Healthcare Fraud for Medically Unnecessary Compounded Drugs

On June 28, 2018, the United States Department of Justice announced numerous healthcare fraud enforcement actions targeting schemes billing reimbursors for medically unnecessary compounded drugs, including compounded pain and scar creams. Compounding pharmacies allegedly included specific combinations of ingredients in compounded creams to increase the billing amount.


The charges aggressively targeted schemes billing Medicare, Medicaid, TRICARE (a health insurance program for members and veterans of the armed forces and their families), and private insurance companies for medically unnecessary compounded medications that often were never even purchased and/or distributed to beneficiaries. In the Central District of California, for example, one indictment in a compounding pharmacy fraud case alleged an attorney/marketer paid kickbacks and offered incentives such as prostitutes and expensive meals to two podiatrists in exchange for prescriptions written on pre-printed prescription pads, regardless of the medical need for the prescriptions. Once the prescriptions were filled, members of the conspiracy submitted approximately $250 million in fraudulent claims to federal, state, and private insurers for the compounded drugs.


The United States Department of Justice announced additional healthcare fraud enforcement actions targeting schemes billing reimbursors for medically unnecessary compounded drugs. In the Northern and Southern Districts of Alabama, 15 defendants were charged for their roles in eight healthcare fraud schemes involving compounding pharmacy fraud and unlawful distribution of controlled substances. In the District of Connecticut, three defendants, including two medical professionals, were charged for their roles in two schemes involving compounding drugs and unlawful distribution of Schedule II and IV controlled substances. In the Northern District of Florida, four defendants were charged in a scheme to defraud TRICARE and other private insurance companies out of more than $8 million for medically unnecessary compounded creams and pills. In the Northern, Middle, and Southern Districts of Georgia, 12 defendants, including two physicians, were charged in nine healthcare fraud, drug diversion, or compounding pharmacy schemes involving more than $13.5 million in fraudulent billings.


The FDA Commissioner, Scott Gottlieb, M.D., issued a statement regarding the FDA’s efforts to address the need for compounded drugs for patients who cannot use FDA-approved drugs. “The FDA is aware of many pharmacies that compound topical pain creams comprised of multiple ingredients. Oftentimes, at least one of the ingredients is an active ingredient in an FDA-approved topical pain cream, such as lidocaine. The remaining ingredients may be active ingredients in drugs approved by the FDA for non-topical administration to treat non-pain related indications, such as antidepressants, anticonvulsants, antivirals and narcotics.”


“Clinicians and patients may not be aware of potential safety risks, or the potential lack of effectiveness, associated with certain ingredients and combinations of ingredients in their compounded topical pain creams,” said Dr. Gottlieb. “In the coming months, the FDA intends to announce its plan to improve the information available about compounded topical pain creams, which will help inform reimbursors’ and the medical community’s decisions about these products.”


“The FDA is also taking steps to ensure that outsourcing facilities, a new type of compounder created by federal legislation enacted in 2013, are compounding drugs from bulk drug substances for which there is a clinical need. In March of this year, the agency issued a draft guidance that describes how the FDA proposes to evaluate clinical need. Soon, the FDA will be announcing its plan to secure input from medical professionals about clinical need for the nominated substances.”


“In addition, the FDA is inspecting compounding facilities to assess whether drugs that are essentially copies of FDA-approved drugs are being compounded for patients who could use an FDA-approved drug. As we described in our January 2018 communication, such a practice creates significant public health risks because patients are unnecessarily exposed to drugs that have not been shown to be safe and effective, and it undermines the integrity of the premarket approval processes that Congress put in place to protect patients from unsafe, ineffective, or poor quality drugs.”


“Furthermore, the FDA is inspecting compounding facilities not registered as outsourcing facilities to confirm that they are distributing compounded drugs pursuant to valid patient-specific prescriptions. The prescription requirement helps to ensure that drugs compounded in these facilities, which are not FDA-approved, are provided to patients based on individual patient needs.”


See the DOJ Announcement


See the FDA Announcement


See also Medical Law Perspectives Report: Compounded Drugs: Mix of Risk and Liability


See also Medical Law Perspectives Report: Drugs, Dosage, and Damage: Physician Liability for Prescribing or Administering Medication