For several years, the dispensing of compounded medications, particularly pain creams, has been quite profitable for some independent pharmacies. However, the efficacy, as well as the marketing of these medications has led to what will likely be a severe backlash, largely due to the fact that the principal payer for these medications eventually became the federal government through its military health benefit program known as Tricare.

Already several federal prosecutions have resulted in convictions and false claims act liability:

Medical Necessity

Compounding of medications is generally permitted when a physician determines that based upon a particular patient’s diagnosis, medical condition and reaction to other medications, commercially available medications are not as beneficial to the patient as a customized combination of medicines. The profitability of pain creams arises from the fact that the creams being prescribed and dispensed are not manufacturer produced drugs with established NDC (National Drug Code) associated prices by manufacturers and insurers. Therefore, in many instances the price of the medications is essentially what the insurer was willing to pay for the medication. In some instances, that amount was thousands of dollars per tube of pain cream.

Eventually payers began auditing and rejecting claims based on the determination that the creams being prescribed were not medically necessary. Also many payer reviews of the claims related to the compound medications alleged the pain creams were either not beneficial at all or not as beneficial as much cheaper, readily available products. Since Tricare is a federal government program, the systematic billing of claims for medically unnecessary medications is grounds for federal false claims act and health care fraud criminal liability.

Medical necessity is often fertile grounds for insurer denials and overpayment, but not particularly persuasive in many cases as the basis for criminal allegations because medical necessity can often be extremely subjective; physicians are given leeway in the treatment of their patients. Therefore reasonable doubt is built into the physician - patient interaction and allegations of false claims related to medical necessity.  

Kickbacks and Marketing Allegations

The teeth of the investigations will likely come from much more easily discovered evidence; that of unlawful marketing practices and kickback arrangements. Since a physician prescription is the gateway to the dispensing of a medication, any financial arrangement between a pharmacy and a physician, directly or indirectly, may be grounds for kickback allegations. Federal law prohibits that payment for the referral of items or services payable by a federal health care program. This not only relates to financial arrangements between doctors and pharmacies, but also pharmacies and marketers. In many cases, pharmacies have used non-employee marketers to establish relationships with physicians to encourage the physician to issue prescriptions for pain creams. The paying of a commission to an outside marketer for the referral of patients or prescriptions is also a violation of federal law in most instances.

As in many health care fraud investigations, Florida is quickly becoming a focal point of a number of these investigations; however there is now a national focus on this issue.