SUBJECT:

Lyle Kai, R.Ph

Petitioner,

The Inspector General.

Docket No.C-04-227
Decision No. CR1262

DECISION

This matter is before me on the Inspector General's (I.G.'s) Motion for Summary Affirmance of the I.G.'s determination to exclude the Petitioner, Lyle Kai, R.Ph., (Petitioner) from participation in Medicare, Medicaid, and all other federal health care programs for a period of five years. The I.G.'s determination to exclude Petitioner is based on the terms of section 1128(a)(1) of the Social Security Act (Act), 42 U.S.C. � 1320a-7(a)(1). As I explain below, the I.G. has failed to prove his case under section 1128(a)(1), because the I.G. has failed to prove that Petitioner was convicted of a criminal offense related to the delivery of an item or service under the Medicaid program. There is no basis, therefore, for the I.G. to exclude Petitioner from participating in Medicare, Medicaid, and all other federal health care programs pursuant to section 1128(a)(1) of the Act. For those reasons, I deny the I.G.'s Motion for Summary Affirmance, and I reverse the I.G.'s determination to exclude Petitioner.

PROCEDURAL BACKGROUND

During the relevant period in 1999-2000, Mr. Kai practiced pharmacy in Hawaii as an employee of Interstate Pharmacy Corporation (IPC). On January 11, 2001, Mr. Kai was convicted in the Circuit Court of the First Circuit, State of Hawai'i on his plea of no contest to a charge of recklessly exposing for sale mislabeled commodities while in the course of engaging in a business, occupation, or profession thereby committing the offense of Deceptive Business Practices in violation of section 708-870(1)(e) of the Hawaii Revised Statutes. I.G. Exhibits (Exs.) 2,4,5.

Section 1128(a)(1) of the Act, 42 U.S.C. � 1320a-7(a)(1), requires the exclusion from participation in Medicare, Medicaid, and all other federal health care programs, for a minimum period of five years, of "[a]ny individual or entity that has been convicted of a criminal offense related to the delivery of an item or service under title XVIII or under any State health care program." Section 1128(a)(1) of the Act; 42 U.S.C. � 1320a-7(a)(1). On December 31, 2003, the I.G. notified Petitioner that he was to be excluded for the minimum mandatory period of five years.

By letter dated March 2, 2004, Petitioner timely sought review of the I.G.'s action. I convened a prehearing conference by telephone on April 29, 2004, pursuant to 42 C.F.R. � 1005.6. At the conference, the parties agreed that this case could likely be decided based on written submissions without an oral hearing. I established a schedule for the submission of documents and briefs. The briefing is complete.

The I.G. has proffered six proposed exhibits (I.G. Exs. 1-6). They are admitted. Petitioner has also proffered six proposed exhibits (P. Exs. 1-6). They are admitted. On October 14, 2004, following the submissions of the parties' briefs, I held a second prehearing conference to discuss the status of the case. At that conference, I discussed with the parties that, after reviewing their briefs and proposed exhibits, I had concluded that more evidence concerning the alleged link between Petitioner's conviction and an item or service under title XVIII or under any State health care program (a link to Hawaii Medicaid is alleged in this case) would assist me in deciding the matter. ⁽¹⁾ At that conference, I also directed the parties to consider, in light of our discussion and my impression of the evidence at that point, whether they would offer additional evidence or request the opportunity to provide the testimony of witnesses at an oral hearing. I convened a final prehearing conference by telephone on October 22, 2004. At that final conference call, the I.G. indicated that he chose to rest on the briefs and proposed exhibits, and he indicated that the I.G. wished to submit the matter for my decision based on the I.G.'s Motion for Summary Affirmance without the submission of additional evidence or an oral hearing. Accordingly, I closed the record on October 22, 2004.

