Pharmacy Owner Fined $2.5 Million for Obstructing Medicare Audit

The U.S. Department of Justice announced this week, the guilty plea of pharmacy owner and pharmacist, Rodney Dalton Logan, to obstructing a Medicare audit in 2012.  In his plea agreement, Mr. Dalton agreed to pay a $2.5 million penalty and faces a maximum penalty of five years in prison.  Under Title 18, United States Code, Section 1516, a violation can result in a fine of $250,000 or twice the amount improperly gained through the illegal conduct, an amount that Mr. Dalton acknowledges is in excess of $2.5 million.  A copy of the Plea Agreement can be downloaded here.

Mr. Dalton owned and operated two retail and compounding pharmacies in Alabama, Sheffield Pharmacy and Homecare and Russellville Pharmacy.  The pharmacies sold compounded prescriptions in Alabama and other states.  CVS/Caremark, the Pharmacy Benefit Manager for Medicare, performed audits of the pharmacies in 2012, in part, due to the volume of submitted claims for compounded pain creams during a one-year period.

The Government’s case involved the position that bulk pharmaceutical powders were no longer reimbursable under Medicare Part D and that bulk pharmaceutical powders were also not approved by the FDA.  In the 2012 audits, CVS/Caremark requested documents that identified the ingredients used to prepare compounded prescriptions that were submitted to Medicare Part D for payment.  In response to the requests, Mr. Dalton, submitted documents that misstated that the ingredients used were FDA approved medications in tablet or capsule form when the ingredients were actually bulk powders.  Claims from both pharmacies used billing codes for the tablet or capsule form of the ingredient.

The investigation was a coordinated effort by the FBI, HHS-OIG and FDA-OCI.

“Obstructing a Medicare audit is something the OIG takes very seriously,” said HHS-OIG Special Agent in Charge Derrick L. Jackson.  Submitting documentation to Medicare to substantiate that tablets or capsules were utilized when, in fact, bulk pharmaceutical powders were actually used is straight-up fraud.”