Crime in the Suites: An Analyis of Current Issues in White Collar Defense
Posts Tagged ‘Health care fraud’
Jul 13

The Lowdown on Takedowns

Attorney General Jeff Sessions and a battery of other federal law enforcement officials today announced the “largest health care fraud takedown” in U.S. history, with 412 charged defendants, including 56 doctors, accused of defrauding taxpayers of roughly $1.3 billion.  Importantly, the takedown focused on the over-prescription of opioids, a phenomenon that has led to thousands of addictions and overdoses across the U.S.  Takedowns like this one serve an important purpose in highlighting law enforcement’s focus on fighting a particular type of crime, and they tend to encourage and heighten public awareness as well.

Depending on the types of crimes at play, takedowns can be remarkably challenging actions.  When I worked at the DOJ Organized Crime & Gang Section, I was involved in several of these operations.  Anytime an official in Washington, D.C. tries to coordinate across multiple federal and local law enforcement agencies in various states to establish a single “D-Day” for the takedown, he or she embarks on a painful process that makes cat herding look easy.  A true takedown requires a tremendous amount of resources – agents to make arrests, officers executing search warrants, and prosecutors ready for initial appearances, to name a few.  Getting 10, 20, or 100 cases to track the same timeline is a serious challenge.  More so when the underlying crimes involve violence, guns, or any form of ongoing victimization.  For example, imagine asking a local officer to hold off on arresting gang members who murdered a teenager because you want to “bundle” that case into a takedown narrative.  Letting criminals continue their access to guns, drugs, human trafficking, or ongoing fraud schemes draining grandma’s savings account in the name of “coordination” of a takedown is rightly frowned upon.

Consequently, many takedowns are not very contemporaneous events by law enforcement but more of a generalized update that might span weeks or months of activity.  In fact, a narcotics takedown several years ago included such uncoordinated, barely related targets that the national media succumbed to “takedown fatigue,” failing to cover several takedowns that ensued because of their cynicism regarding the six degrees of separation approach that had underscored the anti-cartel operation.  Interestingly, Attorney General Sessions’ comments refer to “the 8th year of the Health Care Fraud Takedown.”  If the staggering numbers provided to the press are actually an accumulation of eight years’ worth of work, then it may be time to come up with a more apt phrase than “takedown,” which sounds to the untrained ear to be a reference to overnight raids and arrests.  None of this is to suggest that dedicating resources to fighting the opioid epidemic is a bad idea – it is not, and including corrupt doctors and facilities within the cross-hairs is appropriate and overdue.  But know that behind the press conference curtain is a wild mix of activity, including coordination challenges, interagency spats, risk assessments, and closed-door governmental decisions on cases for inclusion, as well as the time-frame to be used in announcing the coordinated numbers that make up a takedown press release.

Jan 11

Online Pharma Exec Gets 4 Years in Prison for Selling Foreign Drugs in U.S.

Andrew Strempler, a Canadian citizen who helped to pioneer the cross-border online pharmacy industry, was sentenced on January 9, 2013, to four years in prison in connection with allegations that his former company sold fake and misbranded drugs to U.S. citizens.

The sentence follows Strempler’s guilty plea in October in federal court in Miami to a charge of conspiracy to commit mail fraud. Strempler also agreed to forfeit $300,000 and pay a $25,000 fine. A hearing will be held to determine if Strempler will also need to pay restitution.

Strempler operated companies that sold foreign pharmaceuticals to consumers in the United States, where drug costs are significantly higher than in other countries. The drugs were obtained in markets with lower prices on drugs, but the U.S. government has long taken the stance that selling these drugs is illegal because the sources of the drugs could not be assured.

Under the plea agreement, the guidelines range for Strempler’s sentence would be 46 to 57 months, on a charge that carries no mandatory minimum sentence. The government recommended a sentence of 57 months. Prosecutors had originally sought up to 20 years in prison and the forfeiture of $95 million.

