SUBJECT:

Jeffrey P. Yannello, R.Ph.,

Petitioner,

The Inspector General

DECISION

It is my decision to sustain the determination of the Inspector General (I.G.) to exclude Jeffrey P. Yannello, R.Ph. (Petitioner) from participating in the Medicare, Medicaid, and all other federal health care programs, for a period of eight years. I base my decision on the documentary evidence, the applicable law and regulations, and the arguments of the parties. It is my finding that Petitioner was convicted of a criminal offense related to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct in connection with the delivery of a health care item or service. Additionally, I find that his eight-year exclusion is not unreasonable.

I. Background

This case is before me pursuant to a request for hearing filed on December 21, 2001 by Petitioner.

By letter dated April 30, 2001, the Inspector General (I.G.) notified Petitioner that he was being excluded from participation in the Medicare, Medicaid, and all other federal health care programs as defined in section 1128B(f) of the Social Security Act (Act) for a period of eight years. The I.G. informed Petitioner that his exclusion was imposed, pursuant to section 1128(a)(3) of the Act (42 United States Code (U.S.C.) § 1320a-7(a)). The exclusion imposed was due to Petitioner's conviction as defined in section 1128(i) of the Act (42 U.S.C. § 1320a-7(i)) in the United States District Court for the Eastern District of Pennsylvania, of a criminal offense which occurred after August 21, 1996, and constituted a felony relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct in connection with the delivery of a health care item or service.

I conducted a prehearing telephone conference on January 17, 2002. The I.G. is represented in this case by the Office of Counsel. Although advised of his right to representation, Petitioner elected to appear on his own behalf. The parties agreed that the case could be decided based on written arguments and documentary evidence, and that an in-person evidentiary hearing was unnecessary. ⁽¹⁾ On February 19, 2002, the I.G. submitted its initial brief (I.G. Br.) and proposed exhibits. The I.G. filed five proposed exhibits. These have been identified as I.G. Exhibits (I.G. Exs. 1-5). On March 22, 2002, Petitioner filed his response brief (P. Br.). With his brief, Petitioner filed four proposed exhibits. ⁽²⁾ These have been identified as Petitioner (Attachments) Exhibits (P. Exs. A-D). On April 9, 2002, the I.G. submitted her reply brief (I.G. Reply). Petitioner did not file anything further. The I.G. objected to P. Exs. C and D on the grounds the proposed exhibits are irrelevant and immaterial. I agree that P. Exs. C and D refer to other matters and have no bearing on my decision herein. Nonetheless P. Exs. C & D will be admitted into the record to help explain my response to one of Petitioner's arguments. See Sec. V.B.2., below. Therefore, I admit into evidence I.G. Exs. 1-5 and P. Exs. A-D.

II. Issues

-Whether the I.G. had a basis upon which to exclude Petitioner from participation in the Medicare, Medicaid, and all other health care programs;

and

-Whether the eight-year exclusion imposed by the I.G. is unreasonable.

III. Applicable Law and Regulations

Section 1128(a)(3) of the Act authorizes the Secretary of the U.S. Department of Health and Human Services (Secretary) to exclude from participation in any federal health care program (as defined in section 1128B(f) of the Act), any individual convicted of a felony relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct in connection with either: (1) the delivery of a health care item or service; or (2) with respect to any act or omission in a health care program operated by or financed in whole or in part by any Federal, State, or local government agency.

An exclusion under section 1128(a) of the Act must be for a minimum period of five years. Act, section 1128(c)(3)(B). Aggravating factors can serve as a basis for lengthening the period of exclusion. 42 C.F.R. § 1001.102(b). If aggravating factors justify an exclusion longer than five years, mitigating factors may be considered as a basis for reducing the period of exclusion to no less than five years. 42 C.F.R. § 1001.102(c).

Pursuant to 42 C.F.R. § 1001.2007, a person excluded under section 1128(a)(3) of the Act may file a request for hearing before an administrative law judge (ALJ).

IV. The Parties' Arguments

A. The I.G.'s Arguments

The I.G. argues that Petitioner was convicted of a felony relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct in the delivery of a health care item or service. Therefore, Petitioner is subject to the mandatory minimum period of exclusion, that is, five years. I.G. Br. at 6; Act, section 1128(c)(3)(B).

