OAH No. 58-0900-15010-2

 

 

STATE OF MINNESOTA

OFFICE OF ADMINISTRATIVE HEARINGS

FOR THE DEPARTMENT OF HEALTH

 

 

In the Matter of Elliot Park Market   ,                       FINDINGS OF FACT,

WIC Vendor No. 0102.                                             CONCLUSIONS, AND

                                                RECOMMENDATIONS

 

 

            Administrative Law Judge Kathleen D. Sheehy conducted a hearing in this matter on September 20, 2002 at the Office of Administrative Hearings, 100 Washington Avenue South, Minneapolis, Minnesota.  The last submission was received on October 4, 2002.

 

            Jennifer Beens Harper, Assistant Attorney General, 445 Minnesota Street, Suite 1200, St. Paul, MN 55101-2130, appeared for the Department of Health (the Department).

 

            James R. Mayer, Esq., Fredrikson & Byron, PA, 4000 Pillsbury Center, 200 South Sixth Street, Minneapolis, MN  55402-1425, appeared for the Elliot Park Market.

 

NOTICE

 

This Report is a recommendation, not a final decision.  The Commissioner of Health will make a final decision in this matter after reviewing the administrative record.  The Commissioner may adopt, reject or modify these Recommendations.  Under Minn. Stat. § 14.61, the Commissioner may not make the final decision until this Report has been made available to the parties to the proceeding for at least ten days.  An opportunity must be afforded to each party adversely affected by this Report to file exceptions and present argument to the Commissioner.  Parties should contact the office of Jan Malcolm, Commissioner of Health, 85 East Seventh Place, Suite 400, St. Paul, MN 55101, to find out how to file exceptions or present argument.

 

STATEMENT OF ISSUE

 

            Has the Department proved a pattern of overcharges or a pattern of charging for food not received by a participant, so as to justify a three-year disqualification from participation in the WIC program?

 

            The Administrative Law Judge concludes that the Department has proved the overcharges at issue and that the Elliot Park Market must be disqualified for three years.

 

            Based upon all of the proceedings herein, the Administrative Law Judge makes the following:

 

FINDINGS OF FACT

 

The WIC Program

 

1.         The Special Supplemental Nutrition Program for Women, Infants and Children (WIC) Program provides pregnant women, nursing mothers, infants, and children up to the age of five with nutritional supplements and other health care services.  The program is federally funded, managed by the state, and administered locally by WIC clinics throughout Minnesota.[1]

 

2.         WIC clinics provide eligible women and children (participants) with WIC identification cards and vouchers that participants or their authorized proxies can redeem for specific kinds of food products.  Program rules require participants and their proxies to sign the identification cards.  The program then periodically issues vouchers to participants.  Each voucher contains a unique identification number and lists the food items that the participant is entitled to receive.  There are spaces on the vouchers for the vendor to record the total price charged for the food items received by the participant, for the signature of the participant or proxy, and for the vendor's WIC stamp.  A participant may choose to receive all or only some of the food items listed on the voucher, but the vendor may only charge the program for the food items that the participant actually receives.  The vendor may not charge more for a food item than the price displayed in the store or marked on the item.

 

3.         There are approximately 1,100 vendors in the state that are authorized to accept WIC vouchers for food.  To become a WIC vendor, a food store must execute a Retail Food Vendor Agreement.  That agreement is a contract between the Department and the vendor that, among other things, describes the terms of the food store's participation in the program and establishes the penalties for failing to comply with various program requirements.  The Department then issues the food store a WIC vendor stamp bearing a unique vendor number.  The store is required to place its stamp on the WIC vouchers it receives from participants in order to receive payment.  The Department periodically requires all of its WIC vendors to receive training on the program's various requirements.[2]

 

4.         Retail food vendor agreements require that transactions between vendors and individual participants occur in particular ways.  For example, a participant may only use a WIC voucher to obtain the kinds of food items listed on the voucher.  WIC-approved foods are limited to certain brands of food items--for example, only certain brands of cereals or juice.  When the participant presents a vendor with selected food items, the vendor must first ring up the total price of the items before the participant signs the voucher. The participant then presents the blank voucher to the vendor to record the total price on it.  After the vendor records the total price, the participant must sign the voucher, and the vendor must then compare the signature on the voucher with the signatures on the participant's WIC identification cards.[3]

 

5.         The Department conducts compliance buys, using undercover agents, to monitor WIC vendors' compliance with their agreements and the law.  The Department's employees and agents conduct those compliance buys according to a standard operating procedure, which includes the following:  An undercover agent and a "lead investigator" drive to a location nearby, but not within sight of the WIC vendor, and park their car.  The undercover agent then turns over to the lead investigator any WIC vouchers, food stamps, or cash that might be in his or her possession (so the investigator has no method other than the voucher to make a purchase).  Next, the lead investigator gives the undercover investigator one WIC identification card with a fictitious identity. The lead investigator also gives the investigator one WIC voucher that can be redeemed for the foods specified on it.  The lead investigator then records the time when the investigator left the car to go into the WIC vendor's store.[4]

