The $6.8 million settlement paid by four pharmacies to settle False Claims Act civil claims warns other pharmacies and other health care providers against improper copayment or other cost sharing waiver, billing and referral practices.
The Department of Justice announced October 12, 2022 that DermaTran Health Solutions, LLC (“DermaTran”); Pharmacy Insurance Administrators, LLC; Legends Pharmacy; TriadRx; and the former owners of Lake Side Pharmacy and related entities, agreed to pay $6,876,564 to resolve allegations that they violated the False Claims Act by waiving copays, charging the government higher prices than permitted, and trading federal healthcare business with other pharmacies.
The government alleged that in 2012, pharmacy DermaTran opened in Rome, Georgia, for the purpose of making and selling custom “compound” pain creams. DermaTran’s owners during the relevant time include 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. During the relevant time, 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.
Compound pain creams were very lucrative. Government-backed health insurance programs such as TRICARE (for the military) and the Federal Employees Health Benefits Program (for federal workers) 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 copays. The government programs also limited payments to the “usual and customary price”—the price charged to a cash-paying, uninsured patient.
The Government alleged that DermaTran and PIA found ways to avoid these restrictions. 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 that price was high when, in fact, it was only $30. As a result, there were days that veterans were charged $600+ for pain creams, while uninsured patients were charged only $30.
Eventually, various auditors uncovered these problems and began to terminate DermaTran from their networks. The Government alleged that DermaTran, looking for a way to continue to earn money, began selling its out-of-network prescriptions to other pharmacies. The other pharmacies could fill the prescriptions because they were still in network. After filling the lucrative 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 participated in this prescriptions-for-money scheme included Legends Pharmacy (in Texas), Lake Side Pharmacy (in Alabama), and TriadRx (in Alabama).
This settlement resulted from a joint investigation by the U.S. Attorney’s Office for the Northern District of Georgia, the FBI, the Defense Criminal Investigative Service, the US Office of Personnel Management – Office of the Inspector General, the U.S. Postal Service – Office of Inspector General, and the Health and Human Services – Office of Inspector General.
This civil settlement resolves a lawsuit filed in the U.S. District Court for the Northern District of Georgia by a former accountant for DermaTran, under the qui tam, or whistleblower provisions, of the False Claims Act. United States ex rel. Doe v. DermaTran Health Solutions, LLC, et al., Civil Action No. 1:17-CV-1765. Under the False Claims Act, private citizens may bring suit for false claims on behalf of the United States and share in any recovery obtained by the government.
Under the settlement, 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 former owners include Titan Medical Marketing, LLC; Donald Wayne Bogue; George Takashi Elkins; James Bernard Bogue, Jr.; Robert Joseph Puckett, Jr.; Robert Joseph Puckett, Sr.; Stephen Weston Wilson; and Charles Franklin Taylor, Jr. The whistleblower will receive $1,434,775 from the settlements. PIA will also pay her attorney’s fees.
The settlement documents the commitment of the Justice Department, the Department of Health & Human Services (“HHS”) Office of Inspector General (“OIG”) and other federal agencies to enforce the False Claims Act to recover government payments that result from improper waiver of copays, charging the government higher prices and other improper practices in violation of the False Claims Act. The agencies made a point of including their respective warnings in their announcement of the settlement.
“Health care fraud abuse like this case erodes the trust patients have in the health care system,” said Keri Farley, Special Agent in Charge of FBI Atlanta. “The FBI will not stand by when there are allegations of companies operating corporate wide schemes to illegally line their pockets.”
“Fraud through compounding pharmacies bilked billions out of TRICARE and undermined the integrity of our healthcare system designed to care for our service members and their families,” stated Cynthia Bruce, Special Agent in Charge of the Department of Defense, Office of Inspector General, Defense Criminal Investigative Service (DCIS). “I appreciate the partnership among involved law enforcement agencies and the U.S. Attorney’s Office to bring this matter to justice.”
“The OPM OIG has no tolerance for businesses that knowingly take advantage of FEHBP, violating the rules to make a profit,” said Amy K. Parker, Special Agent in Charge, OPM OIG. “I am extremely proud of the hard work of our investigators, analysts, and other law enforcement partners because overcharging the government is not a victimless crime – it contributes to higher premium prices and harms the financial integrity of the FEHBP.”
“The U.S. Postal Service, Office of Inspector General, will continue to tirelessly investigate those who commit frauds against federal benefit programs and the U.S. Postal Service. This settlement is a clear message that the USPS OIG is dedicated to rooting out corruption and bringing to justice those responsible for these crimes, said Special Agent in Charge Matthew Modafferi of the U.S. Postal Service, Office of Inspector General Northeast Area Field Office. The USPS OIG would like to thank our law enforcement partners and the Department of Justice for their efforts in this investigation”.
“Health care providers that try to boost their profits by submitting fraudulent claims to Federal health care programs threaten the integrity of those programs and drive up prices for everyone,” said Tamala E. Miles, Special Agent in Charge with the U.S. Department of Health and Human Services Office of Inspector General. “We work tirelessly alongside our law enforcement partners to protect the integrity of Federal health care programs and to ensure the appropriate use of taxpayer dollars.”
We hope this update is helpful. For more information about the these or other health or other legal, management or public policy developments, please contact the author Cynthia Marcotte Stamer via e-mail or via telephone at (214) 452 -8297.
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About the Author
Recognized by her peers as a Martindale-Hubble “AV-Preeminent” (Top 1%) and “Top Rated Lawyer” with special recognition LexisNexis® Martindale-Hubbell® as “LEGAL LEADER™ Texas Top Rated Lawyer” in Health Care Law and Labor and Employment Law; as among the “Best Lawyers In Dallas” for her work in the fields of “Labor & Employment,” “Tax: ERISA & Employee Benefits,” “Health Care” and “Business and Commercial Law” by D Magazine, Cynthia Marcotte Stamer is a practicing attorney board certified in labor and employment law by the Texas Board of Legal Specialization and management consultant, author, public policy advocate and lecturer widely known for 30+ years of health industry and other management work, public policy leadership and advocacy, coaching, teachings, and publications.
A Fellow in the American College of Employee Benefit Counsel, Vice Chair of the American Bar Association (“ABA”) International Section Life Sciences and Health Committee, Past Chair of the ABA Managed Care & Insurance Interest Group, Scribe for the ABA JCEB Annual Agency Meeting with HHS-OCR, past chair of the the ABA RPTE Employee Benefits & Other Compensation Group and current co-Chair of its Welfare Benefit Committee, Ms. Stamer is most widely recognized for her decades of pragmatic, leading edge work, scholarship and thought leadership on health and managed care industry legal, public policy and operational concerns.
Ms. Stamer’s work throughout her 30 plus year career has focused heavily on working with health care and managed care, health and other employee benefit plan, insurance and financial services and other public and private organizations and their technology, data, and other service providers and advisors domestically and internationally with legal and operational compliance and risk management, performance and workforce management, regulatory and public policy and other legal and operational concerns.
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