The activities of the Office of Inspector General of the Department of Health and Human Services (OIG) continue to make news with the announcement on 5 August 2011 that the OIG has elected not to pursue exclusion from Federal Health Care Programs of Forest Laboratories Inc.'s CEO Howard Solomon. Although interpreted by some as a set-back for the OIG's pursuit of industry executives, the latest action is consistent with the OIG's stated commitment to pursue exclusion against individuals in "appropriate cases."
OIG and the Forest Laboratories' CEO
On 8 April 2011 the OIG sent to Mr. Solomon a Notice of Intent to Exclude ("the Notice") after his company settled civil allegations and entered into a non-prosecution agreement, and its wholly owned subsidiary Forest Pharmaceuticals, Inc. pled guilty to three criminal offenses: 1) distributing a misbranded drug; 2) distributing an unapproved new drug; and 3) felony obstruction of an agency proceeding. The Notice was the first time the OIG attempted to exclude an executive in a case in which there were no public criminal or civil allegations that he was personally involved in the misconduct giving rise to the company's sanction. Although the announcement sent shockwaves through the industry, the Notice was consistent with the OIG's previously issued guidance that it would use its exclusion authority under Section 1128(b)(15) of the Social Security Act ("Section (b)(15)" or "(b)(15) authority") to exclude executives and managers even absent a criminal conviction or personal participation in or knowledge of the company's misconduct. See Hogan Lovells US LLP Health Alert, 21 October 2010.
This unprecedented Notice spurred a strong response with industry advocates calling on the OIG to limit the use of its discretion to those instances where there are "specific findings of . . . individuals' wrongdoing or knowledge of wrongdoing." See, e.g., 23 June 2011 letter from Lisa A. Rickard, President, U.S. Chamber of Commerce to Daniel R. Levinson, Inspector General, U.S. Department of Health and Human Services (on file with authors).
On 5 August 2011, the OIG notified Mr. Solomon in a tersely worded letter that the case against him was closed based on the information in the OIG's file and "the information that your attorneys provided to us, both in writing and during an in-person meeting." See 5 August 2011 letter from P. Clark, Exclusions Director, Office of Investigations to H. Solomon, CEO of Forest Laboratories, Inc. (last visited 17 August 2011). The decision not to exclude Mr. Solomon has caused some observers to presume that the OIG was narrowing the scope of its exclusion efforts. However, the agency quickly emphasized that it will continue to exercise its exclusion authority judiciously and reaffirmed its commitment to pursuing exclusion of executives leading sanctioned companies. See Statement of the Office of Inspector General, U.S. Department of Health and Human Services – 5 August 2011 (on file with authors). The OIG has not given any explanation for why it chose not to exercise its discretion in this case. To presume that the Solomon decision indicates that the OIG will only pursue executives where there is evidence of personal misconduct or knowledge of corporate misconduct would be short-sighted.
Continued personal exclusion risk
Legislation is pending before Congress that would further expand the OIG's (b)(15) authority to reach individuals that have no current relationship with a sanctioned company, as well as to individuals and entities in the same corporate structure as the sanctioned company. See H.R. 675 and S. 454, 112th Congress (2011). This legislation has received broad support despite criticism that the expansion would give the OIG extraordinary discretion. The OIG's exercise of discretion in the Solomon case will undoubtedly be used to rebut such criticism.
Furthermore, the Solomon decision has not diminished the profound challenges companies and their leadership face in the resolution of corporate investigations or charges. The fact that Mr. Solomon received the Notice evidences the personal risk for company leadership that agree to plead a company. It will be increasingly difficult to identify individuals who can make impartial decisions for a company now that the OIG has signaled how broadly it will assert its (b)(15) authority. Moreover, the OIG's commitment to pursuing individuals raises questions about companies' obligations to inform managing employees and executives of the potential exclusion risk and to help those individuals mitigate that risk.