Government Continues to Investigate Compounding Pharmacy Fraud

The Government is investigating and has prosecuted numerous individuals and organizations for compounding pharmacy fraud. What is different from other health care fraud and anti-kickback statute cases is that these cases typically involve an special agent from the Office of Inspector General Department of Defense (OIG-DOD) because a large percentage of the conduct that the Government has prosecuted and is investigating relates to the Tricare program, the program which covers military personnel and employees which falls under the jurisdiction of the Department of Defense as a managed health care program established by DOD by statute.

Government compounding pharmacy fraud investigations concentrate on, among other things, whether there has been a violation of the Anti-Kickback Statute, the False Claims Act, the health care fraud statute, and other violations of federal criminal statutes.

Some of the common themes or areas of interests that the Government has identified in compounding pharmacy fraud are, among other things:

Tricare Fraud: From in or around 2012- May of 2015, Tricare reimbursements for specific types of customized pain, scar, and wrinkle creams prepared by compounding pharmacists were at an all-time high. Sometimes a single prescription might have been reimbursed for $15,000.00 to $25,000.00. The Government’s investigations might focus on a prescriber’s history of prescribing compounded medications – whether he or she prescribed pain or scar cream in the past, whether between 2012 and 2015 there was a significant increase in prescriptions for pain and scar cream.

Commercially Available Medications. Compounded medications are inherently patient specific, customized medications which require more effort to create than normal medications dispensed at a pharmacy. That is why there are level of effort fees associated with compounded medications which should correspond to the complexity of the compound. That is also why not every pharmacist is qualified to compound medications for patients. For this reason, the Government has asked and is asking whether or not the compounded medications used commercially available ingredients which are available over the counter or which closely resemble commercially available ingredients.

Percentage of Out of State Patients or Prescriptions: What was the percentage of prescriptions that were mailed or sent to patients in states outside of the state where the dispensing compounding pharmacy is located?

Percentage of Out of State Physicians: What was the percentage of prescriptions that were prescribed by physicians that do not practice in the same state as the dispensing compounding pharmacy?

Unauthorized or “Automatic” Refills: Was the pharmacy submitting claims for compounded medications for refills received by a patient which were not ordered or authorized by the patient?

Waiver of Co-Pays: Another common theme in these compounding pharmacy fraud investigations is that the Government will ask whether or not co-pays were waived and whether or not a reasonable attempt to collect payment was made and, if so, how and by whom and what steps were taken to do so. Tricare only pays for the allowable cost less the applicable deductible or copay.

Pain, Scar, and Wrinkle Creams: Generally, the government investigations have focused on the prescribing patterns related to pain, scar, and wrinkle creams. Investigations have included orthopedic surgeons, podiatrists, spinal surgeons, pain management specialists, sports and medicine specialists, chiropractors, and others.

Sales and Marketing Arrangements: A substantial amount of the investigations and prosecutions involving compounding pharmacies relate to sales and marketing arrangements. Some of the critical questions that the Government might ask are:

Were the marketers W2 employees meeting the IRS test for employee?

Were they 1099 independent contractors that formed independent LLCs?

To whom was compensation paid? Was it paid to an LLC?

How was compensation to the marketers computed and by whom?

Were they paid per-patient?

Were they paid a commission? How was that commission calculated?

Were marketers instructed to target Tricare beneficiaries?

Were the marketers calling beneficiaries directly from a call center?

Use of Former Military Personnel as “Marketers”: The Government has sought to determine if military personnel were used as marketers and whether or not members or former members of the military were used as intermediaries or recruiters to market specific compounded medications to other military personnel. The Government has also concentrated on whether there was an active effort to target Tricare beneficiaries.

Telemedicine and Absence of Patient-Physician Relationship: There must be an established patient physician relationship in order to prescribe a medication including a compounded medication. Government investigations have centered on whether or not doctors prescribed compounded medications during telemedicine consultations or at health fares and whether there was a genuine doctor patient relationship.

The Government has also questioned whether or not patients received remuneration or “anything of value” in order to give the appearance of an actual patient physician relationship. Gift cards, rebates, and a percentage of the adjudicated reimbursement amount are some examples of what might be considered “anything of value.”

Average Wholesale Price (AWP) as the Only Figure Reported for Reimbursement: Tricare limits the amount it will pay to the lesser of the usual and customary price or the maximum allowable cost. Generally, AWP is the maximum allowable cost but the Government views the “usual and customary price” as the retail price of a covered medication in a cash transaction at the pharmacy that is dispensing that medication. The Government is also concentrating on compounding pharmacies that exclusively used the AWP as the amount submitted to Tricare for reimbursement and did not report the acquisition cost and/or the price that they might sell the compounded medication to a cash pay patient at the pharmacy.

This in fact is the primary theory of liability alleged by the Government in United States ex rel McKenzie Stepe vs. RS Compounding Pharmacy, et al., No. 15-cv-03150-VMC-AEP (M.D. Fla. 2015) (filed 6/30/17).

Pre-Printed Prescription Pads: The presence of pre-printed prescription pads is another common characteristic of compounding pharmacy fraud investigations. Who created the pre-printed pad? Was it a medical professional or a sales and marketing professional? Was the pre-printed pad created after the physician reviewed and evaluated the medical utility of the items listed on the pre-printed pad?

Medical Directorships: Was a doctor serving as a medical director for a specific compounding pharmacy? If so, what his or her duties were? Was she working there? How many hours a day or week? How was she compensated for her time? Was compensation tied to hours worked or to another metric, g., the volume or value of prescriptions for compounded medication that were prescribed by the physician? Since the commencement of the medical directorship, was there a significant increase in the amount of prescriptions that the doctor ordered for compounded medications?

Speaking Fees: Another area of Government interest are speaking fees. The Government might ask whether the doctor or medical provider, or a close friend, relative or spouse, received compensation, directly or indirectly, as a “speaking fee” from a compounding pharmacy