AZ Diabetic Supply: Purchased Prescriptions and the $12 Million Default Judgment

In the AZ Diabetic Supply judgment, a federal court ordered the equipment supplier to pay $12,036,554 in damages and penalties for Medicare claims tied to purchased prescriptions. The government’s complaint described prescriptions priced by the brace and replaced when Medicare refused to pay. Someone inside a supplier or marketing company would recognize the transaction: the supplier was buying a completed doctor’s order that it could use to bill Medicare.

AZ Diabetic Supply operated in Vienna, Virginia. The United States brought the False Claims Act case against the company and its owner, and the Justice Department announced the company judgment and the owner’s separate settlement on September 22, 2023. The government described Medicare payments for purchased prescriptions from January 2016 through December 2021.

How Purchased Prescriptions Became Medicare Claims

The government alleged that AZ Diabetic bought completed prescriptions from marketing companies, with payments tied to the orders it received. The government’s complaint describes how a lead seller the complaint calls RealTime acquired Medicare beneficiaries’ contact information from online marketing campaigns and used a call center to offer braces at little or no cost. The script asked about ankle, arm, back, knee and shoulder braces. Medicare pays for orthotics in a lump sum, making the brace order the gateway to a sale.

According to the complaint, RealTime began selling qualified leads to an order broker the complaint calls LPI for $150 apiece in 2017. LPI paid telemedicine doctors to turn those leads into prescriptions, then sold the completed prescriptions together with the beneficiaries’ personal and medical information to durable medical equipment suppliers.

AZ Diabetic allegedly paid LPI a flat $400 for each prescription. According to the complaint, its arrangement with RealTime used a different price schedule: RealTime earned a fee for each prescription, and a more expensive brace brought a higher fee. The government alleged that AZ Diabetic’s owner understood he was purchasing prescriptions rather than just contact information.

A supplier employee could receive a signed order and see a patient file, while the payment arrangement showed that the order itself was the merchandise. The price and the way the fee changed with the brace explain more about this transaction than the label marketing services ever could.

The Replacement Prescription Loop

When Medicare denied coverage, the complaint alleged, AZ Diabetic’s owner asked RealTime’s operator for a substitute prescription and received one. The supplier could go back to the seller of the order when the order failed to produce payment.

According to the complaint, RealTime’s operator had promised that every purchased prescription would be reimbursable. Medicare frequently denied coverage because a beneficiary had already received a same or similar service within the applicable period. The government’s account says the owner requested a replacement in each such instance.

An insider who knows why an order was replaced may understand something the replacement order alone cannot explain.

What Evidence Is Needed to Report Medicare Fraud?

Our whistleblower experts look for the connection between the order’s source, the payment for it and the Medicare claim. At AZ Diabetic, the government’s complaint identified both the route the prescriptions took and the business transactions behind them.

The government alleged that RealTime and LPI sent the purchased prescriptions to the owner through Dropbox or other cloud services, rather than the patients’ providers sending them directly. The signature identifies the prescriber. The transfer identifies the business delivering the purchased order to the supplier.

Different people in that chain can see different parts of the same transaction. A marketing worker may recognize the script and the beneficiary information sold with an order. An employee handling prescription intake may recognize the sender and the replacement requests. Someone handling payments or billing may know how the vendor’s fee connects to the prescription and the claim. We work with that firsthand knowledge to connect the records, including the business decisions a completed form can conceal.

The owner’s account of the invoices also mattered. According to the complaint, he said he could not recall whether he received written or verbal invoices from RealTime and LPI, could not find copies, and declined to answer whether he had purchased prescriptions.

The Centers for Medicare & Medicaid Services’ telemarketing FAQ, sent with an Inspector General letter in 2010 distinguished a doctor’s order from the patient’s knowledge that a supplier would call. A signature on an order does not tell the whole story of how the patient reached the supplier.

The Medicare Payments Behind the Judgment

The complaint identified $612,329 in Medicare payments on 923 claims resulting from the alleged prescription kickbacks. The much larger judgment reflects the False Claims Act’s combination of tripled damages and civil penalties.

The court entered the default judgment after the company failed to appear.

The Owner’s Personal Settlement and the Default Judgment

AZ Diabetic’s owner agreed to pay $10,000 and accept a three-year voluntary exclusion. He also agreed to give up $57,690 held in escrow by the Department of Health and Human Services following the nationwide suspension of payments to him and AZ Diabetic. Those were the individual settlement terms announced alongside the company judgment.

The allegations against the owner concerned his role in buying the prescriptions and paying the marketing companies. The government’s complaint also described what he said he knew about the payment arrangement:

The government alleged that the owner paid for prescriptions while keeping the prohibition on his office wall.

What This Case Shows About Durable Medical Equipment Prescription Buying

The trade in prescriptions separates the business that finds a beneficiary, the clinician who signs the order and the supplier that submits the claim. The Department of Health and Human Services’ Office of Inspector General, in its July 2022 telemedicine alert, described call centers, staffing companies, practitioners, marketers and brokers working in such arrangements. It identified fees for reviews, consults or chart assessments, and the sale of practitioners’ orders to other businesses.

The clinician’s work, the transfer of the order and the supplier’s Medicare billing can sit in different businesses. In AZ Diabetic’s case, the government’s complaint connected those steps through the purchased prescriptions.

A separate Iowa nurse practitioner settlement announced in April 2024 concerned allegations that the practitioner signed orthotic brace prescriptions for $20 per patient. That example shows the paid-order transaction from the signing clinician’s side. The AZ Diabetic allegations show it from the supplier’s side, where the finished prescription was bought and used to seek payment.

You Know What the Supplier Bought

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. If you handled the prescription purchases, vendor payments or replacement orders, speak to one of our Whistleblower Experts about how the prescriptions were bought. We build your strongest whistleblower case around the connection between those transactions and the Medicare claims, bring in durable medical equipment fraud whistleblower lawyers, and stay beside you throughout the case.