Healthscript, Inc. v. State

Attorney for Appellant

David F. McNamar
McNamar & McSharar, P.C.
Indianapolis, IN

Attorneys for Appellee

Steve Carter
Attorney General of Indiana

Rosemary L. Borek
Deputy Attorney General
Indianapolis, IN

IN THE
INDIANA SUPREME COURT

HEALTHSCRIPT, INC.,
Appellant (Defendant below),

v.

STATE OF INDIANA,
Appellee (Plaintiff below).

)
) Supreme Court No.
) 49S05-0102-CR-00108
)
) Court of Appeals No.
) 49A05-9908-CR-370
)
)
)

APPEAL FROM THE MARION SUPERIOR COURT
The Honorable Jane Magnus-Stinson, Judge
Cause No. 49G06-9904-CF-69249

ON PETITION TO TRANSFER

June 28, 2002

SULLIVAN, Justice

Defendant Healthscript, Inc., was charged with Medicaid Fraud for
allegedly overcharging Medicaid for products it provided to its customers.
The trial court denied its motion to dismiss and Defendant appealed. We
reverse the trial court’s denial of Defendant’s motion to dismiss, finding
that the statute under which Defendant was charged is too vague to meet the
requirements of due process.

Background

Medicaid is a joint federal-state program that pays for some health
care costs of low-income people, including care in long-term care
facilities such as nursing homes. The federal government pays about 62% of
the costs of Medicaid in Indiana; the state pays the balance. Kendra A.
Hovey & Harold A. Hovey, CQ’s State Fact Finder 135 (2002). Defendant is a
licensed pharmacy authorized to provide health-related services under
Indiana’s Medicaid program. In Medicaid parlance, Defendant is a
“provider.” Between November, 1995, and June, 1997, Defendant submitted
claims to and was paid by Medicaid for deliveries of sterile water to Haven
Center, a long-term care facility. In 1998, the State charged Defendant
under Ind. Code § 35-43-5-7.1(a)(1) (Supp. 1997) – to be discussed in
detail infra – with the crime of “Medicaid Fraud” on the theory that
Defendant had overcharged Medicaid for the sterile water delivered to Haven
Center.

Defendant filed a motion to dismiss, arguing that Defendant could not
be charged under Ind. Code § 35-43-5-7.1(a)(1) for the acts that the State
had alleged. Defendant also filed a motion to suppress regarding a search
warrant, which Defendant contends was illegally obtained. The trial court
rejected both claims and certified its rulings for interlocutory appeal.
The Court of Appeals reversed the trial court’s ruling on Defendant’s
motion to dismiss.[1] See Healthscript, Inc., v. State, 740 N.E.2d 562
(Ind. Ct. App. 2000) (on rehearing). Having previously granted transfer,
753 N.E.2d 6 (2001) (table), we now review the trial court’s ruling.

Discussion

I

Reduced to its essentials, this is a case about whether a criminal
statute, Ind. Code § 35-43-5-7.1(a)(1) (Supp. 1997), is sufficiently
definite to put Defendant on notice that its alleged conduct was
proscribed. As such, a fairly careful parsing of the relevant statutory
and regulatory language is required.

We start with the language of Ind. Code § 35-43-5-7.1(a)(1) (Supp.
1997), the criminal statute under which Defendant was charged with the
crime of “Medicaid Fraud.” It provides in relevant part:

[A] person who knowingly or intentionally ... files a Medicaid
claim, including an electronic claim, in violation of Indiana Code §
12-15 ... commits Medicaid fraud, a Class D felony.

As such, we are required to examine Ind. Code § 12-15 (1993 & Supp.
1997). This article of the Code comprises Indiana’s Medicaid statute.
Among its provisions is the following:

A provider who accepts payment of a claim submitted under the
Medicaid program is considered to have agreed to comply with the
statutes and rules governing the program.

Ind. Code § 12-15-21-1 (1993). A Medicaid regulation in effect at the time
of Defendant’s alleged submissions specified that providers could not be
paid by Medicaid more than their “usual and customary charge” to private
non-Medicaid customers. Ind. Admin. Code tit. 405 r. 1-6-21.1(g)(3)(1996 &
Supp. 1997).

