Fagron Holding USA LLC to Pay $22.05 Million to Settle False Claims Act Allegations

by Andrew Murray | December 2nd, 2019

The U.S. Attorney for the Middle District of Florida announced a settlement with a compound ingredient supplier Fagron Holding, on November 7, 2019. The Press Release states:

The Department of Justice announced today that Fagron Holding USA LLC (Fagron) has agreed to pay $22.05 million to resolve allegations concerning the establishment of false and inflated Average Wholesale Prices (AWPs) by its wholly owned subsidiary Freedom Pharmaceuticals Inc. (Freedom) for active pharmaceutical ingredients used in compound prescriptions.  Freedom’s pricing scheme caused pharmacies that purchased Freedom’s compound ingredients to submit false prescription claims to the Defense Health Agency, which administers the TRICARE Program for the Department of Defense and the Department of Labor’s Office of Workers Compensation Programs (federal healthcare programs).

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Compounding pharmacies purchase ingredients or chemicals from ingredient suppliers such as Freedom to prepare and fill compound prescriptions for patients who require a specially made prescription that is not generally available in the marketplace.  Freedom knew that compound prescription reimbursement under these federal programs was based in part on the AWPs it reported to various price listing agencies for its ingredients.  Freedom knowingly inflated the AWPs for its ingredients in order to increase the reimbursement that its pharmacy customers received from federal healthcare programs for using Freedom’s ingredients.  For example, Freedom established an AWP for the ingredient Fluticasone Propionate at $3,500 per gram even though it typically sold the Fluticasone Propionate for approximately $160 per gram.   

Freedom promoted its high AWPs and the resulting profit potential from the reimbursement of compound prescriptions as an inducement to pharmacies to purchase its ingredients.  Freedom’s fraudulent pricing scheme for its ingredients enabled its pharmacy customers to bill federal healthcare programs thousands of dollars per prescription for some compound formulations.

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The settlement also resolves allegations that Fagron’s wholly owned pharmacy subsidiary, Pharmacy Services Inc. (PSI) and its pharmacy affiliates, submitted fraudulent compound prescription claims to federal healthcare programs, used sham insurance programs to manipulate pricing, paid kickbacks to physicians for bogus consulting agreements, and illegally waived copays.  It also addresses allegations against another Fagron subsidiary, B&B Pharmaceuticals Inc. (B&B), for setting an inflated AWP for Gabapentin.

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The settlement arose from two whistleblower complaints. Combined, the whistleblowers will receive $3.749 million of the settlement (a 17% relator’s share).

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