Fraud Cases Underscore New Challenges for Compounding Pharmacies

Fraud is a leading concern of federal investigators and the compounding pharmacies they oversee. Compounded drugs are covered by Medicare’s Part D program, and they accounted for a 56% increase in costs over the last year, according to a June report on Medicare spending.
Topical creams or gels that reduce pain are the fastest growing category of compounded drugs, and the average cost has risen to $331 per prescription, up from $40 in 2006.
Recent cases show that groups of marketers, pharmacists, and doctors are working together to overbill Medicare beneficiaries. The drain on Medicare and workers’ compensation plans is forcing plan administrators to reevaluate payment options.
On October 14, 2016, federal prosecutors in Dallas charged 10 people, including doctors, pharmacists and marketers, with operating a massive kickback scheme that allegedly defrauded the military’s health insurance program out of $100 million. Two others were charged in February and remain in jail.
According to the indictment, here’s how the scheme worked:
Marketers paid kickbacks to physicians who prescribed unnecessary pain ointments to active duty military, as well as veterans who lived near Fort Hood in Texas. The physicians did not have a doctor-patient relationship with the beneficiaries of the military’s health insurance program, known as Tricare. Pharmacy sales representatives directly targeted beneficiaries. The beneficiaries would fill out forms with insurance information, sometimes in exchange for gift cards or other perks. The insurance information was then sent to the physician, who wrote the prescription and sent it to the pharmacy.
The scheme was similar to others perpetrated around the country. In June, federal investigators in Tampa brought charges against 15 individuals for crimes related to compounding pharmacy fraud. The marketers again targeted the military community. Doctors prescribed a pain cream that could cost as much as $10,000 per tube. With 10 refills per prescription, one patient could mean $100,000 in revenue. The cost was justified by adding expensive ingredients that are not found in typical pain ointments.
In the Miami area, 8 men were charged with health care fraud in an August 3, 2016, indictment. The conspiracy brought in $157 million in fraudulent insurance claims. The Medicare Fraud Task Force investigated the compounding pharmacies and brought the charges.
Earlier, the US Postal Service tried to stop payments for its share of federal workers’ compensation costs last year, citing a lack of vigilance from federal watchdogs. Eventually, the Postal Service paid.
Other federal health insurers, such as Tricare, stopped paying for compounded pain creams in 2015 after questions emerged about their efficacy, safety, and cost.
Meanwhile, the Medicare Fraud Task Force has stayed busy. In June, it announced that approximately 300 defendants in 36 judicial districts were charged with participating in fraud schemes involving $900 million in false billing to Medicare and Medicaid.
Keith Hasson is managing partner at Hasson Law Group, an Atlanta-based firm that advises and represents compounding pharmacies to help them with preventative compliance as well as preparing for and navigating through regulatory inspections and investigations.

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