workers-compensation and automobile insurers are today’s main targets after health insurance programs largely have stopped covering compounds due to fraud and excessive costs.

Snake oil salesmen in the 1800s made a living selling potions with extravagant healing claims that were patently false. Medical con artists, like all con artists, trade in ignorance.

Snake oil salesmen trade in the victim’s ignorance of medical science and society’s collective ignorance of the snake oil salesmen’s fraudulent practices. The first commodity unfortunately is abundant. Yet medical fraud can be stopped when community and business leaders become wise to the tactics being used. 

Snake oil for the 21st Century is being peddled by pharmacies with claims of miraculous compounding pain creams. Debunking compounded pain creams — a snake oil for modern times — is a task the entire insurance industry must embrace. 

This is especially true of workers-compensation and automobile insurers. They are today’s main targets after health insurance programs largely have stopped covering compounds due to fraud and excessive costs. 

The fraud of compounded pain creams is relatively new. In fact, the public knows little about compounding pharmacies and drugs. This is part of the problem.

Historically, compounding pharmacies were used for custom-blended medications. Compounded drugs were tailored for specific patients because of allergies to certain ingredients, the need for unusual or special dosages, or to convert the medicine from pills to another form because a patient couldn’t swallow. 

The small role played by compounding pharmacies led to a lack of oversight: compounding pharmacies are not required to register with the federal government, the FDA does not regulate them, nor do states significantly regulate or inspect them. 

No surprise, today insurers are barraged with bills for expensive compounded creams to treat pain from vehicle accidents, workers-compensation claims, and premises-related injuries such as slip-and-falls. 

The prices are extraordinarily high. The cost to insurers might be warranted if these creams worked and reduced patient reliance on oral narcotics. 

Yet there is little evidence the creams or many of their expensive ingredients work when rubbed into the skin. They’re merely a placebo, several studies suggest. Many patients who are prescribed compounded pain creams also receive prescriptions for narcotic medications and oral drugs. They simply duplicate ingredients in the creams in most cases.

Deals are lucrative

Spending on compounded drugs rose from $28 million to $171 million between 2012 and 2014, reported ExpressScripts, the nation’s largest pharmacy benefits manager.¹ So why the enormous jump in prescriptions and dispensing? There is a fortune to be made in compounded pain creams.

A single tube can retail for up to $10,000. Each new prescription — often offered as a “trial” — authorizes 10 refills. One “trial prescription” for one patient thus can generate nearly $100,000. Compounding pharmacies justify these prices by including expensive and unproven ingredients. 

Pain creams have dubious names such as CNA-8 or CNA-10. They also can contain up to 8 or 10 individual drugs, such as ketamine HCl, gabapentin, flurbiprofen, cyclobenzaprine, bupivacaine and baclofen. 

These are powerful anti-inflammatories, muscle relaxants and analgesics. There is little data proving that using multiple topical ingredients in a cream is effective. 

More troubling is the lack of safety data. There are no studies of potential drug interactions or the stability of the drugs in cream form. This endangers public health. In fact, a child died in California after ingesting the cream from his mother’s skin.² These pharmaceutical “pain creams” are billed $3,500-$10,000 per jar per month.

The marketing pitch starts with physicians. Compounding pharmacies aggressively market their wares to doctors, especially “pain-management specialists”

Nor are there standards governing what ingredients go into compounded pain creams. The recipes often are pre-determined by compounders. There is no regulation of the amount, if any, of active ingredients in the mix. 

The few proven ingredients also are available as vastly more-affordable over-the-counter products. Menthol (Bengay), Lidocaine (Aspercreme) and Capsaicin (Zostrix) are just some of the ingredients easily available to consumers at pharmacies. They cost about $10-$15, compared to a $2,800 compounded cream containing the same ingredients.

Physicians recruited

The marketing pitch starts with physicians. Compounding pharmacies aggressively market their wares to doctors, especially “pain-management specialists” or surgeons closely allied with plaintiff or claimant law firms. Compounding pharmacies do everything possible to entice physicians into prescribing their creams. This includes writing letters of medical necessity for physicians³ and trying to collect from insurers. 

Compounding pharmacies often pre-print the prescriptions and send them to physicians to check a box next to the cream to be used. Setting up a compounding pharmacy inside the doctor’s medical office is another ploy. Physicians can offer point-of-service treatment to boost their bottom lines. 

Investigations have uncovered online ads and job postings by companies linked to compounding pharmacies that recruited doctors for studies and data collections involving compounded pain creams. Doctors can make $5,000-$10,000 monthly by screening and prescribing compounded creams — even if patients did not need them. 

California prosecutors indicted Kareem Ahmed in 2014 for allegedly paying $25 million in kickbacks to 14 doctors, chiropractors and pharmacists. They overbilled the California state workers-compensation system by $100 million for compounded pain creams, prosecutors say.⁴
 

"The cost to insurers, government agencies and the public is enormous and growing..."

