Kohll’s Pharmacy & Homecare, Inc., DAB CR5495 (2019)

DECISION

Petitioner, Kohll’s Pharmacy & Homecare, Inc., was convicted of federal felony offenses on February 23, 2018. The National Supplier Clearinghouse (NSC) revoked the Medicare supplier numbers of Petitioner, and likewise, the Wisconsin Physicians Service Insurance Corporation (WPS) revoked the Medicare enrollment and billing privileges of Petitioner. The Centers for Medicare & Medicaid Services (CMS) issued reconsidered determinations upholding these determinations. For the reasons stated below, I affirm the revocation of Petitioner’s Medicare enrollment, billing privileges, and supplier numbers, effective February 23, 2018.1

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I. Background and Procedural History

Petitioner is a pharmacy that operates at various locations in Nebraska and Iowa. Petitioner Exhibit (P. Ex.) 1 at 1; CMS Exs. 2-13. Petitioner also operated a non-retail compounding pharmacy in Omaha, Nebraska, that conducted business under the trade name Essential Pharmacy Compounding (EPC). P. Ex. 1 at 1. Petitioner explained that EPC is “a sterile compounding pharmacy . . . and is a part of the larger Kohll’s Pharmacy & Homecare company.” P. Ex. 1 at 1.

On November 6, 2017, a federal jury found Petitioner2 guilty of one count of conspiracy, in violation of 18 U.S.C. § 371, and two counts of introducing adulterated or misbranded3 drugs in interstate commerce, with intent to defraud or mislead, in violation of 21 U.S.C. §§ 331(a) and 333(a)(2).4 CMS Ex. 1 at 1; P. Ex. 1 at 1. A federal judge imposed judgment on February 23, 2018, at which time he ordered Petitioner, as an organization, to pay a fine of $200,000 and a special assessment of $1,200. CMS Ex. 1 at 3. Petitioner’s sentence also included a five-year term of probation. CMS Ex. 1 at 2.

In a letter dated November 10, 2017, Petitioner provided notice of “an adverse legal action occurring against Kohll’s Pharmacy & Homecare dba Essential Pharmacy Compounding.” P. Ex. 1 at 1. Petitioner explained that it had been found guilty by a jury of offenses that involved “delivering misbranded and adulterated veterinary prescriptions for animals to Louisiana by EPC in 2010, 2011 and 2012.” P. Ex. 1 at 1. Petitioner further explained that “[t]he conduct forming the basis for the charges involved EPC preparing and delivering compounded veterinary prescriptions for animals at the request of a veterinarian licensed in the state of Louisiana,” and “the compounded prescriptions at issue in the case were considered to come under of the jurisdiction of the FDA and the

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requirements pursuant to §§ 351 and 352 of the Food, Drug and Cosmetic Act.[5]” P. Ex. 1 at 1.

Petitioner submitted a copy of email correspondence in which David Kohll, an authorized official of Petitioner (see CMS Ex. 14 at 9), provided the following information:

Kohll’s had a division called Essential Pharmacy Compounding which we refer to as EPC for short. It maintained [its] own licenses as a non-resident pharmacy in about 47 states including Louisiana. EPC had a number of veterinarian clients who would order compounded prescriptions from us. Some of those vet clients were located in Louisiana. Back in 2010 EPC was asked by Dr. Hebert and other veterinarians to compound prescriptions containing an ingredient called dermorphin.[6] It was not a controlled substance, nor was it listed on the “do not compound list.” The Pharmacist in Charge of EPC ordered it from Bachem, which was an FDA registered supplier. The prescriptions were prepared and shipped to the veterinarian.

In 2017 we found out that Kohll’s had been indicted in Louisiana federal court . . . There was a trial in November 2017 and the jury convicted Kohll’s of shipping mislabeled and adulterated prescriptions to Louisiana because we did not have FDA approval for dermorphin prescriptions . . . .

P. Ex. 3 at 1. Petitioner further explained that, in early 2012, it “became aware that the prescriptions were potentially being used improperly at racetracks and stopped filling any prescriptions at that time. . . .” P. Ex. 3 at 1.

