Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Civil Remedies Division
DATE: May 31, 1990
Docket No. C-127
In the Case of:
The Inspector General
- v. -
Tommy G. Frazier and
Prater Drugs, Inc.,
Respondents.
DECISION
Respondents requested a hearing to contest the Inspector General's (the I.G.)
proposed imposition against
them, jointly and severally, of civil monetary penalties, assessments, and an
exclusion from participation in
Medicare and State health care programs. The I.G. alleged that Respondents violated
section 1128A of the
Social Security Act (the Act), as implemented by 42 C.F.R. 1003.100 et seq.
I held a hearing in Lexington, Kentucky, on November 14-16, 1989. Based on
the law, regulations, and
evidence adduced at the hearing of this case, I conclude that Respondents unlawfully
presented or caused
to be presented 20 claims for items or services that they knew, had reason to
know, or should have known
were not provided as claimed. I impose penalties of $24,000 and assessments
of $288.92 against
Respondents, jointly and severally. Also, I exclude Respondents from participating
in the Medicare and
Medicaid programs for five years.
ISSUES
The issues in this case are whether:
1. As required by section 1128A(c) of the Act, the I.G. initiated a proceeding
against
Respondents not later than six years after the claims at issue were presented.
2. In violation of section 1128A of the Act, Respondents presented or caused
to be presented
claims for items or services which they knew, had reason to know, or should
have known were not
provided as claimed; and
3. Penalties, assessments, and an exclusion should be imposed against Respondents,
and if so, in
what amount and for what period of time.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
1. Respondent Tommy G. Frazier (Respondent Frazier) is a registered pharmacist. Tr. at 8.
2. Respondent Prater Drugs, Inc. (Respondent Prater), was incorporated in June 1969. Tr. at 7.
3. Respondent Frazier has owned 100% of the stock in Respondent Prater since 1973. Tr. at 7.
4. In November 1972, Respondent Frazier and Thomas Utter incorporated Parkway
Drugs, Inc. (Parkway).
Tr. at 7.
5. In September 1975, the partnership was dissolved and Respondent Frazier
assumed complete control of
Parkway. Tr. at 7.
6. Parkway remained open and operating until 1986. Tr. at 7-8.
7. The Kentucky Medical Assistance Program (KMAP) is the state Medicaid agency
for Kentucky, and is
designated pursuant to Title XIX of the Social Security Act to administer that
state's Medicaid plan. Tr. at
8.
8. KMAP reimburses participating pharmacists for covered prescription drugs
provided to Medicaid
recipients. Tr. at 50-51; I.G. Ex. 42.1.
9. Any pharmacy holding an operation permit from the Kentucky Board of Pharmacy
may participate in
KMAP. I.G. Ex. 42.1
10. All pharmacies that participate in KMAP must sign an "Agreement of
Participating Pharmacies" which
requires them to abide by the policies and procedures of KMAP. Tr. at 33; I.G.
Ex. 42.1
11. From September 1966 through the present, Respondent Prater has continuously
participated in KMAP
using provider number 54005780. Tr. at 8.
12. On May 25, 1989, the Inspector General (I.G.) informed Respondents that
he sought to impose against
them, jointly and severally, penalties of $24,000, assessments of $288.92, and
a five year exclusion from
participation in the Medicare and Medicaid programs.
13. The I.G. alleged that, in violation of section 1128A of the Social Security
Act, Respondents presented
or caused to be presented to KMAP 20 claims which they knew, had reason to know,
or should have
known, were not provided as claimed.
14. The I.G. alleged that Respondents presented or caused to be presented to
KMAP reimbursement claims
for brand name drug products when, in actuality, Respondents dispensed generic
drug products.
15. In order to obtain reimbursement for drugs dispensed to Medicaid recipients,
Respondents were
required to present reimbursement claims to KMAP. Tr. at 103
16. Appalachian Computer Services (ACS) is a data entry company located in
London, Kentucky. I.G.
Ex. 46.
17. ACS does not act as an agent of KMAP, nor is it affiliated with the United
States Government. I.G.
Ex. 46.1
18. From October 1981 through June 1983, Respondents contracted with ACS to
prepare Medicaid
reimbursement claims on their behalf. Tr. at 8, 520.
19. ACS supplied Respondents with "Title XIX Claim Information Sheets"
which Respondents used to
record information from which ACS prepared Medicaid reimbursement claims. I.G.
Ex. 46.1
20. Title XIX Claim Information Sheets requested the following information
from Respondents for each
claim submitted to ACS: (1) provider name and address; (2) prescription number;
(3) date of dispensing;
(4) recipient beneficiary identification number; (5) National Drug Code (NDC)
of drug; (6) price of drug.
I.G. Ex. 46.1.
21. All reimbursement claims which ACS prepared on Respondents' behalf were
created from information
which Respondents placed on Title XIX Claim Information Sheets. Findings 19,
20.
22. Respondent Frazier employed billing clerks at both Respondent Prater and
Parkway to perform duties
associated with billing, including completion of Title XIX Claim Information
Sheets. Tr. at 217, 374, 529;
I.G. Ex. 58.1
23. From 1978 through 1982, Connie Brewer, formerly known as Connie Hurst,
was employed by
Respondent Frazier at Parkway. Tr. at 374.
24. Respondent Frazier taught Connie Brewer how to do KMAP billing. Tr. at 384; I.G. Ex. 50.1
25. Respondent Frazier instructed Connie Brewer to record information to be
used in billing KMAP for
drugs sold at Parkway by making a "cross" on prescription forms of
KMAP recipients and writing the NDC
of the drug to be billed to KMAP across the top of the cross. Tr. at 383, 391-392.
26. The NDC is a unique and universally known number which identifies a particular
drug product. Tr. at
50.
27. Although generic drugs were being used to fill prescriptions, Respondent
Frazier instructed Connie
Brewer to record the NDC of a brand name drug and to bill KMAP for brand name
drugs. Tr. at 379, 381,
383-384, 409, I.G. Ex. 50.1.
28. Connie Brewer was instructed by Respondent Frazier to write in the amount
of the drug product
dispensed on the bottom left-hand side of the cross. Tr. at 382.
