SUBJECT:

Jeffrey Knute Connell,

Petitioner,

The Inspector General.

DECISION

I sustain the determination by the Inspector General (I.G.) to exclude Petitioner, Jeffrey Knute Connell, from participating in Medicare and other federally funded health care programs for a period of five years. I find Petitioner's exclusion to be mandated by section 1128(a)(1) of the Social Security Act (Act).

I. Background

Petitioner is a pharmacist in the State of Illinois. On February 27, 2004, the I.G. notified him that he was being excluded, for a period of at least five years, from participating in Medicare and all other federally funded health care programs. The I.G. advised Petitioner that the exclusion was mandated by section 1128(a)(1) of the Act as a consequence of Petitioner's conviction of a criminal offense related to the delivery of an item or service under the Illinois Medicaid program.

Petitioner requested a hearing and the case was assigned to me for a hearing and a decision. I held a pre-hearing conference by telephone on October 12, 2004. I advised the parties that it appeared that the case might be resolved based on their written submissions. I established a schedule for the parties to file proposed exhibits and briefs. Additionally, I advised the parties that either of them might request that a hearing be held in person if that party had testimonial evidence that was relevant and which did not duplicate other evidence of record. The parties each filed briefs and proposed exhibits. Neither party requested that a hearing be held in person.

The I.G. filed nine proposed exhibits which he identified as I.G. Ex. A through I.G. Ex. I. ⁽¹⁾ Petitioner filed seven proposed exhibits which he identified as P. Ex. 1 through P. Ex. 7. Neither party has objected my receiving any of these exhibits into evidence. Therefore, I receive into evidence I.G. Ex. A through I.G. Ex. I and P. Ex. 1 through P. Ex. 7.

II. Issues, findings of fact and conclusions of law

A. Issues

The issues in this case are whether:

1. The I.G. is barred from excluding Petitioner on the ground that the I.G.'s exclusion notice is defective;

2. Lack of timeliness and laches bar the I.G. from excluding Petitioner;

3. The I.G. is required to exclude Petitioner from participating in Medicare and other federally funded health care programs; and

4. The minimum five-year exclusion imposed by the I.G. is reasonable as a matter of law.

B. Findings of fact and conclusions of law

I make findings of fact and conclusions of law (Findings) to support my decision in this case. I set forth each Finding below as a separate heading. I discuss each Finding in detail.

1. There are no defects in the I.G.'s notice of exclusion that bar the I.G. from excluding Petitioner.

Petitioner asserts that the I.G. may not exclude him because the exclusion notice that he received from the I.G. is defective. According to Petitioner, the notice failed to provide him with a reasonable statement of the basis for his exclusion.

I disagree with this assertion. The I.G.'s notice of exclusion is laconic, but it gives Petitioner ample explanation of his exclusion. In relevant part, it states:

This is to notify you that you are 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 minimum mandatory period of 5 years. This action is being taken under section 1128(a)(1) of the Act (42 U.S.C. 1320a-7(a)) and is effective 20 days from the date of this letter. This exclusion is due to your conviction as defined in section 1128(i) (42 U.S.C. 1320a-07(i)), in the State of Illinois, United States District Court, Southern District of Illinois, of a criminal offense related to the delivery of an item or service under the Medicaid program.

I.G. Ex. D at 1 (emphasis in original).

The notice is more than enough to tell Petitioner that he is being excluded and why he is being excluded. It plainly informs Petitioner that: he is being excluded; his exclusion is for the statutory minimum period; it is being imposed pursuant to section 1128(a)(1) of the Act; and it is based on Petitioner's conviction in a federal court of a criminal offense that is related to the delivery of an item or service under Medicaid.

Moreover, the exclusion letter is not the only notice that the I.G. sent to Petitioner concerning his exclusion. The I.G. sent three previous notices to Petitioner in which he advised Petitioner that he was considering excluding him and in which he invited Petitioner to submit relevant information concerning his case. I.G. Ex. A; I.G. Ex. B; I.G. Ex. C. All three of these notices told Petitioner that the proposed exclusion was based on his conviction in a federal court of an offense that fell under the mandatory exclusion provisions of section 1128(a)(1) of the Act.

