Wednesday, April 07, 2010

Phantom Pharmacies: Glad they get paid promptly!

You absolutely must read a scary (but kinda entertaining) letter from Senator Charles Grassley (R-IA) to the U.S. Secretary of Health and Human Services about phantom pharmacies—“empty store fronts, apparently without customers, that nonetheless billed millions of dollars to private insurers.”

What’s even more amazing is the fact that a private insurer spent a year trying to get CMS to address the fraud. Meet the new boss!

The Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) requires Part D plans to pay pharmacies within 14 calendar days for electronically-submitted prescription claims. Should I feel better that e-fraud has now been streamlined?

Some choice highlights from Senator Grassley’s letter:
  • A Miami area pharmacy billed the insurer $26,000 for antipsychotics and inhalers during a three day period. The owners soon disappeared, their lease in default and store empty of inventory.

  • A second Miami pharmacy billed the insurer $245,000 in false claims in less than three months. The owner subsequently abandoned the facility and bought a one-way ticket to Europe, where he is at large.

  • Another Los Angeles area pharmacy had no inventory and no customers during a three hour audit, despite billing the insurer over $5 million during an 18 month period.

  • Yet another Miami pharmacy billed $106,000 in HIV medication in two days. After neighbors stated no pharmacy was present at their location, the private insurer suspended payments and later terminated the pharmacy from its network. The pharmacy continued to bill the insurer an additional $147,000.
Note that 6 of 8 examples occurred in Florida, America’s Leader in Health Care Fraud®. You may enjoy my October 2007 rant The Trouble with Florida.

Per my comments yesterday, I doubt anyone at a phantom pharmacy has ever authenticated a track-and-trace tag or checked a pedigree.


  1. Donald FirstApril 07, 2010

    Ok, I am a little confused. Why is this the fault of CMS? I hought this was outsourced to the Insuarnce Pro's because they could handle fraud? How did these Pharmacies get into the networks to begin with. Wouldn't the same issue be occuring in the private sector?

  2. Honestly, I enjoy reading your posts and I appreciate that but I see you have some negativity towards independent pharmacies in a sarcastic way and I AM JUST WONDERING WHY?


  3. Joe - I make my entire living from assisting Independent Pharmacy Businesses. PTR is dedicated to empowering pharmacy owners by leveraging technology, best practices, and strategic ideas/ processes. We should talk sometime: (412) 585 4001 When reading Drug Channels - I thought the exact same thing as you about Adam's sentiment towards independents. I have talked with Adam on several occassions and found there is a lot more detail and data to his opinions than I realized. We will be featuring Adam on an upcoming PTR Pharmacy Podcast and we'll be sure to gain information on his valuable veiw-points. I am looking forward to this. Have a great day! GO CRUSH your local WALGREENS!!

  4. Thanks, Todd. Perhaps Joe is pro-corruption?

  5. Hello Dr. Fein,

    I just recently took over my fathers pharmacy and have much to learn about the pharmaceutical supply chain. I really look foward to reading your posts and recently purchased both of your industry reports. I plan to use Economic Report and Outlook to make future decisions(I would like to purchase more of your reports when they become available). I genuinely would like to learn more from an unbiased source, however, the tone of your posts seems anti-independent pharmacy. i understand that the rhetoric from NCPA may be a little much at times, but i see first hand how mail order is taking away my customers against their will. People that have come to my fathers store for decades are forced to go mail order, and the PBM's coerce them by using dirty business tactics against independents. I am just wondering how you cannot think this is unfair?


  6. Dan,

    Mail order is a choice made by the payer/insurer because it saves them money. See Pepsi, CVS Caremark, and the FTC for some perspective. Most (5 out of 6) employers have incentivized mail order programs instead of mandatory mail.

    I know you may not like this answer, but it's reality. Nonetheless, I do believe independent pharmacy will remain a viable channel.


  7. This is why my staff and I spent hundreds of hours and thousands of dollars last year just to get certified for Medicare DMEPOS billing. The folks who are supposed to be monitoring this kind of fraud would rather penalize the entire industry by creating new rules and layers of bureaucracy instead of going after the very bad apples that are deliberately setting out to defraud the insurance plans and government.

