More company officials may be excluded from government health care programs as the Health and Human Services’ Office of Inspector General is going to presume individuals should be excluded if there is evidence they knew or should have known of misconduct.

The OIG issued a guidance on Oct. 20 listing the factors it will consider in deciding to exclude the owners or officials of companies that are excluded or convicted of certain offenses.

OIG’s guidance “is going to shift the burden to an officer to demonstrate he shouldn’t be excluded” – former federal prosecutor Michael Loucks

Former Department of Justice prosecutor Michael Loucks said the secretary of HHS has taken an unusual step in going beyond the statute and making a presumption in favor of exclusion if evidence supports a finding that the individual knew or should have known of conduct that led to a sanction.

“It is going to shift the burden to an officer to demonstrate he shouldn’t be excluded,” said Loucks, now a partner at Skadden, Arps, Slate, Meagher & Flom.

Prosecution Unnecessary For Exclusion

The exclusion of entities and individuals is authorized under a section of the Social Security Act. The statute makes a distinction between an owner of the entity that has been excluded from health care programs or convicted of certain offenses and an officer or managing employee of the entity. For an owner to be excluded there must be evidence that he or she knew or should have known of the conduct at issue while there is no such knowledge requirement for exclusion of officers and managing employees.

In the guidance, however, OIG states that its will “operate with a presumption in favor of exclusion” if the evidence supports a finding that the owner or officer or managing employee knew or should have known of the conduct. The agency added that the presumption may be overcome when it finds that significant factors weigh against exclusion.

Loucks said HHS is drawing a parallel to the responsible corporate officer doctrine in which a corporate officer can be prosecuted and convicted if he was in a position to stop conduct and didn’t undertake reasonable steps to do so. He said the secretary is applying that same rationale to the permissive exclusion law.

But under the guidance Loucks said the secretary can take steps to exclude someone even if the government has decided not to prosecute the person. “That strikes me as unfair and reaching too far,” he stated.

“It’s a risky proposition to work in the health care industry,” he added. “Even if you are not committing a crime, if you are overseeing a perpetrator who does you can get excluded even if the government doesn’t prosecute you for a misdemeanor.”

Among the factors that the OIG will consider in deciding to exclude individuals are: the nature and scope of the misconduct for which the entity was sanctioned; what criminal sanction was imposed against the entity or any individuals; if there was evidence the misconduct resulted in actual or potential harm to individuals or financial harm to any federal health care program or other entity; and whether the misconduct was an isolated incident or part of a pattern of wrongdoing over a significant period of time.

The OIG has rarely excluded individuals from health care programs, but the guidance is among a number of efforts that federal agencies are taking to make corporate officers feel the pinch of enforcement actions (Also see "OIG Developing Exclusion Standards For Individuals" - Pink Sheet, 18 October, 2010.).

In the pharmaceutical sector, there appears to be only one such incidence of exclusion – three former executives from Purdue Pharma who pled guilty to misbranding the opioid OxyContin.

Last year they sued HHS for barring them from participation in government health care programs for 12 years (Also see "Former Purdue Execs Fight Exclusion From Gov't Programs After OxyContin Case" - Pink Sheet, 4 January, 2010.). Both sides have filed motions for summary judgment and in June the three execs, former CEO Michael Freidman, former Chief Legal Officer Howard Udell and former executive VP-Medical & Scientific Affairs Paul Goldenheim, requested that the court hear oral arguments.

Purdue Case Shows Application Of Factors

The case, Friedman v. Sebelius, is before Judge Ellen Huvelle of the U.S. District Court for the District of Columbia, who has yet to issue a ruling or schedule arguments. HHS has applied the standards set out in its guidance in excluding the former Purdue officials.

In its motion for summary judgment HHS states that the convictions of the executives for misbranding of OxyContin “arose from their failure to adhere to their duty to prevent or promptly correct Purdue’s fraudulent misbranding of a drug, and its unlawful distribution of a misbranded drug.”

The agency adds that its Departmental Appeals Board reasonably concluded that the convictions “provided a sufficient basis for exclusion, and were evidence of their untrustworthiness.”

The former Purdue executives may soon have company as outcasts from government programs. During the past year government officials have repeatedly said they would be holding individuals accountable for health care fraud.

Most recently, Eric Blumberg, FDA’s deputy chief for litigation in the Office of the Chief Counsel, told a Food and Drug Law Institute conference that the government would not succeed in deterring off-label promotion unless it criminally charged individuals at all corporate levels Also see "Off-Label Prosecution May Be Where FDA "Parks" Aggressive Enforcement Tools First" - Pink Sheet, 18 October, 2010.).

And in March, FDA Commissioner Margaret Hamburg sent a letter to Sen. Chuck Grassley, R-Iowa, stating her intention to increase misdemeanor prosecutions to hold corporate officers accountable. Rep. Pete Stark, D-Calif., also introduced a bill in the House last month, H.R. 6130, that would expand permissive exclusion from federal healthcare programs to individuals and entities affiliated with sanctioned companies.

Individuals At Risk If Company Has History Of Sanctions

OIG says in the four-page guidance that it will take into account the individual’s current and former positions within the entity that has been sanctioned, what steps the individual took to stop the misconduct or mitigate its ill effects, and whether the individual disclosed the misconduct to the appropriate federal or state authorities.

The agency will also consider whether the sanctioned entity or a related entity has previously been convicted of a crime or found liable, civilly or administratively, or resolved a civil or administrative case with the federal or state government or a government entity.

Loucks expects that the guidance will lead to more exclusions. “I can’t imagine the secretary would push this out the door absent intent to make use of it,” he said.

By Brenda Sandburg

Presumed Guilty: HHS Exclusion Guidance Shifts Burden Of Proof To Corporate Officers

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