29. Connie Brewer was instructed by Respondent Frazier to write in the number
of days for which the
drug product was supplied on the bottom right-hand side of the cross. Id.
30. From 1973 through January 1982, Janice Lemaster was employed as a billing
clerk at Respondent
Prater. I.G. Ex. 49.1.
31. During her period of employment at Respondent Prater, Janice Lemaster used
the same cross system to
record billing information for KMAP claims that was used by Connie Brewer at
Parkway. Tr. at 232.
32. Prior to her employment at Prater, Janice Lemaster had never performed
KMAP billing work. Tr. at
216.
33. Janice Lemaster did KMAP billing pursuant to Respondent Frazier's instructions.
I.G. Ex. 49.1;
Findings 22-31.
34. Eula Slone was employed at Respondent Prater from September 1982 through
November 1988. I.G.
Ex. 58.1
35. The 20 claims at issue were presented during the period of time when Eula
Slone was employed at
Respondent Prater. I.G. Ex. 58.1.
36. Eula Slone used the same "cross" system utilized by Connie Brewer
and Janice Lemaster to record
claims data for Medicaid prescription drug sales. I.G. Ex. 58.1.
37. Eula Slone did KMAP billing pursuant to Respondent Frazier's instructions. Findings 35, 36.
38. Respondents submitted Title XIX Claim Information Sheets to ACS. Tr. at 531; I.G. Ex. 1.5-20.5.
39. ACS transferred the information from the Title XIX Claim Information Sheets
which it received from
Respondents onto computer disks and sent the computer disks to KMAP for processing
and
reimbursement. I.G. Ex. 46.1.
40. Based on information submitted to it by the provider who presented the
claim or caused it to be
presented, KMAP creates a remittance statement for each claim it receives and
reimburses. Tr. at 95-96.
41. Each of the 20 claims in issue are detailed on a KMAP remittance statement. I.G. Ex. 1.1-20.1.
42. Each KMAP remittance statement contains the following information: (1)
provider name; (2) provider
number; (3) recipient name; (4) recipient identification number; (5) transaction
control number; (6) date on
which drug product was dispensed; (7) Rx number (8) drug code; (9) quantity
dispensed; (10) whether
prescription represented a refill; (11) amount billed by provider; (12) amount
of charges not covered by
KMAP; (13) claim amount paid by KMAP. Tr. at 76.
43. Respondents presented or caused to be presented to KMAP each of the 20
claims in issue. Tr. at 8;
I.G. Ex. 1.1-20.1, 1.5, 5.5, 6.5, 9.5, 12.5-14.5, 16.5, 18.5, 20.5; Findings
38-41.
44. The date KMAP received each of the 20 claims at issue is documented in
a transaction control number
on a remittance statement. Tr. at 80, 82-86; I.G. Ex. 1.1-20.1, 47.1.
45. The I.G. may initiate an action under section 1128A of the Social Security
Act within six years of the
date that a claim at issue was presented. Social Security Act, section 1128A(c).
46. For purposes of determining whether an action was initiated within the
six-year statute of limitations,
the term "presented" refers to the date on which a claim was received
by an agent acting on behalf of the
United States or a state. Social Security Act, section 1128A(c).
47. Each of the 20 claims at issue was presented to KMAP within six years of
the date that the I.G.
initiated his action in this case. Findings 12, 44.
48. For each of the 20 claims in issue, the I.G. initiated his action against
Respondents within the six-year
statute of limitations. Findings 44, 45.
49. Each pharmacy which claims reimbursement for a drug provided to a KMAP
recipient must provide
KMAP with the NDC of the drug for which reimbursement is claimed. Tr. at 42-43.
50. The NDC is a number containing up to ten digits that identifies each drug
by either a generic name,
brand name, or manufacturer. Tr. at 42.
51. The NDC is a code that is universally used, and it is used by KMAP to identify
the specific drug for
which a pharmacy is claiming reimbursement. Tr. at 42-43.
52. By referring to the NDC provided by the pharmacy on its claim, KMAP determines
the drug which the
pharmacy claims to have dispensed. Tr. at 76.
53. KMAP determines the amount of reimbursement owed to a pharmacy for a claim
based in part on the
pharmacy's identification of the drug dispensed. Tr. at 76.
54. Based on a formula, KMAP reimburses participating pharmacies for covered
drugs provided to
Medicaid recipients. Tr. at 44-48.
55. The purpose of KMAP's drug reimbursement formula is to protect the Medicaid
program from
excessive charges or excessive payments, and to establish a uniform, fair and
equitable means of
reimbursing pharmacies for medications that are provided to Medicaid recipients.
Tr. at 48.
56. KMAP's reimbursement formula operates to reimburse a participating pharmacy
for each prescription
for a covered drug, by paying the pharmacy the lower of: (1) lower of the pharmacy's
usual and customary
charge; or (2) a dispensing fee for each prescription, plus the lower of:
a. the drug's Estimated Acquisition Cost (EAC) per unit of drug dispensed;
b. the drug's Maximum Allowable Cost (MAC) per unit of drug dispensed,
multiplied times the number of units of the drug dispensed. Tr. at 44-48; I.G. Ex. 42.1.
57. The dispensing fee is analogous to a labor charge. Tr. at 46 -47.
58. At all times relevant to this case, the dispensing fee paid to participating
pharmacies was $2.35 per
prescription. I.G. Ex. 42.3; Tr. at 46-47.
59. In calculating the payment per unit of drug dispensed, KMAP will determine
the following, based on
the NDC of the drug for which reimbursement is claimed, and data maintained
by KMAP:
a. the drug's EAC;
b. the drug's MAC;
Tr. at 44-48.
60. The EAC is KMAP's determination of the wholesale cost for which a pharmacy
could purchase a
manufacturer's version of a particular drug. Tr. 44-46.
61. KMAP has assigned an EAC to every version of a drug for which it reimburses. Id.
62. The MAC is KMAP's determination of the median wholesale cost of all manufacturers'
versions of a
particular drug. Tr. at 44-46.
63. KMAP has not determined a MAC for every covered drug because some drugs
are not manufactured
by enough manufacturers to provide KMAP with data from which a MAC may be determined.
Tr. 43-44,
72; I.G. Ex. 42.1.