ISSUE

The legal issue before me is:

Whether the I.G. has a basis for excluding Petitioner from participating in Medicare, Medicaid, and all other federal health care programs pursuant to section 1128(a)(1) of the Act.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

I find and conclude as follows:

1. On January 11, 2001, Mr. Kai was convicted in the Circuit Court of the First Circuit, State of Hawai'i on his plea of no contest to a charge of recklessly exposing for sale mislabeled commodities while in the course of engaging in a business, occupation, or profession thereby committing the offense of Deceptive Business Practices in violation of Section 708-870(1)(e) of the Hawaii Revised Statutes. I.G. Exs. 2,4,5.

2. The plea and conviction described above in Finding 1 constitute a "conviction" within the meanings of sections 1128(a)(1) and 1128(i)(4) of the Act, and 42 C.F.R. � 1001.2.

3. The I.G. failed to present evidence sufficient to prove, by a preponderance of the evidence, that Petitioner's conviction related to the delivery of an item or service under title XVIII or under any State health care program.

4. There is no basis for the I.G. to exclude Petitioner from participating in Medicare, Medicaid, and all other federal health care programs pursuant to section 1128(a)(1) of the Act.

DISCUSSION

There are two elements to the predicate for exclusion as set forth in section 1128(a)(1) of the Act: (1) the individual or entity must have been convicted of a criminal offense; and (2) the criminal offense must be related to the delivery of an item or service under title XVIII or under any State health care program. The I.G. bears the burden of persuasion to prove, by a preponderance of the evidence, both elements provided in section 1128(a)(1). 42 C.F.R. � 1005.15(b)(1) and (d).

The first element is established. Petitioner does not dispute that in light of his no contest plea in the Circuit Court of the First Circuit, State of Hawai'i, for purposes of the exclusion criteria for Medicare, Medicaid and other federal health care programs, he is considered to have been convicted of a criminal offense. I.G. Exs. 3, 4; Petitioner's brief at 4. Thus, the issue in this case turns on the second element: the criminal offense must be related to the delivery of an item or service under title XVIII or under any State health care program.

The rule I follow to determine whether the relationship between the offense and item or service in a health care program is present requires that I search the evidence for a nexus or common sense connection between the two things. As I discuss below, the I.G. argues that such a nexus is established in this case; however, I conclude that the evidence is insufficient to support the I.G.'s case by a preponderance of the evidence.

The characterization of the relationship between an offense and an item or service in a health care program is set forth in Berton Siegel, D.O., DAB No. 1467 (1994). In that case, an appellate panel of the Departmental Appeals Board (Board) considered section 1128(a)(1) of the Act and elucidated that "the [Act] requires some 'nexus' or 'common sense connection' between the offense of which a petitioner was convicted and the delivery of an item or service under a covered program." Siegel, DAB No. 1467, at 5. The Board reasoned that

Congress could have simply required that a person be excluded when convicted of an offense related to Medicare or Medicaid. However, Congress instead required that a person be excluded when convicted of an offense related to the delivery of items or services under Medicare or Medicaid. Neither the ALJ nor the Board may fail to give effect to the plain meaning of the statute.

Id. In Siegel the Board affirmed also that the nature of an offense may be considered when determining whether an offense is related to the delivery of items or services under Medicare or Medicaid. Id. Additionally, the Board agreed with the petitioner in Siegel that limited evidence concerning the facts upon which a conviction is predicated should be admitted to determine whether there is a nexus encompassing Medicare or Medicaid, because this is consistent with Congress' intent in promulgating the Act. Id. at 4. And, the Board explained in Siegel also that, concerning the examination of the nature of the offense and underlying facts, it approved of an administrative law judge " . . . looking beyond the findings of the State court . . . ." Id. at 4, citing with approval Dewayne Franzen, DAB 1165, at 6 (1990).

