; the arguments presented at the hearing on November 4, 1992 and
in the parties' posthearing
briefs; Petitioner's testimony at hearing; the I.G.'s 10 consecutively numbered
exhibits and Petitioner's 62
exhibits 2/, 3/ that were entered into evidence at the hearing. 4/
In his request for a hearing 5/ Petitioner listed 11 affirmative arguments
under the heading of "Specific
Findings Challenged":
1. Petitioner's conviction involved "prescription drug sample trading"
and not the type of activities
specified by section 1128(b)(1);
2. "sample trading" was widespread and not made illegal until after
Petitioner voluntarily ceased his
trading in 1986;
3. the volume of samples purchased between 1982 and 1986 was only between
.22% and 1.07% of total
inventory;
4. Petitioner lacked criminal intent, as evidenced by his practice of writing
checks for the samples
purchased and the careful records he kept;
5. Petitioner did not select the samples purchased, check the samples in,
or otherwise become aware of
any fraud, adulteration, or misbranding in connection with sample trading;
6. Petitioner's conviction did not involve examples of Medicare or other program-related
fraud, drug
diversion, or patient abuse;
7. Petitioner's conviction was not related to reimbursements under Medicare or related programs;
8. Petitioner remains licensed to practice pharmacy in Missouri, and no sanctions
or restrictions have
been imposed against him by the State of Illinois, where he also holds a license
to practice pharmacy;
9. Petitioner's conviction is not related to any adverse impact on program beneficiaries;
10. Petitioner's sentence "demonstrates a lack of serious criminal culpability on his part;" and
11. Petitioner presents no threat of program-related fraud, patient abuse,
or other conduct which the
statute serves to prevent.
I presided over Petitioner's hearing in St. Louis, on November 4, 1992. Both
parties were represented by
counsel. The I.G. presented oral argument concerning the documentary evidence
and called no witnesses.
6/ Petitioner testified as the sole witness. Petitioner gave testimony relevant
to the affirmative arguments
presented in his hearing request. Petitioner testified and also argued that
he was the victim of injustice, that
he had derived no financial gain from his transactions with sample drugs, that
his customers and the drug
companies benefitted from his actions, that he thought the drug companies knew
of the sample
transactions, and that United States District Judge Stephen Limbaugh, who presided
at his criminal trial,
did not think his offenses very serious. Tr. at 47-69, 110-111, 149, 189.
After the hearing, the parties simultaneously filed their posthearing briefs
in early January 1993.
Thereafter, on January 20, 1993, before the date set for the simultaneous exchange
of reply briefs,
Petitioner filed his reply. Because the agency issued clarifying regulations
on January 22, 1993 with
reference to "pending" cases, 58 Fed. Reg. 5617, I then extended the
filing date for the parties' reply briefs
so that they might address the applicability of these new regulations (see letter
sent at my direction on
February 1, 1993). The I.G. availed himself of this extension and filed a reply
on March 5, 1993.
Petitioner did not file anything on the newly arisen legal issue and has not
moved to submit a sur-reply.
As detailed herein, I uphold the six-year exclusion imposed by the I.G. because
it was authorized by
section 1128(b)(1), and, even though the term of years is at the low end of
a permissible spectrum, it is
within the range of time that is reasonable under the facts of this case.
ISSUES
The parties do not dispute that the only two issues in this case are:
(1) whether the I.G. had the authority to exclude Petitioner under section 1128(b)(1) of the Act; and
(2) whether, given the circumstances of this case, an exclusion for six years is reasonable.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
A. Background Findings 7/
1. Petitioner is a pharmacist by profession. Tr. at 77.
2. Petitioner received his Bachelor of Science degree in pharmacy in 1952. Tr.
at 78; I.G. Ex. 8 at 2.
3. Over the years, Petitioner has helped manufacture pharmaceuticals at various
stores (e.g., making
compounds, powders, and capsules for physicians), developed certain pharmaceutical
packages for long-
term care nursing home patients, served on a committee for managing behavior
with the use of
medications, belonged to various pharmaceutical associations, given presentations
on the use of drugs in
the long-term care setting, and published a quarterly brochure to inform nursing
homes of current
regulations and the types of medications that may be used. I.G. Ex. 8 at 2-6.
Petitioner also has owned and
managed several discount retail pharmaceutical enterprises since 1961, and he
presently operates a
consulting firm as well. Tr. at 77, 84.
4. Petitioner began his business ventures in 1961, when he formed a partnership
with four other
pharmacists to enter the discount pharmacy field. Tr. at 80-81. Petitioner has
worked continuously and
exclusively in this high volume field since 1961. Tr. at 81. He noted that he
was one of the forerunners of
the discount sales philosophy in the St. Louis area. Id.
Petitioner explained that in the discount pharmacy business, everything is done
on "an extremely high
volume basis," using lower prices to generate a great deal of business.
Tr. at 81.
5. Petitioner and his partners began their business venture in 1961 by leasing
pharmacy departments in
existing retail outlet chains. Tr. at 82. At the height of their success, they
owned seven or eight such
leased pharmacy operations in the St. Louis area. Id.
6. Since entering the discount pharmacy business in 1961, Petitioner and his
partners have created several
corporations. Tr. at 82-84. Each of their pharmacies is a corporation, and each
corporation was created as
soon as a new pharmacy came into existence. Tr. at 84.
7. In 1961, Petitioner and his partners also created a management corporation
called Leehar Distributors.
Tr. at 84. Petitioner has been continuously and exclusively employed by Leehar
Distributors since 1961;
he remains so employed today. Id. Petitioner stated that the partnership, of
which he was a member,
selected him to head it. Tr. at 80-81, 85. Leehar Distributors has never been
a licensed pharmacy. Tr. at
85.
8. In 1967, Petitioner's business submitted a bid to provide pharmaceutical
services to the Teamster
Union's health maintenance organization (HMO), the St. Louis Labor Health Institute.
Tr. at 89. The bid
was successful, and Petitioner's partnership set up a pharmacy in one of the
organization's structural
complexes. Tr. at 90, 96. This pharmacy, called Council Plaza Pharmacy, operated
at a very high volume
-- filling in excess of 700 to 800 prescriptions a day. I.G. Ex. 8 at 8. Under
the union's prepaid health care
plan, the pharmacy was fully reimbursed for all the medications purchased by
the plan's 30,000 plus
members. Tr. at 91.
9. Petitioner was aware as early as 1970 that "diversion" was illegal.
Tr. at 140. He said he understood
this illegal practice to mean encroaching on drug manufacturers' profits by
evading the pricing structures
they had set for selling their products to differing types of entities. Tr.
at 138-140. He said manufacturers
sold pharmaceutical products to nursing homes and hospitals at lower prices
than to retail pharmacies, for
example; he said he knew it would be illegal "diversion" to purchase
pharmaceutical products at the lower
prices set for hospitals or nursing homes and then resell them at retail pharmacies
to thereby increase the
pharmacies' profits. Id.
10. By 1977, Petitioner's pharmacy operations on other retailers' premises
had come to an end. Tr. at 88-
89. Petitioner explained that the owners of the premises had learned the techniques
of operating discount
pharmacy departments on their own and no longer needed to lease space to Petitioner
and his partners. Id.
It was at that point that the number of their stores began to diminish, though
Council Plaza Pharmacy and
others continued to operate. Id.
11. According to Petitioner, the Labor Health Institute HMO was extremely cost-conscious
as to how
Council Plaza Pharmacy would "maintain a low cost and a high profile of
therapeutic efficiency." Tr. at
94. He testified at his criminal trial that he had "a cost containment
agreement" with said HMO. I.G. Ex. 8
at 13.
12. Petitioner stated that in the late 1970's he became aware that pharmaceutical
samples were being
"traded" at his pharmacies. 8/ I.G. Ex. 8 at 11; Tr. at 99. Petitioner
testified to discovering that pharmacy
employees were allowing manufacturers' representatives to use pharmaceutical
samples as payment for the
cigarettes, liquor, and other store merchandise they purchased. Id. at 12.
13. Following the discovery of the exchanges described in Finding 12, Petitioner
set up a system of
"accountability" by which the pharmacists in his stores placed orders
for sample drugs with certain
salesmen, the pharmacy managers supplied the necessary verifying information
to Leehar Distributors, and
checks were written by Leehar Distributors for the samples so purchased. I.G.
Ex. 8 at 12; Tr. at 87, 88,
103. The samples were then resold to his pharmacy customers. See I.G. Ex. 4.
14. Petitioner's contract with the Teamster Union's HMO required him to lower
the HMO's costs. Tr. at
111; I.G. Ex. 8 at 13. By using the purchased samples, Petitioner's pharmacy
was able to sell drugs at
below the average wholesale cost. I.G. Ex. 8 at 45. Petitioner alleged that
he told the now deceased
medical director of the HMO that he was reselling sample drugs to the union
members, but he never told
the present medical director about the practice. Id. at 45-46. Petitioner never
told either the HMO's
medical director or purchasing director that the purchased samples were being
delivered out of their
original packaging. Tr. at 177. In performing his liaison function with physicians,
Petitioner never
discussed his buying and reselling of sample drugs with them. Tr. at 103.
