Fraud

The Commercial Appeal - - Viewpoint -

The Marine was be­ing paid to get medicine he didn’t need. A Ten­nessee doc­tor he had never met had writ­ten him a medic­i­nal cream pre­scrip­tion, which was be­ing filled by a phar­macy in Utah. The mil­i­tary cov­ered the bill and the Marine got a cash kick­back.

When the creams ar­rived in the mail, the Marine didn’t ac­tu­ally use them. He was in it for the money, not the medicine, af­ter all.

Sus­pi­cious, Sch­neid launched a ruse to in­ves­ti­gate, per­suad­ing the Marine to reroute the ship­ments to his house. Soon, Sch­neid re­ceived a shoe­box-sized par­cel that held sev­eral tubes of cream about the same size and con­sis­tency as sun­screen that was sup­pos­edly used to treat pain and scars.

This medicine had been pre­scribed, sup­plied and de­liv­ered seem­ingly for no rea­son at all. No­body needed it. No­body wanted it. So what was the point?

“Af­ter the sec­ond de­liv­ery, I re­al­ized this was some kind of fraud,” Sch­neid said in an in­ter­view. “I be­lieved there were about a dozen Marines in­volved, and they were be­ing ac­tively re­cruited to be pre­scribed this cream.

“It was a con­spir­acy, and it was grow­ing, but I just didn’t know how huge.”

To­day, court records make clear the enor­mity of the con­spir­acy. The scheme that Sch­neid stum­bled upon in 2015 stretched from Cal­i­for­nia to Ten­nessee, in­volv­ing peo­ple and com­pa­nies from at least four states. In Ten­nessee, two doc­tors and a nurse prac­ti­tioner have pleaded guilty to de­fraud­ing a mil­i­tary in­sur­ance pro­gram, called Tri­care, out of $65 mil­lion. At least two more sus­pects are still fac­ing charges. Fed­eral pros­e­cu­tors also are at­tempt­ing to seize swaths of East Ten­nessee farm­land, a strip mall, and a large es­tate they ar­gue was pur­chased with health care fraud prof­its.

Out­side Ten­nessee, an ex-marine in San Diego has con­fessed to re­cruit­ing Marines for the scheme and a Utah phar­macy com­pany is un­der in­dict­ment. That com­pany is also linked to an even larger scheme in Mis­sis­sippi, where seven peo­ple have pleaded guilty to us­ing sim­i­lar medic­i­nal creams to de­fraud the fed­eral govern­ment out of an ad­di­tional $400 mil­lion.

“It was just a setup to pay cash to pa­tients and then turn around and pre­scribe them this ex­pen­sive cream,” said Jerry Martin, a for­mer U.S. at­tor­ney who spe­cial­izes in health care fraud.

Martin re­viewed the pain cream case at the re­quest of The Ten­nessean, call­ing the con­spir­acy “ex­traor­di­nar­ily brazen.”

“If these al­le­ga­tions are true, that is just a crim­i­nal en­ter­prise,” he added. “There is just noth­ing le­git­i­mate about it.”

Pain creams cost $14,500 — each

In Ten­nessee, the crux of the cream con­spir­acy was Choice MD, a small, now-shut­tered clinic in Cleve­land, a man­u­fac­tur­ing town near the Ge­or­gia bor­der.

A Choice MD nurse prac­ti­tioner, Can­dace Michelle Craven, has ad­mit­ted she con­ducted fake telemedicine eval­u­a­tions with Marines in Cal­i­for­nia so that two Choice MD doc­tors, Susan Ver­got and Carl Lind­blad, could write nearly 4,500 cream pre­scrip­tions to Marines they had never met or di­ag­nosed.

Each pre­scrip­tion cost about $14,500. Amer­i­can tax­pay­ers cov­ered the cost.

Ver­got and Lind­blad pleaded guilty to con­spir­acy to com­mit health care fraud in April, and Craven pleaded guilty in Novem­ber. But all three are still li­censed to prac­tice medicine in Ten­nessee. Their sen­tenc­ing hear­ings have been de­layed un­til March, likely to pro­vide time for them to tes­tify against other sus­pects in the case.

Steven Moore, an at­tor­ney who rep­re­sents Ver­got and Lind­blad, said the doc­tors knew the pre­scrip­tions “weren’t right,” but were un­aware of the larger con­spir­acy.

“It wasn’t their scam,” Moore said. “They just kind of buried their heads in the sand, and that’s why they’ve taken re­spon­si­bil­ity by en­ter­ing a plea. … But it’s im­por­tant to know they aren’t the big fish here.”

The big fish — or at least a big­ger fish — are the own­ers of Choice MD, Jimmy and Ash­ley Collins, of Birch­wood, Ten­nessee. Fed­eral pros­e­cu­tors have in­dicted the cou­ple and are at­tempt­ing to seize four of their properties that au­thor­i­ties say were bought with prof­its from the pre­scrip­tion scam.