 

6.         The Department has established standard operating procedures to govern what an undercover investigator does after entering a WIC vendor's store.  After entering the store, the investigator proceeds to collect food items, and bring them to the cashier to be rung up.  The foods that the investigator brings to the cashier sometimes include some items that are not specifically approved by the WIC program, and the investigator will typically omit some food items described on the WIC voucher.  The investigator then presents the WIC voucher in his or her possession to the cashier.  It is the responsibility of the cashier to record the total price on the voucher of the foods presented for purchase before returning the voucher for the investigator's signature.  The investigator does not request a cash register receipt, but takes one if offered.  The investigator does not produce the WIC identification card for comparison of signatures unless requested.  After signing the WIC voucher and returning it to the cashier, the investigator allows the cashier to bag the groceries and returns to the car where the lead investigator is waiting.[5]

 

7.         The Department's standard operating procedures also address what happens when the investigator returns to the car with the groceries.  The lead investigator records the time when the investigator returned to the car.  The lead then prepares a written inventory of the food items that the investigator brought back from the store and photographs the food with a slip of paper identifying the WIC vendor from which the items had been purchased.  The investigator and the lead then complete a written report of the results of their investigation.  After the paperwork is completed, the nonperishable food items are kept in the bag provided by the vendor, separate from any food items that have been purchased from other vendors on the same day.  Perishable foods are kept in a cooler.  At the end of the day or whenever the cooler is full, the investigators take the food items to a charitable institution, where the food is donated.[6]

 

Elliot Park Market

 

8.         Elliot Park Market is a small grocery store located at 1600 Chicago Avenue South in Minneapolis.  Adam Ali owns and operates the market.

 

9.         Elliot Park Market executed a Retail Food Vendor Agreement with the Department, effective January 21, 1999 through April 30, 2000.[7]  It executed another agreement on May 1, 2000, to be effective through April 30, 2002.[8]  Because of a change in the rules governing WIC procedures, the parties executed an Amended Retail Food Vendor Agreement, effective August 28, 2000, which was to remain in effect until April 30, 2002, unless the vendor's authorization to accept WIC vouchers was terminated before then.[9] 

 

10.       As part of the Department's compliance program, undercover investigators conducted a compliance buy at Elliot Park Market on July 21, 2001.  On that date, a WIC investigator, following the Department's standard operating procedures described above,[10] entered the store and brought the following food items to the cashier:  two 48-oz. bottles of Juicy Juice, one gallon of whole milk, and one dozen large eggs.  The investigator did not attempt to purchase cheese, which the voucher would have authorized.  The cashier did not allow the investigator to purchase one gallon of orange drink, which is not WIC-approved.  The cashier entered a price on the voucher, but did not compare the signature on the voucher against the signature on the WIC identification card.[11]

 

11.       The WIC voucher used in this compliance buy was processed for payment by the Department's bank and returned to the compliance manager.[12]  The voucher indicates a total price of $21.13 for items purchased.  To determine whether there was an overcharge, the Department obtained prices for the milk and eggs from a compliance price check performed on August 15, 2001.  At the time of that visit, whole milk was selling for $3.19 per gallon and large eggs were $1.19.[13]  The juice was priced on the container at $2.69 each, for a total food value of $9.76, as opposed to the $21.13 entered on the voucher.  The resulting overcharge was $11.37.[14] 

 

12.       On September 6, 2001, the Department notified Elliot Park Market of a number of violations that had occurred during that year, warned that continued violations could result in disqualification from the WIC program, and identified a contact person for questions about the letter or assistance in training at the store.[15]  The notice letter identified the dates of the violations and described the violations in detail, including the overcharge on July 21, 2001.

 

13.       On January 12, 2002, the Department conducted another compliance buy at Elliot Park Market.  The standard operating procedures were used to conduct the purchase.[16]  The undercover investigator brought the following food items to the cashier:  two boxes of Frosted Flakes and one gallon of Juice Tyme orange drink (neither of which is WIC-approved), one dozen eggs, one 16-oz bag of dried black beans, and one gallon of whole milk.  The cashier refused the purchase of Frosted Flakes and orange drink and showed the investigator where the WIC-approved cereals and juices were.  The investigator then substituted a 9-oz box of Kix and two 12-oz boxes of Rice Chex and two 46-oz bottles of Juicy Juice for the unapproved items.  The investigator did not purchase cheese, which the voucher would have authorized.[17]  The cashier failed to enter a price on the WIC voucher before returning it to the undercover investigator for signature.  The cashier did not compare the investigator's signature on the WIC voucher with the signature on the identification card.

