North Texas Men Indicted for Running Health Care Fraud Scheme That Caused TRICARE to Suffer More Than $65 Million Loss

DALLAS — Two north Texas men, Richard Robert Cesario of Plano, Texas, and John Paul Cooper, of Southlake, Texas, have been indicted on felony offenses stemming from a health care fraud conspiracy they ran that caused TRICARE, the U.S. Department of Defense (DOD) Military Health System that provides coverage for DOD beneficiaries, to suffer more than $65 million in losses, announced U.S. Attorney John Parker of the Northern District of Texas.

Both Cesario, 44, and Cooper, 47, were arrested yesterday morning by special agents with the Federal Bureau of Investigation.  Both made their initial appearances in federal court and were detained, pending detention hearings set for Tuesday, March 1, 2016, at 2:00 p.m., before U.S. Magistrate Judge David L. Horan.

TRICARE provides health coverage for DOD beneficiaries world-wide, including active duty service members, National Guard and Reserve members, retirees, their families and survivors.  Among other things, TRICARE provides coverage for certain prescription drugs, including certain compounded drugs that were medically necessary and prescribed by a licensed physician. 

According to the indictment that was just unsealed, Cesario founded, and both Cesario and Cooper co-owned and co-operated, CMG RX LLC. (CMGRX), a Dallas company that primarily marketed compounded pain and scar creams to current and former U.S. military members and their families on behalf of various compounding pharmacies.  Cesario served as its CEO and Treasurer and Cooper served as its President and Secretary.  Neither defendant had any medical, nursing or pharmaceutical licensing or education.  Formed in 2014, CMGRX ceased operations in mid-2015, shortly after TRICARE announced changes to its coverage of compounded drugs.

The indictment alleges that from approximately July 2014 to mid-February 2016, Cesario, Cooper and others conspired to run a scheme to defraud TRICARE in connection with the delivery of, and payment for, health care benefits, items and services, causing TRICARE to suffer an actual loss of more than $65 million. 

As part of the scheme, according to the indictment, Cesario and Cooper paid TRICARE beneficiaries $250 per month for each prescription they obtained and filled for compounded drugs, principally compounded pain creams, scar creams, migraine creams and vitamins, through one of their partner pharmacies.  They disguised these payments to TRICARE beneficiaries as “grants” for participating in a medical study they referred to as a TRICARE-approved “Patient Safety Initiative” or “PSI Study” to evaluate the safety and efficacy of compounded drugs.  In reality, the PSI Study was not approved by TRICARE, was not overseen by a qualified physician or medical professional, and was not designed to gather any useful scientific data relating to the safety and efficacy of any drug.  Its true purposed was to compile a list of TRICARE beneficiaries who had filled prescriptions so that Cesario, Cooper and their coconspirators could calculate how much to pay the beneficiaries.  Using this information, the defendants and their coconspirators compiled monthly payout lists of individuals, addresses and payment amounts. 

To disguise the source of those kickbacks to TRICARE beneficiaries, according to the indictment, Cesario and Cooper created the “Freedom From Pain Foundation” and registered it as a tax-exempt charitable foundation.  The foundation, however, was funded entirely by payments from Cesario and Cooper, or CMGRX accounts they controlled, and from November 2014 to June 2015, they paid $2,425,725.00 into the foundation.  The defendants instructed the Freedom From Pain Foundation to write checks to the TRICARE beneficiaries in amounts indicated on the payout lists.  Cesario and Cooper shared these expenses equally; each wrote checks to the Freedom From Pain Foundation for half of the total from each payout list, indicating in the checks’ memo section that it was a charitable donation.

As a further part of their scheme, the indictment alleges the defendants paid physicians $60 for each compounded pain or scar cream prescription they wrote and $30 for each compounded vitamin prescription they wrote.  Typically, the prescribing physician had no prior physician/patient relationship with the TRICARE beneficiaries for whom they wrote prescriptions.  In an effort to disguise these physician kickbacks, the defendants funneled them though the Freedom From Pain Foundation, under the false premise that the physicians were participating in the PSI Study.

The indictment alleges that Cesario and Cooper caused CMGRX to enter into marketing service agreements with various compounding pharmacies, with the compounding pharmacy agreeing to pay a percentage of their gross revenue received for CMGRX-generated claims.  In an attempt to disguise the nature of these kickbacks, Cesario and Cooper had the pharmacies make these payments as “employee wages,” even though neither Cesario nor Cooper was a bona fide employee of any compounding pharmacy.

Cesario and Cooper are each charged with one count of conspiracy to commit health care fraud, four counts of receipt of illegal remuneration and six counts of payment of illegal remuneration.  The maximum statutory penalty, upon conviction, for the conspiracy count is 10 years in federal prison and a $250,000 fine.  Each of the illegal remuneration offenses carries, upon conviction, a maximum statutory penalty of five years in federal prison and a $250,000 fine.  Restitution may also be ordered.

The indictment also includes a forfeiture allegation that would require the defendants, upon conviction, to forfeit to the U.S. any property traceable to the offense, including four homes in Plano, Frisco and Southlake, Texas; one home in Jacksonville, Florida; the funds in 18 bank accounts; 21 cars and trucks, including a Jaguar, a Maserati, a Ferrari, a Porsche, an Aston Martin and three Mercedes-Benz; two motor coaches; and one boat.

An indictment is an accusation by a federal grand jury, and a defendant is entitled to the presumption of innocence unless proven guilty.

The Federal Bureau of Investigation and Defense Criminal Investigative Service are investigating.  Assistant U.S. Attorney Douglas Brasher is in charge of the prosecution.

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