Friday, March 9, 2012

A New Insurance Product: Responsible ... - Health Reform Watch

boozang123Unsurprisingly, the market has responded to the new risks corporate officials in the life sciences industry face if their companies commit crimes that threaten the public?s health.? On February 7, 2012 insurance broker Marsh USA and insurer Allied Assurance Co. unveiled a new product, called RCO Corporate Response, ?which provides insurance coverage for pharmaceutical, life sciences, and health care corporate officers who may be held liable for their companies? actions under the Responsible Corporate Officer (RCO) doctrine.?

For those who are rusty, The Responsible Corporate Officer Doctrine allows for the conviction of a high-level corporate official (ambiguity of terminology suggests that directors could be liable as well) whose company has violated the Food, Drug and Cosmetic Act irrespective of the official?s knowledge or involvement in the offense if the individual occupied a position that had a relationship with the unit that violated the statute, should have known about the activity, and had the authority to intervene. In short, the government need not produce evidence that the corporate official participated in or was aware of the illegal conduct. Potential penalties include fines, imprisonment, and debarment from the FDA.? As shall be discussed further, these penalties can lead to exclusion from Federal healthcare programs.

The Doctrine, which was first articulated by the Supreme Court in U.S. v. Dotterweich in 1943, was affirmed in 1975 in U.S. v. Park (and so sometimes referred to as the Park Doctrine).? The Dotterweich Court expounded on the rationale for imposing such a hardship on corporate defendants not actually involved in the illegal conduct: the welfare of unwitting consumers who have no ability to protect themselves against dangerous products and services must prevail over the hardship the Doctrine creates for the corporate executive with the position, responsibility and power to protect the public. The Park Court emphasized that guilt was not based solely on the defendant?s corporate position and explicitly recognized an affirmative defense where the defendant is ?powerless to prevent or correct the violation.?

The Doctrine has been rarely used, so fast forward to 2007, when the corporate entity Purdue Frederick pled guilty to a felony of misbranding along with the CEO, Chief Medical Officer and Chief Legal Officer who plead to misdemeanor misbranding pursuant to the Responsible Corporate Officer Doctrine. The convictions arose from Purdue Pharma?s off-label promotion of OxyContin, which the FDA approved in 1995 to manage chronic moderate to severe pain.? From 1995 until 2001, contrary to the package insert and evidence on the ground, a number of Purdue employees promoted OxyContin ?as less addictive, less subject to abuse and diversion, and less likely to cause tolerance and withdrawal,? as subject to fewer peak and trough blood level effects, and producing less euphoria than other pain short-action opioids. These representations apparently occurred in some instances at supervisors? urging, or as a result of sales training.

OxyContin became the number one prescribed Schedule II narcotic in the United States, with 5.8 million prescriptions in 2000. OxyContin revenues reached approximately $3 billion in June 2001, accounting for 80% of Purdue Pharma?s revenue.? Despite its various troubles with OxyContin, Purdue Pharma never saw a dip in its revenues.? Effective August 9, 2010, Purdue discontinued manufacturing and distributing the original formulation, replacing it with an FDA-approved reformulation that is apparently more difficult for abusers to penetrate by cutting, breaking, crushing or dissolving.

OxyContin is an effective and efficient analgesic.? In addition to its legitimate use, however, OxyContin became very popular as a street drug, either taken orally, injected, or crushed, which circumvented the controlled release mechanism and allowed a more rapid and intense heroin-like high.?? The legal complications began when Appalachia experienced particular challenges with Oxy diversion, leading to criminal charges by US Attorney for the Western District of Virginia against what appears to have essentially been a shell corporation,? Purdue Frederick, as well as three senior corporate officers.? Notably, Purdue Parma, L.P., which is the corporate entity that actually sells OxyContin as well as the company?s other pain medications, was not charged, thereby enabling it to continue to submit drug applications to the FDA and have its products paid for by the Federal healthcare programs.? Purdue Frederick and its executives agreed to plead guilty and pay fines totaling $634,515,475. Almost immediately, the HHS OIG used its discretionary exclusion power to debar all three executives from participating in Federal healthcare programs for twelve years. The executives have been unsuccessful in every level of administrative and judicial appeal thus far. In retrospect, the Purdue Parma execs may feel relieved after hearing that three Synthes executives received multi-month prison terms in addition to their fines pursuant to the RCO Doctrine for their company?s conduct of unauthorized clinical trials of bone cement in which three patients died.