One of those properties — a 4,500-square-foot man­sion on a 60-acre es­tate with an or­nate iron gate em­bla­zoned with a large “C” — was bought by Ash­ley Collins for $843,000 with money di­rectly traced to fraud earn­ings, fed­eral court doc­u­ments state.

The Collinses, who have pleaded not guilty, are ac­cused of us­ing kick­backs to cre­ate a fake cus­tomer base for their pre­scrip­tions. Court doc­u­ments say they led a net­work of pre­scrip­tion re­cruiters who tar­geted Marines around Camp Pendle­ton, of­ten by con­vinc­ing the Marines they were join­ing a drug trial for the pain and scar creams. Marines were paid about $300 in il­le­gal kick­backs each month, court records state.

The leader of these re­cruiters was Joshua Mor­gan, a for­mer San Diego Marine who pleaded guilty to his role in the con­spir­acy in Fe­bru­ary. Mor­gan was at one time room­mates with the Marine at the be­gin­ning of this story, who is not be­ing named be­cause he has not been charged with any crime.

Pros­e­cu­tors have filed charges against CFK Inc., the par­ent com­pany of The Medicine Shoppe, a phar­macy in Boun­ti­ful, Utah, that made mil­lions from the Choice MD pre­scrip­tions. Pros­e­cu­tors say the phar­macy was bought by CFK in De­cem­ber 2014, then the busi­ness model changed overnight.

The phar­macy’s billings to Tri­care, which once amounted to about $40 apiece, rose to an av­er­age of more than $13,000. Dur­ing the first five months of 2015, The Medicine Shoppe billed Tri­care for $67 mil­lion.

Court doc­u­ments iden­tify the own­ers of the phar­macy by only their ini­tials — W.W. and T.S. — but busi­ness records ap­pear to re­veal the full names of at least one. CFK is owned by an­other com­pany, Wal­ters Hold­ings LLC, which in turn is owned by Mis­sis­sippi busi­ness­man Wade Wal­ters.

Wal­ters is the sub­ject of a crim­i­nal in­ves­ti­ga­tion in a sep­a­rate but sim­i­lar case in Mis­sis­sippi where au­thor­i­ties have raided at least three of his pharmacies and ar­rested 12 peo­ple, in­clud­ing four phar­ma­cists, a doc­tor, an oral sur­geon and two nurse prac­ti­tion­ers. Seven of the ac­cused con­spir­a­tors have con­fessed, one was con­victed at trial, and at least three more are ex­pected to go to trial this year.

Wal­ters has not been in­dicted in ei­ther case, but pros­e­cu­tors have frozen his as­sets.

“To max­i­mize prof­its from the fraud scheme, the pharmacies cre­ated their own de­mand for com­pounded med­i­ca­tions,” pros­e­cu­tors say in court records. “The pharmacies il­le­gally en­gaged a series of mar­keters to pro­vide in­cen­tives to doc­tors to write pre­scrip­tions for com­pounded med­i­ca­tions and di­vert pa­tients to the pharmacies.”

To un­der­stand the de­tails of this Tri­care fraud, The Ten­nessean re­viewed and cross-ref­er­enced hun­dreds of pages of court doc­u­ments from 15 sep­a­rate fed­eral court cases, in­clud­ing crim­i­nal pros­e­cu­tions, search war­rants, for­fei­ture pro­ceed­ings and a whistle­blower law­suit that Sch­neid filed in an ef­fort to col­lect a re­ward for his dis­cov­ery.

Sch­neid’s at­tor­neys would not per­mit him to com­ment for this story, but a Ten­nessean jour­nal­ist pre­vi­ously in­ter­viewed Sch­neid and in­spected the medic­i­nal creams at his home in 2015.

Court records unsealed last year re­veal that the fed­eral in­ves­ti­ga­tion into Choice MD of­fi­cially be­gan three weeks af­ter Sch­neid dis­cov­ered and re­ported the

A Tri­care in­ves­ti­ga­tion be­gins

Not long af­ter Sch­neid be­gan re­ceiv­ing the cream pack­ages in the mail in 2015, he de­cided to warn the govern­ment about what he had found.

Sit­ting in his messy home of­fice, sur­rounded by pa­per­work from his long ca­reer as a pri­vate in­ves­ti­ga­tor, Sch­neid tapped out an email to Tri­care’s fraud depart­ment, say­ing he had un­cov­ered a “fraud­u­lent mul­ti­level mar­ket­ing scheme.”

