On October 15, 2012, three former Purdue Frederick Company executives filed a Petition for Rehearing En Banc before the U.S. Court of Appeals for the District of Columbia Circuit. (Click here to view a copy of the petition: Petition for Rehearing En Banc.pdf). The petition is the latest chapter in the saga of these three former executives who pled guilty to misdemeanor misbranding under the "responsible corporate officer" doctrine in connection with the plea of Purdue to felony misbranding of the drug OxyContin. The Office of Inspector General ("OIG) for the U.S. Department of Health and Human Services subsequently excluded these individuals from participation in all Federal health care programs under its permissive exclusion authority set forth at 42 U.S.C. § 1320a-7(b)(1) and (3) for 20 years. During their various challenges to their exclusions, the executives have successfully reduced the length of the exclusion from 20 years to 12 years, which is cold comfort since the exclusion effectively ends all of their careers in the health care arena.
In July, a three-judge D.C. Circuit panel held in Friedman v. Sebelius that section 1320a-7(b)(1) authorizes the OIG to exclude from Federal health care programs an individual convicted of a misdemeanor "if the conduct underlying that conviction is factually related to fraud." The specific statutory section at issue in the case is section 1320a-7(b)(1), which provides that the Secretary of HHS may exclude any individual that has been convicted of a criminal offense consisting of a misdemeanor relating to fraud. The specific issue before the D.C. Circuit was whether the phrase "misdemeanor relating to fraud" in section 1320a-7(b)(1) refers to a generic criminal offense or to the facts underlying the particular defendant's conviction.
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The executives' brief says that the panel wrongly interpreted this "related to" clause to mean exclusions could be given for offenses such as theft or breach of fiduciary duty whose undefined "nexus" with fraud is based solely on the nature of the conviction. According to the executives, this decision conflicts with rulings from three other circuit courts that follow the Supreme Court's instruction that "categorical" analysis of the offenses themselves was required to determine fraud. The "categorical" approach prohibits the later court from delving into particular facts disclosed by the record of conviction and directs the court to look only to the fact of conviction and the statutory definition of the prior offense, including its elements. In the view of the former executives, it is the "offense" - not the factual basis for a conviction - that must "relate to" fraud.
The three-judge panel rejected this argument in its July decision. In reaching its decision, the D.C. Circuit reasoned that the ordinary meaning of the term "relating to" is "a broad one - 'to stand in some relation; to have bearing or concern; to pertain; refer; to bring into association with or connection with.'" Thus, the court found that the phrase "relating to" includes any criminal conduct that has a factual connection with fraud.
Notwithstanding the outcome of the former Purdue executives latest challenge to their exclusions, the OIG has placed executives on notice that it will flex its permissive exclusion muscles to exclude individuals from participation in Federal health care programs for convictions of misdemeanor offenses where the underlying conduct has any factual connection with fraud. The OIG's decision in the case of the former Purdue executives to seek permissive exclusion underscores the importance of obtaining assurances from the agency that it will not seek such exclusion if a corporate or individual client agrees to plead guilty to a misdemeanor offense.