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STATE OF MICHIGAN
COURT OF APPEALS


PEOPLE OF THE STATE OF MICHIGAN, Plaintiff-Appellee, v AHMAD ALI KANAAN, D.D.S., Defendant-Appellant.

FOR PUBLICATION April 17, 2008 9:05 a.m. No. 275264 Ingham Circuit Court LC No. 05-000094-FH Advance Sheets Version

PEOPLE OF THE STATE OF MICHIGAN, Plaintiff-Appellee, v EIGHT MILE ROAD DENTAL, P.C., Defendant-Appellant. No. 275266 Ingham Circuit Court LC No. 05-000093-FH

Before: Wilder, P.J., and Murphy and Meter, JJ. MURPHY, J. Following a bench trial, defendants were convicted of 11 counts of filing false Medicaid claims under the Medicaid False Claim Act (MFCA), MCL 400.601 et seq., relative to dental services performed on three patients. Defendant Ahmad Ali Kanaan, D.D.S., (Kanaan), was sentenced to one day in jail with credit for one day served, and he was ordered to pay restitution to the state in the amount of $532, along with fines totaling $1,100 and other various costs. Defendant Eight Mile Road Dental, P.C. (Eight Mile Dental or the office), was also ordered to pay a fine of $1,100, as well as a variety of costs. On appeal, defendants argue that the evidence was insufficient to show that the submitted Medicaid claims for dental services were false and insufficient, assuming falsity, to establish that defendants had knowledge that the claims were false. The thrust of defendants' argument concerning sufficiency is that the falsehood of the claims was subject to differing opinions by the dentists who testified regarding the identification of restored tooth surfaces, and, therefore, criminal liability under the MFCA was inappropriate. Defendants also maintain that the MFCA is preempted by 42 USC 1320a-7b, which is a federal criminal statute addressing Medicaid fraud that has a stricter mens rea requirement than the

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MFCA. We affirm, holding that the MFCA is not preempted by 42 USC 1320a-7b and that there was sufficient evidence to sustain the convictions. I. Basic Facts and Procedural History Kanaan was the sole dentist practicing at Eight Mile Dental during the period relevant to the criminal charges filed by the prosecution. Paulette Carter worked for defendants as the office manager from 1999 until March 2006. She explained the procedures followed in the office for preparing patient records and treatment plans. According to Carter, Eight Mile Dental recorded patient information on a two-part carbon form referred to in the office as a "white." The white form contained a list of numbers that corresponded to a patient's teeth, as well as various personal information, including the patient's name, phone number, and insurance carrier. Carter testified that Kanaan would perform an inspection of the patient's mouth and would call out any problems requiring treatment to a dental assistant who would then record that information on the white form. Carter stated that whenever Kanaan performed work according to the treatment plan outlined on the white form, he would place his initials on the form next to the number indicating the treated tooth. Carter indicated that, in order to bill a procedure to a patient, his or her insurer, or Medicaid, the office assistant would enter the information from the white form onto a computer billing program using various codes corresponding to the tooth number, the dentist's identification number, and the code number given to the procedure by the American Dental Association (ADA). Carter testified that typically she would check the white form against the computer screen to ensure that the information was entered accurately. According to Carter, Kanaan reviewed the patients' charts and compared them with the claim form generated by the computer, as did Carter. She agreed that "the responsibility for everything in the chart was basically that of Doctor Kanaan." Carter testified that following electronic submission of the claims to Medicaid, payment would be received in the form of a "bulk check," which Carter would enter into the computer program, checking to make sure that the amount of the check balanced with the amounts of the claims. At some point, Dr. Thomas Haupt, a dentist, was asked by the Michigan Attorney General's Office to examine some of Kanaan's patients in regard to an investigation of suspected false Medicaid billings. Haupt had previously assisted the Attorney General in other Medicaidfraud investigations concerning dental services. Haupt testified that under a contract with the Attorney General, he examined patients for evidence of tooth restorations following decay (placement of fillings) that Kanaan had supposedly performed and billed to Medicaid. Haupt indicated that he performed tooth-decay restorations in his practice, which involves filling the tooth with either an amalgam or a composite substance. He explained that an amalgam filling is silver, gray, or black in appearance, and is a mixture of silver, mercury, and other alloys, whereas a composite filling is made of acrylic and can be matched to the natural color of the tooth. Haupt asserted that in his examinations of the three patients who received dental services that gave rise to the charges, he checked to see whether the various surfaces of a particular tooth that had been reported as being treated and restored by defendants had in fact been restored. Tooth surfaces include, as relevant here, mesial, occlusal, distal, facial, and lingual. These surfaces are

