Dewayne Franzen, DAB No. 1165 (1990)

Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Appellate Division


____________________________ ) In the Case of: ) DATE:
June 13, 1990 ) Dewayne Franzen, ) ) Docket No. 90-37
Petitioner, ) Decision No. 1165 ) - v. -
) ) The Inspector General. ) ____________________________)

FINAL DECISION ON REVIEW OF ADMINISTRATIVE LAW JUDGE
DECISION

Dewayne Franzen (Petitioner) requested review by the Appellate Panel of
a December 13, 1989 decision by Administrative Law Judge Charles E.
Stratton (ALJ). The decision sustained the determination of the
Inspector General (I.G.) to exclude Petitioner from participation in the
Medicare program for five years and to direct his exclusion from state
health care programs (Medicaid) for the same length of time.
Petitioner's exclusions were based on section 1128(a)(1) of the Social
Security Act (Act), which provides as follows:

(a) Mandatory Exclusion.--The Secretary shall exclude the
following individuals and entities from participation in any
program under title XVIII and shall direct that the following
individuals and entities be excluded from participation in any
State health care program . . . .

(1) Conviction of program-related crimes.--Any 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(c)(3)(B) of the Act further provides:

In the case of an exclusion under subsection (a), the minimum period
of exclusion shall be not less than five years . . . .

Petitioner, a pharmacist, pled guilty to four misdemeanor counts.
Petitioner was convicted of violating three counts of sections 90-85.29
and 90-85.40 of the North Carolina General Statutes by placing brand
prescription labels on bottles in which generic drugs were dispensed.
1/ Additionally, Petitioner was convicted of violating sections
90-106(c) and 90-108(a)(2) of the North Carolina General Statutes by
unlawfully refilling a prescription for a controlled substance more than
five times after the date of the prescription. 2/ For each of these
charges, the recipient of the drugs was a Medicaid recipient, and a
Medicaid claim was submitted by Petitioner, which was paid by Medicaid.
For his convictions, Petitioner was fined $1,000 and ordered to make
restitution in the amount of $4,000 to the North Carolina Medicaid
Agency.

On appeal to this Board, Petitioner disputed the ALJ's characterization
of his conviction for dispensing generic drugs as "false prescription
labeling," arguing the term implies that he acted with a fraudulent or
criminal intent. Petitioner contended that his conviction more properly
should be characterized as "prescription mislabeling." Accordingly,
Petitioner challenged those findings of fact and conclusions of law
(FFCLs) made by the ALJ that Petitioner had been found guilty of "false
prescription labeling." Petitioner further argued that Congress, in
drafting section 1128, intended to sanction criminal convictions
involving Medicaid fraud, and that without the element of fraud in his
convictions there is no relationship between his convictions and the
Medicaid program. Therefore, according to Petitioner, his criminal
offense was not "related to the delivery of an item or service" under
either the Medicare or Medicaid programs, as required by section
1128(a)(1) of the Act. Finally, Petitioner argued that the ALJ erred in
his interpretation of a recent Supreme Court decision, which, Petitioner
contended, stood for the proposition that the sanction of exclusion in
section 1128, in addition to a penalty imposed by a state court,
violated the double jeopardy clause of the Constitution.

The ALJ made 16 FFCLs. Petitioner specifically took exception to FFCL
Nos. 2, 4, 6, 13, 14, 15 and 16. 3/ These read as follows:

2. Petitioner was charged in Guilford County District Court
with three misdemeanor counts of violating North Carolina
General Statutes (N.C. Gen. Stat.) sections 90-85.29 and 90-85.40
(false prescription labeling), and one misdemeanor count of
violating N.C. Gen. Stat. sections 90-106(c) and 90-108(a)(2) (unlawful
dispensing of a controlled substance). [citations to record
omitted]

4. Petitioner violated the "False Prescription Labeling"
provisions of N.C. Gen. Stat. sections 90-85.29 and 90-85.40 by
placing brand name prescription labels on bottles in which generic
drugs were dispensed. [citations to record omitted]

6. In each of the three instances where Petitioner was convicted
of false prescription labeling, the drug product was dispensed
to a Medicaid recipient. In the one instance where Petitioner was
convicted of unlawfully dispensing a controlled substance, the
controlled substance was dispensed to a Medicaid recipient.
[citations to record omitted]

13. The criminal offenses for which Petitioner was convicted are
"related to the delivery of an item or service" under the Medicaid
program. FFCL 4 - 8, 10.