The I.G. also asserts that, due to the following aggravating factors and the absence of mitigating factors, Petitioner's period of exclusion was reasonably lengthened to eight years:

-The acts resulting in the conviction created a financial loss to a government program or to one or more entities of $1500 or more.

-The acts resulting in the conviction were committed over a period of one year or more.

-The sentence imposed by the court included incarceration.

I.G. Br. at 6-8; 42 C.F.R. §§ 1001.102(b)(1),(2), and (5).

B. Petitioner's Arguments

Petitioner argued the following with respect to his conviction, exclusion, and claimed mitigating factors:

(1) He pled guilty to selling drug samples on a cash basis. There was no involvement of any government agency.

(2) He was not aware of a possible exclusion at the time he signed his plea agreement. If he had such knowledge at that time, he may not have pled guilty.

(3) The plea agreement states only that he was in business for 15 months, not that he was actually selling drug samples during the entire time. It has never been proven that he was engaged in the crime for over a one year period.

(4) He was not engaged in a scheme to defraud unsuspecting patients. He sold the samples in their original packaging and to patients with legal prescriptions.

(5) He did not know the samples were stolen. He had assumed the samples were discarded by the doctors to whom they had been given by the drug manufacturers.

(6) Other individuals who were convicted of more costly and widespread schemes were not excluded.

P. Br. at 1-3.

V. Findings and Discussion

The findings of fact and conclusions of law noted below in italics are followed by a discussion of each finding.

A. Petitioner was convicted of a felony offense, related to fraud, theft, embezzlement, breach of fiduciary responsibility, or financial misconduct in connection with the delivery of a health care item or service.

Petitioner was a registered pharmacist and the owner of First Choice Pharmacy, Inc. in Philadelphia, Pennsylvania. I.G. Ex. 3, at 1-2. He was charged, by Information, in the Eastern District of Pennsylvania, with one count of distributing prescription drug samples not intended to be sold, all in violation of Title 21, U.S.C., Sections 333(b)(1)(B), 353(c), and 331(t). I.G. Ex. 3. The Information under which Petitioner was charged stated that the Petitioner's offense occurred "[f]rom approximately March 1997 to on or about June 25, 1998. I.G. Ex. 3, at 2.

Sections 333(b)(1)(B), 353(c), and 331(t) are interrelated sections of Title 21 of the U.S.C. Section 331(t) prohibits "the sale, purchase, or trade of a drug, or drug sample or the offer to sell, purchase, or trade a drug or drug sample in violation of section 353(c)

. . . ." Section 333(b)(1)(B) provides that a person commits a prescription drug marketing violation by "knowingly selling, purchasing, or trading a drug or drug sample or knowingly offering to sell, purchase, or trade a drug or drug sample, in violation of section 353(c) of this title . . . ." Section 353(c) of Title 21 provides that, "[n]o person may sell, purchase, or trade or offer to sell, purchase, or trade any drug sample." ⁽³⁾ Because the offense carries a possible prison sentence of up to 10 years, it is a felony offense.

On November 10, 1999, Petitioner entered into a "Guilty Plea Agreement" with the United States Attorney, wherein he agreed to plead guilty to a one-count violation of 21 U.S.C. § 331. In his "Guilty Plea Agreement," Petitioner also agreed that the offense involved fraud and that the amount of the loss was $13,785.25. P. Ex. B, at 7.

On November 20, 2000, Petitioner pled guilty to one count of illegal distribution of prescription drug samples in violation of 21 U.S.C. § 333(b)(1)(B). I.G. Ex. 4, at 1. Petitioner was sentenced to four months in prison with a supervised release for two years thereafter. Id., at 2, 3. He also was assessed $100, fined $10,000, and ordered to pay restitution in the amount of $13,785.25. Id., at 5.

I find that Petitioner's conviction met the definition of a section 1128(a)(3) conviction in that:

(1) He was convicted of a felony offense. Section 1128(i)(3) of the Act defines a conviction as inter alia, "when a plea of guilty or nolo contendere by the individual or entity has been accepted by a Federal, State, or local court . . . .;"

(2) He was convicted of an offense which occurred after August 21, 1996. His offense occurred between March 1997 and June 1998;

(3) His felony offense related to fraud; that is, obtaining and selling prescription drug samples that were not distributed by manufacturers for sale; and

(4) His felony offense was in connection with the delivery of a health care item; that is, prescription drugs.

