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Federal Compound Pharmacy Fraud Charges – What You Need to Know

Federal Compound Pharmacy Fraud Charges – What You Need to Know

Federal agents just showed up at your compounding pharmacy. Or you received a target letter from the Department of Justice. Or a former employee told you that investigators have been asking questions about your pain cream prescriptions and billing practices. Your first instinct might be to think this is some kind of misunderstanding – you compound legitimate medications, your pharmacy is properly licensed, you fill valid prescriptions. Here is the first thing you need to understand: compounding pharmacy fraud prosecutions have become a federal enforcement priority. Wade Walters received 18 years in federal prison for a $510 million pain cream fraud – the largest TRICARE compounding pharmacy scheme ever prosecuted. Dehshid “David” Nourian received 17 years and six months for a $145 million compound cream scheme and had $405 million in assets forfeited. These are not theoretical outcomes.

Welcome to Spodek Law Group. We handle federal healthcare fraud defense cases regularly, including cases where pharmacy owners first realize they are facing serious criminal exposure through exactly this kind of contact. The second thing you need to understand is this: compound pharmacy fraud is now a primary target for federal investigators. TRICARE compound drug spending exploded from $24 million in 2010 to over $500 million in 2014 – a trajectory that triggered massive federal investigations. By 2015, compound prescriptions represented only 0.5% of all prescriptions but accounted for 20% of TRICARE pharmacy costs. That ratio alone signaled fraud on a massive scale. Federal prosecutors view the compounding pharmacy industry as a fraud-prone sector – and the sentences are devastating.

Here is something most compounding pharmacy owners do not realize about this type of fraud. The paradox is brutal. The pain creams worked as medications. The scar creams achieved therapeutic results. The compounds were mixed according to formulation standards. And the pharmacy owners still went to prison for decades. The crime is not making defective medications. The crime is prescribing compounds that patients did not need. The crime is paying kickbacks to get those prescriptions. The crime is billing TRICARE for medically unnecessary pain creams prescribed by doctors who never examined the patients.

The Markup That Creates Criminal Liability

Heres the uncomfortable truth about compound pharmacy billing. Everything depends on medical necessity – and in the compound pharmacy world, the markup reveals the scheme.

Compound creams cost $15 to make and were billed at $16,000 per prescription. Evidence at trial in the Nourian case showed these compounds were being mixed in the back rooms of pharmacies by untrained teenagers at a cost of around $15 per prescription. Those same compounds were billed to the Department of Labor’s Workers’ Compensation Program for as much as $16,000 per prescription. Thats a markup of over 100,000 percent.

The ingredients were chosen for billing potential, not medical benefit. In the Florida scheme, prosecutors showed that pharmacies used unusual ingredients like horse tranquilizers that were not medically necessary. Why? Becuase unusual ingredients justified higher reimbursement rates. The compound formulation was designed to maximize billing, not to optimize patient outcomes.

Patients often never requested, wanted, or needed the medications. In the $126 million Texas scheme, drugs were mailed to patients even though patients never asked for them. The compounds were chosen based on reimbursement amounts, not medical needs. Patients recieved medications they didnt know were coming for conditions they didnt know they had.

Think about what that means for your compounding pharmacy. If your compound formulations are designed to maximize reimbursement rather then address specific patient needs, every prescription is potential criminal liability. If the prescribing physician wasnt the patients’ treating doctor, the prescription may be fraudulent regardless of wheather the compound was properly made. The pharmacy can be perfect while the billing is criminal.

The TRICARE Explosion

Heres something about compound pharmacy fraud that explains why federal enforcement became so aggressive. The numbers told the story before investigators arrived.

TRICARE compound spending exploded 2,000% in four years. In 2010, compound medications represented about $24 million of TRICAREs $6.6 billion outpatient pharmacy spending. By 2014, that number had reached $500 million and was on track to quadruple again in 2015. This wasnt organic growth in patient needs. This was fraud scaling across the country.