Counsel for Strempler asked the court for a downward variance and a sentence of 24 months. Strempler’s attorneys argued that since he is a Canadian citizen, any sentence imposed on him would be more difficult and onerous than an identical sentence imposed on an American citizen. They contended that he would likely not be assigned to a minimum security prison, even though he would likely otherwise qualify based on the nature of the offense and his lack of criminal history. Additionally, as a Canadian citizen Strempler would not be allowed to participate in an early release to a community corrections facility. After he serves his sentence he will be sent to immigration custody, where he will likely be held until his removal from the country.

Strempler’s attorneys also noted that the pre-sentence investigation report states that “there is no evidence that any victim sustained an actual loss or physical injury as a result of this offense.” Additionally, the forfeiture judgment of $300,000 to the government that Strempler agreed to pay prior to sentencing was nearly doubled the agreed-to loss amount.

According to court papers, Strempler believed that the drugs his company was selling were “safe and effective,” and his attorneys noted that he purchased the same drugs for his family and had sample drugs tested by a lab in Canada. His attorneys argued that he did not act with malice and had no actual belief that the drugs were fake and ineffective. He believed that the drugs were safe because they were purchased in accordance with the regulations of foreign countries.

The court essentially rejected the arguments by Strempler for a more lenient sentence and went along with the government’s request for a lengthy sentence. It appears to us that Strempler received a long sentence for a first-time nonviolent offender who did not act with malice. It seems that this is more of a regulatory violation parading in the clothing of a criminal case.

By asking for such a significant sentence, the government may have been trying to serve notice that this type of case will not be taken lightly. Given the stance taken by the prosecution in this case, it will be interesting to see if this leads to further prosecutions for related offenses.

Jan 04

Are the Feds Enlisting FedEx to Police the Illegal Pharma Market?

The government may be coming up with a new cost-effective measure to help balance the federal budget – enlisting private companies to do their policing. A 2011 settlement between the Justice Department and Google for $500 million is one recent example. Under the settlement, Google acknowledged responsibility for improperly aiding rogue pharmacies by allowing the pharmacies to post ads through the search engine’s AdWords program. Google not only agreed to forfeit this sizable sum (one of the largest in history by a U.S. company), it also agreed to new compliance and reporting measures. And that is after the company, on its own initiative, took steps to block foreign-based pharmacies from advertising in the United States.

Currently in the works are similar investigations by the Drug Enforcement Agency of FedEx and UPS. The shipping companies have been targets of a criminal probe dating more than four years into whether they aided and abetted illegal drug sales from online pharmacies. As the investigations are still ongoing, it is unclear what the extent or type of evidence against them may be. What is clear is that at least one of the targets is asserting its innocence and plans to defend itself vigorously. While UPS has announced that it is in settlement talks that would involve upgrading its compliance program, FedEx has come out with gloves on, pronouncing that “settlement is not an option when there is no illegal activity.”

UPS’ (and Google’s) course of action is understandable: Companies commonly do a cost-benefit analysis between settling and defending and determine that settlement is a better business decision. But it is good to see FedEx taking the higher, though riskier, road. A brief review of relevant law supports FedEx’s stance. For instance, common carriers are specifically excluded from liability under the Prescription Drug Marketing Act (PDMA): the implementing regulations provide that “distributing” under the Act does not include “[d]elivering or offering to deliver a drug by a common carrier in the usual course of business as a common carrier.” Interestingly enough, the FDA “on its own initiative” had revised its final rule to exclude common carriers.

The FDA’s earlier determination to exclude common carriers made sense, as it would be prohibitively expensive and potentially crippling to put shipping companies on the hook for packages that pass through their system. But the tides are changing, and federal agencies seem less concerned with the broad and adverse economic impact upon private companies and are more focused on how they may use those companies to do their bidding. As FedEx spokesman Patrick Fitzgerald noted, the government wants to “deputize” FedEx delivery to help “catch criminals.”