The I.G. avers that the nexus described by the Board in Siegel is present in this case. The I.G. asserts that the facts underlying Petitioner's conviction of Deceptive Business Practices, in violation of section 708-870(1)(e) of the Hawaii Revised Statutes, establish a connection between the offense and the Hawaii Medicaid program. Concerning the specific facts, the I.G. asserts that Petitioner, while employed as a pharmacist by IPC, was involved in a scheme where pharmaceuticals dispensed to long-term care facilities were returned to IPC, removed from blister packs, and put into pharmacy stock bottles. Then, the I.G. explains, the pharmaceuticals were removed from the stock bottles and resealed in blister packs, whereafter, they were re-dispensed to other long-term care facilities. Because the pharmaceuticals had been recycled in this manner, they were mislabeled under Hawaii law. I.G.'s brief at 3, citing I.G. Ex. 2. Some of the pharmaceuticals, the I.G. asserts, were billed by IPC to the Hawaii Medicaid Program. Thus, the I.G. concludes, Petitioner's involvement in this scheme resulted in IPC submitting fraudulent claims to the Hawaii Medicaid Program and in IPC receiving payments from the Hawaii Medicaid Program to which it was not entitled. Id.

The I.G. argues that Petitioner's conviction is related to an item or service in the Hawaii Medicaid Program because in the course of his employment " . . . Petitioner participated in illegal activity designed to educe improper Medicaid payments through the distribution of mislabeled pharmaceuticals to long-term care facilities." I.G.'s brief at 9, citing I.G. Ex. 2. I reiterate, at this point, that Petitioner was convicted of Deceptive Business Practices. He did not plead guilty to either a conspiracy or to any statute that includes language referring to title XVIII, Medicaid or a state health care program. I also note that the context within which Petitioner pleaded no contest is instructive in determining the nexus required in this case between his conviction and the delivery of an item or service under the Medicaid program. ⁽²⁾

The context to which I refer began when the Medicaid Investigations Division of the State of Hawaii Department of the Attorney General began an investigation of IPC, a wholly-owned subsidiary of Pharmacy Corporation of America. The investigation centered on IPC's corporate practice of recycling medications returned from long-term care facilities. Petitioner did not work in the IPC pharmacy department that had allegedly taken part in recycling medications. Petitioner was the sole pharmacist at IPC providing intravenous medications and services and no improprieties of "recycling" and/or over billing were found in the IV department which was run separately from the Pharmacy department involved in the alleged recycling scheme. P. Ex. 2. Petitioner had no knowledge of drugs being recycled in the Pharmacy department. He had no responsibility for, nor did he participate in, any billing activities for items or services provided by the Pharmacy department. Id.

Petitioner's decision to plead no contest to deceptive business practices was in large part the result of pressure from his employer, IPC. Further, IPC paid Petitioner's attorney who worked out Petitioner's plea agreement with the Hawaii Attorney General. The Court required Petitioner to make a charitable contribution but no restitution to Medicaid or any other health care program. IPC paid the charitable contribution required of Petitioner. Id. There is no record evidence that the I.G. attempted to exclude IPC. ⁽³⁾ Petitioner's brief at 2.

While the existence of the medication recycling scheme or conspiracy as described by the I.G. has not been put to the proof in Petitioner's or in any other criminal case, the alleged scheme is not disputed by the Petitioner herein. The I.G., however, does not elaborate on what Petitioner's participation or involvement in the scheme was. The I.G.'s argument goes only as far as asserting that Petitioner's conviction is based on Petitioner's "tacit" participation and involvement in the scheme and that the scheme was "an element in the chain of events giving rise to the offense." I.G.'s brief at 10, citing Larry W. Dabbs, R.Ph., et al, DAB CR151 (1991) and Rosaly Saba Khalil, M.D., DAB CR353 (1995).

The concept advanced by the I.G. in citing Dabbs and Khalil is valid, but it is inapposite to the instant matter. The gist of the concept is that the nexus can be established despite a petitioner not personally or directly providing items or services or presenting false claims. In Dabbs, similar to Mr. Kai's circumstances in this case, the petitioners were convicted of offenses related to mislabeling pharmaceuticals. The administrative law judge in Dabbs found that the convictions involved also selling the mislabeled pharmaceuticals to Tennessee Medicaid, thus establishing a nexus between conviction and delivery of an item or service in a State health care program. Dabbs, R.Ph., et al, DAB CR151. In the instant case, as I discuss in detail below, the evidence is insufficient to enable me to find facts linking Mr. Kai's role in mislabeling pharmaceuticals and bringing about improper Medicaid payments.

