Tennessee clinic swindled military out of $65M: How it got caught

by NCN Health And Science Team Posted on February 11th, 2019

Doctors at Choice MD prescribed needless medicinal cream, costing more than $14,000 per prescription, to California Marines they had never met.

Bill Schneid stood in his home office, holding a package of skin cream worth more than gold. He didn’t know exactly what he had stumbled on, but he was pretty sure it was illegal.

It was March 2015. A few weeks before, Schneid, 72, a curmudgeonly private investigator, had been snooping around Southern California military bases when a Marine he knew mentioned he had a strange source of side income.

The Marine was being paid to get medicine he didn’t need. A Tennessee doctor he had never met wrote him a medicinal cream prescription, which was being filled by a pharmacy in Utah. The military covered the bill and the Marine got a cash kickback from somebody. When the creams arrived in the mail, the Marine didn’t actually use them.

He was in it for the money, not the medicine, after all.

Suspicious, Schneid launched a ruse to investigate, persuading the Marine to reroute the shipments to his house. Soon, Schneid received a shoebox-sized parcel that held several tubes of cream about the same size and consistency as sunscreen that was supposedly used to treat pain and scars.

This medicine had been prescribed, supplied and delivered seemingly for no reason at all. Nobody needed it. Nobody wanted it. So what was the point?

“After the second delivery, I realized this was some kind of fraud,” Schneid said in an interview. “I believed there were about a dozen Marines involved, and they were being actively recruited to be prescribed this cream.

“It was a conspiracy, and it was growing, but I just didn’t know how huge.”

Today, court records make clear the enormity of the conspiracy. The scheme that Schneid stumbled upon in 2015 stretched from California to Tennessee, involving people and companies from at least four states. In Tennessee, two doctors and a nurse practitioner have pleaded guilty to defrauding a military insurance program, called Tricare, out of $65 million. At least two more suspects are still facing charges. Federal prosecutors also are attempting to seize swaths of East Tennessee farmland, a strip mall, and a large estate they argue was purchased with health care fraud profits.

Outside Tennessee, an ex-Marine in San Diego has confessed to recruiting Marines for the scheme and a Utah pharmacy company is under indictment. That company is also linked to an even larger scheme in Mississippi, where seven people have pleaded guilty to using similar medicinal creams to defraud the federal government out of an additional $400 million.

“It was just a setup to pay cash to patients and then turn around and prescribe them this expensive cream,” said Jerry Martin, a former U.S. attorney who specializes in health care fraud.

Martin reviewed the pain cream case at the request of The Tennessean, calling the conspiracy “extraordinarily brazen.”

“If these allegations are true, that is just a criminal enterprise,” he added. “There is just nothing legitimate about it.”

Pain creams cost $14,500 – each

In Tennessee, the crux of the cream conspiracy was Choice MD, a small, now-shuttered clinic in Cleveland, a manufacturing town near the Georgia border.

A Choice MD nurse practitioner, Candace Michelle Craven, has admitted she conducted fake telemedicine evaluations with Marines in California so that two Choice MD doctors, Susan Vergot and Carl Lindblad, could write nearly 4,500 cream prescriptions to Marines they had never met or diagnosed.

Each prescription cost about $14,500. American taxpayers covered the cost.

Vergot and Lindblad pleaded guilty to conspiracy to commit health care fraud in April, and Craven pleaded guilty in November. But all three are still licensed to practice medicine in Tennessee. Their sentencing hearings have been delayed until March, likely to provide time for them to testify against other suspects in the case.

Steven Moore, an attorney who represents Vergot and Lindblad, said the doctors knew the prescriptions “weren’t right,” but were unaware of the larger conspiracy.

“It wasn’t their scam,” Moore said. “They just kind of buried their heads in the sand, and that’s why they’ve taken responsibility by entering a plea. … But it’s important to know they aren’t the big fish here.”

“It wasn’t their scam … they aren’t the big fish here.”

Steven Moore, attorney for Susan Vergot and Carl Lindblad
The big fish – or at least a bigger fish – are the owners of Choice MD, Jimmy and Ashley Collins, of Birchwood, Tennessee. Federal prosecutors have indicted the couple and are attempting to seize four of their properties that authorities say were bought with profits from the prescription scam.

One of those – a 4,500-square-foot mansion on a 60-acre estate with an ornate iron gate emblazoned with a large “C” – was bought by Ashley Collins for $843,000 with money directly traced to fraud earnings, federal court documents state.

The Collinses, who have pleaded not guilty, are accused of using kickbacks to create a fake customer base for their prescriptions. Court documents say they led a network of prescription recruiters who targeted Marines around Camp Pendleton, often by convincing the Marines they were joining a drug trial for the pain and scar creams. Marines were paid about $300 in illegal kickbacks each month, court records state.

The leader of these recruiters was Joshua Morgan, a former San Diego Marine who pleaded guilty to his role in the conspiracy in February. Morgan was at one time roommates with the Marine at the beginning of this story, who is not being named because he has not been charged with any crime.

Prosecutors have filed charges against CFK Inc., the parent company of The Medicine Shoppe, a pharmacy in Bountiful, Utah, that made millions from the Choice MD prescriptions. Prosecutors say the pharmacy was bought by CFK in December 2014, then the business model changed overnight.

The pharmacy’s billings to Tricare, which once amounted to about $40 apiece, rose to an average of more than $13,000. During the first five months of 2015, The Medicine Shoppe billed Tricare for $67 million.

