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BU Law Class Seven: All the Tools in the Regulatory Toolbox

In our most recent session in the Health Care Fraud and Abuse seminar at BU Law, we had a lively review of the variety of different ways federal and state agencies can regulate, encourage, punish, and otherwise direct industry decision-making.  It was a fun exercise, with not enough room on the chalkboard.

 

First, in addition to reading about corporate integrity agreements, exclusion and debarment remedies, civil monetary penalties, and the many criminal statutes that can be brought to bear, students were asked for homework to draw a diagram with one circle in the middle (doctors, hospitals, pharma companies, device companies) and four circles in the corners of the page.  Those four circles would represent 1) DOJ/FBI/and U.S. Attorney’s Offices, 2) State Attorneys General and state agencies, 3) the Food and Drug Administration, and 4) the Office of Inspector General of the Health and Human Services (“HHS/OIG”).  Then, using arrows and lines, they were asked to sketch the types of powers each of the outer circles could exert over the inner circle.  The chart above is our distillation of that collective effort.  Easy, right?

 

Interestingly, the four outer circles are just four of the biggest of a much larger universe of potential regulatory bodies a company or practice might have to deal with.  State pharmacy boards, medical licensing and disciplinary boards, and the like are all out there, too.  No wonder this arena employs so many lawyers.

 

As a particular case study, the class took on Friedman et al. v. Sebelius et. al., a decade plus long piece of litigation in the District of Columbia and the U.S. Court of Appeals for the D.C. Circuit, involving HHS/OIG’s use of its permissive exclusion powers to bar from participation in the government health insurance programs corporate officers convicted of Food Drug Cosmetic Act (“FDCA”) offenses.  Particularly insightful is the 2010 District Court opinion of Judge Ellen Huvelle, in which she affirmed the agency’s exclusion decisions of the lead actors in the FDCA misbranding case.  The dispute stemmed from the guilty pleas of Purdue Pharma and several executives to falsely understating the addition risks of OxyContin, manufactured by Purdue (which, as we know, has led us to a national crisis).  The defendants paid their fines, but then the individuals fought in court when HHS/OIG sought to exclude them for a lengthy period of time.

 

Both the company and the individuals had admitted their misconduct in guilty pleas entered under criminal Rule 11(e)(1)(C) (where the parties ask the court to adopt their agreed-upon disposition of the case, including the sentence.  Why, one wonders, didn’t the defense lawyers for the individuals wrap up the exclusion issue at the same time?  It’s a puzzle — the parties might have spared themselves a decade of litigation.

 

Judge Huvelle’s decision and order affirming the exclusions were based in part on the so-called Responsible Corporate Officer doctrine or “RCO”.  Following two Supreme Court precedents from decades past, United States v. Dotterweich, 320 US. 277 (1943) and United States v. Park, 421 U.S. 658 (1975), the RCO allows for misdemeanor convictions of corporate officers without evidence of direct knowledge of or involvement with the crime, a striking exception from the normal rules of the road in criminal cases.  If the evidence shows that the defendants had the power to stop the criminal conduct in some supervisory role, i.e., responsibility and authority for the work of others, then proof of actual knowledge and intent is not necessary.

 

In effect, the RCO borrows from civil tort law standards for establishing negligence:  that the defendant should have known and did nothing to stop it despite his/her power to do so.

 

If this sounds like a scary situation in which to be a corporate officer, there is a limiting principle or two:  First, this applies only to misdemeanor liability; to prove the felony violation. the government must still prove criminal intent.  Second, this applies only to the FDCA in the panoply of health care fraud criminal statutes.  There are no analogs to this, for example, in the Anti-Kickback Act.

 

So as to not kill the goose that laid the golden egg, government prosecutors use the RCO sparingly, so as to not trigger a judicial limitation on the doctrine.  In my opinion, they don’t use it enough to go after individuals who drive corporate malfeasance.  As an example, multi-billion dollar drug wholesaler AmerisourceBergen recently pled guilty to an FDCA misdemeanor and paid $260 million in criminal fines for wholesale misbranding oncology drugs for years in an unregistered Alabama “pharmacy” that was actually a drug re-packager and manufacturer.  As set forth in the government’s charging document, this lucrative scheme put many very sick patients at risk.

 

Charging the company with a misdemeanor in such a situation makes some sense, because a felony conviction would have led to mandatory exclusion, which might have harmed innocent third parties like low level employees or patients who need their drugs.  But if the government is in the misdemeanor neighborhood anyway, why not apply the RCO and go after the corporate captains who profited so handsomely from this?

