SUBJECT:

Kenneth M. Behr,

Petitioner,

The Inspector General.

DECISION

This case is before me pursuant to a request for hearing filed on September 1, 2004, by Kenneth M. Behr, R. Ph., (Petitioner).

By letter dated June 30, 2004, the Inspector General (I.G.) notified Petitioner, that he was being excluded from participation in the Medicare, Medicaid, and all federal health care programs as defined in section 1128B(f) of the Social Security Act (Act) for the mandatory minimum period of five years. The I.G. informed Petitioner that his exclusion was imposed under section 1128(a)(3) of the Act, due to his conviction of a criminal offense (as defined in section 1128(i) of the Act) 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 or any act or omission in a health care program operated or financed by any federal, State, or local agency.

On October 28, 2004, I convened a telephone prehearing conference during which the parties agreed that an in-person hearing was not required and that the matter could be decided based on written submissions. Petitioner appeared represented by counsel.

I issued an order establishing briefing deadlines. Pursuant to that order, the I.G. filed a brief (I.G. Br.) on December 15, 2004, accompanied by six proposed exhibits. I have admitted these exhibits into the record as I.G. Exhibits (I.G. Exs.) 1-6, without objection. Petitioner filed a brief (P. Br.) on February 9, 2005, accompanied by three proposed exhibits. I have admitted these exhibits into the record as Petitioner Exhibits (P. Exs.) 1-3, without objection. On February 25, 2005, the I.G. filed a reply brief.

It is my decision to sustain the determination of the I.G. to exclude Petitioner from participating in Medicare, Medicaid, and all federal health care programs, for a period of five years. I base my decision on the documentary evidence, the applicable law, 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 where the exclusion is for the minimum period required under the Act, no question of reasonableness exists.

Whether the I.G. had a basis upon which to exclude Petitioner from participation in Medicare, Medicaid, and all federal health care programs as defined in section 1128B(f) of the Act.

APPLICABLE LAW AND REGULATIONS

Section 1128(a)(3) of the Act authorizes the Secretary 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 criminal offense 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.

An exclusion under section 1128(a)(3) 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, an individual or entity excluded under section 1128(a)(3) of the Act may file a request for a hearing before an administrative law judge.

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

1. Petitioner's conviction 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 justifies his exclusion by the I.G. from participation in Medicare, Medicaid, and all other federal health care programs.

Petitioner holds a pharmacist license issued by the State of Michigan. I.G. Ex. 2. On July 29, 2002, the Attorney General for the State of Michigan filed a "First Superseding Administrative Complaint" against Petitioner. The complaint alleged that Petitioner owned a pharmacy service business under the name of "RX90," and pharmacies under the names of "Damian Apothecary" and "Litchfield Drugs." Petitioner provided pharmacy services for the pharmacies at Hillside Community Health Center in Hillsdale County, Michigan, and the Muscatatuck State Developmental Center, a State of Indiana facility for the developmentally disabled. I.G. Ex. 2, at 10, 11.

The complaint also alleged that contrary to the provisions of the federal Robinson-Patman Act, ⁽¹⁾ 15 U.S.C. � 13, and the federal Food, Drug and Cosmetic Act, 21 U.S.C.� 353, Petitioner routinely purchased prescription drugs at preferential, reduced prices through Mackinac Straits Hospital pharmacy and Hillsdale Community Health Center, both of which are nonprofit entities, and then transferred these prescription drugs to the retail pharmacies he owned.

Investigators from the Michigan Department of Consumer and Industry (MDCI) met with Petitioner on February 2, 1999, to discuss this matter, and he was unable to produce records demonstrating that he had purchased prescription drugs from licensed wholesalers for his retail pharmacies. Consequently, an administrative complaint was filed on January 28, 2000. I.G. Ex. 2, at 11. Despite being placed on notice regarding the above described improper actions, Petitioner continued to transfer prescription drugs from Hillside Community Health Center and from Muscatatuck State Developmental Center, to Litchfield Drugs, at least through mid to late 2001. Id. As a result, the Michigan Attorney General, filed a "First Superceding Administrative Complaint." I.G. Ex. 2, at 6 - 15. Based on that complaint Petitioner entered into a "Consent Order and Stipulation" on October 12, 2002, and agreed to surrender his pharmacist and controlled substance licenses and to relinquish any claim to reinstatement, renewal, re-issuance, or reactivation of those licenses, limited or otherwise, at any future date. I.G. Ex. 2, at 1 - 4.