 

14.       The WIC voucher used in this compliance buy was processed for payment by the Department's bank and returned to the compliance manager.[18]  The voucher indicates a total price of $26.50 for items purchased.  To determine whether there was an overcharge, the Department used the prices marked on the Rice Chex ($4.39 each), the black beans ($.99), and the juice ($2.89).  The prices of the remaining items (Kix, eggs, and milk) were determined based on two cash buys, both of which took place on April 2, 2002.[19]  On these visits the eggs were $1.19 per dozen, the milk was $2.89, and the cereal was $3.69.[20]  Based on these prices, the dollar food value for items purchased totaled $23.32, as opposed to the price on the voucher of $26.50, resulting in an overcharge of $3.18.[21]

 

15.       On April 17, 2002, Department staff members participated in a vendor violation forum to discuss the overcharges which had occurred both before and after the notice letter of September 6, 2001.  Participants discussed that the store had overcharged the Department by more than 30% of the value of the food purchased on July 21, 2001, and had failed to enter the price on the voucher on January 12, 2002.  In addition, the participants discussed the location of other markets to serve WIC participants in the area and determined that there were five vendors within one mile of the store.  They concluded that disqualification of Elliot Park Market would not result in inadequate participant access. At the end of the discussion, the Department staff agreed that the Elliot Park Market should be disqualified for three years as a result of the pattern of overcharging demonstrated during compliance buys.[22]

 

16.       On April 23, 2002, the Department notified Elliot Park Market that it was disqualifying the store from participating in the WIC program for a period of three years, effective May 23, 2002.  The letter directed the store to discontinue accepting WIC vouchers and to return the vendor stamp.  The letter also notified the store of its appeal rights.[23]

 

17.       Elliot Park Market appealed its disqualification from the WIC program.  The Department issued a Notice of and Order for Hearing on August 5, 2002.  The hearing took place on September 20, 2002.

 

            Based upon these Findings of Fact, the Administrative Law Judge makes the following:

 

CONCLUSIONS

 

            1.         The Administrative Law Judge and the Commissioner of Health have authority to consider and rule on the issues in this contested case proceeding pursuant to 7 C.F.R. § 246.18 and Minn. R. 4617.0100.

 

            2.         The Notice of and Order for Hearing was proper in all respects, and the Department has complied with all of the law's other substantive and procedural requirements.

 

            3.         The Department has the burden of proving by a preponderance of the evidence that Elliot Park Market should be disqualified from participation in the WIC program for three years based on a pattern of overcharging, pursuant to Minn. R. 4617.0100, subp. 3.

 

4.         Minn. R. 4617.0084, subp. 1, requires that a vendor be given notice of a violation that does not result in disqualification.  The Department gave adequate notice to Elliot Park Market of the overcharging violation on July 21, 2001, which did not result in disqualification.

 

5.         U.S. Department of Agriculture regulations require that a vendor be disqualified from the WIC program for three years if the vendor has engaged in a "pattern of vendor overcharges" or a "pattern of charging for supplemental food not received by the participant."[24]

 

6.         State rules promulgated under Minn. Stat. § 145.894(k), the Maternal and Child Nutrition Act of 1975, similarly define overcharging as either (1) charging the WIC program more for WIC-allowed food than the vendor's usual and customary charge to non-WIC customers or charging the WIC program more than the vendor's current shelf price of the food; and (2) charging the WIC program for WIC-allowed food not received by a WIC customer.[25]

 

7.         A "pattern" of overcharging is defined in Minn. R. 4617.0084, subp. 8(B), which provides that the commissioner shall disqualify a vendor for three years if, on two occasions within any two-year period, the vendor overcharges the WIC program and if (1) each violation involved an overcharge to the WIC program of $2 or more; and (2) each violation involved any of the following circumstances:  (a) no price was entered on the voucher at the time it was accepted by the vendor; (b) the price on the voucher was at any time altered to reflect a price higher than the price originally entered on the voucher; or (c) the price the WIC program paid the vendor for the voucher was more than 30 percent greater than the correct price for the voucher.

 

            8.         The Department has demonstrated by a preponderance of the evidence that Elliot Park Market overcharged the WIC program twice within a two-year period, on July 21, 2001 and January 12, 2002.  The amount of the overcharge on both occasions was more than $2; on the former date the overcharge exceeded 30% of the correct price, and on the latter date the vendor failed to enter a price on the voucher.  The Department accordingly has demonstrated that Elliot Park Market should be disqualified from participating in the WIC program for three years.

