Dear Friend,

Compounding drugs and criminality.

It’s the middle ground between light and shadow, between medical science and stupidity, and it lies between the pit of man’s desires and the summit of his bank account. This is the dimension of disintegration. It’s an area which we call the Indictment Zone.

Jerry May Keeper, Gary Robert Lee, and Krishna Balarma Parchuri. Christopher R. Parks. Three doctors and a former lawyer. The stuff of dreams compounded, so it is said, with a heavy dose of dreams of stuff.

Compounding pharmaceuticals, specific drugs for specific patients, offers tremendous benefit. The problems arise when the benefit is for the prescribing physician. Then, as Dr. Keeper, who pleaded guilty in February 2022, and Mr. Parks, who pleaded guilty in June 2023, would certainly attest, and as Drs. Lee and Parchuri might attest, that is, if they elect to testify in their own defense at trial, we’re dealing with analyses under the federal Anti-Kickback Statute (AKS) and state law counterparts.

In a case currently winding its way toward trial in the U.S. District Court for the Northern District of Oklahoma, the (remaining) defendants are alleged to have engaged in a host of criminal acts centering around a compounded prescription scheme.

Lee and Keepers were charged with conspiracy to commit health care fraud. Keepers and Parchuri were also charged with soliciting and receiving illegal bribes and kickback payments. Additionally, Parchuri was charged with obstructing the criminal investigation into the health care offenses.

According to the indictment, beginning in 2012, Parks and Lee, who controlled several compounding pharmacies including OK Compounding LLC, in Skiatook, Oklahoma, One Stop RX LLC in Tulsa, Oklahoma, and NBJ Pharmacy LLC and Airport McKay Pharmacy, both in Houston, Texas, conspired to pay kickbacks to physicians to induce them to write expensive compounding prescriptions to be filled at the controlled pharmacies.

As a part of the conspiracy, the government alleges that the kickback-receiving physicians were provided with pre-printed prescription pads that listed compounding formula choices; physicians checked a box and then faxed the form directly to the associated pharmacy – no prescription was handed to the patient for him or her to take to a pharmacy of choice.

Claims for payment for the compounded drugs were submitted to federal health care programs as well as to private payors, and the proceeds allegedly split among the defendants using a variety of methods.

The government alleges that Parchuri received up to $50,000 a month in exchange for writing those prescriptions, and that over time, Keepers solicited and received more than $860,000 in kickbacks and bribes.

The indictment claims that kickbacks were disguised through sham agreements, including purported pharmacy and university study “medical directorships” and “consulting physician” agreements, as well as via intermediary limited liability companies.

As always, note that allegations and indictments are charges only and not convictions. The defendants are innocent until proven guilty or until they choose to plead guilty.

However, defending against charges such as these is mindbogglingly expensive. At least one of the physician defendants had replacement counsel appointed for him by the court because he could no longer afford to pay for his own defense.

Whether or not due to economics, on February 16, 2022, Dr. Keepers, in a plea deal, pleaded guilty to one count of soliciting and receiving a healthcare kickback. He admitted that OK Compounding solicited him to write prescriptions for his patients that would be filled by the pharmacy, and that he knowingly received $25,000 from the pharmacy’s representatives.

Pursuant to the plea deal, Dr. Keepers was sentenced to 36 months of supervised probation and was ordered to pay no more than $1,518,180.46 in restitution — perhaps an example of the “first to plead out and cooperate” of game theory’s prisoner’s dilemma.

In regard to his guilty plea, Mr. Parks was sentenced on October 11, 2023, to 18 months in federal prison to be followed by two years of supervised release. He was also ordered to pay $6,400,651.57 in restitution.

It appears as if the allegations against the remaining defendants, Drs. Parchuri and Lee, are moving forward. One might guess that Dr. Keepers and Mr. Parks will be testifying at trial, but that’s yet to be seen. And, despite that, remember again that there’s been no determination of Lee’s or Pachuri’s guilt; until then the allegations are just that, claims asserted by the government.

It should also be noted that in related prosecutions, two marketers were sentenced for helping orchestrate the scheme whereby physicians received kickback payments in exchange for writing and referring expensive compounded drug prescriptions to OK Compounding. Johnathon Yates Boyd III, 50, of Katy, Texas, was sentenced to 12 months of probation and ordered to pay $391,475.41 in restitution. Bryan Fred Woodson, 61, of Beach City, Texas, was sentenced to 12 months of probation and ordered to pay $553,232.45 in restitution.

If convicted, conspiracy to violate the federal anti-kickback statute carries a possible maximum sentence of five years in prison and a $250,000 fine. In addition, violation of the anti-kickback statute itself carries up to 10 years in prison and a $100,000 possible fine. A conviction of health care fraud without injury or death also carries a possible maximum of 10 years in prison, but if resulting in injury or death, the maximum penalty climbs to 20 years or life in prison, respectively.

Compounded drugs are valid treatment. Prescribing them is legal. However, accepting (or paying) kickbacks to prescribe them is a crime.

Seems simple, but each year, no, each week, we’re reminded that “simple” isn’t much of a deterrent to stupid.

There are many legitimate ways for physicians to increase their practice income. They include, depending on state law, investments in compounding pharmacies and the direct dispensing of pharmaceuticals. But any deal must be structured in compliance with the anti-kickback statue. And then, of course, also in compliance with other applicable laws, from Stark to state law considerations.

Just because some other party to the deal tells you that a deal’s been vetted by their lawyers and is “legal,” don’t bet on it. Vet it through your own counsel and assess your own risk. As in carpentry, measure (assess) twice, cut (do the deal) once. Or not do the deal – you get the idea. If you don’t get the idea or if you have questions, contact me.

After all, that other party won’t be paying your fine or doing your time.

I promised to indemnify you. Here’s a quarter.

You might skip over indemnification provisions when negotiating a contract. You understand what they are. They’re just boilerplate, right? Wrong.

First, boilerplate isn’t “extra stuff.” It’s the opposite. Like the strong metal plate around a boiler designed to contain it and prevent an explosion, boilerplate in an agreement is there to protect the agreement, to help make sure that the deal you think you have is indeed the enforceable deal.

Indemnification provisions are one of the types of risk-shifting provisions generally found in important agreements. For example, in exclusive contracts between medical groups and facilities. Or, even in provider agreements between a medical group and its physicians.

Indemnification provisions can take many forms. Some sophisticated agreements often contain multiple indemnification provisions, each dealing with a different sort of situation.

At its essence, an indemnification provision requires one party, the “indemnitor," to hold the other party, the “indemnitee," harmless (i.e., to pay for any damages caused and, perhaps, to defend it and/or to pay its attorneys’ fees) in the event of the indemnitor’s breach of whatever obligation or set of facts is the subject of the provision.

But there’s another, related issue that many parties don’t think to negotiate: What’s the limit of indemnification? Without a specified limit, well, there is no limit.

Although the notion of insurance is similar to indemnification, it is different, certainly in respect of the fact that the insurer isn’t “indemnifying” as to its own acts. Yet, insurance policies have limits to the carrier's liability. For example, a medical malpractice insurance policy might have a per claim limit of $1 million and an aggregate annual limit of $3 million.

When you’re next negotiating an indemnification provision, at least think about whether you should, and whether you can, think more like an insurer and cap the limits of your liability.

Depending on the type of agreement, the type of indemnification provision, the parties, their relative positions, and whether the indemnification is one-way or mutual, it may or may not be in your interests to pursue a cap.

Just don't let your decision be made by default, that is, by not thinking about it.