Treating fraud in independent pharmacies

In 2020, the U.S. Department of Justice (DOJ), in its largest health care fraud enforcement action to date, indicted 345 various health care professionals for submitting $6 billion worth of fraudulent claims to federal programs and private insurers. Among those ensnared in the takedown were pharmacies, which were accused of scheming with telemedicine entities and other licensed health care providers to purchase unnecessary medical equipment and prescription pain medications in exchange for illegal kickbacks and bribes, as well as the illegal distribution of opioid drugs. (See “National Health Care Fraud and Opioid Takedown Results in Charges Against 345 Defendants Responsible for More than $6 Billion in Alleged Fraud Losses,” U.S. Department of Justice, press release, Sept. 30, 2020.)

The schemes targeted by the DOJ’s massive enforcement action illustrate the types of frauds that often occur in pharmacies, especially independent ones (retail stores not affiliated with large corporate chain stores). Pharmacy schemes often involve attempts to maximize reimbursements from insurance companies by ordering expensive or unnecessary medications and medical equipment such as foot soaks, nasal rinses, diabetic supplies and topical pain medications. And independent pharmacies don’t always act alone to carry out their schemes. As the DOJ takedown demonstrated, pharmacy employees might collude with prescribers and other medical professionals, telemedicine entities and telemarketers.

Yet despite law enforcement agencies’ success in busting scammers, as soon as law enforcement crushes one scam, fraudsters move on to the next one. Indeed, there’s plenty of opportunity for fraudsters to take advantage of the lucrative prescription drug industry, which generated $1.14 trillion worldwide in 2021. And those opportunities for fraud grew exponentially during the COVID-19 pandemic as governments around the globe injected billions of dollars into their health care systems to fight the pandemic. (See “Global pharmaceutical industry – statistics & facts,” by Matej Mikulic, statista, Oct. 12, 2022, and “Fraud, Waste, and Abuse in the Context of COVID-19,” Healthcare Fraud Prevention Partnership, January 2022.)

According to the National Health Care Anti-Fraud Association, billions of dollars are lost to health care fraud every year, accounting for anywhere between 3-10% of total health care expenditures. These losses often translate into higher government and commercial health insurance premiums. (See “The Challenge of Health Care Fraud,” NHCAA.) But pharmacy fraud causes more than just financial pain; it can put lives at risk. For example, fraudsters might bill for a medication never sent or intentionally send a drug that was not prescribed. A person receiving a medication not prescribed to them could suffer bodily harm if they ingest a drug they’re not supposed to take. [See “Pharmacy and Prescription Drug Fraud,” Senior Medicare Control (SMP).]

The case of the now-defunct New England Compounding Center (NECC) is another example of how pharmacy fraud can endanger lives. In 2012, after 753 people in 20 U.S. states were diagnosed with fungal infections from contaminated injections made by NECC and 100 people died, an investigation revealed the pharmacy had been making and selling numerous drugs in unsanitary conditions, and its owners and operators had been evading regulators and misrepresenting its operations through a variety of fraud schemes. (See “Former Director of Operations for New England Compounding Center Sentenced,” United States Attorney’s Office, District of Massachusetts, press release, Dec. 14, 2022.)

COVID-19-related Rx fraud

Fraudulent activity increased during the COVID-19 pandemic as governments greatly increased funding of health care programs and relaxed regulations to expedite and implement COVID-relief programs and funding. Pharmacy benefit manager (PBM) OptumRx reported seeing a 300% increase in fraudulent claims between 2019 and 2020 when the pandemic started. The PBM also reported seeing the biggest concentration of frauds in independent pharmacies, or privately owned businesses not affiliated with large retail chains — and claims it removed 112 pharmacies from its network. (See “OptumRx analysts see more pharmacy fraud activity amid COVID-19,” by Paige Minemyer, Fierce Healthcare, May 21, 2021.)

Some of the investigations I conducted during the pandemic concerned one such scam revolving around claims for HIV PrEP (pre-exposure prophylaxis) medications. These HIV-prevention medications are highly effective but they’re also extremely expensive and garner high reimbursements for pharmacies and other bad actors involved. The most common PrEP medications are Truvada, Biktarvy, and Descovy, which have an average cost of $3,000 for a 30-day supply. (See “Pre-Exposure Prophalaxis,” Centers for Disease Control and Prevention.)

Investigations revealed that our beneficiaries who received HIV PrEP medications were often enticed with cash or gift cards to participate in free COVID testing, often through a mobile clinic. These clinics obtained participants’ benefit information and manipulated questionnaires so the participant would qualify for the PrEP medications. Participants reported receiving the HIV PrEP medications but were not sure why. Some said they never visited a clinic or testing unit and didn’t recognize the prescriber or pharmacy information on prescription labels. Our investigation determined that medical records or lab results were nonexistent or didn’t support the need for these high-cost prescriptions.

In 2022, Gilead Sciences, a pharmaceutical company that manufactures HIV PrEP drugs, settled a lawsuit against several Florida clinics, prescribers and pharmacies for allegedly causing tens of millions of losses in fraudulent claims. Gilead argued in its initial 2020 lawsuit that the defendants were allegedly enrolling patients in a program to receive PrEP drugs at a highly discounted rate, utilizing Gilead’s Medication Assistance Program. The clinics, prescribers and pharmacies allegedly bought back the drugs and resold them at a higher price on the black market. (See “Gilead Reaches $33 Million Settlement Against Florida Healthcare Company,” by Thomas Sullivan, Policy & Medicine, Sept. 5, 2022.)

