Circuit Affirms Exclusion From Federal Health Care Programs Under 'Responsible Corporate Officer' Doctrine: Companies And Executives Beware Of An Emboldened Department Of Justice And HHS Office Of Inspector General

Author:Mr Adam Lurie, Brian T. McGovern and Bret A. Campbell
Profession:Cadwalader, Wickersham & Taft LLP

The authors analyze a recent federal circuit court decision that, they believe, may lead the Department of Justice and the Department of Health and Human Services to feel more emboldened than ever to pursue aggressively "responsible corporate officers" more than they have so far.

On July 27, 2012, in the closely watched case of Michael Friedman, et al. v. Kathleen Sebelius, et al., the United States Court of Appeals for the D.C. Circuit held that pharmaceutical corporate executives found guilty of misdemeanor "misbranding" under the "responsible corporate officer doctrine" ("RCO doctrine") had committed a "misdemeanor relating to fraud" pursuant to 42 U.S.C. § 1320a-7(b)(1), thereby subjecting them to exclusion from federal health care programs.

A s described further below, before the D.C. Circuit the executives argued that misdemeanor misbranding did not relate to fraud because, among other reasons, they were convicted under the RCO doctrine, which is a strict liability offense that does not require proof of intent. The circuit court rejected their arguments, finding instead that 42 U.S.C. § 1320a-7(b)(1) "authorizes the [Secretary of Health and Human Services ("HHS")] to exclude from participation in federal health care programs an individual convicted of a misdemeanor if the conduct underlying that conviction is factually related to fraud."

This is a significant decision because it confirms — subject to potential review by the U.S. Supreme Court — what many in the life sciences and health care industry have feared. Namely, the Office of Inspector General ("OIG") within HHS can exclude pharmaceutical, medical device, and other health care corporate and marketing executives who did not personally commit or condone fraud, but instead merely failed to prevent misbranding or other misdemeanors arguably "related to" fraud, such as adulteration.

Importantly, exclusion from federal health programs makes it nearly impossible for such executives to engage in any work — during the period of the exclusion — that may involve Medicaid or Medicare reimbursement or other federal health-care related contracting or services. For many, such a remedy could spell the end of their careers.

As described further below, it is also significant because the Department of Justice ("DOJ"), in concert with the Food and Drug Administration ("FDA") and the OIG, has recently turned to the RCO doctrine with greater frequency. In light of the Friedman decision, we anticipate that this trend will continue and will likely increase. More broadly, there has been increased clamor for...

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