64. A pharmacy's usual and customary charge for a drug is the amount a pharmacist
would charge the
general public to fill a prescription for that drug. Tr. at 49-50.
65. A brand name is used by a manufacturer in marketing a drug that it has
developed. Once established,
a brand name is only used by one manufacturer. Tr. at 61.
66. A generic brand of a drug is manufactured and marketed under the same name
by several different
manufacturers. Tr. at 60.
67. A generic drug is equivalent in product, ingredient, composition and effectiveness
to the brand name
version of the same drug. Tr. at 61.
68. Generally, a brand name drug is more expensive than its generic equivalent,
and thus, will have a
higher EAC than its generic equivalents. Tr. at 64-65.
69. At all times relevant to this case, Kentucky law required pharmacies to
dispense generic versions
of prescription drugs to Medicaid recipients except in those cases where the
prescribing physicians
specified that brand name drugs must be provided to the recipients or a generic
equivalent for the brand
name drug product was not available. Tr. at 7, 133.
70. Respondents were aware of this law. Tr. 553; Findings 1-5.
71. Each of the 20 claims at issue are for prescriptions to KMAP recipients
which Respondents filled
with generic drugs. Tr. at 25-26, 143, 149, 183, 343, 466, 605-606; I.G. Ex.
1.6-20.6, 59.1.
72. Each of the 20 claims at issue claim reimbursement for brand name drugs.
I.G. Ex. 1.1-20.1, 1.5, 5.5,
6.5, 9.5, 12.5-14.5, 16.5, 18.5, 20.5.
73. The 20 claims at issue are claims for reimbursement for items which Respondents
presented or caused
to be presented to KMAP that were not provided as claimed. Findings 71, 72;
Social Security Act,
1128A(a).
74. Although prescriptions for KMAP recipients were being filled with generic
drugs, Respondent Frazier
instructed his employees to always bill KMAP for brand name drugs. Tr. at 379,
381, 383-384, 409; I.G.
Ex. 49.1, 50.1, 58.1; Findings 22-37.
75. Respondents knew that the 20 claims at issue in this case were not provided as claimed. Finding 74.
76. Respondent Prater signed a provider participation agreement with KMAP and
agreed to abide by
KMAP's rules and procedures. Tr. at 33.
77. Respondents had a pre-existing duty to verify the truth and accuracy of
the claims which were
presented to KMAP on their behalf. Findings 3, 76.
78. Respondents received remittance statements from KMAP which identified the
drugs for which
Respondents were reimbursed. Tr. at 76; Findings 40-42.
79. Respondents had information to place them, as reasonable providers, on
notice that the 20 claims at
issue were not provided as claimed. Findings 38-42, 78.
80. Respondents had reason to know that the 20 claims at issue were not provided
as claimed. Findings
76-79.
81. Respondents were indifferent to whether the 20 claims at issue truthfully
claimed reimbursement for
the items claimed. Findings 74, 75, 78, 79.
82. Respondents should have known that the 20 claims at issue were not provided as claimed. Finding 81.
83. The I.G. did not establish by a preponderance of the evidence which generic
drugs were supplied by
Respondents to fill each of the prescriptions for which reimbursement was claimed
with respect to the 20
claims at issue, See Tr. at 140-152; I.G. Ex. 2.2-20.4.
84. For the 20 claims at issue, the EACs for the brand name drugs billed to
KMAP by Respondents were
greater than EACs for all generic equivalents of those drugs. Tr. at 60; I.G.
Ex. 41.1 through 41.6.
85. For each of the 20 claims at issue, the reimbursement KMAP paid to Respondents
for the brand name
drugs for which reimbursement was falsely claimed was at least as much as would
have been reimbursed
had Respondents truthfully claimed reimbursement for the drugs they dispensed.
Findings 56, 59-63, 84.
86. The brand name drugs for which Respondents falsely claimed reimbursement
in claims 2, 4-7, 11, 12,
16 and 20, are drugs for which KMAP established no MAC. I.G. Ex. 41.1 through
41.6.
87. Respondents received an overpayment for claims 2, 4-7, 11, 12, 16 and 20
because the EACs for the
brand name drug products Respondents billed to KMAP were greater than the EACs
for any generic drug
products which Respondents would have actually dispensed. Findings 56, 59-63,
84, 86.
88. The I.G. did not prove the amount of overpayment Respondents received for
claims 2, 4-7, 11, 12, 16
and 20. See Finding 83.
89. Claims 1, 3, 8-10, 13-15, and 17-19 are for drugs which were assigned a
MAC by KMAP. I.G. Ex.
41.1 through 41.6.
90. The I.G. did not prove that Respondents received an overpayment for claims
1, 3, 8-10, 13-15, and 17-
19, because the I.G. did not prove that the prescriptions for which these claims
sought reimbursement were
filled with generic drugs which had EACs that were less than the MACs for those
drugs. See Findings 83,
89.
91. The Act provides for the imposition of a penalty of up to $2,000.00 for
each item or service which is
not provided as claimed, and assessments of up to twice the amount claimed.
Social Security Act section
1128A(a).
92. In determining the appropriate amount of penalty, assessment, and exclusion
to be imposed against
Respondents, the Act and regulations direct that both aggravating and mitigating
factors be considered.
Social Security Act, section 1128A; 42 C.F.R. 1003.106.
93. The factors which may be considered as aggravating or mitigating include:
(1) nature of the claim or
request for repayment; (2) degree of culpability; (3) history of prior offenses;
(4) financial condition; (5)
such other matters as justice may require. 42 C.F.R. 1003.106.
94. If there are substantial or several aggravating circumstances, the aggregate
amount of the penalty and
assessment should be set at an amount sufficiently close to, or at, the maximum
permitted by law. 42
C.F.R. 1003.106(c).
95. In proceedings brought pursuant to the Act, a respondent has the burden
of proving the existence of
any mitigating factors. 42 C.F.R. 1003.114(d).
96. The claims at issue are a small part of a pattern of false claims by Respondents,
extending over a
period of years. Findings 22-37, 74, 75; 42 C.F.R. 1003.106(b)(1).
97. The claims at issue were part of a scheme by Respondents to systematically
extract reimbursement
from KMAP to which Respondents were not entitled. Findings 22-37, 74, 76, 96;
42 C.F.R.
1003.106(b)(2).
