U.S. v. Brown

• Citation: 763 F.2d 984
• Parties: Medicare&Medicaid Gu 34,654 UNITED STATES of America, Appellee, v. Paul G. BROWN, Appellant. UNITED STATES of America, Appellee, v. STONE'S PHARMACY, INC., Appellant.
• Decision Date: 05 June 1985
• Court: U.S. Court of Appeals — Eighth Circuit

Page 984

763 F.2d 984

Medicare&Medicaid Gu 34,654

UNITED STATES of America, Appellee, v. Paul G. BROWN, Appellant.

UNITED STATES of America, Appellee, v. STONE'S PHARMACY, INC., Appellant.

United States Court of Appeals,

Eighth Circuit.

Submitted Nov. 14, 1984.

Decided June 5, 1985.

Stanley D. Rauls and Samuel Perroni, Little Rock, Ark., for appellant.

Sandra Wilson Cherry, Asst. U.S. Atty., Little Rock, Ark., for appellee.

Before BRIGHT, McMILLIAN and BOWMAN, Circuit Judges.

BRIGHT, Circuit Judge.

Appellants Paul Brown and Stone's Pharmacy, Inc. (the "Corporation") appeal from convictions in a jury trial on forty-seven counts of filing false claims for payment under the Medicaid Program in violation of 42 U.S.C. Sec. 1396h(a)(1)(i) (1982). On appeal, appellants contend, inter alia : (1) that the district court erred in admitting evidence obtained from a search of the Corporation's records pursuant to a warrant because that warrant was obtained on the basis of information uncovered by a prior warrantless search of the Corporation's records, (2) that the Government's evidence failed to prove that the appellants knowingly and willfully caused false statements to be submitted, and (3) that the false statement counts alleged in the indictment were immaterial as a matter of law because they did not contain a misrepresentation of a material fact. We vacate the convictions on counts 24-47 and 50-53, and affirm the convictions on counts 1-16, 23, and 48-49.

I. BACKGROUND.

Paul Brown is the president and majority stockholder of the Corporation, an authorized provider of pharmacy services under the Arkansas Medicaid Program. The Corporation became a provider by entering into a contract with Arkansas Social Services ("ASS") to furnish prescription drugs to Medicaid recipients. The terms of the contract required the Corporation to maintain for three years permanent business records of all prescriptions dispensed to Medicaid recipients, purchase invoices for drugs covered under Medicaid, and documentation verifying prescription charges to the general public. The contract also required the Corporation to make those records available to ASS officials or their designated agents for periodic audits.

Upon dispensing medication to a Medicaid recipient, the Corporation would submit a claim for reimbursement to Blue Cross and Blue Shield ("BCBS"), which processes Medicaid claims in Arkansas. Arkansas operates its Medicaid Program on an "open formulary" basis, which means that all drugs not explicitly excluded are reimbursable. Substitution of generic drugs is permissible under Arkansas law unless explicitly prohibited by the prescribing physician, see Ark.Stat.Ann. Secs. 72-1047, 72-1048 (1979); 1979 Ark. Acts 675. In fact, ASS encourages providers to dispense generic drugs whenever possible. See Division of Social Services, Arkansas Department of Human Services, Arkansas Medicaid Provider Manual Sec. S-1.10 (1980).

The indictment brought by the Government alleged that Brown and the Corporation knowingly and willfully caused false claim forms to be submitted to BCBS on forty-seven separate occasions. Counts 1-12 involved false claim forms resulting from undercover activities during an investigation of the Corporation. Counts 13-16 involved false claim forms uncovered in a "clinic" conducted by ASS. Counts 23-49 involved false claim forms submitted in connection with the filling and twenty-six subsequent refillings of a prescription for one Medicaid recipient, Norma Morgan. Counts 50-53 involved false claim forms submitted in connection with the filling and three subsequent refillings of a prescription for another Medicaid recipient, Roosevelt Coombs. After a four-day trial, the jury found the appellants guilty on all forty-seven false statement counts. ¹

II. DISCUSSION.

A. Search and Seizure.

On June 7, 1983, Howard Cecil, director of the Medicaid Fraud Division of the Arkansas Attorney General's Office ("MFD"), accompanied by an ASS pharmacist, entered Stone's Pharmacy and advised Brown that he wanted to review certain books and prescription records. This "audit" was part of an ongoing criminal investigation overseen by the United States Attorney's office, ² not a routine administrative audit. FBI Special Agent Robert Brazile planned the audit with Cecil, but did not accompany Cecil during the actual audit because the statutory authority to conduct such audits extends only to personnel from the Attorney General's office and prosecuting attorneys. Ark.Stat.Ann. Sec. 41-4410(3) (Cum.Supp.1983). Cecil completed the audit and reported what he had learned to Brazile. Brazile then entered the pharmacy, identified himself to Brown, advised Brown of the joint investigation, and summarized the information the investigation had uncovered to date.