As noted above, Petitioner made several arguments related to his conviction. He argued that he pled guilty to selling drug samples on a cash basis and no government agency lost money as a result of his activities. P. Br. at 1, 2. Without getting into a side issue of whether or not Petitioner failed to report his cash sales on his income tax and, thus, caused a loss to the Internal Revenue Service, I find that the clear language of section 1128(a)(3) provides that a precipitating offense can be in connection with the delivery of a health care item or service or with respect to any act or omission in a health care program operated by or financed by a government agency. A government agency loss is not required for application of section 1128(a)(3). In Donald R. Kirks, M.D., DAB CR765 (2001), a case involving the petitioner's conviction for embezzlement from a medical foundation, the petitioner argued he did not defraud the federal government or any other governmental organization. In that case, Chief ALJ Marion Silva stated, and I agree with, the following regarding this issue:

". . . it is not necessary for the I.G. to prove that Petitioner's criminal offense is connected to Medicare and Medicaid programs for an exclusion to be proper pursuant to section 1128(a)(3) because fraud of any type is sufficient to satisfy the statute. Indeed, Congress believed that the Medicaid and Medicare programs could best be protected by excluding those convicted of financial misconduct in delivering health care to patients not covered by government programs. See S. Rep. No. 109, 100^th Cong., 1^st Sess. 7. (emphasis added).

Donald R. Kirks, at 4.

In an earlier case, an appellate panel of the Departmental Appeals Board (Board) reviewed the appeal of an excluded pharmacist, convicted of one count each of fraud and filing a false private insurance claim, who argued that "'the Act under which the [I.G.] operates was not passed by Congress to protect' Blue Cross/Blue Shield." The Board agreed that the exclusion provisions were aimed at protecting Medicare and Medicaid from untrustworthy providers, not at protecting private insurers (or drug manufacturers, as in this case). The Board pointed out, nevertheless, that Congress determined these public health programs could best be protected by excluding, among others, those convicted of financial misconduct if the offenses occurred in delivering health care to patients not covered by the public programs. Chander Kachoria, R.Ph., DAB No. 1380 (1993).

Petitioner in the case before me also argued that he did not commit fraud because he did not sell drug samples to unsuspecting clients. Rather, he sold the samples in their original packaging to customers with legal prescriptions. I find the Petitioner's argument to be without merit.

First, Petitioner has provided no evidence to support his bald statement that all persons to whom he sold the drug samples knew they were samples and had legal prescriptions. Nothing in the information, plea agreement, or other documents relating to his conviction support Petitioner's contention that the drug samples were all sold to knowing persons who had prescriptions for the drugs. Moreover, Petitioner should have known he should not be selling the samples because the packages are generally marked they are not for sale. His knowledge of wrongdoing is evidenced by his selling the drug samples for "cash," thus, keeping the sales off his records.

Second, as noted above, in his signed "Guilty Plea Agreement," Petitioner stipulated "that the offense involved fraud" and therefore, the fraud and deceit section of the sentencing guidelines would apply in his case. P. Ex. B, at 7.

Third, I find it hard to accept that selling prescription drugs "for cash" without anyone paying the manufacturer for the drugs is not "fraud." Of course, the manufacturers distributed the samples without expectation of payment, but their distribution of samples caused the manufacturers to incur expected marketing costs and they, in turn, hoped for a marketing benefit. Obviously, the exclusion provisions of the Act are not designed to protect marketing benefits for drug manufacturers. At first blush, one wonders why it is a criminal offense at the felony level to sell products a manufacturer gives away. The likely answer is that it is the products' nature that requires control of their distribution. Drug samples may be relatively easy to obtain during a physician visit. Substantial harm could result from sales or distribution of these products without a professional intermediary knowledgeable in drug dosages and interactions. Further, cash "under the table" sales prevent the record-keeping required for oversight of these drugs.

