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Date: March 4, 1999

In the Case of:

Stephen J. Weiss,
Petitioner,

- v. -

The Inspector General.

Docket No. C-98-462
Decision No. CR581

Below, I uphold the determination of the Inspector General (I.G.) to exclude Petitioner from participation in Medicare, Medicaid and all federal health care programs⁽¹⁾ for a period of five (5) years under section 1128(b)(1) of the Social Security Act (Act).

I. Procedural History

By notice dated July 31, 1998, the I.G. informed Petitioner that he was being excluded from program participation for a period of five years under section 1128(b)(1) of the Act. As a basis for imposing and directing this exclusion, the I.G. alleged that Petitioner had been convicted in U.S. District Court for the Southern District of Iowa of a criminal offense related to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct. The notice stated also that, in setting the length of Petitioner's exclusion, the I.G. had relied on the existence of two aggravating factors listed in 42 C.F.R. � 1001.201:

1. [t]he acts resulting in the conviction, or similar acts, resulted in financial loss of $1,500 or more to a government program or to one or more other entities . . . . [42 C.F.R. � 1001.201(b)(2)(i)]; and

2. [t]he sentence imposed by the court included incarceration . . . . [42 C.F.R. � 1001.201(b)(2)(iv)].

Petitioner timely filed a request for a hearing to contest his exclusion. His sole basis for challenging the I.G.'s determination⁽²⁾ was his contention that he was not convicted of a criminal offense that "would give ground for the Department to take the action contemplated." Hearing Request.

I held a prehearing conference with the parties' representatives on September 2, 1998. Order and Schedule (Sept. 24, 1998). During the conference, Petitioner, by counsel, re-emphasized that his dispute was with the I.G.'s use of his criminal conviction to impose the exclusion under section 1128(b)(1) of the Act. Id. at 2.⁽³⁾

Because neither party wished to present live testimony on the issue presented by Petitioner, I established a schedule for adjudicating this case on a written record. The parties submitted their filings to me in accordance with the schedule.

The record before me contains the following documents, which I have reviewed in reaching my decision:

-- Petitioner's Motion to Set Aside Exclusion (P. Mot.), with two attachments labeled as Petitioner's Exhibits 1 and 2 (P. Ex. 1 and 2);

-- I.G.'s Motion for Summary Disposition;

-- I.G.'s Brief in Support of Summary Disposition (I.G. Br.), with four attachments labeled as I.G. Exhibits 1 through 4 (I.G. Ex. 1 - 4);

-- Petitioner's Response to Inspector General's Motion for Summary Disposition (P. Resp. Br.), with copy of case, DeWayne Franzen, DAB CR58 (1989).

II. Uncontested Facts and Conclusions

The parties have specifically agreed upon certain facts and conclusions in their briefs. I list them here to provide a background for resolving the issues in controversy:⁽⁴⁾

1. At all times relevant, Petitioner was licensed to practice pharmacy in the State of Iowa. I.G. Br., 3 at � 1; P. Resp. Br., 1.

2. On or about November 2, 1989, Petitioner obtained a pharmacy license for Des Moines Pharmacy, Inc., from the Iowa Board of Pharmacy Examiners. I.G. Br., 3 at � 2; P. Resp. Br., 1.

3. In or about November 1989 to March 1994, Petitioner operated Des Moines Pharmacy, Inc. The pharmacy was located at the Wilden Medical Clinic, 717 Lyon Street, Des Moines, Iowa. I.G. Br., 3 at � 3; P. Resp. Br., 1.

4. In or about November 1989, Petitioner applied for and received a provider number to submit claims to the Iowa Medicaid Program. I.G. Br., 3 at � 4; P. Resp. Br., 1.

5. On August 15, 1995, the United States Attorney for the Southern District of Iowa filed a Superseding Indictment against Petitioner alleging that he had committed various criminal violations, including the misbranding of prescription drugs. I.G. Br., 3 at � 6; P. Resp. Br., 2.

6. Petitioner pled guilty to Count 426 of the Superseding Indictment, "Misbranding [of prescription drugs] -- Inaccurate Statement of Quantity." I.G. Br., 3 at � 7; I.G. Ex. 3 at 70; P. Resp. Br., 2.