On August 8, 2018, WPS sent letters to Petitioner informing it that, based on its felony convictions, its Medicare enrollment and billing privileges had been revoked pursuant to

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42 C.F.R. § 424.535(a)(3), effective February 23, 2018. CMS Exs. 10-13. WPS imposed a three-year re-enrollment bar. CMS Exs. 10 at 2; 11 at 2; 12 at 2; 13 at 2.

On August 16, 2018, Palmetto GBA, a Medicare administrative contractor acting on behalf of NSC, sent a letter to each of Petitioner’s eight locations that were enrolled as suppliers of Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) in which it revoked Petitioner’s supplier numbers and imposed a three-year re-enrollment bar. CMS Exs. 2-9. The correspondence explained that the revocation was pursuant to 42 C.F.R. § 424.535(a)(3) based on Petitioner’s felony convictions and that the revocation was effective February 23, 2018. CMS Exs. 2 at 1; 3 at 1; 4 at 1; 5 at 1; 6 at 1; 7 at 1; 8 at 1; 9 at 1.

Petitioner, through its current counsel, submitted a request for reconsideration to WPS that was signed by David Kohll on September 28, 2018.7 CMS Ex. 14. Petitioner argued that “it was not reasonable for WPS and CMS to conclude that the felony offenses involved here raised questions about the ability of Kohll’s to respect the life and property of program beneficiaries or that the offenses raised questions about Kohlls’ ability to provide services and claim payment under the Medicare program with honesty and integrity.” CMS Ex. 14 at 4. Petitioner also argued that it is “clear from th[e] language” of the final rule revising 42 C.F.R. § 424.535(g), that “CMS did not intend to revoke billing privileges retroactively for those suppliers that timely report final adverse actions, even if the adverse action warranted revocation of the supplier’s billing privileges.” CMS Ex. 14 at 6, quoting 73 Fed. Reg. 69,725, 69,777-78 (Nov. 19, 2008).

A hearing officer for the Provider Enrollment & Oversight Group of CMS’s Center for Program Integrity issued separate reconsidered determinations on January 8, 2019. CMS Ex. 15 (addressing the revocation of Petitioner’s Medicare enrollment and billing privileges by WPS) and CMS Ex. 16 (addressing the revocation of Petitioner’s supplier numbers by NSC). The determinations explained that Petitioner’s criminal conviction was for an offense that is detrimental to the best interests of the Medicare program and its beneficiaries, as follows below:

CMS finds that Kohll’s offense is detrimental to the best interests of the Medicare program and its beneficiaries. In making this determination, CMS considers the specific facts and circumstances surrounding the conviction. Kohll’s purchased a synthetic version of dermorphin, and falsely labeled the drug with the fictitious name d-peptide, which was given to racehorses to improve their performance. Kohll’s misleadingly labeled the drug and sold it to be administered to horses in violation of state and

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federal law. Kohll’s did this to influence the outcome of horse races. This behavior demonstrates Kohll’s dishonesty and shows total disregard for state and federal laws. Not only did Kohll’s engage in conduct that posed a threat to the safety of animals, but according to the Indictment, it created false billing records, invoices, and other documents that might otherwise reveal the acts of distributing an unapproved, adulterated, and misbranded drug for horses. Consequently, Kohll’s offense also calls into question its ability and willingness to provide services and submit claims for payment within the parameters of federal and state laws.

In addition, Dermorphin is not a drug that can be legally administered to animals or humans because it is not approved by the United States Food and Drug Administration (FDA). Kohll’s behavior of illegally purchasing and selling a drug with the intent to defraud or mislead others is behavior that is severe and extremely dangerous. Furthermore, Kohll’s conduct clearly shows a lack of integrity and raises concern because being part of the Medicare program requires the supplier’s propensity for good judgment and the ability and desire to follow federal laws, rules, and program instructions. Consequently, CMS deems the conduct underlying the revocation as being detrimental to the Medicare program and its beneficiaries. As a result, CMS finds that the revocations of Kohll’s Medicare billing privileges under 42 C.F.R. § 424.535(a)(3), for all PTANs referenced above, is appropriate, and therefore, upheld.

CMS Ex. 15 at 5-6; see CMS Ex. 16 at 6-7 (containing nearly identical language, but addressing the revocation of Petitioner’s supplier numbers).

