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2019 Pharmacy Fraud: Issues You Should Know About

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The consequences of committing pharmacy fraud are often costly. How can pharmaceutical companies navigate various state and federal laws and remain compliant? Former pharmacist Darshan Kulkarni discusses the six major trends in 2019 surrounding pharmacy fraud.

Darshan: So let’s talk about fraud in the context of pharmacies. Now I’m going to actually do this one slightly differently. I’m going to talk and start from the punchline and then go in deeper. So those of you who really just want to know what are the quick takeaways, you’re going to get that in the first minute and a half. But then we’re going to talk about exactly why those takeaways matter and what happened.

Narrator: This is the DarshanTalks Podcast, regulatory guy, irregular podcast with host Darshan Kulkarni. You can find the show on Twitter @darshantalks or the show’s a website at darshantalks.com.

Darshan: There have been six major trends in 2019 around pharmacy fraud, and that means that you as a pharmacist need to be aware of these issues. You as a pharmacist need to be taking the appropriate steps so that you are not being caught up in these problems. So the six major issues. Number one, compounding pharmacies are being targeted especially in Florida. Number two, there’s an uptick in opioid review. Number three, kickback reviews are being consistently reviewed, shall we say, especially in the context of telehealth. So if you are using telehealth as a pharmacy and that may actually become a problem in the context of kickbacks. That’s not to say that telehealth is inappropriate, that’s not to say that without it you wouldn’t have a kickback problem. But that combination seems to be grabbing people’s attention.

Darshan: The idea of in manufacturing and compounding, this is the course of care. That’s what I was being told. This is okay to do as a pharmacist because just this is what people taught me. That argument is not being accepted anymore. So if you are a pharmacist and you’ve always gone, “You know what, this is what I was taught. This is okay.” Yeah, that’s not going to fly anymore. In New York, larger pharmacies are being targeted, and I’d say overall, and this has been happening for several years, if you are a pharmacy using a marketing company, be very, very careful and be sure to audit them. Because marketing companies have the goal of marketing and they will do whatever they can to optimize their sales.

Darshan: The problem is that you are left holding the bag and these marketing companies are being sued independently, but you as a pharmacist are being sued and are potentially paying millions of dollars in fines as well. So that’s my takeaway. It took me about two and a half minutes to give you that. So if you want to walk away at this time, shut off this podcast, that’s fine. But if you want to know why I said what I said, stay tuned. So let’s start with the compounding kickbacks.

Darshan: The first one I would talk about is in the context of Alabama, those Global Compounding Pharmacy, there were 10 defendants being charged in 103 count indictment, including a nurse practitioner, the owners, a pharmacist, managers, sales representatives and billers. Global describe itself as one of the three largest compounding pharmacies in the US and it primarily shipped compounded drugs from its Haleyville facility, but they did most of that prescription processing, billing and customer service in its call center in Clearwater, Florida. The company hired sales reps who were located in various States and were responsible for generating prescriptions from physicians and other prescribers.

Darshan: The company also worked with affiliate pharmacies. The indictment charges essentially said that they were fraudulent in billing healthcare insurers and prescription drug administrators for over $200 million in prescription drugs. In one instance, the defendants’ fraudulent conduct caused a prescription plan administrator to pay over $29,000 for one tube of a cream advertised as treating general wounds. Aspects of the scheme included paying prescribers to issue prescriptions. So number one, from a fraud perspective, from a kickback perspective, this was hugely problematic. Directing employees to get medically unnecessary drugs for themselves or for family and to be filled and billed by Global and other related pharmacies. Altering prescriptions to add non-prescribed drugs including controlled substances such as Tramadol and Ketamine. Automatically you’d be filling prescriptions often as many as 12 times regardless of the patient’s needs.

Darshan: Routinely waiving and discounting copays to induce patients to obtain and retain medically unnecessary drugs and billing for drugs without patient’s knowledge and hiding that conduct from patients by mailing the drugs, in this specific instance, to J. Adams’ office. Well, sorry, Jay Adams’ home. When prescription drug administrators attempted to police this fraudulent conduct the defendants evaded and obstructed those efforts, including by providing false information in response to audits and diverting their billing through affiliated pharmacies. So, that was just Alabama.

