[Federal Register Volume 76, Number 149 (Wednesday, August 3, 2011)]
[Notices]
[Pages 46843-46849]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-19556]
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DEPARTMENT OF JUSTICE
Drug Enforcement Administration
[Docket No. 07-43]
Terese, Inc., D/B/A Peach Orchard Drugs; Admonition of Registrant
On July 25, 2007, the Deputy Assistant Administrator, Office of
Diversion Control, Drug Enforcement Administration, issued an Order to
Show Cause to Terese, Inc., d/b/a/Peach Orchard Drugs (Respondent), of
Augusta, Georgia. The Show Cause Order proposed the revocation of
Respondent's DEA Certificate of Registration, which authorizes it to
dispense controlled substances as a retail pharmacy, and the denial of
any pending applications to renew or modify its registration, on the
ground that its ``continued registration is inconsistent with the
public interest.'' ALJ Ex. 1, at 1 (citing 21 U.S.C. 823(f) &
824(a)(4)).
The Order specifically alleged that Ms. Terese Fordham, the
president of Terese, Inc., had applied for and received a DEA
Certificate of Registration as a retail pharmacy. Id. The Order alleged
that Ms. Fordham was married to John Duncan Fordham, who was the
pharmacist-in-charge and owner of Duncan Drugs, which had been located
at the same address as Respondent. Id. The Order further alleged that
on May 5, 2005, both Mr. Fordham and Duncan Drugs were convicted of
violating 18 U.S.C. 1347, and that on May 25, 2005, Mr. Fordham was
``excluded from the Medicaid program.'' Id. The Order then alleged that
Mr. Fordham ``violated his conditions of release by unlawfully
dispensing Medicaid controlled substances prescriptions by use of
another provider's identification number,'' that Fordham was sentenced
to 52 months imprisonment, and that Duncan Drugs ``was forfeited to the
United States.'' Id.
Next, the Show Cause Order alleged that Ms. Fordham had falsified
Respondent's application to enroll in Medicaid, and that on December 2,
2006, the Georgia Department of Community Health had denied
Respondent's Medicaid application. Id. at 2. The Order then alleged
that at a state hearing, ``Ms. Fordham and [Respondent's] pharmacist-
in-charge declined to present evidence of corporate ownership
information to the State.'' Id.
Finally, the Show Cause Order alleged that ``DEA considers for
purposes of the Controlled Substances Act that a retail pharmacy only
operates through its officers and agents'' and that ``[t]he
registration of a pharmacy may be revoked as the result of the unlawful
activity of its owners, majority shareholder, officer, managing
pharmacist or other key employee.'' Id. (emphasis added). The Order
then concluded by alleging that ``[i]n this matter, the restoration of
the pharmacy operations to the spouse of the prior owner/operator is
not a bona fide transaction but more of a device to retain a DEA
registration with no change of control or financial interest by the
previous owner who had engaged in misconduct as a registrant.'' Id.
Respondent timely requested a hearing on the allegations, ALJ Ex.
2, and the matter was placed on the docket of the Agency's
Administrative Law Judges (ALJs). Thereafter, on April 15, 2008, an ALJ
conducted a hearing in Charleston, South Carolina, at which both
parties called witnesses to testify and introduced documentary
evidence. ALJ at 2.
On May 13, 2009, the ALJ issued her recommended decision. Therein,
the ALJ rejected the Government's principal theories that Respondent is
the alter ego of Duncan Drugs and that the creation of the pharmacy is
a sham transaction which was carried out to avoid the consequences of
Duncan Drugs' loss of its registration. ALJ at 20-22. While the ALJ
also found that Respondent had committed three recordkeeping violations
(it failed to note the date of receipt of controlled-substance orders
on DEA Form 222, had failed to record an initial inventory, and had not
executed a power of attorney authorizing an employee to order Schedule
II controlled substances), she found Respondent's attempt to remedy the
violations to be ``sincere'' and that the violations ``would not,
standing alone, justify revoking its registration.'' Id. at 22-24
(citing 21 CFR 1305.13(e), 1304.11(b), 1305.04, and 1305.05(a)). The
ALJ also noted that there was ``no evidence that there has been any
diversion of controlled substances from Respondent.'' Id. at 22. The
ALJ thus recommended that Respondent's registration ``be continued,
subject to the condition that Mr. Fordham shall have no involvement
with Respondent in any capacity, including ownership, management, or as
an employee, and shall exercise no influence or control, direct or
indirect, over the operation of Respondent.'' Id. at 27.
Neither party filed exceptions to the ALJ's decision. Thereafter,
the record was forwarded to my office for final agency action.
During the initial course of my review, I noted that the record
indicated that two proceedings were then pending which appeared to be
material to the allegations: the divorce proceeding filed by Ms.
Fordham and Respondent's appeal of the State's denial of its
application to enroll in Medicaid. Accordingly, I ordered that
Respondent address the status of these proceedings.
In responding to my order, Respondent noted that Mrs. and Mr.
Fordham had voluntarily dismissed without prejudice their claims in the
divorce proceeding. Respondent further noted that the Georgia
Department of Community Health was now appealing the order of the
Superior Court of Richmond County which vacated the Department's
Decision.
Having considered the record as a whole, I agree with the ALJ's
conclusion that the three recordkeeping violations
[[Page 46844]]
are not sufficient to justify revoking Respondent's registration. As
for the Government's contention that Respondent's registration may be
revoked ``on public interest grounds'' because Duncan Drugs and Duncan
Fordham were convicted of health care fraud in violation of 18 U.S.C.
