Life Science Compliance Update

March 13, 2017

Healthcare Providers Accused of $100 Million Kickback Scheme

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A dozen doctors, pharmacy owners, and marketing professionals have been accused of being involved in a sham medical study used to bilk up to $102 million from Tricare, the publicly funded federal health program for military and their family members. According to federal prosecutors, the scheme involved physicians prescribing “compounded” drugs, such as pain, scar, and migraine creams to military families. The twelve participants were charged in a thirty-five count superseding indictment.

The defendants include: Dr. Walter Neil Simmons, 47, of Mesa, Arizona; Dr. William F. Elder-Quintana, 50, of El Paso, Texas; Jeffrey Eugene Fuller, 51, of Dallas, Texas; Andrew Joseph Baumiller, 37, of Dallas, Texas; Jeffry Dobbs Cockerell, 61, of Houston, Texas; Steven Bernard Kuper, 43, of Burleson, Texas; Ravi Morisetty, 42, of Irving, Texas; Joe Larry Straw, 46, of Frisco, Texas;  Luis Rafael Rios, 50, of Killeen, Texas; and Michael John Kiselak, 49, of Southlake, Texas.

The superseding indictment alleges that from roughly May 2014 to mid-February 2016, the twelve defendants conspired to run a scheme to defraud TRICARE in connection with the prescription of compounded pain and scar creams. The scheme involved the payment of kickbacks to TRICARE beneficiaries, payment of kickbacks to prescribing physicians, and the payment of kickbacks to marketers by the owners of compounding pharmacies.

CMGRX Participants

Cesario and Cooper co-owned CMGRX, LLC, (CMGRX), a Texas limited liability company formed in September 2014. The ‘CMG’ in CMGRX stands for Compound Marketing Group. CMGRX primarily marketed compounded pain and scar creams to current and former U.S. military members and their families, on behalf of various compounding pharmacies. CMGRX’s principle marketing tool was a sham medical study through which individuals were paid monetary compensation in exchange for obtaining compounded drugs with their TRICARE prescription benefits. Cesario served as CMGRX’s CEO and Treasurer and Cooper served as its President and Secretary. Neither had any medical, nursing or pharmaceutical licensing or education. CMGRX ceased operations in mid-2015, shortly after TRICARE announced changes to its coverage of compounded drugs. From October 2014 through June 2015, TRICARE paid more than $102 million for compounded drug prescriptions generated by CMGRX.

Defendants Straw and Kiselak led marketing groups for CMGRX, recruiting military members and their families, offering them monetary compensation in exchange for obtaining compounded drugs with their TRICARE prescription benefits. Defendant Rios, a marketer and patient recruiter in Straw’s marketing group, recruited hundreds of beneficiaries on and around Fort Hood.

Per the superseding indictment, Cesario, Cooper, Straw, Rios, Kiselak and their coconspirators paid TRICARE beneficiaries for obtaining and filling prescriptions for compounded drugs, principally compounded pain creams, scar creams, migraine creams, and vitamins. They disguised these payments to TRICARE beneficiaries as “grants” for participating in a medical study they referred to as a TRICARE-approved “Patient Safety Initiative” or “PSI Study” to evaluate the safety and efficacy of compounded drugs. However, the PSI Study was not approved by TRICARE, was not overseen by a qualified physician or medical professional, had no control group, and was not designed to gather any useful scientific data relating to the safety and efficacy of any drug. Its true purpose was to compile a list of TRICARE beneficiaries who had filled prescriptions so that Cesario, Cooper and their coconspirators could calculate how much to pay the beneficiaries.

To further disguise the source of those kickbacks to TRICARE beneficiaries, Cesario and Cooper directed the creation of a charity and funneled the payments to the beneficiaries through the charity. Kiselak introduced Cesario and Cooper to an individual who helped them create the “Freedom from Pain Foundation” and registered it as a tax-exempt charitable foundation. The foundation, however, was funded entirely by payments from Cesario and Cooper, or business accounts they controlled, and from November 2014 to June 2015, they paid approximately $2.8 million to the foundation, most which was used to pay TRICARE beneficiaries and doctors.

