Should Howard Solomon, the aging and long-standing chairman and chief executive offer at Forest Laboratories, be excluded from doing business with Medicare, Medicaid and other federal health care programs?

Just a few weeks ago, the likelihood the federal government would take such an action seemed so remote that the thought hadn’t crossed anyone’s mind — until the Office of the Inspector General (OIG) at the U.S. Department of Health and Humans Services sent a notice to that effect to the NY-based drugmaker.

The move came several months after Forest Labs, which is probably best known for selling the Lexapro and  Celexa antidepressants, pleaded guilty and paid a $313 million fines, including $164 million in criminal penalties, for illegally marketing three drugs. The infraction, however, generated relatively little attention, and then only briefly so. Why? Forest was simply the latest in a growing list of drugmakers that has been tagged by the Department of Justice for improperly promoting medicines. And many of those other drug makers are much bigger and, by and large, are household names. (Think Pfizer or Eli Lilly.) But these cases were resolved a couple of years ago.

And there lies a key reason why the feds are pursuing Solomon. The OIG has openly fretted that these large settlements for criminal behavior are, essentially, turning into a mere cost of doing business. Pfizer may have forked over $2.3 billion to settle civil and criminal allegations and Lilly may have coughed up $1.4 billion to clean up its own mess. Whatever the amount paid by whichever company, though, the OIG is correct. A company may not want to pay such large sums, but doing so can be cheaper than the cost of ongoing litigation.

Moreover, the drugs that are often at the center of the investigations are big sellers. Add up the annual sales over the years of such a drug and, most likely, the total will easily dwarf a settlement payout. So it was not surprising that, at an industry conference held in Philadelphia three years ago, we listened to the chief compliance officer at a major drug maker acknowledge to the crowd that settlements are, indeed, seen as necessary expenditures. They may be paid begrudgingly, but they are a ‘cost of doing business.’ (Yes, that was the exact description used.)

And so the OIG is now embarking on a new path — excluding top executives. For Mr. Solomon, the move means he will likely have to step aside even as he undergoes the appeals process. At his age — he is 82 years old — exclusion would likely have much less impact than on a younger executive, whose career would, effectively, be crippled by such an action. After all, who can accept a top position with a drugmaker when he is not allowed to take responsibility for contracts with such agencies as Medicaid, Medicare or the Veterans Administration?

Of course, by excluding Mr. Solomon, the OIG hopes to deliver a message loud and clear to the highest ranks of the pharmaceutical industry: be careful what you do. Having decided the big fines against top drugmakers did not change anything, the OIG is now looking at cases where an executive is identified as having engaged in criminal conduct and the criminal information to which a drugmaker pled guilty. In other words, once the OIG dispenses with a drugmaker that pleads guilty, the agency may then set its sights on executives.

This already happened once, actually, a few months ago. Marc Hermelin, the former chairman and chief executive at KV Pharmaceuticals — which was a little known drugmaker until it caused a controversy this year by winning FDA approval for a medication under the Orphan Drug Act and then raising the price substantially (see my May 2011 column, Orphan Abuse) — was excluded from doing business with federal healthcare programs. The move followed a guilty plea made by a KV subsidiary to two felony counts of criminal fraud for failing to report to the FDA that it was making oversized tablets that could be harmful to patients.

The OIG then targeted Mr. Hermelin after determining there was evidence he had made certain decisions about what to report and what not to report to the FDA. Put another way, he was implicated in the criminal activity that led the drugmaker to plead guilty. Then the DOJ filed charges and Mr. Hermelin subsequently pleaded guilty to two misdemeanor violations of the Food, Drug and Cosmetic Act for presiding over the production and distribution of oversized morphine sulfate tablets. As a result, he was ordered to pay a $1 million fine, forfeit $900,000 and serve a 30-day jail sentence. 

For those wondering about the infamous case involving three Purdue Pharma executives, there was an important distinction. Not only was Purdue found guilty of misbranding Oxycontin, the three executives were tried and convicted simultaneously. In that episode, there was a two-pronged attack; in addition to the charges filed by the DOJ, the OIG also pursued exclusion. And if you were wondering what happened, all three have spent the last few years fighting vigorously to appeal their exclusion, but none have prevailed. 

So far, the OIG is not saying anything specific about Mr. Solomon, including the extent to which he crossed any of the same lines past which Mr. Hermelin blew. However, it is worth noting that the OIG does not rely on the tenet of the so-called Park Doctrine, which allows the DOJ to pursue criminal enforcement. This is an important distinction. Under this doctrine, the government is not required to show any evidence that an executive had intent or knowledge of a crime, only that any criminal activity took place under their control and they did not take the proper steps.

However, the game may change. The OIG is now looking at applying the same sort of logic to determine exclusions. If the OIG follows through, the agency would target an executive for exclusion if the executive was in a position of responsibility when a crime occurred, even if the executive was not involved in the crime. This sort of punishment was not considered just two years ago when Pfizer, Lilly and several other drugmakers reached their settlements.  

But will the OIG look back that far in hopes of excluding a Pfizer or Lilly executive, for instance? This appears unlikely. A so-called clawback can become more difficult every day, as executives come and go and managerial teams change. Although industry critics clamored for the feds to pursue former Pfizer chief executive Jeff Kindler — especially since he had previously been general counsel — he departed the drugmaker late last year. So the OIG would not be able to pursue him because of the way law is written; the agency can only exclude someone who is in office — that is, present tense — at a convicted entity.

If the OIG has a cut-off date for making such decisions, though, no one is saying, at least not publicly. But the Forest Labs case may have made the cut, along with at least one other. A key question, though, is whether the OIG will pursue an executive at one of the largest drugmakers.
The symbolism, of course, is rich. Whether that will happen is unclear. Most of the cases involving the biggest multi-national drugmakers are firmly in the past and the OIG will only pursue executives at drugmakers that were placed on notice about the possibility of exclusion before a plea or settlement was reached.

Nonetheless, the OIG is on record as saying that all drugmakers, not just smaller players, are in its crosshairs. And as everyone understands so well, excluding a high-ranking executive from one of those large drugmakers would certainly send a message, given the headlines that would be generated and then reverberate around the Internet indefinitely. 

Of course, the OIG will need a good, solid case to make its point. Consider the disappointment felt by the Justice Department when a federal judge tossed its case against Lauren C. Stevens, a former GlaxoSmithKline lawyer, who was indicted for obstructing an FDA investigation into off-label marketing. At the time of the indictment last fall, there were predictions that the pharmaceutical industry and its leading executives should be looking over their shoulders for the next indictment.

Now, the DOJ has been chastened. If or when the OIG does attempt to exclude a top executive from one of the biggest drugmakers, the agency should expect a good fight on its hands. But if the OIG wins, the c-suite may want to think twice about the “costs of doing business.”