Petitioner filed timely requests for an administrative law judge (ALJ) hearing on March 11, 2019, that were docketed as C-19-534 and C-19-535, and the requests for hearing were later consolidated under the docket number for this case. On March 19, 2019, the Civil Remedies Division issued my standing pre-hearing order (Pre-Hearing Order). CMS filed a pre-hearing brief and memorandum in support of summary judgment (CMS Br.), along with 16 exhibits (CMS Exs. 1-16). Petitioner submitted a reply (P. Br.), along with four exhibits (P. Exs. 1-4). As neither party has objected to any of the proposed exhibits, I admit all submitted exhibits.

Neither party has submitted the written direct testimony of any witnesses, and a hearing is therefore unnecessary for the purpose of cross-examination of witnesses. Pre-Hearing Order, §§ 12-14. The record is closed, and the case is ready for a decision on the merits.8

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II. Issue

Whether CMS has a legal basis to revoke Petitioner’s Medicare enrollment, billing privileges, and supplier numbers pursuant to 42 C.F.R. § 424.535(a)(3) based on its felony convictions within the preceding 10 years.

III. Jurisdiction

I have jurisdiction to decide this case. 42 C.F.R. §§ 498.3(b)(17), 498.5(l)(2); see also 42 U.S.C. § 1395cc(j)(8).

IV. Findings of Fact, Conclusions of Law, and Analysis9

Petitioner is a “supplier” for purposes of the Medicare program. See 42 U.S.C. § 1395x(d); 42 C.F.R. § 400.202 (definition of supplier). In order to participate in the Medicare program, a supplier such as Petitioner must meet certain criteria to enroll and receive and maintain billing privileges and a supplier number. See 42 C.F.R. §§ 424.57(c), 424.505, 424.510. CMS may revoke a supplier’s enrollment, billing privileges, and supplier number for any reason stated in 42 C.F.R. § 424.535(a).

Pursuant to 42 C.F.R. § 424.535(a)(3)(i), CMS may revoke a supplier’s enrollment, billing privileges, and supplier number based on the existence of a felony conviction, as stated below:

(3) Felonies. (i) The provider, supplier, or any owner or managing employee of the provider or supplier was, within the preceding 10 years, convicted (as that term is defined in 42 C.F.R. [§] 1001.2) of a Federal or State felony offense that CMS determines is detrimental to the best interests of the Medicare program and its beneficiaries.

The regulation also enumerates four categories of felony offenses that are presumptively detrimental to the Medicare program, none of which are applicable here. 42 C.F.R. § 424.535(a)(3)(ii)(A)-(D) (listing felony crimes against persons, financial crimes, crimes that placed the Medicare program or its beneficiaries at immediate risk, and felonies mandating exclusion from federal health care programs pursuant to section 1128(a) of the Social Security Act (42 U.S.C. § 1320a-7(a))).10

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1. Petitioner is a pharmacy that participated in the Medicare program.
2. A federal jury found Petitioner guilty of, inter alia, the felony offenses of introducing adulterated or misbranded drugs in interstate commerce, with intent to defraud or mislead, and a federal judge imposed judgment on February 23, 2018.
3. CMS determined that, pursuant to 42 C.F.R. § 424.535(a)(3), Petitioner’s offense was detrimental to the best interests of the Medicare program and its beneficiaries.
4. There is a legitimate basis for the revocation of Petitioner’s Medicare enrollment, billing privileges, and supplier numbers pursuant to 42 C.F.R. § 424.535(a)(3).
5. Pursuant to 42 C.F.R. § 424.535(g), the effective date of the revocation is the date of conviction, February 23, 2018.
6. WPS imposed a three-year bar to re-enrollment, effective September 7, 2018, and NSC imposed a three year bar to re-enrollment, effective September 15, 2018, and the re-enrollment bars are not reviewable.

Petitioner does not dispute that it has felony convictions for purposes of section 424.535(a)(3). P. Br. Rather, Petitioner disputes the determination that its offenses were detrimental to the best interests of the Medicare program and its beneficiaries. Petitioner also argues that revocation is inappropriate because EPC was “a separate and distinct division from other Kohll’s divisions.” P. Br. at 6.

