05-002277MPI Disney Medical Equipment, Inc., D/B/A Disney Pharmacy Discount vs. Agency For Health Care Administration Status: Closed Recommended Order on Tuesday, April 11, 2006.

Summary: Petitioner must reimburse Respondent for amounts from the Florida Medicaid Program in payment of claims for dispensing compound drugs between July 3, 2000 and March 28, 2002, which were received as a result of a pattern and practice of improper claiming.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DISNEY MEDICAL EQUIPMENT, INC., )

d/b/a DISNEY PHARMACY DISCOUNT, )

)

Petitioner, )

) Case No. 05 - 2277MPI

vs. )

)

AGENCY FOR HEALTH CARE )

ADMINISTRATION, )

)

Respondent. )

)

RECOMMENDED ORDER

This case came before Administrative Law Judge John G.

Van Laningham for final hearing on January 11, 2006, in

Tallahassee, Florida.

APPEARANCES

For Petitioner: William M. Furlow, III, Esquire

Ake rman Senterfitt

106 East College Avenue, Suite 1200

Tallahassee, Florida 32301

For Respondent: Jeffries H. Duvall, Esquire

Agency for Health Care Administration

Fort Knox Building III, Mail Station 3

2727 Mah an Drive

Tallahassee, Florida 32308

STATEMENT OF THE ISSUE

The issue for determination is whether Petitioner must

reimburse Respondent an amount up to $ 1,676,390.45 , which sum

Petitioner received from the Florida Medicaid Program in payment

of c laims arising from Petitioner's dispensing of

pharmaceuticals between July 3 , 2000 and March 28 , 2002.

Respondent alleges that the amount in controversy represents an

overpayment related to Petitioner's failure to demonstrate the

availability of sufficien t quantities of drugs to support its

billings to the Medicaid program .

PRELIMINARY STATEMENT

Respondent Agency for Health Care Administration is the

agency responsible for administering the Florida Medicaid

Program. Petitioner Disney Medical Equipment, Inc., d/b/a

Disney Pharmacy Discount , is a Medicaid provider.

After auditing Petitioner's claims - payment history ,

purchase invoices, and other records, Respondent issued a Final

Agency Audit Report on December 29 , 2004, wherein it alleged

that Petitioner h ad been overpaid $ 1,676,390.45 for Medicaid

claims arising from Petitioner's dispensing of drugs to Medicaid

recipients. In a Petition for Hearing dated January 6, 2005 ,

Petitioner requested an administrative hearing on the

overpayment assessment. Respon dent referred this pleading to

the Division of Administrative Hearings on June 22 , 2005.

At the final hearing, which took place as scheduled on

January 11, 2006 , with both parties present, Respondent

presented two witnesses, namely its employees Kenneth Yon and

Kathryn Holland . Respondent also offered 1 3 exhibits,

identi fied as Respondent's Exhibits 1 - 13, which were admitted

into evidence.

Petitioner called Sara Padron as its only witnesses and

offered Petitioner's E xhibits 1 - 22 , 25 - 32, which were rece ived

into evidence.

The undersigned agreed to take official recognition of all

applicable Florida Statutes, Florida Administrative Code Rules,

and Medicaid handbooks.

The final hearing transcript was filed on January 25 , 200 6 .

The parties timely filed p roposed recommended orders on the

established deadline, which (after enlargements ) was March 13,

2006 . These papers were carefully considered in the preparation

of this Recommended Order.

Unless otherwise indicated, citations to the Florida

Statutes refer to the 2005 Florida Statutes.

FINDINGS OF FACT

1. Respondent Agency for Health Care Administration

("AHCA" or the "Agency") is the state agency responsible for

administering the Florida Medicaid Program ("Medicaid").

2. Petitioner Disney Medi cal Equipment, Inc., d/b/a Disney

Pharmacy Discount ("Disney Pharmacy"), was, at all relevant

times, a Medicaid provider authorized, pursuant to contracts it

had entered into with the Agency known as Provider Agreements,

to receive reimbursement for covere d services rendered to

Medicaid beneficiaries.

