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  5. October 22, 2018: Medical Equipment Company Agrees to Pay $5.25 Million to Resolve Allegations of Fraudulent Claims for Compounded Medical Creams
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October 22, 2018: Medical Equipment Company Agrees to Pay $5.25 Million to Resolve Allegations of Fraudulent Claims for Compounded Medical Creams

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Food and Drug Administration 
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             U.S. Department of Justice Press Release



For Immediate Release
October 22, 2018

United States Department of Justice

Eastern District of Kentucky

LEXINGTON, Ky. – Cooley Medical Equipment, Inc., an Eastern Kentucky medical equipment supplier headquartered in Prestonsburg, Kentucky, has agreed to pay $5,254,912 to resolve allegations that it violated the False Claims Act by submitting false or fraudulent claims that misrepresented the ingredients used in certain compounded medical creams. 

Cooley previously operated a pharmacy in Prestonsburg that in 2015 began making compounded medical creams.  Compounding pharmacies, like Cooley’s, prepare customized medications for individual patients, usually by mixing ingredients in order to create a prescription cream.  Cooley billed these prescriptions to government insurers, including Medicare, Kentucky Medicaid, and the Department of Veterans Affairs, Veterans Health Administration (known as CHAMPVA).  Cooley was required by CHAMPVA and Kentucky Medicaid to obtain their prior authorization in order to use bulk powder forms of Lidocaine and Prilocaine as ingredients in its compounded creams. Without such prior authorization, Kentucky Medicaid and CHAMPVA would not reimburse Cooley for the creams.  Medicare, through its Part D program, does not cover bulk powder ingredients at all. 


Rather than go through the prior authorization process, or face limited reimbursement from Medicare Part D, Cooley misrepresented the nature of its Lidocaine and Prilocaine ingredients in its claims to federal insurers, falsely stating that Cooley’s compounded medical creams were made with cream-based Lidocaine and Prilocaine ingredients, instead of the bulk powder Cooley actually used.  This practice led to the submission of thousands of false claims by Cooley between January 2015 and December 2016, and millions of dollars in improper reimbursements.  Cooley did voluntarily self-disclose this misconduct to the United States Attorney’s Office, took proactive steps to resolve the problem, and no longer operates a compounding pharmacy.


Under the terms of the settlement agreement, Cooley will be allowed to pay back the $5,254,912, plus interest, over a period of 6 years.  Because Cooley self-disclosed the misconduct, it was able to resolve its liability for only 1.5 times the amount of monetary loss caused by its false claims; by statute, the False Claims Act typically imposes liability for 3 times the amount of loss suffered by the government.  In addition, because of Cooley’s self-disclosure, the United States Department of Health and Human Services, which administers the Medicare and Medicaid programs, has agreed not to pursue any administrative action against Cooley that would exclude it from further participation in those federal programs.


“The Department of Justice, and our Office, take seriously the responsibility to aggressively pursue False Claims Act cases, as payment of false or fraudulent claims reduces the pool of money available to pay legitimate claims,” stated United States Attorney Robert M. Duncan, Jr.  “Recovering false or fraudulent payments is an essential component of our Affirmative Civil Enforcement efforts and defends the financial integrity of these government programs.  We will continue to prioritize these important cases.”     


This settlement was a result of an investigation by the United States Attorney’s Office for the Eastern District of Kentucky and the United States Food and Drug Administration, Office of Criminal Investigation (FDA-OCI).  An investigation of individuals within Cooley who were responsible for this misconduct is ongoing.  Assistant United States Attorney Paul McCaffrey handled the matter for the United States.  Cooley admits the allegations contained in the Settlement Agreement, but there been no judicial determination of liability.



Health Care Fraud



USAO - Kentucky, Eastern

False Claims Act

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