$175M South Florida drug compounding fraud scheme alleged

Sixteen individuals have been charged by the U.S. Attorney’s Office for the Southern District of Florida in a two-year $175 million insurance fraud conspiracy involving the manufacture and distribution of compounded cream medications for the treatment of pain, wounds, scars, eczema, and other medical conditions. The conspiracy allegedly used various business entities, including Numed Care, LLC, ClinicalCorp, LLC, RX of Boca, LLC, and a failing compounding pharmacy located in Dallas, Texas, to perpetrate a complex fraud on numerous health care insurance providers.

According to the complaint, the charged individuals prepared medications in bulk quantities that were purported to be compounded for specific patients and falsely represented to the health insurance providers that these medications were prepared in limited quantities for individual patients, making them exempt from inspection by the FDA. The health insurers then compensated the charged individuals for the alleged costs of the ingredients for such medications.

The complaint further alleges that the charged individuals:

  • concealed from the health insurance providers that they made illegal kickbacks to physicians for the issuance of the compounded medications;
  • unlawfully provided physicians with pre-printed prescription pads;
  • used mass marketing techniques and call centers, which made material misrepresentations in order to solicit potential patients; and
  • induced owners of failing pharmacies throughout the United States to take part in the fraud.

The conspiracy charges against the individuals include conspiracy to commit racketeering, money laundering, and mail and wire fraud. Additional charges include making a materially false statement to federal law enforcement and subscribing to a false federal income tax return.

The charged individuals face a range of penalties, from five years and a $250,000 fine, to 23 years and a $500,000 fine. The complaint is an accusation only and the charged individuals are deemed innocent until proven guilty.

$157M compounding pharmacy fraud scheme leads to indictment

Eight individuals who allegedly caused the submission of false claims to Medicare, TRICARE, and private insurance companies are facing an indictment charging them with conspiracy to commit health care fraud and wire fraud, and, in some cases, with money laundering. The Florida residents allegedly used several Tampa Bay- and Miami-area compounding pharmacies to submit false claims for prescription medications from October 2012 through December 2015. Several defendants were arrested on August 9, 2016.

The indictment claims that the eight men used six separate pharmacies to submit $633 million worth of claims for prescription compounded medications and received $157 million in reimbursement. Prescriptions allegedly resulted from illegal kickbacks and bribes and/or were not based on legitimate provider/patient relationships. Some reimbursement claims resulted from the misuse of patient information.

The indictment avers that the claims for reimbursement falsely indicated that the prescription medications contained certain pharmaceutical ingredients. Compounding pharmacies were initially created to prepare special medicines, based on me prescriptions, for individuals with special medical needs; however, large-scale manufacturing of compounded medicines has become increasingly common.

The defendants will make their initial federal court appearances in the Middle and Southern Districts of Florida.

Adulteration and bloodstream infections add up to prison terms for compounding pharmacists

The adulteration of compounded drugs at a compounding pharmacy—Advanced Specialty Pharmacy d/b/a Meds IV—led to 12- and 10-month prison sentences for two Alabama pharmacists. According to a Department of Justice (DOJ) release, the pharmacists compounded an intravenous drug known as Total Parenteral Nutrition (TPN) that contained the bacteria Serratia marcescens (S. marcescens).


Meds IV compounded various drugs for human use. The pharmacy’s TPN drug is an intravenous liquid nutrition for patients who cannot or should not receive their nutrition through eating. An information, filed on January 28, 2016, alleged that, beginning in 2011, Meds IV compounded its own amino acid solution, which was mixed with other ingredients to form TPN. According to the charges, the amino acid was prepared by the pharmacy outside a laminar airflow workbench, unrefrigerated, in a room that was not sterile, and in a large pot sitting on the floor. In some cases, the amino acid was stored that way—overnight—before it was sterilized and used.


