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United States v. Appalachian Regional Healthcare, Inc.

United States District Court, E.D. Kentucky, Central Division, Lexington

March 30, 2017

UNITED STATES OF AMERICA, Plaintiff,
v.
APPALACHIAN REGIONAL HEALTHCARE, INC., Defendant.

          MEMORANDUM OPINION & ORDER

          Joseph M. Hood, Senior U.S. District Judge

         I. Introduction

         This matter is before the Court upon Defendant Appalachian Regional Hospital, Inc.'s (“ARH”) Motion to Dismiss for Failure to State a Claim [DE 6]. ARH has also filed an alternative Motion to Strike Complaint and for Partial Summary Judgment [DE 5]. The United States having filed its Response to both Motions [DE 14], and ARH having submitted its Reply [DE 16, 17], this matter is now ripe for the Court's review. For the reasons stated herein, ARH's Motions are DENIED IN FULL.

         II. Factual and Procedural Background

         ARH is a healthcare system that operates medical centers, hospitals, and clinics throughout Eastern Kentucky. [DE 1, p. 2, ¶ 7]. It also oversees several pharmacies affiliated with these facilities, including Harlan ARH Hospital Pharmacy, Hazard ARH Regional Medical Center Clinic Pharmacy, Hazard ARH Regional Medical Center Hospital Pharmacy, and Middlesboro ARH Pharmacy. [Id. at p. 2, ¶ 8].

         Like all pharmacies, these entities were required to register with the Drug Enforcement Administration (“DEA”) and follow the Controlled Substances Act's (“CSA”) comprehensive regulatory scheme, which “tracks and traces controlled substances from manufacture to delivery to ensure that they are not illegally diverted for improper uses.” [Id. at p. 3, ¶ 10]. This regulatory system permits pharmacies to dispense controlled substances to a patient, so long as that patient holds a prescription issued by a practitioner acting in his normal course of business for a legitimate medical purpose. [Id. at p. 4, ¶ 14]. Pharmacies may also distribute controlled substances to a practitioner upon request.[1] [Id.]. In either case, pharmacies must maintain detailed records of the transactions.[2] [Id. at p. 8, ¶ 39-40]. However, the precise recordkeeping requirements vary, depending on whether a transaction qualifies as a dispensation or a distribution. [Id.].

         In 2010, a pharmacist at Harlan ARH Hospital Pharmacy notified the Director of Pharmacy, Angela Creech, that he had concerns about Phentermine prescriptions written by Dr. Donald F. Ramsey.[3] [Id. at p. 10, ¶ 56-57]. Phentermine, a Schedule IV controlled substance, is a stimulant intended to assist obese patients with weight loss when combined with diet and exercise.[4] [Id. at p. 9, ¶ 44-49]. The pharmacist noted that Dr. Ramsey was a physician in Harlan ARH Hospital's Emergency Room, and thus, did not have occasion to prescribe Phentermine in the normal course of his business. [Id. at p. 11, ¶ 58]. Many of these prescriptions were written for nurses and staff members who were not obese.[5] [Id. at p. 11, ¶ 60-61]. They were also written for twice the standard dosage of Phentermine. [Id. at p. 11, ¶ 59].

         Around the same time, an employee informed Risk Manager Phyllis Wilson that a nurse had admitted to receiving and filling Phentermine prescriptions written by Dr. Ramsey. [Id. at p. 12-13, ¶ 70-71]. According to this source, the nurse had also indicated that she kept half of the pills and gave the other half to Dr. Ramsey. [Id.]. Wilson obtained a report from the pharmacy, listing all recently filled Phentermine prescriptions, which supported these allegations. [Id. at p. 13, ¶ 72]. She then approached Hospital Administrator Dan Stone about the situation.[6][Id. at p. 13, ¶ 73].

         Despite these reports, Harlan ARH Hospital administrators never discussed the issue with Dr. Ramsey or instructed its pharmacists not to fill Phentermine prescriptions written by him. [Id. at 12, ¶ 67-68]. As a result, from January 17, 2012 to March 10, 2014, Harlan ARH Hospital Pharmacy filled 83 Phentermine prescriptions written by Dr. Ramsey to nurses, staff members, and their families.[7] [Id. at p. 14, ¶ 81].