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referenced for billing purposes and in the record by their first initial, i.e., M, O, D, F, and L.1 Haupt testified that it is "very obvious" to him upon examination whether a restoration or other treatment has been performed on a particular tooth. Haupt stated that he also looked at x-ray films of the patients' teeth, but that, because of the two-dimensional nature of the x-ray films, their usefulness as a tool in ascertaining whether and where a restoration had taken place was limited. Haupt testified that he examined one of Kanaan's patients, Aleace Dandridge, who was reported to have had an amalgam filling on the MODLF surfaces of a tooth identified as "tooth number two." Instead, Haupt found a restoration on only the MOD surfaces of the tooth. Similarly, in his examination of tooth number 13, which should have had a DOL amalgam filling according to the billing report, Haupt found only a DO amalgam filling. Further, on the basis of his review of Dandridge's x-rays, Haupt testified that the L surface was not in need of restoration on tooth number 13. He additionally testified that where, according to the Medicaid billing records, there should have been an MLF composite filling on tooth number 9, he found only an ML composite filling. Haupt also examined Shelby Schantel, another patient treated by Kanaan. According to the billing records, Schantel was supposed to have had a DOLF amalgam filling on tooth number 5, but Haupt found only a DO amalgam filling. Haupt checked for an MODLF amalgam filling on tooth number 12, but found only an MOD amalgam filling. On Schantel's tooth number 13, Haupt found only an MOD amalgam filling, where an MODLF amalgam filling was reported to have been made. Haupt further found an "occlusal and a separate facial amalgam" on Schantel's tooth number 16, where Medicaid had been billed for an MOLF amalgam filling. For Schantel's teeth numbers 6 and 17, respectively, an MLF composite filling and an MOF amalgam filling were reported, but only a facial composite filling and an OF amalgam filling were detected. Finally, Haupt examined Ava Anderson, a minor. Because Anderson still had her baby teeth, the office used a different reference system to identify her teeth than that used to identify the teeth of the adult patients. According to Anderson's dental records, Kanaan had performed an MOLF amalgam filling on Anderson's tooth letter J; however, when Haupt examined her he found only an MOL amalgam filling. Similarly, Haupt's examination of tooth letter T revealed that there was an O amalgam filling, but defendants had billed for an MO amalgam filling. Another dentist, Dr. Mert Aksu, testified as an expert witness for defendants. Aksu testified that a dentist's assessment of whether a restoration has been performed on a certain tooth surface is dependent on the dentist's ability to distinguish one tooth surface from another. According to Aksu, a "line angle" demarcates where one surface ends and another begins; this angle is subject to disagreement between dentists, and when teeth are rotated in the jaw, it creates further difficulty for a dentist to perceive the different surfaces. Aksu did not personally examine the patients at issue, but rather reviewed the x-rays taken by Haupt, as well as photographs of the disputed teeth.

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We shall also use these initials for purposes of this opinion.

