INTRODUCTION II. BACKGROUND A. Foundation of Responsible Corporate Officer Doctrine B. Philosophical Underpinnings of the Doctrine III. EXCLUSION OF RESPONSIBLE CORPORATE OFFICERS A. Collateral Consequences: Exclusion B. Purdue Pharma C. Lessons From the Exclusion of the Purdue Pharma Executives IV. THE MORAL BLAMEWORTHINESS OF RESPONSIBLE CORPORATE OFFICERS A. Exclusion is a Harsh Remedy B. The Government Should Prove Moral Blameworthiness Before Imposing a Prolonged Period of Exclusion 1. A Prolonged Period of Exclusion is de facto Criminal Punishment 2. Responsible Corporate Officers are not Always Morally Blameworthy for the Actions of their Subordinates 3. Aggravating Factors Should be Based on the Moral Blameworthiness of the Responsible Corporate Officer V. CONCLUSION I. INTRODUCTION
The pharmaceutical industry has long been an enforcement headache for the Food and Drug Administration (FDA). In particular, the FDA has struggled with enforcing the laws restricting the promotion of drugs. Off-label promotion, or the promotion of FDA-approved drugs for unapproved uses, is generally prohibited. (1) Nevertheless, pharmaceutical manufacturers have risked the health and safety of patients by promoting their drugs for uses that have been explicitly rejected by the FDA as well as uses that were never presented to the FDA for approval. (2) Because these illegal promotional activities were largely aimed at doctors, the FDA had difficulty detecting the violations and often relied on whistle blowers to alert the agency to the misconduct. Once the violations were detected, however, the FDA was presented with an enforcement dilemma.
The FDA pursued a strategy of cooperative enforcement with pharmaceutical companies to avoid the collateral consequences of criminal conviction. If a pharmaceutical company is convicted of a felony, it would be automatically excluded from participation in federal health care programs, such as Medicare and Medicaid, for a period of at least five years. (3) Exclusion has been described as a "death sentence" (4) for pharmaceutical manufacturers because it prevents the federal government from reimbursing patients for any drug produced by the excluded pharmaceutical manufacturer. Thus, Medicare and Medicaid patients who have prescriptions for drugs produced by the excluded pharmaceutical company would have to pay for their drugs out of pocket or have their doctors prescribe a similar drug by a non-excluded pharmaceutical manufacturer. To avoid the potentially devastating consequences of exclusion on patients, the FDA opted not to pursue felony criminal charges against pharmaceutical manufacturers that engaged in off-label promotion. Instead, the FDA entered into Corporate Integrity Agreements that required the pharmaceutical companies to pay large fines and enact compliance measures designed to prevent the illegal promotional activity from recurring. (5) In return, the government agreed not to pursue felony criminal charges or debar the pharmaceutical manufacturers from participation in federal health care programs. (6)
The FDA's approach seemed like a reasonable response to a complicated enforcement problem. For several years, there was a steady stream of Corporate Integrity Agreements with eye-popping fines as high as $3 billion and increasingly strict compliance measures. (7) The harsh reality, however, was that pharmaceutical companies viewed the fines and compliance measures as nothing more than the cost of doing business. The profits to be gained from illegal promotion far exceeded the cost of the fines and compliance measures.
Thus, the Corporate Integrity Agreements were not enough to deter pharmaceutical companies from engaging in fraudulent promotional activity. (8) As a result, the FDA began to see repeat offenders of the pharmaceutical marketing rules. Even when faced with a repeat offender, however, the FDA simply entered into a new Corporate Integrity Agreement, imposed a larger fine and harsher compliance measures, and either allowed the pharmaceutical company to designate a subsidiary to be criminally charged and debarred or charged the manufacturer with a misdemeanor, which would not automatically lead to exclusion. (9) Thus, pharmaceutical manufacturers still had little incentive to change their illegal promotional practices because the profits from off-label promotion outweighed the costs of fines and compliance measures.
