A total of twelve defendants have been charged in a $100 million TRICARE compounded pharmaceutical fraud scheme, announced U.S. Attorney John Parker for the Northern District of Texas on October 14, 2016.  These type of schemes– in which compounding pharmacy companies aggressively solicit TRICARE beneficiaries to take advantage of TRICARE compounded drug reimbursement provisions – have become increasingly uncovered and prosecuted. For instance, sixteen defendants were recently charged with defrauding TRICARE of over $175 million in a similar conspiracy involving Florida compounding pharmacies.  This type of fraud caused TRICARE to change its compounded drug reimbursement policy in May 2015.  However, it is estimated that from 2013 to May 2015 over $2 billion in compound drugs were fraudulently billed to TRICARE.  The False Claims Act generally provides for a six-year statute of limitations.

The 35-count superseding indictment unsealed in Dallas brings the total defendants in the case to twelve as Richard Robert Cesario and John Paul Cooper, the alleged masterminds of the scheme, were indicted in February 2016.  Cesario and Cooper have remained in custody since that time because a Texas federal judge found that evidence showed they “stated an intent to do possible harm to any associates or employees who turned on them and flee to Costa Rica if prosecuted.”

The scheme operated through CMGRX, LLC, an entity Cooper and Cesario co-owned and was used to market compounded pain and scar creams to current and former U.S. military members and their families on behalf of various compounding pharmacies.  The primary marketing tool used by CMGRX was a sham medical study through which individuals were paid to obtain compounded drugs with their TRICARE prescription benefits.  CMGRX, through the defendants, disguised payments to TRICARE beneficiaries as “grants” for participating in the sham medical study that they referred to as a TRICARE-approved “Patient Safety Initiative” to evaluate the safety and efficacy of compounded drugs.  However, this “study” was a complete farce and was not approved by TRICARE.  Further, it was not overseen by a qualified physician or medical professional, had no control group, and was not designed to gather any useful scientific data relating to the safety and efficacy of any drug.  The actual purpose of the study was to gather a list of TRICARE beneficiaries that had filled prescriptions in order for Cesario, Cooper and their co-conspirators to disperse kickback payments to the beneficiaries.

Cesario, Cooper and their co-conspirators offered to pay TRICARE beneficiaries $250 per month if they agreed to enroll in the “study” and obtained prescriptions through one of CMGRX’s partner pharmacies.  To launder the payments made to TRICARE beneficiaries, the superseding indictment alleges that Cesario and Cooper created the Freedom From Pain Foundation, a corporation that was registered as a charity.  Cesario and Cooper represented that the Freedom From Pain Foundation operated separately from CMGRX, when in fact it just served as an intermediary to launder money from CMGRX through another financial group and eventually to TRICARE beneficiaries. From November 2014 to June 2015, Cesario and Cooper paid approximately $2.8 million to these intermediaries, the majority of which was used to pay kickbacks to doctors and TRICARE beneficiaries.

Three defendants are CMGRX employees who, along with Cesario and Cooper, performed essential tasks to carry out the fraud.  Joe Larry Straw of Frisco, Texas and Michael John Kiselak of Southlake, Texas led marketing groups for CMGRX that recruited military personnel and their families and offered them monetary payments in exchange for obtaining compounded pharmaceuticals with their TRICARE prescription benefits.  Defendant Luis Rafael Rios of Killeen, Texas worked as a marketer and patient recruiter in Defendant Straw’s marketing group and recruited hundreds of TRICARE beneficiaries on and around Fort Hood in Killeen, Texas.

Two of the defendants are physicians.  Defendant Dr. Walter Neil Simmons served as Chief Medical Director for CMGRX and helped Cesario and Cooper create the sham Patient Safety Initiative study.  From September 2014 through May 2015, TRICARE paid more than $3 million for compounded drugs prescribed by Defendant Simmons. Defendant Dr. William F. Elder-Quintana worked as a contract physician for CMGRX and received kickbacks for prescribing compounded drugs. Defendant Elder wrote thousands of prescriptions for compounded drugs to TRICARE beneficiaries who he never met in person and for whom he conducted only a cursory consultation via telephone.  From October 2014 through June 2016, TRICARE paid more than $96 million for compounded drugs prescribed by Defendant Elder. It is alleged that Cesario and Cooper paid the physicians $60 for each compounded pain or scar cream prescription and $30 for each compounded vitamin prescription they wrote.

Five other defendants are owners or operators of four Texas compounding pharmacies that paid CMGRX kickbacks for sending compound drug prescriptions to their respective pharmacies.

The superseding indictment also includes a detailed forfeiture allegation that would require the defendants, upon conviction, to forfeit to the U.S. any property traceable to the offense, including real estate in Plano, Frisco, Southlake, Dallas, and New Braunfels, Texas, and Jacksonville, Florida; funds in bank accounts and investment accounts; numerous vehicles; boats and recreational vehicles; numerous firearms; jewelry and artwork; and other various investments.

Each defendant is charged with one count of conspiracy to commit health care fraud, which, upon conviction, carries a maximum statutory penalty of 10 years in federal prison and a $250,000 fine. Cesario and Cooper are also each charged with 14 counts of payment and/or receipt of illegal remuneration. Each of the remaining defendants, with the exception of Simmons, is charged with at least one count of payment and/or receipt of illegal remuneration. The maximum statutory penalty, upon conviction for each of those counts is five years in federal prison and a $250,000 fine.

The cases against these defendants are criminal cases.  However, under the qui tam provisions of the False Claims Act, whistleblowers with information about similar fraud against the government may bring a civil case on behalf of the United States. If successful, the government can recover three times the amount the defendants fraudulently billed the government.  The whistleblower, who originally filed the qui tam case, is entitled to 15-30% of the government’s recovery as well as their attorney’s fees.