Compound prescriptions were 0.5% of scripts but 20% of costs. By April 2015, compound prescriptions made up only half a percent of all TRICARE prescriptions but accounted for twenty percent of total pharmacy costs. The ratio was impossible to explain through legitimate pharmacy operations. The data itself proved fraud was occuring at massive scale.

TRICARE paid $1.75 billion for compounded drugs in fiscal year 2015. Military families became the primary targets becuase TRICARE historically had looser controls and higher reimbursement rates. Service members and their dependants were recruited specificaly becuase their insurance paid more generously. The people serving their country became targets for fraud.

Heres the irony that should terrify every compounding pharmacy owner. The spending explosion triggered the investigations. The data analytics identified the outliers. If your pharmacy’s billing patterns contributed to that explosion, investigators have already noticed. The numbers that generated your revenue are the numbers that generated your exposure.

The Prescription Pipeline

Heres something about compound pharmacy fraud that creates massive criminal exposure. The way prescriptions enter your pharmacy reveals the fraudulent nature of the entire operation.

Recruiters targeted TRICARE beneficiaries for medications they didnt need. Patient recruiters approached military families and federal workers. They collected insurance information and medical histories. They routed that information to doctors who wrote prescriptions without examinations. The prescriptions went to compounding pharmacies that billed thousands per patient. Everyone got paid based on TRICARE reimbursements.

Jimmy and Ashley Collins generated $65 million in five months. The married couple from Tennessee recruited TRICARE beneficiaries to recieve expensive compounded medications. They sent beneficiary information to their clinic, Choice MD, where doctors wrote prescriptions without ever examining patients. Between December 2014 and May 2015 – just five months – the doctors authorized 4,442 prescriptions and billed TRICARE over $65 million. The pharmacy paid kickbacks to the Collins based on a percentage of TRICARE reimbursement – at least $45.7 million in kickback payments.

Blanket authorization letters allowed prescription modification. In the Tallahassee scheme, pharmacy employees used blanket letters of authorization from doctors to modify prescriptions and make them more profitable. The patient had no idea the compound had changed. The original prescription became evidence of fraud when investigators discovered the modifications.

Heres the consequence cascade. You contract with a recruiter to bring you prescriptions. The recruiter pays doctors to write prescriptions. The doctors sign prescriptions for patients they never examined. You bill TRICARE for compounds those patients dont need. Every payment in the chain is a kickback. Every claim is a false claim. The entire pipeline is a federal crime.

The Cases That Show What Happens

If you think compound pharmacy fraud prosecutions are theoretical, look at what actualy happens to pharmacy owners and operators.

Wade Walters received 18 years for a $510 million scheme. The Hattiesburg, Mississippi pain cream fraud was the largest compound pharmacy scheme ever prosecuted targeting TRICARE. Walters was the mastermind behind operations that generated over half a billion dollars in fraudulent claims. He was ordered to pay $345 million in restitution. Eighteen years in federal prison for mixing pain creams.

Dehshid “David” Nourian received 17 years and six months. The Texas pharmacist operated a scheme that defrauded the Department of Labor’s Workers’ Compensation Program of $145 million. He was ordered to pay over $115 million in restitution. The court forfeited $405 million in assets tied to his fraud and money laundering. Four hundred and five million dollars – houses, cars, bank accounts, investments – all seized.

The Florida pharmacy owner received 15 years. His network of pharmacies – A to Z Pharmacy, Havana Pharmacy, and others – submitted $100 million in fraudulent claims for pain and scar creams. He bribed doctors to write prescriptions for patients they never saw. He was ordered to pay $54 million in restitution. Real properties, cars, and a 50-foot boat were forfeited.

Raad Kouza received 8 years, his brother Ramis received 5 years. The Michigan pharmacist brothers ran a $15 million scheme and were ordered to pay $15.5 million in restitution. A family pharmacy destroyed. Brothers going to prison together. Becuase they billed for compounds patients didnt need.

These arnt unusual cases. They represent standard enforcement outcomes. The prison sentences reach nearly two decades. The restitution orders are in the hundreds of millions. The forfeiture takes everything.