The notice of exclusion does not state in detail the elements of Petitioner's crime that are the basis for the I.G.'s determination that Petitioner was convicted of an 1128(a)(1) offense; but that is hardly a basis for concluding that the notice is defective. The notice identifies the conviction. By stating that Petitioner's conviction is related to the delivery of a Medicaid item or service it informs Petitioner of the grounds for his exclusion.

2. I do not have authority to find that the I.G. is barred from excluding Petitioner by equitable considerations of laches and timeliness.

Petitioner asserts that the three-year lapse of time between the date of his conviction and the I.G.'s notice of exclusion prejudiced him. ⁽²⁾ He argues that the exclusion is untimely and that laches bar the I.G. from excluding him.

There is no statute of limitations governing the I.G.'s imposition of exclusions pursuant to section 1128(a)(1) of the Act. Equitable considerations aside, there is nothing in either the Act or regulations that would preclude the I.G. from excluding Petitioner when it excluded him.

Petitioner's arguments therefore reduce to equitable claims given his inability to show that his exclusion is barred by a statute of limitations or by an equivalent regulatory requirement. I am without authority to consider these claims. Implementing regulations at 42 C.F.R. Parts 1001 and 1005 do not allow me to set aside an exclusion on grounds of fairness or untimeliness.

3. The I.G. is required to exclude Petitioner from participating in Medicare and other federally funded health care programs for a minimum of five years because Petitioner was convicted of a criminal offense that is related to the delivery of items or services under the Illinois Medicare program.

Section 1128(a)(1) of the Act mandates the I.G. to exclude any individual who is convicted of a criminal offense that is related to the delivery of an item or service under Medicare or a State Medicaid program. The I.G. contends that Petitioner must be excluded pursuant to this section based on the following evidence.

On December 5, 2000, a criminal information was issued against Petitioner in the United States District Court for the Southern District of Illinois. I.G. Ex. G. The information charged that Petitioner caused an employee to falsify a record of billings that Petitioner submitted to the Illinois Department of Public Aid. More specifically, the information alleged that Petitioner failed to disclose that his business did not comply with federal regulations regarding the storage and handling of controlled substances. Id. at 1. The information also charged that Petitioner caused drugs that were being held for sale to be misbranded by causing the drugs to be repackaged and recycled without regard to lot numbers or expiration dates. Id.

On that same date, Petitioner entered into a stipulation of facts and a plea agreement with the United States Attorney for the Southern District of Illinois. I.G. Ex. F; I.G. Ex. H. Petitioner stipulated that, from August 1993, until June 1996, he was the owner of a pharmacy named Family Care Nursing Home Services (FCHS) in Herrin, Illinois.

In June 1996, Petitioner sold the pharmacy to National Nursing Care Services, Inc. (NCS). Thereafter, Petitioner was the pharmacist in charge of the FCHS pharmacy. Id. at 1. A large part of the pharmacy's business involved patients that received benefits from the Illinois Department of Public Aid (IDPA). ⁽³⁾ Petitioner stipulated that FCHS was required to sign a provider agreement with IDPA in order to receive reimbursement from IDPA for medications supplied to public aid patients. In part, that agreement required FCHS to comply with all federal and state laws and regulations with regard to the sale, storage, packaging and overall pharmacy practice. Id. at 1 - 2.

Petitioner acknowledged that as part of the operation of FCHS and NCS the pharmacy received returns of medications that had been shipped to nursing homes. In 1995 and 1996 some of the returned medications were repackaged by FCHS and later NCS and placed back into the pharmacy's inventory. I.G. Ex. F at 2.