14. Petitioner is subject to the minimum mandatory provisions of
section 1128(a)(1) of the Act. FFCL 12, 13.

15. The I.G. properly imposed and directed an exclusion
against Petitioner from participation in the Medicare and
Medicaid programs for a minimum mandatory period of five years.
FFCL 14.

16. The principles espoused in the recent United States Supreme
Court decision in United States v. Halper, 109 S.Ct. 1892
(1989), do not bar the I.G. from imposing and directing
exclusions from participation in the Medicare and Medicaid
programs against Petitioner.

Based on our review of the ALJ's decision and the record below, the
parties' written submissions before us, and the following analysis, we
conclude that the ALJ's decision was correct. We therefore affirm and
adopt each of the ALJ's findings of fact and conclusions of law as
written. We find that there was undisputed evidence in the record
before the ALJ to support Petitioner's mandatory exclusion from the
Medicare and Medicaid programs.


I. The ALJ's finding that Petitioner had been found guilty of "false
prescription labeling" is supported by undisputed evidence, including a
stipulation by Petitioner.

Petitioner argued that the ALJ had wrongly termed Petitioner's three
convictions for placing brand names on dispensed generic drugs as "false
prescription labeling." FFCL Nos. 2, 4, and 6. Petitioner contended
that his violation should have been characterized as "prescription
mislabeling." Petitioner argued that the term "false prescription
labeling" connotes or implies fraud or criminal intent on the part of
Petitioner, when the North Carolina statutes for which he was convicted
do not designate the violative behavior as such. According to
Petitioner, his convictions were without criminal intent, whether fraud
or otherwise, because of the operation of various North Carolina
statutory provisions, the absence of the mention of criminal intent as
an element of the offenses and the lack of any finding of criminal
intent in the record of Petitioner's convictions. Petitioner argued
that the sole basis for his criminal conviction was "'strict criminal'
liability resulting from the innocent or inadvertent violation of
regulatory statutory provisions." To wrongly characterize his
conviction as including criminal intent or fraud, Petitioner continued,
would result in an incorrect application of the test established in H.
Gene Blankenship v. The Inspector General, DAB Docket No. C-67 (1989),
to determine whether Petitioner's convictions were "related to the
delivery of an item or service" under Medicaid. Petitioner cited page
11 of Blankenship as follows:

The test of whether a "conviction" is "related to" Medicaid must
be a common sense determination . . . . The inquiry is whether the
conviction "related to" Medicaid fraud, not whether the state
court convicted Petitioner of Medicaid fraud.

Petitioner contended that under Blankenship if his underlying state
conviction was without criminal intent or fraud, then there could exist
no Medicaid fraud, and therefore his conviction could not be "related to
the delivery of an item or service" under Medicaid.

Petitioner's arguments raise the question how the ALJ arrived at his
conclusion that Petitioner was convicted of false prescription labeling.
An examination of the record before the ALJ provides a ready answer to
this question. The record contains a number of stipulations by the
parties, including the following:

7. Franzen was convicted of three instances of False
Prescription Labeling and one instance of Unlawful Refilling
of Controlled Substance.

8. Franzen violated the "False Prescription Labeling"
provision in that he placed the brand name on the prescription
label, when the drug dispensed was a generic drug and did not
have the brand name used by Franzen. . . .

Thus Petitioner is now challenging before us the characterization of his
violation made in his own stipulation before the ALJ. The record below
also contains three Statements of Charges from the General Court of
Justice of Guilford County. Petitioner's Exhibits Nos. 1, 3, and 5.
These Statements list the offense with which Petitioner was charged as
"False Prescription Labeling."

Based on Petitioner's own stipulations and the state court's
descriptions of Petitioner's offenses, as well as the absence of
contradictory evidence in the record, we find that the ALJ's
characterization of Petitioner's offenses is supported by undisputed
evidence. Petitioner may now feel that a different characterization of
his violation is better suited to his legal arguments, but such a
characterization would clearly be inconsistent with the evidence in the
record below.

Furthermore, we find that Petitioner has selectively quoted from
Blankenship, and his reliance would in any event be misplaced. The full
passage of the quotation, cited by Petitioner, reads:

The test of whether a "conviction" is "related to" Medicaid must
be a common sense determination based on all relevant facts as
determined by the finder of fact, not merely a narrow examination
of the language within the four corners of the final
judgment and order of the criminal trial court.

The inquiry is whether the conviction "related to" Medicaid
fraud, not whether the state court convicted Petitioner of
Medicaid fraud.

