USA v. Appalachian Regional Healthcare, Inc.
MEMORANDUM OPINION & ORDER: (1) 6 MOTION to Dismiss is DENIED. (2) 5 MOTION to Strike and for Partial Summary Judgment are DENIED. (3) ARH shall file an Answer to the Complaint w/in 14 days of the date of entry of this Order. Signed by Judge Joseph M. Hood on 3/30/2017.(SCD)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION at LEXINGTON
UNITED STATES OF AMERICA,
Civil Case No.
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].
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.
Factual and Procedural Background
ARH is a healthcare system that operates medical centers,
hospitals, and clinics throughout Eastern Kentucky. [DE 1, p. 2,
It also oversees several pharmacies affiliated with these
facilities, including Harlan ARH Hospital Pharmacy, Hazard ARH
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
manufacture to delivery to ensure that they are not illegally
diverted for improper uses.”
[Id. at p. 3, ¶ 10].
system permits pharmacies to dispense controlled substances to a
patient, so long as that patient holds a prescription issued by a
legitimate medical purpose.
[Id. at p. 4, ¶ 14].
detailed records of the transactions. 2
[Id. at p. 8, ¶ 39-40].
However, the precise recordkeeping requirements vary, depending on
In 2010, a pharmacist at Harlan ARH Hospital Pharmacy notified
the Director of Pharmacy, Angela Creech, that he had concerns about
When pharmacies are distributing Schedule II substances, they must complete a
special Form 222 issued by the DEA. [Id. at p. 8, ¶ 37-38].
As indicated above, the CSA draws a distinction between “dispensing” a
controlled substance, which means delivering a controlled substance to the
ultimate user, and “distributing” the drug, which covers other types of delivery
of a controlled substance. 21 U.S.C. § 802(10)-(11).
Phentermine prescriptions written by Dr. Donald F. Ramsey. 3
substance, is a stimulant intended to assist obese patients with
weight loss when combined with diet and exercise. 4
[Id. at p. 9,
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
[Id. at p. 11, ¶ 58].
Many of these prescriptions were
written for nurses and staff members who were not obese. 5
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.
13, ¶ 70-71].
[Id. at p. 12-
According to this source, the nurse had also
indicated that she kept half of the pills and gave the other half
to Dr. Ramsey.
Wilson obtained a report from the pharmacy,
In 2004, Dr. Ramsey began working in Harlan ARH Hospital’s Emergency Room
pursuant to a contract with Mountain Medical Enterprises, PLLC. [Id. at p. 10,
¶ 50-55]. According to the United States, ARH failed to properly credential
Dr. Ramsey. [Id.]. Specifically, Dr. Ramsey did not obtain a DEA registration
listing ARH as his place of business. [Id.]. Throughout his time at ARH, Dr.
Ramsey’s DEA registration indicated that he worked at a facility in Tennessee.
Controlled substances are divided into Schedules I through V, depending on the
risk of abuse and dependence. 21 U.S.C. § 812(b)(1)-(5). Schedule II through
V substances have accepted medical uses, while Schedule I substances do not.
Id. Phentermine is chemically related to amphetamines. [Id. at p. 9, ¶ 45].
Dr. Ramsey also wrote one Phentermine prescription for the spouse of a Harlan
ARH Hospital employee. [Id. at p. 11, ¶ 61].
supported these allegations.
[Id. at p. 13, ¶ 72].
approached Hospital Administrator Dan Stone about the situation. 6
[Id. at p. 13, ¶ 73].
Despite these reports, Harlan ARH Hospital administrators
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
[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.
[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,
Wilson also told Stone that she planned to discuss Dr. Ramsey’s actions with
Dr. Amir U. Ahmad, who owned Mountain Medical Enterprises, PLLC. [Id. at p.
74-78]. It is unclear whether such a conversation actually took place. [Id.].
Although these employees used their insurance to pay for other pharmacy
services, they routinely paid in cash when filling their Phentermine
prescriptions. [Id. at p. 17, ¶ 83-84].
Dr. Ramsey later entered into an agreement with the KBML,
indefinitely terminating his ability to practice medicine.
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
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.
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.”).
reading of various federal statutes and regulations.
will therefore apply the aforementioned principles of statutory
construction in evaluating ARH’s Motions.
ARH’s Motion to Dismiss
Standard of Review
A Complaint must contain a “short and plain statement of the
claim showing that the pleader is entitled to relief.”
