U.S. v. Goldstein, s. 79-1769

• Decision Date: 22 May 1981
• Docket Number: Nos. 79-1769,s. 79-1769
• Citation: 695 F.2d 1228
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Lawrence GOLDSTEIN, Richard I. Silberg, and Frank J. Jones, Defendants-Appellants. to 79-1771.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1228

695 F.2d 1228

UNITED STATES of America, Plaintiff-Appellee, v. Lawrence GOLDSTEIN, Richard I. Silberg, and Frank J. Jones,

Defendants-Appellants.

Nos. 79-1769 to 79-1771.

United States Court of Appeals, Tenth Circuit.

Argued and Submitted Nov. 17, 1980.

Decided May 22, 1981.

Rehearing Denied Jan. 21, 1983.

Monti L. Belot of Weeks, Thomas, Lysaught & Mustain, Chartered, Kansas City, Kan., for defendant-appellant Lawrence Goldstein.

Thomas A. Hamill of Hamill, Lentz, Neill & Dwyer, Shawnee Mission, Kan., for defendant-appellant Richard I. Silberg.

Michael Lerner of Barnett & Lerner, Chartered, Kansas City, Kan., for defendant-appellant Frank J. Jones.

John Oliver Martin, Asst. U. S. Atty., Kansas City, Kan. (James P. Buchele, U. S. Atty., Kansas City, Kan., with him, on brief), for plaintiff-appellee.

Before SETH, Chief Judge, and BARRETT, and SEYMOUR, Circuit Judges.

SEYMOUR, Circuit Judge.

These companion appeals arise from the convictions of defendants Lawrence Goldstein, Richard Silberg and Frank Jones on ten counts of mail fraud in violation of 18 U.S.C. Secs. 2, 1341, and four counts of making false statements in violation of 18 U.S.C. Secs. 2, 1001. In addition, defendants were convicted of one count of unauthorized distribution and possession of controlled substances in violation of 21 U.S.C. Sec. 841(a)(1). We affirm in part and reverse in part.

Defendants were charged with devising a scheme to defraud the state of Kansas and the United States by making false claims for payments under the Kansas medicaid program. Defendants were also charged with distributing drugs from a pharmacy not registered as required by the United States Drug Enforcement Administration (DEA). The alleged fraudulent scheme involved the clinic of Dr. Jones, an osteopathic physician. Goldstein, a pharmacist registered with the DEA and the state of Kansas, owned the Morrow & Keeling pharmacy, which was also registered in compliance with federal and state law. Morrow & Keeling was located several blocks from Jones' clinic. Silberg, a registered pharmacist, was employed by Goldstein as the manager of Morrow & Keeling.

The Morrow & Keeling pharmacy was a participant in the Kansas medicaid program. Pursuant to the relevant Kansas regulations, reimbursement under the program was provided only for drugs prescribed by the recipient's attending physician and dispensed in a licensed pharmacy by a licensed pharmacist. Providers of pharmaceutical items under the medicaid program were reimbursed by the state according to a payment formula based on each individual pharmacy's operating costs. Each pharmacy was required to submit yearly data from which the state determined the appropriate fee. Doctors who themselves filled prescriptions could not be reimbursed under the program for the drugs they provided except under circumstances not relevant here.

Dr. Jones operated the Riverside Clinic in Kansas City, Missouri, and the Central Clinic in Kansas City, Kansas. We are concerned here with the operation of the Central Clinic. During the relevant time, the Riverside Clinic was registered to possess controlled substances pursuant to federal and state law; the Central Clinic was not so registered. Dr. Jones himself was registered to prescribe controlled substances. Shipments of controlled drugs were received at the Riverside Clinic and transferred as needed to the Central Clinic.

In the fall of 1975, Goldberg and Dr. Jones reached an agreement under which Morrow & Keeling maintained a stock of drugs at the Central Clinic. Dr. Jones himself filled prescriptions for medicaid recipients from this stock. However, Morrow & Keeling submitted the claims for medicaid reimbursement for these drugs using its own provider number. Dr. Jones received a dispensing fee of 25cents for every prescription that was processed this way. The fee was later raised to 50cents.

In March of 1977, Gilbert Emick, a registered pharmacist employed by Morrow & Keeling, began to work at the Central Clinic two days a week, filling prescriptions from the Morrow & Keeling stock at the clinic and submitting medicaid claims on the Morrow & Keeling number. These claims were authorized by Silberg, the manager of Morrow & Keeling, who also prepared the yearly pharmacy cost studies that the state required each pharmacy claiming medicaid reimbursement to submit. Silberg received a monthly salary plus 50% of the gross profits of the store. In 1975 Medicaid reimbursed Morrow & Keeling $31,862, which represented payment for 5,706 claims. Medicaid paid Morrow & Keeling $189,319 for 31,231 claims in 1976, $282,375 for 44,406 claims in 1977, and $282,058 for 39,435 claims in 1978. During this period Dr. Jones received a total of approximately $27,195 in payments from Morrow & Keeling, representing some 60,000 prescriptions.

