After months of mystery, the U.S. Department of Health & Human Services has decided not to exclude Forest Laboratories (NYSE:FRX) CEO Howard Solomon from doing business with federal healthcare programs, such as Medicare and Medicaid. The move came four months after the HHS Office of Inspector General shocked the drugmaker with its plan to ban the 83-year-old executive.
“Based on a review of the information in our file and consideration of the information that your attorneys provided to us, both in writing and during an in-person meeting, we have decided to close this case. We anticipate no further action related to this matter,” Peter Clark, the OIG exclusions director wrote in a letter to Solomon this afternoon (here is the letter).
Last September, Forest made a $313 million payment that included $164 million in criminal penalties, and signed a corporate integrity agreement. At the time, the OIG had considered banning eight Forest execs as well, but ultimately settled on Solomon. The OIG sees exclusion as a way of signaling the pharmaceutical industry that paying stiff penalties and pleading to corporate crimes is not enough. Instead, the OIG wants industry to know that execs may also pay a price.
In a recent interview, OIG assistant inspector general for legal affairs Gregory Demske told us that “we’ve been trying to figure out a way to address this. It’s really over the last year that we’ve come to the conclusion that it’s one of the things we want to do, but only with respect to companies that were on notice before they entered a plea or settlement” (read this). Only one other senior pharma exec has been banned under section 1128(b)(15) of the Social Security Act and that was Marc Hermelin, the former chair of KV Pharma (KV.A)(NYSE:KV.B) (look here).
For the moment, it is not clear what the about face by the OIG will mean for its efforts to lean on individual pharma execs, although the OIG did say this in a statement this afternoon that “OIG takes its exclusion authority seriously and exercises it judiciously. We remain committed to investigating and, when appropriate, sanctioning executives and managers of health care entities who engage in health care fraud. This includes individuals who directly commit fraud as well as the executives in a position of responsibility at the time of the fraud.”
This latest decision by the OIG comes less than two weeks before the drugmaker is scheduled to hold its annual shareholder meeting and the ban that was hanging over Solomon was expected to occupy much of the proceedings, especially since investor Carl Icahn had been using the proposed exclusion as a key argument for electing his slate of four nominees to the board.
Only earlier today, the Forest and Icahn teams were sparring over the meaning of newly released court documents indicating that the drugmaker knew the OIG had considered banning a slew of execs, prompting The Icahn Group to criticize the Forest board. We have asked The Icahn Group for comment and will update you accordingly.
As for Forest, the drugmaker was thrilled. “We are gratified by the HHS-OIG’s determination that an exclusion of Mr. Solomon is unwarranted,” Forest independent board member Ken Goodman says in a statement. “Our company and board remain committed to ensuring that all Forest employees adhere to the highest standards of professional conduct and that our company operates under industry-leading compliance procedures.”