This type of effort by the feds can be quite effective, as can be seen from the Google settlement and impending UPS settlement. A federal enforcement agency launches an investigation that may be both extensive and costly to a company. The company does its cost-benefit analysis and determines it more efficient to simply pay a fine and institute a government-directed compliance program than to defend itself. The government thereby has a direct and simplified road to instituting new policies, company-by-company, through its settlement agreements. And all this can be accomplished without having to trouble itself with notice and rulemaking procedures. This process plays out frequently, which is what makes FedEx’s stance so refreshing.

Dec 04

Are Medicaid Claims Becoming the Next Battleground for FCA Cases?

A qui tam case that was recently dismissed on summary judgment may signal the next front in the legal enforcement war arising from off-label use of prescription medications.

In United States ex rel. Watson v. King-Vassel et al., filed in the U.S. District Court for the Eastern District of Wisconsin, the complaint alleged that defendant Dr. Jennifer King-Vassel violated the Federal False Claims Act and Wisconsin False Claims Law by prescribing medications to a minor patient receiving Medicaid assistance for off-label purposes – that is, for purposes other than the specific ones for which the Food and Drug Administration has authorized use. The complaint also alleged that the company that employed Dr. King-Vassel was liable under a theory of respondeat superior.

On October 23, 2012, the court granted summary judgment to the defendants on the ground that there was no specific allegation that Dr. King-Vassel had submitted a Medicaid claim (or made any other false claim) specifically arising from the prescription of the medication in question, and on the ground that Dr. King-Vassel was actually an independent contractor, and not an employee, of the corporate defendant.

The Watson case was clearly resolved in the way it was because of specific deficiencies in the pleadings and proof in that case, and the court’s order dismissing the case was also highly critical of ethically questionable behavior committed by the relator as a means of creating and supporting the qui tam case. Nevertheless, the case raises the specter of a whole new series of legal actions that appear likely to arise from off-label use of FDA-approved medications.

We have written before about the massive fines paid by pharmaceutical companies for promotion of off-label use of medications. The Watson case focuses on a whole other universe of potential deep-pocket defendants: medical professionals and institutions involved in the prescription of the medications in question. Notwithstanding the dismissal of the Watson case, its operative theory – that a Medicaid claim relating to off-label use of a medication may constitute a false claim – may still be viable, though it is largely untested. Going forward, in any case in which a medical professional or institution faces civil or criminal legal action based on such a theory, counsel will have to scrutinize carefully whether the claims on which liability purports to be based truly fall within the scope of the false claims statute.

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Nov 30

More Big Pharma Companies Cough Up Big Dollars in DOJ Settlements

The parade of major drug companies coughing up nine-digit or ten-digit dollar amounts in settlements with the U.S. government is continuing.

GlaxoSmithKline recently broke a record by agreeing to pay the federal government $3 billion to settle an illegal pharmaceutical marketing case. This surpasses the previous record of $2.3 billion paid by Pfizer in 2009 over the marketing of its Bextra painkiller and other drugs. The same year, Eli Lilly & Co. paid $1.4 billion in a settlement concerning sales of its Zyprexa anti-psychotic medicine. In late November, Merck & Co. agreed to pay $950 million and plead guilty to a criminal misdemeanor charge to resolve allegations that it illegally promoted its former painkiller Vioxx and deceived the government about the drug’s safety.

As these settlement amounts skyrocket, the industry is left wondering just how high they can go and how much the government will demand.

The huge Glaxo settlement covers civil and criminal liabilities following an eight-year-old probe into the company’s marketing of several top-selling drugs. Most prominently, the settlement resolves charges that Glaxo illegally marketed the diabetes drug Avandia by paying doctors to promote it and manipulating medical research to downplay associated heart risks. It also follows the investigation of Glaxo’s off-label marketing of anti-depression drug Wellbutrin, and the company’s alleged misrepresentation of the potential suicide risk associated with another anti-depression medication, Paxil.

As a spin-off from the Wellbutrin probe, Lauren Stevens, a former vice president and associate general counsel of GlaxoSmithKline, faced criminal charges of obstruction of justice and making false statements to the Food and Drug Administration earlier this year. However, in a highly publicized and damaging loss for the Justice Department, a federal judge in Maryland acquitted her on all charges.