Darshan: Then there was Florida. In Florida for compounding pharmacies. There was A To Z Pharmacy. And A to Z Pharmacy and Havana Pharmacy and Discount. There is Adebayo and his co-conspirators engaged in a scheme to defraud private insurance companies. Medicare, TRICARE, out of $121 million by submitting false and fraudulent claims for compounded drugs. And these claims were deemed to be either not medically necessary or never provided, or both. The Florida pharmacist was sentenced to 120 days, sorry, 120 months in prison, followed by three years of supervised release. He had to pay back $3.2 million in restitution and 1.4 million in forfeiture for his role in the massive compounding pharmacy fraud scheme. Eight other individuals have previously been sentenced in connection with this scheme, various [inaudible 00:06:10] properties including cars and 50-foot boats have been forfeited as part of the sentencing.

Darshan: Again, in Florida, American Pain Management, Novick was the owner of American Pain Management, a pain clinic that was located in Palm Beach County and Broward County. He also owned the Pacific Pharmacy in Miami, Florida where the majority of the prescriptions were owned by American Pain Management were actually filled. Novick admitted submitting approximately one $1.2 million in fraudulent claims to Medicare for pain management services allegedly rendered by a doctor who worked at American Pain Management. But Novick knew were actually fraudulently submitted and were not eligible for reimbursement. So, that was another settlement that you saw.

Darshan: Centurion Compounding. Owners of Centurion Compounding, Frank Monte and Kimberley Anderson was sentenced to 24 months, 18 months in federal prison and Monte and Anderson forfeited more than $3 million in property and luxury vehicles. This included a Lamborghini, a Porsche, a Ferrari, a Ford GT racing car, a McLaren and a Mercedes. Obviously they did well at this except they were doing it inappropriately. Centurion, a marketing firm employ sales reps to market compounding drugs, specifically creams for pain and scars, to beneficiaries, especially TRICARE. Centurion also entered into an exclusive illegal kickback arrangement with Lifecare Pharmacy where Centurion and Lifecare agreed to share equally in the profits paid by these administrators including TRICARE.

Darshan: Then there was Diabetic Care Rx LLC and they did work with Pain Care Pharmacy and they had a private equity firm, Riordan, Lewis & Haden, and they reached a $21.4 million settlement with the US DOJ to resolve claims that they orchestrated a $70 million kickback scheme to recruit people for TRICARE and for medically unnecessary prescriptions. So, if you’re seeing a trend here, you’re seeing medically unnecessary prescriptions, you’re seeing a consistent kickback process and you’re seeing that they’re not just going after the pharmacy, they’re also going after, for example, private equity owners. They’re going after marketing companies and they’re not just going after the pharmacy itself, but also the owners and individuals. So you’re looking at criminal penalties. So be aware of that.

Darshan: Physician Specialty Pharmacy was charged with fraudulent claims. Fisher agreed to fill prescription of his pharmacy knowing that they were not based on legitimate doctor-patient relationships. In exchange, Fisher allegedly paid commissions to the marketing representatives, recruited individuals to receive a compounded medication and the maximum penalty is 20 years and the maximum penalty for conspiracy to commit money laundering is 10 years of imprisonment.

Darshan: Then there was Smart Pharmacy and charges were brought against Smart Pharmacy Inc. And SP2 LLC. These are two compounding pharmacies. They brought claims against Gregory Balotin, a co-owner of the pharmacy for his involvement in the alleged schemes and the DOJ alleged that the pharmacies inappropriately included aripiprazole, the anti-psychotic, and they were used to boost reimbursement, despite knowing that there was no adequate basis for adding aripiprazole to the compound. This substantially increased their reimbursement. This was problematic. Additionally, again, you’re seeing this consistently come up. The pharmacies routinely waived patient copayment obligations and they crushed the pills of aripiprazole for topical pain management for active duty military personnel, retirees and their families.

