“It’s Okay, These Products Aren’t Paid for by Medicare” – Think Again

Newsletter

A recent Securities and Exchange Commission (“SEC”) settlement with DMK Pharmaceuticals Corporation (“DMK Pharmaceuticals”) and its Chief Financial Officer (“CFO”) serves as a good reminder that SEC-regulated entities prescribing, buying, or selling goods and services not payable by Medicaid or Medicare, like veterinary drug manufacturers and pharmacies (or those in the human drug supply chain that “carve out” government programs), can still face penalties for kickback arrangements under federal securities laws.

As a quick refresher, the Anti-Kickback Statute prohibits remuneration to induce referrals or business for items or services, like prescription drugs, that are payable by Medicare, Medicaid or other federal healthcare programs. Businesses sometimes reduce the risk of Anti-Kickback Statute enforcement by excluding products or services reimbursed by federal programs from incentive programs. This model, however, does not fully insulate businesses from possible federal actions related to kickbacks. In this case, the SEC alleged that between 2016 and 2021, DMK Pharmaceuticals, through its CFO, engaged in a fraudulent consulting agreement with a veterinarian who wrote illegal prescriptions for compounded medications in exchange for kickbacks. The SEC alleged that representatives for US Compounding, DMK Pharmaceuticals’ wholly owned subsidiary, submitted orders for equine medications that inaccurately listed the veterinarian as the prescriber despite the veterinarian not having a veterinarian-client-patient relationship in violation of the Food, Drug, and Cosmetic Act. Additionally, in violation of state law, the SEC stated the veterinarian lacked a license to practice veterinary medicine in many of the states where products were dispensed.

Under the agreement, the veterinarian was purportedly compensated through an hourly consulting rate of $100, but in reality, the parties had a side agreement where the veterinarian was paid a 10% commission on revenue generated from the illegal prescriptions. This arrangement was responsible for generating the majority of DMK Pharmaceuticals’ revenue during the five-year period. The CFO allegedly disguised this revenue by falsifying DMK Pharmaceuticals’ annual reports, SEC filings, and internal accounting records.

On January 14, 2025, the SEC released its Cease and Desist Order announcing its settlement with DMK Pharmaceuticals and its CFO for violations of several antifraud, reporting and bookkeeping, and internal accounting control requirements under the federal securities laws including the Securities Act of 1933, Securities Exchange Act of 1934, and Exchange Act Rules. Pursuant to the Order, DMK Pharmaceuticals and its CFO must cease and desist from causing further violations of the federal securities law, pay $334,314 in disgorgement and prejudgment interest, and the CFO is permanently barred from acting as an officer or director of a public company or from appearing or practicing before the SEC as an accountant.

Since this kickback scheme involved prescriptions for equine medications, which are not payable by federal health care programs, DMK Pharmaceuticals did not face Anti-Kickback Statute enforcement. However, this case highlights that even where the Anti-Kickback Statute may not apply, kickback schemes for prescription drugs may still trigger violations under the federal securities laws.

If you have any questions regarding this settlement agreement, please contact your Quarles attorney or:

Follow Quarles

Subscribe Media Contact
Back to Main Content

We use cookies to provide you with the best user experience on our website and to analyze statistics related to our website. To understand more about how we use cookies, or for instructions to change your preference and browser settings, please see our Privacy Notice. Please note that if you choose to reject cookies, doing so may impair some of our website's functionality.