74 A.3d 959
N.J. Super. Ct. App. Div.2013Background
- John Sclafani purchased Township Pharmacy in December 2009 and applied on February 12, 2010 to enroll the pharmacy as a Medicaid pharmaceutical services provider.
- Question 37 on the provider application asked whether any named persons (including employees) had ever been indicted, arrested, charged, convicted, or pled guilty/no contest to any crime; Sclafani answered “no.”
- An investigator discovered that Township’s licensed pharmacy technician, B.L.R., had a prior criminal record (multiple charges and convictions from 1998–2008) and the Division denied the application under N.J.A.C. 10:49‑11.1(d)(22) for submission of a false application.
- At the administrative hearing, the ALJ found both Sclafani and B.L.R. credible and that the omission was inadvertent: Sclafani reasonably relied on the Board of Pharmacy’s recent licensing of B.L.R., did not ask employees about criminal histories, and did not run a criminal-background search.
- The Director adopted the ALJ’s findings and concluded the regulation does not require intent to deceive; submitting inaccurate or incomplete information is “good cause” to deny enrollment to protect Medicaid integrity.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether omission of employee criminal history (without intent) is "good cause" under N.J.A.C. 10:49‑11.1(d)(22) to deny provider enrollment | Sclafani lacked knowledge and reasonably relied on Board of Pharmacy licensing; omission was inadvertent and not deceptive | Regulation requires truthful, accurate, complete information; no proof of intent is required to deny for false/incorrect application | Court held omission—even if inadvertent and without intent—constitutes good cause to deny under the regulation |
| Whether the Director’s denial was arbitrary, capricious, or unsupported by substantial evidence | Sclafani argued the Director’s decision was unreasonable given his good‑faith efforts and credible explanations | Division argued its factual findings and enforcement policy were supported by substantial credible evidence and proper application of the regulation | Court affirmed: agency decision conformed to law and was supported by substantial credible evidence; standard of review forecloses substituting court judgment for agency’s |
| Whether applicants must independently verify employees’ criminal histories before certifying the application | Sclafani contended employer not required to run background checks and reasonably did not know how | Division argued applicants must ensure answers are true and accurate; due diligence required to preserve Program integrity | Court held applicants bear responsibility to provide accurate, complete disclosures; reliance on other licensing bodies is not a defense |
| Whether Board of Pharmacy licensing of an employee precludes Division action or creates estoppel | Sclafani/B.L.R. argued Board’s licensing and acceptance of explanations meant no disqualifying history existed | Division maintained its separate enrollment standards and investigatory tools for Medicaid providers | Court held separate regulatory schemes are distinct; Board licensing does not relieve applicant’s duty to disclose for Medicaid enrollment |
Key Cases Cited
- Brady v. Board of Review, 152 N.J. 197 (N.J. 1997) (standard for reviewing agency action)
- In re Stallworth, 208 N.J. 182 (N.J. 2011) (scope of appellate review of administrative findings)
- Circus Liquors, Inc. v. Governing Body of Middletown Twp., 199 N.J. 1 (N.J. 2009) (deference to agency expertise)
- Open MRI of Morris & Essex, L.P. v. Frieri, 405 N.J. Super. 576 (App. Div. 2009) (regulated health services implicate public safety and welfare)
- Material Damage Adj. Corp. v. Open MRI of Fairview, 352 N.J. Super. 216 (Law Div. 2002) (public‑welfare standard precludes good‑faith belief defense to regulatory noncompliance)