At 11. Thus the correct reading of Blankenship is that the ALJ, the
finder of fact, can look beyond the findings of the state court to
determine if a conviction was related to Medicaid. Therefore the ALJ's
characterization of an offense is not limited to the state court's or
the violated statute's precise terms for purposes of determining whether
a conviction related to Medicaid. Here, the ALJ's finding that
Petitioner had been convicted of "false prescription labeling"
accurately reflects the evidence in the record, including Petitioner's
own stipulation, and the circumstances of Petitioner's offense.


II. The ALJ's conclusion that Petitioner's convictions were "related to
the delivery of an item or service" under the Medicaid program is
correct.

Petitioner argued that the ALJ incorrectly found that Petitioner's
convictions were related to the Medicaid program. FFCL Nos. 13, 14, and
15. Petitioner argued that "fraud or the intent to commit fraud are
triggering elements/states of mind that link or 'relates' any particular
criminal conviction or conduct to Medicaid or Medicaid programs."
Memorandum in Support of Petitioner's Notice of Appeal, at 4.
Petitioner contended that Congress, in drafting section 1128, intended
to sanction only crimes or criminal convictions involving Medicaid fraud
or related to Medicaid fraud. Petitioner insisted that his convictions
were based on strict criminal liablity without any criminal intent
present, so that there existed no fraud or intent to commit fraud on his
part. Petitioner reasoned, "Absent fraud or the intent to commit fraud,
there can be no link or relationship between Petitioner's criminal
conviction and the Medicaid program." Id., at 5. Thus, Petitioner
concluded, fraud is the determining factor as to whether a criminal
conviction is "related to" Medicaid.

It is undisputed that Petitioner dispensed generic drugs in lieu of the
brand name drugs listed on the prescription labels. It is also
undisputed that the individuals who received the generic drugs rather
than brand name drugs were Medicaid recipients. The Medicaid program
was therefore affected in two ways. First, program recipients failed to
receive drugs consistent with prescription labels or statutory refill
limitations. Second, the program was billed for the higher-priced brand
name drugs rather than the generic drugs actually dispensed as well as
for drugs dispensed in violation of refill limitations. As such,
Petitioner's action resulted in an overpayment by the Medicaid program.
The program is authorized to pay only for drugs within the limitation of
state and Federal laws. 42 C.F.R. 440.120(a). Petitioner contended
that such an overpayment in itself does not constitute fraud. Any
erroneous billing and resulting overpayment, according to Petitioner,
remain separate and distinct from the technical violations which form
the basis of Petitioner's conviction.

Petitioner relied on his interpretation of Blankenship for his position.
As in Part I above, we find that Petitioner has missed the point of
Blankenship. Blankenship stands for the proposition that the finder of
fact is not limited to the record in the underlying conviction in
determining whether the conviction was "related to" the Medicaid
program. In Blankenship the ALJ declared:

The inquiry is whether the conviction "related to" Medicaid
fraud, not whether the state court convicted Petitioner of
Medicaid fraud. Thus, my task is not simply to examine the
judgment and state criminal statute to determine whether they
specifically refer to Medicaid fraud. Rather, my task is to
examine all relevant conduct to determine if there is a
relationship between the judgment of conviction and the Medicaid
program. Had Congress intended a different result, it would have
used the phrase "conviction for" or conviction "restricted
to" instead of "related to." An examination of whether a
conviction is "related to" Medicaid necessarily involves an
inquiry into Petitioner's conduct.

At 11.

Here the ALJ provided a thorough analysis of why Petitioner's
convictions were "related to the delivery of an item or service" under
the Medicaid program. In that analysis he correctly concludes that a
criminal offense may be related to the delivery of an item or service
under the Medicaid program even if that offense does not specifically
require criminal intent. Section 1128(a)(1) does not require that the
individual must intend to commit a criminal offense, or indeed fraud,
for an exclusion to be proper. It merely requires, as here applicable,
that the individual's acts cause the individual to be convicted of an
offense and that the offense be related to the delivery of an item or
service under the Medicaid program. Thus, the Petitioner's arguments
here are wholly without support in the statute.

Moreover, even though Petitioner's offenses may not have required an
intent to commit fraud as an element (and he therefore may have acted
recklessly, negligently, or inadvertently), Petitioner's actions caused
him to breach his duty to program recipients and to make improper
program claims that led to program overpayments. His state of mind,
even if it was "innocent" as he alleges, was sufficient to subject him
to a criminal conviction under state law, to a substantial fine, and to
a payment of restitution to the Medicaid program.

