Pitfalls of an Inventory Case in Criminal Prosecution

Two recent Medicaid and Medicare fraud prosecutions from the New York County District Attorney’s Office and the United States Attorney for the Eastern District of New York both allege that the defendant pharmacists and their respective pharmacies submitted false claims to Medicaid and Medicare for services not rendered.  That is, prescriptions were billed, but not filled.  In both cases, the larceny amount was in the millions.  How did the government make their cases?

Absent admissions or confessions, the government relies on an audit of the inventory of the pharmacy to establish that it did not have sufficient medications to match what was billed.  In other words, the government will examine the purchase order invoices for select medications and compare them to the billings over a certain period of time.  The shortfall of pills translates into the larceny figures.

This methodology works better in the civil arena and is more difficult to sustain in a criminal case which has a higher burden of proof.  Attacks on the reliability of the inventory theory can certainly prevent prosecutors from proving their case beyond a reasonable doubt.  The possible areas to be considered are:

1. Did the government establish the baseline when it began the audit?  Was it able to establish what was on hand in the pharmacy on day one?  More than likely, there was prescription medication on hand, and that should have been credited to the defendant pharmacy.
2. Did the government get all of the invoices from all the wholesalers used by the pharmacy?  This failure could be fatal, assuming the “missing invoices are legitimate.
3. Does the defendant own more than one pharmacy?  In this case, prescription medications ordered by Pharmacy A may have been used at Pharmacy B to cover shortfalls.  In that case, Pharmacy B invoices are not complete.
4. Was the prescription medication purchased from the “black market, in which case the defendant may have actually dispensed the medications, albeit from an illegitimate source?

All of the above should be considered when confronted with an inventory case.  Although the dollar amount can be large, the proof beyond a reasonable doubt may not be so easy to establish.

This post was contributed by Richard Harrow.