Liberty Mutual Files Suit in Pennsylvania Against Compounding Pharmacies and Doctors

| | Evidence Based Medicine, Physician Peer Review

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Toms Oct 2017 Article on Liberty Mutual v Compounding Pharmacies
As reported in the Philadelphia Inquirer, Liberty Mutual Insurance Company filed a lawsuit in Pennsylvania against 18 Philadelphia area pain management doctors who have allegedly prescribed $4.7 million in pain creams to injured workers. The lawsuit alleges that the group of 18 doctors referred workers’ compensation claimants to pharmacies in which they had a financial interest. Those pharmacies billed Liberty Mutual for vast quantities of compounded pain creams at inflated prices – up to $8,000 per tube.

Liberty Mutual also alleges that the compounded creams were manufactured in batches and not mixed specifically for individual patients, which is a violation of FDA regulations. The top prescriber alleged in the lawsuit is Dr. Rishin Patel of Allentown. He is alleged to have prescribed $506,163 worth of pain creams that were dispensed by the “700 Pharmacy” in which he is a part owner.

The lawsuit states five causes of action against the 18 doctors. The causes of action are common law fraud, insurance fraud, workers’ comp insurance fraud, the Pennsylvania statute prohibiting self-referrals, and unjust enrichment. Conceptually, the lawsuit is interesting in that the various statutes relied upon allow a private civil cause of action, along with the recovery of compensatory damages and attorney’s fees and costs.

An interesting aspect of the case is that the lawsuit alleges that the workers’ comp system in Pennsylvania allows recovery of attorney’s fees when the insurance carrier refuses to pay for drugs. The matter is heard before a workers’ comp judge (WCJ), and the WCJ hears the evidence and renders his or her award. But the lawsuit alleges that in cases where the WCJ makes a finding in favor of the insurance carrier, the carrier is unable to seek its attorney’s fees. In addition, a favorable ruling for the insurance carrier is not given collateral estoppel effect, which means if a compound is not allowed in one case it could still be allowed in another – the issue would still be open.

Because the suit seeks unjust enrichment, the defendant doctors and compounding pharmacies will likely fight this case bitterly. In other words, the defendants will not want to “give back” the money they will claim they lawfully made as system participants in the Pennsylvania workers’ comp system.

Here’s another thought. If the Pennsylvania District Attorney’s office files a criminal action against any of the doctor defendants, one of them may turn state’s evidence and plead to a lesser crime in exchange for providing evidence against the other doctor defendants. In that instance Liberty Mutual would be in good position. But if there is no criminal action, and the evidence that surfaces in this case is not very strong, Liberty’s suit may be subject to a summary judgment motion. Remember, proving a fraud case is generally a difficult proposition. In the case of a summary judgment motion, or loss at trial, Liberty may not only be hit with a very large cost bill, but may find itself on the wrong end of a wrongful use of civil proceedings action. In Pennsylvania they call this a Dragonetti action.

Another factor is that it appears that the statute of limitations for fraud in Pennsylvania is just two years from the time the plaintiff reasonably had knowledge of the fraudulent scheme. In the lawsuit, Liberty Mutual states that they did not know about the full scope of the fraudulent scheme until completion of their investigation in December 2016. Because the lawsuit was filed on September 14, 2017, all allegedly fraudulent acts committed by the defendants prior to September 14, 2015, of which Liberty was aware, would potentially be time barred.

This case will be interesting to track. If Liberty Mutual is successful, this may encourage other insurance carriers to go after compounders and doctors who allegedly prescribe pain creams in order to pump up profits. But if the suit fails there will undoubtedly be a lot of hand-wringing in the Liberty Mutual camp, and other insurance carriers will proceed accordingly.

This case will be interesting to track. If Liberty Mutual is successful, this may encourage other insurance carriers to go after compounders and doctors who allegedly prescribe pain creams in order to pump up profits. But if the suit fails there will undoubtedly be a lot of hand-wringing in the Liberty Mutual camp, and other insurance carriers will proceed accordingly.

Tom Swiatek

Tom Swiatek

As Assistant Vice President of Regulatory Services, General Counsel, and Editor in Chief of UR Nation, Tom Swiatek draws on his experience as an insurance attorney on both the general liability side, as well as on workers’ compensation matters. As a California Workers’ Compensation Section Member, Tom is leading the discussion with respect to the regulatory challenges and opportunities facing the workers’ compensation system.