Will Proposed Amendments to the U.S. Sentencing Guidelines Have A Far-Reaching Impact for Persons Regulated By FDA?

March 3, 2011

By John R. Fleder & Anne K. Walsh

Perhaps Yogi Berra's most famous quote was: "This is like déjà vu all over again."  Recently proposed amendments to the Sentencing Guidelines applicable to U.S. courts suggest that companies and their executives regulated by FDA may be going through a déjà vu moment.  On January 19, 2011, the United States Sentencing Commission issued a Federal Register notice.  Relevant portions of that notice are contained here

The issue that raises a major concern is what may be the third proposal to amend the Sentencing Guidelines seeking to impose harsh sentences against persons convicted of "strict liability" offenses under the FDC Act.  Whether intended or not, the proposed amendments could well be interpreted to require many persons convicted under the misdemeanor provision of the FDC Act, 21 U.S.C. 333(a)(1), to be sentenced under the Guidelines that are currently applicable to fraud, the Section 2B guidelines, rather than the current "regulatory" guideline, 2N2.1.

In 1996, the Commission proposed eliminating the 2N.2.1 Guideline entirely, and in its place would have had courts sentence all FDC Act cases under the harsher fraud guidelines.  Based at least in part upon the industry's strong negative response to the proposal, the Commission withdrew it.  In 2008, FDA sought wholesale revisions to the 2N2.1 Guideline.  The Commission proposed a number of FDA's suggested amendments for public comment.  As one could probably imagine, all the proposed changes were intended to increase sentences that would be imposed under that Guideline.  Our firm submitted testimony to the Commission which started with the basic premise that there was no evidence that the courts were imposing sentences under the 2N2.1 guideline that were too lenient.  Our firm recommended that with the exception of one change that the Commission had proposed that we thought had merit, the Commission should not modify the 2N2.1 Guideline.  The Commission rejected most of FDA's proposed amendments to that Guideline.

We have recently discussed (here and here) FDA's renewed efforts to employ the so-called "Park Doctrine", under which corporate executives can be prosecuted and convicted of FDC Act violations even though an executive did not participate in, or even know about, the violation.  As a result of the Agency's renewed efforts to employ the Park Doctrine, any changes to the sentencing scheme for such violations will have a dramatic impact on persons regulated by FDA.  For instance, over the past twenty or so years, many prosecutors have shied away from bringing "Park" cases because they believed that the sentences imposed when a person is prosecuted under the Park Doctrine did not result in sufficient penalties.  Although there seems to be little or no evidence to support that proposition, any change in the Sentencing Guidelines applicable to Park cases could have dramatic effects in terms of prosecutors being willing to take on those cases. 

FDC Act violations can be prosecuted as misdemeanors without a showing of any mens rea, a unique characteristic of the law that emphasizes the highly regulated nature of FDA-related activities.  The Park Doctrine imposes a higher standard on those that involve themselves in such activities.  FDC Act violations also can be prosecuted as felonies if there is evidence of an intent to defraud or mislead, or if the defendant was convicted previously of a violation of the Act.  By their nature, felony violations typically involve more egregious conduct, often involving more impact on public health, or repeat offenders. 

FDC Act violations not involving felony conduct or fraud are sentenced under Guideline 2N2.1.  The unintended impact of the Commission’s proposed amendment is that strict liability misdemeanor offenses could be sentenced at the same levels as felony violations.  This equal consideration of strict liability and felony crimes undermines the purpose of the two-tiered approach contained in the FDCA.  (There also could be potential due process concerns raised for calculating sentences of a defendant convicted of an FDC Act strict liability misdemeanor.) 

With this background we turn to the Commission's proposed amendments.  They largely stem from provisions of the Patient Protection and Affordable Care Act (“PPACA”), enacted by Congress on March 23, 2010.  Relevant portions of that Act can be found here.

Under the section titled “Health Care Fraud Enforcement” (§ 10606), the PPACA directed the Sentencing Commission to amend the Guidelines to ensure that the Guidelines and policy statements:

  • Reflect the serious harms associated with health care fraud and the need for aggressive and appropriate law enforcement action to prevent such fraud; and
  • Provide increased penalties for persons convicted of health care fraud offenses in appropriate circumstances.  

From the number of times the word “fraud” is used in this short section, four in all, it should be clear the Act contemplates that any amendments to the Sentencing Guidelines should affect only those cases involving fraud.  In other words, the statutory amendments were intended to address conduct that involves a level of behavior that rises to the level of fraud on the government health care programs. In effect, however, the Commission’s proposed changes could go well-beyond raising the penalties for only fraud cases. 

The Commission proposal would amend the Guidelines with regard to "persons convicted of Federal health care offenses involving Government health care programs."  76 Fed. Reg. 3203, column 1.  As proposed, there would be no limitation with regard to the types of health care offenses involving health care programs that would be subject to the increased sentencing levels.  As a result, if adopted, prosecutors could argue that this language applies to strict liability misdemeanor cases.

The proposed Amendments contain one important limitation.  They would only apply to health care offenses "involving Government health care programs."  As we have seen from recent criminal prosecutions of many companies regulated by FDA, the government certainly believes that the term "Government health care programs" involves so-called "off-label use" cases.  However, we suspect that the government would include other more traditional FDC Act violations under the description of an offense involving a government health care program.  Thus, the proposed change could increase penalties for conduct that has nothing directly to do with the provision of health care services, such as those involving current Good Manufacturing Practice ("cGMP") violations, failing to report adverse events, or refusing to produce certain records during an FDA inspection.  Not to diminish the importance of complying with the law in these areas, but because the FDC Act’s prohibited act section covers almost all aspects of regulatory authority vested in FDA, prosecutors may well argue to courts if the proposed amendments are adopted that sentencing for a vast number of FDCA violations must be calculated under the “fraud” guidelines when in fact no fraud is involved, and even, potentially, when there is no direct impact on government health care programs.
The Commission appears to be well-meaning enough by proposing to amend the definition of “federal health care offense” in section 2B1.1 of the Sentencing Guidelines (the “fraud” guidelines) to have the same meaning as in 18 U.S.C. § 24.  Indeed, it proposes to amend that definition because the PPACA amended 18 U.S.C. § 24 to include FDC Act “prohibited acts” under 21 U.S.C. § 331.  But without carving out from this section the FDC Act “prohibited acts” that do not involve fraud, the Commission could be inviting courts to impose greater sentences for FDC Act crimes that have nothing to do with fraud. 

We suspect that the Commission may not be intending to make strict liability FDC Act violations subject to the fraud sentencing Guidelines.  The Sentencing Commission would have explicitly proposed changes to section 2N2.1 had it wanted non-fraud FDC Act violations covered by the proposed amendments to the Guidelines.  The Commission should explicitly preclude prosecutors from misapplying the fraud guidelines to FDC Act misdemeanor cases.

The Commission has invited comments to be submitted to the Sentencing Commission’s proposal by March 21, 2011.  There was a public hearing on the proposed amendments on February 16, 2011.  It does not appear that there was any discussion about the proposal discussed in this posting.

Categories: Enforcement