Petitioner also argued he was not aware of the potential for exclusion at the time he signed his plea agreement and may not have signed the agreement had he known. Other excluded individuals have similarly argued that they lacked knowledge they could be excluded from Medicare and Medicaid program participation when they signed plea agreements. The Board has not previously accepted this argument that the lack of knowledge keeps an individual free from exclusion. Narendra M. Patel, M.D., DAB No. 1736 (2000). Section 1128 of the Act is triggered by a conviction and neither the ALJ nor the Board can collaterally attack the underlying conviction or relitigate the validity of the conviction. 42 C.F.R. § 1001.2007(d); Travers v. Shalala, 20 F.3rd 993, 998 (9^th Cir. 1994). Moreover, I note that the "Guilty Plea Agreement" signed by the Petitioner, and submitted by him as "P. Ex. B.," states in numbered paragraph 11, that:

The defendant understands and agrees that: (a) the status of any professional license or certification held by the defendant is not protected by this agreement and is a matter solely within the discretion of the appropriate licensing, regulatory and disciplinary authorities; and (b) the government will inform the appropriate professional licensing, regulatory and disciplinary authorities in Pennsylvania, Maryland and elsewhere of the disposition of the criminal charges filed against the defendant in this case.

P. Ex. B, at 7.

Petitioner should have been on notice to investigate the possible effects his conviction would have on his pharmacological practice.

With respect to Petitioner's argument that he did not know the drug samples he sold were stolen as opposed to simply discarded by the physicians to whom they had been given, I find it irrelevant whether the drug samples were stolen or discarded. The law to which Petitioner pled guilty, makes it illegal to "sell" prescription drug samples, regardless of how they were obtained. 21 U.S.C. § 331.

B. Petitioner's exclusion for a period of eight years is not unreasonable.

On April 30, 2001, the I.G. notified Petitioner that he was being excluded from participation in the Medicare, Medicaid, and all federal health care programs for a minimum period of eight years. I.G. Ex. 1. That action was taken pursuant to section 1128(a)(3) of the Act due to his conviction as defined in Section 1128(i)(3). An exclusion under section 1128(a)(3) of the Act must be for a mandatory minimum period of five years as set forth in section 1128(c)(3)(B) of the Act which states:

Subject to subparagraph (G), in the case of an exclusion under subsection (a), the minimum period of exclusion shall not be less than five years . . . .

When the I.G. imposes an exclusion for the mandatory five-year period, the issue of the length of such exclusion is not considered. 42 C.F.R. § 1001.2007(a)(2). Aggravating factors which justify extending the exclusion period may be taken into account, but the five-year term will not be shortened.

Petitioner was convicted of a felony offense, related to fraud, theft, embezzlement, breach of fiduciary responsibility, or financial misconduct in connection with the delivery of a health care item or service. The I.G. was required to exclude him, pursuant to section 1128(a)(3) of the Act, for at least five years. Consequently, the only issue in controversy is whether the eight-year exclusion period imposed against Petitioner is unreasonable.

The I.G. has discretion to impose an exclusion of more than five years in appropriate circumstances. In Petitioner's case, the I.G. added three years to the statutory five-year minimum.

The Secretary has published regulations which establish the criteria for determining the length of exclusions imposed pursuant to section 1128 of the Act. The regulation which sets forth the applicable criteria for an exclusion imposed pursuant to section 1128(a) is 42 C.F.R. § 1001.102. The applicable criteria are expressed as either aggravating or mitigating factors. The relevant aggravating factors are stated at 42 C.F.R. § 1001.102(b). The relevant mitigating factors are stated at 42 C.F.R. § 1001.102(c). An exclusion may be imposed for a period of more than five years where there exists an aggravating factor or factors not offset by any mitigating factor or factors.

The aggravating and mitigating factors that are set forth in the regulations function as rules of evidence for deciding the length of exclusions. Evidence which does not pertain to one of the specific aggravating or mitigating factors is not relevant and may not be used to decide whether an exclusion of a particular length is reasonable.

The regulations do not prescribe the weight that is to be given to evidence that relates to an aggravating or a mitigating factor. While the regulation tells the decision maker what criteria may be used to determine the length of an exclusion, it does not tell the decision maker how to weigh relevant evidence to arrive at an exclusion that is reasonable in a given case.