15. During mid-1986, Petitioner purchased Pharmaceutical Dose Service and moved
it into the same
building as Council Plaza Pharmacy. I.G. Ex. 1 at 7. According to the Office
of the United States Postal
Inspector, Pharmaceutical Dose Service serves many Medicaid patients. Id.
16. On August 26, 1986, a pharmaceutical company salesman was arrested on charges
of selling
mislabeled and diverted drugs. I.G. Ex. 1 at 4. On August 27, 1986, the salesman
recorded a conversation
he had with Petitioner. I.G. Ex. 1 at 5; I.G. Ex. 9. The recording was used
by the Federal Health Care
Task Force, which was then working in cooperation with the Missouri Bureau of
Narcotics and Dangerous
Drugs, Missouri Pharmacy Board, and the Internal Revenue Service. I.G. Ex. 1
at 1; I.G. Ex. 9.
17. On September 3, 1986, a federal search warrant was executed at Leehar Distributors
and Council Plaza
Pharmacy. P. Ex. 15; I.G. Ex. 1 at 5. According to the Office of the United
States Postal Inspector, the
items seized included various pharmaceutical products, checks signed by Petitioner
for purchases of
samples, and internal notes showing how the prices for the sample drugs were
fixed (e.g., two salesmen
were paid 50% of the average wholesale price for their samples). I.G. Ex. 1
at 5. Then on November 13,
1986, the Missouri Pharmacy Board interviewed Council Plaza's pharmacists in
the presence of Council
Plaza's attorney. Id.; P. Ex. 18.
18. On May 5, 1988, Petitioner, the president and chief executive officer of
Leehar Distributors Inc., was
indicted for the following offenses in the United States District Court for
the Eastern District of Missouri:
Count I: between about March 8, 1982 through about September 30, 1986, having
devised a scheme or
artifice to defraud various drug manufacturers and the drug consuming public
and to obtain money and
property by means of false and fraudulent pretenses, representations and promises
in violation of 18 U.S.C.
2 and 1341 by, inter alia, soliciting and paying sales representatives of various
drug manufacturers to
deliver to him "sample" or "not for resale" drugs which
the sales representatives did not personally own
and did not have authorization to deliver; removing such drugs from their packaging
under less than good
manufacturing practices and causing the adulteration and misbranding of such
drugs; selling or causing to
be sold these adulterated and misbranded drugs to the consuming public through
Council Plaza Pharmacy
and other pharmacies owned and operated by him; compromising or causing to be
compromised the
product integrity of the drugs by reselling them when they could not be recalled
in case of an emergency
and when their potency and purity could no longer be assured;
Count II: on or about September 22, 1983, having placed into the U.S. mail
in violation of 18 U.S.C.
2 and 1341 a specified article for the purpose of executing the scheme and artifice
to defraud described in
Count I;
Count III: on or about August 9, 1986, having placed into the U.S. mail in
violation of 18 U.S.C. 2
and 1341 a specified article for the purpose of executing the scheme and artifice
to defraud described in
Count I;
Count IV: on or about October 2, 1985, having placed into the U.S. mail in
violation of 18 U.S.C. 2
and 1341 a specified article for the purpose of executing the scheme and artifice
to defraud described in
Count I;
Count V: on or about April 7, 1986, having placed into the U.S. mail in violation
of 18 U.S.C. 2 and
1341 a specified article for the purpose of executing the scheme and artifice
to defraud described in Count
I;
Count VI: from on or about 1977 through about September 30, 1986, having combined,
conspired,
confederated and agreed to commit against the United States certain offenses
(e.g., having caused the
receipt in interstate commerce of adulterated and misbranded drugs and having
delivered such drugs for
pay; having caused the U.S. mail to be used in furtherance of a scheme and artifice
to defraud drug
manufacturers and the drug-consuming public) as well as certain overt acts (e.g.,
having purchased sample
drugs and other unauthorized diverted drugs which had been originally obtained
from drug manufacturers
under false and fraudulent pretenses; having paid sales representatives and
others to deliver drugs they did
not personally own; having caused his employees and others to remove drugs from
their original packaging
or labeling under less than good manufacturing practice and to place the now
adulterated drugs in plastic
baggies or other unauthorized containers, often without accurate and verifiable
lot numbers, expiration
dates and other required data) -- all in violation of 18 U.S.C. 371;
Count VII: from at least 1977 through approximately September 30, 1986, having
caused the receipt in
interstate commerce of adulterated and misbranded drugs, as defined in 21 U.S.C.
351(a)(2)(B), 321(N)
and 352(A), (B) and (F), and having delivered said drugs for pay or otherwise
in violation of 31 U.S.C.
331(c) and 333(b).
I.G. Ex. 3. 9/
19. After having pleaded "not guilty" to all counts, Petitioner was
tried in federal district court. I.G.
Exs. 4, 7, 8.
20. During trial in May of 1989, the government dismissed Count IV. Id.
21. On May 18, 1989, the jury found Petitioner guilty as charged of Counts
I, II, V, VI, and VII. I.G.
Ex. 4. That is, he was found guilty on three counts of mail fraud under Counts
I, II, and V, one count of
conspiracy to defraud under Count VI, and one count of causing the receipt of
adulterated and misbranded
drugs in interstate commerce and of delivering said drugs for pay under Count
VII. The jury found him
not guilty as to Count III, the charge that he placed into the United States
mail on or about August 9, 1986
an article in violation of 18 U.S.C. 2 and 1341. I.G. Exs. 3, 4.
22. On June 29, 1989, Judge Stephen Limbaugh sentenced Petitioner to serve
two one-year concurrent
terms of imprisonment under Counts I and II, with probation for five years thereafter
and ordered
Petitioner to pay fines totaling $20,000 ($10,000 for each count). I.G. Ex.
4. The Judgment Order
specified that under Counts I and II, Petitioner was to be imprisoned for a
period of 12 months for each
count -- with the periods running concurrently. However, provided that Petitioner
was confined in "a jail
type institution in a work release program" for 90 days, the balance of
the sentence of confinement would
be suspended and Petitioner would be placed on probation for the remaining nine
months. Id. Under
Counts V, VI, and VII, the judge suspended the imposition of a sentence of confinement
and, instead,
placed Petitioner on probation for five years under each count. Although the
three five-year periods were
to run concurrently, they were to be consecutive to the periods of imprisonment
and probation imposed
under Counts I and II. Id.
23. Petitioner appealed his conviction. His appeal was unsuccessful and his
conviction is now final. Tr. at
69-71.
24. In addition to the foregoing actions in federal court, Petitioner has been
the subject of various state
proceedings since 1987. P. Ex. 38-45, 47-63. An action filed by the Missouri
Bureau of Narcotics and
Dangerous Drugs was resolved by stipulations; in addition, there were the Missouri
Pharmacy Board's
actions that have resulted in the administrative decision to suspend Petitioner's
license for five years and a
Circuit Court's order staying the suspension pending appeal. Tr. at 72-77. In
addition, at least one of
Petitioner's pharmacies was placed on probation for five years beginning in
1987. Tr. at 160.
25. On January 3, 1991, the I.G. notified Petitioner that he was being excluded
from participation in
the Medicare and Medicaid programs for a period of six years due to his conviction
in federal district court.
I.G. Ex. 6. In explaining the length of the exclusion, the I.G. specifically
noted the sentences of
imprisonment, probation, and fines imposed by the court and that Petitioner
was convicted for having
engaged in criminal activities for a lengthy period of time. Id. The I.G. took
this action under section
1128(b)(1) of the Act, which authorizes the Secretary to exclude from the Medicare
and Medicaid
programs individuals or entities who have been convicted of a criminal offense
relating to fraud, theft,
embezzlement, breach of fiduciary responsibility, or other financial misconduct
in the delivery of a health
care item or service.
B. Other Findings of Fact and Conclusions of Law
26. The Secretary of the United States Department of Health and Human Services
delegated to the I.G. the
authority to determine, impose, and direct exclusions pursuant to section 1128
of the Act. 48 Fed. Reg.
21,662 (1983).
27. Regulations published on January 29, 1992 establish criteria to be employed
by the I.G. in determining
to impose and direct exclusions pursuant to sections 1128(a) and (b) of the
Act. 42 C.F.R. Part 1001
(1992).
28. The regulations published on January 29, 1992 do not apply retroactively
to establish a standard for
adjudicating the reasonableness of the exclusion in this case. Behrooz Bassim,
M.D., DAB 1333 (1992).
29. The major purposes of section 1128 of the Act are to: 1) protect Medicare
beneficiaries and Medicaid
recipients from incompetent practitioners and inappropriate or inadequate care;
2) protect the Medicare and
Medicaid programs from fraud and abuse; and 3) deter individuals from engaging
in conduct which is
detrimental to the Medicare and Medicaid programs and to the respective beneficiaries
and recipients of
those programs.
30. Petitioner was "convicted" of a criminal offense within the meaning
of section 1128(i) of the Act.
