Philip E. Michael, II, DAB CR6342 (2023)

DECISION

The Inspector General (IG) of the United States Department of Health and Human Services excluded Philip E. Michael, II (Petitioner) from participation in Medicare, Medicaid, and all other federal health care programs for five years pursuant to section 1128(a)(3) of the Social Security Act (Act) (42 U.S.C. § 1320a-7(a)(3)).  For the reasons discussed below, I find the IG has a basis to exclude Petitioner from program participation and the five-year mandatory exclusionary period must be imposed.  The IG’s exclusion determination is affirmed.

I.    Background and Procedural History

By letter dated December 30, 2022, the IG excluded Petitioner from participating in Medicare, Medicaid, and all Federal health care programs pursuant to section 1128(a)(3) of the Act for a minimum of nine years, effective 20 days from the date of the letter.  IG Exhibit (Ex.) 1.  Petitioner was excluded due to a felony conviction 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 with respect to any act or omission in a health care program.  IG Ex. 1.  The IG identified three aggravating factors to support the nine-year exclusion.

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On February 28, 2023, the Civil Remedies Division (CRD) received Petitioner’s timely request for hearing before an administrative law judge (ALJ) to contest the exclusion imposed by the IG.  Petitioner submitted several supporting documents along with the request for hearing.  Departmental Appeals Board (DAB) E-File Dkt. C-23-321, Doc.Nos. 1a-1h.  On March 10, 2023, the CRD issued an Acknowledgment Notice, my Standing Prehearing Order, and the CRD Procedures.

The prehearing conference was held on March 30, 2023.  An Order Following Prehearing Conference and Setting Briefing Schedule (Prehearing Order) was issued on April 6, 2023.  On May 19, 2023, the IG filed a brief (IG Br.) and 10 exhibits (IG Exs. 1-10).¹  On June 16, 2023, Petitioner filed a brief (P. Br.) and three exhibits (P. Exs. 1-3).

On June 30, 2023, the IG filed an amended Notice of Exclusion (marked as IG Ex. 11), which removed the previously identified aggravating factors and reduced Petitioner’s exclusion to five years.

II.    Admissions of Exhibits and Decision on the Written Record

Absent objections, IG Exs. 1-11 and P. Exs. 1-3 are admitted into evidence.

Neither party offered witnesses to testify, and in their respective briefs, both parties indicated that an evidentiary hearing is unnecessary in this case.  IG Br. at 11; P. Br. at 15.  Therefore, this matter will be decided on the written record.  Prehearing Order ¶ 7.

III.    Issues

Whether the IG has a basis to exclude Petitioner from participation in Medicaid, Medicare, and any federal healthcare programs under section 1128(a)(3) of the Act.

Because the IG has reduced Petitioner’s exclusion to the mandatory minimum term of five years, I do not have the authority to review the reasonableness of the length of the exclusion.

IV.    Jurisdiction

This tribunal has jurisdiction to adjudicate this case.  42 C.F.R. §§ 1001.2007(a)(1)-(2), 1005.2; see also 42 U.S.C. § 1320a-7(f)(1).

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V.    Legal Authorities

The Act requires the Secretary of Health and Human Services (Secretary) to exclude certain individuals from participation in any federal health care programs, as defined in Section 1128B(f) of the Act.  Act § 1128(a).  The Secretary has delegated this exclusion authority to the IG.  42 C.F.R. § 1001.101.

Section 1128(a)(3) mandates the exclusion of any individual 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, or with respect to any act or omission in a health care program other than Medicare or Medicaid, operated by, or financed in whole or in part by any federal, state, or local agency.  The Act requires a minimum exclusion period of five years when the exclusion is mandated under section 1320a-7(a).  42 U.S.C. § 1320a-7(c)(3)(B).

The IG has the burden of proving the basis for the exclusion and the existence of any aggravating factors.  42 C.F.R. §§ 1005.15(b)(2), 1001.102(b).  Petitioner bears the burden of proof and the burden of persuasion on any affirmative defenses or mitigating factors.  42 C.F.R. §§ 1005.15(b)(1), 1001.102(c).  The standard of proof is a preponderance of the evidence, and there may be no collateral attack of the conviction that provides the basis of the exclusion.  42 C.F.R. §§ 1001.2007(c), 1005.15(d).