The Khalil case also involved the concept that a nexus may exist despite a petitioner's offense being indirectly related to Medicare or Medicaid. In Khalil the petitioner argued that her conviction was insufficiently related to the requisite delivery of an item or service because of her lack of direct personal involvement in the execution of a scheme to defraud New York Medicaid. Essentially, petitioner's colleague had executed the fraudulent transactions, however, the petitioner was convicted for a role in the related conspiracy. The administrative law judge held that the facts of the case established that petitioner's participation in the greater conspiracy was sufficient to connect her conviction to items or services in Medicaid. Khalil, M.D., DAB CR353. In Khalil the link between the petitioner's offense and the delivery of an item or service was undisputed-the issue was whether an indirect offense, conspiracy, fell within the requisite nexus as a matter of law. In the instant case, the I.G. urges me to view Mr. Kai's conviction for his involvement in the repackaging scheme as connected to Medicaid, albeit indirectly, similar to the conviction of the petitioner in Khali l. ⁽⁴⁾

The evidence the I.G. cites in support of the alleged link between Petitioner's conviction and the improper Medicaid payments is located in the declaration of Michael L. Parrish, Deputy Hawaii Attorney General, Medicaid Fraud Control Unit. I.G. Ex. 2. Mr. Parrish, the attorney who prosecuted Petitioner, declares that Petitioner " . . . tacitly participated in [the aforementioned scheme to repackage pharmaceuticals]. . . " I.G. Ex. 2, at 1. The I.G. avers that Mr. Parrish's declaration is reliable and, therefore, it is sufficient to establish the fact that Petitioner's involvement in the repackaging scheme was related to an item or service in Hawaii Medicaid. I.G.'s reply brief at 5. I have reviewed the entire record to place Mr. Parrish's declaration in context, and I have reviewed the declaration itself. Based on my review, I conclude that the I.G. has failed to establish a nexus or common sense connection between Petitioner's conviction and Hawaii Medicaid.

In Mr. Parrish's declaration, he characterizes Petitioner's involvement in the repackaging scheme as tacit; Mr. Parrish indicates that Petitioner "tacitly participated" in the scheme and had "tacit involvement" in the scheme. I.G. Ex. 2, at 1. The complaint filed against Petitioner by Mr. Parrish provides no additional detail, it indicates only that Petitioner recklessly exposed for sale mislabeled commodities in the course of his duties as a pharmacist for IPC. I.G. Ex. 1. The connection between this conduct and an item or service in Hawaii Medicaid, as presented in Mr. Parrish's declaration, is that allegedly "some" of the improperly repackaged pharmaceuticals were redistributed and ultimately billed to Hawaii Medicaid.

I find conspicuously absent from this assertion a link between Petitioner's "tacit" role in the scheme (and his conviction for it) and any of the pharmaceuticals. Mr. Parrish's declaration that "some" quantity of the improperly labeled pharmaceuticals became linked to Hawaii Medicaid is presented without any elaboration that would establish its accuracy. ⁽⁵⁾ Thus presented, it is an assertion unmoored from any indicia of reliability, and it is unverifiable. Because there is so little information presented concerning Petitioner's role in the scheme, the evidence suggests plausible alternatives to the I.G.'s view of the case.

Based on the plain language of the statute to which Petitioner pleaded no contest, i.e., Deceptive Business Practices, Petitioner's "tacit" conduct forming the basis of the conviction - whatever that conduct may have been - during some portion of the period that the recycling scheme occurred could have involved pharmaceuticals having nothing to do with the pharmaceuticals described by Mr. Parrish as the "some" which he declared became connected to Hawaii Medicaid. In fact, I infer that because Mr. Parrish declared that "some" of the repackaged pharmaceuticals were ultimately connected to Hawaii Medicaid, another portion of them were not. How is it known that Petitioner's deceptive business practices did not involve solely a quantity of the pharmaceuticals resold to an entity not affiliated with any government health care program?

