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COVID Fraud: New York Pharmacy Owners Indicted on Charges Arising from their Abuse of Emergency Override Billing Codes

Posted  January 7, 2021

As we have previously written, regulatory changes designed to alleviate logistical and financial pressure on healthcare providers during the COVID-19 crisis, while necessary, can create opportunities for fraudsters.  Last month, an indictment in New York revealed a scheme by two pharmacy owners who took advantage of relaxed rules regarding prescription prior authorization and refill timing to overcharge Medicare and Medicaid by an alleged $30 million.

The Eastern District of New York indicted Peter Khaim and Arkadiy Khaimov, who are alleged to have acquired 13 different pharmacies in and around New York City between 2018 and 2020.  However, by 2020, the pharmacies were each, according to the indictment, “defunct, non-operational, not licensed, without employees and not supervised by a Supervising Pharmacist as required by New York State law.”  When they acquired the pharmacies in the name of corporations formed by them, defendants concealed their roles from the State of New York by using sham nominee owners of those corporations.  Moreover, defendants paid licensed pharmacists to act as state-required “supervising pharmacists” in name only.  In short, defendants built an inventory of sham pharmacies.

When the COVID crisis hit, the defendants had an opportunity to use their sham pharmacies to perpetrate their fraud on the public healthcare system by submitting false claims for prescription payments to Medicare and Medicaid.

The declaration of the COVID-19 public health emergency resulted in the easing of certain regulations to ensure that patients are able to access prescription drugs.

  • First, while pharmacies are ordinarily not allowed to bill Medicare prescription drug plans for certain drugs without prior authorization, the public health crises waived this requirement. Pharmacists were able to submit claims for payment that failed to comply with the prior authorization requirement by using an “Emergency Override Code.”
  • Second, regulations typically bar billing for refills of certain drugs within specific time windows; the public health emergency regulations relaxed these “refill-too-soon” rules, and pharmacies were able to bill for such drugs without regard to quantity and days’ supply limits.

Khaim and Khaimov took advantage of this lifting of prior authorization requirements and supply limits to submit false claims for expensive drugs, specifically including Targretin Gel 1%, a drug approved for treatment for skin lesions occurring in patients with a rare type of non-Hodgkins Lymphoma.  For the defendants, its appeal was its price:  the Average Wholesale Price of a single tube of Targretin Gel 1% was more than $34,000.

The defendants submitted an astronomical number of false claims for Targretin Gel 1% after the prior authorization and supply limitations were suspended.  The claims were for drugs that were never actually dispensed, had not been previously authorized, and purportedly provided multiple 30-day supplies to single beneficiaries.  At one of the pharmacies, Targretin Gel 1% claims increased from an average of $12,000 per month to nearly $2 million per month.

In fact, the drugs had never been purchased by the pharmacies; had never been prescribed by doctors to beneficiaries; had never been dispensed to beneficiaries; and were certainly not medically necessary or reasonable.  All told, the indictment states, the defendants submitted over $30 million in false claims for Targretin Gel 1%.

The defendants were also charged with money laundering for their efforts to conceal the origin and nature of their fraud proceeds and direct those proceeds to themselves, their family members, and others, including through the use of pass-through entities, fake invoices, and an unlicensed money services business.

The indictment paints a picture of defendants as criminal opportunists, with a network of sham pharmacies and shell companies at the ready.  DOJ public statements describe them as having “used the COVID-19 pandemic as cover to exploit changes in the Medicare system.”  Such opportunities exist at many points in the complex Medicare system, and are no doubt being exploited by many different actors.

If you have information about healthcare or pharmaceutical fraud that exploits changes to Medicare regulations, you may wish to consider whether you can bring a whistleblower case.  Whistleblowers can play a critical role in helping the government stay in front of these emerging schemes by exposing wrongdoing under whistleblower reward laws including the False Claims Act.

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Tagged in: Catch of the Week, COVID-19, Criminal Proceedings, Healthcare Fraud, Medical Billing Fraud, Pharma Fraud,


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