An excluded individual may request a hearing before an ALJ, but only on the issues of whether the IG had a basis for the exclusion and whether an exclusion longer than the required minimum period is unreasonable in light of any applicable aggravating and mitigating factors.  42 C.F.R. §§ 1001.2007(a), 1005.2(a).

VI.    Findings of Fact

Petitioner was a pharmacist who owned and operated Meds 2 Go Express Pharmacy (Meds 2 Go) and Alum Creek Pharmacy, both located in West Virginia.  IG Ex. 7 at 2, 3.

Meds 2 Go was a fulfillment pharmacy that filled prescriptions received from internet websites, such as RX Limited, that distributed and dispensed prescription drugs to customers without a valid prescription.  IG Ex. 7 at 3.  Petitioner later became the “pharmacist in charge” at Meds 2 Go.  IG Ex. 7 at 3.

On June 17, 2019, Petitioner was charged with one count of Conspiracy to Commit Money Laundering in a Superseding Information which stated:

Beginning in or about 2010, and continuing until at least December 2012 . . . [Petitioner and Meds to Go] did knowingly and intestinally combine, conspire, confederate

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and agree with each other and with others, known and unknown, to transport, transmit, and transfer funds and monetary instruments in a series of transactions . . . with intent to promote the carrying on of specified unlawful activities, namely, wire fraud and conspiracy to commit wire fraud, and to conceal and disguise the nature, the location, the source, the ownership, and the control of the proceeds of the specified unlawful activity.

In violation of Title 18 United States Code, Sections 1956(h) and 1957.

IG Ex. 2 at 1.

On June 17, 2019, Petitioner entered into a plea agreement in the United States District Court for the Western District of Kentucky (District Court), in which he pled guilty to one count of conspiracy to commit money laundering in violation of 18 U.S.C. §§ 1956(h) and 1957.  IG Ex. 3.  As part of the plea agreement, Petitioner stipulated to the following facts:

On or about February 12, 2012, M.R. made a purchase of prescription drugs, including Tramadol, from a website operated by RX Limited.  M.R. made the purchase from Kentucky. The order was received and approved by an Issuing Doctor for Rx Limited.  The prescription drugs were filled by Meds 2 Go, Inc., and shipped to the customer from West Virginia.  As a result of the purchase [Petitioner] received payment for this purchase, which caused a wire transfer on or about February 24, 2012, in the amount of approximately $40,000 to be sent from a bank account in Hong Kong to a bank account controlled by [Petitioner] in Charleston, West Virginia.  The purpose of the transaction was to knowingly engage in monetary transactions affecting interstate and foreign commerce in criminally derived property of a value greater than $10,000.00 and derived from specified unlawful activity, namely, wire fraud, and conspiracy to commit wire fraud.

IG Ex. 3 at 2.

Petitioner also stipulated that the amount of loss attributed to him was $203,806.92.  IG Ex. 3 at 7.

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On November 3, 2021, the District Court accepted Petitioner’s plea and sentenced him to 18 months incarceration and two years of supervised release.  IG Ex. 6.

VII.    Analysis

1.    Petitioner was convicted of a criminal offense because the District Court accepted his guilty plea, adjudicated him guilty, and issued a judgment of conviction.

In order to prevail, the IG must prove, by a preponderance of the evidence, that Petitioner was convicted under federal or State law, of a criminal offense that occurred after August 21, 1996, consisting of a felony relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct that was committed in connection with the delivery of a health care item or service.  42 U.S.C. § 1320a-7(a)(3); 42 C.F.R. § 1001.101(c)(1).