Darshan: So again, don’t be waving co-payments, especially in the context of government payments. That’s, that’s become a huge issue of concern. If you’re Vital Life Institute, they were engaged in illegal kickback scheme and they paid kickbacks with third-party marketing service to solicit prospective patients regardless of their need. The marketing company arranged for prescribers to sign these prescriptions and then they were referred to an AgeVital to be filled. The kickbacks to the marketing company allegedly consisted of a substantial share of the pharmacy’s TRICARE and Medicare reimbursement, so again, you’re seeing the same thing where marketing companies are being targeted as well.

Darshan: In Mississippi, in Madison, there was again a charge of conspiracy to commit healthcare fraud and conspiracy to distribute and dispense a controlled substance, a conspiracy to pay and receive alleged healthcare kickbacks and four counts of actually paying healthcare kickbacks. They were charged with prescribing and dispensing medically unnecessary compounding medications, which included Ketamine and the indictment alleged in this case, I guess I think [inaudible 00:11:31] Sultan was paid at least 25% of the reimbursement received.

Darshan: Then there was Advantage Pharmacy of Hattiesburg and in this specific case, Thomley’s marketing company received 50% of the reimbursement that Advantage Pharmacy obtained from the compounded medications. Thomley admitted that the co-conspirators, I can say the word right now, formulated the compounded medications without considering the individual needs of the patient, but instead with the goal of increasing reimbursement. And she actually had contemporaneous knowledge of this. Thomley admitted that the prescribers gave signatures on blank prescription forms and then they filled out these forms with the name of the children and TRICARE beneficiaries that she and her husband recruited from the community. She knew that these would be filled and submitted towards falsified prescriptions to healthcare benefit programs including TRICARE.

Darshan: Then there was Nationwide Compound Pharmacy and the pharmacy owner was sentenced to 10 years in federal prison for his involvement in a $243 million compounding pharmacy fraud scheme. And again they defrauded TRICARE. Spell and his co-conspirators. Again, they waived the copayment requirement. The co-conspirators actually had their employees purchase prepaid debit cards and money orders to use towards a copayment for a beneficiary. They paid kickbacks and bribes to marketers in order to obtain prescriptions for compounding pharmacies and again they obtained reimbursement from TRICARE. The compounded medications themselves were again medically unnecessary.

Darshan: Then you had New Jersey. And in New Jersey you had Empire Pharmacy and Eduard Shtindler, I’m pronouncing that wrong. S-H-T-I-N-D-L-E-R, and Empire Pharmacy were charged by complaint with one count of conspiracy to commit healthcare fraud and one count of conspiracy to pay illegal kickbacks to a doctor.

Darshan: And there was Peter Frazzano of Randolph, New Jersey who pled guilty to knowingly causing the billing of fraudulent claims for medically unnecessary prescription compounded products such as scar creams, pain creams and metabolic supplements. And again, they were looking at these, the physician prescribed medications were regardless of medical necessity and they used to recruit a doctor to sign prescriptions, ordering compounded medications without ever examining or interacting with any of the individuals who were known to receive the medications. They began by filling prescriptions for expensive specialty medication that required prior authorization. Shtindler intended to entice doctors to use Empire for specialty medications and they would receive prior auth more successfully than other pharmacies. To do that, he directed Empire employees, including two pharmacists, to repeatedly falsify prior authorization forms for various conditions including psoriasis and Hep C.

Darshan: In recorded conversations, Shtindler admitted to his Empire’s practice a falsifying prior auth forms in order to receive approval of medications that wouldn’t otherwise have been approved. A Shtindler and Empire received approximately $2 million for reimbursement for things that they shouldn’t have received reimbursement for.

Darshan: There was also a claim of conspiracy to pay bribes for psychiatrists in Hudson County, New Jersey, and they would deliver these bribe payments to the doctor. On occasion, Shtindler secretly paid cash bribes in $100 denomination in pill bottles that were delivered to the doctor. In exchange for these bribes, the doctor steered patients to Empire Pharmacy even though the patients used other pharmacies closer to their homes for all of their other prescriptions.

Darshan: Then there was Fair Lawn Pharmacy. And in the context of Fair Lawn Pharmacy, a doctor and three people associated with the pharmacy were charged with their respective roles in defrauding the Federal Workers’ Compensation Program in a $10 million scheme involving illegal kickbacks and medically unnecessary prescriptions, again, for pain creams. So you’re going to keep seeing this consistent problem around pain creams and scar creams. So be aware of that as well. Essentially they were dispensing expensive but medically unnecessary creams to a former US Postal Service Workers for injuries they allegedly received on the job.