The essence of the fraudulent scheme charged by the Government in the section 1341 ¹ counts is that by using the Morrow & Keeling provider number in submitting claims for prescriptions actually filled at the Central Clinic, defendants were able to receive reimbursements higher than those to which they were entitled, or reimbursements for prescriptions excluded entirely from medicaid coverage. ² Each of the three defendants allegedly agreed to the scheme, aided in its success, and benefitted financially from it. The charges of making false statements in violation of 18 U.S.C. Sec. 1001 ³ resulted from defendants' use of the Morrow & Keeling provider number, name, and address in the pharmaceutical claim forms submitted for the Central Clinic prescriptions. The alleged violations of 21 U.S.C. Sec. 841(a)(1) ⁴ rest on the fact that the Central Clinic was not registered with the DEA to possess or dispense controlled drugs.

We affirm defendant's convictions on the counts alleging violations of 18 U.S.C. Secs. 2, 1001, and 1341. However, we reverse their convictions on the count alleging violations of 21 U.S.C. Sec. 841(a)(1) and remand with directions to dismiss that count.

I. The Section 841(a)(1) Count

Defendants Goldstein, Jones, and Silberg were all properly registered with the DEA to dispense controlled substances. The Government made no allegation in the indictment and presented no evidence at trial that the prescriptions written by Dr. Jones and filled at the Central Clinic were not prescribed for legitimate medical purposes in the usual course of professional treatment. Indeed, the evidence showed that the drugs were properly dispensed as part of Dr. Jones' professional practice. However, the Central Clinic itself was not registered with the DEA as a location to maintain controlled substances until April 1978. Thus, the issue before us is whether the dispensing of controlled substances by registered practitioners for valid medical reasons is a violation of 21 U.S.C. Sec. 841(a)(1) when the controlled substances are dispensed from an unregistered location.

Defendants contend that their conduct does not constitute an offense under section 841(a)(1) because the legislative intent behind the enactment of that section was to subject to prosecution only those persons, registered and unregistered, who traffic in or 'push' controlled substances by dispensing them for profit rather than in the usual course of professional practice. They argue that registered practitioners are not covered by section 841 unless they divert drugs from legitimate medical purposes.

The Government responds that the purpose of the Controlled Substances Act, 21 U.S.C. Secs. 801 et seq., is to maintain complete control over all drug transfers by providing for a closed system of legitimate drug distribution. An essential element of this closed system is registration. The Government essentially contends that if any link in the transfer of a controlled substance is not properly registered, the transfer is not authorized and therefore violates section 841(a)(1).

Section 841(a)(1) provides: '[e]xcept as authorized by this subchapter, it shall be unlawful for any person knowingly or intentionally--(1) to manufacture, distribute, or dispense, or possess with intent to manufacture, distribute, or dispense, a controlled substance . . ..' Authorized activities are defined by 21 U.S.C. Sec. 822(b) as follows:

'Persons registered by the Attorney General under this subchapter to manufacture distribute, or dispense controlled substances are authorized to possess, manufacture, distribute, or dispense such substances . . . to the extent authorized by their registration and in conformity with the other provisions of this subchapter.'

We can find no case in which these provisions have been construed in the precise factual setting presented by this appeal. Numerous decisions of this and other circuits have held that a physician or pharmacist who is registered and who dispenses controlled substances in the usual course of professional conduct is immune from prosecution under section 841(a)(1). See, e. g., United States v. Seelig, 622 F.2d 207, 213 (6th Cir. 1980), cert. denied, 449 U.S. 869, 101 S.Ct. 206, 66 L.Ed.2d 89 (1981), ('[R]egistered doctors (or other practitioners) are exempt from criminal liability under Sec. 841(a)(1) unless they were acting outside the usual course of professional practice.'); United States v. Smurthwaite, 590 F.2d 889, 891 (10th Cir. 1979); United States v. Kirk, 584 F.2d 773, 784 (6th Cir.), cert. denied, 439 U.S. 1048, 99 S.Ct. 726, 58 L.Ed.2d 708 (1978); United States v. Black, 512 F.2d 864, 868 (9th Cir. 1975); United States v. Bartee, 479 F.2d 484, 487 (10th Cir. 1973). This immunity has been inferred either from 21 U.S.C. Sec. 822(b) or from a joint reading of 21 U.S.C. Secs. 829(a), (b) ⁵ and 21 C.F.R. Sec. 306.04(a) (1973) (redesignated as 21 C.F.R. Sec. 1306.04(a) (1973)). ⁶

Although the courts have consistently limited prosecution of registered practitioners under section 841(a)(1) to those acting outside the scope of legitimate medical practice, the...