Initially designed to simultaneously punish and rehabilitate those convicted of crime, the United States criminal justice system has morphed into a machine that brands individuals with a scarlet letter they must seemingly wear in perpetuity. Gone are the days punishment ends upon completion of a sentence. Now, people convicted of crimes are indefinitely subjected to countless collateral consequences that perpetuate poverty and disenfranchisement by making it nearly impossible to engage in basic life events, such as obtaining employment. Recognizing the need for change, local and national attention is now focused on crafting solutions to alleviate the civil disabilities caused by criminal convictions.

With that in mind, most states have enacted some form of expungement law. They vary widely, sometimes only applicable to arrest records; but in the most inclusive states, records of criminal convictions can be destroyed. This relief is often transformative for those to whom it is available; however, it may raise concern amongst employers. One such employer, in response to a proposed expansion of expungement law, posed an interesting question: what happens when state law allows for expungement of a conviction that under federal law precludes an individual from working in a certain field? In the case of Medicare covered entities, there is good and bad news.

Title 42 of the United States Code governs all programs and plans that provide health benefits, directly or indirectly, that are funded in whole or in part by the United States Government; as well as state programs funded from a federal allotment. Section 1320a-7 of the Act, entitled “Exclusion of certain individuals and entities from participation in Medicare and State health care programs”, is triggered upon criminal conviction. The statute sets up a detailed scheme, with convicted individuals falling into a mandatory or permissive list. Those excluded from participation cannot work for or own a Medicare covered agency.

The mandatory exclusion list applies to four categories of convictions. ¹  42 U.S.C. § 1320a-7(a). Those convicted of crimes under the section must be excluded from participation. It is worth noting that the length of the exclusion imposed varies. While some exclusionary periods are lengthy, others expire after a few short years. ²  If an individual previously convicted of an offense within the section is subsequently convicted of a second disqualifying offense, they must be excluded for at least ten years; and two or more convictions under the section will result in a permanent exclusion. The permissive list applies to those who may be excluded from participation and, although it contains a larger number of offenses, the Secretary or the state agency to which the Secretary has delegated authority has discretion to waive the exclusion. 42 U.S.C. § 1320a-7(b).

The good news is that both the mandatory and permissive lists are narrowly tailored to meet the Act’s goal: protecting program recipients from known abusers of government funded programs. As such, most of the crimes underlying the conviction must have been committed in the course of participating in a federal or state funded program. What that means is a doctor or nurse convicted of Medicare fraud may be subject to the Act’s exclusions, while someone convicted of check fraud against their bank may be criminally liable, but not subject to exclusion. The biggest and most important exception to this rule is the mandatory and unwaivable exclusion of individuals convicted of felony drug offenses, as such convictions need not be program related.

The length of exclusion will often be dictated by the seriousness of the underlying crime and the punishment imposed. In Sternberg v. Secretary, 299 F.3d 101 (10th Cir. 2002), the Court upheld the 15-year exclusion of a psychiatrist sentenced to five years in prison for defrauding a Medicare program. Compare that to Friedman v. Sebelius, 686 F.3d 813 (D.C. Cir. 2012), where the court remanded for reconsideration of a 12-year exclusion based on a misdemeanor conviction. That court found the lengthy exclusion unduly severe in light of agency precedent. These two cases demonstrate the level of agency discretion in imposing exclusion, and the importance of taking into consideration the severity of the underlying criminal conduct. Once exclusion expires, an individual is no longer barred.

The bad news is that a disqualifying conviction is very broadly defined, as exemplified by Gupton v. Leavitt, 575 F.Supp.2d 874 (E.D. Tenn. 2008). There, the plaintiff, Dr. Gupton, operated a medical office. On numerous occasions, a patient attempting to get a prescription for Ritalin made threats against his life. The police refused to prosecute the patient so, fearing for his life, Gupton gave the patient prescriptions. He was subsequently arrested and charged with attempted Medicare fraud. Upon completing a diversionary program, his nolo contendere plea was dismissed and expunged. Following the expungement, Gupton was notified of his exclusion from Medicare participation, based upon his conviction.

The Court looked to Section (i), which defines conviction, as both “when a judgment of conviction has been entered . . . regardless of whether . . . the judgment of conviction or other record relating to criminal conduct has been expunged.” and “ . . . when the individual or entity has entered into participation in a first offender, deferred adjudication, or other arrangement or program where judgment of conviction has been withheld.” Because conviction is broadly defined, the court found that Gupton had, in fact, been convicted under the Act. Furthermore, it found that the definition of conviction and exclusion from practice were constitutional; and that the Act did not infringe upon the State’s right to define crimes or regulate the practice of medicine. See id. Unfortunately, Gupton illustrates that the Medicare Act defines conviction so broadly that many dispositions not defined by state law as “convictions” qualify as such for purposes of exclusion from participation under this federal law.

Unfortunately, in contravention of expanding expungement and sealing laws, the Act’s expansive definition of “conviction” creates the possibility that someone could have a state conviction expunged but be actively excluded from working in or owning a Medicare-covered facility. If a covered facility hires said person, it risks losing its licensure, funding, and may also be civilly and criminally liable. Because of such liability, Medicare covered agencies in jurisdictions where convictions can be expunged should utilize the Office of Inspector General’s List of Excluded Individuals and Entities, which is publicly available and includes individuals whose criminal record has been expunged or sealed.

While the Public Health and Welfare Act explicitly allows expunged state convictions to be used against individuals, a number of federal laws elect to do the opposite. For example, § 1829 of the Federal Deposit Insurance Act, 12 U.S.C. Chapter 16, prohibits individuals convicted of crimes of moral turpitude from employment with FDIC covered institutions. Yet, section (B)(1) of the FDIC’s Statement of Policy, however, explicitly states that a conviction that has been totally expunged and is no longer available to any person or agency is not considered a conviction under the Act.

Unfortunately, there is no uniformity to how federal law chooses to treat expunged state convictions for purposes of federal exclusion. As such, it is important for advocates to understand that while expungement and sealing can be greatly beneficial, the remedy will not always remove federally mandated collateral consequences.

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