The government had unleashed every weapon in its arsenal to combat fraud, or so the industry thought, before the FDA changed the focus of its enforcement strategy. In a March 4, 2010 letter to Senator Charles E. Grassley, Margaret Hamburg, the Commissioner of Food and Drugs, announced that the FDA intended to make use of individual misdemeanor prosecutions "to hold responsible corporate officials accountable." (10) Hamburg also made it clear that the FDA intended to enhance and make better use of its debarment and disqualification procedures. (11) In addition, the Office of Inspector General (OIG) of Health and Human Services and the Department of Justice (DOJ) both endorsed the new enforcement strategy. (12) Thus, the FDA, OIG, and DOJ shifted their focus in pharmaceutical fraud cases from simply pursuing pharmaceutical companies to pursuing misdemeanor criminal charges against individual executives. This is a welcome change because potential criminal liability may be more likely to deter individual executives and incentivize effective monitoring.
The FDA is not, however, focused on targeting executives for their own misconduct. Instead, the FDA is pursuing misdemeanor criminal charges against executives for the criminal conduct of their subordinates. To support its theory of indirect criminal liability, the government has dusted off the responsible corporate officer doctrine. (13) The responsible corporate officer doctrine permits the government to prosecute an executive for a misdemeanor violation of the Federal Food, Drug, and Cosmetic Act (14) regardless of the officer's lack of awareness of misconduct if, by reason of the officer's position in the company, she had the responsibility and authority either (1) to prevent the misconduct in the first place, or (2) promptly to correct the violation, but failed to do so. (15) The responsible corporate officer doctrine comes from two Supreme Court cases, United States v. Dotterweich (16) and United States v. Park, (17) decided in 1943 and 1974 respectively. The responsible corporate officer doctrine "dispenses with the conventional requirement for criminal conduct--awareness of some wrongdoing." (18) Thus, the burden of complying with the law is placed on "a person otherwise innocent but standing in responsible relation to a public danger." (19) The government has already successfully obtained guilty pleas to misdemeanor violations of the Food Drug and Cosmetic Act (20) based on the responsible corporate officer doctrine.
Many scholars have debated the fairness of criminal misdemeanor convictions based on the responsible corporate officer doctrine. (21) But the misdemeanor convictions are not the end of the story. Just as there are collateral consequences that flow from convicting pharmaceutical manufacturers, there are collateral consequences for executives as well. This Article fills a critical gap in the literature concerning the collateral consequences of a criminal conviction under the responsible corporate officer doctrine. Following criminal conviction, the OIG has the discretion to exclude executives from participation in federal health care programs. (22) The exclusion is not mandatory upon misdemeanor conviction and is considered to be a civil remedy. (23) The baseline period of exclusion is three years but can be increased based on aggravating factors. The OIG has sent executives notice that they have been excluded from participation in federal health care programs for periods as long as twenty years. (24) For an individual, exclusion means that the executive is no longer employable in the health care industry because any company that directly or indirectly receives money from federal health care programs cannot employ an excluded individual without jeopardizing its own participation in those programs. (25) As pharmaceutical companies often rely heavily on millions of dollars in revenue from Medicare and Medicaid reimbursements for their drugs, hiring a debarred executive could be akin to a death sentence for the company. Thus, the collateral consequence of the misdemeanor conviction is to take away the executive's livelihood.
Health care executives who potentially make millions of dollars are probably not the most sympathetic defendants. While they were in charge their companies violated the law and once charged they have ample access to resources for their defense. Nevertheless, the imposition of debarment for a significant period of time without any showing of moral blameworthiness should give anyone pause. The violations at issue are strict liability misdemeanors, which do not require a showing of intent and are punishable by less than a year in jail. (26) Through exclusion, the government is effectively transforming a strict liability misdemeanor violation that is not based on the executive's own misconduct into a felony. Exclusion is not meant to be punitive. The goal is supposed to be to protect the health care system from unscrupulous individuals. (27) Absent a showing of moral blameworthiness on the part of health care executives who were in charge at the time the misconduct occurred, a period of exclusion longer than the three-year base level for permissive exclusions is a grossly disproportionate remedy. It is not enough to say that a showing of moral blameworthiness is unnecessary because exclusion is categorized as a civil sanction where, as here, the civil sanction is clearly more devastating than the criminal penalty attached to the misdemeanor conviction.
The crime of being in charge: executive culpability and collateral consequences.
|Author:||Copeland, Katrice Bridges|
|Position:||Annual Survey of White Collar Crime|
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COPYRIGHT GALE, Cengage Learning. All rights reserved.
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