In Jack W. Greene, DAB App. 1078 (1989), a pharmacist billed the state
for brand name drugs when he dispensed generic drugs, resulting in an
overpayment by the Medicaid program, the same course of conduct that was
the basis of Petitoner's conviction here. In Greene the Board found
that --

the offense is directly related to the delivery of the item or
service since the submission of a bill or claim for Medicaid
reimbursement is the necessary step, following the
delivery of an item or service, to bring the "item" within the
purview of the program. . . . [T]he submission of the bill
to the Medicaid program is related to the delivery of the item to
the Medicaid recipient because the amount of the bill is based
entirely on the nature of the item delivered. . . . The false
Medicaid billing and the delivery of drugs to the Medicaid
recipient are inextricably intertwined and therefore
"related" under any reasonable reading of that term.

At 7. This reasoning was subsequently upheld in Greene v. Sullivan, No.
CIV-3-89-758 (E.D. Tenn. Feb. 8, 1990).

While Petitioner may contend that the statute under which Greene was
convicted contained an element of fraud or intent, while his conviction
did not require that mental state, Petitioner's offense was in every
other respect similar to that of Greene and had the same effect on the
Medicaid program. We see no basis for drawing any distinction between
Petitioner's situation and the circumstances set forth in Greene.
Petitioner was convicted of a crime, and his conviction was "related to"
the Medicaid program as the program incurred expenses in excess of what
it should have. Also, the Petitioner here breached his duty to Medicaid
recipients when he provided them medications that were not consistent
with prescription labels and refill limitations.


III. The ALJ's finding that the principles of United States v. Halper
were inapplicable to Petitioner's case is correct.

Petitioner argued that the ALJ erred in holding that the principles
espoused in United States v.Halper, 109 S.Ct. 1892 (1989), did not bar
the I.G. from excluding Petitioner from participation in the Medicare
and Medicaid programs. FFCL No. 16.

The Supreme Court held in Halper that a defendant who has already been
punished in a criminal prosecution may not be subjected to an additional
civil sanction to the extent that the second sanction may not fairly be
characterized as remedial, but only as a deterrent or retribution,
without violating the double jeopardy clause. 4/ Halper was the manager
of a company which provided medical services for patients eligible for
Medicare benefits. He was convicted of submitting 65 false claims for
federal reimbursement under the federal criminal false claims statute.
He was sentenced to prison for two years and fined $5,000. He was then
sued by the United States under the federal civil False Claims Act. The
government sought a $130,000 civil penalty (the statutory amount of
$2,000 on each false claim), double the government's actual damages
(which were $585), and the costs of the action. The district court
refused to apply the statutory civil penalty on double jeopardy grounds
and limited the government's recovery to double the actual damages,
$1,170, plus its costs.

Upon the government's appeal, the Supreme Court looked at the disparity
between the government's actual costs (estimated by the district court
at $16,000 for the investigation and prosecution of the false Medicare
claims and for the actual damage caused to the Medicare program) and
Halper's potential liability under the False Claims Act, $130,000. The
Court found this disparity sufficiently disproportionate that the
proposed civil sanction would constitute a second punishment in
violation of the double jeopardy clause. The Court acknowledged that an
inquiry into whether a second sanction may be characterized as remedial
or retribution would not be "an exact pursuit," but found Halper to be
the "rare case" where a "prolific but small-gauge" defendant is
subjected to a sanction overwhelmingly disproportionate to the damage he
has caused. Halper at 1902. The Court specifically limited its ruling
as follows: "[T]he Government may not criminally prosecute a defendant,
impose a criminal penalty upon him, and then bring a separate civil
action based on the same conduct and receive a judgment that is not
rationally related to the goal of making the Government whole." Halper
at 1903. The Court remanded the case to the district court to allow the
government the opportunity to present an accounting of its actual costs
arising from Halper's fraud.

The ALJ distinguished Halper from Petitioner's case on both legal and
factual grounds. First, the ALJ noted that Petitioner's case involved a
state conviction, unlike the federal conviction in Halper, and that
double jeopardy does not apply to a subsequent federal prosecution based
on facts which led to a state conviction. Second, unlike the factual
situation in Halper where the government was attempting to impose a
civil penalty which the Supreme Court found to be a punishment, the
purpose of section 1128 of the Act is to protect the Medicare and
Medicaid programs, not to be any sort of punishment.