On the heels of this success, the FDA announced that it was increasing its use of misdemeanor prosecutions against responsible corporate officials.? The agency unveiled its internal agency guidance for determining when to forward a case to the Department of Justice for a ?Park Doctrine Prosecution.? The guidance provides that a first time conviction for a violation of the FDCA will be a misdemeanor, with the second resulting in a felony.? Further, some misdemeanor convictions can result in debarment by the FDA.? Most importantly for this discussion, the guidance states that ?Knowledge of and actual participation in the violation are not a prerequisite to a misdemeanor prosecution but are factors that may be relevant when deciding whether to recommend charging a misdemeanor violation.?? The guidance enumerates the following additional criteria:

  • The individual?s position in the company; relationship to the violation; whether the official had the authority to correct or prevent the violation
  • Actual or potential harm to the public
  • Obviousness of the violation
  • Existence of a pattern of illegal behavior and/or failure to heed prior warnings
  • Whether the violation is widespread
  • Seriousness of the violation
  • Quality of the legal and factual support for the proposed prosecution
  • Whether prosecution is a prudent use of agency resources

Within the same week, Lewis Morris, Chief Counsel to the Inspector General of Health & Human Services testified before the House Ways and Means Committee that the OIG would review the case of any individual convicted pursuant to the RCO Doctrine for exclusion from participation in Federal healthcare programs.? This, Mr. Morris testified, will overcome the barriers presented by corporations? attitude that they are too important to the healthcare system to criminally prosecute and that fines are simply a cost of doing business.?? Mr. Morris assured the House Committee that the OIG would use this tool judiciously, employing a presumption in favor of exclusion only ?when there is evidence that an executive knew or should have known of the underlying criminal misconduct of the organization.?? The HHS OIG criteria for permissive exclusions from Federal healthcare programs includes a consideration of the entity?s misconduct, including whether it is part of a pattern of conduct and whether it caused harm to beneficiaries; the individual?s role in the sanctioned entity with a focus on degree of managerial control or authority and the position?s relation to the underlying misconduct and whether the misconduct occurred in the individual?s chain of command; and finally, detailed information about the nature of the sanctioned entity including its size, revenues, organization and structure.

With this background, one wonders how the new RCO insurance policy would work in these cases?

The benefits of the policy include coverage for:

  • Defense costs incurred in the investigation or defense of any misdemeanor criminal proceeding, administrative proceedings brought pursuant to the RCO doctrine, as well as debarment proceedings.
  • Defense cost coverage for potential RCO claims.
  • Lost future compensation resulting from exclusion/debarment.
  • ?Recoupment loss? and/or clawback awards, which is the value of any compensation that must be returned or repaid by an insured person as a result of a judgment, decision, or settlement of an RCO claim.

An obvious omission from this list of benefits is the actual fines that are levied as part of the conviction, which are generally in the hundreds of millions. This is undoubtedly because insuring such risk would be against public policy.? Not mentioned on the web site, but revealed in an interview with the Philadelphia Inquirer is that policy exclusions ?might? kick in if evidence exists that the insured engaged in affirmative conduct that resulted in conviction. PharmaLot uncovered the same caveat in its interview with Jack Flug, a managing director at Marsh:? ?If the government decided the target knew what was going on and intentionally did something wrong, the coverage would cease. The intent factor is critical.?? Again, maybe dictated by public policy concerns.

But how will this work in practice?? Recall that the FDA?s Park Doctrine guidelines - ?Knowledge of and actual participation in the violation are not a prerequisite to a misdemeanor prosecution but are factors that may be relevant when deciding whether to recommend charging a misdemeanor violation.?? DOJ will employ a presumption in favor of exclusion only ?when there is evidence that an executive knew or should have known of the underlying criminal misconduct of the organization.??? These criteria raise questions of just how the insurance company is going to ferret out evidence of intent, or whether it will use the language of these two government agencies to create its own presumption that intent exists once a conviction occurs, unless the insured can prove otherwise. Ultimately, there?s a real question of just how many payouts will actually be made under these new RCO policies.

Another question, obviously, is whether prosecutors engaged in settlement negotiations will allow these insurance policies to be invoked.? U.S. v. Stein, the 2008 opinion in which the Second Circuit held that prosecutors? threat to indict KPMG if it paid its employees? legal fees violated the employees? Sixth Amendment rights to assistance of counsel, sheds one possible perspective on the outcome of this question.

Finally, the Marsh?s policy description does not mention covering directors, though one would have to imagine it would be willing to sell such a policy if so requested.? While it has yet to happen, given their aggressive stance, the FDA and OIG would not miss the opportunity, with the right facts, to? pursue the Responsible Officer Doctrine against a board member, perhaps on the Audit Committee.

A final twist: according to the Inquirer, upon learning of the new policy, Secretary of Health & Human Services Kathleen Sebelius replied, ?I don?t practice law on a regular basis, but usually you can?t insure yourself as a bank robber for robbing banks. That is intriguing. I?d like a list of their customers because that would give us a pretty good target of people to go after.?

Share/Save/Bookmark

Source: http://www.healthreformwatch.com/2012/03/08/a-new-insurance-product-responsible-corporate-officer-defense-insurance/

sam houston state university bradley manning whoopi goldberg tebowing tebowing washington wizards rudy

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.