The Departmental Appeals Board (DAB) has held that CMS “may revoke a . . . supplier’s billing privileges based solely on a qualifying felony conviction, without regard to equitable or other factors.” Brian K. Ellefsen, DO, DAB No. 2626 at 9 (2015). The DAB

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has also explained that CMS may revoke enrollment and billing privileges based solely on a qualifying felony conviction it has determined by regulation to be detrimental to the best interests of the Medicare program and its beneficiaries. See Fady Fayad, M.D., DAB No. 2266 at 15-16 (2009), aff’d, Fayad v. Sebelius, 803 F. Supp. 2d 699 (E.D. Mich. 2011); see also 42 C.F.R. § 424.535(a)(3).

In explaining how it would determine whether an offense is detrimental to the best interests of the Medicare program and its beneficiaries, CMS noted, in the Final Rule adding that provision to section 424.535(a)(3), that “[t]he determination of whether a particular conviction will or will not result in the revocation or denial of Medicare enrollment will depend upon the specific facts of each individual situation.” 79 Fed. Reg. 72,500, 72,510 (Dec. 5, 2014). CMS explained:

We believe that the term “determines” makes clearer that the lists of felonies in these two provisions are not exhaustive and include other felonies that CMS may deem as meeting the “detrimental” standard based on the particular facts of the case. Second, and to further emphasize CMS’ discretion to use felonies other than those specified in §§ 424.530(a)(3) and 424.535(a)(3) as grounds for denial or revocation, we have included the phrase “but are not limited in scope or severity” within both provisions.

However, notwithstanding these changes, we again stress that we will only exercise our authority under §§ 424.530(a)(3) and 424.535(a)(3) after very careful consideration of the relative seriousness of the underlying offense and all of the circumstances surrounding the conviction. It should in no way be assumed that every felony conviction will automatically result in a denial or revocation.

Id. at 72,511-12. In stating such, CMS indicated that any determination that a felony not contained in the list at 42 C.F.R. § 424.535(a)(3)(ii)(A)-(D) would result in a revocation of enrollment would first require CMS to determine that the offense was detrimental to the best interests of the Medicare program and its beneficiaries. Id. Furthermore, CMS avowed that it would only make such a determination after it carefully considered the relative seriousness of the underlying offense and all of the circumstances surrounding the conviction. Id. The plain language of the regulation is consistent with the discussion in the Final Rule, in that it limits revocations to instances in which CMS “determines” an offense is detrimental to the best interests of the Medicare program and its beneficiaries. Therefore, CMS must make a determination that a given felony offense is detrimental to the best interests of the Medicare program and its beneficiaries relative to the facts of the specific case when revoking the enrollment, billing privileges, or supplier number of an entity that has committed a felony offense that is not listed in subsections (A) through (D) in the preceding 10 years.

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The DAB has explained that it “has repeatedly held that if the conviction is for a crime other than one of the enumerated felonies, CMS may make the determination, on a case-by-case basis, whether the felony conviction at issue is detrimental to the Medicare program and its beneficiaries.” Brenda Lee Jackson, DAB No. 2903 at 8 (2018). The DAB has remarked that “[t]he ALJ’s . . . role in an appeal of CMS’s . . . revocation of enrollment in the Medicare program is to determine whether CMS had a legal basis for its action,” and “[i]f it did, then [the ALJ is] bound to affirm the . . . revocation.” Dr. Robert Kanowitz, DAB No. 2942 at 4 (2019). The DAB has also explained that “the right to review of CMS’s determination by an ALJ serves to determine whether CMS had the authority to revoke [the petitioner’s] Medicare billing privileges, not to substitute the ALJ’s discretion about whether to revoke.” Letantia Bussell, M.D., DAB No. 2196 at 13 (2008) (emphasis omitted). As such, the scope of my review is whether CMS had a legitimate basis to revoke Petitioner’s enrollment, billing privileges, and supplier numbers, and not whether I would make the same determination in the first instance.