1347 and Respondent's application to participate in Medicaid was denied
by the State of Georgia, Gov. Br. at 9 (citing 21 U.S.C. 824(a)(4)),
based on section 824's text, structure, and history, I conclude that
the Agency's authority under section 824(a)(4) does not encompass these
circumstances. Because there is no evidence in this record that Duncan
Drugs or Duncan Fordham diverted controlled substances or otherwise
violated either the Controlled Substances Act or DEA regulations, I
also conclude that the Government's alter ego theory does not apply. I
make the following the findings.
Findings
Respondent is a Georgia corporation which operates a retail
pharmacy at 2529 Peach Orchard Road, Augusta, Georgia. GXs 3 & 5.
Respondent's President is Terese Fordham; Ms. Fordham also owns the
vast majority of the Respondent's shares. GX 5, at 2; Tr. 34-35, 37,
110.
In June 2002, Ms. Fordham married John Duncan Fordham. Tr. 115. Mr.
Fordham was previously a licensed pharmacist who owned and operated
Duncan Drugs, a pharmacy which was located at the same address. Tr. 21;
GXs 13 & 14.
On May 25, 2004, both John Duncan Fordham and Fordham, Inc., the
corporation which operated Duncan Drugs, were indicted by a Federal
grand jury which charged Fordham and his corporation (along with
others) with having committed health care fraud in violation of 18
U.S.C. Sec. 1347. GX 16. On May 5, 2005, both John Duncan Fordham and
Fordham, Inc., were convicted of the charge. GXs 13 & 16. Thereafter,
on May 25, 2005, the Georgia Department of Community Health
[hereinafter, DCH] terminated Duncan Drugs' enrollment as a Medicaid
provider. GX 13.
On September 15, 2005, the District Court sentenced Fordham to 52
months imprisonment to be followed by three years of supervised
release; the Court also imposed several ``special conditions of
supervision'' to include, inter alia, that Fordham surrender ``any
license issued by any state or Federal authority to dispense drugs or
pharmaceuticals'' which were ``hereby revoked,'' and that ``he is not
to be employed with or without compensation in any pharmacy.'' GX 15,
at 1-5.\1\ Moreover, on the same day, the Court sentenced Fordham,
Inc., to five years of probation. GX 14, at 2. On September 23, 2005,
both judgments were entered.\2\
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\1\ The District Court also ordered Fordham and Fordham, Inc.,
to pay an assessment of $400 and restitution of more than
$1,000,000; the Court also ordered forfeited $500,000 to the United
States. GX 15, at 5-6.
\2\ The DI testified that while Mr. Fordham was released on
bond, he attempted to sell the pharmacy although the indictment had
included a count for forfeiture. Tr. 22-23. The DI also testified
that following Duncan Drugs' exclusion from Medicaid, Fordham filled
prescriptions for Medicaid patients and billed for the prescriptions
by using another pharmacy's enrollment. Id. at 23.
There is no evidence, however, that the DI was personally
involved in investigating either incident. Moreover, while her
testimony is consistent with the findings made by a DCH Hearing
Officer in Respondent's appeal of the denial of its application to
be an authorized Medicaid Provider, see GX 8, at 2-3, that decision
was subsequently vacated by the Superior Court of Richmond County,
which itself is now on appeal to the Georgia Court of Appeals.
Accordingly, the State Hearing Officer's findings are not entitled
to preclusive effect.
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Several months later, Duncan Fordham commenced serving his
sentence. In the meantime, Ms. Fordham had contacted David Scharff, a
licensed pharmacist, who had been the Director of Pharmacy at Georgia
Regional Hospital for more than thirty years. Tr. 72. Ms. Fordham told
Mr. Scharff that she intended to reopen the pharmacy to support herself
and asked if he would become the pharmacist in charge. Id. at 73. Mr.
Scharff met with the Fordhams and discussed various issues related to
reopening the pharmacy; Scharff agreed to become Respondent's
pharmacist-in-charge. Id. at 74.
Thereafter, on November 3, 2005, Ms. Fordham submitted an
application on Respondent's behalf for a DEA registration as a retail
pharmacy. GX 2. Moreover, on November 16, Ms. Fordham filed
Respondent's application for a pharmacy license with the Georgia State
Board of Pharmacy. GX 5, at 1-3. On January 31, 2006, the State issued
a retail pharmacy license to Respondent, GX 10, and on February 10,
2006, DEA issued a registration to Respondent.\3\ GX 2, at 1.
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\3\ Respondent's DEA registration authorizes it to dispense
controlled substances in schedules II through V; while the
registration was to expire on March 31, 2009, on February 2, 2009,
Respondent filed a renewal application. Because this application was
filed more than 45 days before the expiration date as required by
the Agency's rule, Respondent's registration has remained in effect
pending the issuance of this Decision and Final Order. See 5 U.S.C.
558(c); 21 CFR 1301.36(i).
