Marketing Company Indicted in $65M TRICARE Fraud

The personal services safe harbor law exists to protect physicians from prosecution when they receive payments for legitimate services.

It isn't unusual that two healthcare executives would be indicted in Texas, which is one of the HEAT Taskforce hot spots.What is unusual is both thebrazen nature of the alleged kickback scheme and the fact the defendants got away with $65 million (albeit temporarily).

The co-defendants owned a "marketing" company which entered into contracts with healthcare providers. According to the indictment, the marketing company paid kickbacks to physicians and patients, and received payments from pharmacies in exchange for referrals covered by government health plans.

In the case of payments from the pharmacies, the defendants attempted to meet the "bona fide employee" exception to the Anti-kickback Statute, by having the pharmacies pay them in W-2 reportable wages, when neither was an employee of the company.

If the payments were not to bona fide employees, it is likely only the "personal services" safe harbor under the Anti-kickback Statute might apply to shield the payments from being considered illegal remuneration or "kickbacks." The company paid doctors $60 per prescription to allegedly perform a safety and efficacy study, which could easily be protected under the personal services safe harbor. But neither of these payments is probably what caught the government's attention.

According to the indictment, the defendants Cesario and Cooper misled TRICARE beneficiaries when paying them for participating in a study which involved filling prescriptions at pharmacies associated with the defendant’s marketing company. The indictment alleges the defendants told beneficiaries TRICARE had actually approved a $250 per month payment for each prescription. Patients obtained and filled compounded drugs, principally compounded pain creams, scar creams, migraine creams, and vitamins, through one of Cesario and Cooper's partner pharmacies.

The two 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, and was not designed to gather any useful scientific data relating to the safety and efficacy of any drug. Its true purpose, according to the indictment, was to compile a list of TRICARE beneficiaries who had filled prescriptions so that Cesario, Cooper, and their co-conspirators could calculate how much to pay the beneficiaries. Using this information, the defendants and their co-conspirators compiled monthly payout lists of individuals, addresses, and payment amounts.

Cesario and Cooper, according to the indictment, created the "Freedom From Pain Foundation" and registered it as a tax-exempt charitable foundation. The foundation, however, was funded entirely by payments from Cesario and Cooper, or CMGRX accounts they controlled, and from November 2014 to June 2015, they paid approximately $2.4 millioninto the foundation. The defendants instructed the Freedom From Pain Foundation to write checks to the TRICARE beneficiaries in amounts indicated on the payout lists. Cesario and Cooper shared these expenses equally; each wrote checks to the Freedom From Pain Foundation for half of the total from each payout list, indicating in the checks' memo sections that it was a charitable donation.

This can be an important lesson for physicians who may deal with marketing companies involving patients who are insured by any federal program, such as TRICARE, which is protected by the Anti-kickback Statute. The personal services safe harbor exists to protect physicians from prosecution when they receive payments for legitimate services. The safe harbor willprotect remuneration (payments) made to a physician (for example, by an ancillary services provider or marketing company) from being considered "illegal remuneration"only if the arrangement fits squarely within the applicable safe harbor.

The OIG and the Department of Justice consider these safe harbors "affirmative defenses. "This means the burden is on the parties, not the government, to prove the safe harbor has been met. Thisusually involves retaining experienced health law counsel and a fair market valuation expert.