Health Care Fraud Sweeps Continue – An Analysis of the Nationwide Investigations into Compounding Pharmacies and their Constituents

Federal investigations into alleged fraudulent claims and kickback arrangementsin the health care industry have become a growing nationwide trend over the past several years. Compounding pharmacies and their constituents appear to be at the onslaught of these expansive investigations and subsequent takedowns. This movement most recently culminated in June 2016 when the DOJ announced that criminal and civil charges had been filed against 301 defendants for false billing schemes totaling some $900 million.According to U.S. Attorney Eileen M. Decker, the cases filed in Southern California alone allege losses of more than $125 million, with the bulk of those losses centered around compounding pharmacies.The seriousness with which these claims are being pursued affirms the federal government’s stance on prosecuting health care fraud allegations and serves as a warning to those concerned that the government is targeting its investigations on compounding pharmacies,their marketers, and licensed health care professionals associated with these pharmacies.


The indictments demonstrate the government’s belief that these compounding pharmacies may have tapped into a major oversite by the FDA and federal insurance providers. Compounded medications are typically prescribed by physicians when FDA-approved drugs are unable to meet patients’health needs. However, because compounded medications are not FDA regulated, pharmacies may have been using this as an opportunity to insert atypical and costly ingredients into the medications and/or overbilling for ingredients that, in actuality, cost very little. In fact, pharmacies across the country have been charged with billing federal agencies as much as $10,000 to $20,000 per prescription even though the cost to the pharmacies is only a fraction of the submitted amount.


Furthermore, reimbursement for these expensive medications was largely uncontesteddue to federal insurance companies’ deep pockets and overwhelming numbers of beneficiaries. The money received from federal health care programs for compounded medications is substantial. A recently-indicted pharmacy used in the case study below is alleged to have been paid at least $20 million from health care benefit programs for compounded medications. This alleged scheme ballooned from there, including providing doctors with pre-printed prescriptions for these costly medications through the involvement of “marketers” to paying and receiving kickbacks for prescribing these compounded medications.


Pharmacies Billing the Following Federal Agencies were Main Targets of Investigations:

  • TRICARE (military health insurance payor)
  • Department of Labor (DOL)
  • Medicare


Major Federal Investigative Agencies Include:

  • Department of Justice (DOJ)
  • Department of Defense (DOD)
  • HHIS Office of Inspector General (OIG)


Specific Fraud Allegations Against Pharmacies Tend to Focus On:

  • Illegal Remunerations for Health Care Referrals in violation of the Anti-Kickback Statute
  • Conspiracy to Solicit, Receive, and Pay Illegal Remuneration for Health Care Referrals
  • False Claimsin violation of the False Claims Act
  • Money Laundering
  • Wire and Mail Fraud
  • Aggravated Identity Theft
  • Improper Auto-Refill Programs


Medicare Strike Force

These health care fraud sweeps are spearheaded by the U.S. Medicare Fraud Strike Force, a multi-agency group of investigators tasked with preventing and combating health care fraud, waste, and abuse. Established in March of 2007, the Medicare Fraud Strike Force claims responsibility for charging more than 2,900 individuals collectively who falsely billed the Medicare program for over $8.9 billion.


Case Study Indictment

The investigations of the compounding pharmacy constituents appear to reveal a similar scheme. Following is a representative example from a recent indictment.


  • A compounding pharmacy hires a marketing agency or one is created as a separate entity from the compounding pharmacy but whose only client is the pharmacy.
  • These “marketers” then contact the insured beneficiary (“the beneficiary”) directly, asking if he/she wants to refill the prescription.
  • The marketers then solicit physicians to authorize the prescriptions by presenting the physicians with pre-printed prescriptions for compounded medications specifically selected to maximize the reimbursement amount from federal and/or private insurance agencies, allegedly without any regard for the medical necessity of the prescription.
  • These prescribing physicians authorize the pre-printed prescriptions, sometimes with no prior physician/patient relationship or even without the knowledge of the beneficiaries, and/or without considering if an FDA-approved prescription would be sufficient.
  • Instead of providing compounded medication prescriptions directly to the beneficiaries, who would then be free to select a pharmacy, the marketers or the prescribing physician would deliver the prescriptions directly via fax or email to the pharmacy for dispensing.


  • The pharmacies, “marketers,” and physicians of several of these schemes have all been implicated in conspiring to and/or paying and/or receiving kickbacks. These payments, for example, would include:
  • Payments from a compounding pharmacy to these marketers in exchange for referring beneficiaries and their prescriptions for compounded medications to the pharmacy, and/or
  • Payments from the pharmacy to physicians in exchange for prescribing certain compounded medications to beneficiaries for dispensing at the pharmacy.


  • The prescribing physicians would be paid either a fixed amount for each prescription authorized or a percentage of the gross revenue received by the pharmacy for each prescription.
  • The beneficiaries, in many instances, were allegedly identified specifically because of their federal health insurance rather than their needs for specially-compounded medications.
  • Further, it is alleged that beneficiaries even had their personally identifying health information misappropriated and used for compounded medication prescriptions without their knowledge.


A list of complaints and indictments that have been unsealed by the Department of Justice can be viewed here: We are continuing to monitor these trends and will provide more information as it becomes available.



  • Department of Justice, Office of Public Affairs, Press Release, “National Health Care Fraud Takedown Results in Charges against 301 Individuals for Approximately $900 Million in False Billing,” June 22, 2016.
  • Department of Justice, Office of Public Affairs, Press Release, “United States Announces Approximately $10 Million Settlement with Four Physicians and Two Compounding Pharmacies,” Feb. 11, 2016.
  • Department of Justice, Office of Public Affairs, Press Release, “United States Announces New Round of Compound Pharmacy Settlements Expected to Result in More Than $30 Million in Fines and Repayments,” Nov. 25, 2015.
  • S. Department of Health and Human Services, Office of Inspector General, “National Health Care Fraud Take-Down,” June 18, 2015.
  • California Department of Insurance, Press Release, “22 Defendants Named in Health Care Fraud Cases Involving Over $161 Million in Fraudulent Bills to Government Health Care Programs,” June 22, 2016.
  • Food and Drug Administration, “Compounding and the FDA: Questions and Answers,” (last visited Feb. 12, 2017).
  • Indictment, United States v. Jensen et. al., No. 2:16-cr-00412-SJO(C.D. Cal. June 16, 2016).
  • Devlin Barrett, Wall Street Journal, “U.S. Probes Possible Fraud Linked to Compounding Creams,” Feb. 8, 2016.
  • Scott R. Gruman and Samuel M. Shapiro, American Bar Association Health eSource, “Compounding the Problem: The Government Cracks Down on Compounding Pharmacy Fraud and Abuse,” Vol. 12 No. 8.
  • Whistleblower News Review, “Feds Bust 301 in Record $900M Healthcare Fraud Takedown,” June 22, 2016.


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