Bracker & Marcus LLC is pleased to announce that four pharmacies have agreed to pay more than $6.8 million to settle claims brought by their client in the Northern District of Georgia.

Keep reading to get the details on this settlement and learn how a whistleblower attorney could help with your case.

Compound Pain Creams at Center of Fraud Case

DermaTran Health Solutions, LLC (“DermaTran”) opened in 2012 with a simple scheme: to manufacture and sell custom “compound” pain creams. At the same time, another company named Pharmacy Insurance Administrators, LLC (“PIA”), was created to handle the billing for DermaTran.

Making money by selling pain creams might sound like a strange “get rich quick” scheme, but it was a surprisingly common one at that time, and very lucrative, because of the nature of compounding pharmacies and a strange rule change in 2012. In general, a “compounding pharmacy” is one that makes up a special prescription for a patient that cannot be found commercially.

For example, many veterans returning from war had injuries that required them to apply one cream to help with scarring, one for flexibility of the healing skin, one for keeping the wound clean, and yet another for pain. A compounding pharmacy could blend the ingredients of the four (patented) creams together, making one convenient application. To do so, the pharmacist must have a patient-specific order from a doctor, directing the pharmacist as to what ingredients to include in the compound.

Unscrupulous Pharmacies Find Ways to Increase Profits

In 2012, the National Council on Prescription Drug Programs changed the rules for how pharmacies bill for compounded drugs, so that instead of receiving a flat rate, they were paid for each ingredient in the compound. This meant that pharmacies could use more expensive ingredients and raise their reimbursement (and that less scrupulous pharmacies could make it even more profitable by charging for expensive ingredients, but using cheaper, bulk ingredients). Across the nation, pharmacies began creating their own special formulations of various creams and hiring sales teams to convince doctors to prescribe them. Over the next few years, insurance spending on compounds soared, and TRICARE—who covers the military and their families—was especially hard hit. Most insurance companies, including TRICARE, eventually stopped covering compounds altogether

One safeguard that is supposed to prevent this kind of fraud is the copay. Basically, patients are supposed to pay a percentage of the cost of the drugs they are prescribed, which has the effect of making the patients themselves monitor the expense of their drugs—no one wants to make an expensive copayment for a drug they do not actually need! Another safeguard for the government health care payors is that payments are limited to the “usual and customary price” of the drug, which is the price charged to a cash-paying, uninsured patient.

Employee Spots Fraud, Becomes Whistleblower

Our client had insider knowledge that showed DermaTran and PIA had found ways to avoid these safeguards. First, DermaTran came up with a variety of ways to lower, cover, or just waive the copays that the insureds were supposed to be paying. This is a violation of the False Claims Act, because it is in effect a kickback to the patient for using a particular drug from a particular pharmacy. Specifically, DermaTran and PIA created a copay-waiver program in which the copays were waived if the recipient simply stated that they could not pay. Our client reported that these patients were told, “I’m going to send you a bill because I have to, but you don’t have to pay it.”

DermaTran and PIA also lied to government health care insurers about the price that they were charging to uninsured, cash-paying patients—the “usual and customary price.” As a result, TRICARE was paying $600 or more for a pain cream prescription for a U.S. veteran, but some uninsured patients were paying only $30 for the exact same cream, made from the exact same ingredients.

Over time, auditors working for many insurance companies caught on to what was going on and started terminating DermaTran contracts. In order to continue to make money, our client alleged that DermaTran then began selling its out-of-network prescriptions to other pharmacies, who could then fill the prescription (because they were still in network) and then send a kickback to DermaTran for the business. The other pharmacies that participated in this kickback scheme included Legends Pharmacy (in Texas), Lake Side Pharmacy (in Alabama), and TriadRx (in Alabama).

This case was a bear to settle, because by the time we reached the settlement stage, DermaTran had gone out of business because the lucrative scheme dried up. In fact, the company was sold in an arms’-length transaction to a third-party buyer in 2021 for $40,000, and that money is being turned over to the government as part of the settlement. PIA will contribute $6.5 million to the settlement. In addition, Legends Pharmacy will pay $59,293; TRIAD Rx, Inc. will pay $166,547; and the former owners of Lake Side Pharmacy (which is no longer in business either) will pay $110,724.

In addition, our relator is receiving a settlement for her termination, which occurred as soon as the management figured out she was a whistleblower, and her attorneys’ fees. We worked this case with the excellent lawyers of the Whistleblower Law Collaborative in Boston and Ross Marketos in Dallas, along with the outstanding team in the Northern District of Georgia’s USAO, led by Anthony DeCinque and Neeli Ben-David.

Contact an Atlanta False Claims Act Attorney for Assistance

If you know about fraud at your workplace, the False Claims Act attorneys at Bracker & Marcus LLC are ready to help you evaluate whether you have a viable qui tam action and what your next steps should be. Give us a call at (404)983-3454 and we are happy to walk you through your situation to figure out what is best for you.