With the rise of online health and wellness companies offering concierge services and treatments (think GLP-1s), compounded medications are in the spotlight. 

These custom medications rely on pharmacists and doctors collaborating to create formulas that meet individual patients’ needs.

However, doctors can prescribe and marketers can refer unnecessary medications in exchange for illegal kickbacks. And pharmacists can use unnecessary ingredients to inflate the price of prescriptions. Both of these schemes were central to a $110 million-dollar kickback conspiracy our special agents brought down in southeast Texas.

In late 2014, our special agents opened the investigation after finding a pharmacy had filed a disproportionate number of workers’ compensation reimbursement claims. As with other federal agencies, the Department of Labor Office of Workers’ Compensation Program (DOL OWCP) handles these claims for the Postal Service when its employees are hurt on the job. So our special agents called on fellow investigators at the FBI, the Defense Criminal Investigative Service, and OIGs for DOL, Veterans’ Affairs, and Health and Human Services.

Here, the number of prescriptions were not only high — they were also outrageously expensive: A comparison of billing showed six months’ worth of costs jumped by more than 600 percent compared to the previous six months. And while the fraud took place, the pharmacy billed DOL OWCP over $95 million alone and was paid about $8 million by TRICARE, $6 million by Medicare, and over $41 million by DOL OWCP, of which $21 million was charged back to USPS.

Investigators found the pharmacy owner had orchestrated the scheme with 10 accomplices: another pharmacist, five marketers, two doctors, and two clinical staff. The scheme was aggressive, with the group targeting health care benefit programs like DOL OWCP, TRICARE, Medicare, and various private insurance plans. The group created fraudulent prescriptions for expensive compound drugs and other items that weren’t medically necessary. The purported marketers and clinical staff were conduits for several million dollars in kickbacks for drug referrals. The ringleader even gave marketers pre-filled prescription pads intended to be given to doctors, which included compound drugs and other prescription items that would yield the highest possible reimbursements to the pharmacy. And in many instances, the marketers shared kickbacks they received from the pharmacy owner with referring doctors and other clinical staff.

All 11 defendants eventually pleaded guilty to conspiracy to commit health care fraud and/or conspiracy to pay and receive health care kickbacks. Four defendants were sentenced to time served, but the remaining seven suspects were sentenced to a combined total of over 17 years’ federal incarceration, with the pharmacy owner serving the longest sentence of five years. 

As for the monies stolen, the group was ordered to return a combined total of over $39 million. The ringleader also received the heaviest order to pay back almost $24 million. This investigation helped the government prevent over $75 million in future fraudulent payments to the pharmacy. And thanks to this investigation and others like it, DOL OWCP added a security measure for claims that requires health care providers to justify why their prescriptions are medically necessary.

Investigations like these demonstrate why offices of inspectors general are crucial to rooting out fraud, waste, and abuse in the federal government. If you suspect or know of health care provider fraud targeting the Postal Service or its employees, please report it to our Hotline. Or if you’re aware of fraud affecting the workers’ compensation program, please report it to the Department of Labor Office of Inspector General.

For further reading:

Department of Justice (via uspsoig.gov), Four sentenced in $110 million-dollar kickback conspiracy

The Workers’ Compensation Program is in place to help cover medical costs for injured federal workers, including postal employees. When health care providers, prescribers, and marketers abuse the care of these employees and defraud the Postal Service and the U.S. government, the OIG will hold them accountable for their fraudulent actions. 

– Tammy L. Hull,
Inspector General, 
U.S. Postal Service