STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

)

Petitioner, )

)

vs. ) CASE NO. 89-7004

)

WESTCHESTER PHARMACY, )

)

Respondent. )

)

RECOMMENDED ORDER

The final hearing in this case was held on September 5 and 6, 1990, in Miami, Florida, and by telephone conference call on September 24, 1990, before Donald D. Conn, Hearing Officer, Division of Administrative Hearings.

APPEARANCES

For Petitioner: David G. Pius, Esquire

Building Six, Room 233 1317 Winewood Boulevard

Tallahassee, Florida 32399-0700

For Respondent: James J. Breen, Esquire

Michael P. Scian, Esquire 900 Sun Bank Building

777 Brickell Avenue

Miami, Florida 33131 STATEMENT OF THE ISSUE

The issue in this case is whether the Department of Health and Rehabilitative Services (Petitioner) should recoup any overpayment and impose sanctions, including a fine and exclusion from participation in the Medicaid program, against Westchester Pharmacy (Respondent) for its alleged over-billing of the Medicaid program during the review period.

PRELIMINARY STATEMENT

At the hearing, the Petitioner called Robert V. Peirce, who was accepted as an expert in statistics including research methods, James Harrison, an expert in data processing systems and data processing, Steve Halleck, an expert in data processing and software systems, Li-Shiang Wu, Robert A. Ladner, Ph.D., who was accepted as an expert in statistics and research methods and design, Ray Cano, an expert in data processing, Deborah Launer, who was accepted as an expert in health care operations management, Susan F. McCleod, an expert in retail pharmacy operation and inventory, and Charles G. Ginn. The Petitioner introduced 4 exhibits.

The Respondent called Victor Pestien, Ph.D., an expert in statistics, and Francis Larin, an expert in pharmacy. The Respondent introduced 14 exhibits, including the deposition testimony of JoAnn Padell, an expert in pharmacy and conducting pharmacy audits, while one exhibit offered by the Respondent, marked as W-3, was rejected.

The transcript of the portion of the final hearing held in Miami, Florida, was filed on October 24, 1990, and the transcript of the portion of the final hearing held by conference call was filed on December 5, 1990. The parties requested, and were allowed, to file their proposed recommended orders by December 11, 1990. A ruling on each timely filed proposed finding of fact included in the parties' proposed recommended orders is included in the Appendix to this Recommended Order.

FINDINGS OF FACT

The Parties

1. The Petitioner is the state agency that administers the Florida Medicaid program, which includes pharmacies that participate in the program. The Petitioner's Office of Program Integrity is responsible for insuring that the goods and services billed to the Medicaid program are those that are actually provided to Medicaid recipients.

   
   

2. Medicaid is a joint program, funded by the federal government and by the State of Florida, and is administered pursuant to both state and federal statutes and rules. All services or goods billed to the program must be necessary, Medicaid compensable, and must also have actually been provided to eligible recipients by providers prior to submitting claims. Any payment made by the Medicaid program for goods or services not actually provided to an eligible recipient is subject to recoupment by the Petitioner, and the provider is also subject to the imposition of administrative fines and exclusion from the program for a specified period of time.

   
   

3. The Respondent is a community pharmacy located in a hispanic section of Miami, Florida, which has been owned and operated for the past six years by Frances Larin, a licensed pharmacist, who makes all drug purchases and does all Medicaid billings at the pharmacy herself. Most of Respondent's customers have limited financial resources and are Medicaid recipients. The Respondent has participated in the Medicaid program for approximately eight years, and has not previously been charged with overbilling the Medicaid program. The Respondent has cooperated fully with the Petitioner throughout these proceedings.

   
   

   Prior Review

   
   

4. From February to April 1988, the Petitioner's Office of Program Integrity had a review performed of the Respondent's billings to Medicaid from March 1, 1987 to December 31, 1987. This review was conducted for the Petitioner by the Foundation for Health Care, Inc. (Foundation), contract auditors, and resulted in the determination that the Respondent had overbilled the Medicaid program for prescription drugs dispensed to program recipients during the review period. In performing this review, the Foundation used an across-the-board Medicaid percentage of 54% in determining the available units of the various drugs on hand for dispensing to Medicaid recipients. Based upon the Foundation's review, the Petitioner sought recoupment for overpayments in the amount of $28,649.99 by letter to the Respondent dated July 20, 1988, as

   well as an administrative fine of $7,162.49, and a three month suspension from the program.

