On Wednesday, the Department of Justice announced the indictment of two owners of a Dallas based marketing firm for alleged felony offenses that involve a health care fraud conspiracy that caused TRICARE to suffer more than $65 million in losses. Richard Robert Cesario of Plano, Texas, and John Paul Cooper of Southlake, Texas were arrested on February 23 and are currently being detained pending hearings set for March 1, in the U.S. District Court, Northern District of Texas.

The alleged schemes involve kickbacks to beneficiaries and physicians, pharmacies paying marketers for referrals, no bona fide employment of marketers, no bona fide doctor/patient relationship; a fraudulent foundation making “charitable donations” to cover kickbacks; a dummy “Patient Safety Initiative” or “PSI” study that disguised payments to beneficiaries as “grants”, waived co-pays and other tactics that are prohibited under the False Claims Act and Anti-Kickback Statute.

According to the recently unsealed indictment (click here to view or download the indictment), Cesario and Cooper co-owned and operated CMS RX LLC (“CMGRX”), a company that primarily marketed compounded pain and scar creams to TRICARE beneficiaries, both current and former U.S. military members and their families on behalf of several compounding pharmacies. The prescriptions were shipped to beneficiaries in Texas and other states around the country. CMGRX was formed in 2014 and ceased operations in mid-2015 after TRICARE announced changes to the approval process for compounded prescriptions.

According to the indictment, as a component of the schemes, CMGRX employed individuals who had no medical or pharmaceutical training or licenses, as pharmacy technicians in CMGRX’s medical department. These technicians received patient referrals from CMGRX’s marketers in the field. Cesario and Cooper directed the technicians to contact Express Scripts to determine whether the formulation would be covered, and if so, how much TRICARE would pay for each prescription. Depending on TRICARE’s response, these untrained technicians would adjust the formulation and recontact Express Scripts to see if it would pay more for the revised formulation. Once the highest-paying formulation was determined, CMGRX technicians would send the patient’s information and a pre-filled prescription form to a doctor. The doctor would then contact the patient by telephone, sign the prescription and return it to CMGRX. Often this step was skipped and CMGRX used a doctor’s signature stamp to complete the prescription, especially for renewals after the refills had been exhausted. CMGRX controlled which compounding pharmacy would fill each prescription based on the pharmacies’ then-current capacity and which pharmacy would pay CMGRX the most money for referrals. Patients had no say or control over which pharmacy filled their prescriptions.

The indictment further alleges that CMRGX marketers made direct calls to TRICARE beneficiaries and falsely represented that they were from a prescribing doctor’s medical clinic in order to obtain the beneficiary’s approval to authorize as many as five additional months of refills. Physicians allegedly spent less than two minutes on telephone calls with patients and wrote prescriptions for patients who resided in states where the physician was not licensed. This practice does not meet the standard to establish a bona fide doctor/patient relationship.

As part of the alleged conspiracy, CMGRX paid beneficiaries $250 per month for each prescription they obtained through one of their pharmacies. These payment were disguised as grants for participating in a medical study they referred to as the “Patient Safety Initiative” or “PSI Study.” The PSI Study was not approved by TRICARE, not overseen by a medical professional, and did not gather any useful scientific data relating to the safety and efficacy of any drugs. The true purpose of the PSI Study was to compile a list of TRICARE beneficiaries who had filled prescriptions in order to determine how much to pay the beneficiaries each month. CMGRX created the Freedom From Pain Foundation (“FFPF”), a Delaware corporation, registered as a 501(c)(3) tax-exempt charitable organization. The FFPF was funded by equal payments from Cesario and Cooper totaling $2,425,750 which were posted as “Charitable Donations” and the same notation in the memo sections of checks payable to FFPF.

CMGRX also obtained pre-paid debit cards in the names of TRICARE beneficiaries, without the knowledge or consent of the beneficiary. The debit cards were used to pay the beneficiaries co-pay so the prescriptions could be processed faster by the participating pharmacies.

Physicians were paid $60 for each compounded pain or scar cream and $30 for each compounded vitamin cream. The prescribing physicians typically had no prior relationship with the patient and the prescriptions were written after a very brief telephone interview. Payment to physicians were funneled through FFRP and disguised as payments for PSI Study participation. While the indictment does not identify the physicians involved, it does include a chart that indicates a physician’s initials with dates and amounts paid.

Count Recipient Physician Date of Payment Amount of Payment
13 W.E. 03/24/2015 $64,340.00
14 W.E. 05/12/2015 $72,685.00

CMGRX allegedly entered into marketing service agreements with compounding pharmacies where the pharmacy agreed to pay a percentage of the gross revenue for the prescriptions provided by CMGRX. The payments made by pharmacies were classified as employee wages however, neither defendant were bona fide employees of the pharmacies and the “wages” paid were not reasonable for the marketplace. The indictment does not identify the pharmacies involved in this alleged fraud however, the following chart does provide the pharmacy initials and the amount of the illegal remuneration. The indictment does list the pharmacies as co-conspirators which leads us to believe this investigation is far from over.

Count Defendant Pharmacy Date of Payment Amount Paid
2 Cesario 3.P. 05/04/2015 $1,414,691.00
3 Cooper 3.P. 05/04/2015 $1,414,691.00
4 Cesario F.W. 04/6/2015 $623,883.00
5 Cooper F.W. 04/6/2015 $623,883.00
6 Cesario T.P. 05/08/2015 $353,28.72
7 Cesario T.P. 05/08/2015 $353,28.72
8 Cesario and Cooper T.P. 01/29/2015 $782,041.94

Cesario and Cooper are each charged with one count of conspiracy to commit health care fraud, four counts of illegal remuneration and six counts of payment of illegal remuneration.   If convicted of conspiracy charge, the defendants face up to 10 years in federal prison and a maximum fine of $250,000. For each count of illegal remuneration, the defendants could be sentenced to a maximum of 5 years in federal prison and an additional $250,000 fine.

This investigation also includes a forfeiture action against the defendants and should they be convicted of the criminal charges, they will forfeit four homes in Plano, Frisco and Southlake, Texas; a home in Jacksonville, FL; 18 bank accounts; 21 cars and trucks, including a Jaguar, a Maserati, a Ferrari, a Porsche, an Aston Martin and three Mercedes-Benz; two motor coaches; and one boat.

For further information on the subject matter of this alert, please contact the following FisherBroyles attorneys:

Brian E. Dickerson

Nicole Hughes Waid

Anthony J. Calamunci