Petitioner stipulated that, on November 14, 1996, he caused an employee of the pharmacy to make a materially false certification on an IDPA billing statement. He certified that the pharmacy was complying with all federal and state laws when, in fact, he knew that records regarding the storage and handling of controlled substances were not accurately maintained as is required by federal law. I.G. Ex. F at 2. Specifically, Petitioner failed to maintain records regarding the lot numbers and expiration dates of drugs that were placed back into inventory. The drugs were repackaged in a manner that caused their labels to display false information concerning their lot numbers and expiration dates. Id.

Consistent with his plea agreement and stipulation, Petitioner pled guilty to both counts of the criminal information. I.G. Ex. I. On March 21, 2001, a judgment of conviction was entered against Petitioner. Id. at 1.

There is no dispute that the judgment of conviction is a "conviction" of a criminal offense for purposes of section 1128 of the Act. See Act, section 1128(i)(3). But, Petitioner argues that his conviction was not for an offense as is defined by section 1128(a)(1).

According to Petitioner, he was not convicted of an offense that involves the "delivery" of an item or service under the Illinois Medicaid program. Petitioner's brief at 6. He asserts that his conviction relates only to the storage of controlled substances. Petitioner argues that the plain meaning of the Act must govern its reach. He contends that if there is no "delivery" of a Medicaid item or service as an element of a crime, then that crime does not fall within the ambit of section 1128(a)(1).

I do not find this argument to be persuasive. Petitioner's criminal offenses were related to the delivery of items or services to Medicaid recipients and, therefore, are covered by the exclusion requirements of section 1128(a)(1).

Section 1128(a)(1) has a broader reach than Petitioner contends. The section does not require that a crime involve the actual delivery of a Medicare item or service in order to be within the ambit of section 1128(a)(1). The section requires only that a crime relate to the delivery of a Medicare or Medicaid item or service. The section thus requires that there be a nexus between the crime and the delivery of an item or services under Medicare or a State Medicaid program without requiring that the crime involve the delivery of a specific Medicare or Medicaid item or service.

The Act does not define the requisite nexus with any specificity. However, a crime that affects the performance of Medicare or a State Medicaid program - by affecting, either potentially or in fact, the quality of items or services that the program delivers, or the monies spent for the delivery of items or services - relates to the delivery of Medicare or Medicaid items or services.

Petitioner's crimes relate to the delivery of Medicare items or services in two ways. First, by allowing the mislabeling of medications - including medications that his pharmacy sold to nursing homes that provided care to Medicaid recipients - Petitioner potentially affected the quality of the medications and, hence, the quality of Medicaid items and services. A purpose of federal law requiring that drugs be properly labeled is to assure that drugs of inferior quality not be distributed. Knowingly mislabeling drugs is, as a matter of law, an act that affects their quality.

Second, a prerequisite to Petitioner's participation in the Illinois Medicaid program was that he comply with the program's requirements. By knowingly violating these requirements, Petitioner, in effect, misrepresented his qualifications to participate in the program and misled the program into reimbursing the services of a pharmacist who was allowing drugs of inferior quality to be sold as Medicaid items or services.

4. The minimum five-year exclusion imposed by the I.G. is reasonable as a matter of law.

The I.G. excluded Petitioner for a period of at least five years. The period of exclusion is the minimum that the Act requires for an exclusion that is imposed pursuant to section 1128(a)(1) of the Act. Act, section 1128(c)(3)(B). Consequently, the exclusion is reasonable as a matter of law.

Steven T. Kessel

Administrative Law Judge

1. The I.G. used letters to identify his exhibits notwithstanding that I instructed the parties to use numeric designations.

2. As I discuss in more detail, at Finding 3, Petitioner was convicted on March 21, 2001. The I.G.'s exclusion notice is dated February 27, 2004.

3. The I.G. avers that IDPA administers the Illinois Medicaid program and that the benefits and "public aid patients" that are referred to in the stipulation are Medicaid benefits, and Medicaid recipients, respectively. Petitioner does not dispute this assertion.