An indictment last week of the owner of a compounding pharmacy, its marketers and a physician in California serves as warning to all concerned, that the government has targeted its investigations on marketing and is dialed-in on conducting these type of complex investigations. The owner of Valley View Drugs, Inc., owners and marketers of its contracted marketing partners, Pro-Med Marketing, LLC, its subagent, Samia Solutions, LLC, and Western Medical Solutions, and physician, John Pal Singh Janda were indicted by a Grand Jury in the Central District of California and charged with the following:

  • Conspiracy to Solicit, Receive, and Pay Illegal Remuneration for Health Care Referrals;
  • Illegal Remunerations for Health Care Referrals;
  • Aiding and Abetting and Causing an Act to be Done;
  • Criminal Forfeiture.

A copy of the indictment can be downloaded here.

As the FisherBroyles Pharmacy Team has advised, as recently as last week, we have observed an increase in the Department of Justice, Department of Defense, and Department of Labor’s coordinated efforts to conduct investigations into alleged violations of the False Claims Act for past billing and claims submitted to federal health care payor programs. (Our alert, Feds Increasing Enforcement on Pharmacies for Past Billing to TRICARE and the Department of Labor can be viewed here.) In breaking news today, Attorney General Loretta Lynch announced arrests in a $900 million Medicare fraud takedown. As part of a three-day nationwide “takedown,” the government announced charges against 301 medical professionals who allegedly charged Medicare with more than $900 million in fraudulent billing. The arrests were in 36 districts across the country and involved doctors, pharmacists, and other medical professionals. Attorney General Lynch specifically mentioned the increasing number of cases featuring compounded drugs in her remarks.

The case that is the subject of this alert was brought to the Grand Jury by the U.S. Attorney’s Office for the Central District of California, and outlines the perfect trifecta of an investigation. The indictment states amounts billed to TRICARE ($10,066,040 submitted, $9,893,040 paid), Medicare ($2,504,248 submitted, $1,108,987 paid), and the Department of Labor ($3,589,704 billed, $689,521 paid) between September 2011 and June 2015. In all, approximately $20 million was billed to health care benefit programs.

What triggered this investigation has not been made public however, in our experience, the trigger is most commonly the volume of prescription claims submitted as well as the volume of prescriptions written by a physician. Of note in this indictment is that 1,810 TRICARE beneficiaries received prescriptions from Valley View Drugs but only 15 of those beneficiaries lived within a 20 mile radius of the pharmacy. Multi-state mail order pharmacies with the majority of their revenue generated for compounded drugs, is another component the government looks for in these investigations.

Worthy of noting in this investigation is the government’s use of an undercover agent posing as a beneficiary. In other matters, we have knowledge of the government “turning” marketers into confidential informants, usually in exchange for non-prosecution for their involvement in illegal marketing activities.

The government has developed a clear understanding of the various marketing practices and corporate structures many compounding pharmacies have employed. The indictment alleges the following:

  • Valley View Pharmacy contracted with Pro-Med Marketing to provide “marketing consulting services.” Valley View was Pro-Med’s sole client and the pharmacy funded Pro-Med Marketing to pay marketers and physicians to generate prescriptions. Valley View is owned and operated by defendant David Jensen. Unindicted Co-Conspirator A and Co-Conspirator B formed Pro-Med Marketing.
  • Samia Solutions, LLC entered into a “Marketing Subagent Agreement” with Pro-Med Marketing to generate prescriptions for Valley View. Samia was formed by defendants, Michael Sinel and Michael Roub.
  • Western Medical Solutions recruited independent contractors to market compounded medications to physicians on behalf of pharmacy clients. Western Medical was operated by unindicted Co-conspirator C and Co-Conspirator D. Defendant, Gary Schoonover was retained as an independent contractor by WMS and marketed on behalf of Valley View.
  • Physician, John Pal Singh Janda referred at least 148 TRICARE beneficiaries to Valley View for compounded pain medications. Janda is alleged to have received a percentage of the gross revenue for the referrals he provided.

Between September 2011 and June 2015, defendant Jensen, through Valley View and Pro-Med Marketing is alleged to have paid: defendants Sinel and Roub, through Samia, approximately $4.7 million; WMS approximately $4.6 million of which defendant Schoonover received approximately $250,000; and defendant Janda, through an intermediary-relative, P.B., approximately $345,000.

Valley View, Pro-Med Marketing, defendants Jensen, Sinel, Roub, Schoonover, Janda and their co-conspirators would make and receive payments in exchange for referring beneficiaries to Valley View. The indictment alleges that Pro-Med Marketing was formed to disguise the illegal nature of the payments. Valley View and Pro-Med Marketing paid referral fees disguised as commission fees under “Marketing Subagent Agreements.” The marketing agreements were falsely “for the purpose of providing information to the community” regarding compounded drugs when they were actually used to provide 33% to 50% of the gross revenue received by Valley View as commissions to the marketers and physicians.

Marketers would provide physicians with preprinted prescriptions for compounded pain medications that maximized the amount to be billed to federal health care programs. Physicians, including Janda, would authorize the pre-printed prescriptions without a bona fide physician/patient relationship; without the knowledge of the beneficiary; and without considering an FDA approved, non-compounded prescription.

In order to track referral fees, Jensen and the marketers made several arrangements including:

  • Assigning marketers unique codes;
  • Requiring prescriptions to bear the marketer’s code;
  • Using software programs for prescription billing and tracking and, giving marketers access to the programs;
  • Preparing and emailing co-conspirators detailed spreadsheets of referral fees owed to marketers and physicians.

In January 2015, about the time TRICARE was starting its revamp of its reimbursement policies for compounded drugs, Valley View emailed a letter to its marketers regarding government programs, allegedly from its legal counsel, citing the “Federal Anti-Kickback Statute” and noting the need for restrictions on marketing practices and methods of compensation. The letter referenced the creation of a “Professional Employer Organization” to safeguard the compensation arrangements amongst “Valley View, Pro-Med Marketing and you,” referring to the recipient marketers. The letter also noted that because commission payments to independent contractors may be prohibited by Federal and most State laws, Pro-Med Marketing would be circulating new marketing agreements that re-characterized the independent contractors i.e. marketers, as bona fide employees. This end-game tactic does not and did not prevent an indictment.

The indictment also includes a criminal forfeiture allegation. In addition to rights, title and interest in all property, real or personal, the government seized approximately $9.9 million from various bank accounts of the defendants.