One of the most powerful tools in the Government’s health fraud enforcement arsenal is the power to exclude entities and individuals from participation in federal health care programs. In recent years, the Office of the Inspector General of the Department of Health and Human Services (“OIG”) has stepped up its efforts to exclude health care company executives from participating in federal health care programs. Gregory Demske, Chief Counsel for OIG, has warned that corporate executives remain firmly in the OIG’s exclusion crosshairs when their companies are the focus of a criminal investigation: “[W]e have decided we should at least consider exclusion of executives at that company, who were in a position of responsibility at the time the crimes occurred.”
Since 2007, there have been several high profile exclusions of corporate executives capturing headlines in the health care press. That year, the OIG exercised its permissive exclusion authority, pursuant to
The OIG’s concerted effort to target health care corporate executives for exclusion has significant practical implications for health care entities seeking to resolve federal health care investigations. It not only raises the stakes for settlement, but can create conflicts of interest between the interests of the entity under investigation and the corporate managers, executives, and owners who could wind up the target of OIG exclusion.
This article discusses (i) the threat of permissive and mandatory OIG exclusion for corporate owners and officers (including those officers who do not have actual or constructive knowledge of their company’s transgressions), (ii) the story of former InterMune CEO W. Scott Harkonen, who is challenging the OIG’s mandatory exclusion action asserted against him, (iii) several other recent examples of how the OIG’s permissive exclusion power has been wielded against corporate executives and owners, and (iv) the practical implications of the OIG’s increased focus on corporate office exclusion.
I. The Corporate Health Care Officer–A Target For Exclusion
The trend toward exclusion of individuals is closely related to the recent aggressive deployment by the Food and Drug Administration of the Responsible Corporate Officer or Park Doctrine.
Under most federal health care laws, an individual can be convicted of a criminal offense only if the Government can demonstrate that the individual acted with intent to violate the law—that the individual had the appropriate scienter or mens rea. The Park Doctrine is an exception to that general rule—subjecting corporate officers to potential criminal liability under the FDCA based on their position within the organization rather than any criminal intent or active participation in illicit conduct.
The U.S. Supreme Court has interpreted the FDCA’s responsible corporate officer doctrine expansively; holding that those with managerial positions can be criminally liable for violations of the FDCA, even though the manager did not participate in the wrongdoing. In United States v. Park, the Court explained the reach of potential liability:
[T]he liability of the managerial officers did not depend on their knowledge of, or personal participation in, the act made criminal by the statute. Rather, where the statute under which they were prosecuted dispensed with ‘consciousness of wrongdoing,’ an omission or failure to act was deemed a sufficient basis for a responsible corporate agent’s liability. It was enough in such cases that, by virtue of the relationship he bore to the corporation, the agent had the power to prevent the act complained of.
The OIG has relied on similar reasoning to support its position that it may exclude executives from participation in federal health care programs even if they were not active wrongdoers. On April 19, 2010, in an address to the Health Care Compliance Association, Inspector General Daniel Levinson explained the agency’s view that corporate officers must be held accountable when their companies violate public welfare statutes.
- “Liability as a responsible corporate officer does not turn upon a corporate officer’s approval of wrongdoing, but rather on whether the officer had, by reason of his or her position in the corporation, responsibility and authority to either prevent, or promptly correct, the violation at issue, and the officer failed to do so.”
The OIG has multiple paths under
Specifically, the OIG outlined four categories of criteria relevant for its consideration of (b)(15) permissive exclusions: (1) circumstances of the misconduct and seriousness of the offense; (2) the individual’s role in the sanctioned entity; (3) the individual’s actions in response to the misconduct; and (4) a catchall that includes any additional information about the entity. This exclusion authority has not been widely used—the OIG has only excluded 36 individuals using its (b)(15) authority and there has only been one high-level executive of a major health care company excluded under (b)(15) (Marc Hermelin of KV Pharmaceuticals). However, the discretion afforded the OIG by this provision and the OIG’s recent pronouncement that there will be a presumption in favor of individual exclusions in any case where an entity is sanctioned provides the Government with significant leverage in settlement negotiations concerning government investigations.
Ultimately though, the vast majority of exclusions, well over 13,000, fall under the OIG’s mandatory exclusion authority. The OIG can exclude responsible corporate officers under
The ongoing litigation between InterMune CEO W. Scott Harkonen and the OIG, however, highlights the degree of discretion and aggressive stance the OIG can wield in exclusion proceedings.
II. The OIG and Corporate Executives And Owners – Varying Outcomes In Exclusion Proceedings
A. Former InterMune CEO W. Scott Harkonen: Indictment, Partial Acquittal, OIG Exclusion, and Litigation
The case of InterMune CEO W. Scott Harkonen provides a new twist to the OIG’s efforts to exclude corporate executives. The OIG excluded Harkonen after he was convicted of criminal wire fraud, but found not guilty of violating the FDCA after a federal jury trial. Harkonen is challenging his mandatory OIG exclusion in federal court arguing that the HHS Department Appeals Board (“DAB”) did not (1) correctly apply the relevant standard for exclusion when it used a common sense connection or nexus test to support its interpretation that Harkonen’s actions were linked to the delivery of health care services, or (2) give the appropriate weight to the jury’s acquittal of Harkonen’s FDCA misbranding charge.