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On February 13, 2006, Respondent submitted an application to the
DCH, which was completed and signed by Mr. Scharff, to become an
enrolled Medicaid provider. GX 6, at 5. On the application, Respondent
was required to answer a series of questions regarding whether it, or
various persons associated with it, had been excluded or sanctioned by
either a Federal or State health care program. Id. at 4. Respondent
answered ``no'' to all of the questions including the third one, which
asked: ``Has any family or household member(s) of the applicant who has
ownership or control interest in the applicant ever been convicted * *
* for any health related crimes or misconduct, or excluded from any
Federal or State health care program due to fraud, obstruction of an
investigation, a controlled substance violation or any other crime or
misconduct?'' Id.\4\
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\4\ Mr. Scharff testified that he answered ``no'' because he was
``thinking [of himself] as the pharmacist in charge and not anybody
else.'' Tr. 78. He further explained that in South Carolina, the
form ``specifically says, and any other member of the corporation,''
and that the Georgia form ``makes it sound like it's directed
straight towards me.'' Id. at 78-79.
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Based on this answer, on July 31, 2006, the DCH denied Respondent's
application on the grounds that its answer to question 3 was a false
representation of a material fact and that Respondent ``is functionally
the alter ego of Duncan Drugs which has previously been excluded from
the Medicaid program.'' GX 7, at 1. Respondent appealed and a hearing
was held before a DCH Hearing Officer.
On December 22, 2006, the Hearing Officer issued his decision.
Therein, the Hearing Officer found that Respondent's answer to question
3 was ``an untruthful statement and a false representation of a
material fact'' because Respondent had failed to disclose Duncan
Fordham's conviction. GX 8, at 10. He also found that Respondent had
failed to respond to a DCH subpoena. Id. at 11. However, he declined to
reach the issue of whether Respondent ``is the `alter ego' to Duncan
Fordham and/or Duncan Drugs.'' Id. The Hearing Officer thus denied
Respondent's appeal.
Respondent then appealed to the Superior Court for Richmond County,
which heard the matter on January 12, 2007. On August 4, 2009, the
court concluded that ``the evidence considered in the [DCH] hearing * *
* was incomplete as the answer to Question 3 * * * on the application
was not provided by the petitioner as a blank remained.'' Order on
Petitioner's Appeal at 1, Tereses [sic], Inc., v. Department of
Community Health, No 2007RCCV0027 (Super. Ct. Ga., Aug. 4, 2009). The
court also noted that Respondent ``had not yet furnished a Georgia
Medicaid Disclosure of
[[Page 46845]]
Ownership and Control Interest form.'' Id. Concluding that ``in the
interest of justice and completeness, * * * the ALJ should have
directed that the form be completed by the petitioner before ruling on
the issue as presented,'' the court remanded the case ``for completion
of the record'' and instructed the Hearing Officer to ``direct
petitioner to complete the form.'' Id.
On September 8, 2009, the State filed an Application for
Discretionary Appeal in the Georgia Court of Appeals. Notice of Appeal
at 1. On October 1, the court granted the application. Georgia Dep't of
Community Health v. Terese's [sic], Inc., (Ga. App. Oct. 1, 2009)
(order granting application for discretionary review). However, on June
24, 2010, the court dismissed the State's appeal for lack of
jurisdiction. Order at 3, DCH v.Terese's, No. A10A0658s (order
dismissing appeal).\5\
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\5\ On October 25, 2010, Respondent submitted a document
establishing that it and the DCH had settled their dispute and that
the DCH had granted it a Medicaid Provider number. However, there is
no evidence that the document was served on the Government.
Accordingly, I have not considered the document. Moreover, among the
legal theories advanced by the Government is that the
``[p]redecessor pharmacy violated [s]tate laws involving Medicare
[f]raud,'' and that this provides a basis to revoke Respondent's
registration under the public interest standard. Gov. Br. at 10-11.
Accordingly, the settlement does not moot the case.
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The DEA Investigation
A DEA Diversion Investigator (DI) testified that in May 2005, a
person came into the DEA Augusta, Georgia office, and stated that ``he
was able to go into Duncan Drugs and received drugs upon request and
[that] the pharmacy * * * would apply it to DEA Registrations of
physicians that never saw the individual.'' Tr. 19-20. The DI then
contacted the U.S. Attorney's Office and was told that ``Duncan Drugs
was under indictment for health care fraud.'' Id. at 20.
The DI further testified that she subsequently learned that Fordham
``supposedly * * * was involved with a contract'' which had ``an
incentive clause'' under which ``he provided controlled substances or
drugs to a mental health center'' and ``received millions of dollars,
that they found * * * was fraudulent.'' Id. at 21-22. The DI then
testified that Fordham was convicted of health care fraud. Id. at 22.
The record contains no further evidence substantiating the allegation
that Fordham had committed violations of the Controlled Substances Act
(CSA).\6\
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\6\ The DI also testified that while Duncan Fordham was out on
bond, he used the Medicaid Provider number of another pharmacist to
fill prescriptions that were dispensed by Duncan Drugs. Tr. 23.
Beyond the fact that the DI's testimony does not appear to have been
based on personal knowledge, here again, there is no evidence that
any of the prescriptions violated the CSA.
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On some date which is not clear from the record, the DI learned
from a Special Agent with the DCH that ``Duncan Drugs had opened up
again.'' Id. at 31. She also learned that Respondent's application for
a DEA registration had been approved and ``was surprised because'' she
viewed Terese Fordham as ``an extension of Duncan Drugs.'' Id. at 27.
Thereafter, on April 21, 2006, the DI (along with the DCH Special
Agent) met with Mr. Scharff at his residence to discuss Respondent's
``management structure.'' Id. at 28-29. According to the DI, Scharff
stated that he owned 10 percent of the pharmacy (although he had not
invested any money in Terese, Inc.) and Ms. Fordham owned 80 percent;
Mr. Scharff was unsure as to who owned the remaining 10 percent. Id. at
34-35.
On May 4, 2006, the DI and the DCH Special Agent went to Respondent
to interview Ms. Fordham regarding its management structure. Id. at 35-
36. Because Ms. Fordham was not present upon the DI's arrival, the DI
proceeded to conduct an inspection during which she reviewed
Respondent's recordkeeping. Id. at 36. The DI found that Respondent had
not been completing the right-hand side of the DEA Forms 222 (which are
used to order schedule II controlled substances) to indicate when it
had received the drugs. Id. The DI further found that Respondent did
not have an initial inventory of its controlled substances, which it is
required to make a record of even if no drugs are initially on hand.\7\
Id. Finally, Respondent did not have a power of attorney form
indicating who was authorized to order schedule II controlled
substances on its behalf. Id. Regarding these violations, Mr. Scharff
testified that he was ``derelict'' in failing to see that the order
forms were signed and that upon being informed that this needed to be
done, he ``immediately began doing it.'' Id. at 79-80.
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\7\ The DI explained that under the regulation, even if no drugs
are on hand initially, an inventory indicating that there are no
drugs is still required. Tr. 36; see 21 CFR 1304.11(b) (``In the
event a person commences business with no controlled substances on
hand, he/she shall record this fact as the initial inventory.'').
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Upon Ms. Fordham's arrival at the pharmacy, the DI questioned her
regarding Respondent's management structure and whether Duncan Fordham
was involved. Id. at 37, 40-41. Ms. Fordham stated that she owned 80
percent of the pharmacy, her daughter owned 10 percent and Mr. Scharff
owned the remaining 10 percent. Id. at 37-38. Ms. Fordham stated that
she had put up all of the money for the pharmacy.\8\ Id. at 38.
According to the DI, Ms. Fordham stated that she had opened the
pharmacy because she was getting phone calls from Duncan Drugs' former
customers and felt ``an obligation'' to its former employees ``to keep
their jobs.'' Id. Moreover, in her testimony, Ms. Fordham stated that
her husband had nothing to do with the business, Tr. 125, and there is
no evidence in the record establishing that he had a financial or
controlling interest in the pharmacy.
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\8\ Ms. Fordham further testified that she obtained a loan for
$280,000 from Smith Drug Company, a distributor, and took cash
advances on her credit cards. Tr. 120-21. Ms. Fordham also
acknowledged that she is not a licensed pharmacist and had never run
a pharmacy. Id. at 131. However, she had worked as an assistant
manager of a bank and owned a business. Id.
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Discussion
The Government argues that ``there is a myriad of prior agency
decisions to support a revocation on the grounds that the new
registrant was intended to operate so as to avoid the consequence of
the surrender of the previous family business.'' Gov. Br. 8. It
contends that ``[u]nder 21 U.S.C. Sec. 824(a)(4), the Deputy
Administrator may revoke Respondent's registration on public interest
grounds'' and that, in this matter, ``all of the five factors under 21
U.S.C. Sec. 823(f) are relevant to the determination of whether
Respondent's registration would be in the public interest.'' Id. at 9.
The Government further maintains that its ``exhibits and testimony
support by a preponderance of the evidence a finding that the
Government has presented a case for revocation of [Respondent's]
registration on public interest grounds.'' Id. at 11.
As noted above, the Government seeks the revocation of Respondent's
DEA registration on public interest grounds because Ms. Fordham's
spouse has been convicted of health care fraud; the Government also
cites as a basis for revocation that Ms. Fordham falsified Respondent's
application to become a Medicaid provider and declined to present
evidence to the State as to the ownership of Respondent, thus resulting
in the State's denial of its application. ALJ Ex. at 2. As explained
below, the Government's assertion as to the scope of the Agency's
authority under section 824(a)(4) is irreconcilable with the text,
structure, and history of section 824, as well as 42 U.S.C. 1320a-7,
which, because it is specifically referenced in section 824(a)(5), is
also relevant here.
[[Page 46846]]
Notably, the Government does not address the applicability of section
824(a)(5) and 42 U.S.C. 1320a-7 in its brief, and its interpretation
would render section 824(a)(5) meaningless.
The starting point in any case of statutory construction is the
language of the statute itself. See, e.g., Desert Palace, Inc., v.
Costa, 539 U.S. 90, 98 (2003). In section 824(a), Congress enumerated
the five grounds on which the Agency may suspend or revoke a
registration issued under the Controlled Substances Act. The statute
provides in relevant part:
A registration pursuant to section 823 of this title to
manufacture, distribute, or dispense a controlled substance or a
list I chemical may be suspended or revoked by the Attorney General
upon a finding that the registrant--
(1) has materially falsified any application filed pursuant to
or required by this subchapter or subchapter II of this chapter;
(2) has been convicted of a felony under this subchapter or
subchapter II of this chapter or any other law of the United States,
or of any State, relating to any substance defined in this
subchapter as a controlled substance or a list I chemical;
(3) has had his State license or registration suspended,
revoked, or denied by competent State authority and is no longer
authorized by State law to engage in the manufacturing,
distribution, or dispensing of controlled substances or list I
chemicals or has had the suspension, revocation, or denial of his
registration recommended by competent State authority;
(4) has committed such acts as would render his registration
under section 823 of this title inconsistent with the public
interest as determined under such section; or
(5) has been excluded (or directed to be excluded) from
participation in a program pursuant to section 1320a-7(a) of Title
42.
