SUBJECT: Lyle Kai, R.Ph.,

Petitioner,

Inspector General

FINAL DECISION ON REVIEW OF
ADMINISTRATIVE LAW JUDGE DECISION

The Inspector General (I.G.) appealed a decision by Administrative Law Judge (ALJ) Anne E. Blair dated December 17, 2004 reversing the I.G.'s exclusion of Lyle Kai (Petitioner or Mr. Kai) from participation in Medicare, Medicaid and all other federal health care programs as defined in section 1128B(f) of the Social Security Act (the Act). Lyle Kai, R.Ph., DAB CR1262 (2004) (ALJ Decision). The I.G. excluded Petitioner pursuant to section 1128(a)(1) on the ground that he had been convicted of a criminal offense related to the delivery of an item or service under Medicaid. The ALJ concluded that the exclusion was not authorized because the offense was not related to the delivery of an item or service under Medicaid.

For the reasons discussed below, we conclude that the offense of which Petitioner was convicted was related to the delivery of an item or service under Medicaid. Accordingly, we reverse the ALJ Decision and uphold the I.G.'s determination excluding Petitioner from participation in federal health care programs for five years.

Applicable Statutes

Section 1128(a)(1) of the Act ⁽¹⁾ provides -

The Secretary shall exclude the following individuals . . . from participation in any Federal health care program (as defined in section 1128B(f)):
(1) Conviction of program-related crimes. Any individual . . . 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. ⁽²⁾

42 U.S.C. § 1320a-7(a)(1).

Section 1128(c)(3)(B), 42 U.S.C. § 1320a-7(c)(3)(B), provides that an exclusion pursuant to section 1128(a) must be for a minimum period of five years.

Background

Petitioner is a pharmacist who, during the relevant period in 1999 and 2000, practiced pharmacy in Hawaii as an employee of the Interstate Pharmacy Corporation (IPC). ALJ Decision at 1. On January 11, 2001, Petitioner was convicted in the Circuit Court of the First Circuit, State of Hawaii (State) on his plea of no contest to the charge that he, "while in the course of engaging in a business, occupation, or profession, did recklessly expose for sale mislabeled commodities 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.) 1; 2-5; ALJ Decision at 1-2.

On December 31, 2003, the I.G. notified Petitioner that he was to be excluded from participation in federal health care programs for five years. By letter dated March 2, 2004, Petitioner timely sought review of the I.G.'s action before an ALJ. The parties agreed that the case could be decided based on written submissions without an oral hearing. ALJ Order dated April 30, 2004; ALJ Decision at 2-3. The I.G. moved for summary judgment affirming the exclusion. ⁽³⁾ Petitioner opposed the I.G.'s motion but did not counter move for summary judgment in his favor.

The record before the ALJ consisted of the parties' briefs, I.G. Exhibits 1-6, Petitioner Exhibits 1-6, and a set of attachments to Petitioner's request for hearing that were incorporated by reference in the request.

ALJ Decision and I.G. Exceptions

The ALJ made the following Findings of Fact and Conclusions of Law (FFCLs):

1. On January 11, 2001, Mr. Kai was convicted in the Circuit Court of the First Circuit, State of Hawaii 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.

ALJ Decision at 3.

On appeal, the I.G. excepted to FFCLs 3 and 4. ⁽⁴⁾

Our standard of review of an ALJ decision involving the I.G.'s determination to impose an exclusion is set by regulation. We review to determine whether the decision is erroneous as to a disputed issue of law and whether the decision is supported by substantial evidence in the record as a whole as to any disputed issues of fact. 42 C.F.R. § 1005.21(h).

The question presented by this case is whether the offense of which Petitioner was convicted was related to the delivery of an item or service under Medicare or a state health care program, in this case under Medicaid. We conclude that FFCLs 3 and 4, holding, respectively, that the I.G. failed to present evidence sufficient to prove that Petitioner's conviction was related to the delivery of an item or service under title XVIII or under any state health care program and that the I.G. had no basis for the exclusion, are erroneous as a matter of law.

A. The ALJ committed procedural error by viewing the evidence in the light most favorable to the Petitioner rather than weighing the evidence presented on the written record.

