In November, the chief compliance officer of a pharmacy holding company was sentenced to over four years in prison and ordered to pay $21.7 million for his part in a conspiracy to commit health care fraud and wire fraud.
AIC Holdings, LLC owned seven pharmacies located in Michigan, Missouri, Kansas, Virgina, Georgia, Tennessee, and Texas. As part of the conspiracy, the COO and his co-conspirators allegedly took steps to conceal the true ownership of the pharmacies and engaged in other nefarious activities, such as refilling highly reimbursed medications and supplies without patient consent, enrolling mail order pharmacies as retail pharmacies to avoid regulatory oversight, submitting false and fraudulent test claims, submitting prescription claims for deceased Medicare and Medicaid beneficiaries, and failing to collect copays from Medicare beneficiaries.
Specifically, to conceal the holding company (and its principals’) ownership and control over the pharmacies, the COO and his co-conspirators directed other individuals to represent themselves as the pharmacies’ owners in credentialing submissions. However, these documented “owners” did not maintain any of the benefits of ownership, nor did they have any control over the pharmacies they purportedly owned. Rather, they were “straw owners.”
This case serves as a reminder that maintaining silent ownership in a pharmacy, and more egregiously misrepresenting ownership by using a “stand-in,” carries a high degree of risk and will subject the responsible stakeholders to agency investigations and possible criminal enforcement actions. This is not the first instance of the government holding administratively affiliated entities and individuals liable for the impermissible activities of the healthcare organizations that they invest in or manage. Rather, this trend of approaching healthcare entities with this broad lens is growing. Creating arrangements with bifurcated ownership and control or multiple layers of concealed ownership will not insulate individuals where the downstream entity engages in illegal actions; concealed ownership can be viewed as a separate, aggravating factor associated with the suspect conduct.
It is relevant to note that the premise of this enforcement action applies beyond the pharmacy context. Any healthcare company that mispresents its ownership through board or credentialing applications may be subject to similar scrutiny. Moreover, many management service organization (MSO) relationships through which too much control is exerted over a practice or pharmacy can be viewed similarly: if the MSO is sweeping all revenue from the practice or pharmacy, and the “owners” do not have traditional ownership incentives, responsibilities, and control, those individuals may be viewed as straw owners. Thus, any healthcare organization entering an MSO relationship must consult with counsel to ensure the compliance of the MSO arrangement.
Contact Frier Levitt to speak to an experienced regulatory attorney who can review your current or proposed organizational structure to assess the compliance of your practice or pharmacy’s ownership and management.
