Although an appeals court upheld the authority of HHS Secretary Kathleen Sebelius to exclude three former Purdue PharmaLP officers from federal health care programs it gave the executives a shot at getting their 12-year exclusion reduced.

“We hold the statute authorized the Secretary’s exclusion of the three executives but her decision was arbitrary and capricious for want of a reasoned explanation for the length of their exclusions,” the U.S. Court of Appeals for the District Court of Columbia Circuit stated in a July 27 ruling.

“We do not suggest the appellant’s exclusion for 12 years based upon a conviction for misdemeanor misbranding might not be justifiable; we express no opinion on that question. Our concern here is that the DAB did not justify it in the decision under review,” the court concluded.

The court reversed a district court decision that upheld the Secretary’s exclusion decision and remanded the case to Sebelius for further proceedings. The question now is whether Sebelius will provide a rationale to continue the 12-year exclusion or reduce the length of the exclusion.

Carter Phillips, a partner at Sidley Austin who represents the three executives, said there is “most assuredly” a good chance that the Secretary will reduce the period of exclusion.

“The panel’s decision seems to send a reasonably clear signal” that the Secretary would have a difficult time justifying the 12-year period, he said, noting that those with much greater culpability have had less exclusion.

“With less of the hysteria than existed way back when,” he said, the Secretary “may see that everyone has been punished enough” and set the penalty at time served.

The HHS Office of Inspector General said in a statement that the office is carefully reviewing the decision. The OIG quoted a portion of the court’s opinion, which did not indicate whether it would continue the 12 years of exclusion.

The court stated: “The text, structure and purpose of the statute, viz, to protect federal health care programs from financial harm wrought by untrustworthy providers, all indicate the Secretary’s circumstance-specific approach is proper, i.e., the statute authorizes exclusion of an individual whose conviction was for conduct factually related to fraud.”

Why Not 10 Years?

The court concluded that the appellants’ only substantial objection is that the Secretary failed to justify the length of their exclusion in light of its prior decisions, as is required by the Administrative Procedures Act.

The Departmental Appeals Board (DAB) cited a number of cases in which it had excluded individuals for more than 10 years. But the court noted that, as the appellants pointed out, every one of these cases involved a mandatory exclusion with a presumptive baseline of five years, not a discretionary exclusion with a presumptive baseline of three years.

In addition, the court said every cited case involved either a felony conviction or a conviction for Medicare fraud for which the defendant was incarcerated, none of which factors are present in the case of the former Purdue executives.

“When the DAB affirmed the appellants’ 12-year exclusion the agency had never excluded anyone for more than ten years based upon a misdemeanor – a departure the agency does not even acknowledge, much less explain,” the court stated.

“We do not suggest the appellant’s exclusion for 12 years based upon a conviction for misdemeanor misbranding might not be justifiable; we express no opinion on that question. Our concern here is that the DAB did not justify it in the decision under review,” the court concluded.

Chief Judge David Sentelle dissented from the majority’s reversal on the Secretary’s decision on the length of the exclusions. And Senior Circuit Judge Stephen Williams dissented in part, saying he could not agree that the Secretary’s interpretation of the statute is valid.

$3 Bil. In OxyContin Sales, Three Executives In Trouble

A district court had 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 Also see "Still Guilty: Three Former Purdue Execs Lose Fight To Overturn Their Exclusion From Gov't Programs" - Pink Sheet, 15 December, 2010..

The three former Purdue execs were excluded from federal health care programs after pleading guilty to failing to prevent fraudulent marketing of OxyContin. They did so in 2007 when Purdue reached a $700 million settlement with the Department of Justice and pled guilty to misbranding. They were the first pharma execs to be excluded under the responsible corporate officer doctrine, which allows corporate officers to be held strictly liable for a violation if they had the authority to prevent it and failed to do so.

The OIG initially excluded them from participation in federal health care programs for 20 years and subsequently reduced the period to 15 years given their assistance in combating OxyContin abuse. The Departmental Appeals Board further reduced the length of exclusion to 12 years.

The appeals court rejected the executives’ arguments against exclusion. It also dismissed their argument that the Secretary had improperly applied the aggravating factor of their being responsible for a financial loss in excess of $5,000. They argued there was no evidence in the record of any actual financial loss. But the court said their “suggestion that the losses they caused did not exceed a mere $5,000 is preposterous.”

“They admitted responsibility for a crime, misdemeanor misbranding that caused, at least in part, financial losses for which Purdue paid $160 million in ‘restitution,’” the court stated. “Specifically, Purdue falsely portrayed OxyContin to be less addictive, less subject to abuse and diversion, and less likely to cause tolerance and withdrawal than other painkillers on the market, which misrepresentation certainly led some doctors to prescribe it when they would otherwise have prescribed a different painkiller or none at all.”

The court added that Purdue had almost $3 billion in OxyContin revenues during the time it misbranded the drug.

Purdue Execs’ Exclusion Stands But Court Tells HHS To Justify 12-Year Term

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