   
   

5. The Respondent timely sought a formal administrative hearing in which it disputed the results of the Foundation review. However, after the matter was referred to the Division of Administrative Hearings, the Petitioner withdrew its notice of overpayment and imposition of administrative sanctions, and thus, without a determination on the merits, the Division of Administrative Hearings file was closed and jurisdiction was relinquished to the Petitioner. Subsequently, the Petitioner entered a Final Order which provided that the Respondent would be re-audited. The Respondent timely sought judicial review of this Final Order in which it challenged that Petitioner's right to conduct a further review of the period March 1, 1987 to December 31, 1987. However, the District Court of Appeal of Florida, Third District, dismissed the Respondent's appeal, and the Petitioner proceeded with a further review.

   
   

   The KPMG Review

   
   

6. (a) For purposes of its further review, the Petitioner employed the public accounting and management consulting firm of KPMG Peat Marwick which designed a statistically valid sampling methodology to determine the Respondent's Medicaid percentage for each drug, and also to perform a management review of the Respondent. It was established by competent substantial evidence in the record, and in particular by the expert testimony in statistics from Dr. Robert Ladner and Robert Peirce, that the KPMG methodology was statistically valid.

   
   

   1. The KPMG review was conducted during the latter half of 1989, and included developing a Medicaid percentage for individual drugs based upon an analysis of prescriptions for all drugs in question to determine the portion of each drug's total sales that went to Medicaid recipients, calculating the total units claimed for each drug for which the Respondent sought reimbursement during the audit period, and calculating the total units purchased by the Respondent for each drug claimed for reimbursement during the audit period. The Medicaid percentage of each drug was then applied to total purchases for each specific drug to determine the amount of each drug that was on hand at the Respondent's pharmacy for dispensing to Medicaid recipients. This number of available units was then compared with the total units claimed for reimbursement. Where the units claimed exceeded the units available for dispensing, a positive variance was noted, and this number of excess units claimed was then multiplied by the per unit reimbursement amount for that particular drug in order to obtain the amount of the apparent overbilling for that particular drug. Where the total units available for dispensing exceeded the total units claimed for a particular drug, a negative variance was noted. It was stipulated by the parties that negative variances did not indicate underpayments, and the evidence, including specifically the testimony and report of Dr. Victor Pestien, an expert in statistics, does not establish that such negative variances should be offset against the positive variances or that they in any way reduce the positive variances.

      
      

   2. This is the first instance in which this methodology has been utilized by the Petitioner in seeking a recoupment of an alleged Medicaid overpayment from a pharmacy, and this methodology was not set forth in any rule or regulation of the Petitioner that had been adopted at any time material hereto. Previous audits used an overall Medicaid percentage to calculate the portion of a pharmacy's business that was comprised of Medicaid recipients, and the quantity of drugs that were available to them. Using a drug specific Medicaid

      percentage, however, is a more accurate and conservative approach to determining overpayments than using a fixed percentage.

      
      

   3. Based upon the consideration of all evidence in the record, it is specifically found that the greater weight of evidence establishes that the methodology used by KPMG in this review for calculating Medicaid percentages was sound and reasonable, and in no way precluded the Respondent from presenting additional competent substantial evidence to the Petitioner, or at hearing, which would have established different Medicaid percentages for particular drugs.

   
   

7. (a) The type of review conducted by KPMG is known as an aggregate analysis, a generally accepted type of statistical analysis, in which drugs that have been billed to and paid for by the Medicaid program are reviewed to determine whether the pharmacy under review purchased or otherwise acquired a sufficient quantity of drugs to justify its billings to Medicaid. Interchangeable brand-name drugs and generic equivalents were grouped together so that in conducting this review, whole equivalent groups of drugs were considered as one type of drug, regardless of differences in individual product names. To obtain a statistically random sample, prescriptions were put in numerical order and every fourth prescription for the review period was examined, and since prescriptions may be refilled for up to a year after they are originally filled, reviewers also examined every prescription for the year prior to the review period. Competent substantial evidence establishes that KPMG performed an appropriate and valid statistical analysis, and that they used an acceptable sampling methodology which produced a truly random result. The underlying assumption of this analysis is that before a drug can be claimed to have been dispensed and billed to Medicaid, the pharmacy under review must have that drug in its possession.

   
   

   (b) The approach taken by KPMG and the Petitioner was to be as conservative as possible in resolving all uncertainties and questions which arose during the course of this review in favor of the Respondent. KPMG did not conduct a financial audit of the Respondent, but did prepare a management report based upon its review of Respondent's operations during the audit period.