The State alleged that Defendant charged between $22.50 and $25.00 per
9000 milliliters to three other customers while charging the Medicaid
program $181.00 per 9000 milliliters. According to the State, the
resulting payments exceeded $50,000. It was the State’s theory, then, that
Defendant did not comply with Ind. Admin. Code tit. 405 r. 1-6-21.1(g)(3)
when it overcharged the Medicaid program; that this in turn violated Ind.
Code § 12-15-21-1 because Defendant did not abide by its agreement to
“comply with the ... rules governing [Medicaid];” and Defendant therefore
committed a class C felony under the Medicaid Fraud Statute, Ind. Code § 35-
43-5-7.1(a)(1), by submitting a claim in violation of Ind. Code § 12-15.

II

Defendant attacks the charges against it with several arguments.[2]
Its broadest claim is that the charges must be dismissed because they
violate constitutional separation of powers principles. Citing Ind. Const.
Art. III, § 1,[3] Defendant contends that the Legislature has impermissibly
delegated its constitutional power to an administrative agency. Defendant
argues that only the Legislature can enact a criminal law: “The
legislature cannot delegate its statutory authority to enact criminal law
to an administrative agency by way of an agency's rule-making power.” (Br.
of Appellant at 19) (citing Ensign vs. State, 250 Ind. 119, 235 N.E.2d 162,
164-65 (1968)).[4]

We have held that the Legislature may constitutionally delegate rule-
making powers to an administrative agency if that delegation is accompanied
by sufficient standards to guide the agency in the exercise of its
statutory authority. Barco Beverage Corp. v. Indiana Alcoholic Beverage
Com'n, 595 N.E.2d 250, 253-54 (Ind. 1992) (quoting Taxpayers' Lobby of
Indiana, Inc. v. Orr, 262 Ind. 92, 103, 311 N.E.2d 814, 819 (1974)).[5]
Whether the delegation at issue here contravenes that principle is a
question we need not decide today because we decide the case on other
grounds.[6]

III

At issue here is whether the criminal statute under which Defendant
was charged gave fair warning that the conduct alleged was proscribed. As
set forth supra, that statute provides:

[A] person who knowingly or intentionally ... files a Medicaid
claim, including an electronic claim, in violation of Indiana Code §
12-15 ... commits Medicaid fraud, a Class D felony.

Ind. Code § 35-43-5-7.1(a)(1).

Defendant points out that while Indiana Code § 12-15 governs the
operations of the Medicaid program in Indiana generally, it does not
“contain any statute which makes it unlawful to submit claims exceeding a
provider's ‘usual and customary charge,’” the misconduct alleged. (Br. of
Appellant at 15).

The State counters that Ind. Code § 12-15, cross-referenced in Ind.
Code § 35-43-5-7.1(a)(1), includes the requirement that "[a] provider who
accepts payment of a claim submitted under the Medicaid program is
considered to have agreed to comply with the statutes and rules governing
program." Ind. Code § 12-15-21-1. As such, the State contends, Medicaid
providers have been told by the Legislature that action contrary to
Medicaid rules is forbidden. And, as we have seen, there was a Medicaid
rule in place limiting providers of covered legend drugs to their usual and
customary charges. Ind. Admin. Code tit. 405 r. 1-6-21.1(g) (1996 & Supp.
1997).

While we find the state's argument plausible, we conclude that the
link between Ind. Code § 12-15 and the conduct prohibited by the “ordinary
and customary charge” regulation is simply too attenuated to permit this
prosecution to proceed.

Several venerable due process principles – variously framed as the
“void for vagueness doctrine,” the “rule of lenity,” and the “fair notice
requirement” – bring us to this conclusion. “As generally stated, the void
for vagueness doctrine requires that a penal statute define the criminal
offense with sufficient definiteness that ordinary people can understand
what conduct is prohibited and in a manner that does not encourage
arbitrary and discriminatory enforcement." Kolender v. Lawson, 461 U.S.
352, 357 (1983). The purpose of the "fair notice" requirement is "to give
a person of ordinary intelligence fair notice that his contemplated conduct
is forbidden by the statute. The underlying principle is that no man shall
be held criminally responsible for conduct which he could not reasonably
understand to be proscribed." United States v. Harriss, 347 U.S. 612, 617
(1954). The rule of lenity is premised on two ideas: First, "'a fair
warning should be given to the world in language that the common world will
understand, of what the law intends to do if a certain line is passed'";
second, legislatures and not courts should define criminal activity.
United States v. Bass, 404 U.S. 336, 347-348 (1971) (quoting McBoyle v.
United States, 283 U.S. 25, 27 (1931)).