 

Sally Yates, the Deputy Attorney General who later became famous for her principled stand on the Trump travel ban, wrote a memo during her tenure at the Department of Justice, urging prosecutors to be not-too-quick to give individuals a pass in corporate global settlements.  Part of her reasoning was that to achieve true deterrence, the government must cause corporate malfeasants to fear for their liberty, or at least for the contents of their wallets.  Still, charging corporate officers in these large corporate settlements remains the exception rather than the rule.

 

For some companies even a $260 million fine is just the cost of doing business as usual.  It’s the equivalent of a parking ticket for you and me, except it’s a parking ticket that someone else (shareholders) pays.

Prosecutorial Discretion

We (Bob Thomas and Suzanne Durrell) were both federal prosecutors in our not so distant past, and we work with federal prosecutors every day.  One of the least understood aspects of criminal law is prosecutorial discretion, the leeway given to prosecutors to make judgment calls that have huge impacts on the lives of people and companies.  On the criminal side, they (prosecutors) get to decide whom to charge with what offense, whom not to charge, whom to immunize, whom to seek the death penalty against, and so forth.

 

On the civil side, where we now operate more frequently with our False Claims Act whistleblower practice, they get to decide whether to intervene in a case, which theories of liability to run with and which to jettison, which individuals to pursue civilly and which to let slip, what amount of money to settle a case for, which companies and individuals to try to exclude from future participation in the Medicare and Medicaid programs, and so forth.

 

The list of areas where prosecutorial discretion surfaces is quite long.  And in fact, it is hard to imagine a job that a person could have in their late twenties or early thirties where he or she could have so much discretionary power over other people’s lives.  It’s one of the reasons young lawyers love being Assistant U.S. Attorneys:  they get to have relevant professional lives that have real impact, at a relatively early stage of their careers.

 

But the dark side of this reality is that prosecutors can do enormous damage in the exercise of their discretion, which is essentially unreviewable.  This New York Times piece yesterday gave a good example.  On the criminal side of the house, the use of the Section 851 mandatory minimum sentencing enhancements can give prosecutors enormous leverage to force defendants to plead guilty when they would otherwise go to trial.  Sometimes the use of this leverage is inoffensive; other times it can be deeply troubling and lead to unjust results.

 

We now incarcerate a higher percentage of our population than any other industrialized nation in the world, with disproportionate numbers of the prison population being people of color.  Congress, in its zeal to show how tough it could be on drug crime, passed many sentencing “enhancement” laws in the 1980’s that caused sentences to go well beyond the structured sentencing schemes put in place by the federal Sentencing Commission and the guidelines it promulgated.  Section 851 was one of those “enhancements,” and one that should be re-evaluated.

 

On the civil side of the house, an area of fertile debate is the government’s discretionary power to settle large cases against companies for monetary fines and civil damages only, without going after the individuals behind the corporate schemes. In the Pfizer case, for example, the then-record $2.3 billion settlement was impressive indeed, but the judge overseeing the case went out of his way to question prosecutors how $2.3 billion worth of fraud could not result in any individuals being held accountable.  Judge Rakoff in the Southern District of New York has also been a frequent critic of these corporate deals, in one instance rejecting a proposed settlement reached between the government and a bank defendant as too friendly to the bank and lacking in any actual admissions of wrong-doing.

 

So prosecutorial discretion is one of the things that makes the job of a prosecutor challenging and fun. But the wide latitude it gives individual lawyers, with relatively little oversight, can also lead to bad outcomes, or results that leave many questions still to be answered.

Fifteenth Annual Pharma Congress 2014

Pharmaceutical Regulatory and Compliance Congress and Best Practices Forum (The 2014 Pharma Congress),
November 3-5, 2014, Hyatt Regency, Capitol Hill, Washington, D.C.

 

Attorney Suzanne E. Durrell, Durrell Law Office

Attorney Suzanne E. Durrell, Durrell Law Office

Suzanne Durrell to join the /Qui Tam/ panel at the upcoming Fifteenth Annual Pharmaceutical Regulatory and Compliance Congress and Best Practices Forum – www.PharmaCongress.com

 

November 3 – 5, 2014, Hyatt Regency on Capitol Hill in Washington, DC. The Congress is by far the largest annual gathering of pharmaceutical company compliance professional and in-house counsel and is attended by approximately 400 annually.

 

The Pharmaceutical Compliance Forum (PCF) is a coalition of senior compliance professionals and legal counsel from more than 50 of the largest research based pharmaceutical manufacturers. The PCF was founded in early-1999 by compliance professionals from the pharmaceutical industry to promote effective corporate compliance programs. The members meet twice a year, for two days, focusing on open and informal sharing of compliance information, best practices, and current developments in the field.

PCF also sponsors a three-day compliance congress each Fall. Learn more.

Related: Corporate Integrity Agreements can be the basis for a False Claims Act Case (PDF paper),  by Suzanne E. Durrell, Esq. – Washington DC, November 2014