A Pharmacy, an Equity Firm, and Two Executives of the Pharmacy – Agree to Settle False Claims Act Allegations for $21.36 Million

The US Department of Justice reported on September 18, 2019 that a compounding pharmacy, Diabetic Care Rx LLC (Patient Care America), a private equity firm (Riordan, Lewis & Haden, Inc.) and the CEO and former VP of Patient Care America agreed to settle the charges which were centered on an alleged kickback scheme involving payments by TRICARE. TRICARE is the federal health program for retired military members and the families of these members, veterans, and retirees.

The scheme involved kickbacks to induce referrals for prescriptions for pain creams, scar creams, and vitamins. The pharmacy and the equity firm agreed to pay $21,050,000. The CEO agreed to pay $300,000. The VP agreed to pay – at least $12,788.

The case was initiated by two former employees of PCA. The qui tam provisions of the False Claims act award whistleblowers, such as these employees, a percentage of any recovery in cases where the DOJ intervenes or where private actions are brought. The amount of the whistleblower award hasn’t been determined yet. Awards generally range from 15% up to 30%.

Kickbacks mean that taxpayers are paying for products and services that often aren’t needed. They force the overall cost of healthcare to rise. Kickbacks also affect the integrity of the health care system. Physicians and others health providers should refer patients based on the patient’s needs and not based on any financial incentives.

The False Claims Act (FCA) charges

The FCA complaint was brought against the compound pharmacy for “allegedly paying kickbacks to outside ‘marketers’ to target military members and their families for prescriptions for compounded creams and vitamins, which were formulated to ensure the highest possible reimbursement from TRICARE.” The government claimed that the marketers made payments to telemedicine physicians who prescribed the creams and vitamins – without even seeing the patients – and, sometimes, without even talking to them.

The pharmacy also was alleged to have worked with the marketer to jointly pay the copayments the patients owed, for patients the marketer referred, without any showing of financial need. The payments were disguised as having come from a “sham charitable organization” affiliated with the marketer.

The allegations include complaints that the pharmacy continued to claim reimbursement from TRICARE for the prescriptions even though patients disclosed that they hadn’t consented to the prescription or that there was a “valid patient-prescriber relationship.”

The private equity firm was alleged to have known of and agreed to the scheme to pay the outside marketers and the related misconduct. The executives are alleged to have executed the scheme.