Florida man guilty in $88 million drug scheme targeting Tricare, VA

A South Florida man pleaded guilty for his part in a multi-million dollar fraud conspiracy that provided prescription drugs designed to maximize his pharmacy’s profit but had little medical value, the Justice Department said.

Matthew Smith, 58, of Palm Beach, pleaded guilty to one count of health care fraud on Jan. 26, before a federal judge in Miami. Smith was part of a conspiracy that defrauded Tricare, the military’s health care insurance program, and the Department of Veterans Affairs’ Civilian Health and Medical Program of $88 million, prosecutors say. Smith is scheduled to be sentenced April 5. He faces up to 10 years in prison.

Smith pled guilty “for his abhorrent conduct in defrauding multiple federal healthcare programs meant to benefit deserving veterans and their families,” special agent in charge David Spilker of the Department of Veterans Affairs Office of Inspector General southeast office said in a news release.

Smith acknowledged that while working as the executive vice president of a Broward County pharmacy, he fraudulently billed both Tricare and CHAMP VA for “medically unnecessary” drugs known as compounded medications.

Compound medication combines two or more drugs to meet specific patient needs, according to the Food and Drug Administration. It can be as simple as turning a prescription from a pill to a liquid form or removing a particular dye or ingredient to which a patient is allergic. However, once a medication is compounded, it loses FDA approval.

As part of the scheme, Smith and his co-conspirators then paid approximately $40 million in “kickbacks” to patients, patient recruiters, and doctors in exchange for their purchase of scar creams, pain creams, and vitamins, prosecutors say. He also ensured that the compounded drugs sold from his pharmacy were formulated to maximize profit even though the drugs had no legitimate therapeutic value.

Government health care programs are vulnerable to health care fraud. According to the National Health Care Anti-Fraud Association, as much as 10 percent of total health care expenditures, some $300 billion annually, are a result of fraud.

The military has been hit hard, according to investigators.

“Compounding pharmacy fraud bilked the Defense Health Agency of over a billion dollars and exploited not only the military but all citizens,” said special agent in Charge Cyndy Bruce with the southeast office of the Defense Criminal Investigative Service.

A July annual joint report from the Department of Health and Human Services and the Justice Department identified at least $780 million in fraud emanating from compound medications, with at least $750 million of the fraud directed at Tricare.

According to the National Institutes of Health, tracking compound medication fraud is complex due to a lack of reporting requirements. Nevertheless, the institutes report that compounding medications are “an increasingly lucrative industry,” with global market revenue for legitimate sales ranging from $2 billion to $9 billion annually.

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“Fraudsters steal exorbitant amounts of money from our government health programs through prescription medication fraud schemes,” said U.S. Attorney Gonzalez. “Those who use kickback payments and fraudulent billing activities to defraud vital public programs will be held accountable.”

- James R. Webb