Medical equipment company fined $5M for false insurer claims

Cooley Medical Equipment, Inc., an Eastern Kentucky medical equipment supplier headquartered in Prestonsburg, has agreed to pay a fine of more than $5 million for false and fraudulent claims, according to a statement from the office of U.S. Attorney for the Eastern District of Kentucky Robert M. Duncan Jr.

Cooley must pay $5,254,912 to resolve allegations that it violated the False Claims Act by submitting false or fraudulent claims that misrepresented the ingredients used in certain compounded medical creams. The company, according to the release, was reimbursed by government insurers after filing false claims.

Cooley previously operated a pharmacy in Prestonsburg that in 2015, began making compounded medical creams, according to the statement. Compounding pharmacies, like Cooley’s, prepare customized medications for individual patients, usually by mixing ingredients in order to create a prescription cream. 

According to the statement, Cooley billed these prescriptions to government insurers, including Medicare, Kentucky Medicaid and the Department of Veterans Affairs, Veterans Health Administration (known as CHAMPVA). 

Cooley was required by CHAMPVA and Kentucky Medicaid to obtain their prior authorization in order to use bulk powder forms of Lidocaine and Prilocaine as ingredients in its compounded creams and, according to the statement, without such prior authorization, Kentucky Medicaid and CHAMPVA would not reimburse Cooley for the creams. Medicare, through its Part D program, does not cover bulk powder ingredients at all. 

According to the statement, rather than go through the prior authorization process or face limited reimbursement from Medicare Part D, Cooley misrepresented the nature of its Lidocaine and Prilocaine ingredients in its claims to federal insurers, falsely stating that Cooley’s compounded medical creams were made with cream-based Lidocaine and Prilocaine ingredients, instead of the bulk powder Cooley actually used. 

This practice led to the submission of thousands of false claims by Cooley between January 2015 and December 2016, and millions of dollars in improper reimbursements. Cooley did voluntarily self-disclose this misconduct to the United States Attorney’s Office, took proactive steps to resolve the problem and no longer operates a compounding pharmacy, Duncan’s office said.

Under the terms of the settlement agreement, Cooley will be allowed to pay back the $5,254,912, plus interest, over a period of six years. Because Cooley self-disclosed the misconduct, it was able to resolve its liability for only one-and-a-half times the amount of monetary loss caused by its false claims; by statute, the False Claims Act typically imposes liability for three times the amount of loss suffered by the government.

Floyd County Chronicle and Times