On June 17, 1983, agents of the MFD and FBI conducted a search of the Corporation pursuant to a warrant issued on June 15. During this search, the agents seized copies of certain prescriptions. Before trial, the appellants moved to suppress all the documentary evidence seized by the Government during the June 17 search on the ground that the search warrant was tainted by the allegedly illegal warrantless search of June 7. After an evidentiary hearing, the district court denied the motion, finding that the appellants had consented to the June 7 search or, alternatively, that a warrant was not required for what was essentially an administrative inspection.

Appellants contend that the district court erred in admitting the documentary evidence seized from the Corporation during the June 17 search. Although that evidence was seized pursuant to a search warrant, appellants maintain that it should have been suppressed because the search warrant was obtained on the basis of information uncovered during the allegedly improper warrantless inspection of the Corporation's records on June 7. We disagree.

A warrantless search is valid if conducted pursuant to the knowing and voluntary consent of the person subject to a search. ³ See Schneckloth v. Bustamonte, 412 U.S. 218, 219, 93 S.Ct. 2041, 2043, 36 L.Ed.2d 854 (1973) (recharacterizing the "voluntary waiver" exception originally enunciated in Zap v. United States, 328 U.S. 624, 628, 66 S.Ct. 1277, 1279, 90 L.Ed. 1277 (1946), ⁴ in terms of "voluntary consent"). Appellants do not contend that the Corporation ⁵ did not knowingly and voluntarily enter into a contract with ASS. Rather, they challenge, on two levels, the district court's finding, based on the contractual language, that the Corporation explicitly consented to warrantless searches of pharmacy records. First, they broadly assert that the Corporation did not consent, by entering into the contract with ASS, to waive its fourth amendment right to be free from warrantless searches. The thrust of this argument apparently is that the commands of the fourth amendment are inviolable. We disagree.

In United States v. Griffin, 555 F.2d 1323 (5th Cir.1977), a pharmacist appealed from his conviction on charges of filing fraudulent Medicaid claims, asserting that the trial court had erred in admitting evidence seized during a warrantless inspection of the pharmacy's records. The court cited Zap in support of its determination that the pharmacist had consented to a warrantless search of the pharmacy's books and records when he knowingly and voluntarily entered a contract in which he agreed to maintain certain records and make them available for inspection. Id. at 1325. See also United States v. Jennings, 724 F.2d 436, 447-48 (5th Cir.) (citing Griffin in reaching identical holding in context of submission of false claims for meals served to children), cert. denied, --- U.S. ----, 104 S.Ct. 2682, 81 L.Ed.2d 877 (1984); First Alabama Bank v. Donovan, 692 F.2d 714, 718-20 (11th Cir.1982) (finding consent to reviews by Department of Labor of bank's employment records to determine compliance with antidiscrimination regulations).

The situation in Griffin is virtually identical to the circumstances presented in this case and we agree with the reasoning of the Fifth Circuit. The government has a substantial interest in establishing methods by which it can effectively monitor compliance with the regulations governing the Medicaid Program and root out opportunities for and instances of fraud. We see no constitutional infirmity in the government requiring a provider to agree to maintain records of Medicaid transactions and to permit periodic audits of those records as a condition for participation in the Medicaid Program. In this case, the appellants were aware of this condition, and voluntarily entered into a contract with ASS in which they authorized such audits in exchange for obtaining the benefits attendant to participation in the Medicaid Program. Accordingly, we hold that the appellants explicitly consented to reasonable warrantless inspections of the pharmacy records by entering into the contract with ASS. The June 7 inspection occurred during business hours and in the presence of Brown and nothing in the record suggests that the inspection was conducted in an unreasonable manner.

The appellants also raise a more specific challenge to the district court's finding of consent. They contend that even if they did consent to a warrantless search by entering into the contract with ASS, that consent extends only to routine civil audits conducted by ASS personnel, and not to searches conducted to gather evidence in the course of a federal criminal investigation. This argument, too, must fail.

ASS compiled a manual, entitled the "Medicaid Provider Manual," which contained instructions, state and federal regulations, and specific policies relating to the Medicaid Program. ASS supplies a copy of the manual to any pharmacy contemplating whether to become a provider. When a pharmacy agrees to participate in the Medicaid Program, it agrees to be bound by all valid regulations and laws as set forth in the...