Suit Challenges HHS Exclusion Process After Person Has Been Convicted

By William T. Koustas & John R. Fleder –

A new lawsuit challenges the government’s ability to exclude individuals from participating in federal health care programs after a person has been convicted of a Food, Drug and Cosmetic Act (“FDCA”) misdemeanor.  Michael Friedman and Howard R. Udell v. Kathleen Sebelius et al, No. 309CV01741RNC (D. Conn. filed Oct. 28, 2009).

In May 2007, Purdue Frederick Co. Inc. (“Purdue”) pleaded guilty to a FDCA felony count of misbranding drug products (OxyContin) with the intent to defraud or mislead.  As part of a global resolution, Howard R. Udell and Michael Friedman, two former senior executives at Purdue, pleaded guilty to FDCA misdemeanor charges of misbranding.  The government believes that persons can convicted under the FDCA misdemeanor provisions without any showing that a person intended to violate the law or even knew about the violation.  This theory is often referred to as the “responsible corporate officer” principle that executives who do not prevent violations of the FDCA may be held strictly liable for those violations.

Though this appeared to be the end of the federal government’s interest in these individuals, in November 2007, the Office of Inspector General of the Department of Health and Human Services (“OIG”) sent Mr. Udell and Mr. Friedman Notices of Intent to Exclude them from participating in Medicare, Medicaid and all federal health care programs, pursuant to 42 U.S.C. § 1320a-7(b)(3), based on their earlier misdemeanor criminal convictions.  That statute permits exclusion if a person has been convicted of a misdemeanor relating to fraud or for the unlawful manufacture, distribution, prescription or dispensing of a controlled substance.  Mr. Udell and Mr. Friedman contend that these provisions are inapplicable to them because their criminal guilty pleas only relate to their status at Purdue, not to their commission of fraud or to controlled substances violations.

According to the Complaint filed in this case, Mr. Udell and Mr. Friedman made written submissions to the OIG challenging their proposed exclusions.  On March 31, 2008, the OIG rejected these submissions by “excluding” the two individuals.  However, they challenged the exclusion decisions in the United States District Court for the District of Connecticut.  That Court refused to rule on the merits of the case until all administrative remedies had been exhausted.  On August 31, 2009, the Department of Health and Human Services (“HHS”) Departmental Appeals Board affirmed the exclusion decisions.  As a result, the two individuals filed another court action challenging what they contend is a final decision by HHS.

Mr. Udell and Mr. Friedman filed this new complaint in October 2009, arguing that: (1) their misdemeanor convictions are not an excludable offense under 42 U.S.C. §§ 1320a-7(b)(1), 7(b)(3); (2) the debarment was an abuse of discretion and arbitrary and capricious as their convictions were merely based on the fact that they were “responsible corporate officers” and never had intent or actual knowledge of the company’s wrongdoing; and (3) their twelve year exclusionary period violates the law because HHS did not consider certain mitigating factors, and the exclusionary period was not supported by substantial evidence.  The plaintiffs are seeking a declaratory judgment that the exclusion was contrary to law as well as seeking an order to enjoin HHS from excluding  the plaintiffs and further publicizing the exclusion actions.

The government has not filed any substantive response to the Complaint.  However, in a filing dated December 23, 2009, the parties agreed to have the case transferred to the United States District Court for the District of Columbia.

This case certainly demonstrates that, as Yogi Berra once said, “It ain’t over until its over.”  People like Mr. Udell and Mr. Friedman think that once they accept responsibility for a company’s action by taking the harsh step of pleading guilty to a crime, solely because of their corporate positions, their problems with the government are in the past.  Surely the government can and should seek to reach a global resolution when someone pleads guilty so that that person is not surprised by a later government action that could make that person unemployable in the health care field.