Pharmacy Owners, Physicians Charged in $100 Million Healthcare Fraud Conspiracy

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Special agents with the Federal Bureau of Investigation and the Defense Criminal Investigative Service (DCIS) arrested nine defendants this month in connection with their roles in a $100 million healthcare fraud conspiracy perpetrated against TRICARE, the health insurance program for members of the military and their families, according to a press release from the United States Attorney’s Office Northern District of Texas.

A 10th defendant surrendered to the FBI. The defendants, including doctors, pharmacy owners, and marketers were charged in a 35-count superseding indictment returned last week in Dallas and unsealed this afternoon, announced U.S. Attorney John Parker of the Northern District of Texas.

“Exhaustive investigative work by FBI and DCIS special agents and investigators not only led to today’s arrests, but to the identification and seizure of millions in assets that these defendants derived from their participation in this massive scheme that caused the TRICARE health insurance program—designed for our military personnel, veterans and their families—to suffer more than $100 million in actual losses,” said U.S. Attorney Parker.

“The indictments and arrests in this investigation highlight another step forward by DCIS and its law enforcement partners to protect the integrity of the Department of Defense (DoD) healthcare program known as TRICARE,” said Special Agent in Charge Janice M. Flores, of the DCIS Southwest Field Office. “Fraud and abuse by pharmacies and medical providers that bill for compounded prescriptions and/or medications is a significant threat to the DoD health care system. With DoD’s limited resources and budgets, DCIS must continue to aggressively investigate fraud, waste and abuse to preserve and recover precious taxpayer dollars for our most vulnerable programs.”

The superseding indictment alleges that from approximately May 2014 to mid-February 2016, 12 defendants conspired to run a scheme to defraud TRICARE in connection with the prescription of compounded pain and scar creams. The scheme involved the payment of kickbacks to TRICARE beneficiaries, payment of kickbacks to prescribing physicians, and the payment of kickbacks to marketers by the owners of compounding pharmacies.

According to the superseding indictment, as part of their scheme to defraud, coconspirators offered to pay, and did pay, TRICARE beneficiaries for obtaining and filling prescriptions for compounded drugs, principally compounded pain creams, scar creams, migraine creams, and vitamins. They disguised these payments to TRICARE beneficiaries as “grants” for participating in a medical study they referred to as a TRICARE-approved “Patient Safety Initiative” or “PSI Study” to evaluate the safety and efficacy of compounded drugs. In reality, the PSI Study was not approved by TRICARE, 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. Its true purpose was to compile a list of TRICARE beneficiaries who had filled prescriptions so that Cesario, Cooper and their coconspirators could calculate how much to pay the beneficiaries.

Each defendant is charged with one count of conspiracy to commit healthcare fraud, which, upon conviction, carries a maximum statutory penalty of 10 years in federal prison and a $250,000 fine.

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