At HLG, we have given close attention during the past year to the regulatory challenges faced by compounding pharmacies in this new era of FDA oversight. However, in recent weeks, it has become starkly evident that compounding pharmacists are, also, squarely in the prosecutorial sights of the DOJ. At HLG, our professional focus is on legal representation in business litigation and administrative proceedings, such as FDA inspections. However, we also have years of experience in the defense of parties charged with business-related crimes. For this reason, our most recent postings have discussed what we believe to be a dramatic uptick in prosecutorial activity directed at compounding pharmacies.

A legion of federal prosecutors announced on Thursday, July 13, 2017, that more than 400 people were being charged with health care fraud and opioid diversion schemes that totaled $1.3 billion in false billings. Attorney General Sessions called the action by the Medicare Fraud Task Force and other agencies, the “largest health care fraud takedown operation in American history.”

A little history is helpful to put this sweep into context. This was the eighth “Health Care Fraud Takedown,” each of which has occurred in the spring and summer, but not necessarily in consecutive years. Almost exactly two years ago, then Attorney General Lynch and HHS Secretary Burwell announced a similar nationwide sweep led by the Medicare Fraud Strike Force resulting in charges against 243 individuals for their participation in schemes involving approximately $712 million. In 2016’s Takedown, twenty-five (25) percent of the cases involved pharmacy fraud of some kind. That pattern appears to have been repeated in 2017.

Sessions asserted explicitly that some “pharmacists,” doctors, and nurses “have chosen to violate their oaths and put greed ahead of their patients. They seem oblivious to the disastrous consequences of their greed. Their actions not only enrich themselves, often at the expense of taxpayers, but also feed addictions and cause addictions to start.”

The federal Medicare Fraud Strike Force, which plays a central role in the Takedowns, maintains nine permanent offices in “hot spot” jurisdictions. They include Los Angeles, Houston, Dallas, Southern Louisiana, Chicago; Detroit, Brooklyn, Tampa, and Miami. Additionally, there are focused, local enforcement efforts, such as the Palm Beach County Sober Home Task Force, which in the past eight months has arrested twenty-eight (28) operators and owners of “sober homes” and drug treatment centers for literally buying and selling insured addicts. The Washington Post quotes the national health care publication, STAT, as chronicling “addict brokers” who reportedly earn tens of thousands of dollars by recruiting and arranging transportation and insurance coverage for desperate addicts from the Northeast and Midwest to go to drug rehabilitation facilities in Florida.

Compounding pharmacists in these hot spot markets should be particularly careful, but the broad scope of the Takedown indicates that pharmacists in even the smallest of markets are vulnerable. The Attorney General disclosed that the current investigations commenced as a result of tips from within local communities and from “very sophisticated computer programs that identify outliers.” Therefore, it is imperative that legitimate compounders minimize their distribution of opioids and other targeted pharmaceuticals and pay very close attention to their marketing and billing practices.

This year’s “Takedown” involved more than 1,000 law enforcement agents and was executed in 30 States and 41 federal districts. HHS’ Office of Inspector General also issued “exclusion notices” to 295 providers, including pharmacists, for opioid diversion and abuse. Once excluded, these providers may no longer participate in Medicare, Medicaid, or Tricare, a Department of Defense health care program.

“Marketing” and Billing Abuses. As part of the national “Takedown,” federal charges were announced against two more sales representatives of a Haleyville, Alabama compounding pharmacy, one from Tuscaloosa, Alabama and one from Destin, Florida.

The initial indictment in this case was discussed in HLG’s most recent posting. The two women involved in the new charges, both age 41, participated in a conspiracy to generate prescriptions and defraud health care insurers and prescription drug administrators, which violated federal statutes prohibiting health care fraud, wire fraud, and mail fraud.

These two sales representatives, like the woman indicted in late June, worked for Northside Pharmacy of Haleyville, which was doing business under the name “Global Compounding Pharmacy.” The pharmacy’s compounding and shipping facility was in Haleyville, with its prescription processing, billing, and customer care functions based in Clearwater, Florida.

One of the new indictments charges the sales rep with conspiring to solicit and receive kickbacks in return for obtaining prescriptions under Medicare and Tricare and with money laundering. Both women face counts of health care fraud for submitting fraudulent prescription claims to Blue Cross Blue Shield. Federal prosecutors have entered plea agreements with both women. As part of their plea agreements, the two representatives agreed to forfeit money to the government–$287,698 in one case and $401,628 in the other.