Finding 21.
31. Petitioner's conviction is a criminal offense related to fraud, theft,
embezzlement, breach of fiduciary
responsibility, or other financial misconduct within the meaning of section
1128(b)(1) of the Act. Findings
18-21.
32. In this case, my determination that an exclusion is reasonable turned on
the question of Petitioner's
trustworthiness.
33. Evidence bearing on Petitioner's trustworthiness may include the nature
and seriousness of Petitioner's
offense, the circumstances surrounding the offense, and how far Petitioner has
come toward rehabilitation.
34. It is evidence of Petitioner's untrustworthiness that the offenses of which
Petitioner was convicted are
serious offenses. Findings 18, 21.
35. It is an indication of Petitioner's untrustworthiness that the conduct
of which he was convicted was
knowing and intentional. Findings 18, 21.
36. It is evidence of Petitioner's untrustworthiness that Petitioner was sentenced
to incarceration and to a
lengthy period of probation. Finding 22.
37. It is evidence of Petitioner's untrustworthiness that, instead of accepting
responsibility for his conduct,
Petitioner has been denying or minimizing his culpability for his offenses by
placing the blame for his
actions on his employees and on practices of the pharmaceutical industry. Tr.
at 48-64, 87-88, 119, 127,
133-135, 157-158, 182-188.
38. It is evidence of Petitioner's untrustworthiness that Petitioner's offenses,
especially the sale of
potentially adulterated or misbranded drugs, could have had a grave adverse
impact on the health and
safety of his customers.
39. It is an indication of Petitioner's untrustworthiness that Petitioner continues
to portray himself as a
victim of injustice and minimizes the significance of his sentence. Tr. at 47-69,
189.
40. It is an indication of Petitioner's untrustworthiness that he has not acknowledged
his wrongdoing,
taken responsibility for his actions, or expressed remorse. Tr. 189.
41. Petitioner's misconduct establishes that he is an individual who is not
trustworthy to deal with
Medicare or Medicaid program funds or with beneficiaries and recipients of the
programs.
42. I find no evidence in this case which would mitigate against the length of Petitioner's exclusion.
43. The remedial purposes of section 1128 of the Act will be served in this
case by a six-year period of
exclusion.
44. The six-year exclusion is reasonable under the standards that existed prior
to January 29, 1992.
Findings 1-43.
45. In the alternative, even analyzing the evidence as specified by the regulations
that became effective on
January 29, 1992, the six-year exclusion is reasonable. Findings 13, 21, 22,
42, 43.
ANALYSIS
A. The I.G. Had Authority to Exclude Petitioner under section 1128(b)(1) of the Act.
Section 1128 of the Act authorizes the Secretary of Health and Human Services
to impose sanctions
pursuant to the conditions specified therein. The Secretary has delegated authority
to the I.G. Under the
limitations set by statute, the I.G. may impose an exclusion under section 1128(b)(1)
only if: (a) a
petitioner was convicted (b) of a crime related to fraud, theft, embezzlement,
breach of fiduciary
responsibility, or other financial misconduct (c) in connection with the delivery
of a health care item or
service. All three critical elements of section 1128(b)(1) have been satisfied
here.
Petitioner does not dispute that he has been convicted and that his conviction
is no longer appealable. The
jury found Petitioner guilty beyond a reasonable doubt on multiple counts of
fraud and related offenses
stemming from his purchases and resales of "not for sale" sample drugs.
I.G. Exs. 3, 4.
Petitioner has made me aware by his written submissions and his testimony that
he sees his offenses as
having involved nothing more than "sample trading" or "sample
purchases," which he insists were
prevalent and legal at the time. See, e.g., P. Hearing Request -- Nos. 1 and
2 of "Specific Findings
Challenged"; Tr. at 98-105, 126, 139-140. He also has argued that I should
infer that he lacked criminal
intent because he wrote checks for the samples he purchased and kept careful
records of his transactions.
See, e.g., P. Hearing Request -- No. 4 of "Specific Findings Challenged."
In these administrative proceedings, Petitioner is not entitled to a retrial
of the criminal charges.
Furthermore, Petitioner cannot negate his conviction with arguments concerning
his innocence of the
charges for which he was convicted. "It is the fact of the conviction that
causes the exclusion. The law
does not permit the Secretary to look behind the conviction." Peter J.
Edmondson, DAB 1330, at 4 (1992).
Nor can Petitioner's contentions alter the jury's finding that he had the requisite
criminal intent to commit
the offenses for which he has been convicted. Given Petitioner's conviction
under 18 U.S.C. 2, 371, and
1341, 21 U.S.C. 321(N), 331(c), 333(b), 351(a)(2)(B), and 352(A), (B), and (F)
(I.G. Ex. 4), Petitioner's
belief that his actions were legal is wrong.
Petitioner's conviction was for fraud, conspiracy to defraud, and related financial
misconduct involving
exchanges of money for drug samples that were not intended for sale or resale.
I.G. Ex. 4. In determining
that Petitioner has been convicted of "a criminal offense related to fraud,
theft . . . or other financial
misconduct" as required by section 1128(b), I have accorded no weight to
Petitioner's representations that
he has not violated other laws and that Congress has subsequently passed additional
legislation relevant to
the purchase and resale of sample drugs. Section 1128(b)(1) does not require
Petitioner to have violated all
laws that are related to fraud, theft, and financial misconduct. Also, for the
exclusion to apply, every
aspect of Petitioner's health-care-related activities over the years need not
have been illegal.
The I.G. has established also that Petitioner's conviction was "related
to the delivery of a health care item
or service" within the meaning of section 1128(b)(1) of the Act. Petitioner's
conviction related to his
transactions with sample prescription drugs. The judgment order establishes
that Petitioner's offenses
included receiving and delivering misbranded or adulterated drugs in violation
of two statutes under the
Food and Drug Act. These samples were dispensed as health care items to the
drug consuming public, who
bought them from Petitioner's pharmacies when they sought health care services
there. Dispensing
pharmaceuticals is within the statutory meaning of "delivering a health
care item or service." See, Jack W.
Greene, DAB 1078 (1989), aff'd sub nom. Greene v. Sullivan, 731 F. Supp. 835
and 838 (E.D. Tenn.
1990). Moreover, Petitioner put his illegal scheme in place in order to provide
health care services and
items to his pharmacies' customers. See, e.g., Tr. at 111. (Especially his testimony
regarding his
obligation to contain costs for the Labor Health Institute HMO and his passing
on the savings from the
illegal sample purchases to them.)
Even though Petitioner testified at hearing that his work in management since
1961 did not require him to
"don an apron" (Tr. at 85-86), section 1128(b)(1) does not require
a conviction for having been personally
involved in a given phase of delivering a health care item or service. The law
uses the term "in connection
with" when describing the requisite nexus between the conviction and the
delivery of health care item or
service. For this same reason, Petitioner has not placed himself outside of
section 1128(b)(1) with his
contention that he did not select the samples purchased, check the samples in,
or otherwise become aware
of any fraud, adulteration, or misbranding of sample drugs. See, P. Hearing
Request -- No. 5 of "Specific
Findings Challenged."
With regard to Petitioner's affirmative argument that his conviction was not
related to program
reimbursements or to any adverse impact on the Medicare program and its beneficiaries,
Petitioner has not
shown that section 1128(b)(1) is inapplicable. 10/ The I.G.'s authority under
section 1128(b)(1) does not
rest on a conviction relating to the Medicare or Medicaid program or their benefici-aries
or recipients. If
Petitioner had been "convicted of a criminal offense relating to the delivery
of an item or service under
Title XVIII [the Medicare Laws] or any State health care program," section
1128(a)(1) of the Act would
have controlled and required the I.G. to impose an exclusion of five years or
longer. As an appellate panel
of the Departmental Appeals Board has explained, sections 1128(a)(1) and 1128(b)(1)
cannot be read as
mutually applicable, and section 1128(b)(1) contains more inclusive elements
of a conviction. See Boris
Lipovsky, M.D., DAB 1363, at 7-9 (1992). The record in this case shows that
Petitioner's conviction meets
the elements of law under which the I.G. imposed and directed an exclusion against
Petitioner.
Since the I.G. has properly imposed and directed an exclusion against Petitioner
under section 1128(b)(1),
Petitioner's arguments regarding the legislative purpose for section 1128(a)(2)
are without legal force or
merit. P. Br. at 6. Petitioner has put forth no legally cognizable evidence
that the I.G.'s decision to exclude
was reached erroneously under section 1128(b)(1).
B. A Six Year Exclusion is Reasonable.
1. Trustworthiness is the applicable standard for evaluating the reasonableness of Petitioner's exclusion.
It is well settled that where the I.G. exercises his discretion to impose an
exclusion under section 1128(b),
the exclusion must be for a period of time that is reasonable in light of the
remedial goals of the law.
Robert Matesic, R.Ph., DAB 1327, at 8 (1992). These remedial goals include protecting
beneficiaries and
recipients of the Medicare and Medicaid programs, maintaining program integrity,
and fostering public
confidence in these programs. See, e.g., Greene v. Sullivan, 731 F. Supp. 838,
849 (E.D. Tenn. 1990). To
ensure that these goals are satisfied, the Secretary accords due process protection
to excluded individuals
when they appeal their exclusion.