7. Petitioner's plea was accepted by the presiding judge, the Honorable Harold D. Vietor. I.G. Br., 3 at � 8; P. Resp. Br., 2.

8. Petitioner was convicted within the meaning of the Act for misbranding of prescription drugs (Count 426 of the Superseding Indictment). I.G. Br., 9; P. Resp. Br., 2.

9. All other counts in the August 15, 1995 Superseding Indictment against Petitioner were dismissed. P. Resp. Br., 2 at � 6.

10. Petitioner was ordered to pay restitution of $120,001 as a result of his conviction. I.G. Br., 3 at � 9; P. Resp. Br., 2.

11. Petitioner was sentenced to 15 months of incarceration as a result of his conviction. Id.

12. In setting the exclusion period under section 1128(b)(1) of the Act, the I.G. is entitled to use the three year minimum exclusion period specified by 42 C.F.R. � 1001.201(b) as a starting point and then increase the period on the basis of the "aggravating factors" also listed in the regulation. See I.G. Br., 4 at �� 12 and 13; P. Resp. Br., 2.

III. Resolution of Disputed Issues Raised by Petitioner

The statute relied upon by the I.G. to impose the exclusion against Petitioner provides, in relevant part that the Secretary may exclude from program participation:

(1) CONVICTION RELATING TO FRAUD. -- Any individual or entity that has been convicted, under Federal or State law, in connection with the delivery of a health care item or service . . ., of a criminal offense relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct.

Section 1128(b)(1) of the Act.⁽⁵⁾

The regulation interpreting the foregoing statutory provision states, in relevant parts:

Circumstance for exclusion. The OIG may exclude an individual or entity convicted under Federal or State law of a criminal offense relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct --

(1) In connection with the delivery of any health care item or service, including the performance of management or administrative services relating to the delivery of such items or services . . . .

42 C.F.R. � 1001.201(a)(1997).

Finding of Fact and Conclusion of Law (FFCL) # 1: Petitioner was convicted of a criminal offense in connection with the delivery of a health care item or service, including the performance of management or administrative services relating to the delivery of such items or services.

Even though Petitioner agrees with the I.G. that he was convicted within the meaning of the Act (Uncontested Facts � 8, above), he does not agree that his conviction provides grounds for any exclusion under section 1128(b)(1) of the Act. P. Resp. Br., 2. Specifically, he asserts that his conviction was not related to the delivery of a health care item or service. Id.

The I.G. relies on the portion of section 1128(b)(1) of the Act which requires, inter alia, that the conduct which resulted in conviction have occurred in connection with the delivery of a health care item or service. The relevant regulation specifies that the requirement may be met by the performance of management or administrative services relating to the delivery of such items or services. 42 C.F.R. � 1001.201(a)(1). To support her contention that this element has been met, the I.G. draws inferences from the charges listed in the indictment against Petitioner. This approach is obviously inappropriate, since Petitioner was convicted under only one count. However, other evidence of record adequately establishes the nexus between Petitioner's conviction under the one count and the delivery of health care items or services.

In pleading guilty to Count 426, Petitioner specifically stipulated to certain facts he acknowledged to be material to his criminal conduct. P. Ex. 1; P. Mot., 2. For example, he acknowledged that he was acting as the pharmacist in charge at Des Moines Pharmacy, Inc., when he combined prescription drugs from multiple containers, thereby causing the labeling of prescription drugs to be false and misleading. P. Ex. 1 at � 5. Prescription drugs are defined as "articles intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease in man." P. Ex. 1 at � 3. As the pharmacist in charge, Petitioner had dispensed or was to dispense drugs which were held for sale. P. Ex. 1 at � 4.

Based on the foregoing facts, which Petitioner acknowledged in pleading guilty to Count 426, it is apparent that Petitioner was convicted of a criminal offense in connection with the delivery of a health care item or service. He was mixing and causing the mislabeling of health care items which his pharmacy offered for sale, and which people purchased and consumed for the purpose of preventing or treating diseases. It is irrelevant whether Petitioner mixed the prescription drugs and caused their mislabeling at a time when customers were actually waiting to purchase them from him. Mixing the prescription drugs and thereby causing their mislabeling would be covered by section 1128(b)(1) of the Act even if Petitioner had done the acts as part of his management or administrative services in preparation for the offering of these prescription drugs for sale. 42 C.F.R. � 1001.201(a)(1).⁽⁶⁾ Therefore, I find sufficient nexus between the criminal acts which resulted in Petitioner's conviction and the delivery of a health care item or service.

