Although a Florida compounding pharmacy has scored a win against a whistleblower’s allegations, it continues to defend against the government’s allegations of improper inflation of its Usual & Customary charges submitted to TRICARE.

The U.S. District Court for the Middle District of Florida granted motions to dismiss with prejudice in favor of the pharmacy RS Compounding LLC and its co-founders, rejecting the whistleblower’s allegations that the company executed an illegal marketing scheme involving preprinted prescription pads and physician coaching by sales representatives to promote unnecessary orders of the most expensive compounds.

Despite the win, the case is far from over. RS Compounding must still defend separate allegations by the government—which partially intervened in April 2017 and survived motions to dismiss in December 2017—that the company manipulated its Usual and Customary (U&C) pricing for certain compounds to overbill TRICARE, a federal health care program that provides healthcare coverage for active duty military personnel and their families.

Although the government has generally declined to intervene in False Claims Act (FCA) lawsuits alleging overcharging of U&C amounts, such as in a case that Kmart recently settled, this unique case has resulted in government intervention.

  • The dispute focuses on the definition of U&C pricing. TRICARE contracts with a third party, Express Scripts, Inc. (ESI), to manage reimbursement claim submissions and payment processes when pharmacies like RS Compounding provide prescriptions to program beneficiaries. Under RS Compounding’s contract for compound formulations, TRICARE limits reimbursement to an amount equal to the lesser of a compound’s U&C price—the cash price on the date of dispensing according to the ESI pharmacy manual—or average wholesale price (AWP).
  • Under this framework, the government alleged that RS Compounding used a software system that forced U&C prices to equal artificially inflated AWP prices rather than reflecting its true cash prices. RS Compounding thereby allegedly guaranteed payment of its inflated AWP prices by TRICARE.
  • According to the government, RS Compounding charged TRICARE at least 2000% more than it charged cash-paying customers for identical compounds.

Despite the unique circumstances of this particular U&C case, the government’s tethering of its core legal arguments to the contractual definition of U&C pricing in a FCA lawsuit highlights the need to evaluate pharmacy-pricing matters in the context of program-specific, state-specific, and contract-specific definitions of U&C pricing.  The case also illustrates, as we have previously briefed, the scrutiny that pharmacies will continue to face with respect to U&C pricing matters.


*Admitted only in Maryland. Practice supervised by principals of the firm admitted in the District of Columbia.