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Justice News

Department of Justice
U.S. Attorney’s Office
Southern District of Alabama

FOR IMMEDIATE RELEASE
Wednesday, March 8, 2017

Two Mobile Pain Doctors Convicted After Seven-Week Trial

United States Attorney Kenyen R. Brown of the Southern District of Alabama, is pleased to announce that a jury has convicted defendants Dr. Xiulu Ruan and Dr. John Patrick Couch of numerous felonies following a seven-week trial.

Prior to the execution of multiple search warrants by the FBI and DEA on May 20, 2015, Dr. Ruan and Dr. Couch jointly owned and operated two pain management clinics under the name Physicians Pain Specialists of Alabama (“PPSA”) as well as C&R Pharmacy.  Following an extensive joint investigation by both FBI-Mobile and DEA-Mobile, both doctors were charged with a litany of federal felony offenses, including RICO conspiracy, conspiracy to violate the Controlled Substances Act, substantive drug distribution offenses, conspiracies to commit wire fraud, mail fraud, healthcare fraud, and to violate the Anti-Kickback Statute, as well as money laundering.  All charges stemmed from the defendants’ operation of PPSA and C&R Pharmacy.
 
During the seven-week trial, the United States presented evidence that Dr. Ruan and Dr. Couch utilized PPSA and C&R Pharmacy as a criminal enterprise to violate the Controlled Substances Act and to commit mail and wire fraud, in violation of the RICO Act.  Specifically, the jury saw evidence that the defendants knowingly and willfully prescribed Schedule II and III Controlled Substances, including fentanyl, outside the usual course of professional practice and not for a legitimate medical purpose.  The United States argued the defendants’ motive for this illegal prescribing was their own financial self-interest.  The United States also argued that the defendants’ billing practices were systematically designed to unlawfully enrich the doctors.

Of particular importance in the trial were two brand name instant-release fentanyl drugs — Subsys and Abstral.  Both Subsys and Abstral are only FDA-indicated for breakthrough cancer pain in opioid-tolerant adult patients.  However, evidence showed that Dr. Ruan and Dr. Couch almost exclusively prescribed these drugs off-label for neck, back, and joint pain.  The jury found that Dr. Ruan and Dr. Couch received illegal kickbacks from Insys Therapeutics, the manufacturer of Subsys, in exchange for the defendants prescribing massive quantities of this drug.  Dr. Ruan and Dr. Couch were both among the top prescribers of Subsys in the entire United States.  Evidence showed that Dr. Ruan began donating his Insys kickback payments the day after he received a copy of a criminal complaint from the Eastern District of Michigan against Dr. Gavin Awerbuch, another prolific Subsys prescriber who had been charged with receiving kickbacks from Insys.  The United States argued that Dr. Ruan’s decision to donate his Insys money was done in an attempt to distance himself from the company.

With regard to Abstral, evidence showed that Dr. Ruan and Dr. Couch purchased approximately $1.6 million worth of stock in Galena Biopharma, the manufacturer of Abstral, and sought to manipulate the stock price by driving up Abstral sales.  From the third quarter of 2013 through the 2014, Dr. Ruan and Dr. Couch were the number one and two prescribers of Abstral in the entire United States.  During this same time period, nearly one out of every three Abstral prescriptions written in the U.S. were written by either Dr. Ruan or Dr. Couch. 

As part of their criminal enterprise, Dr. Ruan and Dr. Couch owned C&R Pharmacy, which was co-located with one of the PPSA clinic locations.   C&R Pharmacy would only fill prescriptions written by the doctors at PPSA, and Dr. Ruan and Dr. Couch split 75% of the profits that came in from the prescription drug reimbursements.  Approximately 91% of the Subsys and Abstral prescriptions written by the defendants — which cost patients’ insurance anywhere between $1,000.00 to $24,000.00 per month — were filled at C&R Pharmacy.

In addition to C&R Pharmacy, the defendants also had a worker’s compensation dispensary, from which they directly dispensed Controlled Substances.  The jury heard evidence that Dr. Ruan and Dr. Couch received guaranteed monthly kickbacks from a dispensary management company — Industrial Pharmaceuticals Management (“IPM”) and later Comprehensive Rx (“CRX”) — in exchange for the defendants dispensing certain drugs with high reimbursement rates.   These monthly guaranteed amounts reached $80,000.00 per month for Dr. Ruan and $20,000.00 per month for Dr. Couch.  The millions paid in kickbacks to the defendants associated with the worker’s compensation dispensary went into private bank accounts set up by the defendants.