The I.G. moved for summary judgment; Petitioner did not. Both parties consented to a decision on the written record. The ALJ stated that because "the decision was based on a summary judgment motion," she "viewed the evidence in the light most favorable to Petitioner." ALJ Decision at 5, n.2. The ALJ erred when she viewed the evidence in the light most favorable to the Petitioner because her decision was not based on the I.G.'s summary judgment motion. Rather, the ALJ denied the I.G.'s summary judgment motion and decided the case on the merits based on the written record. After denying the I.G.'s summary judgment motion, the ALJ was required to weigh the conflicting evidence rather than view it in the light most favorable to Petitioner. ⁽⁵⁾

B. The ALJ erred in finding that the I.G. failed to prove that Petitioner's conviction related to the delivery of an item or service under Medicaid.

1. The ALJ relied on evidence that is relevant only to Petitioner's collateral attack on his conviction, and such attacks are impermissible as a matter of law.

In determining whether an offense is related to the delivery of an item or service under a covered program such as Medicaid, "[i]t is not the labeling of the offense under the state statute which determines whether the offense is program-related." Berton Siegel, D.O., DAB No. 1467, at 7 (1994) (conviction for facilitation of theft); see also Salvacion Lee, M.D., DAB No. 1850 (2002)(conviction for conspiracy to commit bribery); Thelma Walley, DAB No. 1367 (1992)(conviction of unlawful destruction of property); Dewayne Franzen, DAB No. 1165 (1990)(conviction for mislabeling drugs). Rather, the ALJ examines whether there is "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 (quotation marks omitted); see also Walley, DAB No. 1367; Niranjana B. Parikh, DAB No. 1334 (1992). "In determining whether there is such a nexus or connection, "evidence as to the nature of an offense may be considered," such as "facts upon which the conviction was predicated." Siegel, DAB No. 1367, at 6-7; see also Tanya A. Chuoke, R.N., DAB No. 1721, at 7 (2000). However, "the basis for the underlying conviction . . . is not reviewable and the individual . . . may not collaterally attack it . . . ." 42 C.F.R. § 1001.2007(d); Peter J. Edmonson, DAB No. 1330, at 4 (1992).

In the ALJ proceeding, facts about the nature of Petitioner's offense were set out in the declaration of Michael Parrish, the Hawaii Medicaid Fraud Control Unit attorney responsible for Petitioner's prosecution. Mr. Parrish stated:

The offense to which Defendant pled no contest involved the sale of mislabeled pharmaceuticals that were subsequently billed to the Hawaii Medicaid Program. The facts that served as the basis of the offense to which Defendant pled no contest in CR No. 01-1-0016 are the following: Defendant, as a pharmacist employed by Interstate Pharmacy Corporation (IPC), tacitly participated in a scheme pursuant to which unused pharmaceuticals in heat sealed blister packs previously dispensed to long-term care facilities were returned to IPC, removed from the blister packs, and re-deposited into pharmacy stock bottles, from which they later were extracted, placed in new heat sealed blister packs and re-dispensed to other long-term care facilities. Some of these "recycled" (and, therefore, mislabeled) pharmaceuticals were billed by IPC to the Hawaii Medicaid Program. Defendant's tacit involvement in this scheme resulted in IPC submitting fraudulent claims to the Hawaii Medicaid Program and in IPC receiving payment from the Hawaii Medicaid Program to which it was not entitled.

I.G. Ex. 2, at 2.

In response to the Parrish declaration, Petitioner stated, "I did not have any knowledge of drugs being recycled in the Pharmacy department. I also did not participate in any billing activities for items or services provided by the Pharmacy department." P. Ex. 2, at 2. Petitioner stated that he did not work in the Pharmacy department but was the supervisor of the Intravenous Medications department. Id. Petitioner did not dispute Mr. Parrish's assertions that IPC personnel engaged in a scheme which involved recycling mislabeled pharmaceuticals to long-term care facilities and that some of the costs of these pharmaceuticals were reimbursed by Medicaid.

In concluding that the I.G. had failed to prove a common sense connection between Petitioner's offense and the delivery of an item under Medicaid, the ALJ focused on evidence concerning Petitioner's relationship to the pharmaceutical recycling scheme that underlies the offense of which he was convicted. Viewing the evidence in the light most favorable to Petitioner, which we have concluded was error in itself, the ALJ made the following unnumbered findings: Petitioner did not work in the IPC pharmacy department, the department in which the mislabeling occurred; Petitioner was the sole pharmacist at IPC dispensing intravenous medications and no recycling improprieties were found in his department, which was run separately from the Pharmacy department; Petitioner had no knowledge of pharmaceuticals being recycled in the Pharmacy department; Petitioner had no responsibility for and did not participate in the billing for items provided by the Pharmacy department; Petitioner's decision to plead no contest was in large part the result of pressure from IPC, which paid his attorney to arrange a plea bargain. ALJ Decision at 6, citing Petitioner's declaration at P. Ex. 2.

