Health Law Institute Lecture Series: Responsible Corporate Officer Doctrine

On March 11, 2014, the Health Law Institute welcomed Mr. Paul Voss to speak to students and attorneys on the Responsible Corporate Officer Doctrine (“RCOD”). Voss discussed the origin of the RCOD, the expansion of the Doctrine into its current status, and the costs and implications of the revival and expansion of the RCOD.

The RCOD is a strict liability theory articulated by the United States Supreme Court. [1] The RCOD allows the owners, officers, and directors of companies involved in “public welfare based” industries to be held personally liable for violations committed by their corporate entities. [2] “Public welfare based” industries are those that affect public health and safety. [3] RCOD is characterized as a strict liability theory because Responsible Corporate Officers (“RCOs”) may be held vicariously liable for violations committed by their company or corporate entity, based merely upon their position of authority or management, regardless of their knowledge or involvement in the violation. [4]

Voss characterized the RCOD as a “buckstopping device,” reminiscent of President Harry S. Truman’s phrase: “The buck stops here.” RCOD stops RCOS from claiming ignorance with no consequence for corporate management figures.

Although the RCOD was originally limited to “public welfare” violations under the Federal Drug Administration or the Environmental Protection Agency and only carried light penalties such as civil monetary fines, its’ reach has been expanded into other industry areas and its’ “bite” has increased immensely. [5] Application of the RCOD was historically limited to situations where: (1) the violations posed a patent danger to public health and safety, (2) the penalties imposed were misdemeanors, and (3) the violated statute did not specify a knowledge element in the offense. [6] These barriers were gradually chipped away as (a) prosecutors began applying the RCO doctrine to regulatory violations such as non-compliance with Medicare and Medicaid funding requirements, (b) prosecutors sought to sanction RCOs through criminal penalties or by excluding RCOs from participating in federal programs or working in certain industries, and (c) prosecutors began to impute knowledge in strict liability manner even when statutes specified a knowledge requirement. [7]

In October of 2010, the Office of Inspection General (“OIG”) released a new guideline regulating its power to exclude RCOs from participating in federally funded programs, such as Medicare and Medicaid, based upon regulatory violations committed by their corporate entity. [8] The update transformed the OIG’s discretionary authority into a quasi-mandatory authority, inspired by the RCO. [9]

An officer or manager whose corporate entity pleads guilty to violations can be sanctioned automatically based upon the entity’s plea. [10] Furthermore, exclusions under the OIG’s guidelines are not subject to administrative or judicial review. [11] In addition to exclusions under the RCO doctrine, prosecutors have also sought civil fines in the excess of $100,000 or criminal charges that carry sentences of up to a year in prison. [12]

Consequently, current RCOs may become hesitant in implementing streamlined operations under fears of unforeseeable violations and potential liability. [13] This has the potential to create over-compensation in compliance checking and reporting, leading to an inefficient use of resources and increased costs passed onto consumers. [14]

Paul Voss is an attorney and adjunct professor at Loyal University Chicago School of Law.

 

References:

[1] Michael E. Clark, The Responsible Corporate Officer Doctrine: A Re-emergent Threat to General Counsel and Corporate Officers, Wolters Kluwer, (Oct. 27, 2011), http://www.duanemorris.com/articles/static/clark_healthcarecompliance_0112.pdf.

[2] Id. at 6.

[3] Id.

[4] Id.

[5] Id.

[6] David E. Frulla et al., Responsible Corporate Officer Doctrine: Strict Criminal Liability For Regulatory Violations, Kelley Drye & Warren, LLP (Oct. 24, 2013), http://www.kelleydrye.com/publications/articles/1771/_pdf/style=pdf/articles_1771.pdf.

[7] Id.

[8] Id. at 7.

[9] John T. Bentivoglio et al., HHS OIG Releases New Guidance on Exclusion of Officers and Managers Following Corporate Pleas, Skadden Arps Slate Meagher & Flom LLP, (Oct. 21, 2010), http://www.skadden.com/sites/default/files/publications/HHS_OIG_Releases_New_Guidance_0.pdf.

[10] Clark, supra, at 8.

[11] Guidance for Implementing Permissive Exclusion Authority Under Section 1128(b)(15) of the Social Security Act, Health & Human Services, (Sep. 24, 2010), http://oig.hhs.gov/fraud/exclusions/files/permissive_excl_under_1128b15_10192010.pdf

[12] Frulla, supra at 3.

[13] Clark, supra at 11.

[14] Id.