Appellate Court: No Evidence of Fraud by Pharmacies that Dispensed Pain Creams

A Pennsylvania appellate court on Monday affirmed the dismissal of a lawsuit filed by Liberty Mutual Group that alleged nine pharmacies paid kickbacks to physicians in exchange for prescribing overpriced topical compound creams to workers’ compensation claimants and auto accident victims.

A panel of the Pennsylvania Superior Court ruled in an unpublished decision that the Court of Common Pleas in Philadelphia County correctly granted summary judgment in favor of the pharmacies and physicians who were accused of defrauding the insurer.

The three-judge panel said Liberty Mutual failed to present evidence that the doctors, who owned a minority stake in the pharmacies, misrepresented their patients need for topical pain creams, or that the businesses were structured in a manner that disguised unlawful kickback payments as dividends.

Liberty Mutual and several of its subsidiaries filed a lawsuit in 2019 that claimed the pharmacies and 18 doctors who had a financial interest in them had defrauded the carrier out of $4.7 million by prescribing compound pain creams that cost nearly $8,000 per tube. The Philadelphia court ruled that the doctors had complied with the law by disclosing their financial interest in the pharmacies to their patients.

On appeal, Liberty Mutual argued that the pharmacies misrepresented their pain creams as compounded drugs that are custom-made for each patient, when in fact the creams are pass produced in large batches. The insurer said the physicians were given small ownership stakes in the pharmacies as a means of inducing them to prescribe the pain creams in exchange for regular dividend payments.

The appellate panel, however, said that Section 503A of the state Food, Drug and Cosmetic Act does not prohibit pharmacies from “anticipatory compounding,” meaning making large batches of a compounded cream in anticipation of receiving orders for refills. The opinion says the statute allows compounders to keep up to a 30-day supply of compounded pain creams, based on prescriptions that were received in the past year.

“Section 503A limits the quantity of drug product that pharmacies may compound before receiving a prescription,” the opinion says. “However, there is nothing in the record to establish that any of the pharmacies exceeded those limitations.”

The appellate court also rejected Liberty Mutual’s allegation that the pharmacies “masked” the physician’s ownership interest. The panel quoted a brief filed by the pharmacies’ attorneys that said the record shows the physicians did not own more than 49% of any pharmacy and that a minority stake is allowed by Pennsylvania law.

The panel concluded that because the insurer and not presented any evidence that laws had been broken, its unjust enrichment claims must fail.