Back page: Unhealthy Justice

The Medicare exclusion statute is a lose-lose for pharma companies—and distorts the criminal justice system.
Apr 30, 2005


Robert Ullmann
More than any other healthcare law, the Medicare/Medicaid exclusion statute has distorted our criminal justice system with government fraud investigations. This well-intentioned but misguided law should be repealed.

The Medicare/Medicaid exclusion statute, broadly expanded by Congress in 1996, mandates excluding from Medicare, Medicaid and all other federal healthcare programs, any companies and individuals convicted of healthcare fraud felonies. The sanction is a corporate death sentence. No large healthcare company can afford to lose, as actual or potential customers, the 80 million Americans covered by these programs. In large part to avoid this ultimate penalty, healthcare companies are paying billions of dollars in fines without a fight.

Not surprisingly, prosecutors have used the Medicare/Medicaid exclusion statute as a hammer, beating large settlement payments from healthcare companies under threat that the statute's full force will come down on the company. If the company is willing to plead guilty and pay massive fines, however, the government finds creative ways to dodge the statute.

Last May, Pfizer's Warner-Lambert division pled guilty and agreed to pay $430 million in fines based on a conspiracy charged "through at least August 20, 1996." Nothing in the case suggests that the alleged misconduct abruptly ended that day, but the new Medicare/Medicaid exclusion statute took effect on August 21, 1996—one day later.

In July, Schering-Plough agreed to pay $345 million to resolve healthcare fraud charges. The guilty plea was entered by a moribund Schering-Plough subsidiary with no employees. The exclusion sanction had no effect on the parent company.

In 2001, TAP Pharmaceuticals paid $875 million to settle criminal charges. Although the heart of the government's case involved the anti-kickback statute (a kickback is a healthcare fraud felony) the deal was structured to avoid any plea to that statute.

There's an important sequel to the $875 million TAP settlement. Last year, after a three-month criminal trial, all ten current and former TAP managers on trial were acquitted of essentially the same criminal conduct that TAP had paid $875 million to settle. (Disclosure: I represented one of the defendants at that trial.) These acquittals raise the question of whether TAP paid a very large ransom to resolve charges that were at least defensible in a court of law.

Though one might criticize the Justice Department for finding creative ways to avoid the sanctions of the Medicare/Medicaid exclusion statute, I think that would be missing the point. The government apparently recognizes that putting out of business some of the country's largest providers of life-saving and life-enhancing products would serve no one's interests.

But whose interests are served by allowing the threat of exclusion to coerce the payment of hundreds of millions of dollars in fines? Whose interests are served when Congress creates such an uneven playing field that no company can afford the risk of using our system of justice? Large fines may add to the public coffers. But at the same time, they hurt innocent employees and shareholders. Ultimately some—and maybe most—of the cost of these settlements is passed on to consumers.

The coercive effect of the Medicare/ Medicaid exclusion statute should cause particular concern when the government criminally investigates the off-label sale and marketing of drugs and medical devices. The Justice Department has taken a very aggressive view of what constitutes illegal off-label promotion of drugs, even though millions of patients benefit from such unapproved uses. Judges and juries, not prosecutors, should decide when these off-label sales violate the nation's food and drug laws.

If healthcare companies are truly committing fraud measured in the hundreds of millions of dollars, they should be sanctioned accordingly. Thankfully, we have a legal system in which judges and juries can answer these important questions. But our court system never gets used, because healthcare companies know that if they fight and lose, they will be out of business.

Congress should repeal the Medicare/ Medicaid exclusion sanction. Absent a repeal, the Justice Department should agree to prosecute corporations for healthcare fraud felonies only in cases of such pervasive fraud that the company does not belong in business. What prosecutors lose in clout they will gain in fairness and greater public confidence in the outcomes of healthcare fraud cases.