A Pennsylvania judge has dismissed a lawsuit by insurance company Liberty Mutual against nine pharmacies and more than a dozen doctors over allegations that the physicians were receiving unlawful kickbacks when they prescribed compound creams in workers' compensation cases from the pharmacies in which they had ownership stakes.

Philadelphia Court of Common Pleas Judge Gary Glazer, who leads the Commerce Court program, granted summary judgment to the pharmacies in Liberty Mutual Group v. 700 Pharmacy, finding that the plaintiffs failed to show that the pharmacies' ownership structure or the physicians' "self-referrals" were unlawful.

The ruling dismissed the case entirely and clears the pharmacies.

The insurance companies argued that the structure of the pharmacies in which the physicians held minority ownership stakes provided a means for the defendants to be paid alleged kickbacks for the prescriptions, but Glazer said the carrier gave no evidence that the Pharmacy Act had been violated.

"Physician ownership is not prohibited by the Pharmacy Act as long as the practitioner holding a proprietary or beneficial interest in the pharmacy does not exercise supervision or control over the pharmacist in his professional responsibilities and duties," Glazer said. "The evidence shows that the interest owned by the physicians is not more than 49%, a percentage which has been approved by the Pharmacy Board."

He also noted that the physicians referring patients to pharmacies they partly owned also disclosed their ownership stakes to the patients.

Havertown attorney Daniel Siegel, who represented the pharmacies, said his clients were pleased with the ruling.

"We thought it was exactly the right decision," he said.

Styliades Mezzanotte & Hasson attorney William Sweeney, who represented Liberty Mutual, declined to comment. A spokesman for the carrier said "Liberty Mutual Insurance does not publicly discuss litigation."

The lawsuit was filed after the National Insurance Crime Bureau launched an investigation on the heels of a report by another insurance company that was not a party to the complaint. The report alleged that one of the pharmacies named in the case had been auto-filling compound pain cream prescriptions every 30 days, whether or not the patient needed the prescription filled. Liberty Mutual, according to Glazer, also investigated a claim that another pharmacy filled questionable compound medications. Specifically, the "letters of medical necessity" that were identical in some instances, and the doctors making the prescriptions had ownership stakes in the pharmacy.

The NICB expanded its investigation to several other pharmacies and the pharmacies' CEO, but, Glazer noted, the agency closed its investigation in January 2018.

According to Glazer, the plaintiffs filed the lawsuit in September 2017, alleging common-law fraud, insurance fraud, unjust enrichment and aiding and abetting. In total, the lawsuit made claims against 18 doctors, nine pharmacies, nine pharmacists, three lay investors and two physician assistants.

Glazer noted that, to show there was misrepresentation underlying the fraud claims, Liberty Mutual argued, among other things, that the "letters of medical necessity" contained misrepresentations, since they were form letters without explaining the specific reason for why the particular combination of medication was more appropriate for the specific client. Glazer, however, said those issues had already been decided through the workers' compensation administrative process.

"The utilization reviewers, based on the reasonable and necessary standard, made the decision to pay or not pay the claims," Glazer said. "This court will not second-guess decisions made in that process and will not decide reasonableness and necessity on those claims which were not submitted for a utilization review but could have been."

He further rejected Liberty Mutual's argument that the dividends paid to the investor-physicians were kickbacks.

"The evidence shows that the pain creams were billed at the average wholesale price, a price which is standard within the industry and paid based on plaintiffs use of the standard fee schedules," Glazer said. "As such, while the dollar amount of the dividends paid to the investors is great, the court does not find the dividend payment to be a 'kickback.'"

Read the opinion: