Prosecutors in the Orange County District Attorney's office call it one of the largest cases they've taken on: 20,000 exhibits, 15 defendants and more than $100 million in alleged overbilling in an alleged workers' compensation fraud scheme centered around compound creams.
An Inland Empire businessman, Kareem Ahmed, is accused of masterminding the alleged scam. Prosecutors say he paid a dozen doctors, chiropractors and pharmacists a total of $25 million in kickbacks in exchange for writing, filling and billing for large numbers of compound cream prescriptions.
KPCC first reported on the indictments by the Orange County Grand Jury in June. The defendants are scheduled to be arraigned in Santa Ana on Friday.
What makes this case unusual was the volume of business, according to Assistant District Attorney Scott Zidbeck.
"We believe there were thousands of prescriptions being written and thousands being filled by multiple pharmacies in Orange County," and there were "huge markups billed to insurance companies," said Zidbeck. He said workers' compensation insurers would be billed in "the $1,500 to $3,000 range" for creams that had a wholesale cost of about $70.
Ahmed and three others formulated three creams based on the profitability of the ingredients, according to the indictments.
In California's workers' compensation system, a compound cream can be billed for every ingredient, which has been suggested as a reason why compound cream costs have skyrocketed.
Based on the high volume of prescriptions combined with the markups in price, prosecutors have calculated that participants in the case billed insurers for more than $100 million.
Compound creams are not approved by the Food and Drug Administration and are intended for limited use, typically for people who can't take oral medication. Prosecutors believe in this case compound creams were produced in bulk; federal law forbids their mass manufacture.
Zidbeck says the doctors involved in Ahmed's network were paid to participate.
"They were given a financial incentive to write a prescription and refer that particular prescription to a certain pharmacy,"he said.
Two of the doctors indicted for allegedly accepting kickbacks have been top compound cream billers, according to data from Los Angeles County.
In the three months spanning July-September 2012, Dr. Daniel Capen was number one in the county, the data show. Compound creams accounted for two-thirds of his prescriptions, and nearly 98 percent of the total amount of his billings.
Dr. Andrew Jarminski was the third top biller in the same time period, with creams accounting for 93 percent of his billings.
Jarminski has declined comment. In an interview with KPCC, Capen said he thinks prosecutors went after him because of his volume of business.
"I don’t believe I committed any crime, nor did the other doctors," he said. "I think they targeted busier doctors."
Capen denied getting kickbacks in exchange for prescribing creams.
"It's not a kickback," he said. "I bought these creams, prescribe them to my patients and get remuneration, but doctors do that with injectables and other regular medicines."
Capen said he prefers compound creams because they are a less addictive option than FDA-approved narcotics.
Ahmed's attorney responds
In a written statement, Ahmed's attorney, Benjamin Gluck, said his client and the other defendants "never did anything wrong," and that he expects them to be "fully vindicated."
Gluck insisted that Ahmed's operation was completely legal. "Mr. Ahmed bought accounts receivable and billed those claims to insurance companies on letterhead showing his company’s name," wrote Gluck. "Each claim expressly set out the exact compound being used. Nothing was kept secret from anyone and every insurance company knew what it was paying for and why."
Internal emails from Ahmed's medical billing company, Landmark Medical Management, show some employees were concerned about the amounts of creams being produced.
In an email from May 2012 about another legal matter, a staff member wrote, "the problem will be that the compounds are not tailored [sic] made to every patient," and she added, "just look at our bills."
Gluck argued that there is nothing illegal about compounding drugs that are not tailor made for a patient.
An illustration shows the alleged network of those indicted in June by the Orange County Grand Jury. (Photo courtesy of the Orange County D.A.)
Among the 20,000 documents associated with the case are two FBI recordings that were made in 2010 as part of an insurance investigation involving businessman Cyrus Sorat, who eventually was convicted of mail fraud.
In October and December of 2010, Sorat wore a wire while eating lunch with Ahmed.
On the tapes, Ahmed can be heard boasting of his success: "I'm a behemoth, I make 8 to 10 million a month."
He also explained to Sorat how he marks up prices, while saying he does everything by the book.
"It's the fee schedule man! You got to mark it up. It's like a 200 percent markup," Ahmed said.
Ahmed also claims in the tapes that he had a hand in "shutting down" a bill in the state legislature that would have limited the reimbursements for compound creams.
"I shut it down for this year, the sleeping pile. AB 2779. Look it up, look what I did to it, what we did to it," Ahmed says.
Ahmed has donated well over $1 million to state and federal politicians and political action committees.
The recordings weren't part of the Orange County case and weren't presented to the jury that returned the indictments. Prosecutors say they’re holding on to the tapes, and will decide if they will be used as evidence at trial.
In response to the recordings, Gluck noted in his written statement that Ahmed "repeatedly told Mr. Sorat that he never pays doctors, he refused to enter a deal with a lab unless he knew it was legal."
Still, former FDA official Sarah Sellers is troubled by the nature of the conversations on the tapes.
"There is no evidence the practice of medicine is occurring," said Sellers. "There is no evidence that practice of pharmaceutical care is occurring. What is occurring is patients are being exploited as mere means for self-enrichment" said Sellers.
In a tape secretly recorded by an FBI informant, Ahmed boasts how he was able to kill AB 2779, a bill in the state legislature that would have limited the reimbursements for compound creams.
Ahmed boasts of having a state senator's daughter working in his office.