Prior to January 29, 1992, the Secretary of Health and Human Services had not
promulgated a regulation to
implement the permissive exclusion authority of section 1128(b). Thus, when
determining the
reasonableness of a period of exclusion in section 1128(b) cases, the Secretary's
delegates relied on the
statute and interpretative case law, and, to some extent, looked for guidance
in an existing regulation at 42
C.F.R 1001.125(b), which set forth factors that the I.G. was to consider in
setting the length of an
exclusion under former section 1128(a) of the Act. 11/ Bassim, DAB 1333, at
7. To determine whether
the length of an exclusion imposed and directed against a party by the I.G.
was reasonable, administrative
law judges have usually evaluated an excluded party's "trustworthiness"
in order to gauge the risk that
party might pose in terms of the harm Congress sought to prevent. Appellate
panels of the Departmental
Appeals Board approved the use of "trustworthiness" to represent those
cumulative factors which govern
the assessment of whether a period of exclusion imposed by the I.G. is reasonable.
See, e.g., Hanlester
Network, et al., DAB 1347, at 45-46 (1992); Bassim at 13 ("The word is
used here not with respect to a
party's general trustworthiness, but to reflect the extent of the needed remedial
action and whether and
when the excluded party may be trusted again to participate in the programs
without abusing them or the
beneficiaries and recipients.") Criteria used in the "trustworthiness"
assessment have included the
circumstances surrounding an excluded individual's misconduct and the seriousness
of the precipitating
offense; the degree to which the individual is willing to place the programs
in jeopardy; the individual's
failure to admit misconduct or express remorse; evidence of rehabilitation;
and the likelihood that the
offense or some similar abuse will recur. Hanlester at 46-47 (citations omitted).
On January 29, 1992, the Secretary published new regulations which effected
procedural and substantive
changes with respect to the imposition of exclusions. 42 C.F.R. Parts 1001-1007;
57 Fed. Reg. 3298 et
seq. (1992) ("new regulations" herein). For example, the new regulations
prohibit administrative law
judges from setting a period of exclusion at zero or reducing the period of
an exclusion to zero, where the
excluded individual has committed an act described in section 1128(b) of the
Act. For section 1128(b)(1)
cases, the new regulations specify that a three-year benchmark exclusion will
be imposed -- subject to
being lengthened only for the enumerated "aggravating" factors or
being shortened only for the enumerated
"mitigating" factors. 42 C.F.R. 1005.4(c) and 1001.201(b). These new
regulations became effective
upon publication in the Federal Register on January 29, 1992.
In this case, the I.G. had imposed the six-year exclusion against Petitioner
and Petitioner had requested his
hearing prior to January 29, 1992. Without regard to merit, the various issues
he raised in his hearing
request are consistent with the criteria to be considered in the prior regulation,
42 C.F.R. 1001.125(b).
On May 28, 1992, prior to the hearing in this case, an appellate panel of the
Departmental Appeals Board
addressed the applicability of the new regulations to an exclusion the I.G.
had imposed (under section
1128(b)(4) of the Act) prior to January 29 1992. Bassim. The panel noted the
distinction between an
effective date of a regulation and the permissible effect of a regulation. Id.
at 6. It held that the new
regulations were inconsistent with prior Departmental Appeals Board decisions
on the scope of review and
the length of an exclusion and that the new regulations represent substantive
changes in the law. Id. at 6-7.
The panel therefore proceeded to the issue of "whether sections of the
1992 Regulations which make
substantive changes can properly be applied to a pending proceeding." Id.
at 6.
The panel decided that the Secretary did not intend to alter a petitioner's
substantive rights with the new
regulations. Id. at 8-9. It especially noted that retroactivity is not favored
in law, that the agency's
authority to promulgate rules having a retroactive effect must be expressly
granted by Congress, and that,
even with such a statutory grant of authority, the agency's rules will not be
applied retroactively unless
their language clearly requires this result. Id. at 6. Congress did not authorize
the Secretary to promulgate
rules having a retroactive effect, and there was no statement by the Secretary
that the new regulations were
intended to apply retroactively to achieve substantive changes. In the panel's
view, if the Secretary had
intended to effect substantive changes in pending cases, this intent would have
been expressly stated given
the resultant administrative complications in the appeals process as well as
the potential prejudice to
petitioners. Id. at 7. The panel held that portions of the new regulations which
effect substantive changes
may be applied only to cases in which the I.G.'s Notice of Intent to Exclude,
Notice of Exclusion, or Notice
of Proposal to Exclude is dated on or after January 29, 1992. Id. at 9.
On January 22, 1993, the Secretary issued final rules to revise and clarify
the new regulations. 58 Fed.
Reg. 5617-18. Among the most significant aspects of the revisions and clarifying
regulations is the
following subsection added to 42 C.F.R. 1001.1:
(b) The regulations in this part are applicable and binding on the Office
of Inspector General (OIG) in
imposing and proposing exclusions, as well as to Administrative Law Judges (ALJs),
the Departmental
Appeals Board (DAB), and federal courts in reviewing the imposition of exclusions
by the OIG. . . .
57 Fed. Reg. 5618. The Secretary waived the proposed notice and public comment
period specified by the
Administrative Procedure Act pursuant to the exception for "interpretative
rules, general statements of
policy or rules of agency organization, procedure or practice" at 5 U.S.C.
553(b)(A). 58 Fed. Reg. 5618.
The changes were intended to "apply to all pending and future cases under
this authority [Section 1128 of
the Act]." Id.
Briefing the applicability of the new regulations and their later clarifying
amendments in a reply brief, the
I.G. argued that they apply with full force to this case. 12/ The I.G. posited
that, under the new regulations,
the six-year exclusion at issue must be affirmed because 42 C.F.R. 1001.201(b)
contains the exclusive
and controlling criteria for evaluating the reasonableness of the exclusion
period. That is, 42 C.F.R.
1001.201(b) requires an exclusion of at least three years as a starting point.
Here, where none of the
mitigating factors as specified in the regulation were present, Petitioner was
excluded for six years because
circumstances surrounding his conviction satisfied two of the aggravating criteria
listed in the regulation:
1) the acts that resulted in his conviction were committed over more than one
year; and 2) the sentence
imposed by the court included incarceration. I.G. R. Br. at 5-6.
Petitioner, who also had the opportunity to brief this legal issue, has articulated
no position on it. He has
consistently argued against the reasonableness of his six-year exclusion by
citing circumstances which are
of no significance under 42 C.F.R. 1001.201. 13/ His adherence to such arguments
implies that he does
not believe the new regulations have been made applicable to this case.
I find that the new regulations, even as clarified on January 22, 1993, do
not apply to this case. Even
though the Secretary stated in the clarifying instrument's preamble that "[t]his
clarifying rule will apply to
all pending and future cases under this authority[,]" 58 Fed. Reg. 5618,
this statement does not direct the
retroactive application of the new regulations. Nor can this statement be construed
as overruling the
panel's holding in Bassim, which included this explanation:
In sum, absent specific instructions in the Act or the preamble to the 1992
Regulations directing that
they apply to pending cases, we conclude that the Secretary did not intend to
alter a petitioner's substantive
rights in such fundamental ways as suggested by the I.G.
Bassim at 8-9. Without doubt, the word "pending" has been used by
the Secretary in the January 22, 1993
preamble as well as by the Board in Bassim. However, the word should not be
read out of context. Prior
to making the aforementioned statement containing the word "pending,"
the panel had set forth several
reasons against applying the new regulations retroactively. Bassim at 7-9. Those
reasons remain
undisturbed: i.e., the new regulations are still at variance with Departmental
Appeals Board precedent;
retroactivity is still not favored in law; the enabling statute is still devoid
of language authorizing the
Secretary to promulgate regulations with retroactive effect; and even the clarifying
amendments of January
22, 1993 do not contain any directive or clear language that require the new
regulations to be applied
retroactively. Even more importantly, in the preamble the Secretary also explained
as follows with respect
to applying the January 22, 1993 clarifications to all pending and future cases:
In addition, this document does not promulgate any substantive changes to
the scope of the January 29,
1992 final rule, but rather seeks only to clarify the text of that rulemaking
to better achieve our original
intent.
58 Fed. Reg. 5618. Since the new regulations lacked retroactive effect for
the reasons stated in Bassim,
they could not have acquired such effect with subsequent textual clarifications
that do not purport to
modify their scope and which have been published without satisfying the procedures
necessary under the
Administrative Procedure Act for effecting substantive changes.
2. Upon Evaluation of Petitioner's trustworthiness,
I conclude that six years is a reasonable exclusion.
I have considered Petitioner's trustworthiness de novo in accordance with the
remedial purpose of the
statute and the criteria approved by the Departmental Appeals Board. The principal
purpose served by an
exclusion is to keep out untrustworthy providers until such time as they can
be trusted to deal with program
funds and to properly serve program beneficiaries and recipients. H.R. Rep.