3. Exercising its statutory authority to oversee the

integrity of Medicaid, the Agency directed its agent, Heritage

Information Systems, Inc. ("Heritage"), to conduct an audit of

Disney Pharmacy's records to verify that claims paid by Medicaid

during the period from July 3, 2000 to March 28, 2002 (the

"Audit Period") had not exceeded authorized amounts.

4. Over the course of four days in May 2002, three of

Heritage's auditors reviewed records on - site at D isney

Pharmacy's drugstore in Hialeah, Florida; they also interviewed

some of the store's personnel. Thereafter, Heritage analyzed

the data it had collected using several different approaches.

Each approach pointed to the conclusion that Medicaid had pai d

too much on claims submitted by Disney Pharmacy during the Audit

Period. The total amount of the alleged overpayment differed

substantially, however, depending on the analytical approach

taken.

5. The approach that yielded the largest apparent

overpa yment was the "prorated purchase invoice" analysis.

Generally speaking, under this approach, the volume of

pharmaceuticals that the provider maintained in its inventory

during the Audit Period is compared to the provider's

contemporaneous Medicaid claims to determine whether the

provider possessed enough of the relevant pharmaceuticals to

support the Medicaid claims presented. If the total amount

purportedly dispensed, according to the claims made in

connection with a particular drug, exceed s the amount o f that

drug available at the time for dispensing, then an inference of

impropriety arise s with regard to those claims for which product

was apparently unavailable ; the Agency considers amounts paid on

such claims to be overpayments.

6. To determine the quantities of certain drugs that

Disney Pharmacy had kept on hand during the Audit Period,

Heritage tallied up the total number of "units" of selected

drugs that Disney Pharmacy had acquired, using as a database the

invoices reflecting Disney Pharmacy's p urchases of the drugs

under review. Heritage then ascertained —— again using Disney

Pharmacy's records —— the utilization rate of Medicaid

beneficiaries for each of the pharmaceuticals under

consideration. In other words, Heritage determined, for each

drug a t issue, the relative demand —— expressed as a percentage of

the total number of units of that drug dispensed to all

customers during the Audit Period —— attributable to Medicaid

beneficiaries. Heritage found, for example, that Medicaid

recipients accounted f or 55.13% of Disney Pharmacy's total sales

of the drug Acetylcysteine - 10% solution ("Acetylcysteine")

during the Audit Period.

7. Having calculated the total amount of each drug at

issue that Disney Pharmacy had acquired during the Audit Period,

and havin g further determined for each such drug the Medicaid

utilization rate, Heritage multiplied the total number of

available units of each drug by the applicable utilization rate,

prorating the entire supply of each drug to reflect the

approximate number of un its available for dispensin g to Medicaid

recipients specifically. For example, Disney Pharmacy's records

showed that it had purchased a total of 121,440 units of

Acetylcysteine during the Audit Period. Disney Pharmacy's

records showed, additionally, that this drug was dispensed to

Medicaid beneficiaries 55.13% of the time. Thus, the prorated

quantity of Acetylcysteine available for Medicaid recipients was

approximately 66,950 units (121,440 x 0.5513).

8. The prorated number of available units of each su bject

drug was compared to the total number of units for which

Medicaid had reimbursed Disney Pharmacy during the Audit Period.

For Acetylcysteine, these figures were 66,950 and 1,076,070,

respectively. If the total number of units for which Medicaid

had paid on claims for a particular drug were found to exceed

the amount of that drug which Disney Pharmacy apparently had on

hand —— as it did for Acetylcysteine —— then the inventory

shortfall —— 1,009,120 units in the case of Acetylcysteine —— was

multiplied by th e drug's average per - unit cost to Medicaid,

producing a drug - specific apparent overcharge. Thus, for

example, because the average cost of Acetylcysteine was $0.65

per unit, the apparent overcharge with respect to this drug was

$655,928.00.