   
   

8. Data used by KPMG in its methodology in calculating the amount paid by Medicaid to the Respondent, the unit price of drugs dispensed, and the quantity claimed by Respondent for payment by Medicaid, was derived from computer based information provided by the Petitioner's fiscal agent. During the period of time being reviewed in this case, Electronic Data Systems (EDS) was the Petitioner's fiscal agent, while Consultec was the Petitioner's fiscal agent during the period when the KPMG review was actually being performed. When Consultec was selected as the Petitioner's fiscal agent and replaced EDS on January 1, 1989, EDS turned over its computer records to the new agent by copying all of its magnetic, computer files, along with supporting microfiche documentation, which it then provided to Consultec under the supervision of the Petitioner. Upon receipt of these magnetic tapes, Consultec placed them in a controlled environment vault, and then later converted the information on these tapes to a new format used by Consultec. It was established by competent substantial evidence that in this process, no data was added, deleted or changed in any manner. The "units claimed" data was subsequently provided by computer download from the Consultec claims data base directly to the Petitioner's Office of Program Integrity. It was established by competent substantial evidence that data regarding claims which originated with EDS passed through Consultec to the Petitioner's Office of Program Integrity unchanged. Specific information regarding Respondent, including the claimed quantity of drugs dispensed and

   amounts paid, was accessed by staff in the Office of Program Integrity, randomly verified, and then made available to KPMG. Both Consultec and EDS are nationally recognized data processing and management companies.

   
   

9. Competent substantial evidence established that the claims processing function utilized by the Petitioner in the Medicaid program during the period at issue was subject to several quality control checks to insure that claims were properly processed and appropriate payments were made. On occasion claim adjustments were made, but these were reasonable and for good cause, such as a substantiated underpayment. The computer hardware utilized in this process was reliable and properly maintained. In order to verify the data used by KPMG concerning the dollar amount of claims paid and the quantity of units of medication claimed, an "audit trail" was performed using 140 randomly selected sample claims by tracing each claim from its claim reference number to its associated remittance voucher and cancelled checks, where available. This audit trail verified that the data used as the basis for quantity claimed and total dollars paid was valid and reliable.

   
   

10. The KPMG review was not limited to the top 100 drugs, by volume claimed, during the audit period, but included each drug dispensed by the Respondent to Medicaid recipients during the audit period. In its report dated November 20, 1989, KPMG calculated a total Medicaid overpayment to Respondent of

    $30,452.59, and based thereon, the Petitioner notified the Respondent that it was seeking recoupment of this amount, as well as an administrative fine of

    $2,000 and termination from the Medicaid program for at least two years. Subsequently, however, the Petitioner and KPMG reviewed and considered additional invoices documenting additional purchases of drugs in question by the Respondent during the audit period, and prepared a revised report dated August 30, 1990. Based upon this revised report, the Petitioner sought recoupment of a revised, reduced overpayment calculated to be $21,939.93, as well as a $2,000 administrative fine and a minimum two year termination from the program, and it was on this basis that this matter proceeded to final hearing.

    
    

    The Top 100 Drugs

    
    

11. Subsequent to the final hearing, the Petitioner issued an amended recoupment letter dated October 17, 1990, which limited the recoupment it is seeking in this matter to the top 100 drugs, by dollar volume of claims, plus their generic equivalents. This resulted in the elimination of many individual drugs with relatively small overpayments from the list of overpayments, and left only five instances among these top 100 drugs where the difference between the quantity available, adjusted for standard error, and the quantity claimed is less than 100 units. In many instances the difference is well in excess of 1,000 units. The sanctions being sought in this amended recoupment letter further reduced the recoupment being sought to $12,643.11, reduced the administrative fine to $1,400, and reduced the period of exclusion from the program that is being sought to 16 months. However, due to an error in calculating the top 100 drugs and equivalents, the Petitioner issued a second amended recoupment letter dated October 26, 1990, further reducing the administrative fine sought to $1,200 and reducing the period of exclusion to 14 months.

    
    

    Inventory Analysis

    
    

12. In performing its review, KPMG obtained information concerning the quantities of drugs purchased during the review period by the Respondent directly from the pharmacy's wholesalers and from a review of invoices retained

    by the Respondent for a period that included one month prior to the review period through one month after the review period (February 1, 1987, to January 31, 1988). The effect of seasonal variations in pharmacy sales and ordering patterns was also taken into account, and balanced, by extending this period to a full twelve months. All documentation concerning drug acquisitions was requested from Respondent, and the information received and considered by KPMG and the Petitioner was checked for reasonableness by a consultant pharmacist and cross validated by two reviewers. It was stipulated by the parties that the Respondent's main wholesaler, Gulf Distribution, Inc., had and maintained accurate information and records regarding its sales to the Respondent, and that it properly transferred that information to computer disks which were provided to KPMG. Subsequent thereto, additional invoices were discovered and were also made available to KPMG. The Petitioner stipulated that these additional invoices from Gulf did not reduce the number of drug units purchased by, and invoiced to, Respondent. Pharmacies in Florida which choose to participate in the Medicaid program are required to maintain complete and accurate patient and fiscal records which fully substantiate the extent of services rendered and billings made for a period of five years from the date of billing or service, and are also required to retain all invoices from wholesalers, or from the transfer or receipt of drugs through barter or exchange, for a period of five years.

