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).

“We will not allow the systematic abuse of federal healthcare programs through pricing schemes designed to enrich a few at the expense of federal taxpayers,” said Assistant Attorney General Jody Hunt of the Department of Justice’s Civil Division. “Our commitment to protect these programs extends not only to the pursuit of those that submit fraudulent claims but also those who cause others to submit such claims.”

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.

“We have no tolerance for the abuse of federal healthcare programs, especially where it impacts the healthcare program for our veterans and their families,” said U.S. Attorney John Bash of the Western District of Texas.

“Deception and avarice have no place in our healthcare system,” said U.S. Attorney Maria Chapa Lopez of the Middle District of Florida. “Taxpayers expect that the programs they fund be administered according to the law and utilized for the purposes that they were intended. We will continue to guard against abuse of healthcare programs to ensure that patients receive the care they deserve.”

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.

The settlement resolves allegations contained in two separate actions filed against Freedom, PSI, and B&B under the whistleblower or qui tam provisions of the False Claims Act. Under the False Claims Act, private parties may sue on behalf of the government for false claims for government funds and to receive a share of any recovery. The whistleblowers will receive a combined total of $3,749,000 plus accrued interest from the proceeds of the settlement. The two lawsuits are captioned United States ex rel. Hueseman v. PSI et al., (WDTX) and United States ex rel. Sten v. Midwest Compounders, et al., (NDIA).

The case was handled by the Civil Division, Commercial Litigation Branch, the U.S. Attorney’s Offices for the Western District of Texas and the Middle District of Florida, with investigative support from the Defense Criminal Investigative Service, U.S. Postal Service, Department of Labor, and the U.S. Drug Enforcement Agency.