Harkonen’s ban stems from a 2002 InterMune press release that highlighed the most encouraging result from the initial stages of a study for a new indication of the drug Actimmune.
On September 29, 2009, a jury found Harkonen guilty of wire fraud, but not guilty of felony misbranding under the FDCA. The government sought to have Harkonen’s sentencing enhanced, but the court did not find any connection between Harkonen’s statements and some actual or intended loss and on April 13, 2011, Judge Marilyn Patel sentenced Harkonen to three years of probation and a fine of $20,000. Nevertheless, the OIG informed Harkonen on August 31, 2011 that he would be excluded from all federal health programs for a period of five years under the agency’s mandatory exclusion authority, pursuant to
In his complaint, Harkonen contends that the DAB’s decision should be set aside because (i) the DAB misconstrued the Social Security Act’s exclusion provision by concluding that Harkonen’s offenses were related to the “delivery” of health care goods or services, and (ii) the DAB’s decision was arbitrary and capricious given the dearth of evidentiary support that Harkonen violated federal health care laws. Harkonen argues exclusion should be allowed only when there is some actual connection between the felony delivery of health care; potential impact to delivery of health care is not enough. Further, he questions how the DAB can uphold his exclusion based on the same factual allegations regarding misbranding that were insufficient to support a criminal conviction in federal court. Harkonen believes the factual basis for the exclusion was ultimately lacking, which resulted in a decision by the DAB that was arbitrary, capricious, and should be overturned. The OIG has filed its answer, but the case is only in its early stage. The outcome could go a long way towards clarifying the limits of OIG’s mandatory exclusion power.
B. Howard Solomon Dodges Ban
Since the OIG leans in favor of individual exclusions in any case where an entity is sanctioned, corporate officers of those entities must rebut the OIG’s presumption of exclusion. That is what recently occurred with Howard Solomon, CEO of Forest Laboratories.
After a U.S. District Court sentenced his company, Forest Laboratories, to pay a criminal fine of $150 million for pleading guilty to a felony count of obstruction of justice and a misdemeanor count of distributing a misbranded drug in interstate commerce, the OIG turned its focus to Solomon. In April of 2011, the OIG notified Solomon that it was considering his exclusion in connection with matters related to Forest’s settlement. The OIG had presumed, pursuant to (b)(15), that Solomon should be excluded as the responsible corporate officer of a guilty corporate entity.
Initially, it appeared that Solomon’s fate would be the same as that of Marc Hermelin, the former CEO of KV Pharmaceuticals and first drug company executive to be excluded without the OIG first bringing criminal charges. Hermelin’s case involved a subsidiary of KV Pharmaceuticals pleading guilty to felony misbranding, and the OIG using (b)(15) permissive exclusion to ban Hermelin from the health care industry.
Solomon, however, was able to effectively rebut the OIG’s presumption of exclusion, as the OIG changed its position in an August 2011 letter to Solomon. In the letter, the OIG indicated that “[b]ased on a review of the information in [the OIG’s] file and consideration of the information that [Solomon’s] attorneys provided…[the OIG] decided to close the case.”
C. Arizona Hospice Owners Agree to Voluntary Permissive Exclusion
The 2012 exclusions of Hospice Family Care’s co-owners provide a stark contrast to the outcome Solomon obtained. Hospice Family Care and its co-owners were under government investigation for the submission of false claims to Medicare for hospice ineligible patients. Based on publicly available information, it seems likely that the OIG’s presumption of exclusion factored into settlement negotiations that led to Hospice Family Care agreeing to pay $3.7 million to the government and the co-owners voluntarily agreeing to seven-year exclusions from federal health care programs. The co-owners’ exclusion came under
III. Practical Implications of the OIG’s Expanded Use of Exclusion
One obvious takeaway is that the OIG’s exclusion authority is very broad, and the OIG has sent strong signals to the health care industry that it intends to use exclusion to hold owners and executives accountable for the conduct of their companies, whether the executives played an active role in the fraud or misconduct or not.
Another takeaway is that the OIG’s enhanced use of exclusion can strain the relationship between the company and the executive/owner, who could be targeted for exclusion. The Arizona Hospice Care settlement is one example of how the OIG’s use of exclusion can introduce new variables into negotiations between health care entities and the government. Prior to the OIG’s expanded use of corporate officer exclusion, the interests of high-ranking individuals within a health care corporation’s management were generally aligned with the interests of the corporation, since there was little real threat that the individual executives faced the threat of exclusion. Now, since there is a greater likelihood the executive may be targeted by the OIG, it raises the question of whose interests will prevail—the executive’s or the health care company’s?
With the uptick in OIG exclusion, both mandatory and permissive, there is a distinct possibility that corporate officers may weigh the corporation’s interests against their own. At the very least, corporate management and their representatives in settlement negotiations must consider a wider array of outcomes with OIG exclusion such a prevalent possibility.