“There are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns–the ones we don’t know we don’t know.”
–Donald Rumsfeld, 2002 press briefing
“Whoever said what you don't know can't hurt you was a complete and total moron.”
–Dr. Meredith Grey (actress Ellen Pompeo, in “Grey’s Anatomy”), 2005 episode
They both have it right. The then-Defense Secretary was speaking to the lack of evidence that Iraq was supplying weapons of mass destruction to terrorists, and the TV character was talking about ... well, it doesn’t matter, because it’s a TV character. Taken together, though, these quotations could be a good summary of the state of affairs regarding the liability individual officers can face for corporate violations of the Food, Drug, and Cosmetic Act (FDCA).
The threat of this liability has been around for decades, and for several years now, the government has demonstrated a renewed willingness to use it in settling cases against pharmaceutical and medical device manufacturers. What’s new, however, is the risk of actual jail time for misdemeanors, and of career-ending employment restrictions on industry executives who have not been alleged to have committed fraud. These developments may be changing the way drug companies do business (certainly the government’s goal), but they also may undermine the ability of the government and companies to settle these cases.
The FDCA is a strict liability statute; there is no intent required for a violation to be a misdemeanor (or even a felony, if it’s a repeat violation after a conviction), and liability attaches not only to a person (an individual or entity) who commits a violation, but also to one who causes it. Moreover, the Supreme Court’s 1975 decision in United States v. Park established that a “responsible corporate officer” may be criminally liable for corporate FDCA violations the officer did not participate in or even have knowledge of. Criminal liability is augmented by the government’s ability, through the Health and Human Services (HHS) Office of Inspector General, to exclude from participation in federal health care programs an individual who is convicted of a misdemeanor “relating to” fraud in the delivery of health care products or services, as well as a “managing employee” of an entity that is itself excluded or convicted of certain crimes.
The “Park Doctrine” has been the basis for misdemeanor charges against executives in a number of cases brought against drug companies for alleged FDCA violations (and often attendant False Claims Act violations) over the past few years that have resulted in guilty pleas by the individuals. Two recent actions alter the landscape:
- In July 2012, the D.C. Circuit ruled that HHS has the authority to exclude from federal health care programs three Purdue Pharma executives who had pleaded guilty to a misdemeanor FDCA violation (causing the shipment of misbranded drug) as part of the company’s settlement of off-label promotion of OxyContin. The executives had not been alleged to have known of, or participated in, the illegal activities, but the company had pleaded guilty to a felony of fraudulently misbranding the drug. The court held that the misdemeanor convictions therefore “related to” fraud in the delivery of health care products and were a proper basis for exclusion. (The court remanded the case to HHS as to the length of the exclusions.)
- Although FDCA misdemeanor convictions carry the possibility of up to a year’s imprisonment, individuals pleading to these violations typically serve no time. In November 2011, however, four executives of Synthes Inc., each of whom had pleaded guilty to a misdemeanor FDCA violation, were sentenced to prison terms ranging from five to nine months.
The Synthes executives’ sentencing may be less foreboding, as it may be limited to its facts, and the judge had concluded that the individuals were aware of, and participated in, the conduct. The exclusion of the Purdue executives, however, seems to be a more broadly applicable–and therefore troubling–precedent, and not just in terms of fundamental fairness or due process. To be sure, the government considers the threat of individual executives’ serving prison sentences or being excluded to be an important enforcement tool in the effort to change corporate behavior. That means executives need to be informed of, and manage, relevant corporate activities, because what you don’t know can hurt you. But the ability to settle such cases is an equally important tool for being able to efficiently resolve them, and if the level or unpredictability of risk is too great, it will be impossible for executives to agree to settlements, which won’t be good for anyone.