Tuesday, August 16, 2022 Aug 16, 2022
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Health & Medicine

Inside the Alleged Pharma Scheme at Dallas’ Medoc Health Services

Sources describe a complicated system that left patients with piles of pills and creams they didn’t need, while executives cashed in—to the detriment of the healthcare system.
By Shawn Shinneman |

In May, FBI agents pulled a couple of ghost white vans outside Medoc Health Services LLC and loaded up at least one of them up with material from the company’s 17th floor offices. At the time, nobody on scene would tell The Dallas Morning News, which broke the news of the raid, exactly what was going on. The paper was able to find, however, several other healthcare businesses registered with the state comptroller located at the same address—Suite 1700, in the ClubCorp building off LBJ Freeway and Webb Chapel Road in Dallas.

Since then, I’ve spoken to two former employees who allege a massive scheme in which Medoc, which was founded in 2015, acted as a prescription manager on behalf of physicians grouped into the aforementioned businesses. Rather than selecting a certain medication to prescribe a patient, the sources allege, physicians involved would select a category of drug—an anti-inflammatory, for instance—which would be sent to a go-between pharmacy owned by Medoc.

According to sources, Medoc would route the prescriptions through a network of mail-order specialty pharmacies it owned. But before that, the company would closely examine the contracts between the patient’s insurance company and its various pharmacies. That, sources claim, allowed Medoc to select the drug or drugs it could prescribe to elicit the highest reimbursements. It tacked on the maximum amount of refills and sometimes sent more than one drug, allege the sources, who requested anonymity because they feared retaliation and wanted to wait until the federal investigation played out to speak publicly.

One source named nearly a dozen pharmacies owned by Medoc through a network of companies. A review of the Texas Comptroller’s website shows that several have the same Dallas attorney—William Meier III—named as Medoc’s registered agent. One of the pharmacies listed Messorio Healthcare Services as the managing member; Medoc CEO Kevin Kuykendall is listed as Messorio’s chief executive.

“So, what happens to your and my premiums? Even though we have a great doctor and a great insurance company?” says Ahuja. “Your and my insurance premiums are going to balloon.”

As the sources’ story goes, patients would end up with piles of pills and creams they didn’t need, and Medoc executives needed rakes to gather their cash. At its peak, a source says the company was bringing in $1 million a day. The physicians involved also made out well, splitting the profits from the prescriptions they wrote among their respective LLCs—after Medoc’s cut—and receiving monthly checks that ranged at one point between $20,000 and $30,000, one source says. That was a couple years ago, when insurance companies were granting $20,000-plus reimbursements for compounded pain creams, which Medoc execs had drawers of in their offices, having received the “scrips” from physicians in their network, sources allege. The sources also allege that Medoc representatives signed scrips on behalf of physicians in order to pass insurance-company audits.

In response to the specific claims by sources in this story, Medoc emailed a statement. It pointed to an ongoing lawsuit it filed against a group of former employees and their recent employers earlier this year, and claimed former employees are disgruntled and seeking to “undermine our company.”

“It’s always easy to hide behind anonymity and make these allegations,” the statement says. “We will vigorously defend Medoc’s business model and professional reputation. Across the healthcare sector, businesses like ours are under increased regulatory and government scrutiny. We are cooperating with any requests from the government, and we are confident that we can address any concerns raised by the investigation.”

It’s unclear whether the scheme sources allege would rise to the level of criminal activity. If and when charges fall in this case—both sources say they’re in touch with a federal investigator—plenty of attention will be placed on the patients caught up in the scheme, including whether, and to what extent, they suffered. There’s good reason for that. Just as there’s good reason to discuss the damage directly done to patients at Frisco-based hospice provider Novus Health Services, where a couple of named defendants have pled guilty—many more have not—in a $60 million scheme in which the CEO allegedly ordered nurses to hasten the deaths of some patients. Plenty of ink has rightfully been spilled on how the alleged system of kickbacks and bribery hit patients at Forrest Park Medical Center as well. As it should be.

But we’re still missing part of the story. Because the piece that receives much less attention is the way fraud trickles down to impact everyone, adding significant costs to every business and consumer of healthcare in a country that doesn’t need any help in that regard. “I get asked all the time how much fraud is in the system. Nobody knows for sure,” says Louis Saccoccio, CEO of the National Health Care Anti-Fraud Association. “I can say very confidently tens of billions of dollars. It could be north of $100 billion.” Right now, his association is spending a lot of time dealing with the issue of opiates, many of which reach the outside world due to fraud. As money has poured into treatment and analysis programs, fraud has followed there as well.

After I gave Saccoccio the bullet points of the scheme alleged at Medoc, he told me that pharmacy fraud has been on the rise over the last decade. He pointed to the 2003-enacted Medicare Modernization Act, after which Medicare started paying for prescription drugs: “Follow the money.”

Saccoccia says the amount of healthcare fraud isn’t increasing; rather, the shape is changing (following the shape of the money). Local experts told me the same, including Dallas Fort Worth Hospital Council CEO Steve Love and Vishal Ahuja, an assistant professor at Southern Methodist University who has studied the topic. Ahuja breaks the most prevalent instances he sees into three categories—fraudulent billing (a doctor bills for something he or she didn’t do), up-coding (a doctor administers a minor test but bills for a major one), and doctors subjecting patients to unnecessary procedures. All that extra cash increases the burden on insurance companies, and I’ll give you one guess who actually picks up the tab.

It’s the people who commit the fraud.

Just kidding.

It’s you.

“So, what happens to your and my premiums? Even though we have a great doctor and a great insurance company?” Ahuja says. “Your and my insurance premiums are going to balloon.”

Enforcement efforts reflect the high stakes. In fiscal 2017, Texas’ Office of Inspector General investigated an astounding 19,610 cases of fraud, rooting out leads both from internal data analytics and through referrals from consumers. Finding criminals is not the OIG’s sole purpose, but, of the investigations, 587 warranted referrals to the Office of the Attorney General. Another 1,748 cases resulted in referrals to other entities, like licensing boards or local district attorney’s offices. Otherwise the agency is trying to recoup some of the waste (OK, so maybe the fraudsters do end up picking up a piece of the tab). The numbers encompass all social services—not just healthcare—but Medicare-related fraud and waste frequently slides across the agency’s desk.

“People who are intentionally committing fraud should be prosecuted to the fullest extent of the law,” says Love of the DFWHC. He says most hospitals long-ago instituted intense compliance standards. “Hospitals, if they find mistakes, will self-report,” he says. “They’re not going to intentionally turn a blind eye to something that they find.” But bad apples exist, and Love urges consumers to inform themselves about the procedures and treatments they’re undergoing by doing their own research and asking questions of their physicians. If you see something amiss, report it. (The OIG’s numbers seem to say that many people are heeding his advice already.)

If my sources have it right, the Medoc scheme could be in the multimillions, in which case we’ll all hope justice does its thing. In the meantime, the company continues to tick along—at least as of press time—during the federal investigation. One source says he’s seen recent internal reports that show the company is still having quarter-million-dollar days.

One of my sources, who left the company last year after taking a hard look at the alleged scheme, its impact, and the source’s own mistreatment, sums it up: “This isn’t just a company that’s running amuck and making a bunch of money for themselves. We go to the doctor, and we think our doctor is doing something to take care of us, and the reality is they’re looking for a paycheck because we have a certain subset of issues. Or, the fact that I have a certain insurance makes me a target for bad healthcare. I find that troubling.”