98. The scheme was in deliberate contravention of KMAP's provider reimbursement
guidelines and the
promises Respondents made when Respondent Prater executed a provider participation
agreement with
KMAP. Findings 76, 97; 42 C.F.R. 1003.106(b)(2).
99. Respondents' pattern of unlawful conduct jeopardized the integrity of the
Medicaid program in
Kentucky and frustrated the objective of the program to provide needed medications
to recipients at the
lowest possible cost. Finding 55; 42 C.F.R. 1003.106(b)(5).
100. Respondent Frazier's intentional conduct establishes a high degree of
culpability. 42 C.F.R.
1003.106(b)(2).
101. Because the claims at issue were but a small part of a much larger pattern
of false claims presented by
Respondents over a period of several years, it is not a mitigating factor that
the 20 claims at issue were of
the same type, occurred within a short period of time, and the total amount
claimed was less than
$1,000.00. See 42 C.F.R. 1003.106(b)(1).
102. Respondents have not proved by a preponderance of the evidence that the
imposition of penalties of
$24,000.00 and assessments of $288.92 would jeopardize their ability to continue
as health care providers.
42 C.F.R. 1003.106(b)(4).
103. Penalties of $24,000.00 and assessments of $288.92 imposed against Respondents,
jointly and
severally, are appropriate in this case.
104. An exclusion against Respondents from participating in the Medicare and
Medicaid programs for a
period of five years is appropriate in this case.
ANALYSIS
1. As is required by section 1128A(c) of the Act, the I.G. initiated a proceeding
against
Respondents not later than six years after the claims at issue were presented.
Respondents contend that the I.G. is barred from pursuing his case against
them with respect to 12 of the
claims in issue (counts 2, 6-9, 11, 13-16, 19, and 20) because, as to these
claims, the I.G. failed to initiate a
proceeding against Respondents within six years after the claims had been presented.
The I.G. disputes
this contention and asserts that the evidence establishes that the I.G. initiated
the proceeding within six
years of the dates when all of the claims at issue were presented. I conclude
that the I.G. timely initiated
his case with respect to all 20 of the claims.
The statute of limitations for commencement of a proceeding under the Act is
contained in section
1128(c)(1). This section states in relevant part:
The Secretary may not initiate an action under this section with respect to
any claim, request for
payment, or other occurrence described in this section later than six years
after the date the claim was
presented, the request for payment was made, or the occurrence took place.
At issue here is whether the claims were "presented" within six years
of the date the I.G. initiated the
proceeding, May 25, 1989.
The evidence establishes that Respondents furnished claims information to a
computer service company
which recorded that information on computer disks. Findings 16-21. These disks
were then provided to
KMAP, the Kentucky Medicaid program, which processed claims based on the information
contained in
them. Finding 39. KMAP recorded the dates when all claims were received for
processing on remittance
statements. Finding 44. Remittance statements in evidence establish that all
20 claims in issue were
received by KMAP within six years of May 25, 1989. Finding 47.
These facts are not disputed by the parties. However, Respondents contend that
the term "presented" in
section 1128(c)(1) means the date that a party transmits claims for processing,
rather than the date that the
recipient of the claims receives them. Respondents contend that the transmittal
date should be the date that
Respondents sent claims data for the claims at issue to the computer service
company. Respondents argue
that, with respect to 12 of the 20 claims, that date was outside the six-year
period.
I disagree with Respondents' characterization of the meaning of the term "presented."
I conclude that the
term should be construed to mean the date that claims were received for processing
by KMAP.
The term "presented" is not defined in section 1128A(c) or elsewhere
in section 1128A. In the absence of
a specific statutory definition, the term should be given its common and ordinary
meaning. The verb
"present" is defined in Webster's Third New International Dictionary
1969 Edition as:
1a: to bring about or introduce into the presence of someone . . . 3a: to
lay or put before a person for
acceptance.
The definition encompasses not just the transmission of something, but its
receipt as well. It is entirely
consistent with this definition to conclude that "presented," as used
in section 1128A(c), means the receipt
of claims for processing.
This definition is consistent with the purpose of statutes of limitations.
Statutes of limitations, including
section 1128A(c), are intended to prevent parties from sleeping on their rights
beyond a point in time
which the legislature has determined to be the reasonable limit for initiation
of a proceeding. A party
should not be held responsible for failure to exercise a right unless that party
knows or has reason to know
that the right has accrued. See Gibson v. United States, 781 F.2d 1334 (9th
Cir. 1986), cert. denied 479
U.S. 822 (1987); King v. New York Telephone Co., 785 F.2d 31 (2d Cir. 1986).
The I.G.'s right to charge a party with presenting a false claim or causing
a false claim to be presented does
not accrue until the claim is received for processing. The I.G. could not possibly
know or have reason to
know that a false claim had been presented until that claim had been received
by the program agent
responsible for processing that claim. In this case, that occurred when KMAP
received from the computer
service company the computer disks containing the claims at issue.
2. Respondents presented or caused to be presented claims for items or services
which they knew, had
reason to know, or should have known were not provided as claimed, in violation
of section 1128A of the
Act.
The issue of liability in this case subsumes two questions. First, did Respondents
present or cause to be
presented false claims for Medicaid reimbursement? Second, should Respondents
have known, or did
Respondents know or have reason to know, that the claims were false? I conclude
from the evidence that
Respondents presented or caused to be presented all 20 of the claims at issue
and that these claims were
false. I conclude further that these false claims were a small manifestation
of a longstanding scheme by
Respondents to defraud the Kentucky Medicaid plan, by claiming reimbursement
for brand name
prescription drugs that Respondents had not dispensed to Medicaid recipients.
Therefore, I conclude that
Respondents knew that the items at issue were not provided as claimed. Alternatively,
I conclude that
Respondents had reason to know or should have known that the items were not
provided as claimed.
The 20 claims consist of claims for prescription drugs which Respondents dispensed
to Medicaid
recipients. Respondents filled all of these prescriptions with generic drugs,
as indeed they were required to
do by Kentucky law. However, Respondents then caused reimbursement claims to
be submitted to KMAP
for brand name drugs. These false claims were part of a longstanding pattern
of fraudulent submissions by
Respondents which were intended to deceive KMAP into paying higher reimbursement
for Respondents'
Medicaid claims than Respondents were entitled to receive.
a. Respondents caused false claims to be presented.