Doctors Involved

Defendant Simmons served as the Chief Medical Officer for CMGRX and helped Cesario and Cooper create the PSI Study. Defendant Elder-Quintana worked as a contract physician with CMGRX., and Cesario and Cooper paid him to prescribe compounded drugs to TRICARE beneficiaries. Some of the payments were made directly to Elder, while others were made to Aztec Medicus, PLLC, a company he owned and controlled. Elder wrote thousands of prescriptions for compounded drugs to TRICARE beneficiaries who he never met in person and for whom he conducted only a cursory consultation via telephone. In an effort to disguise physician kickbacks, Cesario, Cooper and their coconspirators funneled some payments through the Freedom from Pain Foundation, under the false premise that the physicians were providing consulting services in connection with the PSI Study.

Pharmacies Involved

Trilogy Pharmacy, a compounding pharmacy in the TRICARE network, paid Cesario, Cooper, Straw, Rios, Kiselak and other CMGRX employees kickbacks in exchange for sending prescriptions for compounded drugs to Trilogy. Baumiller worked closely with Fuller, Cesario and Cooper to disguise these kickbacks as employee wages. Defendant Cockerell owned and operated 360 Pharmacy Services, a compounding pharmacy in the TRICARE network. 360 Pharmacy paid kickbacks to Cesario and Cooper in exchange for sending prescriptions to them.

Defendant Kuper owned and operated FW Medical Supplies LLC, a compounding pharmacy in the TRICARE network that did business under the name Dandy Drug. Dandy Drug paid kickbacks to Cesario and Cooper in exchange for referring prescriptions to them. Defendant Morisetty owned and operated Dena Group, LLC, a compounding pharmacy in the TRICARE network that did business under the name Alpha Pharmacy. Alpha Pharmacy paid kickbacks to Cesario and Cooper in exchange for referring prescriptions to them.

Charges

Each defendant is charged with one count of conspiracy to commit health care fraud, which carries a maximum statutory penalty of ten years in federal prison and a $250,000 fine. Cesario and Cooper are also each charged with fourteen counts of payment and/or receipt of illegal remuneration. Each of the remaining defendants, except for Simmons, is charged with at least one count of payment and/or receipt of illegal remuneration. The maximum statutory penalty, upon conviction for each of those counts is five years in federal prison and a $250,000 fine. Restitution may also be ordered.

The superseding indictment also includes a forfeiture request, which would require the defendants upon conviction to forfeit any property traceable to the offense, including real estate in several cities in Texas and Jacksonville, Florida; funds in bank accounts and investment accounts; numerous vehicles; boats and recreational vehicles; numerous firearms; jewelry and artwork; and other various investments to the United States.

Other Probes

There have been at least two other federal probes claiming that certain pharmacies are paying kickbacks to doctors who have ordered expensive compound drugs for their patients. One probe involved a California pharmacy that billed the state’s workers’ compensation program for pricy markups. Another probe involved a Florida doctor who was indicted on a charge of taking kickbacks for sending prescriptions, billed to Tricare and Medicare, for creams costing as much as $21,000 for a one-month supply.

March 10, 2017

Sanofi Settles Vaccine Antitrust Dispute

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Sanofi Pasteur Inc., has agreed to pay $61.5 million in a five-year long class action brought by doctors alleging that the drug company violated antitrust laws with contracts for its pediatric vaccines, according to an agreement filed in federal court in New Jersey in late January. Specifically, the plaintiffs claimed the drug company held a dominant position in five pediatric vaccine markets, including a complete monopoly with quadrivalent meningococcal vaccine Menactra from 2005 to February 2010, when a competitor was introduced. At that point, Sanofi began bundling Menactra with other pediatric vaccines and substantially increasing the prices. 