In June, Glaxo’s U.S. subsidiary agreed to pay more than $40 million to settle complaints about manufacturing processes at a plant in Puerto Rico, which has been closed. The company also paid a $750 million fine in 2010 related to the Puerto Rico plant. Despite the huge cost of these settlements, some see them simply as the cost of doing business for these major pharmaceutical companies.

Still, we have to ask why the Department of Justice seems to be targeting this industry. Is it because they can pull in large profits in good years, when their blockbuster drugs remain under patent control? Of course, quite often the major pharma companies find their pipeline of inventions fairly narrow and their major inventions long since in the hands of the generic-drug companies.

As the companies’ biggest client, the government has the power to strong arm them into settlement. The current cases prove, yet again, that the Department of Justice will continue to prioritize the issue of illegal pharmaceutical marketing and pursue larger and larger settlements against companies in this industry. They are certainly forewarned.

Oct 10

District Judge Orders Much-Reduced Sentence in Fraud Case

A federal judge has made a major reversal in the case of Steve Warshak, the Berkeley Premium Nutraceuticals founder who was sentenced to 25 years for defrauding customers who bought his “male enhancement” pills, which were advertised in the notorious “Smiling Bob” ad campaign. We have discussed Warshak’s case in a previous blog post. Warshak had been accused of defrauding customers out of $400 million, and had been handed the lengthy sentence after being found guilty of fraud, money laundering, and conspiracy. Prosecutors said that the fraud included false advertising, lying to banks, and making unauthorized charges on consumer credit cards.

In December 2010, the U.S. Court of Appeals for the 6th Circuit ordered a new sentencing, stating that the lower court must more thoroughly examine the amount of money lost because of Warshak’s crimes. Indeed, while  federal prosecutors accused Warshak’s company of bilking customers out of $100 million through deceptive ads, unauthorized credit transactions, and refusal to cancel orders or accept returns, Judge Spiegel originally ordered Warshak and his co-defendants to forfeit $411 million— a figure apparently based on the company’s net sales.

The 6th Circuit said, “The district court did little to explain how it arrived at $411 million as the amount of loss, other than to suggest that the figure represented Berkeley’s net sales . . .  [T]he district court should have engaged in a more thorough explication of its calculation, and it also should have explicitly referenced the evidence upon which it relied.”

Now, three years later, in response to the Court of Appeals’ instructions, Judge S. Arthur Spiegel has slashed Warshak’s sentence by 15 years. In handing Warshak the new 10 year sentence — with credit for time served and good behavior — Judge Spiegel considered several factors that the Court of Appeals suggested warranted a shorter sentence.

First, the amount of money lost by consumers might have been vastly overstated in Warshak’s original sentencing. While the revised estimate is still a huge sum at $100 million, it is only a quarter of the previous estimate. Additionally, the significant disparity between Warshak’s 25 year sentence and those of his co-defendants — who were all sentenced to two years or less —supported a shorter sentence.

In white-collar cases, the severity of a defendant’s sentence is closely tied to the amount of loss caused by the crime, and therefore any exaggeration or miscalculation of that amount has serious implications. We applaud the 6th Circuit for refusing to allow an exaggerated loss calculation to go undisturbed.

Oct 07

Judge Imposes Draconian Sentences in Medicare Fraud Scheme

On Sept. 16, 2011, a federal judge in Miami sentenced Lawrence Duran to 50 years in prison, the longest sentence ever imposed in a Medicare fraud case, for his role in a massive fraud scheme that resulted in more than $205 million in losses. Duran was also ordered to pay $87 million in restitution.

Duran was co-owner of American Therapeutic Corporation with Marianella Valera, his girlfriend. Both of them pleaded guilty in April to fraud, money laundering, and conspiracy charges after being arrested in October 2010. In their pleas, Duran and Valera admitted that they executed the scheme from 2002 until their arrest in 2010. A total of 34 people, including employees of American Therapeutic, doctors, and nurses were arrested in connection with the scheme.

