Physician and Office Manager Pay $450,000 to Resolve Alleged Violations of the Controlled Substance Act and the False Claims Act

LEXINGTON, Ky. — The physician and office manager of a medical practice in Jackson, Kentucky, have agreed to pay $450,000 to resolve civil allegations that the physician unlawfully prescribed controlled substances, and that they both defrauded federal healthcare programs by soliciting kickbacks for laboratory referrals.

Pablo Merced, M.D. owned and operated St. John Neumann’s Extended Hours Clinic, a medical practice in Jackson, Kentucky.  His wife, Theresa Merced, worked as St. John Neumann’s office manager.  In his practice, Dr. Merced referred laboratory testing to several laboratories, including Physicians’ Medical Center, BIOTAP Medical, and Bluewater Toxicology.  Dr. Merced also prescribed controlled substances to his patients at his medical practice.

As set forth in the settlement agreement, the United States alleged that Dr. and Mrs. Merced solicited kickbacks from a lab sales representative, in exchange for Dr. Merced’s referrals of laboratory tests to Physicians’ Medical Center, BIOTAP Medical, and Bluewater Toxicology, from April 2016 to November 2021.  The sales representative paid cash directly to the Merceds and to multiple laboratory specimen collectors who worked at St. John Neumann’s.  The specimen collectors, who were supposed to only work for the labs, also performed office work at St. John Neumann’s.

The Anti-Kickback Statute prohibits giving cash and in-kind payments, such as free office work, to induce medical providers’ referrals for services paid by federal healthcare programs. Medicare, Kentucky Medicaid, and TRICARE programs paid more than $9 million for laboratory tests referred by Dr. Merced.  Submission of these tainted claims violated the False Claims Act, a federal law that prohibits knowingly submitting a false claim for reimbursement to federal programs.

The United States also alleged that Dr. Merced violated the Controlled Substances Act, by writing invalid prescriptions.  The Controlled Substances Act, which was passed to combat the illegal distribution and abuse of controlled substances, requires a prescription for Schedule II controlled substances to be issued for a legitimate medical purpose, by a licensed practitioner acting in the usual course of his professional practice.  Dr. Merced pre-signed 94 blank prescriptions and permitted unauthorized individuals to complete and issue those prescriptions for controlled substances to patients in his absence, which is outside the usual course of professional practice.

Dr. and Mrs. Merced agreed to pay the United States $450,000, as part of an ability-to-pay settlement, to resolve the allegations of False Claims Act and Controlled Substances Act violations.  Dr. Merced further agreed to a 15-year voluntary exclusion from federal healthcare programs and to refrain from reapplying for a registration with the U.S. Drug Enforcement Administration, which he surrendered during the investigation.

“This case involved two important principles:  averting the submission of false claims to federal programs and preventing the irresponsible distribution of addictive controlled substances,” said Carlton S. Shier, IV, United States Attorney for the Eastern District of Kentucky.  “Eastern Kentucky has been hard hit by the drug epidemic.  And with the assistance of our partners, this case highlights our commitment to reducing that suffering, and holding professionals accountable for improperly depleting critical government resources and recklessly dispensing addictive drugs.”

"HHS-OIG is dedicated to investigating medical providers who undermine federal health care programs and jeopardize patient welfare by submitting false or fraudulent claims,” said Special Agent in Charge Kelly J. Blackmon with the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG). “Health care professionals have a responsibility to bill accurately for services and prescribe controlled substances responsibly."

“Dr. Merced’s reckless behavior in this case demonstrated a clear violation of the Controlled Substances Act,” said Acting Special Agent in Charge Erek Davodowich, head of DEA’s Louisville Division. “Doctors who operate outside of accepted medical guidelines can pose a threat to the health of their patients and should expect to meet the full weight of the justice system.”

This settlement is part of a larger case brought under the qui tam provisions of the False Claims Act, which returned more than $7.3 million to federal programs.  The civil case is captioned United States ex rel. Clark et al. v. United States Medical Scientific, LLC, et al., Case No. 0:18-cv-109-KKC, which the court recently unsealed for public access on September 23, 2024.

The Government’s work in this investigation illustrates its commitment to combatting health care fraud, waste, and abuse, as well as its continued emphasis on combating the prescription opioid crisis.  Tips from all sources about potential fraud, waste, and abuse can be reported to the U.S. Department of Health and Human Services, at 800-HHS-TIPS (800-447-8477).  Anyone with concerns about prescription drug diversion can report them to the DEA by submitting a tip at https://www.dea.gov/submit-tip.

The settlement agreement resulted from the joint efforts of the United States Attorney’s Office for the Eastern District of Kentucky, the U.S. Department of Health and Human Services, Office of Inspector General, the U.S. Drug Enforcement Administration, and the Kentucky Attorney General’s Office of Medicaid Fraud and Abuse Control.  The United States was represented by Assistant U.S. Attorney Meghan Stubblebine.  The claims resolved by the settlement are allegations only, and there has been no determination of liability.

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