21 U.S.C. 824(a).
As section 824(a)(4) makes clear, the scope of the Agency's
authority to revoke on public interest grounds is defined by the
factors set forth in 21 U.S.C. 823. In the case of a pharmacy, Congress
directed that the following factors be considered ``[i]n determining
the public interest'':
(1) The recommendation of the appropriate State licensing board
or professional disciplinary authority.
(2) The applicant's experience in dispensing * * * controlled
substances.
(3) The applicant's conviction record under Federal or State
laws relating to the manufacture, distribution, or dispensing of
controlled substances.
(4) Compliance with applicable State, Federal or local laws
relating to controlled substances.
(5) Such other conduct which may threaten the public health and
safety.
21 U.S.C. 823(f).
Contrary to the Government's assertions that all five factors are
relevant here, none of its principal allegations fall within any of the
factors. Gov. Br. 9. The Government cites no authority for its
contention that the State's denial of Respondent's application to
participate in Medicaid constitutes action by a ``State licensing board
or professional disciplinary authority.'' 21 U.S.C. 823(f)(1), Gov. Br.
9. Moreover, while the Government cites the conviction of Duncan Drugs
as ground to revoke under factor three, neither that entity, nor Mr.
Fordham, was convicted of an offense related to the ``distribution[] or
dispensing of controlled substances.'' 21 U.S.C. 823(f)(3). As for
factors two and four, while the Government elicited testimony that an
informant had told a DI that Duncan Drugs was filling unlawful
prescriptions, this evidence does not rise to the level of substantial
evidence,\9\ and the only allegations proven on this record which are
relevant in assessing Respondent's experience in dispensing controlled
substances, id. Sec. 823(f)(2), and its compliance with applicable
laws related to controlled substances, id. Sec. 823(f)(4), involve
three minor recordkeeping violations. Thus, in determining whether
Respondent's registration is ``inconsistent with the public interest,''
21 U.S.C. 824(a), the only question remaining is whether the
Government's allegations constitute ``[s]uch other conduct which may
threaten public health and safety.'' Id. Sec. 823(f)(5). I conclude
that they do not.
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\9\ This evidence was limited to the testimony of a DI that in
2005, an informant told her that ``he was able to go into Duncan
Drugs and received drugs upon request and [that] the pharmacy * * *
would apply it to DEA Registration of physicians that never saw the
individual.'' Tr. 19-20. The DI did not testify as to any
investigation she conducted to corroborate the informant's story.
This testimony thus creates only a suspicion that Duncan Drugs and/
or Duncan Fordham were diverting controlled substances and does not
rise to the level of substantial evidence. See NLRB v. Columbia
Enameling & Stamping Co., Inc., 306 U.S. 292, 300 (1939)
(``Substantial evidence is more than a scintilla, and must do more
than create a suspicion of the existence of the fact to be
established.'').
To make clear, had the evidence established that Duncan Fordham
or Duncan Drugs violated the CSA or state controlled substance laws,
the Agency case law on piercing the corporate veil would authorize
the revocation of Respondent's registration.
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As noted above, in section 824(a)(5), Congress provided the Agency
with authority to revoke a registration where a registrant has been
excluded (or directed to be excluded) from participation in a program
pursuant to section 1320a-7(a) of Title 42. Under 42 U.S.C. 1320a-7,
the Secretary of the Department of Health and Human Services has been
granted the authority to exclude an individual or entity ``from
participation in any Federal health care program.'' The statute
provides for two distinct categories of exclusion: (1) Those which are
``mandatory,'' and (2) those which are ``permissive.'' Compare id.
Sec. 1320a-7(a) (``[t]he Secretary shall exclude''), with id. Sec.
1320a-7(b) (``[t]he Secretary may exclude''). See also S. Rep. No. 100-
109, at 4, reprinted in 1987 U.S.C.C.A.N. 682, 685 (``The bill
identifies a number of acts for which exclusion from Medicare and State
health care programs is appropriate. * * * The bill divides these
actions into two broad categories: those for which exclusion is
mandatory, and those for which it is discretionary with the
Secretary.'').
The Secretary's ``mandatory exclusion'' authority is triggered,
however, only when an ``individual or entity'' has been convicted of
certain criminal offenses. 42 U.S.C. 1320a-7(a). Most importantly,
Congress has limited this authority to four categories of offenses: (1)
``[c]onviction of program-related crimes,'' which is defined as ``a
criminal offense related to the delivery of an item or service under *
* * 42 U.S.C. Sec. Sec. 1395 et seq. * * * or under any State health
care program''; (2) ``[c]onviction relating to patient abuse,'' which
is defined as ``a criminal offense relating to neglect or abuse of
patients in connection with the delivery of a health care item or
service''; (3) ``[f]elony conviction relating to health care fraud,''
which is defined as a conviction ``under Federal or State law, 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
those specifically described in * * * [subparagraph (a)(1)]) operated
by or financed * * * by any Federal, State, or local government agency,
of a criminal offense consisting of a felony relating to fraud, theft,
embezzlement, breach of fiduciary responsibility, or other financial
misconduct''; and (4) ``[f]elony conviction relating to controlled
substance,'' which is defined as a conviction, ``under Federal or State
law, of a criminal offense consisting of a felony relating to the
unlawful manufacture, distribution, prescription, or dispensing of a
controlled substance.'' Id.
