Pharmacy, private equity firm fined $21.36 mln for kickback scheme

September 18, 2019

By a Biometrica staffer

Compounding pharmacy Diabetic Care Rx LLC, or Patient Care America (PCA), PCA’s Chief Executive Officer Patrick Smith, PCA’s former Vice President of Operations Matthew Smith, and private equity firm Riordan, Lewis & Haden Inc. (RLH) agreed to resolve a lawsuit alleging that they violated the False Claims Act.

PCA and RLH have agreed to pay $21.05 million, Patrick Smith has agreed to pay at least $300,000, and Matthew Smith has agreed to pay at least $12,788. These settlement amounts were based on defendants’ ability to pay, the Department of Justice (DoJ) said in a statement on September 18.

The violation was with regards to their involvement in a kickback scheme to generate referrals of prescriptions for expensive pain creams, scar creams, and vitamins regardless of patient need, which were reimbursed by TRICARE, the federal health care program for military members and their families.

PCA allegedly paid 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 United States alleged that the marketers paid telemedicine doctors who prescribed the creams and vitamins without seeing the patients, or in some cases, without even speaking to them.

The settlement also resolves the United States’ allegations that PCA and a marketer routinely jointly paid the co-payments owed by patients referred by the marketer, without any verification of the patients’ financial needs, and then disguised the payments as coming from a sham charitable organization, which was affiliated with the marketer.

Finally, the settlement resolves the United States’ allegations that PCA continued to claim reimbursement for prescriptions referred by the marketers despite regularly receiving complaints from patients that revealed the prescriptions were being generated without patient consent or a valid patient-prescriber relationship.

RLH, the private equity firm that managed PCA on behalf of its investors, allegedly knew of and agreed to the plan to pay outside marketers to generate the prescriptions and financed the kickback payments to the marketers. The lawsuit resolved by the settlement was originally filed under the whistleblower (or “qui tam”) provisions of the False Claims Act by Marisela Medrano and Ada Lopez, two former employees of PCA.

“Kickback schemes taint decision-making and cause taxpayer-funded health care programs to pay for items or services that patients may not need. We will hold accountable health care providers involved in such schemes designed to induce referrals of prescriptions that are reimbursed by federal health care programs,” said Assistant Attorney General Jody Hunt for the DoJ’s Civil Division.

Note – The claims resolved by the settlement are allegations only and there has been no determination of liability. The lawsuit is captioned United States ex rel. Medrano and Lopez v. Diabetic Care Rx LLC, d/b/a Patient Care America, et al., No. 15-CV-62617 (S.D. Fla.)