The US Circuit Court of Appeals for Washington, DC, has ruled in favor of an emerging enforcement technique used by the federal government to bar individuals from certain employment opportunities after being found guilty of defrauding programs such as Medicare and Medicaid.
The technique could be of enormous consequence for the pharmaceutical and medical device industries, both of which do large amounts of business through Medicare, Medicaid, Tricare and numerous other government-funded programs. When companies are accused of wrongdoing-illegal marketing of a pharmaceutical product, for example-they are often charged with defrauding the programs.
Though federal law allows the government to exclude companies from participating in programs they are found to have defrauded, in practice this rarely happens due to both the size of the companies and the patent-protected portfolios of products owned by the companies. To exclude a single company from contracting with Medicare or Medicaid could lead to patients being denied potentially life-saving treatments.
Long frustrated with a cavalcade of increasingly large fines, which have been referred to by some as just another cost of doing business, federal officials have recently started to go after individuals instead.
The US Department of Health and Human Services (DHHS) in particular has barred individuals from being involved with federal programs. Notably, this exclusion extends to the companies for which they work, leaving it difficult-if not outright impossible-for the affected individuals to obtain work in the same field if found guilty.
Former Purdue Executives Sue
The case before the court involved three executives formerly employed by Purdue Pharmaceuticals convicted of defrauding the government by misleading it regarding the risks associated with the painkiller OxyContin.
The officials were found guilty under the "responsible corporate officer" doctrine, which holds that individuals may be held responsible for the actions of a company if their actions or non-actions contributed to the crime, and were sentenced to pay back nearly $35 million. The responsible corporate doctrine is also referred to as the "Park Doctrine," and is used by several US agencies including the US Food and Drug Administration (FDA).
Shortly after being sentenced, DHHS's Office of the Inspector General (OIG) moved to exclude the three from participating in federal programs for a period of 20 years, which it said was based upon the trio's conduct, the length of the conduct, the financial impact of their crimes and the crimes' impact on other program participants.
The three filed suit against DHHS-see: Michael Friedman v. Kathleen Sebelius-arguing OIG's actions were "arbitrary and capricious" and amounted to a violation of their due process rights under the law.
In a split decision, the court ruled against the former executives, ruling instead that DHHS had acted properly and is authorized by federal law and precedent to exclude anyone found guilty of a "misdemeanor related to fraud."
However, the court sided against OIG on at least one measure: the years the executives were banned from the program. While the ban had since been reduced from 20 years to 12, the court found the number "arbitrary and capricious" and ordered the agency to reconsider the length of time the three are subject to exclusion.
The Wall Street Journal notes this is among the first uses of the Park Doctrine by FDA, and the court's affirmation of the doctrine could be a powerful tool in the agency's enforcement arsenal going forward.