There is no dispute that Respondents caused the claims to be presented. The
uncontroverted evidence
establishes that Respondents retained a computer service company to prepare
Medicaid claims for them.
These claims were prepared entirely from the data which Respondents provided
to the computer service
company. Finding 21. The computer service company then transmitted the claims
to KMAP.
There is also no dispute that the prescriptions at issue were filled with generic
drugs, or that the claims
which Respondents presented or caused to be presented to KMAP for these drugs
sought reimbursement
for brand name drugs. Findings 71, 72. Indeed, Respondents have admitted filling
the prescriptions with
generic drugs and claiming reimbursement from KMAP for brand name drugs. This
evidence is
corroborated by evidence establishing that, when the actual prescriptions for
the 20 claims were examined
by an investigator, none of the prescriptions contained brand name drugs. Finding
71; Tr. at 143, 149, 183,
343. Therefore, the evidence establishes that the items or services represented
by the 20 claims at issue
were not provided as claimed, within the meaning of section 1128A(a)(1) of the
Act.
There is substantial dispute that the Respondents are culpable as defined by
the Act. Respondents deny
that they ever intended to defraud Medicaid. They assert that, to the extent
false claims were presented,
they resulted from the misfeasance of Respondents' employees.
I disagree with these contentions. There is strong and persuasive evidence in
this case that Respondent
Frazier instructed his employees to systematically defraud Medicaid by claiming
reimbursement for brand
name drugs when generic drugs had in fact been supplied.
b. Respondents knew that the claims were false.
A party "knows" that an item or service is not provided as claimed
when he or she knows that the
information that he or she is placing or causing to be placed on a claim is
untrue. Anesthesiologists
Affiliated et al. and James E. Sykes, D.O. et al., DAB Civ. Rem. C-99, C-100
(1990); Thuong Vo, M.D.
and Nga Thieu Du, DAB Civ. Rem. C-45 (1989). It is not necessary for a respondent
to personally make a
false claim in order to satisfy the "knows" test. All that is necessary
to satisfy the test is that a respondent
issue instructions concerning the preparation of claims which he or she knows
will result in the inclusion of
false information in the claims.
The evidence establishes that Respondents instructed their employees to systematically
generate false
Medicaid claims, including the claims at issue. One witness, Connie Brewer,
credibly testified that she was
instructed by Respondent Frazier to record as claims information for all Medicaid
sales the product
identification numbers of brand name drugs, irrespective of whether generic
drugs had actually been
dispensed. Finding 27. No evidence was offered to show that this witness' testimony
was anything but
truthful.
Respondents object to inferences being drawn from Ms. Brewer's testimony concerning
the 20 claims at
issue, arguing that the witness was employed at a pharmacy other than Respondent
Prater during a time
period previous to the dates when the prescriptions which underlie the claims
at issue were filled.
However, for several reasons, I find that the testimony persuasively explains
the circumstances under
which the claims at issue were generated.
First, the system which Ms. Brewer testified she was instructed by Respondent
Frazier to use for recording
Medicaid claims data was used verbatim by other billing clerks employed at pharmacies
owned or
controlled by him, including a clerk who was employed at Respondent Prater during
the time when the
claims at issue were generated. Findings 31, 37. This system consisted of inscribing
a cross on the face of
the prescription and writing certain information on the segments created by
the cross. This information
included the product identification number (the NDC) of the drug to be billed
to KMAP. The fact that the
same billing system was used for years by employees at both pharmacies operated
by Respondent Frazier
strongly suggests that it was used at all times to accomplish the identical
objective of defrauding KMAP.
Second, Ms. Brewer's testimony concerning the instructions given to her by
Respondent Frazier to claim
reimbursement for brand name drugs was corroborated by an affidavit executed
by a former employee who
worked at Respondent Prater, Janice Lemaster. I.G. Ex. 49.1. Ms. Lemaster testified
at the hearing that
she could no longer remember as true many of the assertions contained in her
affidavit. I conclude that the
affidavit, despite Ms. Lemaster's testimony, is a truthful account of what Ms.
Lemaster knew as of the date
of the affidavit's execution, February 16, 1984. It is far closer in point of
time to the events which are the
subject of the affidavit than is Ms. Lemaster's testimony at the hearing.
Third, the account of Respondent Frazier's instructions given by Ms. Brewer
and corroborated by Ms.
Lemaster consists of the only plausible explanation in evidence to account for
the claims at issue.
Respondents gave no plausible explanation for how such admittedly false claims
were generated.
Respondent Frazier testified that he was unaware how Medicaid claims were billed
at pharmacies he
operated, prior to the initiation of the investigation which led to this proceeding.
Tr. at 535, 543. He
asserted, however, that the reason his employees recorded the identification
numbers of brand name drugs
as claims information for Medicaid claims was that it was easier for the employees
to remember brand
name identification numbers than the identification numbers for generic drugs.
This was so, according to
Respondent Frazier, because brand name identification numbers generally contained
fewer digits than
generic product identification numbers. Tr. at 542.
I conclude that Respondent Frazier's testimony, that he was unaware of billing
practices at Respondent
Prater, is not credible. Respondent Frazier's testimony was not supported by
the testimony of any of his
former employees and, in many respects, was contradicted by his former employees.
Tr. at 384; I.G. Exs.
49.1; 50.1. Even if it had not been contradicted, Respondent Frazier's assertion
that he was ignorant of the
manner in which Medicaid claims were generated by the pharmacies he operated
would have strained
credulity. I cannot accept that this proprietor and sole owner of a small business
was ignorant of the
manner in which he claimed reimbursement for sales which, by his admission,
accounted for up to 50
percent of his business. Furthermore, his professions of ignorance were belied
by other testimony he gave
which showed that he was keenly aware of his business' profit margin and markup
on sales of drugs to
Medicaid recipients. See Tr. at 547-548. They were also belied by Ms. Brewer's
testimony that
Respondent Frazier studied cost data for drugs and complained about his low
margin of profit on Medicaid
prescriptions. Tr. at 390-391.