By contrast, subsection b grants the Secretary ``permissive
exclusion'' authority on fifteen different grounds. Id. Sec. 1320a-
7(b). Of potential relevance here, the Secretary's ``permissive
exclusion'' authority includes where ``an individual or entity * * *
has been suspended or excluded from participation under * * * any
Federal program * * * involving the provision
[[Page 46847]]
of health care, or * * * a State health care program, for reasons
bearing on the individual's or entity's professional competence,
professional performance, or financial integrity,'' Id. Sec. 1320a-
7(b)(5), where an entity is ``controlled by a sanctioned individual,''
Id. Sec. 1320a-7(b)(8),\10\ and where an individual or entity has
failed to ``fully and accurately make any disclosure required by [42
U.S.C. Sec. Sec. 1320a-3, 1320a-3a, or 1320a-5].'' Id. Sec. 1320a-
7(b)(15).
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\10\ This paragraph provides that:
Any entity with respect to which the Secretary determines that a
person--
(A)(i) who has a direct or indirect ownership or control
interest of 5 percent or more in the entity or with an ownership or
control interest (as defined in [42 U.S.C. 1320(a)(3)]) in that
entity,
(ii) who is an officer, director, agent, or managing employee
(as defined in [42 U.S.C. 1320a-5(b)]) of that entity; or
(iii) who was described in clause (i) but is no longer so
described because of a transfer of ownership or control interest, in
anticipation of (or following) a conviction, assessment, or
exclusion described in subparagraph (B) against the person, to an
immediate family member (as defined in subsection (j)(1)) or a
member of the household of the person (as defined in subsection
(j)(2)) who continues to maintain an interest described in such
clause--
is a person--
(B)(i) who has been convicted of any offense described in
subsection (a) or in paragraph (1), (2), or (3) of this subsection;
(ii) against who a civil monetary penalty has been assessed
under [42 U.S.C. 1320a-7a or 1320a-8];
(iii) who has been excluded from participation under a program
under [42 U.S.C. 1395 et seq.] or under a State health care program.
42 U.S.C. 1320a-7(b)(8).
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As the foregoing demonstrates, in granting the Secretary authority
to exclude providers from participating in Federal health care
programs, Congress created two distinct categories of exclusion. When,
however, in 1987 Congress amended section 304 of the Controlled
Substances Act to authorize the Attorney General to suspend or revoke a
registration based on a provider's having ``been excluded (or directed
to be excluded) from participation in'' a Federal health care program,
it provided that the exclusion must be ``pursuant to section 1320a-
7(a).'' 21 U.S.C. 824(a)(5).
By its plain terms, section 824(a)(5) therefore limits the Attorney
General's authority to revoke a registration based on an entity's
exclusion from any Federal health care program to only those instances
in which an individual or entity has been mandatorily excluded. See 42
U.S.C. 1320a-7(a). If Congress had intended that revocation of a DEA
registration was warranted whenever a provider has been excluded from
participation in a Federal health care program, it could have easily
done so in the statutory text.
It is undisputed that both Duncan Fordham and the corporate entity,
Fordham, Inc., were convicted of healthcare fraud in violation of 18
U.S.C. 1347. GXs 14 & 15. While Fordham and his corporation were
terminated as a Medicaid provider by the Georgia DCH (and not the
Secretary), it is clear that his and his corporation's respective
convictions constitute a ``[f]elony conviction relating to health care
fraud'' and fall within the Secretary's ``mandatory exclusion''
authority. 42 U.S.C. 1320a-7(a)(3).
It is also clear, however, that neither Terese Fordham nor
Respondent has been convicted of any offense, let alone one which would
subject them to the Secretary's mandatory exclusion authority. See 42
U.S.C. 1320a-7(a). Moreover, none of the other grounds which were
alleged by the State for excluding Respondent from participation in
Medicaid (providing materially false information, being the alter ego
of Duncan Drugs, and failing to provide documentation requested by DCH,
see GX 7, at 1), subjected it to mandatory exclusion by the Secretary.
See Id. Indeed, even the allegation that Respondent is the alter ego of
Duncan Drugs (and is controlled by Duncan Fordham) appears to have been
specifically addressed by Congress in section 1320a-7(b)(8), which
applies to ``[e]ntities controlled by a sanctioned individual.'' Id.
Sec. 1320a-7(b)(8).
However, as explained above, this ground falls within the
Secretary's ``permissive exclusion'' authority and, as such, is outside
of the scope of the Attorney General's authority under subsection
824(a)(5). 21 U.S.C. 824(a)(5). Moreover, the Government does not cite
any decision of the Secretary holding that an entity that is deemed to
be the alter ego of an entity which has been convicted of an offense
subject to the ``mandatory exclusion'' authority is likewise subject to
that authority.
The Government's brief does not address the applicability of
subsection 824(a)(5) to its contention. However, in subsection
824(a)(5), Congress specifically addressed the circumstances in which
an exclusion by the Secretary is grounds for the revocation of a DEA
registration. As the Supreme Court has long explained, ``[a] specific
provision controls over one of more general application.'' Gozlon-
Peretz v. United States, 498 U.S. 395, 407 (1991) (citing Crawford
Fitting Co. v. J.T. Gibbons, Inc., 482 U.S. 437, 445 (1987)); see also
Bloate v. United States, 130 S.Ct. 1345, 1354 (2010) (quoting D.