No. 393, 95th Cong. 1st Sess.,
pt. 2, reprinted in 1977 U.S.C.C.A.N. 3072. The facts before me, in combination
with Petitioner's
interpretation of their significance, have persuaded me that the six-year exclusion
imposed and directed
against Petitioner by the I.G. is neither extreme nor excessive. Petitioner's
lack of trustworthi-ness has
been established by the seriousness of his offenses, the circumstances of his
misconduct, the degree to
which he was willing to place his pharmacy customers in jeopardy, his continued
refusal to admit
misconduct or express remorse, the absence of rehabilitation in his thought
processes or his attitude
concerning his prior offenses, and the likelihood that some similar abuse will
occur in the future.
The evidence shows that Petitioner personally converted casual wrongdoing by
some pharmaceutical
salesmen and his store employees into a formal, institutionalized scheme to
defraud the pharmaceutical
companies and the drug- consuming public. As earlier noted, Petitioner said
he discovered that one or
more of his pharmacy employees were allowing pharmaceutical salesmen to leave
drug samples in
payment for their purchases of small store merchandise items such as cigarettes,
shaving cream, soda pop,
or liquor. Tr. at 102-103; I.G. Ex. 8 at 12. There is no evidence that the pharmaceutical
salesmen were
purchasing merchandise in this manner at Petitioner's stores with frequency
or in great quantities; nor was
there any evidence that accepting samples in lieu of full cash payment from
the salesmen amounted to
more than incidental accommodation by certain pharmacy employees acting without
the approval of their
superiors. It was Petitioner, as a co-owner and the top manager of these pharmacies,
who created and
instituted procedures for his pharmacies to place orders for samples on an inventory
basis with dishonest
salesmen, to verify the receipt of their orders, and to pay for the orders with
money. I.G. Ex. 8 at 12; Tr. at
87-88, 103.
Petitioner said his sole concern was for "accountability" as he did
not want to see slips of paper showing
that a salesman owed his pharmacy for having taken out its merchandise. Tr.
at 99, 102-103. If
Petitioner's concern had truly been for accountability in his stores' sale of
merchandise to manufacturers'
representatives, Petitioner could have easily instituted a rule requiring the
representatives to pay for their
purchases in the same manner as members of the public. Instead, the system of
"accountability" Petitioner
instituted served to ensure that his pharmacy employees did not give away his
stores' merchandise while
they participated in fraudulent transactions of his design. Under the practices
Petitioner initiated in 1977,
his pharmacies were making purchases of samples without the manufacturers' authorization
for the specific
purpose of reselling them to an unsuspecting public.
Aside from having perpetrated the various criminal offenses against drug manufacturers,
the drug-
consuming public, and the United States of America, Petitioner's actions breached
an important trust his
customers had placed in him and his pharmacies. His customers, in and out of
the Medicare or Medicaid
programs, depended on his pharmacists to fill their prescriptions with drugs
of the purity and potency
specified by their physicians and described by the manufacturers. The record
does not show that Petitioner
or his employees ever told their customers of the sample securing scheme or
that the samples had been
delivered to the pharmacies in baggies, removed from their original packaging
or labeling under less than
good manufacturing practices, and resold to customers without accurate and verifiable
lot numbers,
expiration dates, and other data required by law. See, e.g., I.G. Exs. 3, 4.
Nor did Petitioner ever tell the
physicians prescribing the drugs that he was giving their patients samples purchased
from salesmen. Tr. at
103.
Petitioner excused his actions with his arguments that sample dealings were
prevalent and that his actions
were not inconsistent with industry practices as he knew them for 30 years before
1986. However, the
actual industry examples he gave were unlike those practices he had instituted
at his stores. Petitioner
testified that the "sample practice" he knew of consisted of manufacturers'
representatives bringing in
samples to exchange for his pharmacies' expired stock; that he never had problems
with the manufacturers'
representatives accepting returned pharmaceutical products or giving exchanges
for expired ones; and of
his general awareness that some physicians gave drug samples to pharmacies in
exchange for store
merchandise and in lieu of rent for space. Tr. at 101-102. By ignoring the fundamental
logical distinctions
that should have been readily apparent to him, Petitioner insisted also that
there existed no difference
between his own fraudulent "sample practices" and those instances
in which he received free promotional
samples in the mail with the drug manufacturers' authorization. Tr. at 117-118;
P. Ex. 5.
I find, however, that the only common feature between what Petitioner did and
the so-called prevalent
practices he described was the use of drug samples. Nothing Petitioner said
during the hearing indicated
that other pharmacies had been soliciting the discounted purchases of drug samples
from salesmen who
were without authority to sell them in order to replenish their pharmacy inventory
for resale to the public.
The system Petitioner instituted and maintained for approximately nine years
was an innovation beyond
what he alleged was common in the industry. His self-righteous attitude gives
me no cause to hope that in
the future he will strive to do business honestly, ethically, and in a manner
that will justify the public's
trust.
Petitioner's efforts to challenge his exclusion by putting both the pharmaceutical
industry and various
regulatory bodies on trial does not persuade me that he is trustworthy. See,
e.g., Tr. at 48-64, 119, 157-
158. Petitioner seems to believe, for example, that he should not suffer for
his wrongdoing because others
committing greater wrongs are beyond the reach of regulators. His views are
self-serving at best. The
purpose of an exclusion is to give as much protection as possible to the programs
and to their beneficiaries
and recipients. It does not follow that the programs and their beneficiaries
and recipients should be put at
greater risk by allowing the continued participation of an untrustworthy individual
on the basis that the
individual in question believes the programs have already been at great risk.
Who should be regulated and
by what means are beyond the purview of this case. It is significant, however,
that Petitioner's views
concerning the pharmaceutical companies and regulators parallel other evidence
showing his preference for
blaming others for the actions he took voluntarily.
Petitioner's efforts to lessen his culpability in the proceedings before me
consisted also of his attempts to
either distance himself from the consequences of his actions or to deny the
existence of the consequences
that have been proven beyond a reasonable doubt in court. His contentions do
not change the fact that he
has been found guilty of fraud, conspiracy, causing the receipt in interstate
commerce of adulterated and
misbranded drugs, and delivering said drugs for pay. On the issue of trustworthiness,
however, the
evidence showing Petitioner's preferences for shirking responsibility and for
stretching the truth to suit his
own ends highlight the risks he poses to the programs.
Petitioner's denial of criminal intent has already been noted in the context
of the I.G.'s authority to impose
sanctions. In addition, Petitioner has inappropriately attempted to transfer
his culpability to a non-party
pharmacy employee. 14/ Other denials of like nature include his insistence that
all the sample drugs had
been purchased by his separately incorporated pharmacies when they had placed
the orders on an inventory
basis -- and he wrote checks on behalf of the management company he headed because
it was the "paying
agent" (but not the "purchaser") in these sample transactions.
E.g., Tr. at 87-88, 127. Similarly, after
having created his system for procuring and reselling samples, he then allegedly
left it to individual
pharmacists and salesmen to ascertain product quality and integrity; he denied
having ever personally
selected samples or verified the condition in which the samples were delivered
by the salesmen or resold
by his pharmacies to customers. Tr. at 133-135, 182-188; P. Hearing Request
-- No. 5 of "Specific
Findings Challenged." He went so far as to posit that he "had no reason
to worry that the drugs would not
have been up to quality standards" and depended upon "the integrity
of the company of the sales person
employed by that company to deliver it professionally" even where he was
transacting sample purchases
with salesmen acting without the company's authorization. Tr. at 187.
The foregoing types of denials presented by Petitioner at his exclusion hearing
are not inconsistent with
Petitioner's acknowledgement at his criminal trial that he was a "hands-on"
manager with complete control
over his business and fully aware of everything going into and out of his stores.
I.G. Ex. 8 at 53.
Petitioner was involved in the details of his businesses when it suited his
interests, but also he distanced
himself from involvement and knowledge when it served his purpose to do so.
Even under his own version
of the facts, it is apparent that Petitioner had created a scheme in which he
caused his subordinates to do
certain dirty work (e.g., order the samples, take them in, and resell them)
while he maintained for himself
the shield of a "paying agent" fiction. When these arrangements of
Petitioner's creation adversely affected
his interests, he was in a position to blame his subordinates for wrongful deeds,
while he purported to be
innocent. It seems possible, given Petitioner's desire to demonstrate his innocence,
that during the nine
years the transactions of his design were in place he never personally ascertained
in what condition the
samples were arriving, how they were stored, and whether they should be resold
to the public. This type of
purposeful absence from the scene afforded him a basis for claiming that he
had no personal knowledge of
adulteration or mislabeling, that he had placed reliance upon the professionalism
of others, and that his
conscience was clear concerning the impact of his scheme on the drug-consuming
public.