Petitioner does not dispute any of the facts presented by CMS in the reconsidered determination, which CMS recites in its brief (CMS Br. at 5),11 as stated below:

Kohll’s purchased a synthetic version of dermorphin, and falsely labeled the drug with the fictitious name d-peptide, which was given to racehorses to improve their performance. Kohll’s misleadingly labeled the drug and sold it to be administered to horses in violation of state and federal law. Kohll’s did this to influence the outcome of horse races. This behavior demonstrates Kohll’s dishonesty and shows total disregard for state and federal laws. Not only did Kohll’s engage in conduct that posed a threat to the safety of animals, but according to the Indictment, it created false billing records, invoices, and other documents that might otherwise reveal the acts of distributing an unapproved, adulterated, and misbranded drug for horses. Consequently, Kohll’s offense also calls into question its ability and willingness to provide services and submit claims for payment within the parameters of federal and state laws.

In addition, Dermorphin is not a drug that can be legally administered to animals or humans because it is not approved by the United States Food and Drug Administration (FDA).

CMS Exs. 15 at 5-6; 16 at 6-7 (with slightly modified language). Further, Petitioner has submitted evidence, in the form of its own statements, that it, through EPC, dispensed

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compounded prescriptions that included dermorphin. P. Ex. 1. The documentation Petitioner submitted acknowledges that it had dispensed to veterinarians compounded prescriptions “containing an ingredient called dermorphin,” and that the “jury convicted Kohll’s of shipping mislabeled and adulterated prescriptions to Louisiana because [it] did not have FDA approval for dermorphin prescriptions.” P. Ex. 3 at 1. Petitioner acknowledged that the compounded prescriptions “were potentially being used improperly at racetracks.” P. Ex. 3 at 1.

As I previously explained, the question I consider is whether CMS had a proper basis to revoke Petitioner’s Medicare enrollment, billing privileges, and supplier numbers. Petitioner was convicted of a serious felony, in that it dispensed a drug that was “adulterated or misbranded” with the “intent to defraud or mislead.” CMS Ex. at 1 at 1; see 21 U.S.C. §§ 331(a), 333(a)(2). Petitioner does not dispute CMS’s factual statement that it “purchased a synthetic version of dermorphin, and falsely labeled the drug with the fictitious name d-peptide, which was given to racehorses to improve their performance.” P. Br.; see CMS Br. at 5-6; CMS Exs. 15 at 5; 16 at 6. Petitioner also does not dispute CMS’s factual allegations that “Dermorphin is not a drug that can be legally administered to animals or humans because it is not approved by the [FDA],” and that Petitioner “misleadingly labeled the drug and sold it to be administered to horses in violation of state and federal law.” P. Br.; see CMS Br. at 5-6; CMS Exs. 15 at 5-6; 16 at 6-7. Nor does Petitioner dispute CMS’s factual allegation that it “created false billing records, invoices, and other documents that might otherwise reveal the acts of distributing an unapproved, adulterated, and misbranded drug for horses.” P. Br.; see CMS Br. at 5-6; CMS Exs. 15 at 5-6; 16 at 6. Further, Petitioner does not contest CMS’s determination that its “offense . . . calls into question its ability and willingness to provide services and submit claims for payment within the parameters of federal and state laws.” P. Br.; see CMS Br. at 5-6; CMS Exs. 15 at 6; 16 at 6. Petitioner also does not dispute CMS’s determination that its “behavior of illegally purchasing and selling a drug with the intent to defraud or mislead others is behavior that is severe and extremely dangerous,” and its “conduct clearly shows a lack of integrity and raises concern because being part of the Medicare program requires the supplier’s propensity for good judgment and the ability and desire to follow federal laws, rules, and program instructions.” P. Br.; see CMS Br. at 5; CMS Exs. 15 at 6; 16 at 7. CMS unquestionably outlined a legitimate basis to exercise its discretion to revoke Petitioner’s Medicare enrollment, billing privileges, and supplier numbers because Petitioner’s felony offense of dispensing adulterated or misbranded drugs with the intent to defraud or deceive is an offense that is detrimental to the best interest of the Medicare program and its beneficiaries.

