Affirming the HHS Secretary's decision to exclude three former Purdue Pharma executives from federal health care programs, a district court rejected the executives' claims that their convictions of misbranding OxyContin were based solely on their positions within the company.

In a Dec. 13 ruling, District of Columbia Judge Ellen Segal Huvelle found that there was substantial evidence for the secretary to exclude Michael Friedman, former president and CEO, Paul Goldenheim, former exec VP of medical and scientific affairs, and Howard Udell, former exec VP and chief legal counsel, under the responsible corporate officer doctrine.

The doctrine holds that any person with responsibility or authority to prevent or correct a violation of the Food, Drug, and Cosmetic Act is liable regardless of whether that person was aware of or intended to cause the violation. The three execs pled guilty to misbranding OxyContin in 2007 as part of Purdue's settlement with the Department of Justice. The company also pled guilty to a single felony count of misbranding for promoting the opioid analgesic as less addictive and less likely to cause tolerance and withdrawal than other pain medications.

"Although plaintiffs repeatedly attempt to characterize their convictions as 'purely status-based' offenses that were '"related to"' their own status as senior executives at the relevant time [and] nothing else,' this description of plaintiffs' role in the misbranding of OxyContin simply cannot be squared with the elements of the statutory offense to which they pled guilty or the statement of facts to which they agreed," the opinion states.

The judge granted HHS' motion for summary judgment and denied that of the plaintiffs. The case is Friedman v. Sebelius.

The plaintiffs' attorney, Jonathan Abram, of Hogan Lovells, could not be reached for comment as to whether they will appeal.

Plea Agreements Reflect Government's Financial Loss

In 2008, the HHS Office of Inspector General issued notices to exclude the former Purdue execs from federal healthcare programs for 20 years. They appealed and an administrative law judge reduced the period of exclusion to 15 years. The Departmental Appeals Board further reduced the period of exclusion to 12 years.

Friedman, Goldenheim and Udell then filed suit claiming that their exclusion was unjust since there was no accusation made against them and no evidence they committed any unlawful act or were aware of other employees doing so (Also see "Former Purdue Execs Fight Exclusion From Gov't Programs After OxyContin Case" - Pink Sheet, 4 January, 2010.). They sought a declaratory judgment that the exclusions are contrary to law, arbitrary and capricious, an abuse of discretion and not supported by substantial evidence, and an order vacating the exclusions or remanding them for further review.

The former execs also opposed the length of exclusion, which was based on the secretary's finding that the violations resulting in their convictions caused or could have caused the loss of $5,000 or more to a government program or other entity and were committed over a period of one year or more. The three argued that the record contains no evidence of financial harm to federal programs or other entities.

"As with plaintiffs' repeated attempts to characterize themselves as innocent third parties to Purdue's misbranding, the court finds plaintiffs' arguments with respect to financial loss reflective of a fundamental misconception of their own plea agreements," the court stated.

The court noted that the plaintiffs agreed to pay $34.5 million in disgorgement to the Virginia Medicaid Fraud Control Unit's Program Income Fund and that Purdue agreed to pay $575 million, including $160 million as restitution. Disgorgement, the opinion notes, is commonly understood to prevent unjust enrichment and deprive wrongdoers of the profits obtained from their violations.

More Exclusions To Come

The three are apparently the first pharma execs to be excluded from government programs. However, HHS has indicated that it will be going after others. In October, HHS' Office of Inspector General issued a guidance listing the factors it will consider in deciding to exclude the owners or officials of companies that are excluded or convicted of certain offenses (Also see "Presumed Guilty: HHS Exclusion Guidance Shifts Burden Of Proof To Corporate Officers" - Pink Sheet, 25 October, 2010.).

OIG subsequently excluded former KV Pharmaceutical CEO Marc Hermelin from government programs (Also see "KV Official Is Excluded From Government Programs, The First Under OIG's New Guidance" - Pink Sheet, 17 November, 2010.). While Hermelin was not personally convicted of wrongdoing, KV had terminated him as CEO in 2008 during a government investigation of the company's manufacturing problems.

In another sign that individual executives face greater liability in government investigations, last month the Department of Justice charged a former GlaxoSmithKline lawyer with obstruction and concealing and falsifying documents (Also see "DoJ Case Against GSK Lawyer Flags What Individual Behavior Government May Target" - Pink Sheet, 9 November, 2010.).

- Brenda Sandburg (b.sandburg@elsevier.com)

Still Guilty: Three Former Purdue Execs Lose Fight To Overturn Their Exclusion From Gov't Programs

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