It is noteworthy also that Petitioner has never suggested by word or deed that
the health of his customers
was more important to him than the outflow of cigarettes, lotions, and other
minor items from his stores to
drug salesmen. As a "hands-on" manager, he had personally created
his system of "accountability" to
rectify the latter situation; but where he should have required account-ability
to ensure the health and safety
of his customers, he readily acknowledged that he had no involvement with and
had never inspected the
samples that were sold to his customers. Tr. at 184-185. Petitioner's selective
involvement in past events
demonstrates a deviousness unworthy of the trust accorded program providers.
The goals of the programs
cannot be served adequately by individuals who shirk responsibilities that are
rightfully theirs and turn
away from acquiring knowledge when doing so suits their interests.
Petitioner has tried to show that his six-year exclusion is unreasonable by
asserting that his criminal
activities have produced no profits for him and were not necessary to his business.
Petitioner contended
that the samples purchased were a small part of his inventory (e.g., P. Hearing
Request -- No. 3 of
"Specific Findings Challenged"), that the transactions did not result
in any profit for him or his companies
(e.g., I.G. Ex. 8 at 45; Tr. at 110-111), that pharmaceutical companies were
always willing to make deals in
competing for his business (Tr. at 101, 188), and that he instituted formal
procedures for purchasing
samples only because he was concerned for accountability in his stores' disbursements
of soda pop, shaving
cream, and other personal items to pharmaceutical salesmen. Petitioner asserted
that he did not need to buy
samples illegally, since manufacturers were willing to give him free exchanges
on his outdated drugs (Tr.
at 101), provide refunds when he was dissatisfied with the quality of the drugs
(Tr. at 188), sell him brand
name drugs at the price of generic drugs (Tr. at 110), and hand out free samples
or make other
accommodations to compete for his business. Tr. at 101. Petitioner especially
pointed to the transcript of
his taped conversation with a drug salesman for the proposition that he had
voluntarily stopped the
transactions when he learned they were illegal. Tr. at 50; I.G. Ex. 9. Petitioner
told the salesman in this
conversation that he was stopping because he was afraid of getting caught (e.g.,
I.G. Ex. 9 at 4, 7-8, 16)
and that he had started and maintained the sample procurement process without
much thought (e.g, id. at
11-12). According to Petitioner, it was not until he read an article in a trade
journal concerning efforts to
prosecute this type of transaction that he realized he should stop. Tr. at 136-37.
Even if I were to accept as true Petitioner's contentions that the illegal
transactions were acts of
thoughtless-ness by him and had no benefit for anyone, I would still find against
him on the reasonableness
of the exclusion. The need to prevent fraud in the programs and safeguard the
health and safety of
beneficiaries and recipients requires the exclusion of individuals who can so
thoughtlessly effectuate
senseless acts of dishonesty over the years while creating such serious potential
harm to the health and
safety of his customers. Nor can the programs' goals be served by those who
lack the ability to
independently determine whether their actions are fraudulent, wrong, or illegal.
If Petitioner had the option
of achieving the same ends through legal means as he alleged, then his choosing
the illegal means has
made him especially unsuited for continued participation in federally funded
health care programs. Thus,
Petitioner's contentions, even if accepted as true, fail to establish that his
exclusion is unreasonable.
I do not believe, however, that Petitioner has testified honestly before me
concerning the absence of any
profit motive in the sample purchases. The exact extent of Petitioner's financial
incentives or benefits from
his fraudulent transactions is not discernible at this juncture, given the layers
of corporate entities he has set
up and the limited issues in his criminal trial. Nevertheless, the evidence,
objectively viewed, makes it
more likely than not that Petitioner's creation of his fraudulent scheme in
1977 was linked to the demise of
all his leased pharmacy departments on other retailers' premises around that
time, the discount pharmacy
sales philosophy he had helped to pioneer, and his efforts to comply with the
cost-containment provision of
his contract with the Labor Health Institute HMO. Tr. at 81, 89, 99; I.G. Ex.
8.
Especially significant was the cost-containment contract Petitioner had with
the Labor Health Institute
HMO, which, according to Petitioner, required him to lower the HMO's costs.
I.G. Ex. 8 at 13. Petitioner
testified that he was buying samples in order to lower the price to the union
members in the HMO and that
the illegal transactions enabled him to sell drugs below their average wholesale
costs. I.G. Ex. 8 at 45.
Petitioner testified also that he had apprised the Institute's deceased medical
director, as well as its
purchasing director of his passing on the savings from his sample transactions.
Tr. at 111, 176; I.G. Ex. 8
at 13, 45. It is not possible to conclude that Petitioner's complying with the
terms of his contract with the
HMO and demonstrating to them that he was cutting costs wherever possible could
have created no
advantage to Petitioner and his corporations from 1977 to 1986. Petitioner's
Council Plaza Pharmacy had
been supplying this HMO's 30,000 plus members with medications at an extremely
high rate, filling 700 to
800 prescriptions per day since 1967. Tr. at 89, 91-92; I.G. Ex. 8 at 8. Successfully
maintaining this
contractual arrangement with the Labor Health Institute, with the help of the
illegal transactions from 1977
until 1986, was no doubt advantageous for Petitioner and his corporations, especially
since he had lost his
seven or eight leased pharmacy operations by 1977.
As for Petitioner's assertion that he had created his practice of buying and
selling samples without much
thought and without knowledge of their illegality, I note Petitioner's admission
that, since 1970, he had
known that "diversion" was illegal and consisted of evading the prices
set by drug manufacturers for selling
to his particular type of business. Tr. at 138-140. He argued that he did not
know his own scheme was
illegal because the Missouri Pharmacy Board never told him so (Tr. at 66), his
professors in pharmacy
school never told him to refrain from dealing in samples (Tr. at 104-105), and
he was not aware that any
pharmaceutical manufacturer required accountability for samples (Tr. at 154).
It is simply not believable that someone of Petitioner's education, professional
affiliations, business
experience in for-profit ventures, and concern for the unauthorized outflow
of minor merchandise from his
own stores could have honestly concluded that buying "not for resale"
samples from salesmen at lower
rates than intended by manufacturers was not wrong. It, like diversion, also
cheated the manufacturers out
of their profits. Moreover, whether Petitioner knew or should have known that
his activities were legal, he
was a pharmacist by profession, and he undertook the management of pharmacies
that sold health care
items. As such, he should have been aware of the health risks posed by misbranded
or adulterated drugs.
He should have known not to engage in enterprises that might endanger the health
of his customers.
With respect to Petitioner's argument that the percentage of samples in his
inventory was small, the I.G.
correctly pointed out that, if the percentage of sample drugs sold had constituted
a larger percentage of
Petitioner's business, the larger percentage would have served as a factor for
increasing the period of
exclusion. I.G. Br. at 12. The I.G. is correct also in noting that a small percentage
of Petitioner's extremely
high volume discount pharmacy businesses still constituted a large number of
sales. Id. As already noted,
Council Plaza Pharmacy alone filled 700 to 800 prescriptions per day.
Even if Petitioner's records concerning the volume of his transactions were
accurate, nothing Petitioner said
suggested that he purposely kept the volume low in order to avoid further defrauding
the pharmaceutical
companies or to avoid selling more adulterated and misbranded products to consumers.
Petitioner set up a
system that gave his pharmacists unrestricted authorization to order as many
samples as they wanted and
could procure. It does not follow that Petitioner's exclusion should now be
lessened because his
pharmacists might have exercised restraint on their own initiative, there were
not more unscrupulous
salesmen willing to help defraud their employers, or more samples were not available
for purchase by
Petitioners' pharmacies.
With respect to Petitioner's contention that his exclusion should be lessened
because he had voluntarily
stopped the practice of purchasing samples, as soon as he learned they were
illegal, I was not persuaded by
his arguments or his reliance on the contents of his taped conversation with
the pharmaceutical salesman
who cooperated with the authorities. Even though Petitioner told the salesman
several times during their
meeting on August 27, 1986, that he wanted to stop, Petitioner has not introduced
sufficient evidence to
overcome the possibility that he made those self-serving statements to the salesman
in order to maintain his
appearance of innocence. I.G. Ex. 9. For Petitioner to stop the illegal practices,
he needed to order his
employees to cease ordering pharmaceutical samples to replenish their inventory
and to tell them that he, as
owner and top management official, was directing the elimination of the practice
he had put in place in
1977. Yet, Petitioner does not allege that he ever issued such directives to
his employees. Inasmuch as a
federal search warrant was served on September 3, 1986 (P. Ex. 15), it -- as
opposed to Petitioner's reading
about the illegality of the transactions in a magazine (Tr. at 136) or his expressed
desire to stop on August
27, 1986 -- seems the more immediate cause for the demise of Petitioner's scheme.
Petitioner contends that his actions were not fraudulent. 15/ P. R. Br. at 5-6.
This is not an issue as he was
convicted of fraud and I am not authorized to review that conviction. The fiscal
integrity of the federally
funded health care programs depends on the willingness of its many thousands
of providers to regulate
their own actions in order to avoid the commission of fraud and financial misconduct.
Petitioner's
arguments, taken together with his testimony as a whole, indicate a greater
interest in rationalizing the
wrongful actions already taken than in analyzing why he should not have taken
them in the first instance.