Prosecutors said that Duran and his co-defendants billed Medicare for hundreds of millions of dollars in mental-health services that were either unnecessary or never provided. Prosecutors also said that Duran forged patient files for mentally ill people to make them seem eligible for sleep studies that they would not actually participate in, while American Therapeutic would pay kickbacks to recruiters to supply patients suffering from Alzheimer’s disease and similar conditions. Duran admitted that the patients could not have benefited from the company’s services.

Prosecutors also took note of the fact that Duran set up an advocacy group, the National Association for Behavior Health, to lobby in Washington to make it easier for mental health centers such as the one he ran to receive federal funding.

After a three-day sentencing hearing, a federal judge accepted the government’s recommendation of a very high sentence for Duran, who had pleaded guilty to 38 felonies. The judge said there is a “critical need for deterrence against health care fraud” in Florida, where Medicare corruption is a significant issue for law enforcement.

Marianella Valera pleaded guilty to 21 felonies and was sentenced to 35 years in prison. The 35-year sentence is the second longest ever for Medicare fraud. The indictment alleged that Valera manipulated records so patients would have to stay longer at the facility, thus accumulating more expensive Medicare bills.

“[The] sentencing demonstrates to those who defraud taxpayers of millions of dollars through health care fraud schemes that the FBI and our partners remain committed to investigating and prosecuting such fraud to the fullest extent of the law,” said FBI Miami Division acting Special Agent in Charge Xanthie Mangum in a statement.

Although the government said it was trying to send a clear signal to defendants that Medicare fraud will be taken seriously, and there is no doubt that Duran and Valera committed serious crimes, this sentence is excessive. The dollar amounts of loss here do not approach the loss amounts for other defendants who have committed major financial fraud. Additionally, these defendants pleaded guilty and admitted their acts in the plea agreement, whereas many of the perpetrators of significantly larger fraud who took their cases to trial received much more lenient sentences.

The sentencing guideline range for both defendants, it is true, allowed for a life sentence, but that has never been imposed in a Medicare fraud case. It will be interesting to see whether, on appeal, the U.S. Court of Appeals for the 11th Circuit rules that this sentence is substantively unreasonable because of its length.

Aug 03

Is Unsealing False Claims Act Complaints the Right Answer?

Companies should make vigorous efforts to unseal civil False Claims Act complaints against them earlier in the process in an effort to achieve better results, argues Michael K. Loucks, a former acting U.S. attorney for the District of Massachusetts who is currently a Boston-based partner in a major law firm. Loucks also co-authored a post on his firm’s website, further explaining why companies should take on an aggressive strategy to unseal complaints.

The False Claims Act permits individual whistleblowers to file cases on behalf of the United States government against those who have allegedly defrauded the government. All complaints under the act must be filed under seal for 60 days and must be served on the government rather than on the defendant. The Department of Justice has the option of intervening in the suit or declining to do so. If it formally makes either a “yes” or a “no” decision, the case is unsealed. However, the government can extend the 60-day seal for “good cause” while it is making its decision. A whistleblower can recover a substantial portion of a settlement or verdict under the FCA – up to 30 percent of the final value.

DOJ recently reported to Congress that there are 885 pending False Claims Act cases involving health care fraud alone, with about 200 prosecutors to handle all health care fraud cases. On average, a case is sealed for more than a year, and at times, much longer.

Loucks contends that unsealing complaints earlier in the process would be advantageous to the companies. The extra time would allow the companies to learn the scope of the complaints earlier, allowing time to identify potential witnesses, develop a more comprehensive defense strategy, and engage in all the discovery that civil litigants are entitled to. Increased openness would also permit companies to correct any problems that the complaint may have highlighted.

There is nothing of course objectionable about Loucks’ suggestions. But someone as experienced as him also knows how difficult it is for a company to learn of the existence of a sealed complaint filed against it in the first place, and then to successfully unseal the complaint. Not surprisingly, the New York Times suggested that Loucks was able to be so successful as a prosecutor because he was able to operate in secret through the prolonged use of sealed complaints. (The case that the New York Times called his “crowning achievement” was a $2.3 billion settlement with Pfizer that was the result of a four-year secret investigation.)