    
    

13. (a) Actual beginning and ending inventories of the top 100 drugs reviewed by KPMG for which the Petitioner now seeks recoupment in the amount of

    $12,643.11 were not determined. Rather, an estimate of inventory on hand was derived by counting invoices of all drug acquisitions through purchase, transfer or exchange made by the Respondent during the review period, as well as invoices of acquisitions made one month prior to and one month after the review period.

    Additionally, all documentation provided by the Respondent of bulk, or large, acquisitions made during or prior to the review period was also considered and included in the Petitioner's estimate of inventory.

    
    

    1. It was established by competent substantial evidence that pharmacies generally keep a drug inventory consisting of a two to two-and-a-half week supply on hand, and acquire drugs in anticipation of future sales rather than as a replacement of inventory depletion from past sales. Therefore, a basic assumption of the KPMG methodology, relied upon and accepted by the Petitioner, that Respondent had only those drugs available for dispensing which were obtained by invoiced purchase from wholesalers, or through transfer or exchange, between February 1, 1987 and January 31, 1988, as well as documented invoiced bulk purchases prior to this time period, is reasonable.

       
       

    2. At hearing, the Respondent established that a significant quantity of nine specific drugs were purchased during the review period from suppliers other than Gulf that were not considered by KPMG. These drugs include Xanax (.5 mg.), Inderal (10 mg.), Tagamet (300 mg.), Nitrostat (.4 mg.), Trental (400 mg.), Motrin (400 mg.), Motrin (600 mg.), Quinamm (260 mg.), and Quinidine Sulfate (200 mg.). It is, therefore, found that the overpayment of $2,902.19 calculated by KPMG and relied upon by the Petitioner for these particular drugs has not been supported by competent substantial evidence.

    
    

14. Frances Larin, Respondent's owner and operator, testified that she did not follow the generally accepted practice of retaining only a two to two-and-a- half week supply of drugs on hand. Rather, she testified that for a significant number of the top 100 drugs at issue in this proceeding, she would purchase large quantites in bulk, and was thus able to draw down on these inventories without making additional purchases of particular drugs for over a year. The

    Respondent sought to establish that due to very large beginning inventories of particular drugs at issue, it was able to legitimately dispense more units during the review period than it purchased during the same time. However, the Respondent did not produce evidence in support of its position, such as invoices for bulk purchases which KPMG or the Petitioner did not consider, or complete records of bartering or transfers which had not been considered, and which would have supported its claim of a significantly larger beginning inventory for these particular drugs than would be the generally accepted practice. To the contrary, competent substantial evidence in the record, as well as the demeanor of Larin while testifying, establishes that Respondent's claim is unreasonable and lacks credibility. The deposition testimony of JoAnn Padell is outweighed by the testimony of Deborah Launer, Susan McCleod, and Robert Peirce. A review of the Respondent's purchasing patterns clearly shows that Respondent generally and routinely kept low inventories of drugs on hand, placing daily orders with Gulf to obtain drugs on an as-needed basis.

    
    

    Recoupment

    
    

15. Based upon the foregoing, it is found that competent substantial evidence establishes that the Respondent overbilled the Medicaid program during the review period at issue in this case in the amount of $9,740.92 ($12,643.11 claimed in the second amended recoupment letter minus the $2,902.19 claim associated with the nine specific drugs for which significant purchases were omitted from the KPMG review, as found above at Finding 13). Petitioner is authorized to recoup the established overpayment of $9,740.92 from the Respondent.

    
    

    Sanctions

    
    

16. (a) In determining the sanctions stated in the second amended recoupment letter which Petitioner seeks to impose upon the Respondent, the Petitioner considered the provisions of Section 409.266(13), Florida Statutes, as well as the impact which sanctioning this Medicaid provider would have upon Medicaid recipients. Competent substantial evidence establishes that there are eight pharmacies which accept Medicaid within a one mile radius from the Respondent's location, and twenty-six such pharmacies within a two mile radius. Medicaid recipients are issued new cards each month and may transfer pharmacies at the beginning of each month. Therefore, it is found that Medicaid recipients would not be substantially affected by the imposition of sanctions upon the Respondent.