Court documents identify the owners of the pharmacy by only their initials – W.W. and T.S. – but business records appear to reveal the full names of at least one. CFK is owned by another company, Walters Holdings LLC, which in turn is owned by Mississippi businessman Wade Walters.

Walters is the subject of a criminal investigation in a separate but similar case in Mississippi where authorities have raided at least three of his pharmacies and arrested 12 people, including four pharmacists, a doctor, an oral surgeon and two nurse practitioners. Seven of the accused conspirators have confessed, another was convicted at trial, and at least three more are expected to go to trial this year.

Officials with federal and state agencies conducted court-authorized law enforcement activity in March at businesses throughout the state, including some in Hattiesburg. (Photo: File/Gannett Mississippi)

Walters has not been indicted in either case, but prosecutors have frozen his assets.

“To maximize profits from the fraud scheme, the pharmacies created their own demand for compounded medications,” prosecutors say in court records. “The pharmacies illegally engaged a series of marketers to provide incentives to doctors to write prescriptions for compounded medications and divert patients to the pharmacies.”

To understand the details of this Tricare fraud, The Tennessean reviewed and cross-referenced hundreds of pages of court documents from 15 separate federal court cases, including criminal prosecutions, search warrants, forfeiture proceedings and a whistleblower lawsuit that Schneid filed in an effort to collect a reward for his discovery.

Schneid’s attorneys would not permit him to comment for this story, but a Tennessean reporter previously interviewed Schneid and inspected the medicinal creams at his home in 2015.

Court records unsealed last year reveal that the federal investigation into Choice MD officially began three weeks after Schneid discovered and reported the suspicious prescriptions, showing he may have kicked off the entire criminal investigation.

A Tricare investigation begins

Not long after Schneid began receiving the cream packages in the mail in 2015, he decided to warn the government about what he had found.

Sitting in his messy home office, surrounded by paperwork from his long career as a private investigator, Schneid tapped out an email to Tricare’s fraud department, saying he had uncovered a “fraudulent multi-level marketing scheme.”

A Tricare representative responded a few hours later, believing that Schneid had found a routine “phishing” scam designed to steal his private information, according to email records obtained by The Tennessean. Schneid wrote back, insisting Tricare was missing the point.

“It’s deeper than that,” Schneid wrote. “(The Marine) makes a percentage of the commission as do the others that signed him up.”

Suddenly, the government started listening.

Federal prosecutors are attempting to seize this shopping center in Cleveland, Tenn., which they say was bought by Jimmy and Ashley Collins with millions defrauded from the military. (Photo: Brett Kelman/The Tennessean)

In a matter of days, Schneid had guests on his doorstep. Eleanor Gailey, an inspector from the Department of Defense’s Office of the Inspector General, flew to California to inspect the creams, emails show. She was accompanied by officers from the Naval Criminal Investigative Service, which investigate crimes in the Marine Corps.

In an interview, Schneid said authorities would not reveal exactly what he had stumbled upon, but he agreed to help anyway. They made a plan: Schneid would continue to play dumb, receiving the Marine’s cream prescriptions in the mail, then he would wrap the packages in evidence tape and hand them over to the NCIS. He did this for a few months until the prescription ran out and the cream stopped coming.

Then, in May 2015, it became clear what was going on.

That was when CBS News published an investigation revealing a Tricare loophole that appeared to be costing taxpayers millions, if not billions, of dollars. The CBS investigation said military troops across the country were being prescribed “cure-all” medicinal creams that did next to nothing but cost taxpayers a fortune every month.

The creams were marketed as “compounded” medication. Compounding is a practice in which a pharmacist mixes several medicines into one to create a treatment tailored for a specific patient. Because every mix is unique, compounded medicines are not reviewed by the Food and Drug Administration and often cost much more than standard medicine. As of 2015, Tricare covered the full cost of compounded medicine for active-duty troops.

“We’re on track this year to spend over $2 billion unless we get our hands around this,” said Maj. Gen. Richard Thomas, then-head of Tricare, in the 2015 CBS report. “It’s just been astronomical, an explosion of the charges in a relatively short period of time.”

Schneid’s jaw dropped as he watched the CBS report.

He thought over all the clues he had seen in the last three months – the unnecessary creams, the cash kickbacks, the Tennessee doctors, the Utah pharmacy and the abrupt interest from federal inspectors.

Suddenly it all made sense.

“I had thought it was just this very localized fraud,” Schneid said. “It wasn’t until then I understood the enormity of this thing.”

The Choice MD conspiracy is far from the only cream scheme to take advantage of Tricare’s compounded medical loophole. In June, the U.S. Department of Justice announced it had charged 601 suspects in a nationwide health care fraud investigation into dozens of similar but unconnected fraud schemes, many of which used compounded medications and kickbacks to swindle Medicare, Medicaid or Tricare. The investigation was called the largest health care fraud investigation in American history.

The U.S. Attorney’s Office declined to comment for this story, citing ongoing investigations in Tennessee, California and Mississippi. Attorneys for Walters, Craven, Ashley Collins and CFK either declined to comment or did not respond to calls and emails requesting comment. Jimmy Collins currently does not have an attorney and could not be reached for comment.

Image: From left, Dr. Carl Lindblad, nurse practitioner Candace Craven and Dr. Susan Vergot have pleaded guilty to defrauding the military out of $65 million as part of a pain cream kickback scheme. This photo has been edited to protect the identity of an uninvolved person.

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