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Whistleblowers Rewarded for Reporting Compounding Pharmacies’ Pain Cream Scheme

5 July 2023. The United States Department of Justice partially intervened in, consolidated, and settled two whistleblower lawsuits against two compounding pharmacies and their owner for a fraud scheme wherein the pharmacies adulterated pain creams with another medication and sought reimbursement from government-funded healthcare programs. Under the terms of the settlement, Smart Pharmacy, Inc., SP2, LLC, and the pharmacies’ owner paid $7.4 million to resolve two qui tam lawsuits. The whistleblowers were former employees of the pharmacy. While no award has been determined in these cases yet, Whistleblowers who file successful qui tam lawsuits can share in 15-25% of what the government recovers from defendants.

According to the allegations, the pharmacies combined a high-reimbursement psychological drug with pain creams to receive reimbursement for all drugs used in the compounded medications; additionally, they inappropriately waived copays. Despite a lack of clinical evidence for doing so, the pharmacists allegedly crushed tablets of the anti-psychotic medication Aripiprazole (branded versions: Abilify, Abilify Maintena, Aristada) and added them to pain management creams. Because both Medicare Part D and TRICARE reimburse compounding pharmacies for all drug components in compounded medications, the fraudsters sought to receive larger reimbursements from these federally-funded healthcare programs than they were entitled to for the pain creams alone. The pharmacies allegedly waived copays without inquiries into patients’ financial status to incentivize patients to fill these pain cream prescriptions.

The Department of Health and Human Services Office of the Inspector General (HHS-OIG) issued a special fraud alert about copay waivers 32 years ago, yet fraudsters are still pursuing this scheme. Copays represent the portion of a service’s cost that a Medicare beneficiary must pay out of their own pocket. Medicare reimburses providers based on a service’s reasonable cost in that geographic area, and the cost is inclusive of beneficiaries’ copay. By waiving a copay, a provider is misrepresenting their cost to government-funded healthcare programs, tainting claims for any product or service for which copays were waived. Copay waiver can also run afoul of the Anti-Kickback Statute as providers waiving copays are offering an inducement to patients to choose a particular product or service.

The False Claims Act is a powerful tool used by the government to combat healthcare fraud, waste, and abuse. Healthcare providers who engage in fraudulent practices not only harm patients but can also face severe legal consequences. As the Principal Deputy Assistant Attorney General said about the case, “When pharmacies inflate their revenue with medically unsupported prescription ingredients, they compromise the quality of patient care and waste taxpayer dollars.” For mixing inappropriate medications and improperly waiving copays, the pharmacies face a $7.4 million settlement and the owner of the pharmacies must enter into a 3-year corporate integrity agreement with HHS-OIG.

Two whistleblowers bravely came forward to report the healthcare fraud schemes these pharmacies employed to profit off their government healthcare business. Whistleblowers can help support government agencies’ enforcement initiatives and get rewarded in the process.

If you would like to report Medicare fraud, you can contact attorneys at Tycko & Zavareei LLP. Eva Gunasekera and Renée Brooker are former officials of the United States Department of Justice and prosecuted whistleblower cases under the False Claims Act. Eva was the Senior Counsel for Health Care Fraud. Renée served as Assistant Director at the United States Department of Justice, the office that supervises False Claims Act cases in all 94 United States District Courts. Eva and Renée now represent whistleblowers. For a free consultation, you can contact Eva Gunasekera at [email protected] or contact Renée at [email protected] (tel.: 202-417-3664). Visit Tycko & Zavareei LLP’s website for whistleblowers to learn more at

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