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With respect to Dandridge, Aksu testified that on tooth number 2, where Haupt found only a three-surface MOD restoration for which a five-surface MODLF one had been reported, he believed that "at one time" the filling had "occupied the facial surface" and that the restoration had originally been on four surfaces. Aksu also disagreed with Haupt's findings of a DO amalgam filling on Dandridge's tooth number 13, which was billed as a DOL amalgam. Aksu found an "extension or encroachment [of the filling] on the lingual surface" of the tooth based on his review of photographic and x-ray images of the tooth. On tooth number 9, with respect to which Haupt found an ML composite filling where an MLF composite filling should have been, Aksu found a composite filling on the "facial view" of a picture of the tooth in addition to fillings on the mesial and lingual surfaces. Aksu's study of the pictures of Schantel's teeth also resulted in discrepancies between his findings and those of Haupt on Schantel's teeth numbers 5, 12, and 13. Aksu did not testify about any disagreements with Haupt regarding the restorations on Anderson's teeth. The trial court found that the only elements in controversy were whether the Medicaid claims submitted by defendants were false and whether defendants knew they were false, given that neither party disputed the fact that billing claims for the tooth restorations were made to Medicaid. The court stated that the fact that Haupt and Aksu disagreed on some of the teeth in controversy did not create reasonable doubt. Further, the trial court concluded that Haupt's testimony was the most persuasive because Aksu's opinions were based entirely on photographs and x-rays of the teeth, rather than physical examinations of the patients, which were conducted by Haupt. The trial court found that, because the photographs "do not fully show dimension . . . and only Dr. Haupt . . . had the opportunity to observe the dimension and contour of the teeth in issue," the basis for his opinions was stronger than that of Aksu's opinions. The court found defendants guilty of 11 counts of filing false Medicaid claims under the MFCA. Defendants appeal as of right. II. Analysis A. Federal Preemption Defendants argue that federal law preempts the MFCA, requiring reversal of defendants' convictions under the MFCA. The issue whether federal law preempts state law is a legal question that this Court reviews de novo on appeal. Thomas v United Parcel Service, 241 Mich App 171, 174; 614 NW2d 707 (2000). Because defendants failed to raise this issue below, we review the issue for plain error affecting defendants' substantial rights. People v Carines, 460 Mich 750, 763; 597 NW2d 130 (1999). If indeed defendants could not be convicted under state law because of federal preemption, there would necessarily exist plain error affecting defendants' substantial rights because the trial court would have been deprived of subject-matter jurisdiction. Ryan v Brunswick Corp, 454 Mich 20, 27; 557 NW2d 541 (1997) ("Where the principles of federal preemption apply, state courts are deprived of subject matter jurisdiction."), abrogated in part on other grounds in Sprietsma v Mercury Marine, 537 US 51, 63-64 (2002). For this reason, any thought that defendants waived the preemption argument on the basis that they expressly and affirmatively presented arguments under the MFCA must be rejected because defects in subject-matter jurisdiction cannot be waived. People v Richards, 205 Mich App 438, 444; 517 NW2d 823 (1994).

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Before addressing the specifics of defendants' preemption argument, we shall first review the various statutory provisions implicated in this case and related authority in order to give the proper context to the issues presented. Defendants were convicted pursuant to MCL 400.607, which provides, in pertinent part: (1) A person shall not make or present or cause to be made or presented to an employee or officer of this state a claim under the social welfare act . . . upon or against the state, knowing the claim to be false. *** (3) A person who violates this section is guilty of a felony, punishable by imprisonment for not more than 4 years, or by a fine of not more than $50,000.00, or both. [Emphasis added.] The term "knowing," as used in MCL 400.607(1), is subject to the definition contained in MCL 400.602(f), which provides: "Knowing" and "knowingly" means [sic] that a person is in possession of facts under which he or she is aware or should be aware of the nature of his or her conduct and that his or her conduct is substantially certain to cause the payment of a medicaid benefit. Knowing or knowingly does not include conduct which is an error or mistake unless the person's course of conduct indicates a systematic or persistent tendency to cause inaccuracies to be present.[2] Accordingly, actual knowledge that a Medicaid claim is false is not required to support a conviction. Rather, a conviction can be sustained on the basis of evidence showing that a defendant should have been aware that the nature of his or her conduct constituted a false claim for Medicaid benefits, akin to constructive knowledge. But the "should be aware" language is somewhat affected by the reference in the second sentence of MCL 400.602(f) that errors or mistakes do not constitute "knowing" conduct, unless the defendant's course of conduct indicated a systematic or persistent tendency to cause inaccuracies. The language in MCL 400.607(1) and MCL 400.602(f) was construed in People v Perez-DeLeon, 224 Mich App 43,

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We also note the following language in MCL 400.608(1) that pertains to the issue of knowledge: In a prosecution under this act, it shall not be necessary to show that the person had knowledge of similar acts having been performed in the past by a person acting on his or her behalf, nor to show that the person had actual notice that the acts by the persons acting on his or her behalf occurred to establish the fact that a false statement or representation was knowingly made.