Further, the record contains no evidence connecting Petitioner's tacit involvement in the scheme with a specific pool of pharmaceuticals. The only specific information provided is that Petitioner's tacit participation took place in the course of his employment in the period 1999-2000, but the I.G. provided no evidence elaborating on the scheme to ensure that whatever conduct took place on Petitioner's watch is relevant to the offenses ultimately committed against Hawaii Medicaid. Mr. Parrish's declaration that "some" of the pharmaceuticals are connected to Hawaii Medicaid is thus too imprecise to be persuasive. From the declaration I glean that it is reasonable to infer that at least some part of the IPC repackaging scheme was related to Hawaii Medicaid. I do not, however, find this a persuasive link between Petitioner's conviction and Hawaii Medicaid, because the scheme as framed in the record is amorphous enough to encompass conduct that is related to Hawaii Medicaid and conduct that may not be. Therefore, I am not satisfied by Mr. Parrish's spare assertion that "some" of the recycled pharmaceuticals were billed to Hawaii Medicaid and that Petitioner's "tacit" participation involved those pharmaceuticals.

To put Mr. Parrish's declaration in context, I consider also that Mr. Parrish's representation was related to Hawaii Medicaid as he was an attorney for the Medicaid Fraud Control Unit. The fact that in this role Mr. Parrish was responsible for Petitioner's prosecution indicates that Petitioner's conviction was part of a policing effort directed at health care related offenses. See I.G. Ex. 2, at 1. It appears also that Petitioner's plea was part of an agreement between Petitioner and the Hawaii Attorney General concerning consideration given by the Hawaii Attorney General in return for Petitioner's cooperation in the investigation related to the alleged defrauding of Hawaii Medicaid. See, I.G. Ex. 5. Thus, the factual context surrounding Petitioner's conviction implies a connection to Hawaii Medicaid; however, it falls short of proving one.

I fully recognize that neither the Petitioner nor I can collaterally attack a conviction (42 C.F.R. � 1001.2007(d)). I also fully realize that, as noted in the Dabbs and Khalil cases, the nexus between a conviction and the delivery of an item or service to a state health care program can be relatively attenuated as long as the delivery of a Medicaid item or service is an element in the chain of events giving rise to the offense. Nonetheless, even if I assume Petitioner's "deceptive business practices" were uncovered in an investigation related to Hawaii Medicaid, that investigation might have netted both conduct that would establish a nexus with Medicaid and conduct that while illegal would not establish a nexus with Medicaid (e.g., Petitioner's tacit participation in an unconnected portion of the scheme as I hypothesized above). It is possible that Petitioner's mislabeling of pharmaceuticals involved something totally different than the recycling of medications from long-term care facilities and that the investigating authorities leveraged Petitioner's unconnected illegal acts to secure his cooperation in the investigation of acts known to involve Medicaid payments.

In other cases before the Board, the case record has contained additional evidence that from "common sense" proves that Medicaid has been in the chain of events leading to the offense; e.g., the Khalil case wherein the petitioner was sentenced with restitution to Medicaid (see also John Wozniak, R.Ph., DAB CR1108 (2003) in which the petitioner received no personal reimbursement for the offending activities but was sentenced to restitution to the state health care program); or the Dabbs case wherein the charging documents and the counts to which the petitioner pleaded guilty specifically mentioned the delivery of an item or service to Medicare or Medicaid; or in the cases of John Y. Salinas, DAB CR1117 (2003), a doctor who was responsible for the billing practices in his office and received a Medicaid payment to which he was not entitled and Dale F. Lowe, DAB CR655 (2000), an executive director- and responsible party- for a health care program involved in improprieties. ⁽⁶⁾ The I.G. has shown none of these factors in this case. As I expressed to I.G. counsel in the conference call of October 14, 2004, in my view, the I.G. had failed up to that point to show any conduct, knowledge or responsibility on Petitioner's part, even in an attenuated way, related to the delivery of an item or service to Medicaid, regardless of his conviction for deceptive business practices.

