Compounding pharmacies have been under intense scrutiny by Medicare, private third-party insurance and workers’ compensation insurance carriers for almost ten years. The criminal cases take so long to investigate and prosecute that there is a significant lag time between the time of operations and prosecution.
Compounding cases that proceed criminally usually involve aggressive and illegal marketing, medical necessity issues, and violation of pharmacy compounding laws and regulations. A recent case gives insight into a case involving compounding pharmacies where preprinted physician prescription pads, waiving of patients’ copays, and attempts to hide the waiving of copays caused criminal problems.
According to court documents, Fusion Rx Compounding Pharmacy was a provider of compounded drugs. What are compounded drugs? They are non-FDA approved medications that are supposed to be tailored to the needs of a specific patient when FDA-approved medications do not meet the health needs of patient. The pharmacy obtains a compounding license and combines, mixes or alters two or more drugs. The physician is supposed to prescribe and order the compounded medication and indicate what drugs are to be compounded to make it for that particular patient. Fusion RX was owned by Navid Vahedi, a Los Angeles pharmacist.
The prosecution alleged in its charging documents and there were admissions in the plea agreements that pharmacist Mr. Vahedi and Fusion Rx paid millions of dollars in kickback payments through the businesses of two marketers to send prescriptions for compounded drugs to Fusion Rx. It was also alleged that Mr. Vahedi and the of his two marketers provided physicians with preprinted prescription script pads that offered “check-the-box” options on the form to maximize the amount of insurance reimbursement for the compounded drugs. From May 2014 to at least February 2016, it was alleged that Fusion Rx received approximately $14 million in reimbursements on its claims for compounded drug prescriptions.
The next part of the allegations regarding kickbacks and illegal marketing related to waiving copayments. This is often done, and health care providers forget that this is considered insurance fraud or a kickback to the patients, or both. As part of its contracts with various insurance networks, the prosecution alleged that Fusion Rx was obligated to collect copayments from patients. It was further alleged that because the copayments might discourage patients from requesting expensive and potentially unnecessary compounded drug prescriptions, Fusion Rx did not collect copayments with any regularity and, in other instances, it provided gift cards to patients to offset the amount of the copayments, according to court documents.
The proof of criminal intent was using Mr. Vahedi’s actions during an audit. The prosecution alleged that after an audit raised concerns that Fusion Rx’s failure to collect copayments would be discovered, Mr. Vahedi directed Fusion Rx funds to be used to purchase American Express gift cards, which were then used to make copayments for certain prescriptions without the patients’ knowledge. Fusion Rx then submitted claims on these prescriptions to various insurance providers, falsely representing that those patients had paid the required copayments.
What happened in the case? In lieu of a trial, Mr. Vahedi and Fusion Rx both plead guilty. Fusion Rx pleaded guilty in February 2021 to one count of conspiracy to commit health care fraud and payment of illegal remunerations. On January 18, 2022, United States District Judge Christina A. Snyder sentenced Fusion Rx Compounding Pharmacy to five years of probation.
On February 7, 2022, Judge Christina A. Snyder sentenced Mr. Vahedi to 30 months in federal prison for operating his company Fusion Rx Compounding Pharmacy in an illegal manner by paying illegal kickbacks for patient referrals and fraudulently paying patients’ copayments. She has ordered Vahedi and his company to jointly pay $4,400,525 in restitution.
One of the factors that probably played into the decision to plea was that the two marketers involved – Joshua Pearson of St. George, Utah, and Joseph Kieffer of Los Angeles – previously pleaded guilty. Judge Snyder sentenced Mr. Kieffer to six months in federal prison and ordered him to pay $1.25 million in restitution. Mr. Pearson was sentenced to three years of probation.
Posted by Tracy Green, Attorney
Green and Associates