9. Using the foregoing approach, Heritage identified

apparent overcharges in connection with 13 drugs. The sum of

these drug - specific overcharges is $1,676,390.45. Two drugs ——

Acetylcysteine and Ipratropium Solution ("Ipratropium") —— account

for nearly 93% of this gr and total. Two other drugs —— Albuterol -

0.83% ("Albuterol") and Metaproterenol - 0.4% ("Metaproterenol") ——

account for another 7.0% of the total alleged overcharge. These

four drugs —— whose individual overcharges, taken together,

comprise approximately 99.8% o f the total alleged overcharge of

$1,676,390.45 —— are used for treating breathing disorders and

typically are inhaled by the patients who use them. i

10. There is no genuine dispute regarding the reason why

Disney Pharmacy was unable to document its acquis ition of

Acetylcysteine, Ipratropium, Albuterol, and Metaproterenol

(collectively the "Inhalation Therapy Drugs") in quantities

sufficient to support its claims to Medicaid for these

pharmaceuticals. During the Audit Period, Disney Pharmacy

generally fill ed prescriptions for the Inhalation Therapy Drugs

by "compounding" the prescribed medications. (Compounding is a

process whereby the pharmacist mixes or combines ingredients to

fashion a tailor - made medication for the patient.) Thus, Disney

Pharmacy (for the most part) did not purchase the commercially

available versions o f the Inhalation Therapy Drugs ; rather, it

created its own "generic copies" of these medications,

purchasing only the raw materials needed to make finished

products.

11. Medicaid reimb urses for compound drugs under certain

conditions, which will be spelled out below. But first: it is

undisputed that Disney Pharmacy did not submit claims for

compound drugs. Instead, in presenting claims to Medicaid for

the Inhalation Therapy Drugs, Disney Pharmacy billed the

medications under their respective National Drug Code ("NDC")

numbers, as though commercially manufactured drug products had

been dispensed. (An NDC is an 11 - digit number, unique to each

commercially available pharmaceutical, wh ich identifies the

manufacturer, product, and package size.) As a result, Med icaid

paid Disney Pharmacy for mass produced products when, in fact,

the pharmacy actually had dispensed its own homemade copies

thereof.

12. According to the Prescribed Drug Coverage, Limitations

and Reimbursement Handbook ("Medicaid Handbook"), which

authoritatively sets forth the terms and conditions under which

Medicaid reimburses providers for dispensing pharmaceuticals,

Medicaid may pay for a compound drug if the followi ng criteria

are met:

• At least one pharmaceutical is a

reimbursable legend drug;

• The finished product is not otherwise

commercially available; and

• The finished product is being prepared to

treat a specific recipient's

condition.

Med icaid Handbook at 9 - 16. ii To present a claim for a compound

drug, the provider must adhere to the following instructions:

Compound drug codes must be submitted on

paper Pharmacy 061 claim forms, because they

are reviewed and manually priced by

Medicaid.

W hen billing for a compound drug, enter one

of the following compound drug codes. More

than one code is available so that more than

one compound can be dispensed to a recipient

on the same day without using the same

number.

55555 - 5555 - 55 66666 - 6666 - 66

777 77 - 7777 - 77 88888 - 8888 - 88

Id.

13. Disney Pharmacy attempts to defend its failure to

follow the unambiguous instructions for billing compound drugs

by explaining that, before commencing the practice of

compounding, the provider's owner, Sara Padron, mad e a telephone

call to AHCA to ask for guidance on submitting claims for drugs

created on - site. Ms. Padron testified at hearing that the AHCA

employee with whom she spoke had told her to present claims for

compound drugs by billing for the manufactured pro ducts that

they most resembled, using the manufactured products' NDC

numbers. Ms. Padron could not identify the person who

purportedly gave her this plainly incorrect advice.

14. Ms. Padron's testimony in this regard was not

contradicted —— although in f airness to the Agency hers wa s the

kind of testimony that resists direct evidential challenge,

forcing an opponent to stress the implausibility of the clai m as

a means of discrediting it . Ms. Padron's account cannot simply

be dismissed as incredible, for an AHCA employee undoubtedly

could give an incorrect answer to a provider's question . But

even assuming that Ms. Padron reached a person whom one

reasonably could suppose to be knowledgeable about Medicaid

billing procedures, and further assuming Ms. Padr on asked a

clear question which fairly and accurately described the

situation, neither of which was proved or should be taken for

granted, t he undersigned remains skeptical that Ms. Padron was

instructed to bill for compound drugs as if billing for their

c ommercially available counterparts: the advice is just too

obviously wrong.