While there were some patients who received legitimate medical care at PPSA, the jury heard evidence that many patients rarely saw either of the doctors, and that the nurse practitioners who treated Dr. Couch’s patients were abusing drugs at the work place and then seeing patients.   In addition, the jury heard evidence that Dr. Couch knowingly permitted one of his nurse practitioners, Justin Palmer, to forge Dr. Couch’s name on prescriptions for Controlled Substances.  Palmer testified that he forged Dr. Couch’s name approximately 25,000 times between January 1, 2011 and May 20, 2015.

Prior to trial, Justin Palmer and Bridgette Parker, both nurse practitioners for Dr. Couch, pled guilty to conspiring to prescribe Controlled Substances outside the usual course of professional practice and not for a legitimate medical purpose.  Christopher Manfuso, who worked for IPM and later owned CRX, pled guilty to conspiring to pay illegal kickbacks to the doctors.  Michael Drobot, Jr., who owned IPM at the time, also admitted to paying the defendants illegal kickbacks as part of a plea agreement in a separate case in the Central District of California.  Finally, Insys Therapeutics drug rep Natalie Perhacs pled guilty to conspiring to pay illegal kickbacks associated with the prescribing of Subsys.  Palmer, Parker, Manfuso, and Perhacs all testified during the trial.

After seven-weeks of trial, 81 witnesses, and three days of deliberation, the jury reached the following verdicts:  Both doctors were convicted of (1) RICO conspiracy; (2) Conspiracy to prescribe Schedule II and III Controlled Substances outside the usual course of professional practice; (3) Conspiracy to prescribe more than 40 grams of fentanyl outside the usual course of professional practice; (4) Conspiracy to commit healthcare fraud; (5) Conspiracy to commit mail and wire fraud; (6) Conspiracy to receive illegal kickbacks from IPM/CRX related to the workers compensation dispensary; and (7) Conspiracy to receive illegal kickbacks from Insys Therapeutics in exchange for prescribing Subsys.  Dr. Ruan was also convicted of both conspiracy and substantive money laundering counts.  Each doctor was also convicted of several substantive illegal drug distribution counts related to prescriptions written to particular patients.  Dr. Ruan was acquitted of one substantive charge related to prescriptions written for a patient.

It is believed this is the first time in United States history that a jury has convicted doctors of RICO charges related to the operation of a pill mill. 

Following their convictions, the defendants agreed to forfeit to the United States several houses, beach condos, and bank accounts, as well as 23 luxury cars, including multiple Bentleys, Lamborghinis, Mercedes, and Ferraris.  In addition to the forfeited property, each doctor agreed to an additional $5,000,000.00 money judgment. 

“We appreciate the hard work put forth by the jury as well as all the agencies responsible for this investigation.  Healthcare professionals should be held to a higher standard and a federal jury confirmed that.  This office will continue to aggressively prosecute these types of cases as they are crucial to the state of this nation’s healthcare status,” said U.S. Attorney Kenyen Brown for the Southern District of Alabama.

“The abuse of prescription drugs remains a significant problem in our communities. For the health and safety of our citizens, DEA will continue to target the illegal diversion of these pharmaceuticals, which can result in the tearing apart of families and the destruction of individual lives. It is particularly egregious when the perpetrators of such illegal acts are health care professionals, like these two doctors, responsible for ensuring that potentially dangerous drugs are dispensed properly. We hope that the convictions in this case serves as a reminder to anyone who might illegally divert pharmaceuticals that they will be held accountable for the harm they cause,” said Stephen G. Azzam, Special Agent in Charge of the Drug Enforcement Administration’s New Orleans Field Division. 

“As an agency we are extremely pleased with the jury’s verdict.   This case is an example of what can be done when federal, state, and local law enforcement work together in a common goal to ensure our country’s health care professionals are following the law when prescribing pharmaceuticals with a highly addictive nature,” said Robert Laskey, Special Agent in Charge of the Federal Bureau of Investigation, Mobile Division.

 Sentencing for Dr. Couch and Dr. Ruan will take place on May 25th and 26th, respectively.  The jury finding that the amount of fentanyl illegally prescribed exceeded 40 grams means the defendants are subject to a 60-month mandatory minimum, although their guidelines are expected to be much higher.

 This matter was jointly investigated by the DEA-Mobile and FBI-Mobile, and was prosecuted by Assistant U.S. Attorneys Christopher Bodnar and Deborah Griffin.

Updated March 8, 2017