Petitioner attempts to disassociate itself from its own compounding pharmacy, arguing that EPC was a “separate and distinct division from other Kohll’s divisions” and that it “obtained its own licenses and operated independently from other divisions.” P. Br. at 6. Petitioner has provided no authority to support the proposition that a company is not liable for the conduct of one of its “divisions” or that its individual divisions have a

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unique corporate structure that is separate from Petitioner, to include that EPC was a separate business from Kohll’s Pharmacy & Homecare, Inc.12 It is noteworthy that the judgment of conviction identifies the convicted defendant as Petitioner, Kohll’s Pharmacy & Homecare, Inc., and further identifies the fictitious or trade name that Petitioner used for its EPC “division.” The evidence indicates that Petitioner is the named defendant on the judgment of conviction, and absent any evidence to the contrary, Petitioner has a felony conviction that warrants revocation of its Medicare enrollment, billing privileges, and supplier numbers.

Further, it makes no difference that Petitioner no longer operates its EPC division. The relevant issue is that Petitioner still continues in business as Kohll’s Pharmacy & Homecare, Inc., which was the named defendant. See P. Ex. 4 at 1 (Petitioner’s submission of docket sheet obtained through PACER, listing the “Case title” as “USA v. Kohll’s Pharmacy & Homecare Inc.”). Likewise, it is irrelevant that “other governmental agencies,” such as TRICARE, the Nebraska Board of Pharmacy, the Iowa Board of Pharmacy, and the Drug Enforcement Agency have “renewed [Petitioner’s] required licenses to continue to operate as a pharmacy.” P. Br. at 7. Again, the relevant question before me is whether CMS had a legitimate basis to revoke Petitioner’s Medicare enrollment, billing privileges, and supplier numbers, and it did.

Petitioner dispensed a non-FDA approved drug, an “adulterated or mislabeled drug,” with the “intent to defraud or mislead.” Such an offense is detrimental to the best interests of the Medicare program and its beneficiaries. CMS had a legitimate basis to revoke Petitioner’s Medicare enrollment, billing privileges, and supplier numbers pursuant to section 424.535(a)(3).

7. The effective date of the revocation is appropriate.

Petitioner argues that “because [it] timely reported [its] felony conviction[s], [its] billing privileges should not have been retroactively revoked.” P. Br. at 10. Petitioner further explains that “CMS’s decision to retroactively revoke [its] billing privileges nine months after [it] provided notice of the adverse legal action has resulted in extreme financial harm to [Petitioner] and could have been avoided had CMS made a timely decision to revoke its billing privileges.” P. Br. at 10.

The regulation at 42 C.F.R. § 424.535(g) states that when a revocation is based on a felony conviction, the revocation is effective as of the date of the felony conviction. Petitioner’s revocation therefore became effective on February 23, 2018, the date judgment was imposed for its felony convictions. Norman Johnson, M.D., DAB

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No. 2779 at 19-20 (2017) (pursuant to section 424.535(g), “a revocation based on a felony conviction is effective on the date of conviction”). With respect to the effective date of the revocation, the DAB further explained that “ALJs and the Board are not permitted to depart from, or ignore, [section 424.535(g)’s] plain text.” Id. at 19. As such, I am not empowered to assign an effective date other that February 23, 2018, the date of Petitioner’s convictions.

8. The three-year enrollment bars are not reviewable.

Petitioner does not challenge the three-year length of the re-enrollment bars that NSC and WPS imposed, and CMS later upheld on reconsideration. The DAB has explained that “CMS’s determination regarding the duration of the re‑enrollment bar is not reviewable . . . .” Vijendra Dave, M.D., DAB No. 2672 at 11 (2016). The DAB has further stated that “the only CMS actions subject to appeal under Part 498 are the types of initial determinations specified in section 498.3(b).” Id. The DAB also explained that “[t]he determinations specified in section 498.3(b) do not, under any reasonable interpretation of that regulation’s text, include CMS decisions regarding the severity of the basis for revocation or the duration of a revoked supplier’s re-enrollment bar.” Id. The DAB discussed that a review of the rulemaking history showed that CMS did not intend to “permit administrative appeals of the length of a re-enrollment bar.” Id. Therefore, I do not disturb the three-year re-enrollment bars.

V. Conclusion

For the reasons explained above, I affirm the revocation of Petitioner’s Medicare enrollment, billing privileges, and supplier numbers, effective February 23, 2018.

