Compounded medications have been under government radar for quite some time. So a recent inditement and prosecution of two pharmacists and a marketer implicated in allegedly fraudulent scheme involving compounded medications comes as no surprise. The individuals allegedly defrauded TRICARE and private insurances by:
- price-testing and adjusting prescription formulas to ensure the highest reimbursement;
- using marketers to procure prescriptions for high-margin compounded medications and paying commissions to these marketers;
- waiving or reducing copays to “falsely make it appear as if [the] pharmacy… had been collecting copayments;”
- paying kickbacks to prescribers;
- manipulating and deceiving insurance audits to maintain the ability to submit claims for reimbursement for medically unnecessary high-adjudication compound medications.
According to the indictment, the conduct resulted in more than $180 million in fraudulent billing. One of the pharmacists plead guilty and is currently facing five years in prison and restitution.
Let’s dissect the case to understand the alleged scheme.
Two pharmacists owned a pharmacy in Missouri. When they learned of potential profits that could be made by submitting claims for compounded medications, they aggressively expanded their compounding business by acquiring several other pharmacies in various states and contracting with other pharmacies to dispense and bill for compounded medications. Profits were split between these affiliated pharmacies and businesses owned by the pharmacists (red flag # 1: kickbacks).
Simultaneously, the pharmacists formed six business entities to receive and distribute the profits generated by compounding business (red flag # 2: potential money laundering).
The pharmacists also formed two telemarketing companies to cold-call patients to solicit their business for compounded medications. According to the indictment, these telemarketing companies were paid about 50% of what pharmacies received in reimbursements for the claims secured by these cold-calls (red flag # 3: kickbacks). Allegedly, the telemarketing companies used an array of fraudulent tactics to generate prescriptions including pretending to be representatives of the patients and referring prescriptions to the affiliated pharmacies without the patients’ knowledge or approval.
To assist patients with copays, the pharmacists also formed a business entity (Affordable Medication Solution LLC aka “AMS”) (red flag # 4: the “non-profit” was under the common ownership with the dispensing pharmacies). Because copayments for compounded medications are often hundreds and even thousands of dollars, many beneficiaries balked at receiving these high-adjudication meds. AMS was created to make it appear that the pharmacies collected copayments through AMS (which supplied the coupons) when in reality they had not.
But that’s not the end in a myriad of business entities formed by these two “entrepreneurial” pharmacists. They formed another entity to allegedly pay kickbacks to the prescribers. To avoid restrictions imposed by the anti-kickback statutes, the pharmacists formed an “investment” company and paid dividends to the affiliated prescribers. (red flag # 5: the “investment” company was under the common ownership with the pharmacies and rewarded the prescribers for sending and/or authorizing high-dollar prescriptions).
To receive the highest reimbursement possible, the pharmacies submitted “dummy” claims to PBMs to ascertain the potential reimbursements and ultimately to find formulas for high-dollar medications. (red flag # 6: most PBM manuals prohibit or curb claim-testing). According to the indictment, the pharmacies adjusted the formulas by including some ingredients solely to increase the reimbursement amounts despite these ingredients having no medical efficacy. Moreover, the pharmacies created preprinted “check-the-box” prescription pads containing these previously determined high-adjudication compound medications and provided these pads to marketers who would then distribute the pads to prescribers. Marketers received commission payments (red flag # 7: marketers were acting as independent contractors). During the investigations, some prescribers denied that they wrote or authorized prescriptions generated by these marketers (red flag # 8: potentially fraudulent prescriptions created by marketers to receive commissions).
During PBM audits, the pharmacies allegedly used white-out to conceal or alter information on requested documents. When Caremark discovered these practices and terminated one of the pharmacies, the prescriptions were sent to the affiliated pharmacies.
After reading the indictment, it appears that the pharmacists were creating various business entities attempting to conceal potential issues and to compensate marketers and prescribers, as well as assist patients with copayments for these expensive compounded medications. While independent pharmacies are struggling to stay afloat amidst a very strong competition and diversifying business and specializing might be a good idea, it does not excuse blunt violations (such as paying commissions to prescribers and marketers). The case is a good reminder for pharmacies to keep it simple and to consult with the legal team when diversifying and marketing services.