PharMerica Hollings Manor: A Pharmacy With Almost No History and Seven Years of Referrals

In the PharMerica Hollings Manor fraud case, PharMerica agreed to pay more than $5.9 million to resolve allegations that it overpaid for a small pharmacy in exchange for nursing-home referrals. The alleged kickback sat in the purchase price. The government alleged that the sellers used their control of nursing-home business to promise PharMerica future prescriptions as part of the deal.

The settling companies were PharMerica, Inc. and PharMerica Drug Systems, Inc. Hollings Manor I was the acquired pharmacy in Roanoke, Virginia. The Department of Health and Human Services’ Office of Inspector General handled the matter as an administrative kickback case.

What the Hollings Manor Purchase Allegedly Bought

The Inspector General’s original announcement described a $7.2 million purchase of a pharmacy with virtually no operating history. The sellers also owned 17 nursing homes and eight assisted living facilities. The agency alleged that PharMerica paid an excessive price in return for a commitment to refer their Medicaid patients’ pharmacy business for seven years.

The settlement resolved allegations of buying Medicare and Medicaid pharmacy referrals through that acquisition. In the Inspector General’s account, the alleged value lay in the sellers’ ability to direct business paid for by public programs. That puts taxpayers behind the prescription bill while honest pharmacies compete against a purchase price allegedly used to buy the customers.

The business arrangements matter because the nursing home and its pharmacy supplier do not always receive payment from the same place. Pharmacy vendors can be independent or affiliated with the facility. Under Medicare’s skilled nursing billing rules, drugs generally sit inside the facility’s bundled Part A payment, and the facility’s contract determines payment to an outside supplier.

Separately reimbursed prescriptions create another incentive. A later whistleblower case against PharMerica alleged that below-cost Part A drugs bought access to profitable Part D and Medicaid business. The Hollings Manor allegation concerned an acquisition price rather than discounted drugs, but both accounts put the facility’s control of future prescription business at the center of the exchange.

The Demand and the Administrative Settlement

The Inspector General initially sought $21.8 million in civil monetary penalties and damages, together with a ten-year exclusion from federal health care programs. Those were the sanctions requested in its June 2004 demand to PharMerica Drug Systems.

The federal government’s fiscal year 2005 health care fraud report described the later agreement to pay and a five-year corporate integrity agreement with the Inspector General. The report called the payment agreement the largest civil monetary penalty kickback settlement to that date.

What Evidence Is Needed to Report Fraud?

Our experts connect the acquisition and valuation papers with ownership records, pharmacy contracts and the program payments that followed. For a pharmacy-acquisition referral arrangement, the central question is what the buyer was paying for: the pharmacy itself or the business its sellers could direct.

That is where the Hollings Manor allegation becomes concrete. We would examine how the purchase agreement described the pharmacy, how the price was justified and how the referral commitment fit into the transaction. An employee who saw the negotiations may know why a particular term mattered. Someone on the facility side may know how the pharmacy contract reached the nursing homes and who made that decision.

Supplier accounts, pharmacy claims and payer records complete a different part of the picture: which entity supplied the drugs, which entity billed and which program paid. Connecting those records to the ownership and contract documents lets us examine the commercial exchange behind the prescriptions. The useful knowledge may sit with the person who understood the deal, the person who managed the pharmacy relationship or the person who saw the resulting billing.

The California Research Bureau identified the broader blind spot in its 1997 report on the health care market:

The report also described kickbacks as payments for channeling business to another party. Hollings Manor gives that observation a specific setting: an alleged referral payment embedded in an acquisition price. The reason for examining the transaction alongside the prescription business is to understand how one allegedly bought the other.

Another Pharmacy Sale Tied to Nursing-Home Business

Omnicare allegedly paid $50 million for a small pharmacy business tied to Mariner Health Care and SavaSeniorCare’s nursing-home pharmacy commitments. The Justice Department’s February 2010 announcement described a $14 million settlement with the nursing-home companies and their principals.

The whistleblower’s complaint in the broader Omnicare case described pharmacy purchases and purported loans as ways of buying nursing-home business. Its allegation about pharmacy purchases captured the price-and-contract connection:

The parallel is the relationship between the sale price and the pharmacy contracts. The Inspector General’s Hollings Manor allegation and the Justice Department’s Mariner/Sava account both describe an acquisition payment tied to future pharmacy business. The transaction papers and the customer commitments belong in the same account of what the buyer obtained.

A different PharMerica civil case concerned dispensing drugs without prior valid physician prescriptions. That allegation concerned how the drugs reached residents and Medicare claims, separate from what PharMerica allegedly paid to obtain the facilities’ business.

How Much Does Medicare Fraud Whistleblower Pay?

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. Our whistleblower experts assess how your knowledge of the transaction and its resulting business could support a case.

You Know What the Pharmacy Deal Bought

If you saw an acquisition price tied to a nursing home’s prescription business, talk with our whistleblower experts about the deal. We help you build your strongest pharmacy kickback whistleblower case around the transaction. We bring in healthcare fraud whistleblower lawyers who understand nursing-home pharmacy arrangements and stay beside you throughout the case.