Compounding Problems

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A pharmacy owner in Decatur, Alabama recently compounded problems for his business when he devised a healthcare fraud scheme that stole from TRICARE, the U.S. Department of Defense’s military health system. The pharmacy owner used his business to bilk more than $10 million from the government health insurance program and military families who deserved the benefits.

The Alabamian at the center of today’s case was the owner of a compounding pharmacy, where personalized medications were prepared for patients. Prosecutors allege that he used his business to front the multi-million dollar healthcare fraud scheme that targeted TRICARE and two third-party prescription-drug program administrators. The pharmacy owner has entered a plea agreement with federal prosecutors regarding charges that he conspired to defraud the federal health insurance program out of $10 million.

The pharmacy owner also happened to own another company that was licensed to re-label and repackage pharmaceutical drugs. (The business happened to be located in a suite adjacent to the compounding pharmacy. How convenient.) And, then there’s the 20 percent membership interest he held in another company that was an affiliate of yet another compounding pharmacy located in Ridgeland, Mississippi. (Let’s call that company pharmacy #2.)

Over about 11 months, the pharmacy #1 owner conspired with the affiliate and pharmacy #2 to steal healthcare dollars from the federal health insurance program. (He used improper contracts, kickbacks, mislabeled drugs and prescription forgeries to carry out the scam.)

Here’s how he pulled it off. According to court documents, he contracted with pharmacy #2 to refer TRICARE prescriptions to pharmacy #1. (He paid kickbacks to independent sales reps as an incentive to refer the fake prescriptions.) Then the pharmacy filled the forged prescriptions with misbranded over-the-counter medications, but billed TRICARE and other insurance plans for expensive prescription-only medications. (The owner of pharmacy #1 neglected to reverse the claims on prescriptions he knew were forged.)

Pharmacy #1 would fill the prescriptions referred by pharmacy #2. Then, the company would bill the third-party prescription-drug administrators and send almost all reimbursements received to pharmacy #2. The owner of pharmacy #2 paid a portion directly to the owner of pharmacy #1.

Investigators realized that something was amiss because pharmacy #1’s TRICARE billings skyrocketed two months after it entered into an agreement with pharmacy #2. (Perhaps the fact that TRICARE reimbursements went from $215,561 to $10.5 million was a sign that something was up. Either that, or Decatur was experiencing a plague of some sort that required lots of cream ointment.) Today’s article states that the 51-year-old pharmacy owner transferred about $10.2 million to pharmacy #2 to fund kickbacks to independent marketers. (About 90 percent of the $10.5 million was deemed pure profit.)

The owner of pharmacy #1 has entered a plea agreement with federal prosecutors regarding charges that he conspired to defraud TRICARE out of $10 million in this healthcare fraud scheme. His plea agreement requires him to forfeit $918,234 and a 2015 Lexus purchased with the criminal proceeds. (The article says that most of that amount has already been seized.) If he doesn’t compound his problems any further when he appears before the judge to enter his guilty plea, he’ll be looking at five years in prison.

Source: Today’s “Fraud of the Day” is based on an article entitled, “Decatur compounding pharmacy owner charged in $10 million health care fraud case,” posted on on October 4, 2017.

The owner of a Decatur compounding pharmacy entered a plea agreement with federal prosecutors Monday to charges related to charges that he conspired to defraud a federal health insurance program out of more than $10 million.

John Christopher Lemley, the 51-year-old owner of a Decatur pharmacy that operated as Southern Compounding, was charged by federal prosecutors with conspiracy to defraud a federal health insurance program.

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Larry Benson, Senior Director of Strategic Alliances, LexisNexis Risk Solutions - Government

Larry Benson is responsible for developing strategic partnerships and solutions for the government vertical. His expertise focuses on how government programs are defrauded by criminal groups, and the approaches necessary to prevent them from succeeding.

Mr. Benson has 30 years of experience in sales and business development. Before joining LexisNexis® Risk Solutions, he spent 12 years founding and managing two software technology startups. During the 1990s he spent 10 years as a Regional Director helping to grow a New England-based technology company from 300 employees to 7,000. He started his career with Martin Marietta Aerospace working on laser guided weapons and day/night vision systems.

A sought-after speaker and accomplished writer, Mr. Benson is the principal author of “Fraud of the Day,” a website dedicated to educating government officials about how criminals are defrauding government programs. He has co-authored WTF? Where’s the Fraud? How to Unmask and Stop Identity Fraud’s Drain on Our Government, and Data Personified, How Fraud is Changing the Meaning of Identity.

Benson holds a Bachelor of Science in Physics from Albright College, and earned two graduate degrees – a Master of Business Administration from Florida Institute of Technology, and a Master of Science in Engineering from Lehigh University.