Civ. P. 8(a)(2); see also Fed. R. Civ. P. 12(b)(6).
also include “sufficient factual matter, accepted as true, to
‘state a claim to relief that is plausible on its face.’”
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
elements of a cause of action will not do.”
Twombly, 550 U.S. at
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
Under 21 U.S.C. § 822(c)(1)-(3), the following persons are exempted from
registration: (1) an agent or employee of any registered manufacturer,
distributor, or dispenser of any controlled substance … if such agent or
employee is acting in the usual course of his business or employment; (2) a
common or contract carrier or warehouseman, or an employee thereof, whose
possession of the controlled substance … is in the usual course of his business
or employment; and (3) an ultimate user who has lawfully obtained such
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 substances must be dispensed pursuant to a
prescription); 21 U.S.C. § 842(a)(1) (making it unlawful for any
person to deviate from this procedure).
The CSA’s underlying regulations further provide as follows:
A prescription for a controlled substance to be
effective must be issued for a legitimate medical
purpose by an individual practitioner acting in the
usual course of his professional practice.
responsibility for the proper prescribing and dispensing
of controlled substances is upon the prescribing
practitioner, but a corresponding responsibility rests
with the pharmacist who fills the prescription. An order
purporting to be a prescription issued not in the usual
course of professional treatment or in legitimate and
authorized research is not a prescription within the
meaning and intent of [21 U.S.C. § 829] and the person
knowingly filling such a purported prescription, as well
as the person issuing it, shall be subject to the
penalties provided for violations of the provisions of
law relating to controlled substances.
21 C.F.R. § 1306.04(a).
ARH argues that the United States’ attempts to hold it liable
provisions do not impose liability on corporate pharmacies.
support of this proposition, ARH notes that § 1306.04(a) refers to
only two types of individuals—the practitioner and the pharmacist.
Thus, when § 1306.04(a) states that the person knowingly filling
such a prescription shall be subject to penalties, ARH concludes
that the word “person” refers to these two types of individuals.
Although § 1306.04(a) does not define “person,” definitions
from Part 1300 have been incorporated into Part 1306.
individual, corporation, government or governmental subdivision or
agency, business trust, partnership, association, or other legal
21 U.S.C. § 1300.01.
Thus, when § 1306.04(a) states
that the person knowingly filling the prescription is subject to
penalties, it contemplates liability for corporate entities as
ARH insists that such a reading is inconsistent with the
remainder of § 1306.04(a), which is otherwise devoted to describing
the responsibilities of practitioners and pharmacists in issuing
interpretation is contrary to other aspects of Part 1306.
example, § 1306.06 states that a prescription “may only be filled
by a pharmacist, acting in the usual course of his professional
practice and either registered individually or employed in a
Similarly, § 1306.03 states that only
individual practitioners may issue prescriptions for controlled
If practitioners are the only ones who can issue
prescriptions, and pharmacists are the only ones who can fill them,
then ARH posits that they are the only ones who can be held liable
for knowingly issuing and filling invalid prescriptions.
The Court disagrees.
First, it sees nothing inconsistent
practitioners and pharmacists while simultaneously indicating that
other entities may be subject to penalties for their role in
issuing and filling invalid prescriptions.
Congress used the terms “practitioner” and “pharmacist” elsewhere
in § 1306.04(a), it certainly could have used those words in lieu
of the term “person” if it had truly intended to limit liability
under these provisions to practitioners and pharmacists.
As a final matter, the Court notes that at least one court
has held a pharmacy liable for violations of § 829(b) and §
See United States v. Poulin, 926 F. Supp. 246, 252-53
(D. Mass. 1996). While Poulin did not address the precise argument
raised by ARH in this case, it does suggest that liability may
concludes that ARH may be subject to liability under § 829(b) and
§ 842(a)(1). 10
ARH’s Motion to dismiss must be denied as to Count
In Poulin, the defendants were also held strictly liable for failing to keep
complete and accurate records under § 842(a)(10). See 926 F. Supp. at 253.
Courts now require at least negligence for liability under 842(a)(10) to attach.
See United States v. Grab Bag Distrib., 189 F. Supp. 2d 1072, 1080-81.
ARH also argued that it could not be held vicariously liable for the alleged
Because the Court has already found that § 829(b) and §
842(a)(1) contemplate direct liability for pharmacies, and because the United
Count II—Failure to Maintain Records
controlled substances to “make a complete and accurate record of
all stocks [of controlled substances] on hand.”
