On September 18, 2019, the Department of Justice (DOJ) announced a $21.36 million settlement with compounding pharmacy Patient Care America (PCA), as well as PCA’s Chief Executive, PCA’s former Vice President of Operations, and a private equity firm (PE Firm) that managed PCA on behalf of investors. The settlement resolves a False Claims Act (FCA) lawsuit alleging involvement in a kickback scheme designed to generate unnecessary referrals for prescription pain creams, scar creams, and vitamins reimbursed by TRICARE, the federal health care program for military members and their families. No determination of liability was made as part of the settlement. See our prior analysis of DOJ’s intervention in this case here.

As a reminder, the FCA imposes liability for submitting (or causing to be submitted) false or fraudulent claims to government health care programs for reimbursement. TRICARE is a federal health care program for current and former military members and their families. In this case, DOJ intervened in a qui tam whistleblower action filed by two former PCA employees alleging FCA violations. According to the DOJ, PCA allegedly paid kickbacks to marketers “to target military members and their families” for receipt of prescriptions for compounded creams and vitamins. Per DOJ, those compounded creams and vitamins were “formulated to ensure the highest possible reimbursement from TRICARE.” DOJ further alleges that the marketers paid doctors to prescribe the compounded creams and vitamins via telemedicine without properly examining the patients. The settlement also resolves allegations that the pharmacy and its marketer improperly paid copayments on behalf of patients referred by the marketer for prescriptions without making a need-based determination, and that such payments were masked as originating with a “sham charitable organization” affiliated with the marketer. Finally, DOJ alleges that the PE Firm “knew of and agreed to” the allegedly improper marketing arrangements. This latter allegation mirrors DOJ’s earlier emphasis on the PE Firm’s involvement in and control over the allegedly improper arrangement as a basis for targeting the PE Firm in this case.

According to the DOJ, its “prosecution and resolution of this case demonstrates [its] continuing commitment to hold all responsible parties to account for the submission of claims to federal health care programs that are tainted by unlawful kickback arrangements.” The settlement represents another enforcement action arising from allegedly improper marketing of items reimbursed under federal health care programs (see our recent post here on the government’s continued scrutiny of pharmaceutical marketing practices). This particular settlement also provides an important reminder to private equity owners and other investors in the health care space of the significant potential liability for alleged non-compliance, at a time when outside investment in health care providers is continuously expanding.

This post was co-authored by Michael Lisitano, legal intern at Robinson+Cole. Michael is not yet admitted to practice law.