FBI investigates expensive ‘pain creams’ billed to taxpayers

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Phoenix, AZ (KPHO) — The Department of Defense, the FBI and U.S. attorneys in at least six states are investigating allegations that some compounding pharmacies are committing fraud, selling expensive “pain creams” and other drugs not approved by the FDA to military veterans.

Compounding pharmacies create their own drugs by combining two or more prescription ingredients into one product. Their use by current and former military members has skyrocketed in the past decade.

According to figures from the U.S. Government Accountability Office and the Department of Defense, the amount of money the DOD’s insurance spent on compounded drugs in one month rose from $4 million in 2004 to $335 million last year.

“Compounding itself is a good tool for us to take care of our patients,” Maj. Gen. Richard Thomas, who oversees TRICARE, the DOD benefits provider, told CBS News last summer. “We don’t want to stop it. But what we do want to stop is the waste, fraud and abuse that we’re seeing, particularly in some topical applications we’re seeing for pain medicines and scar revisions.”

According to a report published by the GAO, pain creams are among the most expensive of the compounded products and have questionable effectiveness.

“As I got older, I started getting problems with my knees,” Rick Martinez, who retired from the Army after 24 years of service, said.”Nothing that ever kept me sidelined, but it was definitely a concern of mine.”

Last year Martinez made an appointment with Dr. Gregory Ellison, a Tempe-based family physician and addiction specialist.

“He just asked me what aches and pains I had,” Martinez explained. “You know, being an older guy, I have a few of them. I mentioned my knee. He really didn’t give me any advice. I just felt like this was my initial visit. And so I thought he was just evaluating me and he didn’t give me any indication of what was to come.”

According to Martinez, he began receiving bottles of pain and scar cream in the mail — without any warning or consent on his part. They were compounded medications prescribed by Ellison and created at HaoeYou Pharmacy in Palmdale, CA.

Martinez said he thought it was a mistake at first. But he was shocked when he learned how much the pharmacy was charging his insurance, TRICARE, for the bottles.

“More started coming in and the numbers started going up. And then I was, I was just, I felt like something was wrong,” Martinez said.

According to the explanation of benefits he showed to CBS 5 Investigates, the pharmacy charged $194,720.70 for three prescriptions — in just one month. TRICARE paid $142,363.75.

“It just seemed like a total waste of money to me,” Martinez said.

Ellison initially agreed to a sit-down interview with CBS 5 Investigates. But the day before the interview was scheduled to take place, he backed out.

We caught up with him in the parking lot of his office. During a brief interview, he stated that he believes the medication works, but no longer prescribes pain and scar creams from HaoeYou Pharmacy. Ellison also denied that he has or had any financial incentive to use HaoeYou. He also disputed Martinez’s account of the office visit, stating that he would not prescribe a drug without his patient’s knowledge.

CBS 5 Investigates called HaoeYou Pharmacy. We were directed to the corporate office in City of Industry, CA. We placed six calls to the phone number we were given and left messages describing our investigation and the questions we wanted answered. Nobody returned our calls.

So we drove to Palmdale, where the pharmacy is located. The pharmacist on duty said he was not authorized to answer any questions, but said he would have his corporate owners contact us. As of the publishing of this story, we have not received any calls.

CBS 5 Investigates reached out to TRICARE, using the email portal the press is directed to use. As of the publishing of this story, officials with TRICARE had not answered our questions about whether Ellison or HaoeYou were under investigation.

According to the TRICARE website, the agency has implemented a new review process for prescriptions from compounding pharmacies.

The U.S. Attorney in Florida, along with the FBI and Department of Defense, announced settlements with four physicians and three compounding pharmacies earlier this year. Investigations are underway in at least five other states — Mississippi, Alabama, Utah, Texas and California.

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