Compounding Pharmacies to Pay $6.8M in Prescriptions-for-Money Scam

Three pharmacies and a billing company have agreed to pay more than $6.8 million to resolve allegations that they violated the False Claims Act by waiving co-pays, charging the government higher prices than allowed, and trading federal healthcare business with other pharmacies.

Those implicated are: DermaTran Health Solutions, LLC; Pharmacy Insurance Administrators, LLC; Legends Pharmacy; TriadRx; and the former owners of Lake Side Pharmacy and related entities.

According to the U.S. Department of Justice, in 2012 DermaTran Health Solutions opened in Rome, Georgia, to make and sell custom compound pain creams. The company’s owners at the time included DIII Consulting, LLC; SRM Holdings, LLC; Gussenhoven Holdings, LLC; Sam Moss; and Robert Gussenhoven. At the same time, another company named Pharmacy Insurance Administrators, LLC (PIA) was created to handle the billing for DermaTran. PIA was a subsidiary of Insurance Administrative Solutions, LLC; which was a subsidiary of Gulfcoast Administrators, LLC; which was majority-owned by Life & Health Holdings, Inc.; which was a subsidiary of State Mutual Insurance Company.

The government alleged that DermaTran and PIA created a copay-waiver program where patients would have their copays waived based on a brief, unverified statement of economic need. DermaTran and PIA also misled the government programs about the price being charged to uninsured, cash-paying patients by falsely stating that the price was high when, in fact, it was only $30. As a result, there were days that veterans were charged $600 or more for pain creams, while uninsured patients were charged only $30.

Government-backed health insurance programs such as TRICARE and the Federal Employees Health Benefits Program would reimburse hundreds of dollars for these prescriptions. But the government programs imposed certain restrictions to limit spending. For example, patients were required to contribute to the cost of the prescription in the form of co-pays. The government programs also limited payments to the usual and customary price—the price charged to a cash-paying, uninsured patient.

Auditors began to uncover these questionable practices and began to terminate DermaTran from their networks. DermaTran, looking for a way to continue to make money, began selling its out-of-network prescriptions to other pharmacies, according to the government.  The other pharmacies could fill the prescriptions because they were still in network. After filling the prescriptions, the other pharmacies remitted a portion of the proceeds to DermaTran and PIA. The government alleged that this arrangement constituted an illegal kickback. The other pharmacies that were alleged to have participated in this prescriptions-for-money scheme included Legends Pharmacy (Texas), Lake Side Pharmacy (Alabama), and TriadRx (Alabama).

The payments break down like this:

  • PIA will contribute $6.5 million to the settlement.
  • DermaTran is no longer operating and was sold in an arm’s-length transaction to a third-party buyer last year for the price of $40,000. That amount will be turned over to the government as part of the settlement.
  • MLDP of Texas, LP (a/k/a Legends Pharmacy) will pay $59,293.
  • TRIAD Rx, Inc. will pay $166,547.
  • Lake Side Pharmacy is no longer in business, but former owners of Lake Side Pharmacy will pay $110,724.

The case grew out of a whistleblower complaint United States ex rel. Doe v. DermaTran Health Solutions, LLC, et al., Civil Action No. 1:17-CV-1765. The whistleblower will receive $1,434,775 from the settlements. PIA also will pay her attorney’s fees.

As we have written about, the TRICARE program has been ripe for fraud involving compounding pharmacies dating back several years. In 2019, we wrote about a proposed rule by the U.S. Department of Defense that would allow it to impose civil monetary penalties (CMPs) against providers and suppliers who commit fraud and abuse against the TRICARE program. In September 2020, the final rule was issued, the text of which can be found here.

The Health Law Offices of Anthony C. Vitale has been representing clients under investigation for 30 years. The firm conducts confidential defense investigations and will take you through the process to reduce or eliminate criminal, civil, licensure and administrative liability. For more information call 305-358-4500

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