The ALJ also focused on Mr. Parrish's statement that Petitioner "tacitly participated" in the recycling scheme and that Petitioner's "tacit involvement" resulted in IPC's submitting fraudulent claims to Medicaid. ALJ Decision at 6, 8 (emphasis added), citing I.G. Ex. 2, at 1. She did not explain what she believed Mr. Parrish meant by "tacit." ⁽⁶⁾ However, the ALJ apparently felt that Petitioner's "tacit involvement" made him somehow less responsible for the scheme.

Contrary to what the ALJ's findings suggest, the exclusion statute does not require any knowledge on the part of a petitioner of the relationship between the offense and the program but only that the factual relationship between the offense and the program exist. Robert C. Greenwood, DAB No. 1423, at 5 (1993). Thus, it is irrelevant whether Petitioner knew that Medicaid was being billed for the recycled pharmaceuticals. Also irrelevant are Petitioner's specific role in the recycling scheme and the degree of his responsibility. ⁽⁷⁾ An exclusion under section 1128(a)(1) is a derivative exclusion; it is based on the fact of a criminal conviction. Excluding individuals based on criminal convictions "provides protection for federally funded programs and their beneficiaries and recipients, without expending program resources to duplicate existing criminal processes." Peter J. Edmonson, DAB No. 1330, at 4. Once a conviction is entered, "the basis for the underlying conviction . . . is not reviewable and the individual . . . may not collaterally attack it . . . ." 42 C.F.R. § 1001.2007(d). The ALJ acknowledged this law but then proceeded to consider evidence that is relevant only to such a collateral attack.

The same IPC recycling scheme at issue here was also the basis of the exclusion in a prior case decided in the I.G.'s favor by the ALJ, Steven R. Caplan, R.Ph., DAB CR1112 (2003); aff'd, Steven R. Caplan, R.Ph. v. Tommy G. Thompson, CIV No. 04-00251 (D. Hawaii, December 17, 2004). ⁽⁸⁾ Mr. Caplan was a pharmacist at IPC who also pled no contest to the offense of deceptive business practices for his participation in this scheme and asserted that he was unaware of the scheme. In Caplan, the ALJ correctly found, and the United States District Court for the District of Hawaii agreed, that Mr. Caplan was not permitted to collaterally attack that plea in the exclusion proceeding or to relitigate the facts underlying his conviction. Caplan, DAB No. CR1112, at 8. The same rule of law applies here. Therefore, even assuming that the facts cited by the ALJ here could support a finding that Mr. Kai was innocent of the offense to which he pled no contest, her reliance on them was error because it constitutes a collateral attack on the conviction.

The ALJ attempted to distinguish Caplan, noting that Mr. Caplan worked as a pharmacist in the IPC Pharmacy department where the recycling occurred, was supervisor of that department during part of this time, and was originally charged with Medical Assistance Fraud in violation of H.R.S. § 346-43.5. However, this process required her to engage in precisely the type of factual analysis about the particular role of the convicted individual that the law prohibits. Like Mr. Caplan, Petitioner pled no contest to the crime that underlies this exclusion, I.G. Ex. 3, and he was convicted of that crime. Like Mr. Caplan, Petitioner cannot collaterally attack that plea or relitigate the basis for the underlying conviction. ⁽⁹⁾

2. The ALJ erred in finding no common sense connection between the criminal offense of which Petitioner was convicted and the delivery of an item or service under the Medicaid program.

The ALJ went on to review the relationship of the offense to the Medicaid program. This requires reviewing the scope or nature of the conviction and whether it had a common sense connection to Medicaid. As explained below, the ALJ misapplied the law in reviewing the evidence on this issue.

Mr. Parrish stated in his declaration, "Some of these 'recycled' (and, therefore, mislabeled) pharmaceuticals were billed by IPC to the Hawaii Medicaid Program." I.G. Ex. 2 at 1. Referring to this statement, the ALJ concluded that it was "reasonable to infer that at least some part of the IPC repackaging scheme was related to Hawaii Medicaid." However, she went on to state, "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." Decision at 9.