Darshan: And as part of doing this whole process, they actually purchased a doctor’s medical office for above fair market value and continued to allow the doctor to use the premises for which he routinely failed to pay rent. So it was a type of kickback and again, you have to be aware of that. There are kickback exceptions that they could have potentially use, but again, if you’re paying above fair market value, that becomes hugely problematic as well.

Darshan: Then there was Oklahoma and there was Brookhaven Specialty Pharmacy and OK Compounding. And again, that specific situation. You had doctors, you had marketers, were facing Oklahoma Federal Court charges for duping federal insurance programs for covering compounding drug prescriptions. What they would do in that situation is they provided preprinted prescription pads that listed company formula choices and the participating physician check the box with their preferred selection and faxed it directly to the associated pharmacies and stuff, writing a prescription tailored to the patient who could then take to the pharmacy of their choice. They provided kickbacks up to $50,000 in exchange for writing from compounding drug prescriptions. And there were various sham business arrangements where physicians were asked to serve as medical director, as a consulting physicians for the pharmacies or even as medical directors for university study. And again, these were just with the idea of paying, excuse me, for paying kickbacks to these physicians.

Darshan: Then you had Texas. And in that specific instance, she was a marketer. She recruited physicians to write prescriptions for expensive compounded drugs for which the pharmacy would bill federal healthcare programs. The pharmacy paid this individual $7.5 million in return for compounded drug prescriptions. That Guerra, who is the marketer in this case, recruited physicians to write. She paid a cut of that payment to the prescribing physicians and she paid approximately $2.1 million in kickbacks to one of the physicians sending prescriptions. And was identified in the criminal indictment as Doctor 1.

Darshan: So, we talked about kickbacks, we talked about compounding pharmacies. Let’s talk about fraud in general. In Georgia, there was Darien Pharmacy. And in Darien Pharmacy, pharmacist Janice Ann Colter, who was named in a civil complaint alleging that the pharmacy and the pharmacist dispensed controlled substances that were not issued for medical use. They settled by agreeing to pay $3.1 million in civil judgements. There was, and this was the first ever Controlled Substances Act lawsuit filed in the US against the pharmacy in the Southern District of Georgia. So I guess that’s a good thing that we’re finally prosecuting in the Southern District of Georgia.

Darshan: But then you had the Liberty Square Pharmacy in which Wilton Clinton Clint Meeks agreed to pay $150,000 to settle claims related to the inability to account for tens of thousands of pills, including oxycodone and oxycodone and Soma. So again, if you’re missing drugs and you fail to report them. That becomes usually problematic, especially if you’re talking about controlled substances.

Darshan: Ludowici, Ludowici, I guess, Ludowici Drugs and his pharmacist in charge, John Townsend agreed to pay $55,000 to settle claims that they failed to keep records again to account for several categories of controlled substances. Again, you’re seeing for controlled substances barely to keep records is a huge continuing problem.

Darshan: Then you had in Illinois, Gibson’s Discount Drugs. They submitted over a thousand claims from make-believe prescriptions under the names of his wife, his family members, and his pharmacy customers. To maximize his fraudulent gains, Gibson allegedly chose the most expensive drugs like Creon, which is actually used, as you guys know, to treat chronic pancreatitis, Pentasa to treat ulcerative colitis and hydroxychloroquine to treat and prevent malaria. These prescriptions were never authorized by a medical practitioner and were never even actually filled, but they were reimbursed for it. So again, fraud becomes a huge issue.

Darshan: In the case of Lifecare Pharmacy, Wansa Makki and Mohamad Makki billed Medicare, Medicaid and Blue Cross Blue Shield of Michigan for approximately $9.2 million and these medications were allegedly never dispensed. The defendants billed the insurance companies for allegedly submitting the claims, delivering over 500 medications to patients who had actually died prior to the claim date of delivery. So again, that just sounds horrible.