However, there is an overall statutory purpose to which the regulations must adhere. An exclusion is not intended to be punishment. The purpose of any exclusion that is imposed under section 1128 of the Act is to protect federally-funded health care programs and beneficiaries and recipients of those programs from an individual who has been shown not to be trustworthy. Therefore, in deciding the length of an exclusion that is imposed pursuant to section 1128 of the Act, the question that must be considered is: what is reasonably necessary to protect the programs and their beneficiaries and recipients from an untrustworthy individual? In a case involving an exclusion that is imposed pursuant to section 1128(a)(3), the factors that are contained in 42 C.F.R. § 1001.102(b) and (c) state the criteria which may be used to answer this question.

1. The I.G. has proven the existence of aggravating factors.

The aggravating factors that the I.G. may consider in lengthening a period of exclusion are found at 42 C.F.R. § 1001.102(b). In the instant case, the I.G. contends that a basis exists for enlarging the period of exclusion in view of these three factors:

•The acts resulting in the conviction created a financial loss to a government program or to one or more entities of $1500 or more (42 C.F.R. § 1001.102(b)(1));

•The acts resulting in the conviction were committed over a period of one year or more (42 C.F.R. § 1001.102(b)(2)); and

•The sentence imposed by the court included incarceration (42 C.F.R. § 1001.102(b)(5)).

With respect to the first alleged factor, I find that the Petitioner's felony offense involved the loss to an entity of over $1500. In his signed "Guilty Plea Agreement," the parties, including Petitioner, stipulated that the amount of the loss was $13,785.25. P. Ex. B, at 7. Moreover, the court ordered Petitioner to pay $13,785.25 in restitution. It is appropriate to consider the amount ordered for restitution to correspond to the amount of the loss to an entity. Steven Alonzo Henry, M.D., DAB CR638 (2000). Thus, the evidence shows that the loss involved more than $1500. Petitioner argued that no government agency suffered a loss. The only possible entities suffering a loss from Petitioner's criminal offense would have been the drug manufacturers who had given away the drug samples. As noted above, however, for section 1128(a)(3) of the Act to apply or for this aggravating factor to apply, the loss does not have to be incurred by a government agency. Donald R. Kirks, M.D., DAB CR765 (2001). 42 C.F.R. § 1001.102(b)(1), relating to this alleged aggravating factor, states clearly that:

The acts resulting in the conviction, or similar acts, resulted in financial loss to a government program OR to one or more entities of $1500 or more. (emphasis added).

Accordingly, I find the I.G. has proven this aggravating factor.

With regard to the second factor, I find that the acts resulting in the conviction were committed over a period of one year or more. 42 C.F.R. § 1001.102(b)(2). Petitioner argued he had his business for just over one year, but the I.G. provided no proof he was actually involved in the sale of drug samples for that entire time period. I note, however, that Petitioner provided no evidence, other than his own statement, that he was not involved in selling the samples over the entire period at issue. More importantly, a preponderance of the evidence indicates he was involved in selling drug samples over a one-year period. In paragraph one of Petitioner's "Guilty Plea Agreement," Petitioner states that his violation arose, "from his receipt and sale of stolen drug samples while he was owner of First Choice Pharmacy, Inc., 5936 Lansdowne Avenue, Philadelphia, Pennsylvania from March 1997 until June 25, 1998." P. Ex. B, at 1. The Information to which Petitioner pled guilty states, that "from approximately in or about March, 1997 to on or about June 25, 1998, . . . [Petitioner] did knowingly trade, sell, and offer to trade and sell, samples of the following drugs to others . . . ." I.G. Ex. 3, at 2-3. As Petitioner cannot collaterally attack the underlying conviction, I find that the I.G. has proven the second aggravating factor.

With regard to the third factor, 42 C.F.R. § 1001.102(b)(5) provides for enlarging the period of exclusion if "the sentence imposed by the court included incarceration." On November 20, 2000, subsequent to entering a guilty plea, a judge of the United States District Court sentenced Petitioner to four months in prison. Therefore, I find the I.G. has proven this aggravating factor.