    Couple of questions:
    1-where were the state boards of pharmacy inspectors? Here in Maryland, someone from the state is in the store at least once every 18 months.
    2-what wholesaler would open an account for these clowns?
    3-why didn't the private insurer that contacted Sen. Grassley call the local, county or state police?
    4-why didn't the insurer exercise more caution when contracting with these "phantom pharmacies?"

    Stupid question that I know the answer to: why is government's solution to any problem always involve more government?

    Tom Connelly, RPh
    independent as pigs on ice
    Rising Sun, MD

  8. OK folks, let's look at this from a different angle.

    Add a dozen HIV patients to your client mix by detailing the doc in a nearby clinic and surely it wouldn't be tough to crank out those kind of numbers.....especially if you dispense a 90 day supply.

    But wait, the independents are locked out of the 90 day programs.

    My bad. It must be Phrma's fault!

  9. Adam,

    Are you using second hand information and printing it as fact? So what if you got a letter ftom Grassley. Are the statements true and did you verify? If you did not I would be happy to start supplying you with "facts" for your consulting firm. If you did then great.

    It would not be the first time Seator Grassley used information that was not true and not proven to be fact.

    By the way here in Texas you do not get a license until you show copies of a lease, copies of letter from the wholesaler that you have an account and the state board inspects your location to see if you have store fixtures, store front, and a pharmacist in charge. The point I am making is that maybe Forida and California need most of the blame. Organized crime is behind most of this fraudulant billings as they were in New York and New Jersey in the past and it does not have to be the Cosa Nostra variety.

  10. So Adam,

    Judging from the title of blog are you suggesting that the other 99.99% of the pharmacies (legitimate) should have their payments delayed. Or you just suggesting that only independants?

    How many chain pharmacies have been audited and been charged back for improper submittals to an insurer? Don't have the answer? Or do you think they never have this happen? Why don't you look into it and write a blog on that item.

    One Chain here in Texas just recently repaid an insurer $450,000 plus in chargebacks(audits)

  11. Re: Grassley letter unverified.

    I don't know about those specific instances, but I went to the Miami Herald website, put medicare fraud pharmacy in their site search and got a bunch of hits, including this one:

    about a "phantom pharmacist" who, when put on "prepayment review" threatened to kill an auditor and a Medicare executive.

    I think Grassley's got a valid point.

    Tom Connelly

  12. This isn't an issue of independent vs. chain, this is an issue of thiefs stealing from private insurance companies and government. I agree that the government's solution is usually more regulation, regulations that make it so difficult to comply the only way to be profitable is to commit the type of fraud that Senator Grassley is talking about.

    The bad apples spoil it for the rest of us. They are the cause of increased regulations and higher costs for all. The solution is more auditing of suspicious transactonal activity and more people in the field. Audits in our pharmacy are a pain in the neck, but it's good to know that they're looking for the cheats.

    As for insurers pushing mail order, it always kills me when we have open enrollment for our health insurance and the insurance company reps start talking about how great mail order pharmacy is and how we'll save $10 every three months. I always have to remind them who they're talking to and where they are.

  13. Perhaps you should do an analysis of the total number of Medicare Part D prescriptions filled over he last 2 years vs the number of proven fraudulent claims submitted by registered pharmacies. This would determine the extent of the problem. My estimate is that it is less than 1% of 1% of claims.

  14. It is not about pharmacy at all. It is about the American way. It about how the federal government works and manages itself. It not any different then the federal government payiung $400.00 for a toilet that can be purchased for $100.00. It is about fields of empty mobile homes after Katrina.

    Unfortunately this is a blog on Mr. Fein's website that is about the pharmaceutical distribution channel. Unfortunately a lot of the comments revolve around "independents' versus the rest of the world. They make good fodder for keeping this blog interesting- I guess.

  15. Yes, let the pbm hold the medicare payments longer just to be sure the claims are not fraudulent. Heck they don't mind the extra interest they get by holding the payment..... Who cares about cash flow for the honest businesses. Time to go research fraudulent consultants

  16. Some people apparently think my post was some sort of anti-pharmacy statement. NACDS seems to agree with me as evidenced by this press release: NACDS Hails Sen. Grassley’s Targeting of Rogue “Phantom Pharmacies”.