Darshan: In the case of New Jersey, there was Prime Aid pharmacies and this company has now closed. They were involved in a $99 million scam. They were charged with healthcare fraud, wire fraud and conspiracy, which is punishable by up to 20 years of prison. And healthcare fraud carries a 10 year maximum sentence. The Prime Aid employees pay bribes and kickbacks to doctors and doctors’ employees to induce them to steer prescriptions to Prime Aid. So again, if you’re thinking about kickbacks, this is another example of that. They actually also gave expensive meals and payments by cash, check and wire transfer, paid an employee to work inside a doctor’s office and billed health insurance providers medications that were never provided.

Darshan: Then there was Company A and Frusci, F-R-U-S-C-I and Kalaba were sales reps of this Company A, this was a New Jersey marketing company of compounded prescriptions and they were involved in a large scheme to defraud the MTA, the Metropolitan Transit Authority, which provided health benefits to more than [inaudible 00:22:19] more than $2.8 million for the billing of medically unnecessary compounded prescriptions. And Kalaba paid them monthly cash bribes of approximately $100 per prescription. To ensure physicians prescribed these compounded medications regardless of medical necessity, Kalaba referred MTA beneficiaries to tell medicine physicians who were billed by Company A and its affiliates. So again, people are now using telemedicine to try to address these … to address concerns that a legitimate doctor may not allow it. So we’ll find a doctor who may not be local, but will allow it.

Darshan: Then there’s New York and CVS and Omnicare. And CVS and Omnicare were sued over fraudulent billing of Medicare and other government programs for outdated prescriptions for elderly and disabled people. There was Nassau pharmacy in which Cathy Grossman, the owner and pharmacist in charge of Nassau Pharmacy, will pay $100,000 to resolve allegations that she violated both the federal and the New York False Claims Act by billing for drugs that she and her staff never dispensed. From March 2010 through March 2017, she submitted or caused others to submit false claims for payment to Medicare and Medicaid. In some instances, she billed Medicare and Medicaid for drugs that patients never ordered or never picked up and billed the government for brand name drugs, but dispensed less expensive generic drugs. So again, she was trying to make money on the difference, if you will.

Darshan: Walgreens agreed to pay almost $210 million to resolve allegations that it improperly billed Medicare and Medicaid for hundreds of thousands of insulin pens knowingly dispensed to program beneficiaries who did not need them. The second settlement approved on January 15, 2019 requires Walgreens to pay 60 million to resolve allegations that overbilled Medicaid by failing to disclose and charge Medicaid the lower price that Walgreens offered the public through a discount program. So again, as you might know that these payers often have a best price rule, so that becomes a concern as well.

Darshan: In Clarkstown Pharmacy, and Clarkstown Pharmacy of Nyack LLC, four individuals, including two doctors and a pharmacist who had previously lost his license had been excluded from participating in Medicaid and Medicare programs for fraudulently billing more than $17 million they peddled opioids for profits. Again, see the opioids coming back in. The physicians were charged with payment of kickbacks and return for prescribing and ordering durable medical equipment, prescription drugs, and diagnostic tests that were neither medically necessary nor resulted from an examination by or consultation with a physician. They falsely billed Medicare for treatments that were never performed. The pharmacists were charged with submitting fraudulent claims to Medicare and Medicaid for medications that were not actually dispensed to patients.

Darshan: So, I live in Pennsylvania. I find this interesting, Campus Pharmacy, in which Kamra was convicted with conspiracy to distribute oxycodone outside of the usual course of professional practice with no legitimate medical purpose. Kamra knowingly filled fake oxycodone prescriptions written by Fisher in sham patient names and gave the oxycodone pills to Brown to sell in street level drug deals. And Kamra would then sell drugs without a prescription and then request that Fisher backdate a fake prescription in an attempt to cover the tracks.

Darshan: Then there was E-Z Pharmacy in Philadelphia that agreed to pay $400,000 to resolve liability. Allegedly billed Medicare for prescription medications that were not actually dispensed. These included Apidra, SoloSTAR, Renvela, Lantus, Revatio, Xifaxan and Enbrel.