According to the suit, Sanofi customers who bought a certain percentage of all four pediatric vaccines received a “loyalty discount” that reduced prices back to where they had been prior to the entry of the Novartis’ vaccine onto the market. Customers who did not buy enough of the four vaccines allegedly paid much more, according to the suit.


The lawsuit class was composed for 25,000 physician practices, 1,000 hospitals, 2,000 pharmacies, and 100 wholesalers. The suit received class certification in September 2015. The class was defined as anyone who purchased Menactra directly from Sanofi or its subsidiaries such as VaxServe Inc. 

Buyers in exclusive contracts for Sanofi vaccine bundles faced a penalty if they used Menveo instead of Menactra, the suit claimed. The penalty—ranging from 15.8% to 34.5%—would then apply to all the Sanofi vaccines a particular customer bought. The vaccines Sanofi put in those bundles included its Hib vaccines Pentacel and ActHIB, "for which there are no reasonably adequate medical substitutes," the suit claimed.

Sanofi defended its bundled sales approach in court documents, however. The company's "contracting and pricing practices did not constitute anticompetitive bundling,” Sanofi said in a court filing. Instead, the bundles helped competition and “benefited consumers by, among other things, lowering vaccine prices.” Sanofi also argued that Novartis was “both a profitable and successful competitor.”

The class action, on the other hand, said the practice “unfairly” hurt Novartis’ ability to compete with its meningococcal entrant, according to the complaint.

Sanofi fought the case for years, and even filed a counterclaim, but finally agreed to pay $61.5 million (and abandon the counterclaim) to settle and wrap up the lawsuit. The counterclaim argued that the class “engaged in unlawful collective action through membership” in physician buying groups, “purportedly causing vaccine prices to fall below competitive levels.” A Sanofi spokesperson said the company “has vigorously denied and continues vigorously to deny the plaintiffs’ claims and any allegation of wrongdoing.” The settlement does not require Sanofi to admit any fault.

“Despite Sanofi’s strong defenses, [our company] recognizes that continued litigation is likely to be extraordinarily expensive and time-consuming and thus has agreed to enter into this Settlement Agreement to avoid the further expense, inconvenience, risk and distraction of burdensome and protracted litigation,” according to a statement by Sanofi.


The potential settlement comes in advance of a trial, and has yet to receive approval. 

February 03, 2017

Walgreens to Pay $50M to Settle Anti-Kickback Suit

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Walgreen Co. (“Walgreens”) has agreed to pay $50 million to settle allegations that it gave kickbacks to government health care beneficiaries who it enrolled in its Prescription Savings Club (PCS) discount and incentives program. The government specifically alleges that Walgreens violated the Anti-Kickback Statute (AKS) and False Claims Act (FCA) by providing government beneficiaries with discounts and other monetary incentives under the PSC program, to induce them to patronize Walgreens’ pharmacies for all of their prescription drug needs. The government also alleged that Walgreens understood that permitting government beneficiaries to participate in the PSC program was a violation of the AKS, but that it nevertheless marketed the program to government beneficiaries and paid its employees bonuses for each customer they enrolled in the program, without verifying whether the customers were government beneficiaries.

Allegations Found in the Complaint

As alleged in the Complaint and set forth in the parties’ Settlement Agreement, both of which have been filed in Manhattan federal court:

Walgreens launched the PSC program in 2007. From January 2007 through December 2010, the PSC program provided members with discounts on thousands of brand-name and generic drugs, as well as a 10 percent rebate on all Walgreens’ branded products, including household products, baby-care products, most grocery items, and non-prescription medications. Walgreens intended these lower drug prices and other monetary benefits to be an inducement to its existing and potential customers to cause them to patronize Walgreens for all of their pharmacy needs. Walgreens hoped that by offering these significant benefits to its customers, it would prevent them from taking their pharmacy business to Walgreens’ competitors.

Walgreens recognized that allowing government beneficiaries to participate in the PSC program would violate the AKS. Accordingly, Walgreens consistently maintained in its published materials regarding the PSC program that government beneficiaries were ineligible to participate in the program.

