Health Law Daily Government’s evidence overwhelmingly supported convictions for healthcare fraud
Thursday, July 16, 2020

Government’s evidence overwhelmingly supported convictions for healthcare fraud

By Jeffrey H. Brochin, J.D.

Fraud convictions upheld where pharmacist-in-charge falsified pharmacy ownership declarations, filled prescriptions that doctors never ordered, and filed claims with several pharmacy benefit managers (PBMs) for patients who never received the medications.

The 11th Circuit affirmed the district court’s convictions entered against a pharmacist for healthcare fraud and conspiracy to commit healthcare fraud, after determining that his assertions of insufficiency of the evidence, insufficiency of the indictment, error as to the district court’s admission of lay and expert witness testimony, and as to the trial court’s refusal to grant a continuance, were all unfounded (U.S. v. Chalker, July 13, 2020, Marcus, S).

Seeds of the fraud scheme. When a man who was under investigation for healthcare fraud in Ohio decided to buy a pharmacy in Florida in 2014, he knew that he would have a problem maintaining the Florida pharmacy’s PBM contracts if the PBMs learned of his fraud investigation. He therefore placed ownership of the pharmacy in his mother’s name, and hired a pharmacist-in-charge (manager) to operate the business. He instructed the manager to leave him off all emails with PBMs, and when the manager submitted recertification paperwork to the PBMs, he falsely named himself as the pharmacy’s owner and affirmed that no owner of the pharmacy had been the subject of criminal prosecution including fraud.

Huge spike in prescription claims. Although the pharmacy was a community pharmacy that would typically be expected to fill prescriptions for chronic conditions, under the manager’s direction, the pharmacy almost exclusively filled prescriptions for topical compounded medications that were billed excessively high to the PBMs, and, he waived customers’ co-pays that he should have been collecting. To further boost their business, the owner and the manager paid telemarketers to solicit patients and schedule them for interviews with doctors via telemedicine, and, the manager created pre-printed prescription pads that the pharmacy shared with doctors via telemedicine. These practices led to a dramatic spike in business at the pharmacy, with billings to one PBM alone going from a couple hundred dollars one week to around $40,000 the next.

Suspicions by PBMs. The pharmacy began receiving frequent complaints from patients who said they didn’t want, need, or know anything about the drugs they were receiving. The scheme raised red flags for PBMs who began their own audits of the pharmacy. An investigator with CVS Caremark received a tip and commenced an audit of the pharmacy’s claims in December 2014, and her audit revealed that the manager had submitted bills in a few instances even when it didn’t have enough drugs in stock to fill those prescriptions. Furthermore, there had been unauthorized prescription refills—refills the doctors knew nothing about—and, it was disclosed that the pharmacy was not collecting high dollar co-payments.

An audit by another PBM, Express Scripts, found that the pharmacy had $670,000 in what it called purchase verification shortages, meaning discrepancies between what was billed and what had been ordered from wholesalers. Yet a third PBM, Optum RX, discovered that some of its members denied receiving prescriptions for which the pharmacy had submitted bills, and, that claims for reimbursement were submitted that outstripped supply – the pharmacy hadn’t purchased enough drugs to cover seven of the claims they submitted. All three PBMs sought to clawback money they had paid to the pharmacy and terminated their PBM contracts.

Indictment and convictions. In early August 2016, the manager abruptly quit his job at the pharmacy and moved on to a different pharmacy where he again was hired as pharmacist-in-charge, and proceeded to repeat the same scheme. He was indicted on June 14, 2018, by a federal grand jury sitting in the Southern District of Florida, and after a four-day jury trial, he was convicted on all counts of healthcare fraud and conspiracy to commit healthcare fraud.

He filed a timely appeal citing trial errors based on challenges to: (1) the sufficiency of the evidence and to the sufficiency of the indictment; (2) the district court’s admission of lay and expert witness testimony; and (3) the trial court’s refusal to grant a continuance.

Government’s evidence sufficient for convictions. After reviewing the indictment, all of the above audit findings, and the challenged testimony, the appeals court concluded that the government had introduced sufficient evidence at trial to allow a reasonable jury to find beyond a reasonable doubt that the manager had conspired to commit healthcare fraud. The evidence was also sufficient to allow the jury to find him guilty beyond a reasonable doubt of the substantive counts of healthcare fraud established doctrine that holds that a member of a conspiracy is criminally liable for the reasonably foreseeable crimes that other conspirators commit during the course of and in furtherance of the conspiracy. The trial court did not need to assess the individual culpability of a particular conspirator, provided that the substantive crime was a reasonably foreseeable consequence of the conspiracy.

Based on the foregoing, the appeals court affirmed the convictions entered by the district court.

The case is No.: 18-15102.

Attorneys: Amanda Brooke Harris, U.S. Attorney's Office, for the United States. Leonard P. Fenn (Defabio & Fenn, PA) for Stephen Chalker.

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