The ALJ's conclusion that it was "reasonable to infer that at least some part of the IPC repackaging scheme was related to Hawaii Medicaid" is all that is necessary to establish the common sense connection between Petitioner's offense and the Medicaid program. We know of no authority (and the ALJ cited none) that would require the I.G. to identify the particular packages of recycled pharmaceuticals billed to Medicaid or establish that Petitioner's participation related to those particular packages in order to establish the program relatedness of his offense. The Board has previously noted its reluctance to "read into the exclusion provisions requirements that are not contained in the literal language of the law," e.g., Robert C. Greenwood, DAB No. 1423 at 4, and we will not do so here. Petitioner does not dispute that some of the recycled pharmaceuticals were billed to Medicaid. The undisputed fact that some of the recycled pharmaceuticals were billed to Medicaid is sufficient to establish the program relatedness of Petitioner's conviction for an offense based on his participation in that scheme.

In addition, as the I.G. points out, "[T]here is nothing in the record to support a finding that the scheme could be separated into 'Medicaid' and 'non-Medicaid' components." I.G. Br. at 9. Rather, according to Mr. Parrish, the returned pharmaceuticals were removed from their packaging and "re-deposited in pharmacy stock bottles, from which they were later extracted, placed in new heat sealed blister packs and re-dispensed to other long-term care facilities." I.G. Ex. 2, at 1. Requiring the I.G. to identify which particular recycled pharmaceuticals were billed to Medicaid would impose an impossible burden on the I.G. and one that we find at odds with Congress's intent that the mandatory exclusion authority be used broadly to protect the integrity of covered programs and prevent the misuse of program funds. See Napoleon S. Maminta, M.D., DAB No. 1135 (1990)(discussing the legislative history of section 1128(a) and its support for broad coverage). ⁽¹⁰⁾

Similarly, there is no authority for requiring the I.G. to trace a direct path from Petitioner's participation in the scheme to the particular pharmaceuticals billed to Medicaid as part of that scheme. As discussed earlier, it is the scheme, and the fact that Petitioner's conviction was based on his participating in that scheme, that is material, not Petitioner's particular role in the scheme. Petitioner never denied that the offense to which he pled no contest involved a two-year scheme in which unused pharmaceuticals, previously dispensed to long-term care facilities, were returned to IPC, recycled, and re-dispensed to other long-term care facilities. Further, Petitioner never denied that some of these mislabeled pharmaceuticals were billed by IPC to the Hawaii Medicaid Program. ⁽¹¹⁾ This is sufficient to establish the "nexus or common sense connection" between the offense of which Petitioner was convicted and the delivery of an item or service under the Medicaid program.

Our conclusion here is supported by the ALJ and district court decisions in Caplan. In the Caplan case, Mr. Parrish also stated that only some of the recycled pharmaceuticals were reimbursed by Medicaid sources. I.G. Br. at 10, n.3. However, that statement did not cause the ALJ or the court to question whether the offense was connected to the delivery of an item under Medicaid. The facts material to establishing the common sense connection between the offense and Medicaid are the same in both cases. Accordingly, there was no basis for the ALJ to find that connection lacking here when she and the reviewing court found it present in Caplan.

The ALJ tried to explain the disparity between her decisions by parsing the roles played by Mr. Caplan and Petitioner in the IPC scheme. As discussed earlier, this is not consistent with the law because it requires the ALJ to look behind the conviction which is not permitted. Peter J. Edmonson, DAB No. 1330 at 4.

Conclusion

Based on the preceding analysis, we reverse FFCLs 3 and 4 and adopt the following FFCLs in their place.

3. The offense of which Petitioner was convicted was related to the delivery of an item or service under a state health care program, i.e., Medicaid.

4. Sections 1128(a)(1) and 1128(c)(3)(B) of the Act require that Petitioner be excluded from participation in Medicare, Medicaid, and all other federal health care programs for a minimum of five years.

We reinstate the I.G.'s exclusion of Petitioner for five years.

Judith A. Ballard

Cecilia Sparks Ford

Sheila Ann Hegy
Presiding Board Member

1. The current version of the Social Security Act can be found at www.ssa.gov/OP Home/ssact/comp-ssa.htm. Each section of the Act on that website contains a reference to the corresponding United States Code chapter and section. Also, a cross reference table for the Act and the United States Code can be found at 42 U.S.C.A. Ch. 7, Disp Table.