Global’s sales representatives were located in various States and were compensated for generating prescriptions from physicians and other prescribers. As we recently reported, in order to generate prescriptions, Global hired sales representatives who were married or related to doctors and other prescribers. The company encouraged sales representatives to volunteer at doctors’ offices where they could push Global’s products, and to obtain high-reimbursing prescriptions that Global would fill and bill for reimbursement.

Global contracted to participate in the pharmacy networks of third-party administrators, known as “pharmacy benefit managers” (PBM’s). The PBM’s included Prime Therapeutics, Express Scripts, and CVS/Caremark. The payees included Blue Cross Blue Shield, Medicare, and Tricare. When billing PBM’s, Global split drug quantities in order to evade PBM billing safeguards and automatically refilled and billed for prescriptions regardless of medical need. Global routinely waived co-pays in order to encourage patients to accept unnecessary medications and refills.

As an indication of the intensity of the investigation of this compounding pharmacy, the FBI, U.S. Postal Inspection Service, HHS’ Office of Inspector General, the Defense Criminal Investigative Service, and the Internal Revenue Service were all involved. This pharmacy was located in a tiny town in Northwest Alabama, far from any of the hot spots.

The message to all compounding pharmacists should be clear. Illegitimate marketing schemes and fraudulent billing practices will be caught.

Opioid Prescriptions. HLG regularly cautions its clients to pay very close attention to their opioid business practices, making sure that prescriptions are facially legitimate, volumes are reasonable, and record-keeping pristine. For example, one hundred twenty (120) of the 412 defendants arrested in the most recent Takedown were charged with opioid-related crimes.

Acting FBI Director Andrew McCabe, who participated in Thursday’s press conference, focused his comments on opioid prescription abuse. “In some cases, we had addicts packed into standing-room only waiting rooms, waiting for those prescriptions.” He also noted that some doctors wrote more prescriptions for controlled substances in one month than entire hospitals were writing.

South Florida accounted for the largest number of Takedown targets, seventy-seven (77). These defendants were charged with a combined $141 million in false billings for pharmacy fraud, home health care abuses, and over-billing of mental health services. Nearly half of those false billings were submitted by the operator of a single Florida addiction treatment center that recruited addicts to relocate to South Florida so that the operator could bill insurance for treatments never rendered. In return for their cooperation, the addicts were offered airline travel, trips to casinos, strip club outings, and drugs.

Also, among those charged are six Michigan doctors accused in a scheme to prescribe unnecessary opioids. A total of thirty-two (32) suspects were charged in Michigan for their roles in money laundering and drug diversion schemes involving $218 million. Similarly, a pain clinic in Houston, Texas simply distributed prescriptions in exchange for cash. One doctor at the clinic issued 12,000 opioid prescriptions for over 2 million dosages of illegal painkillers. “Patients” at the pain clinic paid a flat $300 cash for prescriptions. They were held in a waiting room overseen by armed guards, where no cellphones were allowed.

Locally, in the Northern and Southern Districts of Georgia, three defendants were charged in two health care fraud schemes involving $1.5 million in fraudulent billings. The owner and operator of the “Georgia Center for Health, Wellness & Recovery” in Lithonia, a licensed psychologist, along with an employee of the clinic, were accused of submitting thousands of fraudulent claims to Medicaid for services that were not provided or were not entitled to reimbursement.

The Takedown was led and coordinated by the DOJ’s Criminal Division, Fraud Section’s Health Care Fraud Unit in conjunction with the Medicare Fraud Strike Force (MFSF) –a partnership between the Criminal Division, U.S. Attorney’s Offices, the FBI, and HHS-OIG. The operation also included the Drug Enforcement Administration, the Defense Criminal Investigative Service, and State Medicaid Fraud Control Units.

The Intensity of Governmental Attention. The national press conference on Thursday featured personal appearances by Attorney General Sessions, the Acting Director of the FBI, and the Health and Human Services Secretary. They were joined by the Acting Assistant Attorney General of DOJ’s Criminal Division, the Acting Administrator of the Drug Enforcement Administration, the Inspector General of HHS, the Chief of IRS’ Criminal Investigation Division, the Administrator of the Centers for Medicare and Medicaid Services, and the Deputy Director of DCIS. Local press conferences, complete with government-issued press kits, were held in those jurisdictions where warrants were executed.

The national scope and the intensity of this effort should cause all compounding pharmacists to re-double their compliance efforts. Place call HLG if we can be of assistance, or if you wish additional information.