FFCL # 2: Petitioner was convicted of a criminal offense relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct.

Petitioner asserts as an affirmative defense that the elements of the crime of misbranding prescription drugs do not "include or relate to" fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct. P. Mot., 3; see also P. Resp. Br., 2. I conclude that a preponderance of the evidence supports the I.G.'s conclusion on this issue. I have determined that the offense for which Petitioner was convicted related to fraud and to "other financial misconduct" within the meaning of the Act.

Petitioner argues that his conviction under 21 U.S.C. �� 331(k) and 333(a)(2) is not related to fraud in that these charges do not imply any finding regarding his state of mind. P. Mot., 3. I disagree. Petitioner pled guilty to, and was convicted pursuant to, two statutory sections, 21 U.S.C. �� 331(k) and 333(a)(2). While it may be true that 21 U.S.C. � 331(k) does not by itself require proof of any specific intent (see P. Mot., 3), 21 U.S.C. � 333(a)(2) provides for enhanced penalties for any person who commits the offense of misbranding with the "intent to defraud or mislead." Petitioner specifically admitted in his stipulation for his guilty plea that he acted with intent to mislead. P. Ex. 1 at � 9.

Petitioner argues that he committed only a "technical violation" of the Food, Drug and Cosmetic Act. See P. Mot., 3. In support of his position, he points out that the mislabeling described in his plea document (P. Ex. 1) indicates that he had placed 140 tablets of Bentyl 20mg into a container that was mislabeled as containing only 100 tablets of this prescription drug. P. Mot., 2; P. Ex. 1 at � 7. Petitioner's argument mischaracterizes and minimizes the conduct which led to his conviction. The Superseding Indictment charged Petitioner with the following:

combining prescription drugs from multiple containers, from returned prescription drugs and from sample drugs into single containers thereby causing its labeling to be false and misleading in that the statements of the quantity of the contents are inaccurate . . . . I.G. Ex. 3 at 70. This is the conduct to which Petitioner admitted in pleading guilty. The crux of this offense is not that the number of tablets is misstated on the label, although that is undoubtedly the case. On the contrary, the central point is that, by combining drugs from multiple sources into a single dispensing bottle, Petitioner made it impossible to identify lot numbers and expiration dates of the combined drugs.⁽⁷⁾ Petitioner admitted that he engaged in conduct that was intended to mislead. P. Ex. 1 at � 9. Indeed, the risk that patients and physicians would be misled by his conduct was great. Physicians who prescribed and patients who might have received prescription drugs dispensed by Petitioner from the mislabeled container would assume that they were receiving drugs that were of full potency and that the labeling would accurately reflect the drugs' expiration date. However, because Petitioner had combined drugs from multiple containers, there would be no way of knowing the actual potency or expiration date of such drugs.

Under section 1128(b)(1) of the Act, the I.G. is not required to prove that Petitioner was convicted of fraud, but that he was convicted of an offense "relating to" fraud. I conclude that the conduct which gave rise to Petitioner's conviction of the offense of misbranding prescription drugs with the intent to mislead is "related to fraud," within the meaning of the Act. In addition, I conclude that the I.G. has offered sufficient evidence for me to find that Petitioner's offense was related to "other financial misconduct" within the meaning of the Act.

After the court accepted Petitioner's guilty plea to the charge of Misbranding of Prescription Drugs under Count 426 (P. Ex. 2), the court ordered Petitioner to pay restitution of $120,001 to the Medicaid and Medical Service Division of the Iowa Department of Human Services. I.G. Ex. 4 at 4. The court would not have had authority to order his payment of monetary restitution to the Iowa Department of Human Services unless Petitioner's guilty plea to Count 426 related to some financial misconduct against the Iowa Medicaid program.

