The U.S. Attorney’s Office for the District of New Jersey recently released a superseding indictment against the owners and operators of several specialty pharmacies, alleging a $99 million fraud scheme. The indictment combined and added to several previous, separate indictments and criminal complaints against three owners of the pharmacies, and the operations manager. While many of the allegations are unsurprising from a healthcare fraud standpoint (e.g., kickbacks to physicians, billing for claims never dispensed), the indictment is noteworthy in that it included a charge for Wire Fraud (18 U.S.C. § 1343) based on the concept of transferring patients, prescriptions and refills to another affiliated pharmacy, after a pharmacy was terminated from the PBM’s networks.
The superseding indictment alleged that it was part of the conspiracy that, even though one of the pharmacies owned by the defendants had been terminated from a particular PBM, the defendants and others continued to profit off of the PBM by causing patients from the PBM’s network to be transferred from the pharmacy to another pharmacy owned and/or affiliated with the defendants. The affiliated pharmacy then billed and collected payments from the PBM for those patients’ prescriptions, including additional refills for which the original prescriptions had been dispensed by the terminated pharmacy.
The government further alleged that the pharmacy and its affiliated pharmacies took steps to conceal the ownership or involvement of related principals, and allegedly defrauded the PBM in so doing. Ultimately, the Government took the position that the total amount of the $34 million worth of transferred prescriptions were fraudulent.
These allegations give some cause for concern in connection with routine corporate planning and business contingency strategies. It is not uncommon to structure different assets (including pharmacy businesses) under different corporate structures, possibly with differing ownership arrangements. It is also common for healthcare entities to integrate in varying degrees, say, for clinical support. These activities serve legitimate business purposes, including asset protection, diversification of risk, and tax benefits. However, with these allegations, any activity involving the transferring of prescriptions from a pharmacy that has lost its PBM contract for whatever reason must be closely scrutinized. While the pharmacy in question had been terminated for alleged fraudulent billing, a zealous prosecutor might nevertheless extend the Government’s allegations to instances where a pharmacy was terminated for a contractual violation (for example, mailing under a retail network). This superseding indictment also highlights the importance of accurately completing the credentialing documentation and erring on the side of full disclosure, to avoid being alleged to have willfully concealed material information.
Frier Levitt routinely advises pharmacies on compliance with healthcare laws and PBM requirements, and can guide pharmacies in scrupulously completing PBM credentialing applications. If you’re facing network termination from a PBM network, or are undergoing PBM credentialing, contact Frier Levitt today.