Notwithstanding Walgreens’ understanding that allowing government beneficiaries to participate in the PSC program would violate the AKS, Walgreens consistently marketed the PSC program to government beneficiaries. Walgreens also incentivized its employees to enroll customers in the PSC program, regardless of whether they were government beneficiaries. For example, from May 2008 through August 2010, Walgreens paid employees anywhere from $1 to $5 for each customer they enrolled in the PSC program. Walgreens never checked whether the customers who had been enrolled were government beneficiaries.

As a result, from January 2007 through December 2010, Walgreens enrolled hundreds of thousands of government beneficiaries in the PSC program. These government beneficiaries included beneficiaries of the Medicare, Medicaid and TRICARE programs. Thereafter, from January 2011 through December 2015, while Walgreens’ internal company policy continued to preclude the enrollment of government beneficiaries in the PSC program, Walgreens continued to enroll such beneficiaries in the program.

Walgreens Accepts Responsibility

Atypical of most settlement agreements we see, Walgreens admitted, acknowledged, and accepted responsibility for a handful of actions alleged by the government, including the following:

  • During the period January 1, 2007 through December 31, 2010, Walgreens’ published materials regarding the PSC program stated that persons receiving benefits from the Medicare and Medicaid programs were not eligible to participate in the PSC program.
  • In October 2007, Walgreens identified approximately 13,000 PSC program members who it had determined were beneficiaries of the Medicare and Medicaid programs, and it removed those individuals from the PSC program. In an internal news release informing its employees of this removal, Walgreens stated that “any customer who ha[d] any type of 3rd party coverage with a Medicare or Medicaid plan was removed from the [Prescription] Savings Club database,” and that “th[is] removal was necessary to comply with State/Federal regulations.”
  • Subsequent to October 2007 and continuing through December 31, 2010, internal Walgreens documents reflect that its stated policy to exclude Medicare and Medicaid beneficiaries from the PSC program was based on, among other things, the prohibition on offering inducements to beneficiaries of government healthcare programs reflected in the federal AKS and corresponding state anti-kickback laws.
  • Notwithstanding its stated policy to exclude Medicare and Medicaid beneficiaries from the PSC program, subsequent to October 2007 and continuing through December 31, 2010, Walgreens enrolled hundreds of thousands of Medicare and Medicaid beneficiaries in the PSC program.
  • Between November 2007 and December 31, 2010, Walgreens also enrolled more than 10,000 TRICARE beneficiaries in the PSC program.
  • Prior to December 31, 2010, pharmacists at Walgreens’ stores nationwide made tens of thousands of notations in Walgreens’ internal customer database reflecting that specific Medicare, Medicaid, and TRICARE beneficiaries had been enrolled in the PSC program and were using the PSC program to purchase some of their prescription drugs.
  • At various times between November 2007 and December 31, 2010, Walgreens paid its employees a bonus of between $1 and $5 for each customer they enrolled in the PSC program. When paying these bonuses, Walgreens did not verify that the customers its employees had enrolled in the PSC program were not government beneficiaries.
  • Prior to December 31, 2010, Walgreens did not have effective mechanisms in place to block government beneficiaries from enrolling in the PSC program or to monitor adequately whether government beneficiaries had been allowed to enroll in the PSC program, to ensure compliance with its stated policy to exclude such beneficiaries from the PSC program. As a result, hundreds of thousands of government beneficiaries were enrolled in the PSC program.
  • Subsequent to December 31, 2010, and continuing through December 31, 2015, Walgreens’ internal company policy continued to preclude the enrollment of government beneficiaries in the PSC program, and Walgreens continued to enroll such beneficiaries in the program.

Under the settlement agreement, Walgreens will pay roughly $46.21 million to the United States and an additional $3.79 million to resolve numerous state law civil fraud claims. The allegations were originally brought in a qui tam suit under the False Claims Act by Marc Baker, a former Florida Walgreens pharmacy manager. Baker will receive $9.7 million for his whistleblowing efforts.

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