Blog Blog 2

The Impact of Overcriminalization in the United States

The federal criminal code has been part of United States law since the First U.S. Congress. The country’s first criminal code featured laws that addressed a mere 30 crimes, in part because the Framers of the Constitution believed that a large criminal code would compromise the United States’ hard-won freedom and the liberties of its people.

In the nearly 250 years since then, Congress has defied the wisdom of the Framers and broadened the criminal code. It now includes over 300,000 regulations and an additional 5,000 federal statutes that can lead to criminal penalties of varying degrees. Where the federal criminal code once focused on serious, immoral acts universally considered to be wrong—murder, piracy, treason, and so on—the federal criminal code of today covers an almost boundless spectrum of potentially criminal conduct. This has led to overcriminalization: the overreliance on criminal law to address myriad social problems and punish people—often severely—for simple mistakes. Overcriminalization has created a countless number of rules such that many Americans may be considered criminals, even if they don’t know it or intend it.

Overcriminalization has led to many Americans facing penalties that far outweigh the gravity of the crime they committed.

Overcriminalization also manifests when prosecutors use the criminal code and prosecution to address regulatory disagreements or infractions. There are numerous examples of such cases, and we highlight two below.

Todd Farha and the Wellcare case, US v. Clay: WellCare was a health care company that provided behavioral health services to Medicaid patients in Florida. The company was faced with interpreting a new state statute that required that 80 percent of funds were required to be spent for the provision of care, establishing a so-called 80/20 rule.  However, the state did not define what was included in the provision of care and the state agency never promulgated rules despite the legal requirement to do so.

Like many other healthcare providers in Florida, WellCare used a subsidiary,  Harmony, to deliver behavioral services services to patients. Per the 80/20 requirement, WellCare reported payments to its subsidiary, a practice that was common among providers in similar circumstances. Harmony was praised by state auditors for “exceeding requirements” in its provision of care.  

The company and CEO Todd Farha, relied on the guidance of in-house and outside counsel to comply with 80/20. The executives who ran WellCare and the counsel they consulted reasonably believed they were complying with the law and moved forward with their business.

Years later, based on a whistleblower seeking a large payout, the FBI raided the company and initiated a federal case. The executives were charged with overstating company expenses through their approach to the 80/20 law. Even though the state agency chose not to clarify the law, and the agency never promulgated rules to guide businesses, the executives were convicted of health care fraud and related offenses in United States v. Clay. The government never suggested that the WellCare rates were out of line with market pricing for their services. Moreover, there were no claims that Harmony dispensed substandard care. Recall from above that auditors had praised Harmony for its standard of care.

What may have been a regulatory conflict to be worked out through contractual dispute mechanisms, this case was instead prosecuted as a federal criminal case, sending executives to jail for reasonable business judgements made in absence of black letter statutory or regulatory guidance.

This case demonstrates the troubling ramifications of overcriminalization by highlighting the government’s ability to punish people for their interpretations of complex, vague laws—even when their interpretations of these laws are reasonable and there is no malicious intent. 

Howard Root and Vascular Solutions: Vascular Solutions was medical device company that made products that have saved countless lives. In 2011, a purported whistleblower told the United States Department of Justice that Vascular Solutions was fraudulently marketing one of their products: the Vari-Lase Short Kit. The individual was an ex-employee who went to work for a competitor and subsequently alleged that Vascular Solutions was promoting the FDA-approved product for what is known as an “off-label use.” An off-label use is an alternative use for a device or drug that is FDA-approved to treat one ailment, but may help treat another problem. While doctors may prescribe drugs and employ devices for these off-label uses—indeed, it is common practice—manufacturers are legally prohibited from promoting those applications of their products.

In 2009, Vascular Solutions CEO Howard Root sought legal counsel and launched an investigation into the allegations of the future would-be “whistleblower” in the aftermath of the ex-employee’s separation from the company. That investigation found no evidence that the company was violating the law.

Nevertheless, federal prosecutors launched a criminal case against Vascular Solutions. The Vari-Lase Short Kit represented less than one percent of the company’s sales —and more importantly, prosecutors never alleged that the product had harmed a patient, nor was there any evidence to that effect.

Root had the financial wherewithal to fight what he believed to be baseless allegations. Most federal defendants are not so fortunate. All told, Root paid $25 million in legal fees for the five years it took to prepare and defend his case before a jury. After one day of deliberation, the jury acquitted Root and his company of all wrongdoing.

These are just two cases in the federal criminal system in which vague laws and zealous prosecutions can upend the lives of executives, managers, and employees who operate their companies in good faith. If the government suspects a regulatory violation—particularly when there are no perceived victims, as in the two cases above—the criminal law and the threat of imprisonment should be the last means used to ensure compliance, not the first. Certainly, major frauds and other egregious wrongdoing should be investigated and prosecuted. But differences of opinion about vague statutes and unsubstantiated accusations of technical violations of law should not lead to $25 million legal bills or imprisonment.

The Framers’ generation knew that a vast criminal code posed a threat to American freedom. The further the law strays from clear cases of right and wrong, the more easily innocent people may be prosecuted for non-wrongful conduct. As a nation, our laws must comport with the principles of fairness and justice. Rolling back overcriminalization is an essential step toward those principles.