2. Petitioner has failed to demonstrate the existence of any mitigating factors.

In his brief, Petitioner asserted several factors which he does not refer to as mitigating factors but I will consider his arguments as relevant to possible mitigating factors. As noted above, for determining the reasonableness of the length of exclusion, the ALJ can only consider the existence of mitigating factors if aggravating factors exist and the ALJ can only consider the mitigating factors listed in the regulations. 42 C.F.R. § 1001.102(c).

One mitigating factor would exist if Petitioner's cooperation with federal or state officials had resulted in others being convicted or excluded from Medicare, Medicaid and all other federal health care programs, or additional cases being investigated or reports being issued by the appropriate law enforcement agency identifying program vulnerabilities or weaknesses, or the imposition against anyone of a civil money penalty. 42 C.F.R. § 1001.102(c)(3). In his brief, in a parenthetical comment, Petitioner suggested that he had identified by name and place of employment the person who was the source of the samples he sold. P. Br. at 3. He provided no evidence, however, either through a presentence report or other court documents, to show that his cooperation resulted in other convictions, exclusions, investigations or penalties. Nothing in the sentencing documents in the record refer to other convictions or investigations. See I.G. Ex. 4. Therefore, I find the Petitioner has not shown that the mitigating factor in section 1001.102(c)(3) should be considered in his case.

Petitioner also, as noted above, submitted exhibits appearing to be newspaper articles about several pharmacists and doctors who were convicted of selling drug samples or other healthcare fraud. P. Exs. C, D. Petitioner argued his crime was minor in comparison and these other individuals were not excluded from participation in Medicare, Medicaid or other federal health care programs. Of course, this record contains no evidence as to whether or not the cited individuals were excluded. More importantly, the fact that others may have been treated more leniently is not a mitigating factor I can consider. 42 C.F.R. § 1001.102(c). What happened in other situations is not relevant to my decision here unless the other situations are included in authoritative legal decisions that are precedent herein.

In sum, I find the Petitioner has not shown the presence of any mitigating factors.

Obviously, Petitioner's conduct is the type that Congress sought to deter for the protection of the beneficiaries of the Federal and State health care programs. It follows that, since Petitioner poses a risk to the welfare of Medicare and Medicaid recipients, his untrustworthiness makes him unfit to participate in any of these programs.

I must determine whether the length of exclusion is unreasonable based on the facts as found by me. In order to make that determination, I must consider whether the length of the exclusion imposed by the I.G. is within a reasonable range. Thus, to determine if the I.G.'s length of exclusion is unreasonable, I must consider the parties' evidence as it pertains to the aggravating and mitigating factors delineated at 42 C.F.R. § 1001.102 and, based upon my findings, if the I.G.'s decision is within a reasonable range.

For the reasons previously stated above and in light of my consideration of the regulatory criteria, I find that the eight-year exclusion imposed by the I.G. is within a reasonable range of possible exclusion periods given the circumstances of this case, in which three aggravating and no mitigating factors were present. I find that the three-year additional exclusion imposed by the I.G. is not excessive. The eight-year exclusion is a legitimate remedial remedy, which is consistent with the purpose of section 1128 of the Act. In essence, the purpose of section 1128 of the Act is to protect federally-funded health care programs and their beneficiaries and recipients from untrustworthy individuals.

VI. Conclusion

Sections 1128(a)(3) and 1128(c)(3)(B) of the Act mandate that Petitioner be excluded from Medicare, Medicaid, and all other federal health care programs for a period of at least five years because of his criminal conviction for a felony offense relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct which occurred after August 21, 1996, in connection with the delivery of a health care item. The I.G. was also justified in lengthening the period of exclusion due to the existence of aggravating factors. The eight-year exclusion is therefore sustained.

Anne E. Blair

Administrative Law Judge

1. During the prehearing telephone conference, I advised Petitioner he could request an in-person hearing after the briefing if he felt it was necessary. Having received no such request, I make this decision on the documentary record in the case.

2. Petitioner added "Attachments" A, B, C & D to his brief. Because they are few in number, I have not renumbered them to conform to Civil Remedies Division procedures.

3. Because these statutory provisions are interrelated, I do not find it relevant, contrary to Petitioner's argument, that the Information charging him referenced all three sections of Title 21, while the "Guilty Plea Agreement" references only Section 331 and the accepted plea references only section 333(b)(1)(B).