    
    

    1. The parties stipulated that the sanction matrix set forth in Rule10C- 7.063, Florida Administrative Code, was not applied by the Petitioner against the Respondent in this case because it was not in effect at the time of this review. The sanctions which the Petitioner seeks to impose against the Respondent, therefore, are based upon non-rule policy which must be explicated in this proceeding. In seeking to explicate its non-rule policy upon which the sanctions set forth in the second amended recoupment letter are based, the Petitioner established that it was concerned that sanctions imposed in prior cases, as well as in the original recoupment letter which had been sent to the Respondent in this case, had been too lenient in view of the seriousness of Medicaid violations.

       
       

    2. The Petitioner developed its non-rule sanctions policy after the KPMG review had been completed, and based its proposal upon the maximum sanctions set forth in state and federal statutes and rules. Specifically, Section 409.266(12), Florida Statutes, provides for a maximum fine of $10,000; the

       maximum exclusion period applied in previous cases by the Office of Program Integrity is ten years, and the minimum exclusionary period imposed by the federal government has been five years for the failure to supply payment information. At hearing, the Petitioner explained that it first determined the percent of Respondent's total Medicaid payments that the overpayment represented, and then applied that percentage to these maximum sanctions allowed under law and existing policy. The overpayment of $12,643.11 claimed by the Petitioner in its second amended letter of recoupment is 12% of the total payment of $100,397.88 made by the Petitioner to Respondent for the review period, and 12% of the maximum fine and exclusion period is $1,200 and 14 months, respectively.

       
       

    3. While the Petitioner explained the manner by which this exclusionary period and fine were calculated, it did not explicate its non-rule policy by establishing a reasonable, rational basis for applying the percentage of Medicaid overbillings to the maximum fine and exclusionary period. Certainly, the arithmetic calculation used to arrive at these proposed sanctions is clear, but there was no explication through competent substantial evidence which would establish that there is a basis in fact or logic for this calculation. Therefore, it is found that the Petitioner's non-rule policy used to propose these sanctions is arbitrary and capricious. Due to the lack of any evidentiary basis in the record which would support the imposition of the sanctions of an administrative fine or a period of exclusion from the Medicaid program, the Petitioner is not authorized to impose sanctions on the Respondent.

       
       

       CONCLUSIONS OF LAW

       
       

17. The Division of Administrative Hearings has jurisdiction over the parties, and the subject matter in this cause. Section 120.57(1), Florida Statutes. Since this is a case in which the Petitioner is seeking to establish that the Respondent over-billed the Medicaid program for drugs provided to Medicaid recipients, the Petitioner has the burden of proving this allegation by a preponderance of the evidence. Florida Department of Transportation v. J.W.C. Co., Inc., 396 So.2d 778 (Fla. 1st DCA 1981); Balino v. Department of Health and Rehabilitative Services, 348 So.2d 349 (Fla. 1st DCA 1977).

    
    

18. The Petitioner is required to take all necessary steps to recover Medicaid payments paid to providers through fraud or mistake, including recoupment and withholding of reimbursement payments until any overpayment is recovered. Sections 409.266(14) and 409.335(1) and (2), Florida Statutes. In addition, sanctions may be imposed which include an administrative fine of up to

    $10,000, suspension from the program for a period of one year, termination from the program, a requirement for prepayment review of all claims prior to approval for payment, and imposition of the requirement that the provider participate in a provider education program. Section 409.266(12), Florida Statutes. Sanctions may be imposed on a provider participating in the Medicaid program for the specified grounds set forth in Section 409.266(11), including the failure to comply with Petitioner's policies and formally adopted administrative rules.

    Section 409.266(11)(g). In determining the appropriate administrative sanction to be applied, the factors enumerated in Section 409.266(13) must be considered.

    
    

19. The Petitioner has adopted Rule 10C-7.030(7), Florida Adminstrative Code, which provides that all services or goods billed to the Medicaid program must have been actually provided to recipients prior to the submission of a claim. Medicaid providers are required to maintain, for a period of five years from the date of billing, complete and accurate records that fully justify and disclose the extent of services rendered and billings made, and to furnish the

    Petitioner with all information regarding claims for the purpose of claims audit and review. See Rules 10C-7.030(8) and 10C-7.042(16)(a), Florida Administrative Code.

    
    

20. Rule 10C-7.061, Florida Administrative Code, governs the determination of Medicaid overpayments, and in pertinent part provides at subsection (4) as follows:

    
    

    10C-7.061 (4) Determination of Overpayments.--

    * * *

    1. Statistical Calculation. If it is not reasonably possible to examine every paid claim of a provider for a given period of time in order to compare the amount actually paid with the amount that should have been paid, generally accepted statistical methods may be employed to determine the amount of the overpayment for the total population of claims. . . . From this population of claims, or appropriate subset of the population,

       a statistically representative sample will be taken. . . .

