Implications of Failure to Disclose Employee’s Criminal Record

Joseph L. Fink III, BSPharm, JD
Published Online: Monday, August 4, 2014
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An application to be a participating provider in a state’s Medicaid program bears a provision certifying that none of the employees has a criminal record.
ISSUE OF THE CASE
When a new owner of a community pharmacy retains the staff members already in place and then submits an application to be a participating provider in the state’s Medicaid program that bears a provision certifying that none of the employees has a criminal record, which in fact was not true, may the pharmacy owner prevail in a lawsuit to overturn the state agency’s decision to deny the participation application?

FACTS OF THE CASE
A pharmacist with more than 10 years in the profession in a Mid-Atlantic state purchased a pharmacy and submitted an application to the state Medicaid agency to be recognized as a pharmaceutical services provider. One of the questions on the application was “Have any of the persons or entities named in response to any question in this application, or their officers, directors, shareholders, members, owners, employees or partners, or any of the individuals named in response to any questions in this application ever been indicted, arrested, charged, convicted of, or pled guilty or no contest to any federal or state crime or offense in this state or any other jurisdiction, even if this resulted in pre-trial intervention?”

To respond to this, the pharmacist checked the box next to “No.”

Six months after submitting the application, the pharmacist received a disqualification letter. It cited a state statute that listed this as “good cause for suspension, debarment, or disqualification of a person engaged in state contracting”: “Submission of a false or fraudulent application for the provider status to the program or its fiscal agent.”

An individual identified in the application as a pharmacy technician had a multifaceted criminal history. In 1998, she was charged with fourth-degree stalking. In 2004, she was arrested and charged with possession of oxycodone and fourth-degree creation of a false insurance identification card, resulting in 3 years’ probation. In 2008, she was charged with disorderly conduct due to being in possession of less than 50 g of marijuana, resulting in a $375 fine. The Medicaid officials concluded that the pharmacy owner had submitted a false response to the question appearing above. Citing the relevant statutory provision, they denied the application for the pharmacy to participate.

An attorney representing the pharmacy owner contested the denial, pointing out that the technician had been employed there for 7 years before the pharmacist assumed ownership. Moreover, an employee’s criminal records are not as readily available to an employer as would be disciplinary records maintained by the board of pharmacy. Next, approximately 4 months before the pharmacist purchased the pharmacy, the woman had been licensed by the state board of pharmacy as a technician. The new owner had every reason to believe that the technician did not have a criminal record that would present a legal impediment to approval of the application.

The owner terminated the technician’s employment 11 days after receiving the denial letter from Medicaid officials.

Unable to reach an agreement with the Medicaid agency, the pharmacy owner requested that the matter be referred to an administrative law judge for a hearing. At the conclusion of that proceeding, the administrative law judge ruled that even without intent to deceive or conceal information, an applicant has a duty to provide truthful, accurate, and complete answers to all questions. The matter was passed on to the director of the Medicaid program, who focused on the fact that when the pharmacy owner submitted the application, he certified that “the information furnished on this application was true, accurate, and complete.” This strict standard was required to preserve the integrity of the Medicaid program in his view.

The pharmacist appealed the agency’s determination and denial to the relevant state appellate court.

THE COURT’S RULING
The court upheld the decision of the agency denying the application to participate.

THE COURT’S REASONING
The court emphasized that it could intervene in such a matter only if the action of the agency was arbitrary, capricious, or unreasonable.

The court noted that it was sympathetic to the pharmacy owner’s predicament, but the approach used by the agency was reasonable given the importance of protecting the integrity of the Medicaid program and the vulnerable population the program is designed to serve. The falsity of the answer alone was a sufficient basis for denial of the application. Even though the omission was caused by inadvertence and was without intent to deceive, mislead, or conceal, failure to fully and accurately disclose the employee’s criminal history equates to the statute’s requirement of “good cause” to deny the application.


Dr. Fink is professor of pharmacy law and policy and Kentucky Pharmacists Association Endowed Professor of Leadership at the University of Kentucky College of Pharmacy, Lexington.


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