On May 2, 2023, the U.S. Department of Justice (DOJ) announced the indictment of two New York state pharmacy owners, Taesung Kim and Dacheng Lu, for their participation in an alleged $29 million healthcare fraud scheme.  Kim and Lu have been charged with conspiracy to commit healthcare fraud, conspiracy to commit money laundering and conspiracy to pay illegal healthcare kickbacks and bribes.
Kim and Lu co-owned and operated four pharmacies in the state of New York. The DOJ alleges that, between January 2015 and December 2022, Kim and Lu conspired to submit false and fraudulent claims to Medicare and Medicaid for dispensing pharmaceutical and over-the-counter products that were medically unnecessary, procured through the payment of kickbacks and bribes and/or not actually dispensed to patients.
For example, Kim and Lu allegedly instructed pharmacy employees to routinely waive copayments owed by Medicare and Medicaid beneficiaries for prescription medications the pharmacies dispensed and to falsify records regarding the waiver of these copayments. Kim and Lu also allegedly paid kickbacks and bribes in the form of cash, gift cards and in-store credit to Medicare and Medicaid beneficiaries who filled prescriptions at their pharmacies. In addition, Kim and Lu allegedly provided kickbacks and bribes in the form of salaries, free staff, rent and bonuses to medical providers who prescribed allegedly medically unnecessary medications. The indictment also alleges that Kim and Lu concealed the kickbacks by writing checks to various trading companies for what appeared to be legitimate business expenses, when the proceeds actually were used to pay kickbacks. To further disguise the source, nature and ownership of the proceeds, Kim and Lu also allegedly transferred funds between and among the four pharmacies.
If convicted, each defendant could face up to 10 years in prison for conspiracy to commit healthcare fraud, up to 20 years in prison for conspiracy to commit money laundering and up to 5 years in prison for conspiracy to pay illegal kickbacks and bribes. Kim and Lu also face significant civil liability under the federal False Claims Act (FCA) for allegedly engaging in fraudulent billing practices. Under the FCA, penalties include three times the amount of damages sustained by the government, plus penalties of between $13,508 and $27,018 for each false claim.
This indictment should serve as a reminder to all healthcare providers and pharmacies regarding the severity of civil and criminal penalties that can result from healthcare fraud. In recent years, the DOJ has increased its efforts and made it a priority to investigate and prosecute healthcare fraud in the pharmacy space. Accordingly, pharmacies should review their relationships with prescribers and ensure that they are not improperly incentivizing referrals. Any arrangements with potential referral sources should be properly documented and structured to comply with the federal Anti-Kickback Statute and its related safe harbors. Pharmacies should work with trusted counsel to review these arrangements and implement compliance programs to identify and mitigate compliance risks on a proactive basis.