Defendants have no tried and true solution of determining whether a sealed complaint has been filed against them. Indeed, many whistleblowers often continue to work for their employers long after they have filed a sealed complaint against that employer. Often there is nothing to suggest to a company that it is a target of an investigation. Accordingly, defendants will not know to ask the court to unseal a complaint that they do not know exists.

Even if a company were to learn of the existence of a sealed complaint, dozens of published cases – some of which Loucks himself participated in – confirm that when confronted with the objections of the government, courts rarely, if ever, unseal FCA complaints. (The National Law Journal is now reporting on a novel development: Some judges, notably including some in the U.S. District Court for Massachusetts, are now unsealing many FCA cases. It appears that the judges are doing this because they want to increase the visibility of the judicial system to the public.) In general, however, the “good cause” language in the FCA is often an easy standard for prosecutors to meet and allows them to keep cases under seal – even over defendant’s objections – for extended periods of time.

We are surprised by the lack of attention on Loucks’ part to the question of whether a defendant necessarily wants a complaint to be unsealed. Loucks built his reputation on obtaining huge settlements from publicly traded health care companies. Traditionally, those entities announce the existence of a complaint on the same day that the complaint is unsealed and the matter is settled. It is not surprising that organizations would seek to keep the complaint sealed from the public eye and only unseal the complaint when the announcement of a settlement is believed to mitigate the impact of that case on that company’s share value. (For more on the role of company disclosure, see our Web site here. )

While we certainly agree that companies confronted with complaints under the False Claims Act complaints may want to consider asking courts to unseal complaints against them, there are a host of issues that must be analyzed and considered, including the effect of disclosure on the market and the practical ability to successfully argue for disclosure under the FCA and existing case law interpreting that statute.

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Mar 31

Strike Force Hits Hard at Massive Medicare Fraud

Last month, the Federal Medicare Strike Force charged 111 defendants in nine states for their alleged participation in fraud schemes that reportedly cost Medicare almost a quarter billion dollars. Last month’s sweep resulted from the Justice Department’s and Health and Human Services’ work with the FBI, the HHS  inspector general, and various state and local law enforcement officials. It represents the largest federal takedown of health-care fraud to date.

The schemes targeted by the Strike Force involved patient recruiters, who sought out Medicare beneficiaries who were willing to provide their Social Security Numbers and Medicare information. Recruiters allegedly induced beneficiaries to disclose their personal information with promises of free medical services or durable medical equipment. Recruiters were paid by health care professionals or health care facilities based on the amount of usable data they collected.

Healthcare professionals then used the data to bill for services or equipment that were not medically necessary or were never provided to the patient. The healthcare provider billed the bogus services to Medicare and pocketed the payments. In some cases, conspirators made tens of millions of dollars for unnecessary or undelivered medical care.

In 2007, the Justice Department, U.S. Attorney’s Offices, FBI, Centers for Medicare and Medicaid, and HHS joined forces to investigate Medicare fraud in Miami. In 2008, the agencies expanded their work to Los Angeles and later to four other fraud hot spots: Houston, Detroit, Baton Rouge and Tampa.

Based on the early success of the Strike Forces in these six cities, DOJ and HHS established the Health Care Fraud Prevention and Enforcement Action Team, otherwise known as HEAT. Since then, Medicare Strike Forces have been deployed in Brooklyn, Chicago, and Dallas. Amounts of money siphoned from Medicare in each city ranged from a high of $90 million in Brooklyn to a low of $2.8 million in Dallas.

According to HHS Secretary Kathleen Sebelius, from 2008-2010, the government recovered an average of $6.80 for every dollar spent under the Health Care Fraud and Abuse Controls. The impressive return portends an increasing allocation of resources for the investigation and prosecution of Medicare Fraud, which suggests that Medicare Strike Forces are likely to expand first to bigger cities with greater potential for recovery and then to smaller locales.