The regulations provide that an individual is “convicted” of a criminal offense when: (1) a judgment of conviction has been entered against him or her in a federal, state, or local court, regardless of whether an appeal is pending or the record of the conviction is expunged; (2) there is a finding of guilt by a court; (3) a plea of guilty or nolo contendere is accepted by a court; or (4) the individual has entered into a first offender program, deferred adjudication program, or other arrangement where a judgment of conviction is withheld.  42 U.S.C. § 1320a-7(i).

The District Court accepted Petitioner’s plea and imposed judgment on November 3, 2021.  IG Ex. 6.  Therefore, Petitioner has been convicted of a criminal offense.

2.    Petitioner was convicted of a felony that was related to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct, in connection with the delivery of a healthcare item or service.

Section 1128(a)(3) of the Act requires the exclusion of individuals subject to felony convictions related to “fraud, theft, embezzlement, breach of fiduciary responsibility or other financial misconduct.”  42 U.S.C. § 1320a-7(a)(3).  Petitioner pled guilty to a single count of conspiracy to commit money laundering under 18 U.S.C. §§ 1956(h) and 1957.  Conspiracy to commit money laundering is a felony offense related to financial misconduct.  Additionally, the IG notes that the payments Petitioner received from Hong Kong for the illegal prescriptions he filled constituted wire fraud, which is explicitly contemplated by the exclusion statute.  IG Br. at 5.  Petitioner argues that the underlying facts of his conviction do not involve defrauding patients, insurers, or government agencies.  P. Br. at 5.  However, the regulation does not require that the fraud be related to patients, insurers, or government agencies.  The Departmental Appeals Board has noted that the plain language of section 1128(a)(3) does not require that the individual be

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convicted of healthcare fraud; nor does it require government funding for the items or services related to the crime.  Ellen L. Morand, DAB No. 2436 at 9 (2012); Charice D. Curtis, DAB No. 2430 at 4-5 (2011).

To determine whether an offense is related to the delivery of a health care item or service, one must look to whether there is a “common sense connection” between the offense of which a petitioner was convicted and the delivery of a health care item or service.  Erik D. DeSimone, R.Ph., DAB No. 1932 (2004); see also Quayum v. U.S. Dep’t of Health & Human Servs., 34 F. Supp. 2d 141, 143 (E.D.N.Y. 1998); Friedman v. Sebelius, 686 F.3d 813, 820 (D.C. Cir. 2012) (describing the phrase “related to” in another part of section 1320a-7 as “deliberately expansive words,” “the ordinary meaning of [which] is a broad one,” and one that is not subject to “crabbed and formalistic interpretation”) (internal quotation marks omitted).  The evidence shows that Petitioner’s conviction involved receiving payment for the filling and shipping of prescription medications, a health care item Petitioner had access to due to his roles as owner and operator of a pharmacy.  Therefore, the IG has proven that the offense was related to the delivery of a health care item or service.

3.    Petitioner must be excluded for a minimum of five years.

Exclusions imposed under section 1128(a)(3) carry a five-year mandatory minimum exclusion period.  Act § 1128(c)(3)(B) (42 U.S.C. § 1320a-7(c)(3)(B)); 42 C.F.R. § 1001.102(a).  Petitioner argues that fairness dictates that the start date for any exclusion be moved forward to the time of the criminal sentencing which took place in 2019.  P. Br. at 17.  However, an ALJ does not have the authority to alter the effective date of an exclusion.  Lisa Alice Gantt, DAB No. 2065 at 2-3 (2007).  See 42 C.F.R. § 1001.2002(b) (effective date).  The exclusion takes effect 20 days from the date of the notice.  42 C.F.R. § 1001.2002 (b).

VIII.    Conclusion

The IG has proven, by a preponderance of the evidence, that Petitioner was:  1) convicted of a criminal offense; 2) related to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct; 3) in connection with the delivery of a healthcare item or service.  Therefore, Petitioner shall be excluded from participating in Medicare, Medicaid, and other federal health care programs for the mandatory five-year period.  The five-year exclusion imposed by the IG is AFFIRMED.

¹  IG’s Exhibit 10 is an amended Notice of Exclusion, dated May 18, 2023, which reduced Petitioner’s exclusion from 9 years to 7 years.