OIG Initiates Kickback Civil Monetary Penalty Case Against Pharmerica: Demand Letter Seeks $21.8 Million and Ten Year Exclusion

The Office of Inspector General disclosed today the issuance of a demand letter on June 17, 2004 to PharMerica Drug Systems, Inc., one of the nation’s largest institutional pharmacies, based on alleged kickback violations. The demand letter initiates the formal administrative process seeking civil monetary penalties and damages totaling $21.8 million and a ten-year exclusion from participation in Federal health care programs. This is the largest amount ever sought by the OIG in a civil monetary penalty case and represents a continuation of the OIG’s active enforcement of its administrative remedies for kickbacks.

The OIG alleges that PharMerica agreed to purchase a small Virginia pharmacy for an excessive amount in return for a commitment from the sellers, who also owned 17 nursing homes and 8 assisted living facilities, to refer their Medicaid patient’s pharmacy business to PharMerica for the next seven years. The purchase price for the pharmacy, Hollings Manor I in Roanoke, which had virtually no operating history, was $7.2 million. The OIG charged that the agreement violated the anti-kickback statute’s prohibition on the payment of remuneration to induce the referral of Federal health care patients or business.

In addition to the monetary payment sought in this case, PharMerica’s exclusion would mean that for the next ten years, no Federal health care program (including Medicare and Medicaid) would pay anyone for any items or services furnished (including distributed or supplied) by PharMerica. The OIG may seek civil monetary penalties, assessments or damages, and exclusion for a wide variety of conduct, including the payment or receipt of kickbacks for Federal health care program business. Since 2001, the OIG has collected over $3.2 million dollars in settlement of 30 civil monetary penalty cases alleging violations of the kickback statute and/or the physician self-referral (“Stark”) statute.

The civil monetary penalty, damages, and exclusion set forth in the demand letter will automatically become effective 65 days after the date of the demand letter unless PharMerica submits a timely request for a hearing before an administrative law judge.

PharMerica, which is headquartered in Tampa, Florida, specializes in the provision of pharmacy supplies and services to long-term care institutions. According to its website, PharMerica has 83 regional pharmacies throughout the nation, serving 300,000 patients. PharMerica is a wholly owned subsidiary of AmerisourceBergen Corporation, a global supplier of pharmaceuticals, medical-surgical supplies, specialty healthcare products, and related services.