Moreover, the explanation Respondent Frazier offered for the false claims makes
no sense. It is certainly
within the realm of possibility that occasionally an employee of a pharmacy
might record an incorrect
product identification number on a claims document. It is also possible that
one employee might, for a
time, systematically misrecord identification numbers. But Respondent Frazier
offered his testimony as a
blanket explanation for all of the Medicaid claims generated at pharmacies he
owned or controlled,
including the claims at issue, and I conclude that this explanation is outside
the realm of reasonable
possibility.
Furthermore, Respondent Frazier would be in no position to know whether his
explanation is correct, if, as
he claimed, he knew nothing about his pharmacies' Medicaid billing procedures
at the time the claims at
issue were generated. He did not testify that he had interviewed his former
employees, and he offered no
reason why former employees would contradict his testimony.
Respondent Frazier attempted to buttress his testimony by asserting that there
would have been no motive
to systematically claim reimbursement for brand name drugs. He asserted that,
unless the Medicaid claim
specified that the treating physician requested the recipient be supplied with
a brand name drug, a
pharmacy would be paid no more than the drug's Maximum Allowable Cost (the "MAC")
as per unit
reimbursement. Tr. at 542. According to Respondent Frazier, because none of
the claims at issue specified
that a physician had requested a brand name drug, KMAP would not have reimbursed
Respondents higher
than the MAC, which Respondents would have received irrespective of whether
they claimed
reimbursement for brand name or generic drugs.
This assertion is untrue. As I discuss infra, there is a potential for an unlawful
return to be made on
fraudulent Medicaid claims, irrespective whether the provider claims that the
prescribing physician
specified that the prescriptions be filled with brand name drugs.
c. Respondents had reason to know that the claims were false.
The "reason to know" standard contained in the Act prior to December
22, 1987 created a duty on the part
of a provider to prevent the submission of false or improper claims where: (1)
the provider had sufficient
information to place him, as a reasonable medical provider, on notice that the
claims presented were for
items or services not provided as claimed, or (2) there were pre-existing duties
which would require a
provider to verify the truth, accuracy, and completeness of claims. Anesthesiologists
Affiliated, supra; Vo,
supra; George A Kern, M.D., DAB Civ. Rem. C-25 (1987). Although I have concluded
that Respondents
knew that the items or services in the 20 claims as issue were not provided
as claimed, the evidence also
establishes, alternatively, that Respondents had reason to know that the items
or services were not provided
as claimed.
Respondents knew that instructions that they had given to their billing clerks
concerning the preparation of
data to be used in claims would result in the presentation of false claims.
Therefore, Respondents had
information to place them, as medical providers, on notice that their claims
were for items or services not
provided as claimed.
Furthermore, Respondent Prater executed a provider agreement with KMAP which
obligated it to adhere to
the policies and criteria of KMAP for claiming reimbursement for prescriptions
filled for Medicaid
recipients. I conclude that this agreement and the policies incorporated therein
imposed a duty on
Respondents to verify the truthfulness and accuracy of their Medicaid claims,
a duty which they ignored.
d. Respondents should have known that their claims were false.
The broadest standard of liability under the Act is "should know."
This standard subsumes reckless
disregard for the consequence of a person's acts. It subsumes those situations
where a respondent has
reason to know that items or services were not provided as claimed. "Should
know" also subsumes
negligence in preparing and submitting, or in directing the preparing and submitting
of, claims. Mayers v.
U.S. Dept. of Health and Human Services, 806 F.2d 995 (11th Cir. 1986), cert.
denied, 484 U.S. 822
(1987); Anesthesiologists Affiliated, supra, at 56; Vo, supra, at 20.
Inasmuch as Respondents had reason to know that their claims were false, they
also should have known
that their claims were false. The evidence in this case establishes that, at
the least, Respondents were
indifferent to the activities of their employees. Respondent Frazier's testimony
that, prior to the initiation
of the investigation which led to this proceeding, he was unaware of the manner
in which his pharmacies'
Medicaid claims were prepared and billed is, although not a credible explanation
of how the false claims
were presented, an admission of indifference. His indifference is especially
apparent in light of his
assertion that Medicaid business accounts for between 25 and 50 percent of Respondents'
total business. I
conclude that such indifference amounts to a reckless disregard for the consequences
of Respondents'
claims activities.
I am not concluding, however, that the record of this case establishes that
Respondents' employees were
negligent, or that Respondents should be held liable for the negligent acts
of their employees. The
evidence establishes that the employees merely carried out Respondents' instructions
to them. To the
extent that the claims at issue resulted from misfeasance, it is the misfeasance
of Respondents, and not their
employees, which would be the cause of the false claims.
3. Penalties, assessments, and an exclusion are appropriate in this case.
The remedial purpose of the Act is to protect government financed health care
programs from fraud and
abuse by providers. Mayers, supra, 806 F.2d at 997; Anesthesiologists Affiliated,
supra, at 58; Vo, supra,
at 22. The assessment and penalty provisions of the Act are designed to implement
this remedial purpose
in two ways. One is to enable the government to recoup the cost of bringing
a respondent to justice and the
financial loss to the government resulting from the false claims presented by
that respondent. The other is
to deter other providers from engaging in the false claims practices engaged
in by a particular respondent.
Mayers, supra, at 999; Anesthesiologists Affiliated, supra, at 58; Vo, supra,
at 22.
The exclusion remedy is designed to protect the Medicare and Medicaid programs
from future misconduct.
Anesthesiologists Affiliated, supra, at 58. It is thus distinguishable from
assessments, which compensate
the government for wrongs already committed. Medicare and Medicaid programs
have a contractual
relationship with those providers who treat beneficiaries and recipients and
present claims for
reimbursement. Federally funded health care programs are no more obligated to
continue to deal with
dishonest or untrustworthy providers than any purchaser of goods or services
would be obligated to deal
with a dishonest or untrustworthy supplier. The exclusion remedy allows the
Secretary to suspend his
contractual relationship with those providers of items or services who are dishonest
or untrustworthy. One
purpose of any exclusion, therefore, is to protect the integrity of the Medicare
and Medicaid programs for a
sufficient period of time to assure that these programs will not continue to
be harmed by dishonest or
untrustworthy providers of items or services.
