The owners of a Dallas firm that marketed pain and scar creams for North Texas drug compounding pharmacies were arrested Tuesday in connection with a large health care kickback scheme that bilked taxpayers out of $65 million, federal authorities said.
Richard Robert Cesario, 44, of Plano, and John Paul Cooper, 47, of Southlake, were indicted, accused of defrauding Tricare, the military health care system, out of millions of dollars for compounded products made by pharmacies, the U.S. attorney’s office said.
A Dallas compounding pharmacy, Trilogy Pharmacy, is one of three the indictment refers to by their initials as taking part in the scheme. The indictment says the pharmacies, which have not been charged with anything, paid kickbacks to Cesario and Cooper for patient referrals.
Trilogy did not return a call seeking comment.
FW Medical Supplies in Burleson also was cited in the indictment. Its owner, Steve Kuper, said Wednesday that he has never paid kickbacks.
Cesario and Cooper also are accused of paying kickbacks to physicians — $60 for each compounded pain or scar cream prescription they wrote and $30 for each compounded vitamin prescription they wrote. They also paid kickbacks to Tricare beneficiaries, authorities said.
The indictment did not name the doctors involved in the scheme.
It is the first federal indictment in North Texas in connection with the government’s large-scale criminal investigation into compounding pharmacies and their marketing operations that have received Tricare money. The Dallas Morning News recently reported that a Fort Worth compounding pharmacy is under investigation in connection with similar allegations.
And it highlights continuing problems with compounding pharmacies — particularly in the Dallas area — that have quickly grown into lucrative drug distribution operations without proper oversight.
Cesario and Cooper, who are alleged to have bought various homes and luxury vehicles with the proceeds of their illegal scheme, were arrested by the FBI and are currently in federal custody.
Tricare provides health coverage for active-duty and retired members of the military and their families. The federal insurance program covers certain prescription drugs, including compounded drugs prescribed by physicians.
According to the indictment that was unsealed Wednesday, Cesario and Cooper ran CMG RX LLC, which primarily marketed compounded pain and scar creams to current and former U.S. military members and their families on behalf of various compounding pharmacies.
Cesario was the company’s CEO and treasurer, and Cooper served as president and secretary. They formed the company in 2014. Neither man had any education or licensing in the medical, nursing or pharmaceutical fields, authorities said.
The company stopped operating in 2015, shortly after Tricare stopped paying for compounded pain creams due to high costs and questions about the effectiveness of the medications.
The indictment alleges the following conduct:
The conspiracy involving Cesario, Cooper and others occurred from July 2014 to mid-February 2016.
Cesario and Cooper paid Tricare beneficiaries $250 per month for each prescription they obtained and filled for compounded drugs provided by their partner pharmacies. The prescriptions were primarily for compounded pain creams, scar creams, migraine creams and vitamins.
The men called their payments to Tricare beneficiaries “grants” for their participation in a medical study that they said was a Tricare-approved “Patient Safety Initiative” or “PSI Study.” The study supposedly was done to evaluate the safety and efficacy of compounded drugs.
But the “study” was in fact bogus and the payments were illegal kickbacks.
The real purpose was to compile a list of Tricare beneficiaries with prescriptions so that Cesario, Cooper and others could calculate how much to pay them.
Cesario and Cooper created the “Freedom From Pain Foundation” and registered it as a charitable foundation to disguise the source of the kickbacks.
They funded the foundation with payments totaling $2.4 million.
The suspects had the foundation write checks to the Tricare beneficiaries in amounts they had written in “payout lists.”
The prescribing physicians who received kickbacks typically did not have a doctor-patient relationship with the Tricare beneficiaries.
Cesario and Cooper also used the Freedom From Pain Foundation to disguise the doctor kickbacks, “under the false premise that the physicians were participating in the PSI Study.”
Cesario and Cooper signed marketing agreements with the compounding pharmacies in which the pharmacies agreed to pay them a percentage of their revenue from Tricare claims.
“In an attempt to disguise the nature of these kickbacks, Cesario and Cooper had the pharmacies make these payments as ‘employee wages,’ even though neither Cesario nor Cooper was a bona fide employee of any compounding pharmacy,” the U.S. attorney’s office said.
Kuper, owner of FW Medical Supplies, said Cesario and Cooper were his “in-house crew” who marketed the pharmacy’s services. He said he paid them as full-time employees for the referrals his pharmacy received through their efforts.
Cesario and Cooper are each charged with one count of conspiracy to commit health care fraud, four counts of receipt of illegal remuneration and six counts of payment of illegal remuneration.
If convicted of the conspiracy charge, the men face up to 10 years in federal prison and a maximum fine of $250,000. Each of the illegal remuneration charges carries a maximum penalty of five years in prison and a $250,000 fine.
The men, if convicted, also may have to forfeit the following: money earned from the scheme; four homes in Plano, Frisco and Southlake; one home in Jacksonville, Fla.; money in 18 bank accounts; 21 cars and trucks, including a Jaguar, a Maserati, a Ferrari, a Porsche, an Aston Martin and three Mercedes-Benz; two motor coaches; and one boat.