Health Law Blog - Healthcare Legal Issues

RCOD Responsible Corporate Officer Doctrine Use Increasing

Prosecution and Exclusion Under the Responsible Corporate Officers Doctrine

Individual Liability Force Toward Effective Compliance Programs

Over recent years, we have seen healthcare regulatory agencies more actively use an approach that pursues individuals for the misdeeds that occur within the healthcare organization. Individuals are being pursued for both criminal responsibility and for exclusion under the Medicare and or Medicaid programs.

The ability to pursue individuals for corporate responsibility goes back as far as 1943 involving a case of adulterated drugs. The Supreme Court decided that an individual officer of the applicable company who had no knowledge of the unlawful conduct could have guilt imputed to him “solely on the basis of his authority and responsibility as president and general manager of the corporation.”  The doctrine lay dormant for over 30 years until it was again addressed by the Supreme Court in the landmark case of United States v. Park. In the Park case, the United States Supreme Court reaffirmed the principle that responsible corporate officers can be held criminally liable without the required a showing of “awareness of some wrongdoing doing” or “conscious fraud.”

Over the last two or three years, both the FDA and the OIG have used the responsible corporate officer doctrine to pursue individual corporate officers for criminal prosecution and program exclusion. These prosecutions have been based solely on the position of the officer rather than any specific knowledge of illegal activity.

The FDA sent a letter to Sen. Charles Grassley in March 2010 which acknowledged that it will begin to increase its use of the responsible corporate officer doctrine.  Since that time, the FDA has invoked the doctrine on several occasions, primarily in connection with pharmaceutical company misbranding and off-label promotion cases. For example, in August 2011 the OIG notified former CEO of InterMune, who was awaiting sentencing on misbranding charges that occurred between 1998 in 2003, that he was being excluded from participation in the Medicare and Medicaid programs.

The FDA has even pursued potential criminal charges and program exclusion against attorneys for pharmaceutical related companies. For example, in 2010, the FDA brought charges against the General Counsel for GlaxoSmithKline alleging obstruction and improper influence of a federal investigation and making false statements to the FDA. the GSK General Counsel was required to sit through the trial on this alleged offense which resulted in the judge ruling for acquittal based on the fact that no reasonable jury could have convicted her on the basis of the evidence presented.  However, this one unsuccessful case will not likely serve as a deterrent to the FDA’s use of the responsible corporate officer doctrine against attorneys and other corporate officers in the future.

The Office of Inspector General has also released recent information regarding its intent to use the responsible corporate officer doctrine to pursue individuals on a more frequent basis.  In 2010, the OIG issued guidance regarding the appropriate use of the responsible corporate officer doctrine in making determinations as to whether to exclude individuals from the Medicare and Medicaid programs.  Under the OIG Guidance, if there is evidence that an office or managing employee “knew or should have known” about the conduct at issue, the OIG will presume that the individual should be excluded from the program.  Absent a showing of “significant factors” that weigh against exclusion, managers who knew or should have known with the exercise of reasonable care will be excluded.  The OIG Guidance also addressed cases where it cannot be demonstrated that the officer or manager “knew or should have known” about the wrongdoing.  In such cases, the OIG states that it will weigh a number of factors to determine whether an individual should still be excluded.  Some of these factors include the role of the individual in the organization, the circumstances surrounding the alleged misconduct, the seriousness of the offense, whether preventing the misconduct would have been impossible, and any actions that the individual took up learning of the alleged wrongdoing.

The current standards set by the OIG seem to limit the use of the responsible corporate officer doctrine to cases where the manager or owner has some control over the processes and is in a position to have known of the offense if  reasonable care was used.  Legislation has been proposed that would expand the application of the doctrine to include all individuals and entities currently or formerly affiliated with a sanctioned entity.  This proposal would expand the application of the responsible corporate officer doctrine to officers of affiliated entities who knew or should have known of the misconduct.

With the current focus on health care fraud, we can plan to see attempts by regulators and legislators to expand the scope of the doctrine.  At least part of the reason for this trend is the theory that individual liability will be a more effective tool to prevent misconduct.  The use of the Park Doctrine is yet another method that regulators are using to push providers toward the development to police themselves for fraud, abuse and systematic errors.  This forces providers to put more effort into their compliance and audit systems and to be certain that they are proactively maintained.  A proactively operated compliance program will maximize the possibility that fraud or abuse will be detected before it becomes unmanageable.  Such a program will also create a line of defense for the organization and individual officers who can demonstrate that systems were in place and operating effectively; even if the specific area of wrongdoing is not detected.

 Ruder Ware provides a broad range of services to health care providers of all types and sizes.  We routinely assist providers in the creation and operation of appropriately scaled compliance programs.  We also perform “effectiveness reviews” of existing programs. 

 Health care attorney John H. Fisher is Certified in Health Care Compliance

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John H. Fisher

Health Care Counsel
Ruder Ware, L.L.S.C.
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P.O. Box 8050
Wausau, WI 54402-8050

Tel 715.845.4336
Fax 715.845.2718

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