Court Upholds Exclusion of Former Purdue Executives

By JP Ellison –

In Dickens’ A Christmas Carol, the main character is visited by three ghosts who by scaring him with visions of his past, present and future, seek to change him.  On December 13, 2010, in the form of a U.S. District Court for the District of Columbia decision, three former Purdue executives received news about their future based on their past that is scary enough that many FDA- regulated companies and the executives who work for those companies, aka “responsible corporate officers (“RCOs”), may wish that someone–FDA, DOJ, the HHS OIG, or perhaps even Congress, will change the current enforcement environment by eliminating punitive actions that do not serve the public interest.

The decision at issue was the latest chapter in the ongoing saga of the government’s battle with Purdue and three of its former executives.  The court upheld a decision of HHS to permissively exclude three former executives from participation in Medicare, Medicaid and all other federal health care programs for twelve years.

What is scary for those regulated industry–and specifically those responsible corporate officers –is that the decision takes the already scary “Park Doctrine” even farther than previously thought possible.  The Supreme Court’s Park case, as we have been recently pointing out, imposes strict criminal misdemeanor liability on RCOs for FDA violations.  The small comfort of Park was that an RCO could not get prosecuted under the FDC Act for fraud absent “intent to defraud or mislead.”

Last Monday’s decision appears to allow just that under the distinct but increasingly related HHS OIG authority to exclude persons from participating in federal healthcare programs.  While the government and the three former executives agreed to misdemeanors as part of a global plea deal, the district court nevertheless upheld an HHS decision that their conviction was one “relating to fraud.”  Under the FDC Act it is well established that a misdemeanor is not a fraud conviction.  In fact, one’s intent to defraud or mislead can result in a felony under the Act.

Monday’s decision allows that not only do RCOs have Park liability for the FDC Act violations of their companies, but through the HHS exclusion authority, they may also be sanctioned for their company’s fraud conviction–without any evidence whatsoever against the RCO relating to fraud.

In Dickens, the main character awakens from his bad dreams and proceeds to right his prior wrongs.  For the three former Purdue executives, any wrongs to be righted would now need to come in an appeal to the D.C. Circuit.  For the rest of the regulated industry, one can only hope that the government wakes up and declares itself changed by its visions of how the current enforcement scheme affects RCOs.