His unique interpretation of "fraud" in the context of this case does
not give me reasonable assurances that
he can or will refrain from committing what the Act defines as fraud or financial
misconduct in the future.
There also is no basis for reducing the exclusion period pursuant to Petitioner's
observation that his
conviction was not related to any adverse impact on program beneficiaries. Petitioner
presented no
evidence that he had specifically refrained from selling sample drugs to Medicare
or Medicaid patients.
The misbranded and adulterated drugs Petitioner sold posed health risks to all
unsuspecting purchasers,
including beneficiaries and recipients of these programs. 16/ The I.G. has listed
various dangers posed by
the misbranded, adulterated, and expired drugs Petitioner sold, including causing
toxicity in the body
(especially in the elderly), the absence of assurance on potency or purity,
inability to adequately treat the
conditions for which they were prescribed, and the risk of medical complications,
particularly in the
elderly. I.G. Br. at 11-12. These dangers are apparent from the record evidence
cited by the I.G. I.G. Ex.
7 at 59-65. The existence of these potential dangers is not refuted by Petitioner's
assertions that he lacked
personal knowledge of adulteration and was doing his work in an office away
from the pharmacies. The
purpose of an exclusion is to prevent potential harm to the programs and their
beneficiaries and recipients.
Since Petitioner remains unable to recognize how his past actions have created
a very grave risk of harm,
he should be kept out of the programs for a lengthy period lest he take similar
action in the future and
create health risks for beneficiaries and recipients out of ignorance or inadvertence.
I have not accorded any weight to Petitioner's argument that no one has been
actually harmed by using the
sample drugs he resold. E.g., Tr. at 65, 166-167. His good luck is not a sign
of his trustworthiness.
Petitioner was noticeably evasive when asked if he would be willing to buy drugs
from a pharmacy that
told its customers that it could not make assurances that drugs had not been
tampered with, that drugs had
been stored or maintained in proper conditions, or that drugs were being sold
prior to their expiration date.
Tr. at 182-185. It does not appear that harm to Petitioner's unsuspecting customers
could have been traced
to the samples resold by his pharmacies even if health problems had been reported.
See especially Counts I
and VI of I.G. Exs. 3, 4. One of Petitioner's pharmacy employees testified that
there was no effort to avoid
mixing lot numbers and expiration dates on receipt of the samples. Tr. at 179;
P. Ex. 18. Evidence
discovered after Petitioner's conviction shows only that one sample taken from
one store was still potent
(Tr. at 69-71; P. Ex. 16); it does not negate the jury's finding that he caused
the delivery of adulterated and
misbranded drugs from 1977 through September 30, 1986 under Counts VI and VII.
An exclusion under
section 1128(b)(1) of the Act need not be delayed or reduced until someone is
actually harmed. The
possibility of serious harm to individuals was inherent in the actions that
led to Petitioner's conviction. His
cavalier approach to equating the absence of provable harm caused by him to
the absence of harm and
potential for harm is further indication that his judgment is not to be trusted.
For similar reasons, I am not persuaded to mitigate Petitioner's exclusion
by Petitioner's argument that State
inspectors had never cited him for infractions prior to his indictment. E.g.,
P. Br. at 7. Petitioner never
apprised the inspectors of his actions, and he acknowledged that mislabeling
could not have been identified
during the visual inspections that were routinely performed over the years.
Tr. at 175. According to the
inspection reports submitted by Petitioner, the State officials never tested
the potency of pharmaceuticals
(P. Exs. 22-37), and their standard inspections prior to his conviction were
more general than those that
have evolved since (compare P. Exs. 33-37 with P. Exs. 22-32). Moreover, Petitioner's
success in evading
sanctions for nine years is not an attribute commending his continued participation
in the programs.
Also detrimental to the programs' interests is the attitude exhibited by Petitioner's
heavy reliance on the
rationale that the customers and the HMO saved money on the resold samples.
E.g., Tr. at 111. Under the
Medicare and Medicaid programs, beneficiaries and recipients have a right to
expect the delivery of health
care items that are safe and of high quality and efficacy, without regard for
the provider's opinions on the
prices paid. The "they got what they paid for" type of rationale expressed
by Petitioner is not consistent
with the rightful expectations of the programs' beneficiaries and recipients.
I agree also with the I.G. that
Petitioner's cost/benefit rationale (i.e., some percentage of risk is acceptable
at a given cost) is faulty, and
beneficiaries and recipients of federally-funded health care programs should
not be exposed to any risks
that can and should be eliminated. I.G. Br. at 13.
Even though Petitioner had been incarcerated and remains under probation as
part of his criminal sentence,
the record does not demonstrate that he can be trusted to refrain from committing
similar offenses in the
future. 17/ He has abandoned the acknowledgement of wrongdoing previously expressed
in his taped
conversation with the drug salesman (I.G. Ex. 9), portrayed himself as a victim
of injustice (e.g., Tr. at 51-
59, 189), minimized the significance of his sentence, and construed the terms
of his sentence as an
affirmation of his professed innocence (e.g., P. Hearing Request -- No. 10 of
"Specific Findings
Challenged;" Tr. at 57-58; P. R. Br. at 10). There is no evidence that
his thought process or outlook has
undergone any rehabilitation as a result of the criminal proceedings. Especially
given Petitioner's belief
that his sentence was very light and that the court did not think him very guilty,
it is not likely that the
criminal justice system can deter him from committing similar offenses in the
future.
Petitioner has asked that I view him as "far more the victim than . .
. the culprit." P. Br. at 3. I have not
found him a victim at all, but an untruthful, manipula-tive, remorseless person
who has posed and
continues to pose very serious risks to the fiscal integrity of the programs
and to the health and safety of
their beneficiaries and recipients. Petitioner has not, as he pointed out, exhibited
"conduct that would
suggest smugness, complacency, or disregard of authority." Id. at 7-8.
What his conduct to date has
shown is his apparent belief that his own cleverness should have placed him
above the reach of the law, as
well as a continuing willingness to affirmatively mischaracterize facts in order
to evade the force of the
authorities. His six-year exclusion will protect the beneficiaries and recipients
of the programs, maintain
fiscal integrity in the programs, and help foster public confidence in the programs.
To the extent that Petitioner has interposed arguments concerning section 1128(a)(2)
of the Act and
debarment proceedings as well (P. Br. at 6, 8-9), I have considered them inapposite
or of inconsequential
weight in the foregoing determinations.
In sum, the I.G.'s exclusion of six years is reasonable based on the reprehensible
and dangerous nature of
the criminal offenses Petitioner had intentionally committed over nine years,
as exacerbated by the more
recent evidence of his continuing dishonesty, his efforts to foist fault onto
others, his apparent inability to
distinguish fraudulent actions from those that are not, his lack of remorse
and rehabilitation, and his
cavalier denials of the dangers his actions had created in and out of the programs.
The six years is neither
extreme nor excessive for advancing the remedial purpose of the Act. 18/ Six
years is within a reasonable
range appropriate to Petitioner's circumstances.
3. I find the six-year exclusion reasonable even after conducting an alternative
evaluation of the
exclusion under the new regulations.
Even though I do not find that the new regulations apply to this or other cases
in which the I.G. had
imposed an exclusion prior to January 29, 1992, I have analyzed the evidence
along the lines suggested by
the I.G. in order to help expedite a final resolution of all potential issues
in this case. Were I to conclude
that the new regulations apply to my adjudication of this case, I would affirm
the reasonableness of the six-
year exclusion pursuant to the criteria specified in 42 C.F.R. 1001.201(b).
I believe that the I.G. exercised
sound and reasonable judgment by lengthening the three-year benchmark period
by an additional three
years because there exist two aggravating factors: 1) the criminal acts underlying
Petitioner's conviction
took place over a period of more than one year; and 2) Petitioner's sentence
included incarceration. 42
C.F.R. 1001.201(b)(2)(ii) and (iv).
Under the new regulations, I have not limited my consideration of the record
to the bare facts that establish
those two aggravating factors, because the regulations do not specify the precise
length of additional time
warranted by each aggravating factor. 42 C.F.R. 1001.201(b). The new regulations'
prohibition against
an administrative law judge's "review[ing] the exercise of discretion by
the OIG to exclude an individual or
entity under section 1128(b) of the Act or determine the scope or effect of
the exclusion[,]" 42 C.F.R.
1005.4(c)(5), reaffirms the I.G.'s delegated authority to decide whether to
impose a permissive exclusion
under section 1128(b), and it makes clear that there is no right to an administrative
law judge hearing on
the scope or effect of such an exclusion. However, administrative law judges
are not bound to adopt
whatever additional period of time the I.G. has added for the aggravating factors.
