California Regents File State False Claims Act Case Against Healthcare Providers And Pharmacies For Allegedly Defrauding UC Student Health Insurance Plan

The Regents of the University of California (UC) have filed a lawsuit against Studio Pharmacy, Excel Care Pharmacy, Pharma Pro Solutions, California Clinical Trials, and 17 individual defendants, including four physicians and two orthopedic surgeons, alleging violations of the California False Claims Act, common law fraud, negligent misrepresentation, and professional negligence against the defendants. The suit, which was filed in Superior Court on April 20, 2017, alleges that the defendants defrauded the University of California Student Health Insurance Plan (SHIP) of $12 million over a six month period and seeks restitution, damages, and costs.

According to the complaint, the defendants posted ads on UC student groups’ Facebook pages, offering up to $550 for students to participate in supposed “clinical trials” for topical pain cream, and, at job fairs held on UC campuses, “recruited” students to work as sales reps for a supposed pharmaceutical “start-up.” In both instances, students were required to provide their student health plan numbers. As a result of the alleged scheme, the defendants obtained healthcare information for more than 500 University of California students on six campuses.

The defendant healthcare providers used this information to write thousands of prescriptions for Dermacin and Inflammacin, which cost as much as $4,600 and $3,000 per prescription, respectively. According to the complaint, these drugs were effectively the same as common anti-inflammatory drugs, coupled with an over-the-counter cream like Ben-Gay. After the UC student health plan blocked the two drugs from the prescription drug plan, the defendants allegedly wrote prescriptions for a similar drug, Dicloflex, which in turn cost about $5,320 per prescription.

The defendants allegedly wrote more than 100 and as many as 200 prescriptions per day, resulting in an alleged loss of over $12 million from the state’s student health plan.

The case is notable in several respects. First, the alleged scheme, which involved a network of doctors, pharmacies, and other individuals, was extremely complex, including the alleged pretense of clinical trials and sham recruiting for a supposed pharmaceutical start-up in order to obtain students’ private healthcare information. Second, the alleged scheme was extensive, covering 500 students at six different UC campuses. Third, the alleged scheme resulted in a significant privacy breach under novel circumstances. Fourth, the case illustrates the particular vulnerability of universities’ information and management systems. Fifth, the case further illustrates the increasing extent to which state actors are using state false claims act statutes to recover state funds lost through fraud schemes.