Supreme Court Reaffirms Mens Rea Requirement in Controlled Substance Health Care Fraud Cases and Government Burden to Prove Subjective Bad Faith

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On June 27, 2022, the United States Supreme Court, by a vote of 9-0, overturned the lower circuit courts’ rulings affirming the convictions of two physicians of the unlawful distribution of controlled substances. In Ruan v. United States (Case No. 20-1410), consolidated with Kahn v. United States (Case No. 21-5261), the Supreme Court was asked to determine whether a physician may be convicted of unlawful distribution of controlled substances under 21 U.S.C. § 841(a)(1) without regard to whether, in good faith, the physician “reasonably believed” or “subjectively intended” that his or her prescriptions fall within that course of professional practice. The Controlled Substances Act makes it unlawful for “any person knowingly or intentionally … to manufacture, distribute, or dispense” a controlled substance, “except as authorized.” A prescription is authorized when it is “issued for a legitimate medical purpose by an individual practitioner acting in the usual course of his professional practice.” 21 C.F.R. § 1306.04(a). The “vague and highly general regulatory language” left open the question of what conduct would fall under the statute’s exception and thus be considered legal.

Dr. Xiulu Ruan (“Dr. Ruan”) and Dr. Shakeel Kahn (“Dr. Kahn”) were physicians specializing in pain management. Both physicians were convicted, after jury trials, of violations of the Controlled Substances Act. Prosecutors argued that the physicians were prescribing medicine outside the standard of care. In the case of Dr. Ruan, they argued that he improperly issued more than 300,000 prescriptions for controlled substances over a four-year period and was one of the top prescribers in the nation for a type of fentanyl used to treat breakthrough pain in adult cancer patients who were already receiving and who were tolerant to around-the-clock opioid therapy. The other petitioner, Dr. Kahn, was accused of having sold controlled substances in exchange for cash and, at times, firearms, occasionally without performing an exam and, instead, documenting the encounters with falsified notes.

The physicians deny the allegations, arguing they always acted in “good faith,” believing that the medications they prescribed were for legitimate medical purposes. While both physicians admit they could have been more careful, they argue that there is a difference between criminal activity and malpractice. On appeal, both physicians argued that the district courts improperly instructed the jury as to the “good faith” defense; while Dr. Kahn was afforded such an instruction, he argued that it was error to have required a “reasonableness” limitation and Dr. Ruan received no such instruction. The Circuit Courts, the Tenth and Eleventh, respectively, upheld the lower court decisions.

Now the Supreme Court has sided with the physicians and has sent the cases back to the circuit courts to determine whether the juries were properly instructed, finding that section 841’s “knowingly or intentionally” mens rea applies to the statute’s “except as authorized” clause. Once a defendant meets the burden of producing some evidence that his or her conduct was “authorized,” the Government bears the burden of proving beyond a reasonable doubt that the defendant knowingly or intentionally acted in an unauthorized manner. In doing so, the Court explicitly rejected a number of the Government’s arguments to the contrary.

First, the Government argued, incorrectly, that the burden of going forward with the evidence as to any exemption or exception should be on the person claiming its benefit pursuant to section 885. However, the Court found that section 885 simply absolves the Government from having to allege in an indictment the inapplicability of every statutory exception in each Controlled Substances Act prosecution. The section also shifts the burden of production, not the burden of persuasion, regarding these same exceptions, relieving the Government of having to disprove, at the outset of every prosecution, the inapplicability of all exceptions. But, the Court found, section 885 “does not provide a basis for inferring that Congress intended to do away with, or weaken, ordinary and longstanding” requirements of a defendant’s knowledge that a specific act or course of conduct is wrongful (co-called “mens rea” or “scienter”).

Second, the Government proposed an alternate standard, suggesting that scienter should be defined as either an “objectively reasonable good-faith effort” or an “objective honest-effort standard.” Under this scheme, once a defendant met his or her burden of production, the Government could convict “by proving beyond a reasonable doubt that the defendant did not even make an objectively reasonable attempt to ascertain and act within the bounds of professional medicine.” The Court was unconvinced, noting that the statue uses the words “knowingly or intentionally” not “good faith,” “objectively,” “reasonable,” or “honest effort.” Such a standard, the Court said, “would turn a defendant’s criminal liability on the mental state of a hypothetical ‘reasonable’ doctor, not the mental state of the defendant himself or herself” which is necessary in the criminal context. Thus, the Court rejected an objective standard in favor of a subjective standard.

Third, the Government further asserted that requiring it to prove that a doctor knowingly or intentionally acted without good faith will allow all “bad-apple” doctors to escape liability by claiming idiosyncratic views about their prescribing authority. The Court rejected this argument, noting that the same could be said of many cases imposing scienter requirements. It welcomed the Government to prove knowledge of a lack of authorization through circumstantial evidence but reiterated that it was still the Government’s burden to carry and that it must prove that a defendant knew or intended that his or her conduct be unauthorized.

What this means for you

This is an important victory for physicians and medical practitioners of all types facing not only Controlled Substance Act allegations, but also health care fraud in general. The Government has successfully convinced lower courts for years that: 1) the Government can get to a jury with only evidence that an objective standard of performance has not been met; 2) that defendants bear the burden of proving any semblance of good faith (where allowed); and 3) that health care fraud defendants can be convicted of crimes based solely on evidence that a defendant should have known that a particular script or act was questionable or improper. Many health care fraud cases look and sound more like medical malpractice civil suits than actual criminal prosecutions. While it is too early to tell the extent that today’s decision will have application beyond the Controlled Substances Act, theoretically the same should apply to Section 1347 health care fraud prosecutions or even pharmacy prosecution based on a corresponding duty to evaluate a physician’s scripts. Unfortunately, many health fraud defendants have too much to lose from a worst-case scenario conviction and too often plead guilty despite the lack of strong mens rea evidence. Today’s decision arms defense counsel with a powerful tool to require the Government in health care fraud cases to meet the exacting mens rea requirements of typical criminal offenses.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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