The scope and use of the federal healthcare program exclusion
authority continues to evolve. Over the past few weeks, a federal
district court upheld the exclusion of three former pharmaceutical
industry executives based on their responsible corporate officer
doctrine convictions. The Department of Health and Human Services
Office of the Inspector General (OIG) announced another
unprecedented exclusion, this time against a former pharmaceutical
company shareholder. Congress repealed a mandate that state
Medicaid programs exclude a wide swath of individuals and entities
based on affiliations with federally sanctioned entities, which had
already had the effect of complicating settlements of healthcare
fraud cases. These developments present a sobering picture for
individuals working in the healthcare industry and emphasize the
importance of responding to the OIG's request for comment on
its guidance on the effect of federal health program
exclusion.
Court upholds RCOD-based exclusions
In Friedman et. al v. Sebelius (1:09-cv-02028-ESH), a
judge in the federal district for the District of Columbia affirmed
the OIG's decision to exclude three former pharmaceutical
industry executives from participation in all federal healthcare
programs for 12 years. The Court concluded that OIG has the
authority to exclude these individuals based on their guilty pleas
to misdemeanor misbranding under the "responsible corporate
officer" doctrine even though these convictions did not
require, and the case did not include, any evidence of personal
wrongdoing or intent by the excluded executives. In doing so, the
Court affirmed the OIG's assertion that the language of its
statutory exclusion authority should be interpreted extraordinarily
broadly and allows the OIG to exclude the executives convicted of a
non-conspiracy offense based on someone else's misconduct. The
Court similarly validated the OIG's authority to impose
extensive exclusion periods beyond the statutory period treating as
evidence sanctions imposed on the company, and settlement payments
made by the company despite explicit provisions in the civil
settlement agreement denying liability. The Court determined that
the lack of personal culpability by the excluded executives did not
render unreasonable their 12 -year bar on participation in any
federal healthcare programs. The decision is likely to be viewed by
the OIG as strengthening significantly its hand and discretion to
pursue individuals under the responsible corporate officer doctrine
in a number of corporate contexts. In particular, the OIG is likely
to treat this decision as an affirmation of its ability to pursue
exclusion of executives who did not have knowledge of the corporate
misconduct at issue. In addition, OIG will likely interpret the
Friedman decision as a confirmation that it has the
authority, as articulated in the OIG's recently issued guidance
on imposition of exclusion of company officers and managing
employees under Section 1128(b)(15) of the Social Security Act, to
exclude individuals based on mere allegations in civil and criminal
investigations.
OIG excludes pharmaceutical company shareholder
As explained in the Hogan Lovells US LLP alert in October 2010,
the OIG's guidance on the use of section (b)(15) indicated that
the OIG would seek to exclude the owners, officers, and managing
employees of an excluded or convicted entity regardless of whether
the individuals themselves have been convicted or even charged in
the underlying case. Within weeks of this guidance, the OIG
excluded the former Chairman of the Board and Chief Executive
Office of a specialty pharmacy company, who was uncharged in the
prosecution leading to the conviction of a corporate subsidiary.
Such actions may foreshadow the fate of many other healthcare
industry owners, executives, and managers who may previously have
assumed that avoiding criminal prosecution ended their personal
exposure. Indeed, at a recent American Bar Association Conference,
Gregory Demske, Assistant Inspector General for Legal Affairs,
characterized this exclusion as a "preview of things to
come."
Congress repeals Medicaid exclusion mandate
One silver lining came with the enacted of Medicare and Medicaid Extenders Act of 2010 (H.R. 4994), signed into law on December 15, which repealed section 6502 of the Patient Protection and Affordable Care Act. The repealed provision would have mandated state Medicaid exclusion of individuals and entities that owned or managed an entity that had not returned Medicaid overpayments, had been suspended or excluded from Medicaid, or had been affiliated with an individual or entity that had been excluded from the program. This sweeping broad provision would have dictated that states exclude individuals and entities from their Medicaid programs based on an affiliation alone, even under circumstances where the federal government was not pursuing exclusion. The repeal of this provision brings welcome relief, especially for those corporations and individuals that had negotiated the exclusion of a subsidiary company as part of a settlement with the Justice Department. That said, the recent congressional action should not be understood as a rejection of aggressive exclusion efforts. Federal legislation (H.R. 6130), which passed the U.S. House of Representatives by unanimous consent and is pending before the lame duck Senate, would grant the OIG expanded exclusion authority to reach individuals who have no current relationship with the sanctioned entity, as well as individuals and entities in the same corporate structure as the sanctioned entity.
Comment period allows feedback on exclusion efforts
These recent developments are part of continued efforts by the
OIG to use the principles underlying the responsible corporate
officer doctrine to exclude owners, officers, and managing
employees, effectively ending careers of individuals based on the
acts of others. Fear of exclusion may lead some to increase their
investment in compliance training, auditing, and monitoring as the
OIG envisions. Another potential outcome of this expansion of
exclusion efforts is that the risk associated with accepting
leadership positions in FDA regulated entities — drugs,
devices, and food — has become so high that the very
types of risk-averse individuals that the OIG would want to run
these companies will choose other career paths.
The Department of Health and Human Services Office of the Inspector
General (OIG) has solicited information and recommendations for
supplementing its Special Advisory Bulletin on the Effect of
Exclusion from Participation in Federal Healthcare Programs. 75
Fed. Reg. 57039 (September 17, 2010). This comment period, which
closes on January 17, offers a timely opportunity both to clarify
how industry implements exclusion decisions and to highlight for
the government the potential harms associated with an exclusion
policy that leave diligent, compliance-minded, risk-averse
individuals less likely to remain in the healthcare industry.
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