Friday, June 3, 2011

Administration Focusing Enforcement Efforts on Corporate Officers and Employees

According to Fox News, the Obama administration has decided to take a "cut-the-head-off-the-snake" approach to federal corporate crime. Federal officials has revealed that they will move to punish individual executives and employees more often when crimes occur within corporations. Thus far, this strategy of increased punishment of individuals, instead of just the corporations, has focused on health care fraud and immigration violations.

As for health care, federal investigators have opened the door to go after executives for alleged crimes within their company hierarchies.

In one prominent case, the health department's inspector general in April notified the CEO of Forest Laboratories that it was considering barring him from doing business with federal health programs. The reason? A subsidiary of his pharmaceutical firm had pleaded guilty to charges that it defied federal warnings not to distribute an unapproved drug and improperly promoted another drug to children.

But the company said CEO Howard Solomon had not been personally implicated in that case, and that the only rationale given by the IG was that he was "associated with" Forest. Company officials at the time called the threat "completely unwarranted" and suggested the inspector general's office was "beyond its legal authority." The company described the action as unprecedented.

Reached for comment, a company representative told FoxNews.com the firm would formally challenge the inspector general's potential action before a mid-June deadline.

In addition to that case, the Food and Drug Administration has also issued guidance explaining how it can target corporate executives for violations even if they did not personally commit those violations or know about them.

The FDA guidance triggered a flurry of alerts from law firms. And both developments prompted a complaint last fall from the Washington Legal Foundation, which suggested the administration's rationale might not hold up in court.
Read the entire Fox News story here. As mentioned in the Fox News article, the Washington Legal Foundation responded to the new focus from the administration.

The Washington Legal Foundation (WLF) this week called on the Food and Drug Administration to abandon its announced plans to seek increased criminal prosecution of company executives for promotional activities in instances where the executives never participated in, encouraged, or had knowledge of the alleged violations. WLF expressed its concerns in a letter to Eric Blumberg, Deputy Chief for Litigation in the FDA’s Office of Chief Counsel, in response to recent comments Blumberg made calling for increased criminal prosecution of executive officers in pharmaceutical companies.

According to multiple press accounts, Blumberg spoke at the Food and Drug Law Institute (FDLI) Enforcement Conference in Washington, D.C. on October 13, 2010, where he announced the view that large, monetary settlements (such as FDA’s recent record-breaking $2.3 billion settlement with Pfizer) were “not getting the job done” to adequately deter off-label promotion, and that he urged federal prosecutors “to criminally charge individuals at all levels in the company.”

Blumberg’s remarks follow the recent guidance released by the Office of the Inspector General (OIG) of the Department of Health and Human Services (HHS), which expands the basis for excluding individuals, including pharmaceutical executives, from participating in federal health care programs. When an individual is excluded, federal health care programs like Medicare and Medicaid will not pay for any item or service furnished, ordered, or prescribed by that individual. Because entities that employ an excluded individual for providing items or services to federal program beneficiaries are subject to monetary penalties, such exclusion operates as a de facto ban on working in the health care industry.

“Subjecting every manager and executive in the industry to potential criminal liability every time an off-label promotion occurs is extremely shortsighted,” WLF Senior Litigation Counsel Cory Andrews wrote in a letter to Blumberg. “In the wake of such an aggressive use of the FDCA misdemeanor, industry executives will have little incentive to continue working in the pharmaceutical sector.”
Read the entire WLF press release here.

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