The House has just passed a bill that would ban corporate execs from doing business with Medicare and Medicaid if their companies were convicted of fraud. The measure also gives the Department of Health & Human Services Office of the Inspector General the ability to exclude parent companies that may be committing fraud through shell companies, which are otherwise known in polite circles as subsidiaries.

The legislation was designed to close a pair of loopholes in existing law. Currently, execs at companies that are convicted of fraud can be excluded from federal health care programs, but if an exec had left the company by the time of conviction, there was no mechanism to enforce a ban. Now, the HHS OIG can ban execs from doing business with these programs, even if they later work elsewhere. The bill (look here) would apply to anyone who maintained an ownership stake or controlling interest in the fraudulent company

And since companies often set up subsidiaries to insulate themselves from liability, the HHS OIG can now exclude the parent companies from the Medicare and Medicaid programs. Pfizer, for instance, created subisidiaries that pleaded guilty last year to off-label marketing several drugs and paid a $2.3 billion fine (see here).

The growing number of fraud cases - several of which have involved big drugmakers that paid huge fines - have drawn criticism, because the companies have been permitted to continue to do business with federal health plans, yet individual execs have rarely been held accountable. Examples include AstraZeneca, Eli Lilly, Allergan and Forest Laboratories.

One notable exception occurred three years ago, when Purdue Pharma and three execs pleaded guilty in federal court in Virginia to criminal charges for misleading regulators, doctors and consumers about the addictive risks of Oxycontin (back story). Since then, the execs have been fighting the ban (see this).

The bill, which was proposed last week by two California congressmen - Pete Stark, a Democrat, and Wally Herger, a Republican - came in response to requests made by Lewis Morris, the HHS OIG chief counsel, during testimony last June before a joint hearing of the Ways and Means subcommittees on Health and Oversight. He made a point of directing the committees to the loopholes (see a few of his comments here). The bill had 19 co-sponsors, by the way. Although the effort will amount to naught if the Senate fails to act, supporters were encouraged.

“What we have going on now in health care sentencing is ridiculous,” says Patrick Burns of Taxpayers Against Fraud, a non-profit that supports whistleblower lawsuits. “For the little stealing, they put you in jail and exclude you from Medicare and Medicaid for life. For the big stealing, no one goes to jail and they let you carry on with the same marketing team in place. Top executives get nine-figure Golden Parachutes, and only the whistleblower loses his or her job. That has to change, and wheels are already rolling in that direction…It’s time we excluded top executives in these companies. If we can get regime change in Iraq, Afghanistan and General Motors, I’m pretty sure we can get regime change at Pfizer, Astra-Zeneca and Tenet.”

“This bill is an important, bipartisan measure that will protect Medicare beneficiaries and taxpayers,” Stark says in a statement. “It closes two loopholes that allow executives and corporations who defraud Medicare to keep doing business. I thank my colleagues for their support, and I urge the Senate to pass this bill.” Says Herger: “With these additional tools, OIG will be better able to stop those individuals who commit fraud but who have been able to stay one step ahead of law enforcement, saving taxpayer dollars and protecting seniors.”