Petitioner contended the ALJ's reading of Halper was too narrow and
restrictive. Petitioner argued that while the False Claims Act was the
vehicle for the Halper decision, Halper should not be limited to cases
involving the imposition of civil penalties only under that particular
statute. Petitioner insisted that the ALJ had mischaracterized the
situation here, arguing that there was no subsequent federal prosecution
on the same set of facts, but rather a second subsequent punishment
which violated the double jeopardy clause. Finally, Petitioner asserted
that the ALJ erred in stating that the purpose of section 1128 was
limited to the protection of the Medicare and Medicaid programs when, in
fact, its purposes also include punishment and deterrence. Therefore,
according to Petitioner, the principles set forth in Halper should apply
to the circumstances of his case.

We find no merit in Petitioner's arguments. As the I.G. pointed out,
the situation presented here is radically different from that presented
in Halper. 5/ An essential difference, as the ALJ noted, is that
Petitioner was convicted in a state proceeding. Under the dual
sovereignty doctrine, double jeopardy does not attach to a subsequent
federal prosecution based on facts which led to a state conviction.
See, e.g., United States v. A Parcel of Land with a Building Located
Thereon, 884 F.2d 41 (1st Cir. 1989) ("The doctrine of Double Jeopardy
does not apply to suits brought by separate sovereigns . . . ."), at
43; United States v. Anthony, 821 F.2d 792 (E.D.N.Y. 1989). Also, the
government is not seeking here to impose any additional monetary penalty
upon Petitioner. Rather, the I.G. is attempting to carry out the
specific mandate of Congress as expressed in section 1128 of the Act by
excluding Petitioner from further participation in the Medicare and
Medicaid programs.

Moreover, the exclusion process set forth at section 1128 is a
collateral consequence of Petitioner's underlying criminal conviction, a
situation akin, as pointed out by the I.G., to a professional license
revocation based upon a criminal conviction. In such situations, no
instance of double jeopardy arises.

Finally, the I.G.'s application of the exclusion sanction in
circumstances similar to those of Petitioner has received judicial
approval. In Greene v. Sullivan, No. CIV-3-89-758 (E.D. Tenn. Feb. 22,
1990), the court examined whether, in light of Halper, the I.G.'s
exclusion of an individual violated the double jeopardy clause. The
court noted that the government's aim was to protect the Medicare and
Medicaid programs by excluding a person convicted of defrauding it. At
3. As such, the government's goals were "clearly remedial and include
protecting beneficiaries, maintaining program integrity, fostering
public confidence in the program, etc." Id. The court concluded that
the proposed exclusion was not one of the "rare cases" alluded to in
Halper that invokes the double jeopardy clause. Id.

Accordingly, based on both the clear factual distinctions between this
case and Halper and the remedial nature of the section 1128 exclusion,
we see no basis for applying the principles of Halper to Petitioner.

Conclusion

Based on the foregoing, we affirm the five-year exclusion imposed on
Petitioner.

______________________________ Theodore J.
Roumel U.S. Public Health Service

______________________________ Alexander G.
Teitz

______________________________ Donald F.
Garrett Presiding Panel Member

1. Section 90-85.29 provides: "The prescription label of every drug
product dispensed shall contain the brand name of any drug product
dispensed, or in the absence of a brand name, the established name."

Section 90-85.40(b) provides: "Every person lawfully authorized to
compound or dispense prescription drugs shall comply with all the laws
and regulations governing the labeling and packaging of such drugs by
pharmacists."


2. Section 90-106(c) provides: Except when dispensed directly by a
practitioner, other than a pharmacist, to an ultimate user, no
controlled substance . . . may be dispensed without a prescription . . .
. Such prescription may not be filled or refilled more than six months
after the date thereof or be refilled more than five times after the
date of the prescription."

Section 90-108(a)(2) provides: "It shall be unlawful for any person . .
. to distribute or dispense a controlled substance in violation of G.S.
90-105 or 90-106."

3. As for the other FFCLs which Petitioner did not challenge directly,
FFCL Nos. 1, 3, 5, 7, 8, 9, 10, 11, and 12, we affirm them without
further discussion.

4. The Double Jeopardy Clause of the Fifth Amendment protects against
three distinct abuses: a second prosecution for the same offense after
acquittal; a second prosecution for the same offense after conviction;
and multiple punishments for the same offense.

5. Although the I.G. questioned whether it was outside the scope of
authority of this Board to even examine the consitutional issue raised
by Petitioner, the I.G. did not specifically take exception to the
finding on that issue and made extensive arguments concerning why the
exclusion here does not violate double jeopardy. Since we conclude that
the ALJ's substantive analysis of the constitutional issue was correct,
it is unnecessary to determine whether the ALJ acted outside the scope
of his authority by considering the issue in the first