Ginsberg & Sons, Inc. v. Popkin, 285 U.S. 204, 208 (1932) (``General
language of a statutory provision, although broad enough to include it,
will not be held to apply to a matter specifically dealt with in
another part of the same enactment.'')). This rule of construction
provides reason alone to reject the Government's assertion.
The Government's construction fails for other reasons. First, it
ignores the history of the CSA. As originally enacted, the CSA limited
the Attorney General's authority to revoke a registration to three
circumstances: (1) Where a registrant had materially falsified an
application for registration under either subchapter I (the CSA) or
subchapter II (the Import and Export provisions, 21 U.S.C. 951-971);
(2) where a registrant had been convicted of a felony under either
subchapter I or II, ``or of any State [or other Federal law], relating
to any substance defined in this title as a controlled substance''; and
(3) where a registrant no longer has authority under State law to
manufacture, distribute or dispense controlled substances.
Comprehensive Drug Abuse Prevention and Control Act of 1970, Public Law
91-515, Sec. 304(a), 84 Stat. 1437, 1460 (1970) (codified as amended
at 21 U.S.C. 824(a)).
Congress did not grant the Attorney General authority to revoke on
public interest grounds until 1984, when it enacted the Drug
Enforcement Amendments to the Comprehensive Crime Control Act of 1984.
See Public Law 98-473, Sec. 512, 98 Stat.1838, 2073 (1984). Congress
then explained that the ``[i]mproper diversion of controlled substances
by practitioners is one of the most serious aspects of the drug abuse
problem. However, effective Federal action against practitioners has
been severely inhibited by the limited authority in current law to deny
or revoke practitioner registrations.'' H.R. Rep. No. 98-1030, at 266
(1984), reprinted in 1984 U.S.C.C.A.N. 3182, 3448. Continuing, the
House Report explained that:
because of a variety of legal, organizational, and resource
problems, many States are unable to take effective or prompt action
against violating registrants. Since State revocation of a
practitioner's license or registration is a primary basis on which
Federal registration may be revoked or denied, problems at the State
regulatory level have had a severe adverse impact on Federal anti-
diversion efforts. The criteria of prior felony drug conviction for
denial or revocation of registration has proven too limited in
certain cases as well, for many violations involving controlled
substances which are prescription drugs are not punishable as
felonies under State law. Moreover, delays in obtaining conviction
allow practitioners to continue to dispense drugs with a high abuse
potential even where there is strong evidence that they have
[[Page 46848]]
significantly abused their authority to dispense controlled
substances.
Clearly, the overly limited bases in current law for denial or
revocation of a practitioner's registration do not operate in the
public interest.
Id. Accordingly, Congress amended section 824(a) ``to add to the
current bases for * * * revocation[] or suspension of registration a
finding that registration would be inconsistent with the public
interest on the grounds specified in 21 U.S.C. Sec. 823.'' Id. at 3449
(emphasis added).
The House Report thus makes clear that Congress's primary purpose
in authorizing revocation based on the public interest was to provide
an additional means for the Attorney General to address diversion by
practitioners. This is also made clear by Congress's command that the
public interest be ``determined under'' the factors set forth in 21
U.S.C. 823, most of which--in the case of a practitioner--require a
nexus to controlled substances. See 21 U.S.C. 823(f) (directing the
Attorney General to consider, inter alia, a registrant's ``experience
in dispensing * * * controlled substances,'' its ``conviction record
under * * * laws relating to the * * * dispensing of controlled
substances,'' and its ``[c]ompliance with applicable * * * laws
relating to controlled substances'').\11\
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\11\ With respect to factor five--``other conduct which may
threaten public health and safety''--DEA's case law has generally
recognized that the misconduct must be related to controlled
substances. David E. Trawick, 53 FR 5326, 5327 (1988). While there
may be other acts, which do not directly involve controlled
substances, but which threaten public health and safety and create
reason to conclude that a person will not faithfully adhere to her
responsibilities under the CSA, in light of Congress's clear
statutory text and the history of the CSA, this case presents no
occasion to consider the scope of actionable conduct under this
factor.
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It was not until three years later when, as part of the Medicare
and Medicaid Patient and Program Protection of 1987, Congress amended
subsection 824(a) to grant the Attorney General authority to revoke a
registration of any individual or entity subject to mandatory exclusion
from Medicare and Medicaid (as well as other Federally funded health
care programs). See Public Law 100-93, Sec. 8(j), 101 Stat. 680, 695
(1987). See also S. Rep. No. 100-109, at 2, 1987 U.S.C.C.A.N. at 682-83
(``The Committee bill has four main elements. * * * First, the bill
mandates the exclusion from Medicare and Medicaid of individuals
convicted of program-related crimes or patient abuse or neglect. It
also broadens the grounds for the discretionary exclusion of health
care providers from Medicare and Medicaid. * * * The Attorney General
is authorized to deny, revoke, or suspend the controlled substances
registration of any individual or entity subject to mandatory exclusion
from Medicare.) \12\ (emphasis added).
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\12\ It acknowledged that in discussing Section 8 of the
Medicare and Medicaid Patient and Program Protection Act, the Senate
Report states that ``[t]he bill would amend the Controlled
Substances Act to add exclusion from Medicare or a State health care
program as a basis for the denial, revocation, or suspension of
registration to manufacture, distribute or dispense a controlled
substance.'' S. Rep. at 22, 1987 U.S.C.C.A.N. at 702. While this
discussion is arguably read as indicating that Section 8 applied to
both mandatory and permissive exclusions, legislative history cannot
override a clear and unambiguous statutory text. See United States
v. Gonzales, 520 U.S. 1, 6 (1997). (``Given the straightforward
statutory command, there is no reason to resort to legislative
history.'') (citation omitted).