21 U.S.C. §
827(a)(1); see also 21 U.S.C. § 842(a)(5) (making it unlawful for
“any person … to refuse or negligently fail to make, keep, or
furnish any record, report, notification, declaration, order or
order form, statement, invoice, or information required under this
However, these requirements vary, depending on
whether the transaction is a dispensation or a distribution.
C.F.R. § 1304.22(b)-(c).
As discussed earlier in this opinion, a
dispensation occurs when the controlled substance is delivered to
the ultimate user pursuant to a prescription or other lawful order
delivered to another entity.
21 U.S.C. § 802(11).
Both dispensers and distributors must maintain records of the
(1) the name of the substance;
(2) each finished form (e.g., 10-milligram tablet or 10milligram concentration per fluid ounce or milliliter)
and the number of units or volume of finished form in
each commercial container (e.g., 100-tablet bottle or 3milliliter vial);
States expressly alleges that ARH knew of Dr. Ramsey’s prescribing practices
and failed to take action, the Court finds it unnecessary to address the
vicarious liability issue.
(3) the number of units of finished forms and/or
commercial containers acquired from other persons,
including the date of and number of units and/or
commercial containers in each acquisition to inventory
and the name, address, and registration number of the
person to whom the units were acquired;
(4) the number of commercial containers distributed to
other persons, including the date of and number of
containers in each reduction from inventory, and the
name, address, and registration number of the person to
whom the containers were distributed; and
(5) the number of units of finished forms and/or
commercial containers distributed or disposed of in any
other manner by the registrant, including the date and
manner of distribution or disposal, the name, address,
and registration number of the person to whom
distributed or disposed.
21 C.F.R. § 1304.22(a)(2),(b)-(c).
In addition to the aforementioned requirements, dispensers
must also record “the number of units or volume of such finished
form dispensed, including the name and address of the person to
whom it was dispensed, the date of dispensing, the number of units
initials of the individual who dispensed or administered the
substance on behalf of the dispenser.” 11
pharmacies revealed that they failed to comply with the CSA’s
If applicable, distributors must also record the number of commercial
containers exported directly by the registrant (under a registration as an
exporter), including the date, number of containers and export permit or
declaration number for each exportation. 21 C.F.R. § 1304.22(a)(2)(viii),(b).
handwritten “Requisition” form as an example of such inadequate
recordkeeping, noting that it “do[es] not clearly identify which
ARH entity originally possessed the controlled substance, who or
which ARH entity received the substance, or when the controlled
substance was transferred.”
[DE 1, p. 20, ¶ 100].
Additionally, the United States finds fault with “an unsigned
prescription blank from an ARH physician with a sticker listing a
prescription, instead of a specific patient’s name and address.”
[Id. at p. 20, ¶ 99].
The United States asserts that such
transactions were sometimes treated as dispensations when they
should have been recorded as distributions.
[Id. at p. 21, ¶ 102].
It also alleges that ARH pharmacies failed to complete DEA Form
222’s when distributing Schedule II controlled substances.
at p. 21, ¶ 101].
ARH contends that these allegations fail to state a plausible
claim for violations of § 827(a)(1) and § 842(a)(5), insisting
“Requisition” form as stating that controlled substances were
transferred to its Medical Mall Pharmacy on March 28, 2012.
also insists that the United States’ only complaint about the use
of the sticker on the prescription blank is that it does not show
the name and address of the ultimate user.
However, ARH says that
it is the dispensing physician’s responsibility to keep records
about the ultimate user.
The Court, having reviewed the examples at issue, agrees with
Although Medical Mall Pharmacy is listed on it, nothing on the
form actually indicates whether Medical Mall is the transferor or
transferee of the controlled substance.
As for the prescription
indicative of a larger problem. The United States used this record
as a means to illustrate ARH’s failure to distinguish between
dispensation and distribution.
On one hand, the use of the prescription blank suggests that
a dispensation took place.
However, the recipient is a doctor’s
office, indicating that a distribution actually occurred.
the recordkeeping requirements vary, depending on the nature of
the transaction, this failure to distinguish between dispensation
potentially inaccurate records.
These considerations, combined
with the United States’ allegations about the DEA Form 222’s, are
sufficient to state a plausible claim against ARH for faulty
Accordingly, ARH’s Motion to Dismiss as to Count
II must be denied.
ARH’s Motion for Partial Summary Judgment
Summary judgment is appropriate when there is no genuine
dispute as to any material fact and the movant is entitled to
judgment as a matter of law.
