In recent years, the federal government has made no secret of its intent to pursue individuals in addition to companies in its efforts to enforce healthcare-related statutes, rules and regulations. One of the primary weapons in the government's arsenal is its revitalization of the responsible corporate officer (RCO) doctrine. Under this doctrine, an individual in a position of authority is susceptible to criminal prosecution and/or exclusion from federal healthcare programs for the misconduct of others in the organization, even in the absence of evidence that the individual knew or should have known of the misconduct.
History of the RCO Doctrine
The RCO doctrine was first recognized in United States v. Dotterwich, 320 U.S. 277 (1943). In Dotterwich, the company's president was charged with a misdemeanor violation of Section 301 of the federal Food, Drug and Cosmetic Act (FDCA), 21 U.S.C. Section 331, for the company's shipment of adulterated drugs. The statute did not require proof that the president had knowledge of the shipment, and the evidence did not establish it. The company's president was convicted and the Supreme Court upheld his conviction.
In its decision, the Court described the statute as a "... now familiar type of legislation whereby penalties serve as effective means of regulation. Such legislation dispenses with the conventional requirements for criminal conduct — awareness of some wrongdoing. In the interest of the larger good it puts the burden of acting at hazard upon a person otherwise innocent but standing in a responsible relation to public danger." (320 U.S. at 280-281.) In dissent, Justice Roberts crystallized the theory and characterized the conviction as guilt "imputed to the respondent solely on the basis of his authority and responsibility as president and general manager of the corporation." (320 U.S. at 286.)
Application of the RCO was reaffirmed by the Supreme Court about 30 years later in U.S. v. Park, 421 U.S. 658 (1975). In Park, the Supreme Court upheld the conviction of a food chain president for a misdemeanor violation of Section 301(k) of the FDCA, 21 U.S.C. Section 331(k), in connection with the rat-infested condition of a company warehouse. There was no evidence that the defendant knew of the infestation. Nonetheless, the Court applied the principles of Dotterwich, stating in part that "[t]he requirements of foresight and vigilance imposed on responsible corporate agents are ... no more stringent than the public has a right to expect of those who voluntarily assume positions of authority in business enterprises whose services and products affect the health and well-being of the public that supports them." (421 U.S. at 672.) Following the decision in Park, the RCO doctrine took on the name of the case and is now also commonly called the Park doctrine.
FDA Guidance on Prosecutions
Although the RCO doctrine had been used sparingly in the decades following Park, it has seen a significant re-emergence in recent years. In a letter of March 4, 2010, to Senator Charles Grassley, FDA Commissioner Margaret Hamburg expressly stated the agency's intent to hold responsible corporate officials accountable through the use of misdemeanor prosecutions. In addition, in January 2011, the FDA revised its regulatory procedures manual to address Park doctrine prosecutions.
The manual expressly recognizes that misdemeanor prosecutions are a valuable enforcement tool and notes that subsequent prosecution is a felony "even without proof that the defendant acted with the intent to defraud or mislead." (Manual at Section 6-5-3.) The manual directs staff to consider a number of nonbinding factors in determining whether to recommend criminal prosecution. These factors include the individual's position within the organization, their relationship to the violation and any authority they may have had to correct or prevent the violation. Additional factors include whether or not there was actual or potential harm to the public, whether the violation reflected a pattern of illegal behavior, whether the violation was widespread and whether the prosecution would constitute a prudent use of agency resources.
OIG Guidance on Exclusion
During this same period, the Office of Inspector General (OIG) of the Department of Health and Human Services (HHS) published guidance for implementing its statutory permissive exclusion authority under 42 U.S.C. § 1320a-7(b). This guidance focuses on the existence or absence of knowledge. (See Office of the Inspector General, Guidance for Implementing Permissive Exclusion Authority Under Section 1128(b)(15) of the Social Security Act (Oct. 20, 2010).)
The OIG's guidance, published in October 2010, is significant in that it allows for the exclusion of officers and managing employees from participation in federal healthcare programs even in the absence of evidence that those individuals knew or should have known of the misconduct at issue. The guidance defines officers and managing employees as those who exercise operational or managerial control, or who directly or indirectly conduct day-to-day operations. In those instances where there is evidence that the individuals knew or should have known of the misconduct, there is a presumption in favor of exclusion. In the absence of such evidence, the OIG will consider the circumstances of the misconduct and the seriousness of the offense. Included within these factors are the nature and scope of the entity's misconduct, the level of authority at which the misconduct occurred, the existence of any harm to beneficiaries or the federal healthcare program, whether the conduct was part of a pattern, the individual's role in the entity and whether the misconduct was in the individual's chain of command. The factors also include the steps, if any, the individual took to stop or mitigate the misconduct and whether the individual disclosed the misconduct and cooperated.
Use of RCO Doctrine on the Rise
In recent years there have been an increasing number of criminal prosecutions and administrative exclusions founded upon the RCO doctrine. For example, in U.S. vs. Purdue Frederick Company, et al., No. 07-CR-00029 (W.D. Va.), three former executives pled guilty as responsible corporate officers to misdemeanor charges of introducing a misbranded drug (Oxycontin) into interstate commerce. The individuals agreed to disgorge $34.5 million, and they were sentenced to three years' probation, 400 hours of community service and a $5,000 fine. They were originally excluded from participation in federal healthcare programs for a period of 20 years under the permissive exclusion authority provisions of 42 U.S.C. § 1320a-7(b)(1) and (b)(3). The exclusion period was reduced to 12 years by HHS's Departmental Appeals Board. The district court affirmed the exclusion and the case is currently pending in the U.S. Court of Appeals for the D.C. Circuit. (Friedman, et al. v. Sebelius, 755 F.Supp.2d 98 (D.D.C. 2010); No. 11-5028.)
Likewise, in U.S. v. Norian Corp., et al., 2:09-CV-00403 (E.D. Pa.), four former executives pled guilty as responsible corporate officers to misdemeanor charges of misbranding medical devices. They were sentenced in 2011 to terms ranging from 5 to 9 months' imprisonment, and they face potential exclusion. Similarly, in U.S. v. Hermelin, 4:11-CR-00085 (E.D. Mo.), the former CEO pled guilty as a responsible corporate officer to misdemeanor charges of introducing a misbranded drug into interstate commerce. He was sentenced to 30 days' imprisonment and ordered to pay $1.9 million in forfeiture and fines. In addition, he was excluded by the Office of Inspector General.
Conclusion
Individuals in positions of authority within corporations or any other entities face draconian consequences as the government continues to use the RCO doctrine to pursue criminal convictions and corresponding exclusions from federal healthcare programs. In many instances, the most important time for the defense will not be during the trial or administrative proceedings, but rather during precharge discussions with government enforcement personnel. The primary objective of the defense will be to convince government decision makers that it is simply unfair to apply the doctrine in the individual's case. Any individual placed in this unenviable position would be best served by demonstrating that the entity has a strong and vibrant compliance program, such that the conduct at issue could not have been discovered notwithstanding the expenditure of all reasonable effort. Successful compliance programs should not only be thoroughly written and designed, but must also be updated regularly and enforced on a daily basis. Employees and other affected individuals should be educated with respect to its specifics, a hotline for anonymous reporting should be established and appropriate disciplinary action should be taken when appropriate. Individuals who can point to such a compliance program and a clean company record will be in a far better position than those who cannot.
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