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The United States Files False Claims Act Complaint Against Several Healthcare Providers and a Private Equity Firm Alleging Payment of Kickbacks

The government’s campaign to eradicate Medicare and Medicare (and sometimes TRICARE) fraud continues to net healthcare providers who stress financial considerations over patient well-being. This time the government’s pursuit of such alleged violators involves a marketer as well. The Department of Justice announced last week that it has filed a complaint against Diabetic Care Rx LLC, alleging that the compounding pharmacy located in Florida participated in an illegal kickback scheme involving TRICARE. (TRICARE is the federally-funded health care program for military personnel and their families.) In the same action, the government has also brought claims against Patrick Smith and Matthew Smith, two pharmacy executives, and Riordan, Lewis & Haden Inc. (RLH), a private equity firm based in Los Angeles, California, which manages both the pharmacy and the private equity fund that owns the pharmacy for their involvement in the scheme.

“The Department of Justice is determined to hold accountable health care providers that improperly use taxpayer funded health care programs to enrich themselves,” said Acting Assistant Attorney General for the Justice Department’s Civil Division Chad A. Readler. “Kickback schemes corrupt the health care system and damage the public trust.” The defendants are alleged to have paid kickbacks to marketing companies to target TRICARE beneficiaries for certain prescription medications without regard to patient need. According to the complaint, these prescriptions were manipulated to ensure the highest possible reimbursement from TRICARE. Moreover, the defendants and certain marketers allegedly paid doctors to prescribe these medications without seeing the patients. The scheme is thought to have generated tens of millions of dollars in reimbursements from TRICARE in a matter of months. Finally, the participants in this kickback scheme allegedly split the profit from these activities which violates the Anti-Kickback Statute (42 U.S.C. § 1320a-7b). This statute makes it illegal to exchange (or offer to exchange), anything of value, in an effort to induce (or reward) the referral of federal health care program business.

“The Defense Criminal Investigative Service (DCIS) is committed to protecting the integrity of TRICARE, the military health care program that provides critical medical care and services to Department of Defense beneficiaries,” said Special Agent in Charge John F. Khin, of the Southeast Field Office. “In partnership with DOJ and other law enforcement agencies, DCIS continues to aggressively investigate fraud and corruption to preserve and recover precious taxpayer dollars to best serve the needs of our war fighters, their family members, and military retirees.”

The government’s lawsuit originally arose from a lawsuit filed in the U.S. District Court for the Southern District of Florida by Marisela Medrano and Ada Lopez, two former employees of PCA. Their lawsuit was filed under the qui tam or whistleblower provisions of the False Claims Act. This Act permits private parties to sue for false claims and to share in any recover with or without a qui tam attorney. The Act also permits the United States to intervene in such lawsuits. This matter was investigated by several governmental and state agencies including the Civil Division’s Commercial Litigation Branch and the U.S. Attorney’s Office for the Southern District of Florida. Qui tam Medicare lawsuits have increased since the government began its crackdown on Medicare fraud and abuse.

Since this case has not yet been resolved, it is important to note that claims asserted against the defendants are allegations only and that there has been no determination of liability