 

            9.         The Department has considered the impact on participant access and demonstrated by a preponderance of the evidence that disqualification of Elliot Park Market will not result in inadequate participant access.

 

            10.       The Memorandum that follows explains the reasons for these Conclusions, and the Administrative Law Judge therefore incorporates that Memorandum into these Conclusions.

 

            Based upon the foregoing Conclusions, the Administrative Law Judge makes the following:

 

RECOMMENDATION

 

            The Administrative Law Judge respectfully recommends that the Commissioner DENY the appeal of Elliot Park Market from its disqualification from participation in the WIC program and UPHOLD the disqualification for a period of three years, effective May 23, 2002.

 

Dated: October 15, 2002

 

                                                                        /s/ Kathleen D. Sheehy

                                                                        ________________________

                                                                        KATHLEEN D. SHEEHY

                                                                        Administrative Law Judge

 

Transcribed:  Kirby A. Kennedy & Associates

 

NOTICE

 

Under Minn. Stat. § 14.62, subd. 1, the Department of Health is required to serve the final decision upon each party and the Administrative Law Judge by first-class mail.

 

MEMORANDUM

 

            Elliot Park Market does not dispute the first violation of July 21, 2001.  It does dispute the second violation of January 12, 2002, contending that the undercover investigators made errors in the second compliance buy and in a subsequent cash buy used to price some of the items.

 

            First, the vendor contends that the cashier did write the price on the voucher before asking the undercover agent to sign it.  The cashier testified that he wrote the price on the voucher; the agent testified that he did not.  The cashier's testimony is that he was trained to be careful about processing WIC vouchers, that he always writes the amounts on the vouchers before asking for a signature, and that he specifically remembers doing so in this case.  The agent's testimony to the contrary is supported by documentary evidence in the form of the WIC investigation report, where she indicated in three places, immediately after the transaction in question, that the clerk did not enter the price on the voucher before she signed it.[26]  Based on all the circumstances, the Administrative Law Judge accepts the undercover agent's testimony because it is corroborated by the WIC investigation report.

 

            Next, the vendor claims that the undercover agent did purchase the cheese authorized by the voucher (a half pound for $2.59, which would reduce the alleged overcharge to under $2.00).  The cashier and another man working as a grocery bagger claimed to have a specific memory of the agent purchasing a half-pound of cheese.  The agent's WIC report does not refer to the purchase of cheese, nor does the Item Donation sheet indicate that cheese from this transaction was later donated to a charitable organization.[27]  The investigators typically photograph all items purchased in compliance buys; in this case, the Department could not locate any photograph and speculates that it was misplaced, misfiled, or that the film did not develop properly.  The Administrative Law Judge accepts the testimony of the undercover agent and the lead investigator that no cheese was purchased because it is corroborated by the WIC investigation report and the item donation sheet.[28]  To accept the vendor's testimony would require the conclusion that both the undercover agent and the lead investigator collaborated in concealing the purchase of cheese in their contemporaneous written reports and in their testimony during the hearing.  There is no evidence to suggest that this in fact happened.  It is more likely that the cashier and grocery bagger are simply mistaken or wishful in their recollection of the events.

 

            The vendor also maintains that certain items were not properly priced in calculating the overcharge.  For instance, the vendor maintains that he has never sold whole milk for $2.89 per gallon as indicated in the April 2002 cash buy, a claim that is supported by his November 2001 application for reauthorization as a WIC vendor, in which he stated that whole milk sells for $3.29,[29] and by the compliance monitoring price check worksheet, completed by the compliance manager in August 2001, indicating that a gallon of whole milk was priced then at $3.19.[30]  The vendor also claims that dried black beans sell for $1.19, not $.99 as reported in the WIC investigation report.  The Administrative Law Judge concludes that it is likely that the milk was not priced correctly in the cash buy, but that this is not material to the violation.  Even if the overcharge were determined based on the vendor's prices for milk and beans, the overcharge would amount to $2.59, which is sufficient to meet the threshold of Minn. R. 4617.0084.

 

            Finally, the vendor argues that the violations must be of the same type under Minn. R. 4617.0084, subp. 8(B), in order to be considered a "pattern" of overcharging under 7 C.F.R. § 246.12 (l)(1)(III)(c).  The state rule groups all overcharging violations together and provides that disqualification is mandatory if each of the two violations at issue involved "any" of the following circumstances:  failure to enter a price, altering the price on the voucher, or charging more than 30% more than the correct price.  The language of the rule does not require that the overcharging violations be identical, and there is no legal basis for precluding the state from defining a  "pattern" as different methods of overcharging.[31]  

           

           

                                                                                    K.D.S.