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Justice News

Department of Justice
U.S. Attorney’s Office
Central District of California

FOR IMMEDIATE RELEASE
Wednesday, August 26, 2020

Monterey Park Man Sentenced to Nearly 3 Years in Prison for Role in $62 Million Compounded Medication Scam that Targeted TRICARE

          SANTA ANA, California – A San Gabriel Valley man was sentenced today to 34 months in federal prison for fraudulently submitting more than $62 million in claims to the military’s TRICARE health care benefit program for bogus compounded medications prescriptions largely generated by the payment of large referral fees to marketers.

          James Chen, 51, of Monterey Park, was sentenced by United States District Judge David O. Carter, who also ordered Chen to pay $28,283,844 in restitution. Chen pleaded guilty in June 2017 to one count of health care fraud.

          Chen owned Clevis Management, Inc., a Commerce-based company that did business under the name Haeoyou Pharmacy (HY). HY hired marketers to obtain prescriptions for medications that were billed to TRICARE, a health care benefit program for military members and their families. HY also operated “Healtharchy.com,” a “telemedicine” website through which individuals could seek prescriptions for medications without being examined by a physician.

          Under Chen’s supervision, HY paid referral fees to outside businesses, including Mission Viejo-based Trestles RX LLC and Trestles Pain Management Specialists LLC, and to his own in-house marketers to obtain compounded medications prescriptions. The referral fees constituted more than 50 percent of the net reimbursements that HY received from TRICARE.

          Compounding medication is a practice where a physician or pharmacists alters the ingredients of a drug or multiple drugs to create a medication tailored to an individual patient, such as if a patient is allergic to a specific ingredient in a medication approved by the Food and Drug Administration.

          Chen knew that none of the prescriptions arose from a bona-fide physician-patient relationship, as required by TRICARE rules. Chen also knew that a substantial number of the prescriptions were sent to HY from marketers, not physicians, though the claim forms falsely indicated otherwise. HY never attempted to collect copayments from patients, who were selected at random and denied ever seeking the compounded medications, which were of questionable medical value. All the medications were for generic pain, scarring, stretch marks, erectile dysfunction, or “metabolic general wellness” (vitamins), according to court documents.

          During 2013, Chen submitted zero claims to TRICARE for reimbursement for filling compounded medication prescriptions. In Decembr 2014, his company submitted 31 such claims to TRICARE for $81,401. During the first five months of 2015, HY submitted 2,798 such claims to TRICARE seeking a total of $62,654,938.

          The claims HY submitted to TRICARE for each compounded medication prescription were astronomical compared to previous claims that HY typically submitted for reimbursement. A claim to TRICARE for a single compounded medication prescription caused TRICARE to pay HY $194,707.

          Chen and his co-schemers targeted TRICARE because few, if any, insurance carriers at the time would honor reimbursement claims for similar prescriptions.

          This matter was investigated by the Defense Criminal Investigative Service; the FBI; Amtrak’s Office of Inspector General; IRS Criminal Investigation, the Office of Personnel Management’s Office of Inspector General; the U.S. Department of Health and Human Services – Office of Inspector General; the U.S. Department of Labor, Employee Benefits Security Administration; and the California Department of Insurance.

          This case was prosecuted by Assistant United States Attorney Mark Aveis of the Major Frauds Section.

Topic(s): 
Health Care Fraud
Contact: 
Ciaran McEvoy Public Information Officer United States Attorney’s Office Central District of California (Los Angeles) (213) 894-4465
Press Release Number: 
20-156
Updated August 26, 2020