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Bethune Plaza, Inc. v. Dept. of Public Aid





APPEAL from the Circuit Court of Cook County; the Hon. ARTHUR L. DUNNE, Judge, presiding.


The State of Illinois Department of Public Aid (Department) found the appellant Bethune Plaza, Inc. (Bethune), a nursing home, guilty of receiving kickbacks from Sutcliffe Pharmacy. The only evidence introduced at the hearing was certain records and checks of Sutcliffe and testimony that Bethune refused to produce the invoices as to Sutcliffe or explain the checks. Bethune's officers refused to answer questions, taking the fifth amendment. The trial court affirmed. We reverse, holding the evidence was insufficient to support the agency determination.

On August 11, 1978, the Illinois Department of Public Aid sent Bethune, an intermediate care facility receiving public funds under the Medical Assistance Program (Ill. Rev. Stat. 1975, ch. 23, par. 5-1 et seq.), a notice of intent to terminate and a right of hearing. In the notice, the Department charged Bethune with having received kickbacks from Sutcliffe Pharmacy Corporation and Sutcliffe Pharmacy Incorporated (both hereinafter referred to as Sutcliffe). After receipt of the notice to terminate, Bethune requested a hearing concerning the proposed termination.

At the hearing the Department called two of its employees or former employees, Vicki Pedersen and Paul Rodgers, as witnesses, and Rosa and Jerome Morgan as adverse witnesses. Vicki Pedersen testified that she was an accountant for the Department of Public Aid for approximately three years and that for the majority of that time conducted audits of nursing homes. Pedersen participated in the December 27, 1976, exit interview of Bethune as an observer, assisting her supervisor, Stephanie Austin, by taking notes.

The purpose of an exit interview is to discuss with the facility the audit findings and any possible discrepancies and to explain to them what the report will contain. This exit interview was conducted subsequent to the Bethune audit and concerned matters which surfaced as a result of the Bethune and Sutcliffe audits. Pedersen acknowledged that since she had not been present at the audit, she had no personal knowledge of the audit findings nor what documents or invoices were examined by the auditors. Upon questioning by Bethune's attorney, however, she did read a statement from the auditor's report that "both Mrs. Morgan and Mr. Williams refused to answer any questions concerning Sutcliffe Pharmacy nor would they allow examination of invoices from that pharmacy."

Austin, an I.D.P.A. auditor, conducted the exit interview. Rosa Morgan, Bethune's administrator, Edward Williams, Bethune's attorney, Pedersen, and a court reporter were present. (Initially, counsel for Bethune indicated he wanted to offer the court reporter's transcript into evidence, but the record does not indicate that was ever done.) They discussed trust funds and financial records. According to Pedersen, Morgan and Williams were not cooperative. Austin requested the production of the invoices of various providers including those of Sutcliffe. Bethune did not produce the Sutcliffe invoices and refused even to answer questions concerning Sutcliffe. Copies of the Sutcliffe checks were shown to Rosa Morgan and Williams, who were asked what they represented, but Williams did not even want to address them. In refusing to answer questions, they claimed that it was not within the scope of the audit and that it was an illegal operation to ask for certain records.

The Department's second witness, Paul Rodgers, had been auditor for the Department for four years. He spent about two years and three months in the pharmacy audit unit. When doing an audit he examined prescription files, purchases, invoices, and the accounting and financial records. He conducted an audit of Sutcliffe which was completed in September 1976. During the audit he was specifically looking for evidence of violations of departmental policy. He looked at cancelled checks, check stubs, deposit records, cash reconciliations and financial statements. Sutcliffe did not print a general ledger but kept it on a computer. They prepared the financial statement from that computerized data. They also did not have a general journal or a cash disbursement record as such. He discovered six cancelled checks made payable to Bethune. The related check stubs indicated that the expenditure was for factoring and billing; the financial statements also indicated the payments had been posted to factoring and billing. Mr. Rodgers described the six checks, copies of which were introduced into evidence. Each of the six checks were signed by Jack Page, president of Sutcliffe. Four of these checks show the names "Bethune Plaza" and "Rosa N. Morgan," on the back side of the checks in the place where endorsements are generally made. The remaining two checks show the names, "Bethune Plaza" and "Jerome E. Morgan," also on the back side of the checks in the area commonly used for endorsements.

