United States v. Blair

Decision Date23 September 2021
Docket NumberCRIMINAL ELH-19-00410
CourtU.S. District Court — District of Maryland

Ellen L. Hollander United States District Judge

Matthew Blair, defendant, owned and operated a now defunct pharmacy Blair Pharmacy, Incorporated (“Pharmacy”), which dispensed compounded drugs and creams. Blair, who is not a pharmacist, was indicted on August 27, 2019 (ECF 1) and later charged with multiple offenses in a 23-page Superseding Indictment filed on March 3, 2020. ECF 20. He is accused inter alia, of devising a scheme to defraud federal health care programs and insurance companies and with laundering the funds that he derived from his scheme.

In particular, Counts One through Twenty-One charge wire fraud committed between October 2014 and April 2015, in violation of 18 U.S.C. § 1343; Counts Twenty-Two through Twenty-Eight charge aggravated identify theft, in violation of 18 U.S.C. § 1028A(a)(1) and (b); Counts Twenty-Nine through Thirty-Three charge payments of remuneration, in violation of the Anti-Kickback Statute (“AKS”) 42 U.S.C. § 1320a-7b(b); and Counts Thirty-Four through Thirty-Six allege money laundering, in violation of 18 U.S.C. § 1957.[1] In addition, the Superseding Indictment seeks forfeiture. See ECF 20 at 21-23.

In a fierce and vigorous challenge to the charges, the defense has filed a steady stream of motions. In particular, the Court considers here the following defense motions: Motion To Dismiss Count 29 Of Superseding Indictment For Failure To State An Offense (ECF 37); Motion To Dismiss Counts 29 to 33 of Superseding Indictment As Impermissibly Vague” (ECF 38); Defendant's Omnibus Motion To Dismiss Counts 30 to 33 of Superseding Indictment As Constitutional Violations” (ECF 39); Defendant's Motion To Strike Certain Allegations In Paragraph 35 And Certain Alleged Loss Amounts In Superseding Indictment” (ECF 40); Defendant's Motion . . . To Dismiss Count 29 For Failure To State An Offense” (ECF 108); Defendant's Partial Motion To Dismiss Counts 6, 8, 9, 12-14, 16-19, and 21 of the Indictment And To Strike Related Paragraph 27 For An Improper Grand Jury Presentation or, Alternatively, Motion For Production of Certain Portions of Grand Jury Transcripts ....” (ECF 119).[2]

The government filed combined oppositions to the motions, docketed at ECF 49 and ECF 129. With respect to the Motion to Dismiss Count 29 (ECF 37), the defendant's reply is at ECF 63; the government's supplemental reply is at ECF 78; and Blair's supplemental reply is at ECF 93. And, the government's notice of supplemental authority is at ECF 100.

As to the Motion to Dismiss Counts 29 to 33 (ECF 38), the defendant's reply is at ECF 64. With respect to the Motion to Dismiss Counts 30 to 33 (ECF 39), defendant's reply is at ECF 65. And, the defendant's reply to the Motion to Strike (ECF 40) is at ECF 62. With leave of court (ECF 70), the government filed a surreply at ECF 73. Defendant responded at ECF 102, and the government again replied at ECF 105. As to defendant's Motion to Dismiss Count 29 for failure to state an offense (ECF 108), defendant's reply is at ECF 140. With respect to the motion to dismiss docketed at ECF 119, the defense reply is at ECF 139.

As to the motions set forth above, the Court held a hearing on August 6, 2021, at which argument was presented. For the reasons that follow, I shall deny ECF 37; ECF 38; ECF 39; ECF 108; and ECF 119. As to ECF 40, the government has agreed to strike the loss amounts in paragraphs 25-27 and 34 of the Superseding Indictment. Therefore, I shall deny that portion of ECF 40 as moot, and deny the remainder of ECF 40.

I. Summary of Criminal Allegations[3]

In 2014, Blair opened the Pharmacy in Timonium, Maryland. The Pharmacy, which was not a retail business, closed in November 2017. As noted, Blair is not a pharmacist. ECF 20, ¶ 16.

The Pharmacy “primarily dispensed compounded drugs and creams.” Id. ¶ 2. “Compounding” is a practice by which a licensed pharmacist combines drug ingredients “to create a drug tailored to the need of an individual patient.” Id. ¶ 5. Compounded drugs are not FDA approved, but may be prescribed by a physician when an FDA-approved drug does not meet the health needs of a patient. Id. ¶¶ 5, 6.

In order for a pharmacy to be reimbursed by an insurance company or a federal health care benefit program for a compounded medication, it must be dispensed pursuant to a valid prescription and medically necessary for the treatment of a covered illness or medical condition. Id. ¶ 7. Health care benefit programs reimburse pharmacies that dispense compounded medications based on the average wholesale price of the individual ingredients contained within the compounded medication. Id. ¶ 13.

