Whistleblower News & Articles
October 31, 2017
The Health Care Fraud and Abuse seminar at BU Law wrapped up its most recent class. We discussed different regulatory tools that federal and state prosecutors use to encourage, punish, and otherwise direct industry decision-making. It was a fun exercise, with not enough room on the chalkboard.
First, in addition to reading about corporate integrity agreements, exclusion and debarment remedies, civil monetary penalties, and the many criminal statutes that can be brought to bear, students were asked for homework to draw a diagram with one circle in the middle (doctors, hospitals, pharma companies, device companies) and four circles in the corners of the page. Those four circles would represent:
Using arrows and lines, students sketched the powers each entity could exert over health providers. The chart above is our distillation of that collective effort. Easy, right?
Importantly, the four outer circles are just the largest regulatory bodies. State pharmacy boards, medical licensing and disciplinary boards, and the like are all out there, too. No wonder this arena employs so many lawyers.
As a particular case study, the class took on Friedman et al. v. Sebelius et. al., a decade plus long piece of litigation in DC. The case involves HHS/OIG’s use of its permissive exclusion powers. These allow the government to bar from participation corporate officers convicted of Food Drug Cosmetic Act (“FDCA”) offenses.
Particularly insightful is the 2010 District Court opinion of Judge Ellen Huvelle. That opinion affirmed the agency’s exclusion decisions of the lead actors in the FDCA misbranding case. The dispute stemmed from the guilty pleas of Purdue Pharma and several of its executives. The executives admitted to falsely understating the addiction risks of OxyContin. These statements have led us to a national opioid crisis. The defendants paid their fines, but then the individuals fought in court when HHS/OIG sought to exclude them for a lengthy period of time.
Both the company and the individuals had admitted their misconduct in guilty pleas entered under criminal Rule 11(e)(1)(C) (where the parties ask the court to adopt their agreed-upon disposition of the case, including the sentence. Why, one wonders, didn’t the defense lawyers for the individuals wrap up the exclusion issue at the same time? It’s a puzzle — the parties might have spared themselves a decade of litigation.
Judge Huvelle’s decision and order affirming the exclusions were based in part on the so-called Responsible Corporate Officer doctrine or “RCO”. Following two Supreme Court precedents from decades past, United States v. Dotterweich, 320 US. 277 (1943) and United States v. Park, 421 U.S. 658 (1975), the RCO allows for misdemeanor convictions of corporate officers without evidence of direct knowledge of or involvement with the crime, a striking exception from the normal rules of the road in criminal cases. If the evidence shows that the defendants had the power to stop the criminal conduct in some supervisory role, i.e., responsibility and authority for the work of others, then proof of actual knowledge and intent is not necessary.
In effect, the RCO borrows from civil tort law standards for establishing negligence: that the defendant should have known and did nothing to stop it despite his/her power to do so.
If this sounds like a scary situation in which to be a corporate officer, there is a limiting principle or two: First, this applies only to misdemeanor liability; to prove the felony violation. the government must still prove criminal intent. Second, this applies only to the FDCA in the panoply of health care fraud criminal statutes. There are no analogs to this, for example, in the Anti-Kickback Act.
So as to not kill the goose that laid the golden egg, government prosecutors use the RCO sparingly, so as to not trigger a judicial limitation on the doctrine. In my opinion, they don’t use it enough to go after individuals who drive corporate malfeasance. As an example, multi-billion dollar drug wholesaler AmerisourceBergen recently pled guilty to an FDCA misdemeanor and paid $260 million in criminal fines for wholesale misbranding oncology drugs for years in an unregistered Alabama “pharmacy” that was actually a drug re-packager and manufacturer. As set forth in the government’s charging document, this lucrative scheme put many very sick patients at risk.
Charging the company with a misdemeanor in such a situation makes some sense, because a felony conviction would have led to mandatory exclusion, which might have harmed innocent third parties like low level employees or patients who need their drugs. But if the government is in the misdemeanor neighborhood anyway, why not apply the RCO and go after the corporate captains who profited so handsomely from this?
Sally Yates, the Deputy Attorney General who later became famous for her principled stand on the Trump travel ban, wrote a memo during her tenure at the Department of Justice, urging prosecutors to be not-too-quick to give individuals a pass in corporate global settlements. Part of her reasoning was that to achieve true deterrence, the government must cause corporate malfeasants to fear for their liberty, or at least for the contents of their wallets. Still, charging corporate officers in these large corporate settlements remains the exception rather than the rule.
For some companies even a $260 million fine is just the cost of doing business as usual. It’s the equivalent of a parking ticket for you and me, except it’s a parking ticket that someone else (shareholders) pays.
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