September 14, 2010—A small provision in the new federal health care reform law could have a big effect on federal government settlements with drug companies accused of overcharging state Medicaid programs and 340B providers.
Before the new law, companies being investigated or sued by the government for alleged pricing violations could have a subsidiary plead guilty to the criminal offense, for which the subsidiary alone would be excluded from Medicaid. Such suits often include claims of overcharging 340B providers as well. Generally, the subsidiary's exclusion did not greatly affect the parent company because the unit was not crucial to the parent's overall business and the parent could continue to have its drugs reimbursed by Medicaid.
Beginning January 1, a parent company too must be excluded from Medicaid, 340B, and perhaps Medicare as well if one of its subsidiaries pleads guilty to a criminal offense. Federal prosecutors might use the new penalty as a bargaining chip to encourage manufacturers to settle civil claims. On the other hand, they might not pursue criminal charges against manufacturers, knowing that companies' exclusion from Medicaid would greatly limit patient access to much-needed drugs.
Facing potential exclusion from Medicaid, drug companies might be more willing to settle civil claims. However, if a company thinks that federal prosecutors would insist that one of its subsidiaries plead guilty to a criminal offense as a condition of settlement, then the company would likely choose instead to go to court.
"Significant Hurdles" Foreseen
Although some see the new law as a way for the government to extract more favorable settlements for taxpayers, others see it as a potential hindrance to the settlement process. Corey Roush, a partner at the law firm Hogan Lovells, says the new law could erect "significant hurdles to achieving settlements that both the government and a corporation can accept."
"Prosecutors who would typically demand felony pleas to 'send the right message' will find such pleas virtually impossible to negotiate where the pleading subsidiary is a going concern since the new law will require mandatory exclusion of both the pleading subsidiary and any entity or individual that controls or manages it," he explains. "As a result, you may see more settlements structured as civil or misdemeanor settlements to avoid the mandatory exclusion associated with a felony plea."
An early version of the jobs and tax bill that Congress passed on Aug. 10 included an amendment to overturn the law. (See Monitor, August 2010.) However, it was dropped from the final measure that President Obama signed into law. It is uncertain whether the amendment will resurface in another bill and be passed before Congress adjourns for the year.