Mandatory Exclusion Upheld in the Northern District of California

On October 22, 2013, the Northern District of California granted summary judgment to the federal government, holding that a five-year exclusion from federal health care programs for felony wire fraud conviction was proper. See Harkonen v. Sebelius, 4:13-cv-71 (N.D. Cal. 10/22/13).  

The Harkonen matter involves a physician who was also the CEO of InterMune, Inc., who developed, marketed, and sold a drug, “Actimmune.”  According to the Northern District of California’s opinion, with respect to Actimmune, Dr. Harkonen “intentionally devised a scheme to defraud that included the issuance of a press release containing false statements regarding a clinical study of Actimmune.”  A jury found Dr. Harkonen guilty of felony wire fraud. 

Generally, there are several reasons which result in mandatory exclusion under the exclusion authorities under the Social Security Act, including 42 U.S.C. § 1320a-7(a)(1) program-related crimes; 42 U.S.C. § 1320a-7(a)(2) conviction relating to patient abuse or neglect); 42 U.S.C. § 1320a-7(a)(3) felony conviction relating to health care fraud; and 42 U.S.C. § 1320a-7(a)(4) felony conviction relating to controlled substance. 

As a result of the conviction, Dr. Harkonen was excluded from federal health care programs for a period of five years, pursuant to 42 U.S.C. § 1320a-7(a)(3), which is the result of a conviction for “an offense….in connection with the delivery of a health care item or service…consisting of a felony, relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct.” 

Procedurally, this matter has been ongoing for a period of time.  The court’s decision came after a jury returned the verdict in September 2009, and Dr. Harkonen was sentenced in April 2011.  Notice of the exclusion came in August 2011.  In October 2011, he requested an Administrative Law Judge review of the exclusion, which he then appealed to the Appellate division of the Departmental Appeals Board, which affirmed the ALJ’s order in November 2012.  Thereafter, the Plaintiff filed suit against Kathleen Sebelius, Secretary of Health and Human Services and the Inspector General of HHS in March 2013.  The Inspector General was subsequently dismissed.  On a separate track, Dr. Harkonen recently petitioned the United States Supreme Court seeking a writ of certiorari regarding his conviction and sentence. 

At the District Court level, Dr. Harkonen made several arguments, and sought summary judgment based on the fact that the agency decision was contrary to law, arbitrary and capricious and unsupported by the evidence, as well as violating his fifth and eighth amendment rights under the Constitution. 

Dr. Harkonen’s primary argument with respect to the exclusion is that the conviction for wire-fraud was not “in connection with the delivery of a health care item or service.” He argued that the “delivery” did not take place because the conviction did not relate to a physician prescribing Actimmune or that a patient had actually used Actimmune.   According to the opinion, Dr. Harkonen argued that “’delivery’ of a drug only occurs at the point when a prescription is filled and paid for, and that because his company merely ‘delivered’ the drug to a middleman (the distributor, he cannot be deemed to have participated in the ‘delivery,’ of the drug or to have made any misrepresentation regarding the drug during its ‘delivery’…”  Dr. Harkonen also argued that the legislative history supported his position that the purpose of the exclusion was not for situations such as his, but rather for offenses that “related to the delivery of health care” and those situations which constitute “stealing from the government.”

After consideration and review of the findings, the Court found that there was substantial evidence in the record to support the finding that Dr. Harkonen’s offense was in connection with the delivery of a health care item or service: 

InterMune disseminated the Press Release to doctors, patients, and pharmacies, and Dr. Harkonen’s ‘scheme to defraud’ extended over a period of time and entailed both the issuance of a Press Release containing false and misleading information about Actimmune, but also the dissemination of the misinformation in the  Press Release to pharmacies that sold ActImmune to patients and doctors. 

With respect to Dr. Harkonen’s argument that the punishment violated the eighth and fifth amendments, the District Court found these to be inapplicable as the mandatory exclusion is a civil penalty, not a criminal punishment.  Moreover, the Court noted that § 1128(a)(3) “gives the Secretary no discretion with regard to the minimum five-year period.  Conviction of a felony involving fraud or other financial misconduct in connection with the delivery of a health care item or service is the triggering event that mandates that the Secretary impose a minimum five year exclusion.  The language—‘the Secretary shall exclude’—is clearly not discretionary.” 

As a result, the Court denied Dr. Harkonen’s motion for summary judgment; but granted Sebelius’ cross-motion for summary judgment.  The Court found that the 5-year exclusionary period is proper as it is mandatory, not discretionary. 

While Dr. Harkonen is just one doctor who was convicted of felony wire fraud, relating to the “delivery of health care” it is a reminder to healthcare professionals of how far-reaching the government’s authority may be.  Here, Dr. Harkonen thought he was just sending press releases out, unrelated to his practice of medicine.  The effect of the exclusion is far greater, impacting the ability for payment by any Federal health care program payments to be made for any items or services furnished by him, or at his medical direction or on his prescription.  The case also raises questions regarding the communications made regarding scientific research and clinical results. 

If you have any questions, or require additional information about this matter, please contact Randy Fearnow at or Jaya White at,  who regularly counsel clients regarding compliance matters, including those involving OIG exclusions.  In addition, if you are a provider facing a potential conviction which may result in a mandatory or a permissive exclusion, our attorneys are also skilled in handling the defense of such matters.