    2. Aggregate Analysis. Upon reasonable request, a provider of goods that are billed to and paid for by the Medicaid program must furnish to authorized auditors, investigators, and agents invoices and other information directly related to inventory or acquisition of goods from suppliers and other documentation demonstrating that the provider had available during the audit period sufficient quantities of such goods to support billings to Medicaid. Such information and documentation . . . shall include purchase, barter and inventory records and the names of major suppliers. . . . Purchase and barter documentation will be considered to the extent furnished by the provider. . . .

    
    

21. A preponderance of the evidence in this case, and in particular the expert testimony in statistics of Dr. Robert Ladner and Robert Peirce, establishes that KPMG and the Petitioner utilized generally accepted statistical sampling methods and aggregate analysis in conducting their review of the Respondent's Medicaid billings. Therefore, this review was conducted in a manner consistent and in compliance with Rule 10C-7.061, above.

    
    

22. The Petitioner has limited its request for recoupment to the top 100 drugs, and based thereon, claims that the Respondent overbilled the Medicaid program $12,643.11 during the review period. However, the Respondent introduced competent substantial evidence at hearing to establish that significant purchases of nine specific drugs were not considered by KPMG or the Petitioner, and that the overbillings attributed to these nine drugs totaled $2,902.19. The Petitioner did not rebut this additional evidence, or present any basis upon which its allegation of overbilling regarding these nine drugs could be supported, in view of this additional documentation. Therefore, while the Petitioner has established its entitlement to recoupment, the preponderance of evidence in this record supports recoupement only in the amount of $9,740.92

    ($12,643.11 claimed in the Petitioner's second amended recoupment letter minus the $2,902.19 claim associated with the nine specific drugs for which significant purchases were omitted from the review).

    
    

23. The Petitioner has also shown that the Respondent has failed to maintain complete and accurate records of purchases of drugs from suppliers, as well as bartered exchanges, for a period of five years from billings. Therefore, it was unable to provide the Petitioner with complete documentation supporting all billings during the review period. Notwithstanding the cooperative attitude evidenced by the Respondent's owner and operator, Francis Larin, during this proceeding, the Respondent has failed to comply with Rules 10C-7.030(8) and 10C-7.042(16), Florida Administrative Code.

    
    

24. Since the Petitioner has established its entitlement to recoupment, and also the Respondent's failure to comply with the record keeping requirements of Rules 10C-7.030(8) and 10C-7.042(16), the consideration of administrative sanctions is appropriate. The Petitioner does not rely upon any formally adopted administrative rule or prior agency practice for the imposition of sanctions against the Respondent in this case. Rather, the Petitioner has specifically relied solely upon its explication at hearing of a non-rule sanctions policy which it has sought to apply for the first time against the Respondent.

    
    

25. The Respondent argues that prior agency decisions, such as in David's Pharmacy v. Department of Health and Rehabilitative Services, 11 F.A.L.R. 2935 (DHRS 1988), and positions taken by the Petitioner regarding sanctions which it sought to impose on the Respondent at prior stages of this proceeding, are relevant and should be considered in determining whether the Petitioner has explicated its non-rule policy for the sanctions which the Petitioner now seeks to impose, an administrative fine of $1,200 and exclusionary period of 14 months. However, the Petitioner has reasonably explained that because it determined that sanctions imposed in previous cases were too lenient, it relies in this case solely upon an incipient non-rule policy which it sought to explicate at hearing. The Petitioner is not bound to forever follow its prior sanctions practice if it adopts a formal administrative rule or explicates an incipient non-rule policy establishing a rational basis for the imposition of differing sanctions. There is no reliance by the Petitioner on a formally adopted sanctions rule in this case, but rather, it seeks to explicate a non- rule policy that imposes sanctions based upon the application of the percentage of Medicaid overbillings to the maximum fine and exclusionary period allowed under Section 409.266(12), Florida Statutes, and prior practice. Therefore, it is concluded that sanctions imposed in prior cases and in previous stages of this proceeding, such as in the original letter of recoupment, are irrelevant and immaterial to the determination of the appropriateness of the sanctions which the Petitioner has sought in its second amended letter of recoupment.

    
    

26. It is, of course, well settled that not every expression of agency policy must be codified in formally adopted rules, and that incipient non-rule policies must be fully explicated at hearing in order to be applied. McDonald

    v. Department of Banking and Finance, 346 So.2d 569 (Fla. 1st DCA 1977); Department of Commerce v. Matthews Corp., 358 So.2d 256, 259 (Fla. 1st DCA 1978). In order to "explicate" its non-rule policy, an agency must do more than simply explain how it arrived at, and developed, the policy. It must establish a rational basis, in law and fact, for its policy such that it can be shown that its non-rule policy is neither arbitrary nor capricious, and is properly within the scope of the agency's delegated authority.