Elena Lev Poukhin, a physician in Minnesota, allegedly received kickbacks via her own 501(c)(3) nonprofit for writing fraudulent pain cream prescriptions. She was indicted in September 2015.⁵
The U.S. Attorney for Southern District of Georgia obtained almost $10 million to resolve allegations that physicians violated the federal False Claims Act by submitting claims to the government in violation of the Stark Law (federal anti-kickback law). It is the largest recovery in that office’s history.⁶ Healthcare providers should not use financial incentives for referrals, the U.S. Attorney General warns.

Consumers also are a marketing target of compounding pharmacies. Retired NFL quarterback Brett Favre has promoted RX Pro, a compounded cream, on Sirius XM’s NFL show. 

In the direct-to-patient model, patients take the prescription form to the physician, who signs and faxes it to the pharmacy. The pharmacy becomes impossible to contact. Patients cannot reach the compounder, even after deciding the creams do not work and trying to stop refills. The creams keep arriving by mail and insurers are billed. 

The cost to insurers, government agencies and the public is enormous and growing, due to the remarkable profits — whether legal or illegal.⁷

Federal health insurers were the first targets of compounded pain-cream fraud. The creams were virtually unheard of 10 years ago. Tricare, which covers active and retired military members and their families, paid $23 million for compounds in 2010. Costs ballooned to $513 million by FY 2014, reaching $1.7 billion in the first nine months of 2015.⁸

Feds stop paying

Tricare finally balked, forcing pharmacies to lower prices. The federal government also began scrutinizing compounding pharmacies it oversees under the 2013 Federal Drug Quality & Security Act.⁹ Fraudulent billing of compounded pain creams to governmental insurers is being prosecuted.
Four Florida pharmacies agreed to pay $12.8 million after an investigation into billing for scar and pain creams.¹⁰ Several law firms now advertise they defend compounding pharmacies against Tricare fraud investigations. 

Most federal health insurers have removed compounded pain creams from their formularies. Unfortunately, however, much fraud continues. The federal government obtained guilty pleas in 2015 from New Jersey compounding pharmacist Vladimir Kleyman, who owns Prescriptions R US. He allegedly paid a cohort $50,000 to bribe physicians into referring compounding prescriptions to his pharmacy. 

Kleyman allegedly knew certain health carriers, including federal insurers, did not cover compounded pain creams yet he still allegedly dispensed and billed them as insured items. Kleyman received 20 months in federal prison for allegedly stealing hundreds of thousands of federal health-insurance dollars.¹¹
Private auto and state workers-compensation insurers are the new targets of compounding fraud now that federal programs are closing their doors to compounds. Workers-compensation and other carriers often are required by state regulation to pay claims for compounded pain creams. Ahmed’s workers-compensation indictment is a case in point. 

"Costs of compounded creams rose from $10 million in 2006 to $145 million in 2013."

This article’s authors reviewed arbitrations from a single forum in New Jersey and found hundreds of cases involving compounded drugs. Some states are reviewing the practices of compounding pharmacies. The Texas AG began investigating in 2013. Allegations include that compounders were soliciting physician investors in Texas and other states for lucrative deals in which the doctors referred patients to a pharmacy and share in profits.¹²

The Texas legislature was questioned about its oversight of compounding pharmacies, and lucrative deals involving doctors being solicited for prescriptions for custom drugs by 2014.¹³ The state AG issued Civil Investigative Demands to a compounding pharmacy and several affiliates in January 2015. 

The orders sought information under the Texas Deceptive Trade Practices Act. They focused on physician ownership and financial relationships, and imply that more oversight and enforcement is forthcoming.

Costs rise in California

A new law in California seeks to control the high cost of compounded drugs. It forbids compounders to use only the highest ingredient price, and allows each ingredient to be individually billed and paid. 

This legislative amendment had the opposite effect of its intent. More ingredients were added to each prescribed cream, based upon the highest cost per ingredient. It resulted in the fastest-growing pharmaceutical cost to California’s workers-compensation system. Costs of compounded creams rose from $10 million in 2006 to $145 million in 2013.¹⁴

Tubes cost $17,000

Federal investigators last year seized assets and bank accounts of Frank V. Monte, president of the marketing firm Centurion Holdings. This civil action was placed on hold due to a federal criminal investigation. The defendants allegedly paid patients and hired an active-duty Air-Force member to recruit others to obtain prescriptions for compounded prescription creams. Each compound sold for up to $17,000 — for a tooth-paste sized tube. 

The “vast majority of these compound creams — some of which cost in excess of $40,000 — are nothing more than elaborate shams to steal from the Tricare program and military personnel,” alleges U.S. Attorney General Lee Bentley.¹⁵

Action needed:

Insurers and self-insurers alike must act. Fraud trades on ignorance. Snake oil salesmen can be stopped when leaders grow wise to their tactics and:
• Identify the players (compounding pharmacists, physicians and others);
• Determine the business models of, and relationships among, the players (pay to prescribe, ownership and direct sales);
• Quantify the costs of using components, coding and available caps; and
• Develop responses such as: legislation, data mining from insurers and TPAs, using existing state remedies, and deploying RICO/fraud investigations and litigation.
There must be a concerted effort among carriers, attorneys and even some physicians to combat the compound pain cream fraud.