Approximately 70% of Americans take at least one prescription medication, but not everyone benefits from a one-size-fits-all approach to healthcare. To address this issue, healthcare providers work hard to deliver tailor-made treatments. Compounding, a process through which licensed healthcare professionals combine various ingredients to create custom-made prescriptions, is one of the increasingly common forms of personalization.
Compounded medicines are useful for patients with sensitivities to certain ingredients, or for those who are unable to take a drug in its original form. Though these individualized prescriptions are not FDA-approved, they are subject to certain quality and licensing regulations.
Compounding is essential for many patients, but it has also become an unfortunate target for healthcare fraud.
The largest Medicare fraud takedown in history
The Medicare Fraud Strike Force works with local governments in each state to identify and prosecute large-scale fraud schemes. June 2016 saw the largest healthcare fraud takedown yet, with 301 individuals charged for approximately $900 million in False Claims submissions.
Compounding played a major role in the fraud charges, reflecting a troubling new trend in the healthcare sector. Though compounding can occasionally make prescriptions more affordable, it can also generate extremely high reimbursements.
Healthcare fraud is prevalent throughout the industry, but the rise in compounding fraud could place more scrutiny on pharmacies and compounding specialists.
When compounding goes wrong
In June 2016, a doctor in Florida was charged with multiple counts of Medicare fraud, money laundering, and other criminal charges.
At one point in the kickback scheme, Lifecare Pharmacy even paid for Dr. Baldizzi’s $72,000 BMW.
The doctor, Anthony Baldizzi, conspired with Pharmaland LLC, known as Lifecare Pharmacy, and marketing firm Centurion Compounding to overcharge federal healthcare programs.
Dr. Baldizzi wrote compounded treatment prescriptions for patients recruited by Centurion Compounding. Lifecare Pharmacy then filled those prescriptions and submitted claims to various healthcare programs.
The defendants were found to have actively searched for patients with the specific intent to collect high reimbursements. Some of the compounded creams involved needlessly expensive ingredients.
For one patient, TRICARE, which serves military members and their families, issued a nearly $18,000 reimbursement for a one-month supply of compounded topical creams.
Dr. Baldizzi was entitled to a 5% cut of his co-conspirator’s sales. At one point in the kickback scheme, Lifecare Pharmacy even paid for Dr. Baldizzi’s $72,000 BMW.
Kickbacks, a form of bribery, are expressly forbidden under federal regulations. They are subject to penalties under the False Claims Act when they facilitate inappropriate healthcare reimbursements.
New compounding regulations
Compounding can be difficult to monitor, because it is up to a physician’s discretion whether a patient truly needs compounded medicines, and which ingredients might be beneficial for that individual.
This type of fraud has been under particular scrutiny in the past year, but healthcare programs have been keeping an eye on it for some time.
Though compounding fraud schemes can involve doctors prescribing compounded medications when they are medically unnecessary, some involve legitimate prescriptions that use unnecessarily expensive ingredients.
Prescription service Express Scripts created new rules in 2014 in an attempt to rectify this issue. Express Scripts issued a list of approximately 1,000 expensive ingredients commonly used in compounded medicines that were not proven to be more effective than cheaper alternatives. The service prohibited reimbursement for those particular ingredients.
This July, the Department of Labor tightened restrictions on workers’ compensation prescriptions, limiting the length of time initial prescriptions can be covered to 90 days.
Oversight is important, in part because the financial impact of compounding fraud to the government is estimated at around $500 million per year.
It’s also important, however, because a lack of appropriate regulations and oversight can cost lives. The process of compounding various ingredients can, if not performed properly, expose patients to enormous health risks.
In 2012, over 750 Americans became ill from a meningitis outbreak. 64 died.
They had all taken injectable steroids compounded at a Massachusetts pharmacy. The steroids, designed to treat pain, were contaminated with fungal meningitis.
Throughout the two-year investigation, government prosecutors discovered that the pharmacy had used expired ingredients and disregarded health and safety protocol within the facility.
The pharmacy owners faced criminal charges and were forced to pay a $200 million settlement to the victims.
Preventing compounding fraud
As federal healthcare programs and the Justice Department develop strategies to combat compounding fraud and negligence, it’s important for healthcare providers to stay alert to this issue as well.
The False Claims Act enables doctors, nurses, billing specialists, pharmacists and other healthcare employees to confidentially report any suspected fraudulent activity in their workplace.
Some of the red flags for compounding fraud may include:
- Unusually high Medicare, Medicaid or TRICARE reimbursement requests.
- The creation or distribution of compounded medicine whose same ingredients can be found in cheaper, over-the-counter medications.
- Aggressive marketing efforts to find patients interested in compounded medications.
- The prescription of expensive compounded medicines to patients who do not medically require them.
Learn more about the different types of healthcare fraud here.
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