A Tri­care rep­re­sen­ta­tive re­sponded a few hours later, be­liev­ing that Sch­neid had found a rou­tine “phish­ing” scam de­signed to steal his pri­vate in­for­ma­tion, ac­cord­ing to email records ob­tained by The Ten­nessean. Sch­neid wrote back, in­sist­ing Tri­care was miss­ing the point.

“It’s deeper than that,” Sch­neid wrote. “(The Marine) makes a per­cent­age of the com­mis­sion as do the oth­ers that signed him up.” Sud­denly, the govern­ment started lis­ten­ing. In a mat­ter of days, Sch­neid had guests on his doorstep. Eleanor Gai­ley, an in­spec­tor from the Depart­ment of De­fense’s Of­fice of the In­spec­tor Gen­eral, flew to Cal­i­for­nia to in­spect the creams, emails show. She was ac­com­pa­nied by of­fi­cers from the Naval Crim­i­nal In­ves­tiga­tive Ser­vice, which in­ves­ti­gate crimes in the Marine Corps.

In an in­ter­view, Sch­neid said au­thor­i­ties would not re­veal ex­actly what he had stum­bled upon, but he agreed to help any­way. They made a plan: Sch­neid would con­tinue to play dumb, re­ceiv­ing the Marine’s cream pre­scrip­tions in the mail, then he would wrap the pack­ages in ev­i­dence tape and hand them over to the NCIS. He did this for a few months un­til the pre­scrip­tion ran out and the cream stopped com­ing.

Then, in May 2015, it be­came clear what was go­ing on.

That was when CBS News pub­lished an in­ves­ti­ga­tion re­vealinga Tri­care loop­hole that ap­peared to be cost­ing tax­pay­ers mil­lions, if not bil­lions, of dol­lars. The CBS in­ves­ti­ga­tion said mil­i­tary troops across the coun­try were be­ing pre­scribed “cure-all” medic­i­nal creams that did next to noth­ing but cost tax­pay­ers a for­tune ev­ery month.

The creams were mar­keted as “com­pounded” med­i­ca­tion. Com­pound­ing is a prac­tice in which a phar­ma­cist mixes sev­eral medicines into one to cre­ate a treat­ment tai­lored for a spe­cific pa­tient. Be­cause ev­ery mix is unique, com­pounded medicines are not re­viewed by the Food and Drug Ad­min­is­tra­tion and of­ten cost much more than stan­dard medicine. As of 2015, Tri­care cov­ered the full cost of com­pounded medicine for ac­tive-duty troops.

“We’re on track this year to spend over $2 bil­lion un­less we get our hands around this,” said Maj. Gen. Richard Thomas, then-head of Tri­care, in the 2015 CBS re­port. “It’s just been astro­nom­i­cal, an ex­plo­sion of the charges in a rel­a­tively short pe­riod of time.”

Sch­neid’s jaw dropped as he watched the CBS re­port. He thought over all the clues he had seen in the last three months — the un­nec­es­sary creams, the cash kick­backs, the Ten­nessee doc­tors, the Utah phar­macy and the abrupt in­ter­est from fed­eral in­spec­tors. Sud­denly it all made sense. “I had thought it was just this very lo­cal­ized fraud,” Sch­neid said. “It wasn’t un­til then I un­der­stood the enor­mity of this thing.”

The Choice MD con­spir­acy is far from the only cream scheme to take ad­van­tage of Tri­care’s com­pounded med­i­cal loop­hole. In June, the U.S. Depart­ment of Jus­tice an­nounced it had charged 601 sus­pects in a na­tion­wide health care fraud in­ves­ti­ga­tion into dozens of sim­i­lar but un­con­nected fraud schemes, many of which used com­pounded med­i­ca­tions and kick­backs to swin­dle Medi­care, Med­i­caid or Tri­care. The in­ves­ti­ga­tion was called the largest health care fraud in­ves­ti­ga­tion in Amer­i­can his­tory.

The U.S. At­tor­ney’s Of­fice de­clined to com­ment for this story, cit­ing on­go­ing in­ves­ti­ga­tions in Ten­nessee, Cal­i­for­nia and Mis­sis­sippi. At­tor­neys for Wal­ters, Craven, Ash­ley Collins and CFK ei­ther de­clined to com­ment or did not re­spond to calls and emails re­quest­ing com­ment. Jimmy Collins cur­rently does not have an at­tor­ney and could not be reached for com­ment.

Brett Kel­man­can be reached at 615-259-8287 or at brett.kel­[email protected]­nessean.com. Fol­low him on Twit­ter at @bret­tkel­man.

COUR­TESY OF THE CLEVE­LAND DAILY BAN­NER

Dr. Carl Lind­blad, left, nurse prac­ti­tioner Can­dace Craven and Dr. Susan Ver­got plead guilty to de­fraud­ing the mil­i­tary. This photo has been edited to pro­tect the iden­tity of an un­in­volved per­son.

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