Fed. R. Civ. P. 56(a).
If there is
a dispute over facts that might affect the outcome of the case
under governing law, then entry of summary judgment is precluded.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
moving party has the ultimate burden of persuading the court that
there are no disputed material facts and that he is entitled to
judgment as a matter of law.
Once a party files a properly
supported motion for summary judgment, “the adverse party must set
forth specific facts showing that there is a genuine issue for
Id. at 250.
Pursuant to 21 U.S.C. § 842(c)(1)(A), “any person who violates
this section shall, with respect to any such violation, be subject
to a civil penalty of not more than $25,000.”
However, “[i]n the
case of a violation of paragraph (5) or (10) of subsection (a),
Based on this language, the United States asserts
aforementioned amounts, “per occurrence.”
[DE 1, p. 22-23, ¶ 108-
ARH insists that § 842(c) caps the total penalty for filling
false prescriptions and failing to keep accurate records at $25,000
and $10,000 respectively.
In support of this proposition, ARH
recovery of “per occurrence” penalties.
However, § 842(c)(1)(A)
states that “any person who violates this section shall, with
respect to any such violation, be subject to a civil penalty of
not more than $25,000.”
The phrase “with respect to any such violation” could be read
as stating that this provision applies with equal force to any
aspect of § 842.
However, this is already made clear by the
preceding clause, which subjects “any person who violates this
section” to the civil penalty.
Thus, the Court concludes that the
phrase “any such violation” indicates that each violation may
result in a civil penalty of up to $25,000.
Because § 842(c)(1)(B)
supplements this language, referring back to “the civil penalty”
Congress intended the same with respect to it.
Nevertheless, ARH insists that § 842(c)(1)(A) and (B) cannot
be read as imposing “per occurrence” penalties because they do not
provisions § 842(c)(1)(C) and (D).
While the latter sections use
different terminology, the Court does not see this as proof that
§ 842(c)(1)(A) and (B) cap penalties as ARH suggests.
added these two provisions to address concerns about anabolic
See H.R. Rep. No. 113-587, pt. 2, at 5 (2014).
The House Report indicates that these new sections “build upon the
existing statutory framework for imposing civil penalties for this
type of conduct.”
This suggests that Congress intended its
choice of language in § 842(c)(1)(C) and (D) to be consistent with
its understanding of § 842(c)(1)(A) and (B).
Stated another way,
it seems that Congress understood 842(c)(1)(A) and (B) to impose
“per occurrence” penalties, and adopted a similar approach in
crafting § 842(c)(1)(C) and (D).
The Court is once again unaware of any cases explicitly
discussing the argument proffered by ARH.
However, it is worth
occurrence” penalties for negligent record keeping, which totaled
over $2 million dollars.
See Advance Pharm., Inc. v. United
States, 391 F.3d 377, 399-400 (2d Cir. 2004).
This holding lends
further support to this Court’s finding that “per occurrence”
penalties may be recovered under § 842(c)(1)(A) and (B). The Court
will therefore deny ARH’s Motion for Summary Judgment in full.
ARH’s Motion to Strike
Courts “may strike from a pleading an insufficient defense or
any redundant, immaterial, impertinent, or scandalous matter.”
Fed. R. Civ. P. 12(f).
This is “a drastic remedy to be resorted
to only when required for the purposes of justice … [and] should
be granted only when the pleading to be stricken has no possible
relation to the controversy.”
Brown v. Williamson Tobacco Corp.
v. United States, 201 F.2d 819, 822 (6th Cir. 1953); see also
Operating Eng’rs Local 324 Health Care Plan v. G&W Constr. Co.,
783 F.3d 1045, 1050 (6th Cir. 2015) (“Motions to strike are viewed
with disfavor and are not frequently granted.”).
In this case, ARH asks the Court to strike those aspects of
the Complaint that mention “per occurrence” penalties.
this request proceeds on the assumption that ARH is entitled to
penalties, and because the Court has already reached the opposite
conclusion, ARH’s Motion to Strike must be denied.
Accordingly, for the reasons stated herein,
IT IS ORDERED as follows:
ARH’s Motion to Dismiss [DE 6] is DENIED;
ARH’s Motion to Strike and for Partial Summary Judgment
[DE 5] are DENIED; and
ARH shall file an Answer to the Complaint within fourteen
(14) days of the date of entry of this Order.
This the 30th day of March, 2017.
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