Life Science Compliance Update

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.


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, 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."


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.

November 03, 2015

Massachusetts Physician Arrested and Indicted for Kickbacks from Warner Chilcott

Last week, in addition to the President of Warner Chilcott being arrested and the company pleading guilty to Medicare fraud, in a related case a Springfield, MA gynecologist was arrested in connection with allegedly accepting free meals and speaker fees from a pharmaceutical company in return for prescribing its osteoporosis drugs, allowing pharmaceutical sales representatives to access patient records, and lying to federal investigators.

Rita Luthra, M.D., of Longmeadow, Massachusetts, was indicted on one count of violating the Anti-Kickback Statute, one count of wrongful disclosure of individually identifiable health information, and one count of obstructing a criminal health care investigation by lying to federal agents and directing an employee to do the same. The indictment also seeks $23,500 in criminal forfeiture. Criminal forfeiture is an action brought as a part of a criminal prosecution of the defendant and requires that the government indict the property used or derived from the crime, along with the defendant.

According to court documents, Warner Chilcott, a pharmaceutical company, allegedly paid Rita Luthra $23,500 to prescribe its osteoporosis drugs (Actonel and Atelvia) from October 2010 through November 2011. On thirty-one occasions, a Warner Chilcott representative allegedly brought food to Luthra's medical office for her and her staff, and paid $750 to speak with Luthra for roughly thirty minutes, while she ate. Warner Chilcott also paid to cater a barbeque hosted by Luthra at her home, and paid Luthra $250 for speaker training, despite the fact that there are no records where she spoke to any other physicians.

The United States Attorneys prosecuting the case further allege that Luthra's rate of prescribing Warner Chilcott's osteoporosis drugs increased during the time she was paid by the company, and abruptly declined once she stopped being paid by Warner Chilcott. Additionally, it is alleged that Luthra allowed Warner Chilcott to access protected health information in her patients' medical files without appropriate authorizations.

When Luthra was interviewed about her relationship with Warner Chilcott by federal agents, she provided false information to those federal agents and allegedly instructed at least one of her employees to also lie and provide false information to the federal agents.

While actual sentences for federal crimes tend to be less than the maximum penalties allotted by statute, the charges Luthra is facing each come with stiff potential penalties. Luthra's potential violation of the Anti-Kickback Statute comes with a sentence of no greater than five years in prison, three years of supervised release, and a fine of $25,000. The charge of disclosure of individually identifiable health information provides a sentence of no greater than one year in prison and/or a fine of $50,000 and one year of supervised release. The charge of obstructing a criminal health care investigation provides a sentence of no greater than five years in prison, three years of supervised release, and a fine of $250,000. Any sentence imposed by a federal district court judge against Luthra will be based upon the United States Sentencing Guidelines and other permissible statutory factors.

This indictment of Rita Luthra acts as a reminder as to how broad and far-reaching the Anti-Kickback Statute is. While the current indictment only implicates Luthra, a violation of the Anti-Kickback Statute can result in penalties for individuals on both sides of the prohibited transaction. Additionally, absent a conviction, individuals who violate the Anti-Kickback Statute may still face exclusion from federal health care programs at the discretion of the Secretary of Health and Human Services. It is unclear from the information on the DOJ website, but Massachusetts has had public disclosure of payments to healthcare providers since 2009, it is possible that the DOJ used those records to support their case.

The constantly changing landscape of the health care industry makes it difficult to predict the interpretation and application of the Anti-Kickback Statute. New safe harbor provisions can be enacted at any time in response to providers' business practices and relationships and advances in information technology. Additionally, courts can continue to refine the intended scope and required scienter of the Anti-Kickback Statute. For now, we wait and see how the legal process plays out in the Luthra case.

November 02, 2015

DOJ: Nearly 500 Hospitals Pay United States Over $250 Million to Resolve False Claim Act Allegations Related to Implantation of Cardiac Devices

The Department of Justice announced on Friday, October 30, that they have reached 70 individual settlements involving 457 different hospitals in 43 states, totaling over $250 million. These settlements are related to allegations that cardiac devices were implanted in Medicare patients in violation of Medicare coverage requirements. The list of hospitals and health systems which settled with the government comprise some of the country's largest and well known health systems including Adventist Health, Ascension, Tenant, HCA, Scripts Health, and Emory Health

The settlements revolve around a device known as an implantable cardioverter defibrillator (ICD), which is an electronic device that is implanted near, and connected to, the heart. The ICD detects and treats chaotic, rapid, life-threatening heart rhythms, known as fibrillations, by delivering a shock to the heart, which restores the heart's normal rhythm. The ICD works similarly to an external defibrillator, except it is small enough to be implanted directly into the patient's chest. Only patients with certain clinical characteristics and risk factors qualify to have their ICD covered through Medicare.

ICDs each cost $25,000 and Medicare coverage is based on a National Coverage Determination, which states that ICDs should not be implanted in patients who recently suffered a heart attack, heart bypass surgery, or angioplasty. The NCD has also set waiting periods for the implantation procedure of 40 days after a heart attack and 90 days after bypass or angioplasty. The waiting periods are there to allow the patient's heart an opportunity to heal without requiring the implantation of the device. The allegations involved in this settlement were that some doctors at the hospitals involved chose to implant the devices without adhering to the required guidelines.

Head of the Justice Department's Civil Division, Principal Deputy Assistant Attorney General Benjamin C. Mizer, stated, "While recognizing and respecting physician judgment, the department will hold accountable hospitals and health systems for procedures performed by physicians at their facilities that fail to comply with Medicare billing rules. We are confident that the settlements announced today will lead to increased compliance and result in significant savings to the Medicare program while protecting patient health."

Interestingly, "the settlements announced today demonstrate the Department of Justice's commitment to protect Medicare dollars and federal health benefits. ... In terms of the number of defendants, this is one of the largest whistleblower lawsuits in the United States and represents one of this office's most significant recoveries to date. Our office will continue to vigilantly protect the Medicare program from potential false billing claims," U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida said.

While this is one of the largest hospital fraud cases prosecuted by the Department of Justice, it is not the largest in monetary value; however, this settlement does cover more hospitals than any other action ever prosecuted by the Department of Justice.

Most of the settling defendants were named in a qui tam lawsuit brought under the False Claims Act. Leatrice Ford Richards, a cardiac nurse, and Thomas Schuhmann, a health care reimbursement consultant, filed the original lawsuit in federal district court in the Southern District of Florida. Ms. Richards and Mr. Schuhmann, as the whistleblowers, will share more than $38 million from the settlements. These settlements were the result of a coordinated effort among the U.S. Attorney's Office of the Southern District of Florida, the Civil Division's Commercial Litigation Branch and HHS-OIG, Office of Investigations and Office of Counsel to the Inspector General.

While there has been no determination of liability, the Department of Justice will continue to investigate additional hospitals and health systems for similar billing procedures. Each of the individual settlements can be found here for a more detailed look.


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