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Tanquilut v. Ill. Dept. of Public Aid

OPINION FILED OCTOBER 16, 1979.

RENATO L. TANQUILUT, M.D., PLAINTIFF-APPELLANT,

v.

THE DEPARTMENT OF PUBLIC AID, DEFENDANT-APPELLEE.



APPEAL from the Circuit Court of Cook County; the Hon. RICHARD L. CURRY, Judge, presiding.

MR. PRESIDING JUSTICE STAMOS DELIVERED THE OPINION OF THE COURT:

In February of 1978, plaintiff, Renato L. Tanquilut, M.D., petitioned the circuit court of Cook County for judicial review of the administrative action of the Illinois Department of Public Aid (IDPA) terminating his eligibility as a vendor of medical services. The circuit court affirmed the IDPA decision, barring plaintiff from continued participation in the Medical Assistance Program.

On appeal, plaintiff challenges both the factual basis for the findings and conclusions by the IDPA which resulted in his suspension and the procedural application of the termination statute. He further contends that the statute authorizing termination of medical vendors is constitutionally deficient both on its face and in its application.

In 1972, plaintiff Tanquilut and another physician maintained a medical practice, organized as a partnership, and operated under the name Hilltop Medical Center (Hilltop). Sometime before May of that year, Hilltop purchased from Englewood Hospital the building in which their medical center was located. Prior to the sale, the hospital had operated a pharmacy in that location, employing Bernard Scavella, a licensed pharmacist. After the sale was completed, Hilltop solicited Scavella to open and manage a pharmacy within the newly acquired building. On May 1, 1972, Hilltop entered into a lease agreement with Scavella which ran from May 1, 1972, through April 30, 1974, with an irrevocable option giving the lessee the right to extend the lease for two years at the same rental.

Scavella paid nothing for the pharmacy as a going concern. Rather, Hilltop financed the $15,000 pharmacy inventory and provided heat, light, janitorial services, parking facilities, water, scavenger service, and storage space in the basement. Prior to the negotiations concerning the lease terms, Scavella, having had previous experience only as an employee and not as a manager, studied Lilly's Digest and learned that the average pharmacy expenditure for cost of goods sold was approximately 67% of gross receipts. As Scavella testified at the later administrative hearing:

"When I met with the doctors and their attorney and their business consultant in 1972, this was the figure that I projected, and it was worked at that particular point if the cost of goods sold was 67%, that was all right, but if the figures fell less than that, the difference between the actual proposed cost of goods sold, 67% and what I actually did buy, was to be computed, and 80% of the difference would be additional rent, between the two figures of 67% and the actual."

The lease specified that the base rental was $4,000 per month or 12% of the gross collections for professional services less the monthly rent. Additionally, the 67% figure was used to provide for the possibility of increased rent, designated as "incentive rent" in the lease agreement.

At the time of the signing of the lease, both Hilltop and Scavella agree, an oral agreement was made allowing for lease renegotiation if there were problems with the amount of rent being paid. The agreement also provided for repayment of the $15,000 pharmacy inventory from money received by the pharmacy.

On December 30, 1976, Dr. Tanquilut was notified by the IDPA that his eligibility to participate in the Medical Assistance Program was terminated and that payments would be suspended as of that date. The bill of particulars which alleged the grounds for termination included, inter alia, charges of violation of Federal law and of receipt of kickbacks and rebates.

A formal administrative hearing was held on February 14, 1977, at which witnesses were called to testify to the terms and practical effect of the lease. The IDPA's first witness was the pharmacist, Scavella. He detailed the terms of the lease and further testified that Ridge Pharmacy, which he leased at a later time, was approximately the same size but rented for $1,500 less per month than Hilltop. No other comparisons were made between these two facilities.

On cross-examination Scavella explained that the $4000 base rental for the Hilltop Pharmacy was based upon figures that Englewood Hospital, the former owner, had submitted. He also testified that as a yearly employee of Englewood Hospital he earned $14,000 whereas in the same facility as sole proprietor he made $59,000 to $60,000 a year. Hearing officer Dixon also asked Scavella a few questions regarding his impression of the leasing arrangement:

"Dixon: Did you think the deal on its face was oppressive?

Scavella: No.

Dixon: Did you make money, ...


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