The penal statute at issue here, Ind. Code § 35-43-5-7.1(a)(1), it is
true, cross-references Ind. Code § 12-15. But Ind. Code § 12-15 is an
entire article of the Indiana Code, covering 50 pages of the 1993 Code and
comprising 280 sections organized in 37 chapters.[7] Many of the chapters
impose duties on or otherwise speak to the state agency responsible for
administering the Medicaid program. Others define the eligibility of,
impose duties on, or otherwise speak to individuals who receive Medicaid
assistance. Only a portion speak to Medicaid providers. The effect of the
statute, then, is to say that a provider is prohibited from filing a
Medicaid claim “in violation of” nothing more specific than this vast
expanse of the Indiana Code. This is not, in our view, “fair warning ...
in language that the common world will understand, of what the law intends
to do if a certain line is passed.” Bass, 404 U.S. at 348 (quoting
McBoyle, 283 U.S. at 27). Here, to understand what conduct Ind. Code § 35-
43-5-7(a)(1) prohibits requires following a cross-reference to Ind. Code §
12-15, then through the 50 pages and 280 sections of that article, and then
to the language of an agency regulation in the Indiana Administrative Code.
This lacks the “sufficient definiteness” that due process requires for
penal statutes.[8] Kolender, 461 U.S. at 357.

We hold that the general reference Ind. Code § 12-15 in Ind. Code § 35-
43-5-7.1(a)(1) is too vague in defining the conduct sought to be proscribed
to meet the requirements of due process.Conclusion

Having previously granted transfer, we summarily adopt the opinion of
the Court of Appeals as to the issues referred to in footnotes 1 and 2 and
remand this case

to the trial court with directions to dismiss the information without
prejudice.

