Given the uptick in global awareness and enforcement of anti-bribery and corruption laws, most U.S.-based health care companies are attuned to the risks associated with legal infractions caused by their operations and conduct abroad. However, such ex-U.S. activities may also impact health care companies’ ability to conduct business within the U.S. For example, overseas conduct could trigger exclusion, debarment or suspension from federal procurement of health care programs, such as Medicare and Medicaid, even if the alleged wrongdoing (e.g., conduct relating to bribery or corruption) occurs entirely outside of the U.S. and has no tie to any federal program. Further, quasi-government entities, such as the World Bank, also have debarment policies which can impact U.S. health care companies.
This article first explores the interaction between the Office of Inspector General exclusion statute and the Foreign Corrupt Practices Act. Second, it discusses how debarment of federal contractors participating in development programs run by quasi-governmental organizations (such as the World Bank) could lead to unexpected scrutiny by U.S. federal agencies.
The FCPA and Mandatory Exclusion
A felony FCPA plea or conviction triggers fines and penalties under U.S. securities laws, and could also impact a company’s ability to participate in U.S. federal health care programs. The Office of Inspector General of the U.S. Department of Health and Human Services has the authority to exclude individuals and entities from all federally funded health care programs as required by statute (mandatory exclusion),1 or based on OIG’s discretion (permissive exclusion”).2 A company charged with a violation of the FCPA books and records and internal controls provisions,3 a felony under federal law,4 could be excluded based on: (1) a guilty plea or conviction in a court with competent jurisdiction; and (2) OIG’s determination that the underlying conduct meets the language of the mandatory exclusion statute. Mandatory exclusion compels OIG to exclude individuals and entities convicted of certain offenses, including felony convictions relating to health care fraud, from participation in all federal health care programs for a minimum of five years.5
The consequences of exclusion, either mandatory or permissive, are severe: exclusion prevents items or equipment sold by an excluded manufacturer that are used in the care or treatment of federal healthcare program beneficiaries from being reimbursed, directly or indirectly, by any federal health care program. Although OIG has not yet excluded a company for an FCPA violation, the self-executing nature of the statute and OIG’s lack of discretion leave open the real possibility that such an exclusion could happen in the future,6 a fact which the U.S. Department of Justice has acknowledged.7 This threat of exclusion has doubtless impacted numerous companies facing prosecution in their decisions to cooperate and enter into a deferred prosecution agreement, despite the high associated costs of compliance.
To determine whether a violation triggers mandatory exclusion, OIG evaluates the conduct underlying the guilty plea or conviction. For an FCPA books and records and internal controls violation, OIG would consider whether the misconduct was undertaken: (1) “in connection with the delivery of a health care item or service”; and (2) “relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct.”8 Unlike other parts of the statute governing mandatory exclusion, a violation under § 1320a-7(a)(3) does not require any nexus to a government health care item or service, but broadly covers “any felony conviction under Federal, State, or local law related to healthcare fraud, even if governmental programs are not involved.”9
OIG has wide latitude in determining whether an offense was carried out “in connection with ... a healthcare item or service” and “relat[ed] to fraud ... or other financial misconduct” — which could be interpreted to incorporate a broad range of conduct.10 For the first prong, OIG need only determine that the conduct underlying the FCPA violation was carried out “in connection with ... a healthcare item or service,” which just requires a “common sense connection” or “nexus” between the “underlying facts and circumstances of the offense and the delivery of healthcare items or services to individuals for their healthcare needs.”11
As to the second prong, OIG may look to the conduct as plead and courts have consistently held — both in the context of exclusion jurisprudence and more broadly — that the terms “in connection with” and “relates to” are “generally interpreted expansively.”12 In this case, whether a failure to satisfy the accounting provisions would be “relat[ed] to fraud ... or other financial misconduct” likely would turn on the facts underlying the company’s conduct. Courts have noted, however, that the statute does not require a felony for health care fraud, but only a felony relating to health care fraud — a distinction that is bound to encompass more conduct rather than narrow the potential applicability of 42 U.S.C. § 1320a-7(a)(3).13
If OIG does determine that the requirements for mandatory exclusion have been met, it has no discretion pursuant to statute and exclusion must follow. In light of the above, U.S. health care companies should carefully consider all potential applicable laws, including the OIG exclusion statute, when resolving FCPA matters.
Development Bank Debarments and Their Domestic Consequences
Health care companies with federal procurement arrangements may also face unexpected consequences from ex-U.S. activities if they find themselves debarred by an international development bank, such as the World Bank. In 2016, the World Bank alone invested over $64 billion in both private and public sector organizations.14 In order to protect current investments and deter bad actors, development banks employ sanctioning regimes that rely heavily on debarments, which exclude entities from eligibility for World Bank financing for a period of time. The World Bank identifies five forms of misconduct subject to sanctions: corrupt practices, fraudulent practices, coercive practices, collusive practices and obstructive practices,15 covering activities such as bribes, misrepresentations, collusive pricing, threats of force, as well as interfering with World Bank investigations.16
Development bank debarment actions are public, and may be highly publicized depending on the situation and underlying conduct, in order to deter future misconduct.17 Further, in 2010, a consortium of major development banks, including the World Bank, executed a cross-debarment agreement, which provides that debarment of an entity by one bank triggers exclusion by all.18 Additionally, the World Bank at times refers the results of its investigations directly to state authorities.19 Given the broad scope of development banks’ public and private sector activities, companies with any type of federal contract should be aware of the potential effects of debarment. This quasi-governmental debarment action could cause a U.S. federal agency to view the debarred contractor as an unreliable partner, leading to a potential investigation or debarment action in accordance with General Services Administration (GSA) regulations.
GSA regulations give broad discretion to agency officials to determine whether to debar a firm with a federal contract, including for “[c]ommission of any ... offense indicating a lack of business integrity or business honesty that seriously and directly affects the present responsibility of a Government contractor or subcontractor.”20 While this provision only permits agencies to issue debarments, rather than mandating they do so, it captures a wide range of misconduct, similar to the activities identified in the debarment provisions of development banks.
In assessing whether to debar, the government agency will decide whether the firm’s conduct “indicate[s] a lack of business integrity” and whether that lack of integrity is closely enough related to the firm’s “present responsibility.”21 Triggering conduct need not directly arise from the firm’s conduct related to a government contract, nor must it take place under U.S. jurisdiction. Debarment from U.S. government contracts is meant only to protect the public interest, not to punish supposed wrongdoers, and GSA regulations provide agencies with broad discretion to decide what facts to consider in judging a firm’s integrity.22
Health care companies with federal contracts should proceed carefully when faced with a quasi-governmental debarment, given the possible impact on its U.S. government business. GSA regulations do weigh timely disclosure of misconduct as a mitigating factor in an agency’s determination of whether to debar a firm, and as a result, proactive disclosure to the applicable federal agency, particularly in the event of highly publicized misconduct, may be a course worth considering.23