27. The only evidence offered by the Petitioner to explicate its non-rule sanctions policy utilized in this case consisted of testimony which explained the arithmetic calculation by which Respondent's 12% Medicaid overbillings was applied to the $10,000 maximum fine and 10 year exclusionary period to arrive at the proposed sanctions. However, this explanation does not establish a rational basis for this non-rule policy. Rather, it leads to apparently inconsistent and illogical results when applied to varying factual situations such that it must be concluded that it is both arbitrary and capricious.

    
    

28. For example, providers with the same percentage of Medicaid overbillings would be subject to the same sanctions, regardless of the volume of Medicaid drugs dispensed or the number of their unsubstantiated claims. Thus, two different providers that had overbilled the Medicaid program 10% of their total claims would each be subject to sanctions of a $1,000 administrative fine and a 12 month period of exclusion, even though one provider may have had claims of only $10,000 and the other had claims of $500,000. The first provider would have overbilled the Medicaid program in the amount of $1,000, while the second would have had overbillings of $50,000. Under these circumstances, it is obvious that the second provider's overbillings would have been far more extensive, and would have adversely affected the Medicaid program to a far greater extent than the first, due to the fact that it would have unlawfully depleted Medicaid funds to an extent fifty times greater than the impact of the first provider's overbillings. Nevertheless, the sanctions to be imposed on each would be the same under the Petitioner's non-rule policy.

    
    

29. On the other hand, if two different providers overbilled the Medicaid program in the exact same dollar amount, their sanctions could be substantially different depending upon their total volume of Medicaid claims. Specifically, if both providers overbilled the program in the amount of $50,000, but the first had total billings of $500,000 and the second had claims of only $100,000, the first would face sanctions of only $1,000 and a one year exclusion, while the second would be subject to a fine of $5,000 and exclusion for 5 years. However, in both cases, the adverse impact on the Medicaid program resulting from $50,000 in unlawful overbillings would have been the same.

    
    

30. The disparate treatment of similarly situated providers, and the failure of this non-rule policy to recognize or consider the impact on the Medicaid program resulting from the extent of overbillings by particular providers, raise questions which are not addressed or satisfied by the evidence in this record. It is particularly significant that Section 409.266(13), Florida Statutes, requires that the seriousness and extent of overbillings or other program violations be considered in determining appropriate sanctions to be applied against particular providers. Since the Petitioner has failed to explicate its non-rule policy in a manner which would address its apparent illogical results under the examples cited above, as well as its inconsistency with Section 409.266(13), it is concluded that the Petitioner has failed to properly explicate its non-rule sanctions policy, and may, therefore, not impose sanctions against the Respondent in this case based thereon.

RECOMMENDATION

Based upon the foregoing, it is recommended that Petitioner enter a Final Order which requires that Respondent to repay the Petitioner for Medicaid overbillings in the amount of $9,704.92, but which does not impose sanctions consisting of either an administrative fine or period of exclusion.

DONE AND ENTERED this 18th day of January, 1991 in Tallahassee, Florida.

DONALD D. CONN

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

Filed with the Clerk of the Division of Administrative Hearings this 18th day of January, 1991.

APPENDIX TO RECOMMENDED ORDER

Rulings on the Petitioner's Proposed Findings of Fact:

1. Adopted in Finding 1.

2. Adopted in Finding 2.

3. Adopted in Finding 3.

4. Adopted in Finding 1.

5. Adopted in Finding 4.

6. Adopted in Findings 4 and 5.

7-10. Adopted in Findings 6 and 7, but otherwise Rejected as unnecessary.

11-17. Rejected as unnecessary.

18-20. Adopted in Findings 6 and 7.

21-24. Adopted in Finding 12.

25. Adopted in Finding 2.

26-28. This is a conclusion of law and not a proposed finding. 29-30. Adopted in Finding 8.

31-32. Adopted in Findings 7 and 10.

1. Adopted in Finding 6.

2. Rejected as unnecessary. 35-39. Adopted in Finding 7.

40-47. Adopted in Finding 7, but otherwise Rejected as unnecessary.

48. Rejected as unnecessary and immaterial

49-51. Adopted in Finding 7, but otherwise Rejected as unnecessary.

52-53. Rejected as unnecessary.

54-63. Adopted in Finding 12, but otherwise Rejected as unnecessary.

1. Adopted in Finding 8.

2. Adopted in Finding 9.

66-67. Adopted in Finding 8, but otherwise Rejected as unnecessary.