Fraud and regulatory loopholes

False claims for HIV PrEP drugs were just one of the many scams that thrived during COVID, which opened loopholes that allowed fraudsters to ply their trade. The following are some pharmacy-related regulation changes that facilitated Rx fraud in independent pharmacies during the pandemic.

Signature logs

During the pandemic, health regulators in many U.S. states allowed pharmacies to bypass required proof-of-delivery/beneficiary signatures on drugs and certain durable medical equipment covered by Medicare. In place of the patient’s name in signature logs, PBMs allowed a signature stating “COVID.” However, without the signature, it was difficult to verify whether a patient had actually approved the prescription, and insurers were unable to determine forgeries and other suspicious activities. [See “Coronavirus Disease 2019 (COVID-19) Provider Burden Relief Frequently Asked Questions (FAQs),” U.S. Centers for Medicare & Medicaid Services, July 2020.]

Rx claim override abuse

State governments also authorized pharmacies to utilize Submission Clarification Code 13, allowing them to submit override codes for early prescription refills during disaster or emergency situations. It did not take fraudsters long to abuse this opportunity. For example, in November 2022, two New York pharmacy owners pleaded guilty to conspiring in a money laundering scheme in which they used emergency override codes to submit fraudulent Rx claims to Medicare for high-cost cancer medications Targretin Gel and Panretin Gel. Many of the medications were seemingly dispensed to patients during hours when the pharmacies were closed. The pharmacy owners concealed $18 million of their ill-gotten gains in shell companies and sham pharmacy wholesale companies and even hired people to pose as owners and supervising pharmacists to obtain the required pharmacy licenses for their sham companies. The pharmacy owners face up to 20 years in prison for their schemes. (See “Two Pharmacy Owners Plead Guilty in COVID-19 Money Laundering and Health Care Fraud Case,” DOJ, Nov. 16, 2022.)

Use your data to detect Rx fraud

PBMs, health insurers and government agencies should look to data from pharmacy claims to identify any trends indicating fraud that can be used to improve their fraud detection software’s detection capabilities. The following are just some of the indicators of fraud to be on the lookout for as you analyze pharmacy claims:

• Certain medications and equipment that frequently feature in pharmacy fraud schemes such as topical pain medications, high-reimbursing vitamins and supplements and diabetes supplies.
• Spikes in billing.
• Prescribers and beneficiaries who appear to live in multiple states and receiving the same drugs at those residences.
• Pharmacies with high reversal and rejection percentages, which could indicate they’re testing claims to determine how much insurers will reimburse them for drugs and quickly reversing claims so that they don’t fully process.
• Override code abuse.

The following are other methods to identify Rx fraud:

• Request medical records, which can help determine if prescriptions are supported by doctor visits and diagnoses.
• Place safety edits on prescriptions to ensure patient safety and financial prudence through appropriate review. Safety edits alert pharmacies to review prescriptions, such as for opioid medications, before completing the transaction. (See “Safety edits for opioid prescriptions,” Medicare Rights Center.)
• Confirm any prescription-related actions with beneficiaries and prescribers with verification letters sent via fax, email or mail.
• Reconcile invoices to verify that products billed by the pharmacy match up with the products that pharmacies purchased from drug vendors.
• Conduct various audits to verify that directions, prescriber information and signature logs are legitimate.

Education is the key

In the “refill request” scam, fraudulent pharmacies send refill requests to doctors, hoping doctors authorize the fake requests without minding the details. Unfortunately, many doctors fall victim to scammers and unintentionally approve multiple, high-cost drugs, even for patients who aren’t theirs. (See “Pharmacy scam targets healthcare providers,” Humana, 2023.) Educating members/beneficiaries and prescribers on the latest schemes, such as the refill-request scam, is essential to fighting pharmacy fraud. Here are a few other ways you can educate members/beneficiaries and prescribers:

• Advise prescribers to perform due diligence and confirm refill requests and any other patient information from external sources such as pharmacies.
• Remind prescribers to discuss new prescriptions with their patients and review the possible side effects of their medications.
• Urge members/beneficiaries and prescribers to report any suspected Medicare or Medicaid fraud to the U.S. Department of Health and Human Services’ Office of the Inspector General. (See “Reporting Fraud,” CMS.gov.)

Also help members prevent pharmacy fraud by reminding them to avoid sharing personal medical information with or accepting medications from unfamiliar physicians or pharmacies. Encourage members to report any suspicious activity to their insurance company.

Partnering with regulatory agencies, law enforcement and other investigators can increase awareness of pharmacy fraud and strengthen investigations. Health insurance companies’ special investigation units (SIUs) play an important role in fraud investigations by communicating with governmental and commercial payers and licensing boards to provide information and build strong cases against bad actors. Additionally, SIUs and fraud-related regulatory departments educate and train each other to better develop their partnerships and more effectively utilize each other as resources, because, ultimately, they have the same goal to prevent patient harm and financial loss.

Meghan Sebaugh, CFE, is compliance manager, Strategic Operations at EmpiRx Health, LLC, a pharmacy benefit manager. She is also on the board of directors for the ACFE Chapter in St. Lous, Missouri. Contact her at sebaugh.m@gmail.com.