Clearly if Petitioner's participation in the scheme was 'tacit,' another actor or actors participated directly. This suggests specific information concerning Petitioner's role and concerning the role of other parties in the scheme exists. I am puzzled why no information has been forthcoming to specify what Petitioner's role in the scheme was and to substantiate the alleged link between his role and the improper Medicaid payments to IPC. Without substantiation of how Petitioner's role in the scheme is linked to Medicare.

I am not able to find there is a nexus based on only Mr. Parrish's blithe assertion that there was a link. Accordingly, I conclude that there is insufficient evidence of a nexus or common sense connection between Mr. Kai's conviction and the delivery of an item or service to Medicaid.

CONCLUSION

For the reason set out above, the I.G.'s Motion for Summary Affirmance should be, and it is, DENIED. The I.G. has not proved by a preponderance of the evidence that Petitioner was convicted of a criminal offense related to the delivery of an item or service under the Medicaid program. The I.G.'s exclusion of Lyle Kai, from participation in Medicare, Medicaid, and all other federal health care programs for a term of five years, pursuant to the terms of section 1128(a)(1) of the Act, 42 U.S.C. � 1320a-7(a)(1), is therefore REVERSED.

Anne E. Blair

Administrative Law Judge

1. At the initial telephone conference on April 29, 2004, I indicated to the parties that I would revisit the question whether an oral hearing was necessary to decide the case at the conclusion of the briefing. I indicated to the parties also that I would avoid the expense of convening the hearing in Hawaii; however, I indicated also that this would not preclude my taking the testimony of witnesses in another location or in a manner not requiring travel to Hawaii. I reiterated this to the parties at the telephone conference on October 14, 2004.

2. Because this decision is based on a summary judgement motion, I have, as required in these circumstances, viewed the evidence in the light most favorable to the Petitioner, the non-moving party.

3. Petitioner reports that the Attorney General of the State of Hawaii executed a corporate compliance agreement with IPC which included monitoring, a civil monetary penalty in the millions of dollars, and possible criminal prosecution for a minor number of employees. Petitioner's brief, at n.2. Accepting that administrative law judges do not have authority to do equity, I, nonetheless, would like to think that in addition to following relevant statutes and a federal agency's regulations, I also participate in promoting a just government. Thus, I personally find it distasteful for individual pharmacists to have lost their professions for five years for having been employed by a company with illegal corporate practices when the company itself is not excluded. I have previously sustained the I.G.'s exclusion for one of Petitioner's coworkers. Steven Caplan, R.Ph., DAB CR1112 (2003). In that case, Mr. Caplan was at least a supervisor in the IPC pharmacy department at issue. However, the I.G. has not shown, with respect to Petitioner or Mr. Caplan, that either was an untrustworthy individual from whom Medicare/Medicaid beneficiaries need protection. Caplan, DAB CR1112, at 9.

4. The Khalil case is different from Petitioner's in several important respects. Unlike Dr. Khalil, Petitioner herein was not convicted of conspiracy in the alleged scheme, he was not charged with attempted Medicaid fraud, and he did not receive reimbursement from Medicaid as a result of an improper billing that had been the subject of his conviction

5. I offered an opportunity to the I.G. to present Mr. Parrish as a witness, subject to cross-examination, to test the allegations made by Mr. Parrish in his affidavit. The I.G. decided to rest on the affidavit.

6. The ALJ in the Lowe case specifically indicated that extrinsic evidence was allowed to connect the executive director with Medicaid so as not to frustrate the purposes of the Act. As I noted in footnote 3, above, the I.G. has not shown that Petitioner's continued practice of pharmacy will in any way frustrate the purposes of the Act.