By Carl O'Donnell, Tim Reid and Caroline Humer
NEW YORK/LOS ANGELES (Reuters) - OptumRx, a leading U.S. pharmacy benefits manager, began to stop payments to a pharmacy closely-linked to Valeant Pharmaceuticals International <VRX.N> more than a year ago after recognizing billing irregularities, former employees at the pharmacy and sources familiar with the matter told Reuters.
Hatboro, Pennsylvania-based Philidor Rx Services persisted in efforts to secure reimbursement for Valeant drug sales even after receiving a cease-and-desist order from OptumRx, one of its largest revenue sources, in September 2014, two sources familiar with the matter said. OptumRx is owned by UnitedHealth Group <UNH.N>.
In response, Philidor submitted claims to OptumRx for Valeant drugs using the identification numbers of at least four other affiliated pharmacies, these sources said.
Philidor's business practices are at the heart of fraud allegations posed in late October by Citron Research's Andrew Left, an influential short-seller in Valeant stock. Valeant had already come under scrutiny for charging high mark-ups on drugs made by companies it has acquired.
Its ties to Philidor, which surfaced two weeks ago, have led investors to question Valeant's legal liabilities and future prospects, sending its shares down 45 percent. Valeant has denied Left's accusation that it used Philidor to inflate its revenue. But it prompted the drugmaker to disclose that it paid Philidor $100 million for an option to acquire the company in December, raising questions of what it knew of Philidor's practices.
OptumRx's September cease-and-desist letter cited a breach of its contract with Philidor, the sources familiar with the matter said. It isn't clear what billing irregularities caused OptumRx to send the letter, the sources said.
In the months that followed, OptumRx recognized that drug reimbursement claims filed with the identification numbers of four other pharmacies could be traced to Philidor, the sources said. Starting in January, OptumRx sent cease-and-desist letters to the pharmacies, which worked in a network run by Philidor, the sources said.
Spokespeople for both Valeant and Philidor declined to comment.
"OptumRx works every day to protect the interests of our customers and members," said OptumRx spokesman Matt Stearns. "That is why we began terminating Philidor from our networks months ago, and why we monitor closely the practices of all the pharmacies with whom we do business."
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Philidor primarily dispenses Valeant drugs directly to patients, and then presses payers like OptumRx to cover the cost, contributing nearly 6 percent of Valeant's total revenue so far this year. The company said last week it will sever ties to Philidor and set up an internal committee to review the allegations regarding Valeant's business relationships with Philidor.
The Wall Street Journal reported that a Philidor training manual from a year ago instructed employees to use another pharmacy's identification number to file claims with insurers who don't have a contract with the pharmacy.
In interviews with Reuters, former employees and sources familiar with the matter said that the practice was also applied to OptumRx, which had a contract on reimbursement to Philidor. It continued at least into early 2015, after Valeant had purchased the option to buy Philidor, giving it the right to name certain employees and be on a joint steering committee with its distribution partner.
One former Philidor employee said he was informed by his manager in the fall of 2014 that OptumRx was not taking Philidor claims. The employee was told to bill the benefits manager using the National Provider Identification number - unique identifiers issued by the government – of West Wilshire Pharmacy in Los Angeles. By early 2015, Philidor was also using the NPIs of R&O Pharmacy LLC in Camarillo, California, and of SafeRx in South Plainfield, New Jersey, to bill OptumRx.
"Our main approach was to use West Wilshire's NPI," said a second former employee. "We would sometimes still try to do it with Philidor's NPI, but we were pretty much always turned down, at which point we would use West Wilshire's."
Philidor asked its employees not to discuss its dealings with OptumRx in emails, and devoted special training sessions to how to successfully bill OptumRx after it began rejecting Philidor claims, the former employees said. A fourth pharmacy whose NPI was used to bill OptumRx was Orbit Pharmacy in Houston.
Orbit referred questions to Philidor's general counsel, Gretchen Wisehart. Wisehart did not respond to requests for comment. Calls to West Wilshire and SafeRx went unanswered. West Wilshire was the first pharmacy to receive a cease-and-desist letter, in January, the sources familiar with the matter said. Shortly afterward, OptumRx conducted an unannounced inspection of R&O Pharmacy in California where it determined that R&O was working with Philidor and was in the process of being acquired by a Philidor affiliate, the sources said.
OptumRx issued a cease and desist letter barring R&O from doing business with the benefits manager, the sources said. R&O has accused Philidor of fraudulently using its NPI to dispense drugs that R&O doesn't stock.
According to California pharmacy law, a state-licensed pharmacy can fill prescriptions on behalf of another pharmacy, but it must be clearly documented to patients that the state-licensed pharmacy is the one providing the medication.
(Reporting by Carl O'Donnell and Caroline Humer in New York, Tim Reid in Los Angeles; Editing by Michele Gershberg and John Pickering)