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48-50; 568 NW2d 324 (1997), wherein this Court, addressing and rejecting a constitutional challenge to the statutes predicated on an alleged lack of a culpable mens rea, stated:[3] By their terms, these statutes proscribe presentation of a Medicaid or health-care claim with knowledge that the claim is false. "Intent and knowledge can be inferred from one's actions and, when knowledge is an element of an offense, it includes both actual and constructive knowledge." Therefore, it is not problematic that these statutes define "knowing" to include "should be aware." Contrary to defendants' contention, this actual or constructive knowledge element does not relate solely to knowledge that a claim is filed. The knowledge element relates to both "the nature of his or her conduct and that his or her conduct is substantially certain to cause the payment of a [Medicaid or] health care benefit." In the context of the basic charges at issue--presenting a claim, knowing the claim to be false contrary to MCL 400.607(1) . . .--the the [sic] "nature of his or her conduct" language in the "knowing" definitions must refer to falseness. Accordingly, the actual or constructive knowledge element of these offenses appropriately requires knowledge of both the falseness of a claim and that the claim is substantially certain to cause payment of a benefit. The final sentence of both acts' definition of "knowing" states that "knowing" does not include "conduct which is an error or mistake . . . ." The "error or mistake" language expressly excludes innocent errors from the "knowing" definition. We believe that this exclusion was not strictly necessary, because innocent errors clearly would not otherwise be included within the scope of knowingly presenting a false claim. The acts then exclude from this innocent errors exclusion circumstances where "the person's course of conduct indicates a systematic or persistent tendency to cause inaccuracies to be present." . . . A system, method, or plan to cause inaccuracies indicates actual knowledge of falseness, while the constant repetition of inaccuracies indicates constructive knowledge of falseness. Contrary to defendants' suggestion, the "persistent tendency" language of the exclusion from the exclusion does not criminalize innocent errors merely because they are repeated; rather, we believe that it is intended to criminalize inaccuracies that are sufficiently persistent that the party may be charged with constructive knowledge of their falseness. . . . Thus, this exclusion from the exclusion covers circumstances in which actual or constructive knowledge of falsity may be assumed because of the systematic or persistent nature of inaccuracies. . . . Where such actual or constructive knowledge exists, the conduct would not properly fit within the exclusion for innocent errors. [Citations omitted; emphasis in original.]

3

The Court's discussion encompasses MCL 400.607(1) and MCL 400.602(f), as well as the Health Care False Claim Act, MCL 752.1001 et seq., which contains language comparable to the MFCA, and which addresses false claims presented to healthcare corporations and insurers. Perez-DeLeon, supra at 47-48.

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Consistent with Perez-DeLeon, MCL 400.607(1) allows for a conviction when a defendant has actual or constructive knowledge that a Medicaid claim is false and that the claim is substantially certain to cause the payment of a Medicaid benefit.4 This is not entirely consistent with federal law governing Medicaid fraud prosecutions, which requires a mens rea of actual knowledge and willfulness to support a conviction; constructive knowledge will not suffice. Particularly, 42 USC 1320a-7b(a)(1) provides for criminal penalties when a defendant "knowingly and willfully makes or causes to be made any false statement or representation of a material fact in any application for any benefit or payment under a Federal health care program[.]" This includes a claim for payment under the Medicaid program. 42 USC 1320a7b(a)(1), (f)(1), and (f)(2); 42 USC 1320a-7(h)(1); 42 USC 1396 et seq. In United States v Laughlin, 26 F3d 1523, 1526 (CA 10, 1994), the United States Court of Appeals for the Tenth Circuit held that to be convicted of Medicaid fraud under 42 USC 1320a-7b(a)(1), "a defendant must know that the claims being submitted are, in fact, false." Furthermore, in United States v Starks, 157 F3d 833, 838 (CA 11, 1998), the United States Court of Appeals for the Eleventh Circuit, addressing the meaning of the term "willfully" as used in 42 USC 1320a-7b and citing Bryan v United States, 524 US 184; 118 S Ct 1939; 141 L Ed 2d 197 (1998), stated that a defendant acts "willfully" when he or she acts with knowledge that the pertinent conduct is unlawful or with an intent to do something that the law forbids. As can be gleaned from comparing 42 USC 1320a-7b(a)(1) to MCL 400.607(1) and MCL 400.602(f) under the caselaw interpreting those provisions, federal law does not permit a conviction for filing a false Medicaid claim seeking payment for services allegedly rendered where a defendant lacked actual knowledge that the claim being filed was false or acted without intent to commit Medicaid fraud; constructive knowledge would not suffice. Against this backdrop, we now tackle the arguments presented by defendants. Defendants contend that because there exists a difference between Michigan and federal law with respect to the elements necessary to obtain a conviction of Medicaid fraud, which results in state law standing as an obstacle to the accomplishment and execution of congressional objectives, the doctrine of federal preemption demands reversal of defendants' state-law convictions. Defendants assert that the MFCA imposes a lower mens rea requirement for criminal culpability in Medicaid fraud cases that effectively nullifies the heightened mens rea requirement contained in 42 USC 1320a-7b(a)(1). Defendants also maintain that the pervasive nature of the federal government's involvement in the Medicaid program and its dominance in this field bar state governments from enacting a penal statute that creates a Medicaid crime for certain conduct that would not constitute a crime under federal law.