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Were the Government's interpretation correct that the Attorney
General's authority under the public interest standard encompasses the
allegations against Respondent, then Congress had no need to enact
subparagraph (a)(5). Statutes, however, are not to be construed in a
manner that renders their texts superfluous. See Bloate, 130 S.Ct. at
1355 (quoting Duncan v. Walker, 533 U.S. 167, 174 (2001) (``[A] statute
ought, upon the whole, to be so construed that, if it can be prevented,
no clause, sentence, or word shall be superfluous, void, or
insignificant.'')). I therefore hold that the allegations that
Respondent is the alter ego of Duncan Drugs, which has been convicted
of health care fraud, as well as that Respondent materially falsified
its state Medicaid application and did not disclose ownership
information to the State, do not constitute ``such other conduct which
may threaten public health and safety.'' 21 U.S.C. 823(f).
Accordingly, the allegations that Respondent is the alter ego of
Duncan Drugs, which was convicted of health care fraud; that Respondent
materially falsified its application to enroll in the Georgia Medicaid
program; and that it failed to provide information requested by the DCH
do not implicate any of the five public interest factors set forth in
21 U.S.C. 823(f), and thus do not provide a basis to conclude that
Respondent has committed acts which render its registration
``inconsistent with the public interest.'' 21 U.S.C. 824(a)(4). Whether
these allegations are grounds for the revocation of Respondent's DEA
registration must be assessed under the legal standard which Congress
specifically adopted in subparagraph (a)(5).\13\
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\13\ To make clear, where an allegation both implicates a public
interest factor (or another of the Agency's revocation authorities),
and also triggers the Secretary's permissive exclusion authority,
DEA retains the authority to revoke under the applicable authority
of 21 U.S.C. 824. Thus, while a misdemeanor conviction relating to
controlled substances falls within the Secretary's permissive
exclusion authority, see 42 U.S.C. 1320a-7(b)(3), DEA can still
consider this conduct under the public interest standard. See 21
U.S.C. 823(f). Likewise, while the revocation or suspension of a
physician's state medical license also falls within the Secretary's
permissive exclusion authority, DEA can revoke the practitioner's
registration under 21 U.S.C. 824(a)(3).
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Under this standard, however, even if DCH had proved the
allegations, Respondent would not have been subject to ``mandatory
exclusion'' by the Secretary pursuant to her authority under 42 U.S.C.
1320a-7(a), but rather only ``permissive exclusion'' pursuant to her
authority under 42 U.S.C. 1320a-7(b). Accordingly, even if the DCH
proceeding had resulted in Respondent's exclusion by the Secretary,
because subparagraph (a)(5) unambiguously limits the Agency's
revocation authority to where a registrant is subject to mandatory
exclusion, the fact of permissive exclusion would not, by itself,
provide a basis to revoke its DEA registration.
Indeed, the only substantial evidence in this record that
Respondent (or for that matter, Duncan Drugs) ``has committed such acts
as would render [its] registration under section 823 * * * inconsistent
with the public interest,'' 21 U.S.C. 824(a)(4), is that pertaining to
the three recordkeeping violations found during the May 2006
inspection. As found above, during the inspection, the DI found that
Respondent did not have an initial inventory, see 21 CFR 1304.11(b),
had not executed a power of attorney form to indicate who was
authorized to order schedule II drugs on its behalf, Id. 1305.05(a),
and had not been completing the DEA Forms 222 to indicate the dates on
which it had received certain drugs. 21 CFR 1305.13(e).
Mr. Scharff, Respondent's Pharmacist-In-Charge, took responsibility
for these deficiencies and was found by the ALJ to have credibly
testified that they were corrected as soon as the DI brought them to
his attention. ALJ at 23. Moreover, in its brief, the Government does
not even cite these violations.
I therefore conclude that the Government has not proved that
Respondent has committed acts which render its continued registration
``inconsistent with the public interest'' as that term has been defined
by Congress for purposes of the CSA.\14\ 21
[[Page 46849]]
U.S.C. 824(a)(4). However, I conclude that the recordkeeping violations
warrant that Respondent be admonished, which shall be made a part of
Respondent's official record with the Agency.
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\14\ The ALJ recommended, however, that Respondent's
registration be ``subject to the condition that Mr. Fordham shall
have no involvement with Respondent in any capacity, including
ownership, management, or as an employee, and shall exercise no
influence or control, direct or indirect, over the operation of
Respondent.'' ALJ at 27. As noted above, in sentencing Duncan
Fordham, the United States District Court ordered Duncan Fordham
that ``he is not to be employed with or without compensation in any
pharmacy.'' GX 15, at 4.
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Order
Pursuant to the authority vested in me by 21 U.S.C. 823(f) &
824(a), as well as 28 CFR 0.100(b), I order that Terese, Inc., d/b/a/
Peach Orchard Drugs, be, and it hereby is, admonished. I further order
that the application of Terese, Inc., to renew its DEA Certificate of
Registration, be, and it hereby is, granted. This Order is effective
immediately.
Dated: July 26, 2011.
Michele M. Leonhart,
Administrator.
[FR Doc. 2011-19556 Filed 8-2-11; 8:45 am]
BILLING CODE 4410-09-P