The deposit stamp on the back of three of these checks reads "Pay to the Order of Hyde Park Bank and Trust Company for Deposit Only, 53rd Street Mr. `G', Inc." According to Mr. Rodgers' testimony, Mr. G. Inc. is a grocery-liquor store in Hyde Park. The deposit stamp on the back of the fourth check reads "Deposit paid to the Order of Aetna State Bank, Chicago, Illinois, Sutcliffe Pharmacy, Incorporated." The deposit stamp on the fifth check reads "Pay to Order of First National Bank in Dolton For Deposit Only Sutclif Pharmacy Corporation, Incorporated." And on the sixth check "Pay to Order of [unclear] For Deposit Only Sutcliffe Pharmacy, Incorporated."

The checks were then compared against Sutcliffe's check register and monthly operating schedules, copies of certain entries being introduced into evidence over the objection of Bethune that no foundation had been laid for their admission as business records. Rodgers also testified as to the entries and his findings. With reference to the fourth check which was dated September 22, 1975, he stated that he found the corresponding check register maintained by Sutcliffe which lists a payment of $2148 (the amount on that check) by Sutcliffe to Bethune as a "Billing and Factoring Fee." The unaudited operating income and expense schedule for the period ending September 30, 1975, also had an entry of "Factoring and Billing" in the amount of $2148. The September 1975 cash summary of disbursements and receipts prepared by Sutcliffe's accountant lists an item under Miscellaneous as "Bethune Note Rec." in the amount of $2148.

With reference to the sixth check dated December 8, 1975, in the amount of $908.62, Rodgers testified that the corresponding check stub reflected payment by Sutcliffe to Bethune for a billing and factoring fee. The December 1975 cash summary of disbursements and receipts prepared by the Sutcliffe accountant shows an entry under miscellaneous as "Loan Repayments" in the amount of $908.62. The receipts column of that same summary lists receipts from an unidentified nursing home in the amount of $3,497.47, county welfare $5,032.07, and welfare $46,853.70. The unaudited computer-printed schedule for Sutcliffe operating expenses for the period ending December 31, 1975, contains an entry for factoring and billing in the amount of $1,183.63. There was no entry on that schedule in the amount of $908.62.

Rodgers testified that during the two-year period he had conducted 20 to 25 audits and had developed some expertise in examining documents. This claim of expertise was not challenged by Bethune. He testified that he had never seen factoring as an expense account. He had seen billing as an expense.

Rosa and Jerome Morgan were called by the Department as adverse witnesses. Rosa Morgan testified that she was the administrator of Bethune, an intermediate nursing care facility. She also admitted that as administrator of the home she had received vouchers made out to Bethune Plaza from the Illinois Department of Public Aid. Pleading the fifth amendment she refused to answer such questions as whether she knew Jack Page, whether she had ever purchased drugs from Jack Page or Sutcliffe, whether the endorsement of Rosa Morgan on the back of certain checks introduced into evidence was hers, whether between January 27, 1974, and December 8, 1975, she was aware of Mr. G's, and whether she cashed at Mr. G's a check dated December 10, 1974, made out to Bethune by Sutcliffe.

Jerome Morgan testified that he was the assistant administrator of the nursing home. Invoking the fifth amendment, he refused to state if he was associated with Bethune between October 1, 1974, and June 17, 1975, whether he knew Jack Page, whether he was familiar with Sutcliffe Pharmacy Corporation or Sutcliffe Pharmacy, Inc., whether he had ever received a check from either one, whether as assistant administrator he had ever contracted to purchase medical supplies from Jack Page, whether the handwriting on the back of certain checks was his, what banks Bethune had its accounts in during the period October 1, 1974, to December 8, 1975, whether as assistant administrator he had ever received any money from Jack Page, whether he was aware of Mr. G's, and whether he had cashed any checks there.

The hearing examiner in his report concluded that the Department had established its case by a preponderance of the evidence and recommended termination of Bethune's eligibility. His reasoning can be summarized as follows: The account was not actually for "billing and factoring," a category which the examiner found to be vague and not readily explainable and which he also discounted by stating "[a] pharmacy is not a factor." However, the payments from Sutcliffe to Bethune were for return consideration from Bethune as the Sutcliffe accounts contained no entry for "gifts expense." Bethune and Sutcliffe were thus found by the examiner to be engaged in financial transactions, whereby money was paid to Bethune by Sutcliffe for some unknown and hidden return consideration. Because they both were providers in the Medical Assistance Program during the audit ...

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