The incidents mentioned above gave rise to a two count "Information Felony" filed by the Michigan Attorney General on December 6, 2002. I.G. Ex. 4. The Count I alleged that on or about June through September 2001, Petitioner fraudulently disposed of or converted to his own use, drugs belonging to Hillsdale Community Health Center that came into his possession by virtue of his relationship with that facility. Count II alleged that on or about June through September 2001, Petitioner attempted to commit an act of embezzlement, with respect to the same conduct charged in Count I. Id.

Petitioner contends that in the "Consent Order and Stipulation" he did not admit the truth of the allegations, but agrees that, "the Michigan disciplinary body may treat the allegations as true in order to resolve the complaint filed by the Board of Pharmacy." P. Br. at 3. Thus, reasons Petitioner, what the I.G. refers to as "facts" are merely "allegations." Id.

Petitioner further asserts that those allegations were made not in connection with any criminal proceeding, but as part of a separate Board of Pharmacy disciplinary investigation. According to Petitioner, the allegation made by the Board of Pharmacy is that Petitioner, "routinely purchased prescription drugs at preferential, reduced prices" from Hillsdale and another facility. P. Br. at 3. That, Petitioner argues, does not constitute an allegation of embezzlement, theft, fraud, or any other criminal act that would support the crime of attempted embezzlement. Id. It is, therefore, Petitioner's position that he was not convicted of an offense in connection with the delivery of any health care good or service. P. Br. 9.

Contrary to Petitioner's allegation that the Board of Pharmacy charged him with purchasing prescription drugs from Hillsdale Community Health Center, he was charged with improperly purchasing drugs "through" Hillsdale Community Health Center. In fact, what Petitioner did was transfer or divert (not purchase) prescription drugs from Hillsdale Community Health Center to a retail pharmacy that he owned. The Robinson-Patman Act, allows a hospital to purchase prescription medication at reduced prices, below those charged to retail pharmacies, but only when the purchased medication is for the hospital's own use in the institutional care of its patients.

Additionally, the Food, Drug and Cosmetic Act, generally prohibits the sale, purchase or trade of drugs which were purchased by a hospital or other health care entity. 21 U.S.C. � 353(c)(3)(A)(ii)(I). The statute generally prohibits the sale, purchase, or trade of drugs supplied at a reduced price to a charitable organization. 21 U.S.C. � 353(c)(3)(A)(ii)(II).

The Food, Drug and Cosmetic Act also allows hospitals and other health care entities to transfer drugs to retail pharmacies for emergency medical reasons, such as to alleviate temporary shortages of a drug arising from delays in, or interruptions of, regular distribution schedules. 21 U.S.C. � 353(c)(3)(B).

Petitioner lost his pharmacist license for conduct that contravened the prohibitions contained in the above described statutes. However, pursuant to Michigan Law, that conduct translated into an act of embezzlement and/or attempted embezzlement. The record reflects that Petitioner was charged with embezzlement in Count I and with attempted embezzlement in Count II. Eventually, Count I was dropped and Petitioner entered a plea of guilty to attempted embezzlement in Count II. I infer that Count I was dismissed pursuant to a plea bargaining agreement, inasmuch as Petitioner was required to make restitution to Hillsdale Community Health Center in the sum of $7,796.

Petitioner's arguments, that the allegations are made not in connection with any criminal proceeding, but as part of a separate Board of Pharmacy disciplinary investigation, and that attempted embezzlement does not constitute a conviction of an offense in connection with the delivery of any health care good or service, are without merit.

Section 1128(a)(3) of the Act provides in relevant part --

The Secretary shall exclude the following individuals and entities from participation in any Federal health care program (as defined in section 1128B(f)):

* * * *

(3) FELONY CONVICTION RELATING TO HEALTH CARE FRAUD.--

Any individual or entity that has been convicted for an offense which occurred after the date of the enactment of the Health Insurance Portability and Accountability Act [HIPAA] of 1996, under Federal or State law, 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 in whole or in part by any Federal, State, or local government agency, of a criminal offense consisting of a felony relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct.

