On August 5, 2011, the Office of the Inspector General, U.S. Department of Health and Human Services (the “OIG”), notified Howard Solomon, the CEO of Forest Laboratories, that the OIG would take no action against him under the permissive exclusion authority accorded the OIG by Section 1128(b)(15) of the Social Security Act (“SSA”). This decision is perhaps the final coda to the September 2010 resolution of criminal and civil allegations against Forest Laboratories and its wholly-owned subsidiary Forest Pharmaceuticals for Food, Drug and Cosmetic Act (“FDCA”) violations, which resulted in a misdemeanor plea by Forest Pharmaceuticals. Although the OIG’s decision this month provides a measure of solace that the OIG will use its authority to exclude officers and directors of sanctioned entities judiciously, the fact that Mr. Solomon—an individual with no direct involvement in the alleged wrongdoing—had to litigate this issue at all may signify an enforcement trend by the OIG that should be considered in the course both of resolving federal investigations and of conducting routine compliance activities.
Section 1128(b)(15) of the SSA permits, but does not require, the OIG to exclude an individual from participation in federal health care programs if the individual (i) has a direct or indirect ownership or control interest in a “sanctioned entity” and knows or should know of the action constituting the basis for the entity’s conviction or exclusion or (ii) is an officer or managing employee of such an entity. A “sanctioned entity” in this context is any entity that has been convicted (including by a plea of guilty) of a pertinent crime or that has been excluded from participation.
Although this section of the SSA dates back to 1996, it has rarely been used, and it was not until October 2010 that the OIG issued guidance on this provision, announcing that the OIG would now “operate with the presumption in favor of exclusion” of officers, directors and senior managers (the “Guidance”). The Guidance focuses on whether owners of sanctioned entities had knowledge of the conduct that gave rise to the sanctioning of the entity. However, with respect to officers and other “managing employees,” the OIG considers a series of “informal and nonbinding” mitigating factors to determine whether exclusion is warranted. These include: “(1) the circumstances of the misconduct and seriousness of the offense; (2) the individual’s role in the sanctioned entity; (3) the individual’s actions in response to the misconduct; and (4) information about the entity.” As the presumption is now in favor of exclusion, officers and directors targeted for exclusion by the OIG now bear the burden of establishing and presenting favorable mitigating information.
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