SHEPARD, C.J., and DICKSON, BOEHM, and RUCKER, JJ., concur.
BOEHM, J., concurs with separate opinion in which DICKSON and RUCKER,
JJ., concur.
BOEHM, Justice, concurring.
I agree with the majority that the statutory provisions at issue here
are less than models of clarity. One must sift through the many provisions
of Indiana Code 12-15 to find the general requirement of section 12-15-21-1
that a Medicaid provider is considered to have agreed to comply with the
statutes and rules governing the Medicaid program. One must then look to
the Medicaid rules in the Indiana Administrative Code to find that
providers are limited to their usual and customary charges when paid by
Medicaid. Ind. Admin. Code tit. 405, r. 1-6-21.1(g) (1996). I agree with
the majority that a violation of section 7.1(a)(1) is simply too
attenuated.
However, subsection (a)(1) is not the only relevant provision under
section 7.1. Healthscript was charged in the second amended information
with violating Indiana Code section 35-43-5-7.1 without specifying which
subsection of that section was violated. Subsection 7.1(a)(2) provides
that a person who knowingly or intentionally “obtains payment from the
Medicaid program under IC 12-15 by means of a false or misleading oral or
written statement or other fraudulent means” commits Medicaid fraud. The
conduct alleged in the information was submitting a claim “for amounts
exceeding the usual and customary charge which resulted in payments.”
According to the affidavit for probable cause filed with the information,
Healthscript knowingly charged the Medicaid program $181 per 9000
milliliters of sterilized water while it charged private non-Medicaid
customers $22.50 and $25 for the same 9000 milliliters of water. One need
not have a finely tuned moral compass to know that this conduct constitutes
the obtaining of payments from the Medicaid program by means of a false
statement. The usual and customary charge requirement was well known in
the industry. In my view, given the regulatory scheme, presenting this
claim constituted a representation that the $181 price was “usual and
customary.” There are undoubtedly many situations where the meaning of
that phrase is debatable, but this is not one of them. Whatever rubber is
in the concept is stretched far beyond the snapping point by a claim of
$181 for water sold for $25 to commercial customers. The information
charges that the misrepresentation was knowingly made and resulted in
payment. If so, in my view, it violated subsection 7.1(a)(2).
In my view, Healthscript’s constitutional separation of powers
argument—that delegating criminal authority to an administrative agency is
improper—becomes a non-issue if this case is viewed as a subsection (a)(2)
fraudulent claim case. The administrative regulation does not define the
crime. Rather, it is part of the background that renders Healthscript’s
payment requests false. The prohibited conduct of making a false statement
to receive payment is prohibited by subsection (a)(2).
Although I believe a violation of 7.1(a)(2) could have been charged, I
concur in the majority opinion because the information did not accomplish
that. The charge in the second amended information of a violation of
Indiana Code section 35-43-5-7.1 was obviously not clear in alleging a
violation of subsection (a)(2). The State itself focuses on Healthscript’s
conduct as a violation subsection (a)(1).[9] In addition, the parties
appear to have stipulated on appeal that the charge was under subsection
(a)(1).
For these reasons, I would find that the charging information did not
charge a violation of (a)(2) with sufficient clarity. See Moran v. State,
477 N.E.2d 100, 104 (Ind. Ct. App. 1985) (finding that a count in the
indictment failed the specificity test by failing to restrict the
allegations to a violation of a particular subsection of a statute). The
accused has the right to require that the allegations contained in the
charging instrument state the crimes charged with sufficient certainty to
enable the accused to anticipate the evidence adduced against him at trial,
thereby enabling him to marshal evidence in his defense. Harwei, Inc. v.
State, 459 N.E.2d 52, 56 (Ind. Ct. App. 1984). “The indictment must state
the crime charged in direct and unmistakable terms.” Moran, 477 N.E.2d at
103-04. Any reasonable doubt as to the offense charged must be resolved in
favor of the accused. Id. Simply charging Healthscript with conduct that
contravenes a statute without specifying the violated subsections is
insufficient specificity in the charging information.

DICKSON and RUCKER, JJ., concur.

