Former Synthes spine division President Higgins and three other former high-ranking Synthes officials are the latest subjects of HHS' often-stated goal of deterring criminal activity in the high-dollar healthcare industry by punishing not only companies, but also individuals.
In the cases of the former Synthes executives, the potential exclusions from federal healthcare programs are being considered by HHS' inspector general's office under the legal theory known as the “responsible corporate officer doctrine,” which says prosecutors and regulators can hold executives responsible for actions that they did not know about, so long as they failed to take steps to prevent them.
“Mr. Higgins' criminal liability is based on his responsibility and authority to prevent his corporate employer's violation of the (Food, Drug and Cosmetic Act), which he deeply regrets that he failed to prevent,” according to a sentencing memorandum for a misdemeanor guilty plea Higgins filed last year. “The critical decisions the government has identified as constituting such violations were not made by Mr. Higgins alone, and he did not understand them to be illegal at the time.”
The Synthes cases involve grave allegations, including three patients' deaths allegedly stemming from an unauthorized clinical trial, but attorneys say the uptick in responsible corporate officer cases ought to sound alarm bells in C-suites across the healthcare industry. Attorneys say there's no reason why the legal principles in the Synthes cases couldn't apply to hospital executives who plead guilty to misdemeanors, as did Higgins and three other Synthes executives: former Synthes North America President Michael Huggins; former Vice President Richard Bohner; and former Regulatory Affairs Director John Walsh.
“It's an immediate concern,” said Kirk Ogrosky, a Washington partner with Arnold & Porter, and the former head of healthcare fraud enforcement for the criminal division in the U.S. Justice Department.
Ogrosky said the possibility of healthcare executives' Medicare exclusion is another layer of “parallel proceedings” to criminal and civil actions, because prosecutors are feeling pressure to pinpoint “layers of management” that could have prevented illegal conduct in cases where there's no single wrongdoer.
“I would tell any client of mine, if you are signing a misdemeanor plea, you better expect that the OIG will seek your exclusion,” he said. “And you had better think that through before you sign that plea.”
And the inspector general's office doesn't reveal its exclusion plans until after pleas become official.
Although the federal government only has the power to exclude executives or their companies from participating in federally funded healthcare programs such as Medicare and Medicaid, observers say such a prohibition is tantamount to getting kicked out of the industry since the federal programs are such major payers.
This year a federal appeals court—the U.S. Court of Appeals for the District of Columbia—upheld the inspector general's ability under the Social Security Act to exclude healthcare executives from federal programs for corporate crimes that they did not know about.
In the July 27 opinion in Friedman vs. Sebelius, the judges ruled that three former executives of drugmaker Purdue Frederick—now owned by Stamford, Conn.-based Purdue Pharma—could be excluded after the company was convicted of felony misbranding of the painkiller OxyContin, and the executives each pleaded guilty to misdemeanor misbranding.
Although the law requires mandatory exclusions for healthcare-related felony convictions, misdemeanor pleas such as those in the cases of the Purdue and Synthes executives give the inspector general a power known as “permissive exclusion” to decide whether to exclude the executive from federal healthcare programs, and for how long.
However, the office does not always use the power.
In April 2011, investigators notified Forest Laboratories Chairman, President and CEO Howard Solomon that they were considering excluding him following the New York-based drugmaker's payment of $313 million in criminal and civil settlements over charges of misbranding and illegal distribution of pharmaceuticals.
Forest never admitted wrongdoing, and Solomon was not charged. And in August 2011, the inspector general's office informed him it would not attempt to exclude him. The office never publicly explained the decision.