The Union City pharmacy owner received 87 months. Thats over seven years in federal prison. The administrator recieved 72 months – six years. They defrauded pharmacy benefit managers and healthcare providers including Medicare and Medicaid out of more then $65 million. They paid kickbacks to obtain prescriptions. The scheme seemed sophisticated. The outcome was prison for both of them.

David Byron Copeland received four years and three months. His Tallahassee scheme billed TRICARE more then $54 million. TRICARE paid approximately $41 million on those claims. The conspirators paid bribes including lavish trips and expensive dinners to prescribers. What seemed like business development was actualy federal kickback violations.

How Compound Pharmacy Investigations Begin

Heres something about how these cases develop that should concern every compounding pharmacy owner. Investigations often begin long before anyone contacts you.

TRICARE data analytics identify suspicious billing patterns. When compound spending exploded from $24 million to $500 million in four years, federal investigators noticed. They identified pharmacies with unusual billing patterns – excessive compound volumes, concentrated prescriber relationships, geographic anomalies. Your claims are compared against statistical norms. If your billing contributed to that explosion, your already flagged.

Patient recruiters become cooperating witnesses. When the government investigates a recruiter who targeted TRICARE beneficiaries, that recruiter identifies every pharmacy they sent prescriptions to. When they investigate doctors who wrote prescriptions without examinations, those doctors identify every pharmacy that filled their scripts. You may become a target becuase someone in your referral chain was investigated first.

One prescriber can expose dozens of pharmacies. A single doctor who signed thousands of prescriptions without examinations creates exposure for every pharmacy that filled those prescriptions. Every one of those pharmacies is now under scrutiny. One bad prescriber exposes an entire network.

Whistleblowers have massive financial incentive to report. Under the False Claims Act qui tam provisions, whistleblowers can recieve 15-30% of government recoveries. Your pharmacy techs, your billing staff, your former employees – anyone who sees something questionable has powerful financial motivation to report it. A single whistleblower could recieve millions from a successful case.

Heres the consequence cascade. TRICARE identifies your pharmacy’s billing as an outlier. They investigate the prescribers associated with your claims. Those prescribers cooperate and identify your pharmacy as a destination for their prescriptions. Federal agents show up at your facility.

What You Cannot Do When Investigated

Heres what compounding pharmacy owners do when they learn about investigations. They panic. They try to fix things. They make decisions that create additional criminal exposure.

Do NOT destroy or alter documentation. Prescription records, billing files, contracts with recruiters, payment records. Destroying any of this is obstruction of justice. The government probly already has copies through TRICARE claims data and records seized from recruiters and prescribers. Destruction proves consciousness of guilt while accomplishing nothing.

Do NOT contact recruiters, prescribers, or marketers to coordinate stories. If you paid kickbacks or recieved prescriptions through problematic channels, your natural instinct is to talk to others involved. Dont. Coordinating testimony is witness tampering. They may already be cooperating with the government. Your conversation could be recorded.

Do NOT continue questionable referral arrangements. If your recieving prescriptions through marketing relationships that might be kickbacks, stop. But dont try to “clean up” by restructuring contracts or creating backdated documentation. Thats additional fraud.

Do NOT assume cooperation will protect you. Pharmacy owners often think full cooperation will result in leniency. Cooperation might help at sentencing if your convicted. But it dosent prevent prosecution. Wade Walters still got 18 years. Nourian still got 17 years. Everything you say to investigators can be used against you. You need an attorney before you say anything.

The Kickback Math That Destroys Pharmacies

Heres something about compound pharmacy fraud that exponentialy increases legal exposure. Every prescription creates False Claims Act liability – and compound medications are billed at thousands of dollars each.

How the kickback multiplier works. You pay a recruiter a percentage of TRICARE reimbursement. That payment is a kickback under the Anti-Kickback Statute. Every claim submitted based on prescriptions from that recruiter becomes a false claim. Each false claim carries penalties of up to $27,894 (as of 2024). Plus treble damages – three times the governments loss. A pharmacy processing 1,000 compound prescriptions at $5,000 each creates $5 million in billing – and potentialy tens of millions in False Claims Act exposure.