Exclusion serves an ancillary purpose of deterring providers of items or services,
including those providers
against whom the remedy is imposed, from engaging in the same or similar misconduct
as that engaged in
by the excluded providers. In that respect, it is an exemplary remedy because
it reinforces the penalties
which may be imposed pursuant to the Act. Anesthesiologists Affiliated, supra,
at 58.
The Act and implementing regulations provide that a penalty of up to $2,000.00
and an assessment of not
more than twice the amount claimed may be imposed on a respondent for each item
or service which is
established as not having been provided as claimed. Social Security Act, section
1128A(a); 42 C.F.R.
1003.103, 1003.104. The maximum penalties which I may impose against Respondents
in this case are
$40,000.00, based on their causing 20 false claims to be presented for payment.
The maximum
assessments which I may impose are $288.92, twice the dollar amount claimed
in the 20 false claims.
Neither the law nor regulations provide for a maximum exclusion which I may
impose. However, the
regulations provide that the length of the exclusion should be determined by
the same criteria that I employ
to determine the appropriate amount of the penalty and assessment. 42 C.F.R.
1003.107.
Regulations prescribe that, in determining the amount of a penalty and assessment,
I must consider, as
guidelines, factors which may either be mitigating or aggravating. 42 C.F.R.
1003.106. These include:
(1) the nature of the claim or request for payment and the circumstances under
which it was presented, (2)
the degree of culpability of the person submitting the claim or request for
payment, (3) the history of prior
offenses of the person submitting the claim or request for payment, (4) the
financial condition of the person
presenting the claim or request for payment, and (5) such other matters as justice
may require. 42 C.F.R.
1003.106(a).
A respondent has the burden of proving the presence of mitigating factors,
including financial hardship. 42
C.F.R. 1003.114(c). The regulations provide that, in cases where mitigating
factors are preponderant, the
penalty and assessment should be set correspondingly below the maximum permitted
by law. 42 C.F.R.
1003.106(c)(1). The regulations also provide that, in cases where aggravating
factors are preponderant, the
penalty and assessment should be set close to the maximum permitted by law.
42 C.F.R. 1003.106(c)(2).
The Act has been interpreted to permit the imposition of a penalty and assessment
which exceeds the
amount actually reimbursed to a respondent for items or services not provided
as claimed. Chapman v.
U.S. Dept. of Health & Human Services, 821 F.2d 523 (10th Cir. 1987); Mayers,
supra, 806 F.2d at 99.
This reflects the legislative determination that activities in violation of
the Act "result in damages in excess
of the actual amount disbursed by the government to the fraudulent claimant."
Mayers, supra, 806 F.2d at
999.
I find that assessments of $288.92 and penalties of $24,000.00 should be imposed
against Respondents,
jointly and severally. I also find that Respondents should be excluded from
participation in Medicare and
Medicaid for five years. My findings result in part from my conclusion that
there exist significant
aggravating factors in these cases, and no mitigating factors.
The violations established in this case were deliberate and fraudulent. The
false claims resulted from
instructions Respondents gave their employees to claim Medicaid reimbursement
for brand name drugs,
even where generic drugs were supplied to recipients. These fraudulent claims
were part of a pattern of
such claims that Respondents had engaged in for years. The testimony of former
employees establishes to
my satisfaction that such deliberately false claims were being made at least
several years prior to the claims
at issue in this case. Furthermore, the testimony of these employees proves
a consistent pattern of false
claims.
Contrary to Respondents' assertions, their false claims fraudulently obtained
Medicaid reimbursement
greater than that which Respondents would have obtained had the claims been
honestly stated.
Respondents' false claims manipulated the KMAP drug reimbursement formula to
produce illegal
overpayments.
KMAP employed a formula which had as an element a payment per unit of drug
dispensed by a pharmacy.
That formula was designed to pay the pharmacy the lowest of either the pharmacy's
usual and customary
charge for the drug, a dispensing fee plus the drug's Estimated Acquisition
Cost (EAC), or a dispensing fee
plus the drug's Maximum Allowable Cost (MAC). Findings 56-64. Different versions
of a particular drug
usually had different EACs, with the brand name version of the drug almost always
having the highest
EAC. The MAC was the median of all EACs for a particular drug. In many cases,
KMAP did not
establish a MAC for a drug.
The motivation for falsely claiming reimbursement for a brand name drug lay
in the fact that a brand name
drug's EAC was almost always higher than the EACs of the drug's generic equivalents.
In cases where
there was no MAC for the product, Respondents would receive, as a per unit cost
from KMAP, the EAC of
the brand name drug for which they claimed reimbursement. Because that EAC was
higher than the EACs
of generic drugs, Respondents would receive an overpayment for the false claim.
There also existed motivation to falsely claim that brand name drugs had been
supplied in those cases
where KMAP had established a MAC for a class of drugs. Respondents argue that,
in such cases, KMAP
would generally not pay more than the MAC as per unit reimbursement. That does
not mean that an
unlawful overpayment could not have been obtained by falsely claiming reimbursement
for a brand name
drug. Such overpayment would occur in any case where the EAC of the brand name
version of a drug
equalled or exceeded all versions of that drug's MAC, and the EAC of the generic
drug actually supplied
was less than the MAC.
Although the evidence establishes that many of the claims at issue resulted
in unlawful overpayments to
Respondents, I have not found a specific dollar amount of the overpayments.
In order to do so, I would
have had to decide which generic drugs were used by Respondents to fill prescriptions,
because each
generic drug has its own EAC. As noted supra, while the evidence unequivocally
proves that Respondents
filled all 20 prescriptions in question with generic drugs, the evidence does
not prove which manufacturer's
generic drugs were used by Respondents to fill particular prescriptions. See
n.6, supra. The Act does not
require the I.G. to prove a specific overpayment as a prerequisite to establishing
a violation. Social
Security Act, section 1128A(a).
Respondents' scheme to systematically falsely claim reimbursement for brand
name drugs would not
produce large overpayments on individual claims. The difference between the
EACs of brand name drugs
and the EACs of generic drugs often amounted to only a few cents. Actual overpayments
could range
between pennies and a few dollars per false claim.