68-69. Adopted in Finding 9.

70-78. Adopted in Finding 8, but otherwise Rejected as unnecessary.

79-82. Adopted in Finding 8.

83-85. Rejected as unnecessary.

86-93. Adopted in Finding 13, but otherwise Rejected as unnecessary.

94-97. Adopted in Finding 14, but otherwise Rejected as unnecessary.

98-103. Adopted in Finding 14.

104-105 Rejected as unnecessary and immaterial. 106-107 Adopted in Finding 12.

108. Adopted in Findings 12 and 13.

109-112 Rejected as unnecessary and immaterial.

113-115 Adopted in Finding 13, but otherwise Rejected as immaterial.

1. This is a conclusion of law and not a proposed finding.

2. Adopted in Finding 11.

118-119 Rejected as unnecessary and immaterial 120-122 Adopted in Finding 11.

1. Rejected as unnecessary.

2. Adopted in Finding 6. 125-128 Rejected as unnecessary.

129. Adopted in Finding 6. 130-132 Adopted in Finding 9.

1. Adopted in Finding 11.

2. This is a conclusion of law and not a proposed finding. 135-147 Adopted in Finding 16, but otherwise Rejected as

unnecessary and immaterial.

148. Adopted in Finding 11.

149-150 Adopted in Finding 16, but otherwise Rejected as unnecessary.

151-152 Rejected as unnecessary.

153. Rejected as unnecessary and cumulative.

Rulings on the Respondent's Proposed Findings of Fact:

1. Adopted in Finding 4.

2-3. Adopted in Finding 5, but otherwise Rejected as unnecessary and not based on competent substantial evidence.

4-5. Adopted in Findings 3, 6 and 7.

6-7. Adopted in Finding 10, but otherwise Rejected as unnecessary.

8-9. Adopted in Finding 11.

10-11. Adopted in Finding 3, but otherwise Rejected as unnecessary.

1. Adopted in Finding 6.

2. Rejected as immaterial and unnecessary.

14-15. Rejected as argument on the evidence rather than a proposed finding, and otherwise as not based on competent substantial evidence.

1. Adopted in Finding 7, but otherwise Rejected as argument on the evidence rather than a proposed finding.

2. Rejected as repetitive and otherwise as immaterial.

3. Adopted in Finding 13, but Rejected in Finding 14 and otherwise as argument on the evidence rather than a proposed finding and as not based on competent substantial evidence.

4. Rejected in Finding 14, as immaterial, speculative, and as not based on competent substantial evidence.

20-21. Rejected in Finding 6, as immaterial, and as not based on competent substantial evidence.

22-23. Rejected in Findings 13 and 14, and otherwise as immaterial and not based on competent substantial evidence.

1. Rejected as repetitive and otherwise as argument on the evidence rather than a proposed finding.

2. Rejected in Findings 13 and 14.

26-30. Rejected as a statement of the Respondent's position and not a proposed finding, as speculative and contrary

to competent substantial evidence, and as totally without citation to authority in the record as required by

Rule 22I-6.031(3), Florida Administrative Code.

31-35. Rejected in Finding 6, and as not based on competent substantial evidence and as unnecessary.

36-38. Adopted in Findings 12 and 13.

39-41. Adopted in Finding 8.

42. Rejected as immaterial. 43-44. Rejected in Finding 9.

45. Rejected as simply a summation of testimony and not a proposed finding.

46-48. Rejected in Finding 9, and otherwise as immaterial and not based on competent substantial evidence.

49-50. Rejected as unnecessary and immaterial.

51. Adopted in Finding 16, but otherwise Rejected as immaterial.

52-53. Rejected as unnecessary and immaterial.

1. Rejected as not based on competent substantial evidence.

2. Adopted and Rejected in part in Finding 16. 56-57. Adopted in Finding 16.

58-61. Rejected as immaterial and irrelevant.

62. Adopted and Rejected in part in Finding 15.

COPIES FURNISHED:

David G. Pius, Esquire Building Six, Room 233 1317 Winewood Boulevard

Tallahassee, FL 32399-0700

James J. Breen, Esquire Michael P. Scian, Esquire 900 Sun Bank Building

777 Brickell Avenue

Miami, FL 33131

R. S. Power, Agency Clerk 1323 Winewood Boulevard Tallahassee, FL 32399-0700

Linda Harris, Acting General Counsel 1323 Winewood Boulevard

Tallahassee, FL 32399-0700

Robert B. Williams, Acting Secretary 1323 Winewood Boulevard

Tallahassee, FL 32399-0700

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the Final Order in this case concerning agency rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the Final Order in this case.

Docket for Case No: 89-007004

Orders for Case No: 89-007004