Between March 5 and 15, 2011, nine patients died at various Birmingham-area hospitals as a result of bloodstream infections caused by S. marcescens. Additional patients developed bloodstream infections and survived. All of the infected patients had been given TPN compounded and distributed by Meds IV. A Centers for Disease Control and Prevention (CDC) inspection at Meds IV on March 22, 2011 found a strain of S. marcescens that could not be distinguished from the outbreak strain on a tap-water faucet, in an open container of amino acid powder, and on the surface of TPN mixing equipment. The information charged the pharmacists with compounding adulterated TPN because it was contaminated with S. marcescens and was prepared, packed, or held under insanitary conditions.


One of the pharmacists was responsible for reviewing and approving TPN formulations and filling individual TPN prescriptions. The other pharmacist was responsible for overseeing the day-to-day operations of Meds IV. Both pharmacists plead guilty to two misdemeanor counts related to two lots of TPN that were adulterated in violation of the federal Food, Drug, and Cosmetics Act (FDC Act) ) (21 U.S.C. §301 et seq.). In addition to the prison terms, each of the pharmacists was sentenced to one year of supervised release and a $5,000 fine.

Pew reports find weaknesses, best practices in compounding pharmacy regulation

State agencies that regulate compounding pharmacies often lack the authority to require compliance with appropriate standards, according to a recent report issued by the Pew Charitable Trust. In two related reports, Pew researchers assessed the extent to which state regulatory agencies oversee the safe operations of compounding pharmacies and recommended best practices for the agencies’ use.

Regulation of compounding pharmacies

Compounding pharmacies prepare drugs that are not commercially available. Under Federal Food, Drug, and Cosmetic Act section 503A, compounding pharmacies are permitted to prepare medications by prescription for the use of an identified patient. However, manufacturers began to use compounding pharmacies as outsourcing facilities to prepare larger batches of drugs. These outsourcing facilities challenged the restrictions on compounding pharmacies that prohibited advertising and solicitation of prescriptions. In 2012 and 2013, contaminated drugs manufactured by compounding pharmacies caused multiple injuries and deaths (see FDA inspects 29 compounding pharmacies, continues to find violations, Health Law Daily, April 12, 2013) Congress enacted the Drug Quality and Security Act, including the Compounding Quality Act. This law provided for FDA regulation of outsourcing facilities. The regulation of traditional compounding pharmacies remains under state control.

State oversight

The Pew researchers surveyed state boards of pharmacy and reviewed other materials to determine how states regulated compounding pharmacies. The 43 states that responded to the survey varied in their definition of compounding, the extent of their tracking of the activities of compounding pharmacies, the standards they enforced, and the enforcement actions available to them. For example, most states defined “compounding” to include combining two or more ingredients, but some definitions included repackaging, diluting, pooling, and/or reconstituting.

Many states do not track the pharmacies that perform compounding functions. A few require separate licensure. Of the 43 that responded, 34—79 percent—required compounding pharmacies to comply with at least some of the standards published by the United States Pharmacopeia (USP) in Chapter 797, but 13 of them did not require compliance with the entire chapter. Of the eight that did not apply USP chapter 797 at all, seven reported that policy changes to adopt part or all of Chapter 797 were pending. A few required more extensive training than the USP for some activities. In particular, some states required hands-on training and evaluation in which the evaluator observed the participant compounding a drug.

Enforcement authority

Most states did not track the violations of compounding pharmacies separately from retail pharmacies. Most did not require compounding pharmacies to report voluntary recalls either to the state or to the FDA. Eighty-eight percent of the responding states required pharmacies to report the number of drugs that they compounded, but only 30 percent required reporting of adverse events.

Thirty percent of states had the authority to require a compounding pharmacy to recall a product, while 44 percent did not. The staff who responded on behalf of the remaining 26 percent of states did not know whether their agencies had the authority to require a recall.

Best practices

An advisory committee compared states’ monitoring and enforcement practices and proposed recommended best practices for states to adopt if they could. The recommendations included:

  • application of the quality standards of USP Chapter 797;
  • identification of pharmacies that perform sterile compounding;
  • separate tracking of violations of requirements governing sterile compounding;
  • requiring training of all pharmacists who either perform or supervise sterile compounding;
  • annual inspections of compounding pharmacies; and
  • harmonizing state requirements for compounding without a prescription with those of federal law.