What is Compounding Pharmacy Fraud and How Does it Work?
Compounding is the practice of combining pharmaceutical ingredients into a specialized form or dosage designed to accommodate the individualized needs of a specific patient, for instance combining pharmaceutical compounds into a liquid or cream form because the intended patient cannot digest medication in pill form. Because compounding pharmacies personalize medication to a specific patient, it would be not be feasible for the FDA to test and approve each and every individualized compound and thus compounded pharmaceuticals are not regulated by the FDA. This alcove of de-regulation, designed to help patients who could not find any other remedy, has been exploited by unscrupulous opportunists in recent years whose singular goal is to make as much profit as possible.
“”Fraud and abuse by pharmacies and medical providers which bill for compounded pain prescriptions [are] a significant threat to the DOD health care system” -Department of Defense Special Agent John F. Khin.
Typically, a compounding pharmacy fraud scheme operates by combining rather standard pharmaceutical ingredients into a different form or package which as that compound is technically a new drug. As a “new drug” that compound gets a new National Drug Code (NDC), which is the code that the FDA and the medical industry uses to categorize and price drugs and as a “new drug” the entity running the pharmacy essentially gets to set its own price for the compound. The prices set by compounding pharmacies engaged in fraud often have no relation to the cost of the component drugs and are simply as high as the fraudulent entity dares to ask for the drugs. In a recent case, a fraudulent compounding pharmacy scheme billed and received $31,000 for one tube of standardized pain cream.
The ability to charge such astronomical prices has attracted individuals only concerned with profit and such unscrupulous owners often flout other health care fraud laws to further increase profit. For instance, recently uncovered compounding pharmacy fraud schemes have utilized blatant kickbacks to induce doctors to write prescriptions and well as cold-calling telemarketers who illegally solicit patients to provide their medical information so the telemarketers can enlist them in automatic prescription re-fill programs for compounded medications, they did not request or need.
TRICARE Compounding Pharmacy Fraud
A major area of compounding fraud targeted on the TRICARE benefit, the federal government payor for military health insurance. Until May 2015, TRICARE had more lenient reimbursement policies than other government healthcare programs such as Medicare. Further, TRICARE did not require the components of compounded medications to even be approved by the FDA. The combination of these policies led to massive fraud and abuse by scheming fraudsters.
To thank our brave military service persons and their families for the service to the country, these fraudsters developed sales practices that included harrassing cold-calls offering compounded medications and mailing unrequested and unneeded compounded medications to TRICARE beneficiaries and charging TRICARE unless the beneficiaries returned the medications.
The damage done to the TRICARE budget through compounding pharmacy fraud has been astounding. TRICARE costs for compounded drugs skyrocketed from $5 million in 2004 $1.75 billion in 2015. From 2013 to mid-2015 the government estimates there was over $2 billion in fraudulent billings for compounded drugs.
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