15. It is not necessary, however, to accept or reject Ms.

Padron's testimony concerning the "official" answer she says she

received because even if Ms. Padron were told to bil l for

compound drugs as though manufactured products had been

dispensed, no reasonable provider could have relied upon such a

dubious oral representation. The statement, for starters, is an

invitation to commit fraud. Common sense should inform any

reaso nable provider that a claim for something other than what

was actually delivered will, if discovered, almost certainly be

viewed as deceptive (or worse) by the payor. Additionally, the

alleged statement attributed to AHCA's employee contradicts the

plain instructions in the Medicaid Handbook on that very

subject. No provider can reasonably rely upon verbal advice,

given anonymously (or functionally so, since the advisor's name,

if given, was evidently easily forgotten) over the telephone,

which contravene s the clear language of the Medicaid Handbook.

16. Disney Pharmacy's other defenses are likewise

unpersuasive. Disney Pharmacy maintains that compounding the

drugs in question substantially benefited the patients who

received them, which is probably tru e —— but certainly beside the

point. The problem here is not with the practice of compounding

per se; the problem is that Disney Pharmacy sought and received

reimbursement from Medicaid for mass produced, commercially

available drugs that had not actually b een dispensed. For the

same reason, it is irrelevant, even if likely true, that the

Board of Pharmacy, which periodically inspects Disney Pharmacy,

never objected to the compounding that was occur ring at the

premises. Again, to be clear, the problem is n ot that the

compounding was improper, but that the Medicaid billing was

improper.

CONCLUSIONS OF LAW

1 7. The Division of Administrative Hearings has personal

and subject matter jurisdiction in this proceeding pursuant to

Sections 120.569 and 120.57(1), Florida Statutes.

18. The specific charge against Disney Pharmacy is that it

failed "to demonstrate that it had available during a specific

audit or review period sufficient quantities of goods . . . to

support the provider's billings to the Medicaid prog ram."

§ 409.913(15)(n), Fla. Stat. It is found and concluded that

AHCA proved this charge; indeed, Disney Pharmacy admitted that

it had not purchased the Inhalation Therapy Drugs, in their

commercially available forms, in quantities sufficient to

suppor t its billings for such goods. What Disney Pharmacy

bought —— but did not bill for —— were the ingredients needed to

make the Inhalation Therapy Drugs.

19. A provider's failure to demonstrate that it possessed

sufficient quantities of goods is punishable by "any remedy

provided by law, including, but not limited to, the remedies

provided in subsections (13) and (16) [of Section 409.913] and

[in] s. 812.035." § 409.913(15).

20. The Agency has not sought any of the remedies provided

in subsections (13) or (16) of Section 409.913, nor has it

sought relief under Section 812.035, Florida Statutes. Instead,

the Agency is traveling under the theory that Disney Pharmacy

received "overpayments."

21. The Agency is empowered to "recover overpayments . . .

as ap propriate." § 409.913, Fla. Stat. Thus, the recovery of

overpayments is a "remedy provided by law."

22. An "overpayment" includes "any amount that is not

authorized to be paid by the Medicaid program whether paid as a

result of inaccurate or improper co st reporting, improper

claiming, unacceptable practices, fraud, abuse, or mistake."

§ 409.913(1)(e), Fla. Stat.

2 3 . The burden of establishing an alleged Medicaid

overpayment by a preponderance of the evidence falls on the

Agency. South Medical Servi ces, Inc. v. Agency for Health Care

Admin. , 653 So. 2d 440, 441 (Fla. 3d DCA 1995); Southpointe

Pharmacy v. Department of Health and Rehabilitative Services ,

596 So. 2d 106, 109 (Fla. 1st DCA 1992).

24 . Although the Agency bears the ultimate burden of

p ersuasion and thus must present a prima facie case through the

introduction of competent substantial evidence before the

provider is required to respond, Section 409.913(22), Florida

Statutes, provides that "[t]he audit report, supported by agency

work pap ers, showing an overpayment to the provider constitutes

evidence of the overpayment." Thus, the Agency can make a prima

facie case by proffering a properly supported audit report,

which must be received in evidence. See Maz Pharmaceuticals,

Inc. v. Agenc y for Health Care Administration , DOAH Case No. 97 -

3791, 1998 Fla. Div. Adm. Hear. LEXIS 6245, *6 - *7 (Mar. 20,

1998); see also Full Health Care, Inc. v. Agency for Health Care

Administration , DOAH Case No. 00 - 4441, 2001 WL 729127, *8 - 9

(Fla.Div.Admin.Hrgs. June 25, 2001)(adopted in toto, Sept. 28,

2001, AHCA Rendition No. 01 - 262 - FOF - MDO).