We emphasize that, where there is an absence of actual knowledge that a Medicaid claim is false, simple errors or mistakes in billing Medicaid do not give rise to criminal liability, unless a defendant's course of conduct reflects a systematic or persistent tendency to cause inaccuracies. MCL 400.607(1); MCL 400.602(f). It would be unrealistic and unreasonable to expect even the most conscientious and caring dentist or physician to never make an error when submitting a Medicaid claim. And clearly the Legislature recognized this by including the "error or mistake" language in MCL 400.602(f), which gives a level of protection to those dedicated medical providers who willingly treat the poor and disadvantaged in our communities.

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In Ryan, supra at 27-28, our Supreme Court set forth the following principles that govern preemption analysis: The doctrine of federal preemption has its origin in the Supremacy Clause of article VI, cl 2, of the United States Constitution, which declares that the laws of the United States "shall be the supreme Law of the Land . . . ." Where the principles of federal preemption apply, state courts are deprived of subject matter jurisdiction. Congressional intent is the cornerstone of preemption analysis. People v Hegedus, 432 Mich 598, 607; 443 NW2d 127 (1989). Federal provisions that invalidate state law must be narrowly tailored to support a presumption against preemption of state law. Medtronic, Inc v Lohr, 518 US 470, [485]; 116 S Ct 2240, 2250; 135 L Ed 2d 700 (1996). State police powers are not to be superseded unless that is the clear and unequivocal intent of Congress. Cipollone v Liggett Group, Inc, 505 US 504, 516; 112 S Ct 2608; 120 L Ed 2d 407 (1992). This is especially true where state regulation of matters relating to health and safety are involved. Hillsborough Co v Automated Medical Labs Inc, 471 US 707, 715; 105 S Ct 2371; 85 L Ed 2d 714 (1985). *** Federal preemption is either express or implied. If express, the intent of Congress to preempt state law must be clearly stated in the statute's language or impliedly contained in the statute's structure and purpose. Cipollone, supra at 516. In the absence of express preemption, implied preemption may exist in the form of conflict or field preemption. Conflict preemption acts to preempt state law to the extent that it is in direct conflict with federal law or with the purposes and objectives of Congress. Field preemption acts to preempt state law where federal law so thoroughly occupies a legislative field that it is reasonable to infer that Congress did not intend for states to supplement it. Cipollone, supra at 516. However, as seven members of the Cipollone Court agreed, when "Congress has considered the issue of pre-emption and has included in the enacted legislation a provision explicitly addressing that issue, and when that provision provides a `reliable indicium of congressional intent with respect to state authority' . . . `there is no need to infer congressional intent to pre-empt state laws from the substantive provisions' of the legislation." Id. at 517, quoting California Federal Savings & Loan Ass'n v Guerra, 479 US 272, 282; 107 S Ct 683; 93 L Ed 2d 613 (1987).[5]

In LaVene v Winnebago Industries, 266 Mich App 470, 478; 702 NW2d 652 (2005), this Court summarized the rules of federal preemption in short fashion: Preemption occurs only under certain conditions: (1) when a federal statute contains a clear preemption provision; (2) when there is outright or actual conflict between federal and state law; (3) where compliance with both federal
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For purposes of our discussion regarding preemption, it is helpful to first examine the nature and characteristics of the Medicaid program, which also necessarily touches on defendants' argument of implicit field preemption. The federal Medicaid program or act, Title XIX of the Social Security Act, 42 USC 1396 et seq., was established in 1965 by Congress as part of a cooperative federal-state program pursuant to which the federal government reimburses the states for a portion of the cost of providing medical care to needy individuals. Nat'l Bank of Detroit v Dep't of Social Services, 240 Mich App 348, 354; 614 NW2d 655 (2000), quoting Cook v Dep't of Social Services, 225 Mich App 318, 320-323; 570 NW2d 684 (1997).6 In Wilder v Virginia Hosp Ass'n, 496 US 498, 502; 110 S Ct 2510; 110 L Ed 2d 455 (1990), the United States Supreme Court explained: Medicaid is a cooperative federal-state program through which the Federal Government provides financial assistance to States so that they may furnish medical care to needy individuals.

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