A former compounding pharmacy, a related pharmacy billing company, and three retail pharmacies agreed to pay more than $6.8 million to settle alleged violations of the False Claims Act for participating in a scheme to charge patients in federal health programs hundreds of dollars above the real price for pain relief creams.
An accountant working for the compounding pharmacy, DermaTran Health Solutions, blew the whistle on the alleged fraud and filed a lawsuit against the company in 2017 in U.S. District Court for the Northern District of Georgia. In line with the qui tam provisions of the False Claims Act, she will receive more than $1.4 million, the Department of Justice (DOJ) said in a press release Wednesday.
DermaTran opened in 2012 to make and sell custom pain creams. At the same time, a separate company, Pharmacy Insurance Administrators (PIA), was created to handle the billing for DermaTran.
Pain creams were popular with patients of TRICARE, a federal health program for military and their families, and federal employees insured through the Federal Employees Health Benefits Program. To tamp down overuse, the programs required patients to pay a co-pay for the creams.
The federal programs reimburse veterans and other patients “the usual and customary” price for pain creams. DermaTran creams sold to uninsured patients for about $30 each, but they sold for more than $600 each to veterans and patients of other federal programs, the DOJ said.
DermaTran and PIA encouraged sales of their creams to veterans by creating a co-pay waiver program, in which patients who made a “brief, unverified statement of economic need” didn’t have to make a co-pay, the DOJ alleged.
Auditors at the federal programs eventually “uncovered these problems and began to terminate DermaTran from their networks,” the DOJ said. Undaunted, DermaTran and PIA sold the prescriptions to at least three other pharmacies that were still in business with TRICARE for a cut of the payments received.
“[T]his arrangement constituted an illegal kickback,” the DOJ alleged.
PIA agreed to pay $6.5 million as part of the settlement, while the new owners of DermaTran, which is no longer operating, will pay $40,000. The other pharmacies—Legends Pharmacy, TriadRx, and Lake Side Pharmacy—or their former owners will pay about $337,000 combined, according to the DOJ.
PIA will also pay the attorney fees of the whistleblower.
“Waiving co-pays and charging the government higher prices leads to overutilization and costs federal programs millions of dollars in unnecessary spending,” said U.S. Attorney Ryan Buchanan in the DOJ’s release. “Our office will continue to enforce the False Claims Act to recover government payments that result from such misconduct.”
PIA did not respond to a request for comment.