It is not necessary for me to review the court's precise reasons for having ordered the restitution payment upon accepting Petitioner's guilty plea to Count 426. The determinations underlying the court's order are not subject to collateral attack in this proceeding. 42 C.F.R. � 1001.2007(d). Moreover, without any caveats or explanations, Petitioner agreed with the I.G.'s observation that a restitution in the amount of $120,001 had been ordered by the court. See Uncontested Facts � 10.

Accordingly, I conclude that Petitioner was convicted of a criminal offense relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct.

FFCL # 3: The I.G. has a valid basis under section 1128(b)(1) of the Act for imposing and directing the exclusion against Petitioner.

I reach this conclusion based on Uncontested Facts �� 1 through 8, FFCL 1, and FFCL 2.

IV. Disposition of the I.G.'s Motion for Summary Judgment on the "Reasonableness" of the Five Year Exclusion, and the Response submitted by Petitioner

FFCL # 4: In the absence of any legally cognizable challenge by Petitioner to the reasonableness of the exclusion period imposed and directed by the I.G., I do not disturb the I.G.'s determination on this matter.

After the parties waived the opportunity to present live testimony in this case, I established procedures for resolving all disputes by use of a written record. If there were issues of fact, I expected to resolve them by weighing the evidence in the written record. What I did not expect was for the I.G. to file a motion for summary affirmance on the issue of whether the exclusion period of five years is reasonable.

Motions for summary affirmance are used to resolve legal issues, or to request judgment as a matter of law when there exists no genuine dispute as to any material fact. See Fed. R. Civ. P. 56. Therefore, with her motion for summary disposition, the I.G. conveyed the incorrect impression that there exists some rule of law which allows the I.G. to impose an exclusion of a set number of years based on the existence of certain facts. The regulation relevant to this case merely permitted the I.G. to consider certain specified "aggravating" and "mitigating factors" in determining whether to impose an exclusion longer than the threshold level of three years. 42 C.F.R. � 1001.201(b). The regulations do not assign specific weight or number of years to these "aggravating" and "mitigating" factors. See 42 C.F.R.

� 1001.201(b); 57 Fed. Reg. 3314 (The aggravating and mitigating factors in the regulations do not have specific values.) Consequently, the I.G. should not have asked me to summarily affirm the reasonableness of the five year exclusion period in this case by citing the existence of two aggravating factors contained in 42 C.F.R. � 1001.201(b)(2).⁽⁸⁾

Nevertheless, in the present case, Petitioner has raised no valid challenge to the I.G.'s determination as to the length of his exclusion. For this reason, I have not reviewed the merits of the I.G.'s determination to set the exclusion period at five years. As noted in the Procedural History section of this Decision, Petitioner's request for hearing and representations during the prehearing conference indicated only a challenge to the I.G.'s reliance on section 1128(b)(1) as her basis for imposing the exclusion at issue. Moreover, a review of the arguments advanced in Petitioner's Motion and Response Brief fail to raise any genuine issue for my decision. Accordingly, the I.G.'s determination to impose a five year exclusion is final.

Petitioner has failed even to allege the existence of any "mitigating factors" under the regulations. After the "reasonableness" issue was improperly initiated by the I.G.⁽⁹⁾ in her summary disposition motion, Petitioner responded as follows:

The conduct forming the basis of Petitioner's criminal conduct consisted of one event and was therefore not conduct spanning a long duration, no patient harm was alleged or proven[,] and Petitioner has had no prior criminal or administrative infractions. Based on the nature and circumstances of the one count conviction any exclusion beyond the three year minimum would be unreasonable.

P. Resp. Br., 4. Clearly, the matters described by Petitioner do not constitute "mitigating factors" listed in 42 C.F.R.

� 1001.201(c). The regulation states very clearly that only the enumerated "mitigating factors" may serve as a basis for reducing the period of exclusion. Id. What Petitioner seeks to rely on is merely the absence of certain "aggravating factors" which, had they been present, might have resulted in the I.G.'s lengthening Petitioner's exclusion period beyond five years. See 42 C.F.R. � 1001.201(b)(2)(ii), (iii) and (v).

