For the first time in over a decade, the Department of Health and Human Services Office of Inspector General (OIG) issued new guidance on the implementation of its permissive exclusion authority. See www.oig.hhs.gov/w-new.asp (October 20, 2010).
The new guidance sets forth nonbinding factors OIG says it will
consider in deciding whether to impose permissive exclusion on an
officer or a managing employee of an excluded or convicted entity
– regardless of whether they themselves have been
convicted or even charged in the underlying case. The breadth of
the authority asserted in the guidance emphasizes the OIG's
recent commitment to pursuing not just corporate entities, but also
the healthcare industry executives and managers it deems
responsible for the actions of those entities. See Hogan
Lovells US LLP
Health Update March 17, 2010.
Even absent passage of legislation pending in Congress to
expand OIG's exclusion authority, OIG's new guidance
effectively announces its intention to make greater use of its
existing authority to exclude uncharged individuals based on their
relationship to corporations convicted of healthcare offenses.
OIG's new declaration of its existing authority may contribute
to a paradigm shift in how companies approach settlement
negotiations with the Department of Justice and the OIG. At the
same time, officials from the Food and Drug Administration (FDA)
are stressing that they intend to increase the number of cases in
which they pursue misdemeanor misbranding charges against
individuals under the responsible corporate officer doctrine of
United States v. Park, 421 U.S. 658 (1975). Going forward,
resolution of any investigation involving alleged healthcare fraud
or regulatory offenses will necessarily include assessment of the
impact on key officers and managing employees. This Alert
summarizes these emerging issues.
Permissive exclusion authority
Under Section 1128 of the Social Security Act (Act), OIG has
authority to exclude individuals and entities from participation in
federal healthcare programs. The Act identifies certain types of
criminal convictions and other derivative grounds upon which the
OIG, in its discretion, may base an exclusion. Section 1128(b)(15)
articulates one such ground for permissive exclusion by authorizing
the OIG to exclude an individual based upon the individual's
role or interest in an entity that has been convicted of certain
offenses or excluded. The new OIG guidance focuses on how it will
use that authority to decide whether to exclude officers and
managing employees. Both the statements of purpose and rationale,
as well as the description of the factors themselves, demonstrate
the OIG's determination to interpret and assert its exclusion
authority broadly.
The scope of the (b)(15) exclusion provision
The exclusion described in the OIG's guidance will likely
reach a wide swath of the healthcare industry. Section 1128(b)(15)
authorizes OIG to exclude officers or managers of any entity that
is excluded, convicted of, or pleads to particular healthcare
offenses. Among the relevant healthcare offenses is the
increasingly common plea to a misdemeanor misbranding violation of
the Food, Drug and Cosmetic Act. Accordingly, the guidance will
apply to officers and managing employees of many companies in
criminal settlement negotiations with the Department of Justice
irrespective of whether their company is facing OIG
exclusion.
Within a company, the new guidance claims OIG has the authority to
exclude all "officers" as well as any "managing
employees" – defined as individuals with operational
or managerial control over the entity or who directly or indirectly
conduct day-to-day operations. Under its newly articulated
standard, the OIG will apply a presumption in favor of exclusion if
the OIG determines there is evidence that the officer or managing
employee knew "or should have known" of the conduct that
formed the basis for the corporate sanction. The presumption may be
overcome if the OIG determines that unidentified "significant
factors weigh against exclusion." The new guidance also
describes a second basis for exclusion of officers and managers in
the absence of evidence triggering the presumption of exclusion and
identifies the set of factors the OIG will consider to determine
whether to exclude such individuals.
Exclusion criteria for officers and managing employees
The OIG guidance explains that when assessing whether to impose
a derivative permissive exclusion on an officer or managing
employee where there is no evidence that the individual knew or
should have known of the misconduct, the OIG will consider four
categories of factors: 1) information about the entity; 2)
individual's role in entity; 3) circumstances of the misconduct
and seriousness of the offense; and 4) individual's actions in
response to the misconduct. While exclusion is intended to be a
prophylactic remedy protecting Federal healthcare programs and
beneficiaries from harm the excluded person could cause, the
OIG's categories focus primarily on the conduct and character
of the convicted corporation and not the individual who may be
excluded – the first two categories look at the company
and the individual's position in the organization, and the
third focuses on the company's misconduct and the
resolution. Notably, the OIG has interpreted misconduct to include
not only the factual basis for the corporate sanction, but also
"any other conduct OIG considers relevant." OIG
specifically identifies allegations in criminal, civil or
administrative matters, as well as conduct that formed the basis
for any criminal, civil or administrative investigation, to be
relevant in its consideration. In the end, it is only the fourth
category that looks at the individual's relationship to the
company's misconduct.
Implications
The issuance of the new guidance is the latest step in the
progression of OIG's efforts to interpret expansively who and
what is subject to its exclusion authority. If enacted, pending
federal legislation (H.R. 6130) would amend Section 1128(b)(15) to
reach further to individuals that have no current relationship with
the sanctioned entity, as well as individuals and entities in the
same corporate structure as the sanctioned entity. The bill passed
the United States House of Representatives by unanimous consent on
September 22, 2010. Although the outlook for this legislation in
the Senate remains unclear, this and other Congressional activity
suggests growing support for broad OIG exclusion authority.
The OIG's guidance is also part of a broader and increasing
focus on seeking sanctions against healthcare industry executives
by other divisions within the Department of Health and Human
Services. In a March 4, 2010 letter, FDA Commissioner Margaret
Hamburg told Senator Grassley that the agency has developed
criteria for use in selecting appropriate cases for the misdemeanor
misbranding prosecution of executives. In recent weeks, Eric
Blumberg, Deputy Chief for Litigation, Office of the Chief Counsel
FDA reiterated the agency's intention to pursue Park
doctrine misdemeanor prosecutions against industry executives. In
one notable recent case, the OIG extended its exclusion authority
to executives convicted of strict liability misdemeanors under that
doctrine. The new OIG guidance on permissive exclusions of
individuals pursuant to Section 1128(b)(15) strongly suggests the
OIG is no longer content to wait for FDA and DOJ to obtain such
convictions – laying out instead factors OIG will
consider in determining whether to pursue exclusion of officers and
other executives working for companies that have been convicted of
such offenses, regardless of whether the executives have been
charged with crimes themselves.
In sum, it appears that OIG and FDA are committed to increased
enforcement and sanctions against individuals and that OIG will
continue to expand its authority to reach executives and managers
whether or not those individuals are charged in criminal
investigations. Healthcare entities and their leadership need to
carefully consider the potential exposure arising from these
efforts in any ongoing and future corporate plea agreement or
settlement negotiation.
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