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October 2, 2017: Compounding Pharmacy Owner Charged with $10 Million Health Care Fraud


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Food and Drug Administration 
Office of Criminal Investigations




             U.S. Department of Justice Press Release



For Immediate Release
October 2, 2017

United States Department of Justice

Northern District of Alabama 

BIRMINGHAM – Federal prosecutors today charged the owner of a Decatur compounding pharmacy with conspiracy to defraud a federal health insurance program out of more than $10 million. U.S. Attorney Jay E. Town, Food and Drug Administration, Office of Criminal Investigation, Miami Field Office, Special Agent in Charge Justin Green and Defense Criminal Investigative Service Special Agent in Charge John F. Khin announced the charge.


The U.S. Attorney’s Office charged JOHN CHRISTOPHER LEMLEY, 51, of Decatur, with the conspiracy and seeks to have him forfeit nearly $1 million as proceeds of the fraud. Most of that amount already has been seized from bank accounts held by Lemley or his businesses, according to the charges.


In conjunction with the one-count information filed in U.S. District Court, prosecutors also filed a plea agreement with Lemley. As part of that agreement, Lemley agrees to forfeit $918,234, along with a 2015 Lexus Gx-460 Premium purchased with criminal proceeds. Lemley must appear before a judge to formally enter a guilty plea.


“This defendant took part in a conspiracy that employed improper contracts, kickbacks, mislabeled drugs and prescription forgeries in order to bilk millions of dollars from the federal health insurance program meant for America’s military members and their families,” Town said. “The FDA and DCIS did a tremendous job uncovering this fraud and our office remains committed to prosecuting every single one of these types of cases.”


“American consumers rely on FDA to ensure that their drugs are safe, effective and properly labeled,” Green said. “Today’s announcement should serve as a reminder of our continued focus on those who put profits ahead of the U.S. public health by distributing misbranded products.”


“In concert with our investigative partners, DCIS aggressively pursues fraud and corruption that undermines the integrity of Department of Defense programs, especially those involving the well-being of our Warfighters who deserve the best medical care available,” Khin said. “It is unconscionable for a health care provider to make profits by taking advantage of military members and their families when they are most vulnerable.”


Lemley owned a Decatur pharmacy that operated as Southern Compounding. He also owned Apotheca Supply, which was licensed to relabel and repackage pharmaceutical drugs and was located in a suite that adjoined Southern Compounding on U.S. Highway 31 South. Lemley also had a 20 percent membership interest in Medworx Sunflower LLC, an affiliate of Medworx Compounding, a compounding pharmacy in Ridgeland, Miss., according to the information and plea agreement.


Between February 2015 to January 2016, Lemley conspired with others at Medworx Sunflower and Southern Compounding to defraud TRICARE, a U.S. Department of Defense health care program, and third-party prescription-drug program administrators Express Scripts Incorporated and OptumRx Inc., according to the court documents.


Southern Compounding submitted prescription reimbursement claims to TRICARE as part of ESI’s pharmacy network. The pharmacy submitted claims to various insurance plans as part of OptumRx’s pharmacy network.


As part of the conspiracy, Lemley conducted the fraud by various means that included improperly contracting with Medworx Compounding to refer prescriptions to Southern Compounding, paying kickbacks to independent sales representatives as incentive to refer TRICARE prescriptions, selling misbranded over-the-counter medications as prescription drugs and not reversing claims on prescriptions Lemley knew were forged, according to the court documents.


Although ESI’s regulations prohibited Southern Compounding from subcontracting any of its work, Southern entered a management agreement with Medworx in early 2015 whereby Medworx referred prescriptions to Southern Compounding, according to Lemley’s plea agreement. Southern filled the prescriptions, billed third-party administrators for them and sent almost all the payments received to Medworx. Medworx then returned a portion of those payments directly to Lemley, the plea agreement says. The amount returned totaled $918,234, representing a distribution for Lemley’s 20 percent membership interest in Medworx Sunflower.


Southern Compounding’s billings to TRICARE soared in the two months after Southern entered its agreement with Medworx, according to the plea agreement. In the 13 months prior to the agreement, TRICARE paid claims of about $215,561 to Southern. In the two months following the February 2015 agreement, TRICARE, through ESI, paid about $10.5 million in claims to Southern, according to the plea agreement. More than 90 percent of that was profit.


In accordance with Southern’s management agreement with Medworx, Lemley transferred most of the money – about $10.2 million – to Medworx. Most of the transferred money was to fund kickbacks to the independent sales representatives, according to the plea agreement.


Lemley faces a maximum sentence of 5 years in prison.


FDA-OCI and DCIS investigated the case, which Assistant U.S. Attorney Chinelo Dike-Minor is prosecuting.




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