Nor can I proceed to an on-merit review of the five-year exclusion period pursuant to Petitioner's argument that any exclusion beyond the three-year threshold period would be unreasonable. Just as Petitioner has failed to allege that any "mitigating factors" are present in his case, he cannot contest the I.G.'s finding that certain "aggravating factors" are present. Petitioner agrees that 42 C.F.R. � 1001.201 provides the criteria for determining the length of an exclusion imposed under section 1128(b)(1) of the Act. See Undisputed Facts � 12. He acknowledges that the existence of "aggravating factors" listed therein could be used to lengthen the threshold three-year exclusion period. Id. A comparison of Undisputed Fact �� 10 and 11 to the list of "aggravating factors" in 42 C.F.R. � 1001.201(b) would have shown Petitioner that, contrary to his argument quoted above, the I.G. had a legal basis for lengthening the exclusion period beyond three years. In the face of these stipulated findings and conclusions, there was no valid basis for Petitioner to contend that any period beyond three years would be unreasonable.

V. Conclusion

For the foregoing reasons, I affirm the I.G.'s determination to exclude Petitioner under section 1128(b)(1) of the Act and I allow the five-year exclusion imposed by the I.G. to stand as a final determination.

Mimi Hwang Leahy
Administrative Law Judge

1. These health care programs are defined in section 1128B(f) of the Social Security Act. References in this Decision to "Medicare," "Medicaid," and/or "program" are intended to include all federal programs from which Petitioner was excluded.

2. A request for hearing must "contain a statement as to the specific issues or findings of fact and conclusions of law in the notice letter with which the petitioner or respondent disagrees, and the basis for his or her contention that the specific issues or findings and conclusions were incorrect." 42 C.F.R.

� 1005.2(d).

3. My Order and Schedule dated September 24, 1998 was intended to summarize and confirm what had occurred during the prehearing conference of September 2, 1998.

In error, I included in my Order and Schedule a second issue relating to the reasonableness of the exclusion period. Whether an exclusion period is unreasonable is a potential issue which could have been raised in a case of this type. See 42 C.F.R.

� 1001.2007(a)(1). However, this issue was not raised by Petitioner in his hearing request or during the prehearing conference. Therefore, the remainder of the Order and Schedule addressed only the means for resolving the issue of whether the I.G. had a basis for imposing and directing an exclusion. For example, I set up the briefing schedule so that Petitioner would proceed first by filing a motion to set aside the exclusion.

4. I list here only those uncontested facts which I consider to be material to the issues before me. The parties have agreed upon other facts and conclusions as well.

5. Section 1128(b)(1) of the Act has been amended as applied to offenses which occurred after August 21, 1996. However, the conduct for which Petitioner was convicted occurred on or about March 4, 1994. I.G. Ex. 3 at 70.

6. Petitioner has misread the administrative law judge's decision in DeWayne Franzen, arguing that a "direct relationship" must exist between the criminal offense and the delivery of an item or service. First, DeWayne Franzen is a 1989 case which involved an exclusion imposed under a different subsection of the Act (section 1128(a)(1)). In 1992, new regulations were promulgated by the Secretary. 57 Fed. Reg. 3299 (Jan. 29, 1992). The regulations applicable to section 1128(b)(1) of the Act specifically authorize consideration of whether management or administrative tasks relate to the delivery of health care items or services. 42 C.F.R. � 1001.201(a)(1). Additionally, to the extent the administrative law judge may have commented on any "direct" relationship in the DeWayne Franzen case, his reference was to a factual finding, not to his establishment of a rule of law for that or any other exclusion case.

7. In addition, in instances where he combined prescription drugs from sample containers, Petitioner could reap a financial benefit by dispensing, and charging for, prescription drugs for which he had paid nothing.

8. For example, the I.G. asserts the following as an "Uncontested Material Fact and Conclusion of Law":

14. Based on the existence of aggravating factors in this case, as specified in 42 C.F.R. � 1001.201(b)(2)(i), (iv), a five-year exclusion of Petitioner is reasonable and appropriate.

I.G. Br., 4.

9. The regulations allow petitioners to dispute the I.G.'s basis for excluding them and whether the exclusion period determined by the I.G. is unreasonable. 42 C.F.R. � 1001.2007(a)(1). The regulations do not authorize the I.G. to request affirmance of a determination that has not been placed into controversy by a petitioner.