Corporate Officer Liability: Federal Ruling Causes Concern
By: Justin Vaughn, CPC, M.Div
Director of Compliance

January 19, 2011

If you’ve ever wondered whether your position as a group president or practice administrator or compliance officer could subject you to a greater risk of negative consequences in the event of a federal action for fraud, you can stop wondering.  The answer is a resounding “yes.”

According to a recent federal court ruling in Washington, D.C., Friedman, et al. v. Sebelius, et al., No. 09-2028 (ESH) (D.D.C. Dec. 13, 2010), corporate officers, who did not directly perform the illegal actions, were nevertheless deemed “responsible corporate officers,” and were held to have been in a position to stop the wrongful conduct, but did not.  As a result, the court ruled that these officers would be excluded from working in the healthcare industry for 12 years.

Under the “responsible corporate officer” doctrine, the defendant need not have participated in, or even have known about, the corporate wrongdoing.  A corporate official can be convicted of a crime if he or she had a “responsible share in furtherance of the transaction which the statute outlaws.” 

The Friedman court further explained that a conviction cannot be based solely upon one’s position in the corporate hierarchy, but rather upon evidence demonstrating that the individual’s position vested in him or her “responsibility and authority either to prevent in the first instance, or promptly to correct the violation complained of,” and that he or she failed to do so.

As a result of this ruling, group officers and administrators should redouble their efforts to root out any potential wrongdoing in their practice.  It’s not just a matter of doing what’s right, it’s now a matter of personal preservation.

I wish to thank healthcare attorney David M. Vaughn of Baton Rouge, La. for bringing this matter to my attention.

The information presented herein reflects general information that is current as of the date it was first published.  In light of changes that may occur in the health care regulatory and compliance environments, the author's presentation of this information might become outdated.  Please check with your individual legal and/or compliance advisor(s) prior to taking any significant actions based upon the information and advice presented.