         Finally, in 2014, the Kentucky Board of Medical Licensure (“KBML”) received an anonymous complaint about Dr. Ramsey's prescribing practices. [Id. at p. 17, ¶ 86]. During the ensuing investigation, eight employees, including five nurses, a licensed professional nurse, and a nursing services clerk, conceded that they obtained and filled Phentermine prescriptions written by Dr. Ramsey. [Id. at p. 17, ¶ 87]. Dr. Ramsey admitted to the same, indicating that he received and ingested some of the pills so that he could stay awake while working the night shift. [Id. at p. 18, ¶ 91]. Dr. Ramsey later entered into an agreement with the KBML, indefinitely terminating his ability to practice medicine. [Id. at p. 18, ¶ 93].

         As part of a DEA audit, the United States later procured dispensing records for Harlan ARH Hospital Pharmacy, as well as Hazard ARH Clinic Pharmacy, Hazard ARH Hospital Pharmacy, and Middlesboro ARH Pharmacy. [Id. at 19, ¶ 95]. These records were often incomplete and inconsistent with each other, making it difficult to conduct an accurate audit. [Id. at 19-21, ¶ 98-103]. The audit also revealed that ARH pharmacies dispensed controlled substances for “office stock” to another registrant pursuant to a prescription and distributed Schedule II controlled substances without using a DEA Form 222. [Id. at p. 19-21, ¶ 95-101].

         The United States now brings this civil enforcement action against ARH, seeking penalties and injunctive relief in connection with the aforementioned violations of the CSA. [Id. at 1, ¶ 1]. Count I alleges that ARH filled false or fraudulent prescriptions in violation of 21 U.S.C. § 842(a)(1), while Count II asserts that ARH failed to make and maintain complete and accurate records in violation of 21 U.S.C. § 842(a)(5). [Id. at p. 22-23, ¶ 104-113].

         ARH urges the Court to dismiss Count I with prejudice because the relevant CSA provisions do not apply to the pharmacy itself. Moreover, ARH insists that the pharmacy cannot be held vicariously liable for the acts of the prescribing practitioner or pharmacist. ARH argues that Count II should suffer the same fate because the United States has not plead a plausible claim of inaccurate recordkeeping. In the alternative, ARH contends that the United States cannot recover civil penalties on a “per occurrence” basis, and thus, it is entitled to partial summary judgment limiting the amount recoverable to $25, 000 for all violations of the CSA plead in Count I and $10, 000 for all violations alleged in Count II. Consistent with this conclusion, ARH asks the Court to strike all mention of “per occurrence” penalties from the Complaint. The Court will address each of these contentions in turn.

         III. Principles of Statutory Construction

         “It is a ‘fundamental canon of statutory construction' that, ‘unless otherwise defined, words will be interpreted as taking their ordinary, contemporary, common meaning.'” Sandifer v. U.S. Steel Corp., 134 S.Ct. 870, 876 (2014) (quoting Perrin v. United States, 444 U.S. 37, 42 (1979)); see also Norfolk S. Ry. Co. v. Perez, 778 F.3d 507, 512 (6th Cir. 2015) (“We must presume that Congress says what it means and means what it says, and therefore must apply a statute as it is written, giving its terms the ordinary meaning that they carried when the statute was enacted.”).

         ARH's arguments, summarized above, hinge heavily on its reading of various federal statutes and regulations. The Court will therefore apply the aforementioned principles of statutory construction in evaluating ARH's Motions.

         IV. ARH's Motion to Dismiss

         A. Standard of Review

         A Complaint must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2); see also Fed. R. Civ. P. 12(b)(6). It should also include “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly v. Bell Atl. Corp., 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that a defendant is liable for the misconduct alleged.” Id. “[A] formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555.

         B. Count I-Filling False or Fraudulent Prescriptions

         The CSA generally requires “[e]very person who manufactures or distributes any controlled substance, ” or proposes to engage in such activities, to obtain a registration issued by the Attorney General.[8] 21 U.S.C. § 822(a)(1). The same rule applies to “[e]very person who dispenses, or proposes to dispense, any controlled substance.” 21 U.S.C. § 822(a)(2). It is unlawful for registrants to distribute or dispense Schedule II, III, IV, or V controlled substances without a prescription. 21 U.S.C. § 829(a)-(c) (stating that such controlled ...


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