25. In addition, Section 409.913(22), Florida Statutes,

heightens the provider's duty of producing evidence to meet the

Agency's prima facie case, by requiring that the provider come

forward with written proof to rebut, impeach, or otherwise

undermine the Agency's statutorily - authorized evidence; it

cannot simply present witnesses to say that the Agency lacks

evidence or is mistaken.

26. Section 409.913(7), Florida Stat utes, describes the

duties of providers who make claims under Medicaid as follows :

(7) When presenting a claim for payment

under the Medicaid program, a provider has

an affirmative duty to supervise the

provision of, and be responsible for, goods

and serv ices claimed to have been provided,

to supervise and be responsible for

preparation and submission of the claim, and

to present a claim that is true and accurate

and that is for goods and services that:

(a) Have actually been furnished to the

recipient b y the provider prior to

submitting the claim.

(b) Are Medicaid - covered goods or services

that are medically necessary.

(c) Are of a quality comparable to those

furnished to the general public by the

provider's peers.

(d) Have not been billed in whole or in

part to a recipient or a recipient's

responsible party, except for such

copayments, coinsurance, or deductibles as

are authorized by the agency.

(e) Are provided in accord with applicable

provisions of all Medicaid rules,

regulations, handbooks, a nd policies and in

accordance with federal, state, and local

law.

(f) Are documented by records made at the

time the goods or services were provided,

demonstrating the medical necessity for the

goods or services rendered. Medicaid goods

or services are e xcessive or not medically

necessary unless both the medical basis and

the specific need for them are fully and

properly documented in the recipient's

medical record.

The agency may deny payment or require

repayment for goods and services that are

not pres ented as required in this

subsection.

27. The pertinent statutes, administrative rules, and

Medicaid Handbook that were in effect during the Audit Period

govern this dispute. See Toma v. Agency for Health Care

Administration , DOAH Case No. 95 - 2419, 199 6 WL 1059900, *23

(Recommended Order issued July 26, 1996) (adopted in toto, Sept.

24, 1996, 18 F.A.L.R. 4735).

28. Disney Pharmacy argues AHCA's reliance on the audit

report and supporting work papers to establish the overpayment

is misplaced because th e underlying data were not adequately

proved. Disney Pharmacy contends as well that the audit report

should not be accepted uncritically as proof of the alleged

overpayment. iii

29. On the latter point, the undersigned agrees with

Disney Pharmacy that the statutory directive to receive the

audit report and supporting papers as "evidence" should not be

construed to require that such evidence be believed, no matter

what. The statute does, however, put the onus on the provider

to undermine the credibility of the audit report, by offering

some evidence, argument, or both of sufficient logical force to

cast doubt on the report's findings , assumptions, or

conclusions. Here, Disney Pharmacy has not attempted directly

to refute any of the audit report's particular findings ,

assumptions, or conclusions .

30. As for the absence of proof of the underlying data, it

seems to the undersigned that one of the purposes of Section

409.913(22) is to obviate the need to fill the record with

voluminous writings , many of which might not be the subject of

genuine dispute . Indeed, the audit report and supporting papers

here comprise a summary of records that would have been

inconvenient to examine at hearing. ( Such a summary , the

undersigned notes, would be admissible in a civil proceeding

pursuant to Section 90.956, Florida Statutes , provided certain

prerequisites to admission were met . )

31. In this case, moreover, the information upon which the

audit report was based came mostly from Disney Pharmacy's own

records. To the ex tent other data were used, they were taken

from materials in the Agency's files that Disney Pharmacy could

have examined and copied (if it did not) well ahead of the final

hearing.