42 C.F.R. 1005.4(c)(5).
Nor do the new regulations limit the introduction of evidence to those facts
either establishing or negating
the existence of the factors identified in 42 C.F.R. 1001.201(b). Under the
new regulations, a petitioner
remains entitled to a hearing on the issue of whether ". . . [t]he length
of exclusion is unreasonable[,]" 42
C.F.R. 1001.2007(a)(1)(ii), and a petitioner remains entitled to "[p]resent
evidence relevant to the issues
at the hearing[,]" 42 C.F.R. 1005.3(a)(5) (emphasis added). What evidence
is relevant to the aggravating
or mitigating factors in each case -- beyond the bare facts that establish their
existence -- can be determined
only in accordance with the goals of section 1128(b) of the Act. Resolving the
issue of whether the length
of an exclusion is unreasonable requires reviewing the total body of evidence
relevant to the aggravating or
mitigating factors listed in the new regulations.
Having already discussed my assessment of the evidence relevant to Petitioner's
illegal actions from 1977
to 1986 and the imposition of a sentence that included incarceration, I also
find, in the alternative, that the
six-year exclusion imposed and directed against Petitioner by the I.G. is reasonable
in order to protect the
beneficiaries and recipients of the programs, to maintain the programs' integrity,
and to foster public trust,
in accordance with 42 C.F.R. 1001.201 and section 1128(b)(1) of the Act. Even
under the new regulatory
criteria, six years is neither excessive nor extreme.
CONCLUSION
Based on the evidence in this case and the law, I conclude that the I.G. had
the authority to exclude
Petitioner pursuant to section 1128(b)(1) of the Act. I find further that the
six-year exclusion imposed and
directed against Petitioner by the I.G. is reasonable and not extreme or excessive.
I therefore sustain the
exclusion.
Mimi Hwang Leahy
Administrative Law Judge
1. Section 1128(h) of the Social Security Act identifies the various State health
care programs that
receive federal funds and are affected by the exclusion. Unless the context
indicates otherwise, "Medicaid"
will be used as an abbreviation for such programs.
2. I refer to the parties' exhibits as "I.G. Ex. (exhibit number at page)
or P. Ex. (exhibit number at page)."
I refer to the transcript of the hearing as "Tr. (at page)." I refer
to the parties' posthearing briefs as "I.G. Br.
(at page) or P. Br. (at page)." I refer to the parties' reply briefs as
"I.G. R. Br. (at page) or P. R. Br. (at
page)."
3. Petitioner's exhibits are numbered 1 to 13 and 15 to 63. Petitioner's exhibit
14 was withdrawn.
Petitioner's exhibits 1, 2, and 3 are copies of covers to three government publications.
Petitioner moved for
judicial notice of these publications. Tr. at 16-18. I ruled at the hearing
that I would take notice that these
publications existed, but Petitioner was told that he needed to identify the
relevant pages and parts thereof.
Tr. at 191-192. (See also letter sent at my direction on November 19, 1992.)
Neither party has identified
or supplied copies of any portion of these publications relevant to their position.
4. I found three errors in the transcript with regard to the number of pages
in three of Petitioner's
exhibits. Thus, P. Ex. 5 consists of only 3 pages, not 4 pages; P. Ex. 15 consists
of only 11 marked pages,
and one blank sheet of paper, not 12 marked pages; and P. Ex. 19 consists of
only 19 pages, not 25 pages.
5. The second page of the hearing request also referred to the "possible
exclusion" of two corporations
related to Petitioner, Leehar Distributors and its wholly-owned subsidiary,
Pharmaceutical Dose Services,
Inc., as well as to a proposed spousal transfer that would allegedly render
the "possible exclusion" of these
two entities moot. Nothing presented by the parties shows whether Leehar Distributors
and Pharmaceutical
Dose Services, Inc. have been excluded from participation in the Medicare and
Medicaid programs.
Moreover, I have not been apprised of any fact bearing on the asserted spousal
transfer or its effect on the
I.G.'s authority to exclude these entities. Therefore, I have construed Petitioner's
hearing request as an
appeal of his own exclusion.
6. In compliance with a prehearing order, the I.G. filed a document on October
23, 1992 identifying his
exhibits 1 and 2 as prior statements of witnesses offered in lieu of testimony.
Petitioner did not object, and,
as noted, the exhibits containing these statements were admitted into evidence
at the hearing.
7. My Background Findings as set forth in Part A were not controverted.
8. When asked what he meant by the "trading" he discovered at the
pharmacy, Petitioner explained:
"What happened, he [a salesman] came in and he picked up cigarettes and
soda and shaving cream and
stuff like that, products that came out and groceries that came out of our pharmacy
and in return he would
bring in merchandise to offset his purchase." I.G. Ex. 8 at 12.
9. Also indicted was a manager who worked for Petitioner and Leehar Distributors.
10. Id. at Nos. 6, 7, and 9 of Petitioner's "Specific Findings Challenged,"
which also includes the
assertion that his conviction does not relate to drug diversion or patient abuse.
As previously discussed,
Petitioner cannot demonstrate that section 1128(b)(1) is inapplicable by showing
that he has not been
convicted of additional criminal offenses.
11. The factors specified in this now superseded regulation for former section
1128(a) were: the number
and nature of the program violations and other related offenses; the nature
and extent of any adverse
impact the violations have had on beneficiaries; the amount of damages incurred
by the Medicare and
Medicaid programs; whether there are any mitigating circumstances; the length
of the sentence imposed by
the court; any other facts bearing on the nature and seriousness of the program
violations; and the
individual's previous sanction record under the programs.
12. The I.G. also submitted alternative arguments at pages 6 to 7 of the reply brief.
13. For example, although Petitioner does not dispute that his sentence included
incarceration, he argued
at hearing that "the 90 day penalty that was affixed truly represents sincere
doubt by the [United States
District Court] Judge of a conviction of the crime." Tr. 57-58. He argued
in his brief that
the probation period, as applied, was governed by an arbitrary application
of the local rules of the U.S.
District Court, whereas the minimal punishment imposed and Mr. Dino's participation
in a work release
program are the products of clear and timely thought process as applied by the
hearing judge, clearly
evidencing great leniency.
P. R. Br. at 10. Also, on the issue of whether the acts that led to the conviction
took place over a period of
more than one year, Petitioner argued that his acts conformed to widespread
industry practices that had
been approved for more than 30 years. Tr. at 57.
14. After the close of the hearing, Petitioner moved for admission of a one
page document marked for
identification as "Exhibit 64." See Petitioner's November 24, 1992
letter and attachment. Petitioner's letter
represented that counsel for the I.G. had no objection to the submission. The
document in question is a
copy of the first page of a November 1992 newsletter published by the Missouri
Board of Pharmacy.
Petitioner's cover letter stated that the newsletter is significant because
it concerns the Missouri Board of
Pharmacy's action against a pharmacy employee involved in Petitioner's conviction.
I now rule that the proffered document is inadmissible. At the conclusion of
the hearing, the record was
left open solely for the receipt of the parties' briefs. Neither party indicated
a need, a desire, or a
preference for submitting additional evidence. The proffered document is not
material to the issues in
Petitioner's case. The pharmacy employee has not been sanctioned by the I.G.,
and the Missouri Board of
Pharmacy's actions against the pharmacy employee have no bearing on the I.G.'s
authority to exclude
Petitioner under section 1128(b)(1) or whether the period of Petitioner's exclusion
is reasonable. Even
though Petitioner has urged me to find the pharmacy employee guilty of the criminal
activities that have
resulted in his own conviction (P. R. Br. at 4, 9), Petitioner should be aware
that his arguments along these
lines are inappropriate and legally untenable in these proceedings. I will not
allow the admission of any
evidence purporting to support such arguments against a non-party. Furthermore,
to the extent Petitioner
may have offered the newsletter to support his theory that regulators have been
overzealous or arbitrary
(see, P. R. Br. at 4-5, 9), counsel's extensive arguments on this theory are
of record; anything more on this
point would be cumulative.
15. Petitioner's arguments included --
It goes without saying that samples were to be given away and that the company
expected no money for those samples in any event. The company was not, therefore,
defrauded when it
received no money (but it did!). The drug companies achieved their purposes
and intent by this series of
transactions, not the least of which was to encourage dispensation of their
drugs by price manipulation
through the pharmacists to maintain the government's price support system by
not denigrating the need for
price supports by reducing the price shown as charged.
P. R. Br. at 5-6.
* * * * *
[C]ustomers were not defrauded. Whatever price differential was obtained
through Mr. Dino's pharmacy was immediately passed on to the customers.
Id. at 5.
16. See especially Petitioner's conviction under Count VI, for having caused
his employees and others to
remove drugs from their original packaging or labeling under less than good
manufacturing practice and
placing the adulterated drugs in plastic baggies or other unauthorized containers,
often without accurate
and verifiable lot numbers, expiration dates, or other required dates in violation
of federal law. I.G. Exs. 3,
4.
17. The court had placed Petitioner on probation for a total of six years (I.G.
Ex. 4), which is also the
length of time Petitioner is to be excluded from the programs.
18. I have not increased the six-year exclusion. The I.G. will have another
opportunity to review
Petitioner's circumstances if he should seek reinstatement to the programs after
the six-year exclusion has
expired. As required by the regulations, the I.G. will determine the appropriateness
of any reinstatement
application on the basis of, inter alia, reasonable assurances that the types
of actions which resulted in the
exclusion have not and will not recur. 42 C.F.R. 1001.3002(a).