2. Title XVIII is commonly referred to as Medicare. State health care programs include state Medicaid programs under Title XIX of the Act, in this case, the Hawaii Medicaid program. 42 U.S.C. § 1320a-7(h)(1).

3. The I.G. titled its motion "Motion for Summary Affirmance" which is the same as a motion for summary judgment affirming the exclusion.

4. In the absence of any exceptions to FFCLS 1 and 2, we affirm and adopt those findings and conclusions without further comment.

5. The ALJ also stated, "The I.G. bears the burden of persuasion to prove, by a preponderance of the evidence, both elements provided in section 1128(a)(1)." ALJ Decision at 4. Section 1005.15(b), which the judge cited in support of her statement, is applicable only to exclusions under 42 C.F.R. Part 1004 (Quality Improvement Organization exclusions), and 42 C.F.R. § 1001.701 (excessive claims/unnecessary or substandard services exclusions), § 1001.901 (false or improper claims) and § 1001.951 (fraud and kickback exclusions). In other types of exclusions, such as this one, 42 C.F.R. § 1001.15(c) provides that "the ALJ will allocate the burden of proof as the ALJ deems appropriate." Thus, the ALJ had the discretion to allocate the burden of proof to the I.G. but was not required to do so.

6. Black's Law Dictionary 1465 (7^th ed. 1999) defines "tacit" as "implied but not actually expressed; implied by silence or silent acquiescence."

7. We also note that the ALJ did not discuss other undisputed facts in the record which tend to contradict Petitioner's assertion that he "did not have any knowledge of drugs being recycled in the Pharmacy department." Id. at 2. For example, in his declaration, Petitioner stated that his wife "was appointed as Chief Pharmacist at IPC in February 2000 for IPC Pharmacy operations," pled guilty to Medical Assistance Fraud, and did not contest her exclusion under section 1128(a)(1), id. at 2-3. Additionally, as part of his plea agreement, Petitioner agreed to cooperate with the investigation of IPC, and his lawyer represented to the I.G. that Petitioner participated in "extensive debriefing . . . to gather evidence against others during the investigation of IPC practices . . . ." Letter dated November 19, 2002 attached to Petitioner's Notice of Appeal at 3. Further, his attorney stated that "on a few occasions when his supervisors were physically absent from the pharmacy, Mr. Kai was the ranking pharmacist on duty at IPC, and therefore, he was the responsible pharmacist for IPC's corporate practices. Mr. Kai's limited rotations as the ranking pharmacist on duty gave rise to his liability for Deceptive Business Practices according to the State of Hawaii." Letter dated November 19, 2002 attached to Petitioner's Notice of Appeal at 2.

8. The Board declined to review the ALJ decision in Caplan case pursuant to 42 C.F.R. § 1005.21(g). Order dated February 17, 2004 in Board Docket No. A-04-38.

9. Even if it were permissible for Petitioner to relitigate the basis for the underlying conviction, we have previously noted facts of record that tend to undercut the facts relied on by the ALJ in her attempt to distinguish Caplan as well as for her findings of fact. We further note that although Petitioner alleged below and here that he was pressured by his employer into pleading no contest, the plea form signed by Petitioner specifically states, "I plead of my own free will. No one is pressuring me or threatening me or any other person to force me to plead . . . ." I.G. Ex. 3, at 1.

10. In Maminta we held that where a covered program is a victim of the crime, exclusion is proper "even when the criminal offense does not involve the convicted individual's own delivery of an item or service in a covered program." DAB No. 1135, at 11. Thus, Petitioner's statement in his declaration that he "did not participate in any billing activities for items or services provided by the Pharmacy department" is irrelevant even if true. Accord Caplan, Civ. No. 04-00251 at 14, citing, Anderson v. Thompson, 311 F.Supp. 2d 1121, at 1127 n.17 (D. Kan. 2004)("The conviction need only be related to delivery of an item or service, and the convicted individual need not have actually participated in the delivery.")

11. We note that Medicaid is the single largest payer of long-term care. See Background Material and Data on the Programs Within the Jurisdiction of the Committee on Ways and Means B-33 (Comm. Print 2004). Therefore, even if Petitioner disputed that some of the recycled pharmaceuticals were billed to Medicaid, which he does not, common sense tells us that a scheme involving recycling pharmaceuticals to long-term care facilities over a two-year period would result in some of these pharmaceuticals being reimbursed by Medicaid.