32. Yet, Disney Pharmacy declined to offer evidence

refuting the particula r findings of the audit report or

suggest ing that the Agency had misapprehended some material

information upon which the report was based. To the contrary,

Disney Pharmacy conceded the material facts that establish its

liability to Medicaid for overpaymen ts, namely , that claims

routinely were made for commercially available drugs when such

drugs had not, in fact, been dispensed. By introducing the

audit report in its case in chief, the Agency made a prima facie

showing of the amount of the alleged overpay ment —— which was

really the only genuine issue open to dispute once Disney

Pharmacy tacitly admitted its liability. I f Disney Pharmacy

believe d that AHCA had erred in calculating the overpayment,

then it should have produced some evidence at hear ing (which it

could have done, if such proof exists) to substantiate its

belief; it did not.

33. Based on the evidence presented, it is found and

concluded that, in billing for commercially available

medications rather than the compound drugs which it had, in

fact, dispensed, Disney Pharmacy violated the duty to present

"true and accurate" claims for the goods that were "actually

. . . furnished to" Medicaid recipients. See § 409.913(7)(a) ,

Fla. Stat .

34. Moreover, it is found and concluded that, in making

clai ms for commercially available medications instead of the

compound drugs that were actually provided, Disney Pharmacy

violated clear and unambiguous instructions , found in the

Medicaid Handbook , for billing for compound drugs.

35. At a minimum, these viola tions constitute "improper

claiming" as that term is used in Section 409.913(1)(e), Florida

Statutes. Consequently, the undersigned finds and concludes

that the amounts which Disney Pharmacy received as a result of

it s pattern and practice of improper cla iming are, in fact and

in law, overpayments. Id.

36. Based on the foregoing findings and conclusions, it is

determined that Disney Pharmacy is liable to the Agency for an

overpayment of $1,676,390.45.

RECOMMENDATION

Based on the foregoing Findings of F act and Conclusions of

Law, it is RECOMMENDED that the Agency enter a final order

requiring Disney Pharmacy to repay the Agency the principal

amount of $ 1,676,390.45 .

DONE AND ENTERED this 11th day of April, 2006, in

Tallahassee, Leon County, Florida.

S

JOHN G. VAN LANINGHAM

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675 SUNCOM 278 - 9675

Fax Filing (850) 921 - 6847

w ww.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 11th day of April, 2006 .

ENDNOTES

i / The relatively insignificant alleged overcharges associated

with the other nine drugs that were reviewed will not be

discussed separately herein.

ii / At hearing, the undersigned informed the parties that he

would take official recognition of applicable administrative

rules; neither party objected to this. AHCA has adopted the

Medicaid Handbook as a rule, incorporating its contents by

reference in Florida Administrative Code Rule 59G - 4.250 (2) . As

of this writing, the Medicaid Handbook is available online, and

was accessed on April 8, 2005, at

inc.com/XJContent/Prescr ibed_Drug_Services.pdf?id=000000000422>

(Adobe Reader required).

iii / Disney Pharmacy also hints that Section 409.913(22),

Florida Statutes, might be unconstitutional. The undersigned

will leave that issue alone. See , e.g. , Fla. Marine Fisheries

Comm'n v . Pringle , 736 So. 2d 17, 22 n.4 (Fla. 1st DCA

1999(administrative process cannot resolve constitutional attack

upon a statute).

COPIES FURNISHED :

William M. Furlow, III, Esquire

Akerman Senterfitt

106 East College Avenue, Suite 1200

Tallahassee, Florida 32301

Jeffries H. Duvall, Esquire

Agency for Health Care Administration

Fort Knox Building III, Mail Station 3

2727 Mahan Drive

Tallahassee, Florida 32308

Richard Shoop, Agency Clerk

Agency for Health Care Administration

2727 Mahan Drive, Mail Station 3

Tallahassee, Florida 32308

Christa Calamas, General Counsel

Agency for Health Care Administration

Fort Knox Building, Suite 3431

2727 Mahan Drive

Tallahassee, Florida 32308

Alan Levine, Secretary

Agency for Health Care Administration

Fort Knox Build ing, Suite 3116

2727 Mahan Drive

Tallahassee, Florida 32308

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this recommended order. Any exceptions

to this recommended order s hould be filed with the agency that

will issue the final order in this case.