How Medicare Fraud Schemes Are Perpetrated by Pharmacies


The abuse of pharmacy benefits is among the most prevalent of fraudulent activities in healthcare.

Fraudulent activities across every sector of healthcare are nothing new. In fact, Medicare and Medicaid fraud alone costs taxpayers estimated billions of dollars annually, according to the Centers for Medicare and Medicaid Services (CMS). No one really knows the actual amount of money lost to fraudulent activities, but that’s not the point. The real problem is cracking down on acts of fraud, which is often difficult considering that both the patients and healthcare organizations contribute to the problem one way or another.

Problems have become so widespread that there's now a Medicare Fraud Strike Force tasked to hunt and take down anyone engaged in fraud. Medicare also provided information and procedures in reporting fraud, outlining the details required to file a report—such as dates and receipts—and which numbers to call. Customers, patients, and employees are urged to report against fraudulent activities if they suspect it or when they have been a victim of it.

The Hows of Pharmacy Medicare Fraud

Among the many fraudulent activities in the healthcare sector, abuse of pharmacy benefits is the most prevalent. In fact, many pharmacy owners and employees have been arrested for their participation in pharmacy Medicare fraud schemes. The largest takedown happened in 36 Federal Districts, including New York, where a pharmacist was accused of defrauding Medicare and Medicaid by more than $50 million. But how do pharmacists get away with it?

Different Pharmacy Medicare Fraud Schemes

Auto-refilling pharmacy fraud

This happens when a prescription is automatically filled, even when a patient did not request a refill. Without the patient's knowledge, the pharmacy will then bill Medicare for prescriptions that patients never picked up. They do the same with Federal Employees Health Benefits Program (FEHBP), Medicaid, and TRICARE. Because the prescriptions are still in store, they can rinse and repeat and get away with it.

Auto-refilling pharmacy fraud is one of the reasons that a pharmacist in Janesville, Wisconsin was arrested. He was charged with creating false prescription orders and submitting them for reimbursement, which resulted in Medicare and Medicaid paying him approximately $1 million. The fraudulent activity started between January 2008 and March 2014, and was only discovered when the Wisconsin Department of Health Services conducted an audit.

Kickbacks and bribes

Violations of the anti-kickback statute are among the alleged crimes that conspirators do to commit healthcare fraud. But, even when it is illegal, some pharmacies still give patients gift cards or other incentives to transfer their government-paid prescriptions, making it easier for them to use the prescription for fraudulent activities. Large pharmaceutical companies, on the other hand, bribe pharmacies and pharmacists to switch patients’ medication to a particular drug manufactured by the pharmaceutical company.

One such case happened in California where a physician and pharmacist were charged for allegedly accepting bribes and kickbacks to prescribe expensive pain creams and equipment. The prescriptions were medically unnecessary and may have been part of the $27 million in false claims.

Drug switching fraud

As the name suggests, this type of pharmacy Medicare fraud involves filling a patient's prescription with a medication that is different from what a doctor prescribed. Switching a patient’s FEHBP, Medicare, Medicaid, or TRICARE prescription for tablet meds to capsule, or vice versa, is considered wrongfully taking money from the government. But many pharmacies commit this fraudulent act to make more money from the government.

Pharmacy benefit managers (PBMs) fraud

Pharmacy claims are processed and paid by PBMs or third-party administrators used by insurance companies, especially those that offer Medicare Part D Prescription Drug Plans. The role of PBMs is to help negotiate for better prices on prescription drugs and make a profit by operating their own mail order pharmacy.

This makes it easier for them to commit several types of PBM frauds, such as switching drugs, shorting medications, paying kickbacks or offering inducements, dispensing adulterated or expired drugs, recycling or reshipping drugs returned by mail order customers, using lock-in pricing that is undisclosed, and keeping manufacturer's rebates in their pockets instead of passing on the savings to patients.

But the worst form of fraud that PBMs commit is a failure to negotiate prices, which is a blatant disregard of their responsibilities. This type of negligence is already a serious violation, which only adds up when other types of PBM fraud are committed along with it.

In 2006, Medco Health Solutions, an American PBM, allegedly solicited and received kickbacks to promote certain drugs. They received more from insurers and HMOs; however, they ended up paying $155 million when whistleblowers blew their cover.

Under the Federal False Claims Act (FCA), all the fraudulent practices listed above can form the basis for a whistleblower lawsuit, but there must be a whistleblower first.

Medicare Fraud and the False Claim Act

Most the pharmacy care fraud cases were brought to attention by whistleblowers, most of whom are current or former employees. Under FCA, a whistleblower can receive 30% of what the government collects from the companies accused and proven guilty of fraud. And that's before the damages are tripled, which means the award can add up significantly. This might be the perfect time to be aware of what goes on with your own pharmacy transactions and blow the whistle on pharmacy Medicare fraud perpetrators.

Medicare recommends that before you report a fraud, you must collect essential details:

  • name of a provider or identifying number
  • item or service in question
  • date when an item or service was supposedly delivered or given
  • amount approved and paid by Medicare
  • date on the Medicare Summary Notice (MSN)

Then, provide your name and number and the reasons you think Medicare should not have paid for such a transaction, whether for a product or service.

If you meet all five conditions for your report to be eligible for a reward, you can get paid up to $1,000. The conditions include that:

  • An alleged fraud is specific, not general.
  • A suspected fraud is confirmed by the Medicare Drug Integrity Contractor, the Program Safeguard Contractor, or the Zone Program Integrity Contractor as fraud.
  • A suspected pharmacy, pharmacist or organization isn't already under investigation.
  • At least $100 of Medicare money will be recovered from the fraud reported.

It is also important that you are not considered an “excluded individual.” That is, you’re not part of the fraud scheme or that you don't qualify for another government program’s reward.

Joshua Pirestani is president of the American Pharmacy Purchasing Alliance.

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