Life Science Compliance Update

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November 17, 2015

States Target Compounding Pharmacies over Claims to Military Health Program

Federal prosecutors in at least four states – Florida, California, Texas, and Mississippi – are ramping up investigations into widespread fraud by compounding pharmacies in claims to Tricare, the health-insurance program that covers 9.5 million U.S. military members and their families. Some pharmacies charged Tricare between $10,000 and $40,000 for a month of compounded medicines.

Justice Department prosecutors in all four states are working in concert with investigators from the Defense Department and other federal agencies to pursue both civil and criminal charges against pharmacies that have billed Tricare, as well as affiliated marketers and doctors. It is alleged that some marketing firms went so far as to search social media websites to identify military members and their spouses to contact them to promote compounded creams. It is speculated that the marketing firms sought out military members because Tricare is known to reimburse compounded drugs more generously than other federal health programs and private insurances.

Tricare paid $1.75 billion for compounded drugs during its 2015 fiscal year, which is 18 times the amount Tricare paid for compounded drugs in 2012; a Defense Department official estimates that 95% of the increased costs were inappropriate.

David G. Miller, the chief executive of the International Academy of Compounding Pharmacists, believes that fraud is only a small reason for the increased use of compounded medicines. He believes a bigger factor is that doctors have become wary of patients abusing opioid pain pills and have turned to alternative, nonaddictive treatments such as compounded pain creams, instead.

Background

Earlier in 2015, the Department of Defense ("DOD") announced a policy shift, indicating that it would be initiating an audit of "all compounding claims in the last 12 months to determine if recoupment is justified in cases where violations of state or federal law resulted in inappropriate reimbursement." In addition, the DOD has been working with Federal law enforcement agencies to target criminal investigations of pharmacies and marketers relating to Tricare claims – focusing on specific marketing groups and pharmacies, mostly in Florida.

The investigations focused on potential false claims, improper auto-refill programs, and potential kickback relationships. Interviews were conducted with individuals at all stages of a claim, pharmacy owners, pharmacy employees, marketing representatives, patients, and prescribing physicians.

Florida Settlements

In June, however, the United States settled a claim for $3.77 million with a MediMix, a Jacksonville pharmacy. A physician allegedly sent hundreds of prescriptions to MediMix, who then billed the U.S. government for them. The physician, A. Desai, was married to a senior vice president at MediMix and the DOH alleged that the claims came from "an improper referral source."

Last month, four Florida pharmacies agreed to pay a combined $12.8 million to settle civil allegations that they falsely billed Tricare for expensive pharmaceutical creams and gels to treat pain, scars, and other ailments. Two of those pharmacies employed sales representatives who paid doctors to write prescriptions to Tricare beneficiaries. Some doctors would even conduct telephone consultations with beneficiaries and then write them prescriptions, despite not having met with the beneficiary in person. Those prescriptions amounted to a violation of the False Claims Act because they were not based on genuine doctor-patient relationships.

One of those pharmacies, Med Match, LLC, paid commissions of as much as 58% of its profit from each prescription to sales representatives employed by a marketing firm. One saleswoman in particular received $190,000 in commissions over just one month for prescriptions filled by the pharmacy. Prosecutors alleged that Med Match should have known that a large number of prescriptions it received from one Jacksonville physician were not legitimate because "the sheer magnitude and volume of prescriptions was far in excess of any other provider," and were all for the same substance, regardless of the specific patient's age or condition.

OHM Pharmacy Services, Inc. agreed to pay $4.1 million to settle allegations that it billed Tricare for an estimated $2.5 million in fraudulent prescriptions written over a five-week period. The vast majority of those prescriptions were written by one Jacksonville doctor, who wrote 150 prescriptions for patients in ten states.

Durbin Pharmacy and WELLHealth, Inc. were the other two pharmacies included in the settlement, agreeing to pay a combined $3.98 million to settle the government's allegations.

The settlements have not yet been formally announced, but the pharmacies are not expected to admit civil liability in the settlement agreements.

CBS News Investigation

CBS News heard about the Tricare prescription scheme and attempted to find out who the participating doctors were. CBS News filled out an online form requesting pain and scar creams from www.Healing4Heroes.us, and two weeks later, they received a package from a pharmacy in California. The package contained pain and scar creams prescribed by Paul Bolger, a physician who runs a weight loss clinic in Davenport, Iowa, and someone the CBS News reporters never spoke to.

Dr. Bolger was confronted by the CBS News reporters and stated, "I'm not going to make excuses for what I was doing. It's not that I had bad intentions, it was that I was under the mistaken impression that patients such as yourself were being spoken with by a qualified medical provider -- someone who's qualified to screen you, do a intake over the phone, and make sure you were safe to have these meds."

Conclusion

Only time will tell how widespread this issue is and how hard the DOD, DOJ, and other relevant federal and state agencies will work to chase down offenders. We anticipate there may be many more settlements in the coming weeks from various pharmacies in the four states mentioned above.

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