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All Five Defendants Convicted in Federal Cream Fraud Scheme

OCI BadgeDepartment of Justice
U.S. Attorney’s Office
Eastern District of Tennessee

Wednesday, March 11, 2020

Chattanooga, Tenn. –  All five defendants have been convicted in federal court for their roles in a scheme defrauding both private insurance companies and government insurance programs of over $30 million dollars.  The scheme involved sham prescriptions for compounded creams and medications, oftentimes issued without the supposed patient even knowing about them, and were frequently signed by a health care provider who never even met the patient.
Jerry Wayne Wilkerson, 40, Michael Chatfield, 31, Kasey Nicholson, 34, Billy Hindmon, 39, and Jayson Montgomery, 40, were convicted in the United States District Court for the Eastern District of Tennessee at Chattanooga.  The Honorable Harry S. Mattice, Jr. presided over the trial and scheduled sentencing for all five individuals for June 8, 2020.
The charges of healthcare fraud, wire fraud, mail fraud, illegal kickbacks, and money laundering in the 178-count indictment centered on a scheme in which the defendants marketed topical creams and other medications through prescription drug coverage plans that paid for the creams and medications.  The creams were compounded by a pharmacy, meaning they were supposed to have been uniquely formulated specifically for the needs of an individual patient, thus justifying the exorbitant cost- sometimes more than $15,000 per tube. However, the proof at trial showed there was nothing unique about these creams, and in fact the prescription forms were usually pre-printed documents filled out in mass by the marketers.  A health care provider’s signature was oftentimes stamped on the document by employees of the defendants.  The defendants all profited from the fraud, including the pocketing of millions of dollars of kickbacks from prescriptions billed to Tricare, which is the government-funded health insurance program for active duty and retired military servicemen and women.
The four-year investigation revealed that the defendants used a network of in-person marketing by convincing friends and family members to sign up for revolving shipments of exorbitantly priced topical creams and medications, some prescribed without seeing a physician or others which were not medically necessary. The majority of the time, these medications were neither needed nor wanted by the named patient but were ordered strictly for monetary gain.  On some occasions, orders were placed without the knowledge or approval of the patient, and their insurance would then be billed for these items. The proof at trial showed that Wilkerson collected at least $13 million in commissions from the scheme. 
Insurance companies and Tricare paid a total of roughly $35 million for the compounded medications in this case.
“Fraud such as this affects everyone.  It increases what we all pay for healthcare and prescription drugs. Scam artists put their own financial interests ahead of the safety of others and ignore instituted laws, which protect the taxpayer and our funded healthcare system,” said U.S. Attorney J. Douglas Overbey.  “Worse, much of the fraud in this case was directed at Tricare, the government program which insures our active duty and retired military personnel.   The Hamilton County School System, a self-insured system funded by the taxpayers of Hamilton County, was also defrauded of over $950,000.  When people steal from the taxpayers, they steal from all of us.”
“A key aspect of the FDA’s mission to protect the public health is creating a regulatory framework that helps ensure that compounded drugs are dispensed only under a valid prescription and to patients who have a legitimate medical need for them,” said H. Peter Kuehl, Acting Special Agent in Charge, FDA Office of Criminal Investigations Miami Field Office. “We will continue to investigate and bring to justice those who put profits above the health and safety of Americans.”
Assistant United States Attorneys Perry H. Piper and Frank P. Clark represented the United States at trial and were assisted by paralegal Kris Eslinger.  The case was investigated by Special Agent Brian Kriplean, Food and Drug Administration, Office of Criminal Investigations, and Special Agents Erik Srock and Marian Schmidt, Department of Defense Office of Inspector General, Defense Criminal Investigative Services.


Health Care Fraud
USAO - Tennessee, Eastern

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