Department of Defense Office of Inspector General
11/01/2024 | Press release | Archived content
Compound Ingredient Supplier Medisca Inc., to Pay $21.75M to Resolve Allegations of False and Inflated Average Wholesale Prices for Ingredients Used in Compounded Prescriptions
The Justice Department announced today that Medisca Inc. (Medisca), has agreed to pay $21.75 million to resolve allegations concerning the establishment of false and inflated Average Wholesale Prices (AWPs) for two ingredients used in compound prescriptions. Medisca's pricing scheme allegedly caused pharmacies that purchased those ingredients to submit false prescription claims to the Defense Health Agency, which administers the TRICARE Program for the Department of Defense and the Department of Labor's Office of Workers' Compensation Programs (federal health care programs).
"We will not tolerate fraudulent pricing schemes targeting health care programs that support veterans and other federal beneficiaries," said Principal Deputy Assistant Attorney General Brian M. Boynton, head of the Justice Department's Civil Division. "As today's settlement demonstrates, we will hold accountable not just those who submit false claims, but all who participate in schemes designed to defraud the American taxpayers."
Compounding pharmacies purchase ingredients or chemicals from ingredient suppliers, such as Medisca, to prepare and fill compound prescriptions for patients who require a specially made prescription that is not generally available in the marketplace. Medisca knew that compound prescription reimbursement under federal health care programs was based in part on the AWPs it reported to various price listing agencies. The United States alleged that Medisca knowingly inflated the AWPs for resveratrol (NDC No. 38779-2863) and mometasone furoate (NDC No. 38779-2413) in order to increase the reimbursement that its pharmacy customers received from the federal healthcare programs for using those Medisca ingredients.
Medisca acquired resveratrol from manufacturers for approximately $0.37 per gram. It repackaged and sold resveratrol for under $2 per gram. Medisca reported an AWP for resveratrol at $777 per gram, creating a spread of over $775 for each gram of resveratrol used by a pharmacy customer in a compound prescription reimbursed by the federal healthcare programs. Medisca acquired mometasone furoate from manufacturers for under $8 per gram. It repackaged and sold that ingredient to compound pharmacies for over $1,000 per gram. Medisca reported an AWP for mometasone furoate at over $7,300 per gram, thereby creating a spread of approximately $6,300 for each gram of the ingredient used by a pharmacy customer in a compound prescription reimbursed by the federal healthcare programs.
Medisca allegedly used the high AWPs it reported and the resulting profit potential it created for its customers as an inducement to its compound pharmacy customers to purchase those ingredients. Medisca's alleged fraudulent pricing scheme enabled its pharmacy customers to bill federal healthcare programs inflated amounts - often thousands of dollars per prescription - for compound formulations containing those ingredients.
"The systems establishing federal reimbursements for compounded pharmaceuticals should not be viewed by companies as an opportunity to artificially inflate reimbursements from federal payors such as TRICARE," said U.S. Attorney Damien M. Diggs for the Eastern District of Texas. "When companies seek to manipulate the system for their own gain, the Eastern District of Texas will hold them accountable."
"When federal healthcare programs are defrauded it hurts all Americans," said U.S. Attorney Jaime Esparza for the Western District of Texas. "My office is committed to using the False Claims Act (FCA) to hold individuals and companies accountable for the impact their actions have on our critical programs. Taxpayers deserve honest pricing and assurances that the government is never overcharged."
"This settlement sends a clear message about the unwavering commitment of the Defense Criminal Investigation Service (DCIS) to protect the integrity of TRICARE, the Department of Defense's health care benefit program which serves our U.S. military, their family members, and military retirees," said Acting Special Agent in Charge Ryan Settle of the Department of Defense - Office of Inspector General, DCIS Southwest Field Office. "Health care providers who use fraudulent means to seek financial gain at the expense of TRICARE and the taxpayer will be diligently investigated and held accountable."
The settlement resolves claims brought under the whistleblower or qui tam provisions of the FCA by Doug McMakin against Medisca. Mr. McMakin is a pharmacist who owned and operated a compounding pharmacy that dispensed compounded prescriptions. Under the FCA, private parties may sue on behalf of the government for false claims for government funds and receive a share of any recovery. Mr. McMakin will receive $3,425,625 from the proceeds of the settlement. The lawsuit is captioned United States ex rel. McMakin v. Medisca Inc. (EDTX).
The resolution of these matters was the result of a coordinated effort between the Civil Division's Commercial Litigation Branch, Fraud Section, and the U.S. Attorneys' Offices for the Eastern District of Texas and the Western District of Texas, with investigative support from the DCIS, U.S. Postal Service Office of Inspector General (USPS OIG) and the Department of Labor.
The investigation and resolution of these matters illustrates the government's emphasis on combating health care fraud. One of the most powerful tools in this effort is the FCA. Tips and complaints from all sources about potential fraud, waste, abuse and mismanagement can be reported to the Department of Health and Human Services at 800-HHS-TIPS (800-447-8477).
Senior Trial Counsel Sanjay Bhambhani and Trial Attorney John Deck of the Civil Division, Assistant U.S. Attorney Mary Kruger for the Western District of Texas and Assistant U.S. Attorney James Gillingham for the Eastern District of Texas handled the matter, with investigative assistance from Special Agents Nicholas Koechig of DCIS and Timothy Jones of USPS OIG.
The claims resolved by the settlement are allegations only. There has been no determination of liability.