Government Prosecutions of Compounded Drugs Schemes

In the past several years, the federal government has focused investigative and enforcement resources on pharmacies that compound drugs, and the marketers, doctors and pharmacists involved. Criminal and civil actions have been brought for violations based on statutes prohibiting kickbacks, fraud and false claims.

A compounded drug is one that is supposed to be tailored to a particular patient’s needs. These compounds are legitimately prescribed and used by very young or older patients that have difficulty swallowing pills, patients that cannot tolerate dyes used in pills or patients with certain allergies. Most are topical creams for pain or scars, or specialized vitamins. While these compounded drugs are not approved by the Food and Drug Administration (FDA), they are subject to regulation and enforcement actions by a variety of state and federal agencies.

The scope of the problem has been growing rapidly. The government claims that from 2013 to 2015, $2 billion in fraud was committed against one government program alone, TRICARE, the provider of civilian benefits for military personnel and their families. The reason that compounded medications are ripe for fraudulent schemes is because of the huge mark-up in costs that certain insurance companies and the federal government have been willing to pay for certain formulations. Some of the topical creams and ointments for pain and scars have been billed and reimbursed by insurers at upwards of $10,000 or more per prescription.

Often, the alleged schemes involve marketers that are paid a percentage of the reimbursed amount charged for each prescription. These marketers typically receive 30-50% of the amount received from the insurer. According to the government, in these schemes the marketers target people who are covered by insurance companies that reimburse for these types of prescriptions. Under the government’s theory, the marketers improperly target potential patients not based on true medical need, but rather based upon their insurance coverage.

Other schemes that have been successfully prosecuted involved cash kickbacks to the doctors who wrote the prescriptions, kickbacks to patients who bring in other colleagues that have similar insurance plans and pharmacies that simply submitted claims for compounded medicines that were never actually made or provided to the patients.

In these investigations, the government looks for what they believe are indicia of fraud:

• High volume of production or prescriptions
• Mass marketing using individual marketers or call centers
• High volume of out-of-state prescriptions
• Changing of formulations based upon insurance coverage/reimbursement
• Mass production of the compounds rather than for the individual patient
• Lack of true doctor-patient relationship; use of telemedicine
• Use of preprinted prescriptions
• Steering patients to particular doctors who write the prescriptions for their benefit rather than the patients’ medical needs

Physicians, pharmacies and sales representatives must be particularly careful when dealing with compounded drugs. They must insure that there is a true doctor-patient relationship, that the patient requires the compounded medication (its’ medically necessary), that the medication is compounded for that particular patient rather than mass produced and that the fees received for the marketing services are based upon the time and efforts expended in legitimate marketing activities.

At Stahl Gasiorowski Criminal Defense Lawyers we have defended these types of cases and have extensive knowledge of how these cases are investigated and prosecuted.

Stahl Gasiorowski Criminal Defense Lawyers aggressively defend individuals charged with complex federal and state crimes. Founder Robert G. Stahl is recognized as one of the top criminal defense attorneys in the NY/NJ area for his skills, knowledge and success. To contact us to discuss your case, call 908.301.9001 for our NJ office and 212.755.3300 for our NYC office, or email us at rstahl@stahlesq.com.