To prevail, the I.G. must show that:

�Petitioner was convicted of a felony for an offense that occurred after the enactment of HIPAA 1996, relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct and;

�that the conviction was in connection with the delivery of a health care item or service, or;

�that the conviction was 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.

Petitioner does not dispute that he has been convicted of a felony; i.e., attempted embezzlement. Thus, the I.G. has clearly established the first part of the two pronged requirement. The statute does not require that the conviction consist of an act of fraud, theft, embezzlement, or breach of fiduciary responsibility that was in fact carried out. Consequently, the conviction for attempted embezzlement suffices to satisfy the statutory requirement. The conviction, not the fraudulent conversion of drugs for sale at his privately-owned retail pharmacies, is the underlying basis for the I.G.'s exclusion action.

The I.G. has also established the second part of the two pronged requirement by showing that Petitioner's conviction was related to the performance of his professional responsibilities of delivering health care items to health care facilities. He was able to transfer prescription drugs from Hillsdale Community Health Center to his privately held pharmacies because of the relationship he had with that institution. Petitioner's transfer of prescription drugs to his retail pharmacies while under the guise of performing professional responsibilities is clearly the requisite common sense "connection" to health care delivery that section 1128(a)(3) of the Act requires. The fact that Petitioner's admissions in the aforementioned "Consent Order and Stipulation" were qualified, does not detract from the I.G.'s satisfaction of the statutory requirement. Additionally, the statute does not require that the connection between the felony conviction and the delivery of a health care item or service , be a direct relationship. ⁽²⁾

In view of the foregoing, I find that the I.G. properly excluded Petitioner under section 1128(a)(3) of the Act. The I.G. has established that Petitioner was convicted of a felony offense involving fraud or other financial misconduct in connection with the delivery of a health care item or service, occurring after the date of enactment of HIPAA.

2. Petitioner's exclusion for a period of five years is not unreasonable.

An exclusion under section 1128(a)(3) of the Act must be for a minimum mandatory period of five years, as set forth in section 1128(c)(3)(B) of the Act:

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

Section 1128 (c)(3)(B) of the Act.

When the I.G. imposes an exclusion for the mandatory five-year period, the reasonableness of the length of the exclusion is not an issue. 42 C.F.R. �1001.2007(a)(2). Aggravating factors that justify lengthening the exclusion period may be taken into account, but the five-year term will not be shortened. 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. As a result of Petitioner's conviction, the I.G. was required to exclude him pursuant to section 1128(a)(3) of the Act, for at least five years.

3. Petitioner's constitutional argument is unavailing.

Petitioner has also raised a United States Constitutional question, arguing that if the exclusion is allowed to stand, it would be unconstitutional as applied because the resulting penalty would be punitive in nature. Petitioner overlooks the fact that the remedies imposed by the I.G. are not designed as punitive measures. Rather, the Act provides for remedial measures designed to protect federal health care programs from untrustworthy individuals such as Petitioner. Furthermore, I am without jurisdiction to entertain Petitioner's Constitutional argument.

CONCLUSION

Petitioner's conviction pursuant to sections 1128(a)(3) and 1128(c)(3)(B) of the Act mandate that he be excluded from Medicare, Medicaid, and all other federal health care programs for a period of at least five years.

José A. Anglada

Administrative Law Judge

1. The Robinson-Patman Act, in general, makes it unlawful for one engaged in commerce to discriminate in price between different purchasers of like commodities, where the effect of that discrimination is to substantially lesson competition. Nonprofit institutions (e.g., schools, colleges, libraries, churches, hospitals) are not subject to the prohibitions of the Robinson-Patman Act to the extent that their purchases are made for their own use. See Abbot Laboratories v. Portland Retail Druggist, 425 U.S. 1 (1976). The Abbot case interpreted "for their own use" to include pharmaceutical purchases by a hospital for dispensing to inpatients and outpatients treated at the hospital.

2. Having shown that the felony conviction was in connection with the delivery of a health care item or service, the I.G. need not demonstrate that the conviction was 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." Act, section 1128(a)(3).