• 1. Subsequent to filing the instant request for hearing, Petitioner filed another request for hearing to challenge its placement on the preclusion list. See 42 C.F.R. §§ 422.2 and 423.100. Neither party has requested consolidation of the cases, and Petitioner is represented by different counsel in each case. Therefore, I have simultaneously issued separate decisions in these matters. See Kohll’s Pharmacy & Homecare, Inc., DAB CR5496 (2019).
• 2. The defendant listed on the judgment of the conviction is “KOHLL’S PHARMACY & HOMECARE INC., d/b/a/ ESSENTIAL PHARMACY COMPOUNDING.” CMS Ex. 1 at 1 (capitalization in original).
• 3. A drug is “misbranded” if the “labeling is false or misleading in any particular.” 21 U.S.C. § 352(a). A drug is “adulterated” under circumstances such as when it is manufactured under unsanitary conditions or is of an improper strength, quality, or purity. 21 U.S.C. § 351(a)-(d).
• 4. Based on 21 U.S.C. § 331(a), “[t]he introduction or delivery for introduction into interstate commerce of any food, drug, device, tobacco product, or cosmetic that is adulterated or misbranded” is prohibited. Petitioner was found guilty of the felony level of that offense, as section 21 U.S.C. § 333(a)(2) provides for a maximum period of incarceration of three years if “such a violation [is] with intent to defraud or mislead.” See 18 U.S.C. § 3559(a) (classifying as felonies offenses punishable by more than one year of incarceration).
• 5. See 21 U.S.C. §§ 301-399i.
• 6. Dermorphin is an “Opiate-like peptide present in amphibian skin.” Substance Name: Dermorphin, National Institutes of Health, U.S. National Library of Medicine, ChemIDplus, https://chem.nlm.nih.gov/chemidplus/rn/77614-16-5 (last visited December 13, 2019). Dermorphin does not appear on current lists of FDA-approved drugs. Drugs@FDA: FDA-Approved Drugs, Food and Drug Administration, https://www.accessdata.fda.gov/scripts/cder/daf/index.cfm (enter search term: dermorphin; last searched December 13, 2019). Although Petitioner argues that dermorphin was not on the FDA’s “do not compound list” (P. Ex. 1 at 1), one would not expect that the FDA would include unapproved drugs on such a list. See 21 U.S.C. § 353a(b)(1)(A)-(D).
• 7. The record does not contain a request for reconsideration submitted to NSC. Regardless, CMS issued a reconsidered decision with respect to Petitioner’s supplier numbers. CMS Ex. 16.
• 8. As an in-person hearing to cross-examine witnesses is not necessary, it is unnecessary to further address CMS’s motion for summary judgment.
• 9. My numbered findings of fact and conclusions of law are set forth in italics and bold font.
• 10. Even though CMS, NSC, and WPS had not previously determined that Petitioner’s revocation was based on an offense that is an enumerated felony listed in 42 C.F.R § 424.535(a)(3)(ii), CMS argued, for the first time in its brief, that revocation is appropriate because Petitioner’s offense warranted exclusion pursuant to section 1128(a)(4) of the Social Security Act. CMS Br. at 5 (“[O]ne offense—Introduction of Adulterated or Misbranded Drug in Interstate Commerce, With Intent to Defraud and Mislead—specifically falls within the definition of the presumptively detrimental offenses of unlawful distribution and dispensing of a controlled substance.”); see 42 C.F.R. § 424.535(a)(3)(ii)(D). Although CMS did not explicitly withdraw its erroneous argument that revocation was warranted based on 424.535(a)(3)(ii)(D), it later conceded that it “wrongly described [dermorphin] as a ‘controlled substance’” and that dermorphin “is not a controlled substance.” CMS Amended Memorandum of Law in Support of Summary Disposition and Pre-Hearing Brief at 1.
• 11. CMS erroneously cited to CMS Ex. 4 at 5-6 as the source of its block quotation of the aforementioned discussion. CMS Ex. 4 is a three-page letter from Palmetto GBA, acting on behalf of NSC, to Petitioner informing it of the revocation of one of its supplier numbers.
• 12. Indeed, Mr. Kohll explicitly admitted that the indictment and conviction were against Petitioner itself “since EPC was a division and not a separate corporation.” P. Ex. 3 at 1 (emphasis added).