Nine defendants were arrested this week in connection with their roles in a $100 million health care fraud conspiracy perpetrated against TRICARE, the health insurance program for members of the military and their families. A tenth defendant surrendered to the FBI. The defendants, including doctors, pharmacy owners, and marketers were charged in a 35-count indictment in the Northern District of Texas. Fraud and abuse by pharmacies and medical providers that bill for compounded prescriptions and/or medications is viewed as a significant threat to the Department of Defense health care system.
The indictment alleges that from approximately May 2014 to mid-February 2016, the 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.
Defendants Cesario and Cooper owned and operated CCMGRX, LLC, (CMGRX), a Texas limited liability company formed in September 2014. The ‘CMG’ in CMGRX stands for Compound Marketing Group. CMGRX primarily marketed compounded pain and scar creams to current and former U.S. military members and their families on behalf of various compounding pharmacies. CMGRX’s principle marketing tool was a sham medical study through which individuals were paid monetary compensation in exchange for obtaining compounded drugs with their TRICARE prescription benefits. Neither of these co-defendants had any medical, nursing or pharmaceutical licensing or education. CMGRX ceased operations in mid-2015. From October 2014 through June 2015, TRICARE paid more than $102 million for compounded drug prescriptions generated by CMGRX.
Defendants Cesario and Cooper had help marketing their services. Co-defendants Straw and Kiselak led marketing groups for CMGRX that recruited military members and their families and offered them monetary compensation in exchange for obtaining compounded drugs with their TRICARE prescription benefits as part of CMGRX’s study. Co-defendant Rios, a marketer and patient recruiter in Straw’s marketing group, recruited hundreds of beneficiaries on and around Fort Hood in Killeen, Texas. As part of their scheme to defraud, Defendants Cesario, Cooper, Straw, Rios, Kiselak and their co-conspirators 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 defendants Cesario, Cooper and their co-conspirators could calculate how much to pay the beneficiaries.
Defendants went even further to disguise their plan. Defendants Cesario and Cooper allegedly directed the creation of a charity (Freedom From Pain Foundation) and funneled the payments to the beneficiaries through the charity. From November 2014 to June 2015, Defendants Cesario and Cooper paid approximately $2.8 million to the foundation, the majority of which was used to pay TRICARE beneficiaries and doctors.
Defendant Dr. Walter Neil Simmons served as the Chief Medical Officer for CMGRX and helped Cesario and Cooper create the PSI Study. Defendant Dr. William Elder-Quintana worked as a contract physician with CMGRX., and Cesario and Cooper paid him to prescribe compounded drugs to TRICARE beneficiaries. Some of the payments were made directly to Dr. Elder, while others were made to Aztec Medicus, PLLC, a company he owned and controlled. Dr. 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. In an effort to disguise physician kickbacks, some payments were made through the Freedom From Pain Foundation, under the false premise that the physicians were providing consulting services in connection with the PSI Study.
Trilogy Pharmacy, a compounding pharmacy in the TRICARE network, paid some of the defendants kickbacks in exchange for sending prescriptions for compounded drugs to Trilogy. Defendants worked to disguise these kickbacks as employee wages. Defendant Cockerell owned and operated 360 Pharmacy Services, a compounding pharmacy in the TRICARE network that was located in Webster, Texas. 360 Pharmacy paid kickbacks to Cesario and Cooper in exchange for sending prescriptions to them. Defendant Kuper owned and operated FW Medical Supplies LLC, a compounding pharmacy in the TRICARE network that was located in Burleson, Texas, that did business under the name Dandy Drug. Dandy Drug paid kickbacks to Cesario and Cooper in exchange for referring prescriptions to them. Defendant Morisetty owned and operated Dena Group, LLC, a compounding pharmacy in the TRICARE network that was located in Irving, Texas, and which did business under the name Alpha Pharmacy. Alpha Pharmacy paid kickbacks to Cesario and Cooper in exchange for referring prescriptions to them.
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. Restitution may also be ordered.
Efforts will also be made to allow for forfeiture, upon conviction, to the U.S. for 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.