United States: D.C. Circuit Holds That Former Purdue Pharma Executives Who Pleaded Guilty To Misdemeanor Misbranding May Be Excluded From Participation In Federal Health Care Programs
On July 27, 2012, in Friedman et al. v. Sebelius, the
United States Court of Appeals for the D.C. Circuit held that the
Department of Health & Human Services may exclude from
participation in federal health care programs three former Purdue
Pharma executives who pleaded guilty to misdemeanor misbranding of
Oxycontin. Friedman is the first appellate decision to
address whether a misdemeanor conviction under the Food, Drug, and
Cosmetic Act can expose a defendant to permissive exclusion under
42 U.S.C. § 1320a-7(b). Friedman holds that an
individual will be subject to permissive exclusion "if the
conduct underlying the conviction is factually related to
fraud." The Friedman decision — a full copy
of which can be found here —underscores the value of
obtaining, if possible, some type of assurance from the government
that HHS will not seek exclusion if a corporate or individual
client agrees to plead guilty to a misdemeanor FDCA offense.
On May 10, 2007, Purdue Pharma pleaded guilty to felony
misbranding, admitting to allegations that it falsely marketed
Oxycontin as posing a lower risk of abuse and addiction than
non-time released painkillers. On that same day, three of the
company's top executives — Michael Friedman
(president), Howard Udell (general counsel), and Dr. Paul
Goldenheim (medical director) — pleaded guilty, under the
so-called "Responsible Corporate Officer doctrine," to
"misdemeanor misbranding . . . for their admitted failure to
prevent Purdue's fraudulent marketing of Oxycontin." In
their plea agreements, the executives disclaimed any knowledge of
the fraudulent marketing of Oxycontin; they admitted only that they
failed to discharge their "'responsibility and authority
to prevent in the first instance or to promptly correct' the
misrepresentations certain unnamed Purdue employees made regarding
Oxycontin."
Several months after the executives' pleas were entered, the
Office of the Inspector General determined that they "should
be excluded from participation in Federal health care programs for
20 years, pursuant to 42 U.S.C. § 1320a-7(b)(1)," which
permits HHS to exclude an individual convicted of "a
misdemeanor related to fraud." HHS's Departmental Appeals
Board ("DAB") later reduced the exclusion period to 12
years, but it rejected the executives' argument that their
convictions for "misdemeanor misbranding" did not
constitute "'misdemeanor[s] relating to
fraud.'"
The executives sought judicial review of the DAB's order.
The district court agreed with the DAB that, "by its plain
terms," § 1320a-7(b)(1) "appears to permit the
exclusion of anyone convicted of an offense 'having a
connection with or reference to' fraud . . . in the delivery of
a health care item or service." The district court further
held that the executives' misdemeanor convictions met that
criterion because they arose out of the misleading marketing
practices underlying Purdue Pharma's felony misbranding
plea.
The D.C. Circuit affirmed the district court's decision,
holding that § 1320a-7(b)(1) "unambiguously"
permitted HHS to exclude the executives. The D.C. Circuit was not
troubled by the fact that, under its interpretation of the statute,
"one 'who pleads guilty [to] a strict liability
misdemeanor offense that requires no proof of conscious wrongdoing,
fraud, or falsehoods'" is subject to a "career-ending
disabilit[y] . . . based on misconduct by others that he had no
knowledge of." "Surely," the court wrote, "the
Government constitutionally may refuse to deal further with senior
corporate officers who could have but failed to prevent a fraud
against the Government on their watch."
The D.C. Circuit's opinion does contain a silver lining for
the executives. The court held that "the decision of the DAB
was arbitrary and capricious with respect to the length [12 years]
of the exclusion." The court did "not suggest the
[executives'] exclusion for 12 years based upon a conviction
for misdemeanor misbranding might not be justifiable." The
court was concerned, however, "that the DAB did not
justify" the length of the exclusion. Although the DAB will
have a chance to provide an adequate justification on remand, the
court's opinion suggests that it will not be easy for the DAB
to come up with a "reasoned explanation" for such a
lengthy exclusion period. If you would like further information,
please contact the Ropes & Gray attorney who usually advises
you.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
Specific Questions relating to this article should be addressed directly to the author.
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