However, over time, such a scheme would inevitably produce substantial illegal
returns. I have concluded
that the 20 claims at issue in this case were a manifestation of a longstanding
fraud. The small
overpayments that these claims generated are only a symptom of a pattern of
fraudulent claims.
The most serious aggravating factor in these cases is the damage that Respondents'
pattern of fraudulent
claims did to the integrity of the Kentucky Medicaid program. The State of Kentucky
decided as a matter
of legislative policy that Medicaid prescriptions should ordinarily be filled
with generic drugs. This policy
was incorporated into KMAP's drug reimbursement formula. The formula was specifically
designed to
protect the Medicaid program from excessive charges or excessive payments, and
to establish a uniform,
fair, and equitable means of reimbursing pharmacies for medications that are
provided to Medicaid
recipients. Finding 55. Respondents' circumvention of this policy rendered it
meaningless as it applied to
them.
Normally, I would consider a small number of false claims perpetrated over
a short period of time, and
involving only a small sum, to be a mitigating factor. See 42 C.F.R. 1003.106(b)(5).
I do not find that
such evidence establishes mitigation in this case, because these claims are
only a small sample of a
longstanding pattern of unlawful conduct.
I do not find credible Respondents' assertions that they are financially incapable
of paying the penalties and
assessments. They offered only anecdotal evidence of their financial status.
No business or personal
records, such as corporate statements, business or personal income tax returns,
or financial statements,
were offered by Respondents to substantiate their assertions. Moreover, Respondent
Frazier's lack of
credibility on other issues impugns his credibility as to his assertions of
financial hardship.
Both the assessments and the penalties are amply justified by the evidence
in this case, and by the factors
which I have enumerated. The assessments cannot begin to recoup the cost which
the government incurred
in connection with this case. The hearing was the culmination of an investigation
into Respondents'
Medicaid claims practices which lasted for many years. The hearing lasted three
days, and required the
compensation, travel, and lodging of a number of federal employees at government
expense, plus the cost
of the transcript.
The penalties are only slightly more than one half of the amount which the
law permits me to impose in
this case. I conclude that they are justified by the egregious conduct which
the record establishes.
Furthermore, I conclude that the penalties are a necessary deterrent against
others engaging in the conduct
engaged in by Respondents. The drug reimbursement requirements established by
the Kentucky legislature
and KMAP are meaningless if pharmacists systematically contravene them. The
penalties, therefore,
serves as a reminder to others that there are serious consequences for willfully
damaging the integrity of
the Medicaid program.
I conclude that the five year exclusion from participation in Medicare and
Medicaid which I have imposed
on Respondents is a necessary remedy in two respects. First, the exclusion will
assure that these
Respondents will not be in a position to do further damage to the integrity
of federally funded health care
programs. Second, they will warn Respondents and other providers of health care
that they cannot ignore
their legal obligations to these programs.
I base my conclusion that these Respondents should be excluded for five years,
as opposed to a shorter or
longer period, on the aggravating factors and the remedial considerations which
I have cited in this
Decision. Respondents' manifest untrustworthiness and the damage they caused
to the integrity of the
Kentucky Medicaid program provides ample basis to conclude that federally funded
health care programs
need not do business with them for five years.
I also base the length of the exclusion on my conclusion that the unlawful
conduct engaged in by
Respondents is indistinguishable from the type of conduct for which Congress
prescribed a minimum
mandatory five year exclusion under section 1128(a)(1) of the Social Security
Act. That section mandates
five year exclusions for parties convicted of criminal offenses related to the
delivery of an item or service
under the Medicare or Medicaid programs. Congress' intent was not to prescribe
additional punishment for
such offenders. Rather, Congress concluded that parties who engage in theft,
fraud, and other criminal
offenses of a financial nature against Medicare or Medicaid have demonstrated
by their conduct that they
should not be trusted to do business with these programs for at least five years.
See Jack W. Greene, DAB
App. 1078 (1989), aff'd sub nom Greene v. Sullivan, Civil No. 3-89-758 (E.D.
Tenn. February 8, 1990).
I am not concluding that the evidence in this case establishes that Respondents
are guilty of a crime.
However, I do conclude that Respondents have engaged in fraud, as that term
is commonly and ordinarily
used. Furthermore, the misconduct engaged in by Respondents -- fraudulently
claiming reimbursement
from a Medicaid program for brand name drugs -- is the same type of misconduct
which has resulted in
five year exclusions under section 1128(a)(1). Greene, supra. Given that, the
identical policy
considerations which Congress decided required five year minimum exclusions
pursuant to section
1128(a)(1) also apply here.
Respondents contend that an exclusion will force the demise of Respondent Prater
as a health care
provider. They assert that, inasmuch as half of Respondent Prater's business
consists of Medicaid, the
business would no longer be viable if it were deprived of Medicaid reimbursement.
An exclusion imposed pursuant to the Act will have an adverse financial impact
on the person against
whom the exclusion is imposed. The law places the integrity of the Medicare
and Medicaid programs
ahead of the pecuniary interests of providers. In determining to impose an exclusion,
the primary
consideration must be the degree to which the exclusion serves the law's remedial
objectives. An exclusion
is remedial if it does reasonably serve these objectives, even if it has a severe
adverse impact on the person
against whom it is imposed.
Respondents' argument could be made by any provider of health care who depends
on federally funded
programs as a principal revenue source. If I were to accept Respondents' argument,
then I would be forced
to conclude that, in any case where a provider's livelihood depends on federally
funded reimbursement, the
remedies contemplated by law could not be imposed. The Act would then become
meaningless.
I conclude that, in this case, the need to impose a meaningful remedy to protect
the integrity of the
Medicare and Medicaid programs supersedes the damage that such remedy may cause
Respondents'
business. There may be cases where the remedy can be tempered in a way to preserve
a provider's business
and still protect program integrity. In this case, however, that is not possible.
CONCLUSION
For the reasons set forth in this Decision, I impose assessments of $288.92,
and penalties of $24,000.00
against Respondents, jointly and severally. I also impose an exclusion of five
years against Respondents
from participating in the Medicare and Medicaid programs.
_________________________
Steven T. Kessel
Administrative Law Judge