The Superseding Indictment alleges that from October 1, 2014 to June 1, 2015, Blair engaged in a scheme to defraud health insurance companies and health care benefit companies, including Blue Cross Blue Shield (“BCBS”) and TRICARE, a federal health care benefit program that provides benefits to members of the military, retirees, and their families. Id. ¶¶ 911, 14, 23. In particular, Blair allegedly sought and obtained reimbursement for compounded drugs based on fraudulent pretenses, representations, and promises that the drugs were authorized by physicians, medically necessary, dispensed for medical purposes, not based on reimbursement rate, and contained the amount and specific ingredients that were billed to the health care benefit programs. Id. ¶ 15.

According to the Superseding Indictment, in connection with the scheme to defraud, Blair created modified compound drug prescription forms with modified lists of chemical ingredients. Id. ¶ 20. He paid independent sales marketers, such as Atlas Group, LLC (“Atlas”), to market his compounded drugs and provide his prescription forms to doctors. Id. ¶ 21.[4] And, he paid Atlas a “remuneration, ” in the form of a percentage of any successfully reimbursed claim that Atlas referred to the Pharmacy. Id.

As mentioned, Blair submitted the reimbursement claims to insurance companies and health care benefit providers, including BCBS and TRICARE. In doing so, he used an internetbased software program to submit online reimbursement claims. Id. ¶¶ 3, 22, 23. The claims that Blair submitted for reimbursement included a doctor's name and National Provider Identity number, although it is alleged that not every prescription was authorized by a physician or medically necessary. Id. ¶ 24.

According to the Superseding Indictment, from December 1, 2014, through August 30, 2015, Blair submitted reimbursement claims to health care benefit programs for a base ingredient called Sterabase, but he did not actually dispense the ingredient. Id. ¶ 25. Further, Blair allegedly caused the compounded drugs related to those claims to be filled and dispensed by the Pharmacy with a different base ingredient-Lipoderm and Lipo Max. Id. And, he allegedly received reimbursement totaling $2, 987, 000 from health care benefit programs “related to these invalid and misbranded” ingredients. Id. In addition, Blair allegedly conducted a similar scheme with other compound chemical ingredients or medications, in which he billed for more of the product than was actually dispensed. These drugs included Gabapentin, “Vitamin Formula #1, ” and “Vitamin Formula #2.” Id. ¶¶ 26-34.

Moreover, as part of the scheme, Blair allegedly “failed to bill for and collect copayments and coinsurance from beneficiaries of health care benefit programs, ” despite contractual agreements requiring him to do so. Id. ¶ 35. According to the Superseding Indictment, Blair “engaged in this conduct for the purpose of: inducing prescriptions to be filled at his pharmacy; concealing the cost of repeated copayments and coinsurance; reducing patient complaints regarding copayments and coinsurance; and reducing patient visibility and complaints regarding his pharmacy's dispensing process and the high cost of his compounded drugs.” Id.

The government has made significant discovery disclosures to the defense. See, e.g., ECF 49 at 8. Between September 2019 and November 2020, the government provided at least 140GB of data. Id. And, the government has advised that discovery has been supplemented. In addition, the government has already produced some materials subject to the Jencks Act, 18 U.S.C. § 3500. Id. at 8-9.[5]

II. Anti-Kickback Statute

Counts 29 through 33 charge Blair with violations of the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b). Because several defense motions pertain to the charges under the AKS, I pause to review the relevant portions of the statute.

The AKS is “designed to prevent” fraud and abuse in connection with federal health care programs, including Medicare and Medicaid. United States v. Patel, 778 F.3d 607, 612 (7th Cir. 2015). It “was enacted to ‘protect the Medicare and Medicaid programs from increased costs and abusive practices resulting from provider decisions that are based on self-interest rather than cost, quality of care, or necessity of services.' Id. (citation omitted). In addition, the AKS seeks ‘to protect patients from doctors whose medical judgments might be clouded by improper financial consideration.' Id. (citation omitted).

Section 1320a-7b(b) of 42 U.S.C. was enacted in 1977, when Congress amended the Social Security Act by adding the Medicare-Medicaid Anti-Fraud and Abuse Amendments. See United States v. Shoemaker, 746 F.3d 614, 626 (5th Cir. 2014) (citing H.R. Rep. No. 95-393, pt. 2, at 44 (1977)); United States v. Shaw, 106 F.Supp.2d 103, 110 (D Mass. 2000). The amendment sought to address the “disturbing degree [of] fraudulent and abusive practices associated with the provision of...

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