Healthscript, Inc. v. State

• Decision Date: 28 June 2002
• Docket Number: No. 49S05-0102-CR-00108.,49S05-0102-CR-00108.
• Citation: 770 N.E.2d 810
• Parties: HEALTHSCRIPT, INC., Appellant (Defendant below), v. STATE of Indiana, Appellee (Plaintiff below).
• Court: Indiana Supreme Court

770 N.E.2d 810

HEALTHSCRIPT, INC., Appellant (Defendant below), v. STATE of Indiana, Appellee (Plaintiff below).

No. 49S05-0102-CR-00108.

Supreme Court of Indiana.

June 28, 2002.

David F. McNamar, McNamar & McSharar, P.C., Indianapolis, IN, Attorney for Appellant.

Steve Carter, Attorney General of Indiana, Rosemary L. Borek, Deputy Attorney General, Indianapolis, IN, Attorneys for Appellee.

ON PETITION TO TRANSFER

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 v. 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 the 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, 103 S.Ct. 1855, 75 L.Ed.2d 903 (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, 74 S.Ct. 808, 98 L.Ed. 989 (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, 92 S.Ct. 515, 30 L.Ed.2d 488 (1971) (quoting McBoyle v. United States, 283 U.S. 25, 27, 51 S.Ct. 340, 75 L.Ed. 816 (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, 92 S.Ct. 515 (quoting McBoyle, 283 U.S. at 27, 51 S.Ct. 340). 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...