Darshan: Then there was G & A Somerton Pharmacy in which the pharmacist in charge was alleged to have violated The False Claims Act, knowingly billed Medicare for over $1 million of prescription drugs that were never actually dispensed to beneficiaries. These medications included but were not limited to Lidoderm, Advair, Omeprazole, Nexium, Donepezil, et cetera, et cetera, et cetera. What’s interesting was that the US Attorney, the Assistant US Attorney came out and said, “Pharmacy fraud remains a priority for our office.” So again, stay tuned, be aware. If you have questions, feel free to reach out to me if you are, again, if you’re looking to sell your pharmacy, these issues pop up again and again.

Darshan: I’ve been involved in those situations where now you’re trying to help pharmacies that, shall we say, were not compliant the whole time and you’re going, “Well, how do I do this now?” So you want to address these concerns, you want to see what you can do to proactively handle these issues and just selling the pharmacy’s not going to necessarily help you. They can come back to you after the fact anyways.

Darshan: There was Prescription Center Plus in which Tim Forester, a registered pharmacy had four pharmacies in Pittsburgh, South Hills. He’s alleged to have obtained oxycodone and hydrocodone by misrepresentation, fraud and deception and he placed generic drugs into empty bottles of brand name drugs and sold the drugs as if they were brand name drugs.

Darshan: In Virginia there was Alexandra Care Pharmacy. There were two stores and Chowdhury here admitted to fraudulently billing health insurance programs for prescription medications that would not delivered to customers, even though his pharmacies received payment for these prescriptions, for making claims in the name of pharmacy customers that were not authorized by any physician, for medications that would not dispensed to any of the customers and for the unlawful distribution of Schedule II controlled substances outside the usual course of professional practice.

Darshan: Then you can look at the last issue, which is the compounding manufacturing issues. We started with that, but there are additional issues. There was PharmaCann where there was a 33-month sentence and a $25,000 fine to the former owner of an Indiana specialty pharmacy who was guilty of not only selling mislabeled drugs, which were up to 25 times stronger than indicated being given to infants. And then we have the NECC tragedy, in which case the Massachusetts Federal Judge overturned the conviction of a pair of New England compounding center executives agreeing that guilt was legally impossible in specific instance, they couldn’t have tricked the FDA as to whether the NECC was a drug manufacturer or a compounding center because that law never made that distinction at that time.

Darshan: However, there were, as you may know, several convictions. Gene Svirskiy was convicted of racketeering and racketeering conspiracy. He will serve 30 months in prison. Chris Leary, who was another pharmacist, had multiple felony counts of mail fraud and shipping of misbranded drugs with intention to defraud. He’s serving … he was sentenced to two years of probation, eight months of home confinement, and 100 hours of community service. It’s true that there was no financial gain he was trying to achieve, but he allowed the influence of others substitute what should have been his better judgment. So again, this goes back to the argument I’ve seen a lot of people do, which is, you know what? I’ve seen other people do it.

Darshan: This is probably a good idea. It’s in the best case … I know that others are doing it so I’m going to follow suit. Pharmacist Alla Stepanets introduced misbranded drugs into interstate commerce, but she did not act with an intent to defraud. This reduced her crimes for a misdemeanor. She was only convicted of misdemeanors and avoided prison. NECC founder Barry Cadden and Glenn Chin, Head Pharmacist Glenn Chin were the first two convicted and are serving prison terms of nine and eight years respectively. Kathy Chin and Michelle Thomas were guilty of approving prescription orders with fake patient names as well.

Darshan: So again, there was a lot of stuff that happened around NECC. So what does this mean for you as a pharmacist? What does this mean for your pharmacy? How do you address fraud issues? Are you potentially guilty of fraud issues? Do you have marketing companies that are being involved? Are you paying payments to physicians, to vets? Is that potentially going to become problematic? That’s obviously would may not go down to government fraud case. But there may be other fraud issues that kick in. So stay tuned. If you have questions, feel free to reach out to me. You can find me on twitter @darshantalks or you can actually reach out to my website, darshantalks.com and I look forward to hearing from you.

Narrator: This is the DarshanTalks Podcast, regulatory guy, irregular podcast with host Darshan Kulkarni. But you can find the show on Twitter @darshantalks or the show’s website at darshantalks.com.

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