HHS’ Power of Exclusion: Guilt by Association

The Department of Health and Human Services’ Office of Inspector General (HHS OIG) is flexing its muscle these days – on Aprill 12, 2011, the OIG notified Howard Solomon, the long-time CEO and Chairman of Forest Laboratories, a manufacturer of antidepressant pharmaceuticals, that it was contemplating proceedings to exclude him from all federal health care programs. The notification came in the wake of Forest Laboratories’ civil and criminal settlement for off-label marketing violations in which Forest paid over $300 million. The OIG’s proposed action was predicated on one simple fact – Mr. Solomon is the company’s CEO. There was no evidence that Mr. Solomon knew or should have known of any of the conduct that triggered the charges against the company.

In response to an outcry of public and media criticism, HHS appears to have backed off its threat. Such actions must be seen as part of a larger and increasingly aggressive enforcement effort advanced by HHS OIG against the nation’s health care companies.

Since 1977, HHS OIG has had the power to “exclude” from all Medicare and Medicaid reimbursement because of health care related misconduct.  Untilr ecently, HHS did not use its exclusion authority very often.  But things have changed. 

Under the primary exclusion statute of the Social Security Act, there are now four separate categories of conduct that require HHS OIG exclusion of individuals and entities and fifteen separate categories of conduct that permit exclusion of individuals and entities. The impact of exclusion by HHS OIG is that companies are barred from receiving reimbursement from Federal health care programs for any medical items or services they furnish, and other parties are barred from dealing with excluded companies.

Lurking behind the scenes is HHS OIG’s twisted and unfair approach which it uses to snare health care executives.   As a first step, HHS OIG secures a misdemeanor plea from a corporate executive for mis-branding a product by relying on the Supreme Court's decision in US v. Park, a strict liability offense, the defense to which is only impossibility. Under the Park doctrine, executives can be held liable without proof of any act or failure to act, or even that they were aware or should have been aware of the conduct. Twisting defendants into guilty pleas to these misdemeanor offenses, HHS OIG now follows up to such a plea with an action to exclude an executive based on the corporation's admission, or the executive's admission, to the misdemeanor offense. 

In Park, the Supreme Court rejected a challenge to jury instructions used in a misdemeanor trial stemming from the store’s sale of adulterated food. Park argued that he was not “personally concerned” with the violations but at trial the government argued that the defendant had, by reason of his position in the corporation responsibility and authority either to prevent in the first instance, or promptly to correct, the violation complained of, and that he failed to do so.  In upholding the lower court’s instructions, the Supreme Court cited the relatively small penalties for a misdemeanor violation and the fact that the conviction did not result in serious damage to the executive’s reputation. But that conclusion has now been turned on its head because such convictions are being used by HHS OIG to exclude executives from all federal health care programs.
Some have tried to challenge this strategy in court. On December 13, 2010, the U.S. District Court for the District of Columbia granted the government’s motion for summary judgment in the case of Friedman, et al. v. Sebelius, upholding the HHS OIG actions.  Even with the court's approval, there is something seriously wrong with this picture -- convictions based on no evidence other than a position in a company, and then exclusion from the health care industry without any evidence of wrongdoing or failure to act.

For now, HHS OIG’s enforcement policy raises real risks for health care executives. Until such time as there is additional clarity on the reach of the law and this unseemly practice, executives and managing employees who choose to remain in the medical industry must increase their understanding of the operational realities and compliance challenges faced by the company in which they work. Proactive steps need to be taken to ensure that individual officers build a record of response to potential misconduct as a protection against future exclusion claims.