Anything for a Buck: How the DOD is Going After Corruption

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Pulitzer Prize Winning Journalist Walter Pincus is a contributing senior national security columnist for The Cipher Brief. He spent forty years at The Washington Post, writing on topics from nuclear weapons to politics.  He is the author of Blown to Hell: America's Deadly Betrayal of the Marshall Islanders (releasing in November 2021)  He also won an Emmy in 1981 and the 2010 Arthur Ross Award from the American Academy for Diplomacy.

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OPINION — If corruption arising from the use of U.S. funds by the Afghan government and security forces was one of the reasons for U.S. failure in that country, is it time to take a closer look at criminal activities associated with defense spending here at home?

I looked at the Defense Department Inspector General (DODIG) website last Friday and saw that it reported on six criminal and civil cases involving Pentagon funds in the first six days of October. One involved over $10 million in false medical prescriptions that were filed with Tricare, the Defense Department’s $15 billion-a-year health care program. Two others involved more than $800 million in price-fixing drugs for Tricare.  Two more involved false claims on products sold to the Navy, and another there was another case over stolen military personnel records that were used to obtain $1.5 million from veterans.

There was more: In the last two days of September, DODIG reported closing two cases, one that involved David Laufer, the former Chief of the Prosthetics and Orthotics Department at Walter Reed Medical Center, who had pleaded guilty to accepting gratuities from a contractor who received $25 million in contracts, and another case where two individuals conspired illegally to bill Tricare for close to $15 million.

In the DODIG’s last semi-annual report covering September 1, 2020 to March 31, 2021, Acting DODIG Sean W. O’Donnell reported his office had “completed 237 criminal investigations [in those six months], some conducted jointly with other law enforcement organizations, resulting in 93 arrests, 126 criminal charges, 125 criminal convictions, $233.6 million in civil judgments and settlements, and $63.9 million in criminal fines, penalties, and restitution.”

Is this the price of having a Defense Department whose budget is running above $700 billion a year, or is this another sign, as we are seeing in politics, that something is going wrong in our democracy?

Tricare, like Medicare, is a major, multi-billion-dollar pool of money that is a favorite target for criminal activity in the U.S.

On October 1, the DODIG website reported on a multi-year investigation into three drug companies that the Justice Department said – from 2013-to-2015 – violated the False Claims Act by conspiring to fix prices for various generic drugs resulting in higher prices for both Tricare and Medicare federal health programs.

Taro Pharmaceuticals produces drugs for pain and arthritis and others for skin infections; Sandoz Inc., drugs treated hypertension and skin conditions; and Apotex Corporation drugs are used to treat high cholesterol.

Back in July 2020, the three entered into deferred prosecution agreements with the Justice Department’s Antitrust Division to resolve related charges of antitrust price-fixing.  Taro paid a penalty of $205.6 million, Sandoz paid $195 million and Apotex $24.1 million.

In the October 1, civil suit settlement for that price-fixing, Taro paid another $213.2 million, Sandoz another $185 million, and Apotex another $49 million.

Altogether, the three have paid $872 million in fines, so one can imagine how much money in sales to Medicare and Tricare were originally involved.

Special Agent in Charge Patrick J. Hegarty of the Defense Criminal Investigative Service, Northeast Field Office, said in a press release, “When pharmaceutical corporations artificially inflate prices, they undermine the integrity of Tricare and place an unnecessary financial burden on the program.”

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Another Tricare criminal action involving some $15 million in illegal billings, was closed in late September with the guilty plea of Donald Peter Auzine, a marketing manager for a Louisiana firm that produced so-called compounded medications — drugs combined, mixed, or altered by licensed pharmacists and practitioners to meet the specialized needs of individual patients.

In that case, Auzine was believed to have gotten other marketers outside of Louisiana “to find beneficiaries that were willing to receive medically unnecessary compounds and doctors willing to prescribe compounds without medical necessity,” according to a Justice Department press release on the case. According to DOJ, Auzine “would pressure the pharmacists to fill prescriptions for beneficiaries where no doctor-patient relationship existed. He also aided in the creation of the prescription pads that had the highest value prescription.”

“Beginning in or around March 2014, and continuing through in or around April 2016, Prime Pharmacy dispensed prescriptions for High-Yield Compounded Medications to beneficiaries of Tricare and other health care benefit programs that were not medically necessary, induced by
kickback payments,” according to a DOJ press release.

In another September case, Jonah Miller, who had pleaded guilty on July 15, to one count of conspiring to commit health care fraud, was sentenced to over eight years in federal prison for defrauding Tricare of approximately $19.4 million.

A Justice Department release said Miller “recruited Tricare beneficiaries to order expensive, medically unnecessary compound drugs from a Broward County, Florida pharmacy. In furtherance of the scheme, DOJ said that Miller paid doctors to approve pre-printed prescriptions for excessive amounts of the expensive drugs without regard to the beneficiaries’ actual medical needs. The resulting investigation found that the drugs were formulated to maximize profit without legitimate therapeutic value.

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On September 30, Frederick Brown, a former civilian medical records technician with the U.S. Army 65th Medical Brigade, based in South Korea, admitted he stole personal identifying information of thousands of military members, including names, Social Security numbers, military ID numbers, dates of birth and contact information by taking digital photographs of his computer screen while he was logged into a military electronic health records database.

He provided the stolen data to a Philippines-based co-defendant and others, “who used
the information to access DOD and Veterans Affairs benefits sites and steal millions of dollars,” according to a Justice Department release. The scheme, according to the release, targeted more than 3,300 military-affiliated individuals, including at least eight general officers as well as numerous disabled veterans, who were chosen because they received greater service-related benefits.

Brown was sentenced to 151 months in prison, ordered to pay $2.3 million in restitution and be placed on supervised release for a period of three years after completing his prison term.

Of course, there were other types of settlements that first week of October.

On October 6, the Crane Company, a long-time defense contractor, agreed to pay $4.5 million to resolve civil suit allegations brought by a former Crane employee whistleblower, that it failed to supply high-performance parts in butterfly valves it sold to the Navy. The government alleged the parts “had not been approved for use by the Navy and [Crane] failed to disclose these modifications,” according to a Justice Department release.

The former Crane employee, under qui tam or whistleblower provisions of the False Claims Act, received $855,728 for having originally brought the lawsuit on behalf of the U.S. Government.

In another whistleblower case, “the Airbus U.S. Space & Defense Inc., agreed to pay to the United States $1,043,475 to resolve allegations that it violated the False Claims Act by billing impermissible fees in contracts with a number of federal agencies,” according to a Justice Department release of October 4.

In this case, according to DOJ, Airbus charged an additional fee to the government that came from its own affiliate on top of its own fee related to parts acquired from that affiliate. It also allegedly charged a third-party contractor an excessive fee to store a radar system purchased as part of a U.S. Navy contract, but then passed along the full storage charges to the Navy without disclosing it had paid only a portion of the fees.

In this case, the whistleblower received $157,220 of the False Claims Act settlement.

Surveying this handful of cases disclosed on the DODIG website from the first week of October may not be an indication of increased corruption associated with our increased defense spending. But these few cases surprised me in their exposure of what some people are willing to do to make money off the government.

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Pulitzer Prize Winning Journalist Walter Pincus is a contributing senior national security columnist for The Cipher Brief. He spent forty years at The Washington Post, writing on topics from nuclear weapons to politics.  He is the author of Blown to Hell: America's Deadly Betrayal of the Marshall Islanders (releasing in November 2021)  He also won an Emmy in 1981 and the 2010 Arthur Ross Award from the American Academy for Diplomacy.

View all articles by Walter Pincus

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