Written by Ellyn Sternfield
On July 27th, the U.S. Court of Appeals for the D.C. Circuit purportedly handed the Office of Inspector General for the Department of Health and Human Services (OIG) a loss in its bid to exclude Purdue Frederick Company (Purdue) executives from the federal health care programs for twelve years, based on their misdemeanor convictions for misbranding the painkiller OxyContin. Even so, the D.C. Circuit's ruling should not be viewed as a long-term win for the executives because the court upheld the OIG’s right to permissively exclude the executives for a misdemeanor that did not require proof of intent and deferred to the OIG’s authority to assess aggravating factors to reach the twelve-year term of exclusion. The court merely held that the OIG failed to justify the unusual length of the exclusion in light of other permissive exclusion cases. On remand the OIG will have the opportunity to justify the term of exclusion. Overall, the opinion should be viewed as a win for the OIG, which is attempting to hold more individual managers and executives responsible for corporate behavior.
The three executives were individually charged under the Responsible Corporate Officer doctrine (also known as the “Park Doctrine”) in connection with Purdue’s $600 million criminal and civil settlement related to its promotion of OxyContin. In 2007, the three executives pled guilty to misdemeanor charges under the Food, Drug and Cosmetic Act (FDCA), which required them to admit they had the responsibility and authority to prevent, or promptly correct, the misleading marketing but failed to do so.
The OIG later moved to exercise its permissive authority to exclude the executives from participation in the federal health care programs. The length of a permissive exclusion begins at three years, but can be increased or decreased based on aggravating and mitigating factors defined by regulation. The OIG initially sought a twenty-year exclusion for each executive, based on the fact that: (1) the conduct at issue lasted for more than three years, (2) the amount of the loss to the federal health care programs exceeded $5,000, and (3) the conduct had an adverse impact on program beneficiaries. During the administrative review process, the length of the individual exclusions was upheld but was reduced to twelve years. A federal district court affirmed this ruling.
On appeal, the executives challenged whether their FDCA convictions qualified for exclusion and separately challenged the length of the exclusion. The court found that the OIG could exclude the individuals based on a misdemeanor conviction even though the underlying statutory provision lacks an intent or scienter requirement. With respect to the exclusion’s length, the court gave deference to OIG’s application of aggravating factors, but was nevertheless troubled by the unprecedented length of the exclusions. Although the OIG cited cases of exclusions exceeding ten years, the court found those cases immaterial because they were mandatory exclusion cases, which begin with a five-year base exclusion period. The court ultimately concluded that the twelve- year exclusion was arbitrary and capricious because the OIG failed to justify the term, in comparison to other permissive exclusion terms, none of which exceeded four years.
Under the court’s ruling, these executives – and others convicted of FDCA misdemeanor offenses – will face a minimum three-year exclusion. But for most similarly situated individuals, the actual term of exclusion may be irrelevant because exclusion of any length is often career-ending. This case thus can be viewed as a notch in the federal government’s belt as it seeks to expand its use of the Park doctrine to hold individual managers and executives responsible for corporate misbehavior.