The Collins scheme shows how fast exposure compounds. 4,442 prescriptions in five months. $65 million in TRICARE billing. Each prescription is a seperate false claim. Each kickback payment is a seperate Anti-Kickback violation. The exposure multiplied with every prescription filled.

Each prescription is a seperate claim. If your pharmacy processed 5,000 compound prescriptions through problematic referral arrangements, you face 5,000 potential false claims. At $27,894 per claim in penalties alone, thats over $139 million in exposure before treble damages.

Heres the uncomfortable truth about False Claims Act exposure. Percentage payments to recruiters might seem managable. A share of reimbursement. But the False Claims Act transforms every connected prescription into seperate liability. What seems like limited exposure becomes financial devastation that follows you for the rest of your life.

The Forfeiture That Takes Everything

Heres something about compound pharmacy fraud convictions that pharmacy owners need to understand. The government doesnt just want prison time. They want everything you bought with fraud proceeds.

Dehshid Nourian forfeited $405 million in assets. Houses. Cars. Bank accounts. Investments. Everything traced to his fraud and money laundering. The court didnt just order restitution – they seized every asset connected to the scheme. Four hundred million dollars gone.

The Florida scheme forfeited real properties, cars, and a 50-foot boat. Fraud proceeds converted to tangible assets become forfeiture targets. The boat you bought with compound pharmacy revenue becomes evidence of money laundering. The house becomes a government asset.

Exclusion means your pharmacy cannot bill federal programs. You cannot fill prescriptions for TRICARE, Medicare, or Medicaid patients. In the compound pharmacy industry, were federal programs represent significant revenue, exclusion effectivly closes your business.

The punishment extends far beyond prison. You serve your time. You pay your fines. But everything you own has been forfeited. Your excluded from federal programs. Your career in pharmacy is effectivly over permanantly.

Heres the reality most pharmacy owners dont understand untill its to late. The government traces every dollar. They identify every asset purchased with fraud proceeds. They dont just want penalties – they want everything connected to the scheme. Wade Walters walked into court owning businesses and properties. He walked out facing 18 years with nothing left. Nourian forfeited $405 million. The Florida owner lost his boat, his cars, his real estate. Compound pharmacy fraud doesnt just end careers – it eliminates wealth accumulated over decades.

What You Should Do Right Now

If federal investigators have contacted your compounding pharmacy, or if you have referral arrangements that might trigger scrutiny, heres exactly what you should do:

Contact a federal healthcare fraud defense attorney immediatly. Not a general business lawyer. Not your regulatory consultant. Someone who specificaly handles federal healthcare fraud cases and understands TRICARE enforcement priorities.

Do NOT speak to investigators without counsel. Federal agents may approach you or your staff for “voluntary” interviews. There is nothing voluntary about it. Anything said can be used to build the case against you. Politely decline and contact an attorney immediatly.

Preserve all documentation exactly as it is. Prescription records, billing files, contracts with recruiters, prescriber agreements, payment records. Do not alter, destroy, or organize anything. Document preservation is critical.

Identify all potentially problematic referral sources. Marketing relationships. Recruiter arrangements. Prescribers who sent high volumes without patient examinations. Your attorney needs to understand the full scope.

Do NOT discuss the investigation with staff, recruiters, or prescribers. Anyone you talk to can be compelled to testify. They may already be cooperating with the government. Only attorney-client communications are protected.

Todd Spodek tells every compounding pharmacy owner in this situation the same thing: federal compound pharmacy fraud investigations are serious criminal matters. Wade Walters got 18 years. Dehshid Nourian got 17 years. The Florida owner got 15 years. Your response in the next few days could determine wheather this becomes a matter that resolves favorably – or federal charges that destroy your pharmacy, your assets, and your freedom.

Call Spodek Law Group at 212-300-5196. Before you speak to investigators. Before you make decisions that create additional exposure. Before a marketing arrangement becomes a federal prosecution.

Compound pharmacy fraud is a federal enforcement priority. TRICARE spent $1.75 billion on compounds in 2015 – and investigators traced much of that spending to fraud. What you do next matters enormosly.