-----------------------
[1] The Court of Appeals affirmed the trial court’s ruling on the
search warrant. Healthscript, Inc. v. State, 724 N.E.2d 265, 271-73 (Ind.
Ct. App. 2000), rev’d on reh’g on other grounds, 740 N.E.2d 562 (Ind. Ct.
App. 2000). We summarily affirm the Court of Appeals on this issue. Ind.
Appellate Rule 58 (A)(2).
[2] Healthscript is charged with respect to covered legend drugs
alleged to have been delivered between Nov. 1, 1995, and June 30, 1997.
The "usual and customary charge" regulation, Ind. Admin. Code tit. 405 r. 1-
6-21.1(g), was repealed July 25, 1997. See 20 Ind. Reg. 3365 (1997). In
the Court of Appeals, Healthscript argued that it could not be prosecuted
because the regulation had been repealed. The Court of Appeals rejected
this claim. Healthscript, Inc. v. State, 724 N.E.2d 265, 270 (Ind. Ct.
App. 2000), rev’d on reh’g on other grounds, 740 N.E.2d 562 (Ind. Ct. App.
2000). We summarily affirm the Court of Appeals on this point. App. R. 58
(A) (2).
[3] “The powers of the Government are divided into three separate
departments; the Legislative, the Executive, including the Administrative,
and the Judicial; and no person, charged with official duties under one of
these departments, shall exercise any of the functions of another, except
as in this Constitution expressly provided.”
[4] In Ensign, an employee of the Discount Gas Corp. was indicted on
a charge of involuntary manslaughter in the death of a woman killed in an
explosion on Halloween night, 1963, at the State Fairgrounds Coliseum. The
basis of the indictment was that the explosion occurred after the defendant
had unsafely stored three 100-pound cylinders of liquid propane at the
Coliseum. A jury trial resulted in a verdict of guilty of assault and
battery. 250 Ind. at 120, 235 N.E.2d at 162-63.
On appeal, our court held that defendant’s indictment should have been
dismissed because it was “not based upon the violation of any statute of
the State of Indiana” but instead attempted “to charge [a] violation of
certain rules and regulations of the Fire Marshall of Indiana.” This was
impermissible, we said, because “[t]he legislature cannot delegate its
express authority defining criminal responsibility to anyone.” 250 Ind. at
124, 235 N.E.2d at 164-65. (As to the assault and battery conviction, our
court reversed on grounds that the indictment did not “allege any of the
essential elements of assault and battery.” 250 Ind. at 125, 235 N.E.2d at
165.)
[5] As a matter of federal constitutional law, the U.S. Supreme Court
recently revisited these principles in Whitman vs. Am. Trucking Ass’ns,
where the court said, “In a delegation challenge, the constitutional
question is whether the statute has delegated legislative power to the
agency. Article I, § 1, of the Constitution vests ‘all legislative Powers
herein granted . . . in a Congress of the United States.’ This text
permits no delegation of those powers.” 531 U.S. 457, 472 (2001). See
Barco, 595 N.E.2d at 254, for a brief history of federal jurisprudence in
this area, including Panama Refining Co. v. Ryan, 293 U.S. 388 (1935), and
Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935).
[6] As a general matter, the U.S. Constitution does not per se
prohibit Congress from delegating to an administrative agency some
responsibility for defining elements of a criminal offense. See Touby v.
State, 500 U.S. 160, 165 (1991) (authorized drug prosecution where Attorney
General authorized to specify controlled substances on a temporary basis
when doing so was "necessary to avoid an imminent hazard to the public
safety"); United States v. Grimaud, 220 U.S. 506 (1911) (ruling that
Congress acted within its constitutional power in delegating to the
Secretary of Agriculture the power to make rules for the lawful use of
forest reservations). However, the extent to which administrative rule-
making in this regard should be entitled to the deferential standards of
review set forth in Chevron U.S.A. v. Natural Resources Defense Council,
467 U.S. 837, 866 (1984), has been the subject of scholarly debate. See
Sanford N. Greenberg, Who Says It's a Crime?: Chevron Deference to Agency
Interpretations of Regulatory Statutes That Create Criminal Liability, 58
U. Pitt. L. Rev. 1 (1996) (arguing that exceptions to Chevron deference
when courts interpret administrative statutes that are criminally
enforceable are not desirable, necessary, or easily administered); Mark D.
Alexander, Note: Increased Judicial Scrutiny for the Administrative Crime,
77 Cornell L. Rev. 612 (1992) (arguing that courts reviewing challenges to
criminal rule-making should consider de novo whether a particular criminal
rule falls within the grant of power authorized in Congress's delegation);
Cass R. Sunstein, Law and Administration After Chevron, 90 Colum. L. Rev.
2071, 2097-2100 (1990) (arguing that when courts interpret administrative
statutes that are criminally enforceable, Chevron deference may conflict
with the doctrine of lenity, or the canon of strict construction of
criminal statutes).
[7] The Indiana Code is subdivided into 36 “titles.” Each title is
further subdivided, first, into “articles,” then “chapters,” and then
“sections.” The citation “Ind. Code § 12-15” refers to Article 15
(“Medicaid”) of Title 12 (“Human Services”).

[8] The Legislature itself has shown that it can be much more
definite in identifying conduct for which a Medicaid provider can be held
criminally responsible. See, e.g., Ind. Code § 35-43-5-7.1(a)(2) (Supp.
1997) (a person commits Medicaid fraud who “obtains payment from the
Medicaid program under IC 12-15 by means of a false or misleading oral or
written statement or other fraudulent means.”).

[9] The State quotes subsections (a)(1), (a)(2), and (a)(5), but makes
no argument focusing on either (2) or (5). Rather it contends, “This
statute makes it a crime to knowingly or intentionally file a Medicaid
claim in violation of Indiana Code 12-15” and “To be guilty of Medicaid
Fraud, a provider must knowingly or intentionally file a claim in violation
of Title 12, Article 15.” Both seem to point to a claim of a subsection
(1) violation.