National Respiratory Services LLC (NRS) was ordered to pay restitution in the amount of $2 million by U.S. Senior District Judge Charles R. Simpson, III for committing health care fraud, announced David J. Hale, United States Attorney for the Western District of Kentucky.

According to the plea agreement, between June 2006 and June 2008, Christopher Keegan, while owner and majority shareholder of NRS, along with Johnny Perry, then vice president of NRS, and others caused compounded medications that were adulterated and misbranded through interstate commerce to patients, in violation of the Food Drug and Cosmetic Act. NRS provided compounded medications to patients but led both Medicare and the patients’ doctors to believe that the pharmaceutical company was providing non-compounded medications (FDA-approved, commercially manufactured).

“The conduct of National Respiratory Services and the individual defendants involved in this scheme was a fraud not only against Medicare but upon patients and their doctors,” United States Attorney Hale. “Misbranding the potency of medication puts patients at risk without their, or their doctors’, knowledge. Today’s proceeding ends a dangerous practice.”

The drugs provided by NRS were misbranded inhalation drugs in that they contained false and misleading labeling that misrepresented the strength and potency of their active ingredients or the type of drug actually provided. Further, NRS through Keegan, Perry, and others, then submitted to Medicare false and fraudulent billings that indicated that the medications they were providing to patients were non-compounded and FDA-approved when they were not. The total loss of this activity is $2,030,343.11.

Compounded medications are not FDA approved, but FDA regulations permit pharmacists to make compounded drugs, including prescription drugs, in limited amounts and under narrow circumstances for particular patients and at the direction of a physician when other available drugs cannot be prescribed.

Johnny Perry pleaded guilty to four counts of a felony indictment and received a sentence of three years’ probation with eight months' home incarceration. Perry was ordered to pay restitution of $2,030,343.11 to the Centers for Medicare and Medicaid Services, jointly and severally with other co-defendants.

Former NRS pharmacists Leo Parrino and Linda Schmidt pleaded guilty to introducing compounded inhalation drugs that bore false and misleading labeling and represented them to be of greater strength and potency than they actually were. Parrino pleaded guilty to the charge on September 8, 2011, and was sentenced by U.S. Magistrate Judge James D. Moyer to one year of probation and restitution in the amount of $14,098.24. Schmidt was sentenced to one year probation and restitution in the amount of $20,000.

Co-defendant James Rives, a former minority shareholder of NRS, pleaded guilty to a federal misdemeanor Information and agreed to a restitution payment of $75,996.85. As a result of the plea agreement, the United States will not pursue felony charges of conspiracy to commit health care fraud against Rives for the activity he engaged in during the period of 2006 through 2008 while defendant Rives was associated with NRS.

Christopher Keegan pleaded guilty to a federal misdemeanor information and agreed to a restitution payment of $2,030,343.11 to the Centers for Medicare and Medicaid Services, jointly and severally with other co-defendants.

The case was prosecuted by Assistant U.S. Attorney Lettricea Jefferson-Webb and investigated by the Food and Drug Administration Office of Criminal Investigations, Health and Human Services Office of Inspector General, United States Postal Inspection Service, and the Federal Bureau of Investigation.