Whatever the case, last month’s arrests serve as a wake-up call. Healthcare providers can take a number of proactive steps to minimize their risk of criminal and civil liability under Medicare. First, Medicare providers should heed the results of Medicare overpayment audits andtake advantage of opportunities to work with the Medicare Safeguard Contractor to resolve disputed billing practices. Providers should also consider hiring a reputable independent consultant to audit and advise them on billing practices. Finally, if health care providers discover questionable or fraudulent billing practices within the organization, they should consider whether and how to disclose and correct the problems in order to minimize the organization’s exposure to criminal or civil liability in the future.

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Jan 11

It’s Not Just the Conviction — It’s Also the Consequences

Attention: top executives in the healthcare industry. Take heed, or you could be forced to seek employment in a different industry, as three former top executives at Purdue Pharma recently found out.

In May 2007, Purdue Frederick, a subsidiary of Purdue Pharma L.P., pleaded guilty to felony misbranding of its painkiller drug, Oxycontin, as part of a settlement with federal prosecutors. The charges were that, over a five-year period, the company knowingly made misleading claims about the addictive nature of Oxycontin by claiming that it was less prone to abuse than similar drugs because it was a long-acting narcotic. The subsidiary was automatically debarred from receiving any new government contracts, but the parent company signed a non-prosecution agreement and paid $634 million to settle charges against it. It was able to avoid criminal prosecution and thus remain eligible for new government contracts.

Additionally, the U.S. attorney reached a plea deal with the three top executives of Purdue, who all avoided jail time by agreeing to perform community service and to pay substantial penalties. The three executives all pleaded to a criminal misdemeanor, as “responsible corporate officers,” for failing to prevent, detect or correct federal drug violations. Under the responsible corporate officer doctrine, an officer can be held strictly liable for failing to properly exercise authority to detect and prevent the misconduct of his or her subordinates, even if there is no evidence of the officer’s own misconduct. The doctrine creates a duty on an executive to be aware of his subordinates’ activities and to stop any wrongdoing. With this plea agreement, it seemed as if the three executives might have gotten off with a “slap on the wrist.”

However, after the three executives were convicted, the Department of Health and Human Services debarred them for 20 years from involvement in any federally financed health care program. After a number of administrative appeals, the debarment was reduced to 12 years. Still, the executives appealed to the district court and sought to have the debarment vacated or remanded.

However, on Dec. 13, 2010, U.S. District Judge Ellen Segal Huvelle affirmed the 12-year debarment order. The judge noted that the executives’ guilty plea acknowledged that they were “responsible corporate officers” and that they had the “responsibility and authority either to prevent . . . or to promptly correct” the misleading claims regarding Oxycontin.

Obviously, a 12-year debarment from any federally financed health care program for an executive is effectively a death sentence for future employment in the health care industry. This highlights the severe collateral consequences of any criminal conviction for both companies and individuals who participate in federal procurement programs, as well as the need for corporate executives and their attorneys to understand in advance what the potential fallout can be from a criminal proceeding.

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About Ifrah Law

Crime in the Suites is authored by the Ifrah Law Firm, a Washington DC-based law firm specializing in the defense of government investigations and litigation. Our client base spans many regulated industries, particularly e-business, e-commerce, government contracts, gaming and healthcare.

Ifrah Law focuses on federal criminal defense, government contract defense and procurement, health care, and financial services litigation and fraud defense. Further, the firm's E-Commerce attorneys and internet marketing attorneys are leaders in internet advertising, data privacy, online fraud and abuse law, iGaming law.

The commentary and cases included in this blog are contributed by founding partner Jeff Ifrah, partners Michelle Cohen and George Calhoun, counsels Jeff Hamlin and Drew Barnholtz, and associates Rachel Hirsch, Nicole Kardell, Steven Eichorn, David Yellin, and Jessica Feil. These posts are edited by Jeff Ifrah. We look forward to hearing your thoughts and comments!

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