Dallas compound pharmacy kickback case sees first plea deals

A large health care kickback conspiracy involving doctors, pharmacies and company executives has so far resulted in one civil judgment and several plea agreements, federal court records show.

The owners of Medoc Health Services LLC in Dallas is accused of bilking government health care programs out of about $2 million by steering prescriptions of compound pain creams and other medications to pharmacies in exchange for kickbacks from January 2015 through August 2016.

Three North Texas compounding pharmacies paid the kickbacks to Medoc from earnings they received from Medicare, Tricare (the military’s health plan) and the Department of Labor insurance programs, the lawsuit said. The prescriptions were written by physicians “controlled by” Medoc through various subsidiaries, the lawsuit says.

Medoc created more than 20 subsidiaries co-owned by small groups of physician-investors, the lawsuit said. Medoc paid the doctors based on the number of referrals they sent to Medoc, according to government lawyers. Medoc then sent the prescriptions to “pharmacies of its choosing” to be filled.

The Medoc defendants disguised the kickbacks they “demanded” from two of the pharmacies — Total RX Care and Midcities Pharmacy — as employee wages, authorities say. They had the pharmacies sign “sham employment agreements” with Michael Schneider, a founder and owner of Medoc who was charged in an indictment, court records show.

Also charged in indictments in early 2020 are Kevin Kuykendall, Medoc’s chief executive; Sabrina Kuykendall, his wife and Medoc’s vice president of finance; Mark Schneider, a partner; Trenton Moody, a partner; Moky Cheung, Medoc’s chief information officer; and Cuong “Michael” Nguyen, who was Total RX’s president and chief executive.

“Michael Schneider actually split the ‘wages’ he received from Total RX with his co-defendants, underscoring that the payments were not wages, but kickbacks,” the government lawsuit says.

Medoc also was paid kickbacks by a third pharmacy, Doctors Specialty Pharmacy, the government’s lawsuit says.

The government paid the three pharmacies more than $6 million “on the basis of kickback-tainted false claims,” the federal lawsuit says.

Nguyen recently agreed to a $2.2 judgment against him in the whistle-blower lawsuit, court records show.

The other defendants have denied the allegations and filed motions to dismiss the lawsuit. Their attorneys could not be reached for comment.

Kevin Kuykendall’s civil attorney, John Scully, said in his motion to dismiss that there was no intent to violate the law and “no financial incentive for the physicians to send their federal prescriptions to the pharmacies.”

“The mere growth of a pharmacy and increase of prescriptions filled is insufficient to establish that Kevin was induced to arrange for federal referrals,” Scully wrote.

Mark Schneider’s civil attorney, Mazin Sbaiti, said in a motion to dismiss that his client is named fewer than 20 times in the government’s 106-page lawsuit. Accepting federal dollars and “intending to profit” is not illegal, he wrote.

“He is always lumped in with the other ‘Medoc Defendants’ either implicitly or explicitly as if that made a difference,” Sbaiti said.

Sbaiti, who also represents Michael Schneider, wrote that the government wants to hold Michael “accountable for accepting payments from his employers, despite the statutory authorization.”

The whistle-blower, Mark Adams, filed his lawsuit against Medoc in October 2017, and the government agreed to join it and take the lead in July 2019.

Criminal indictments

The Kuykendalls and Schneiders were charged in January in a criminal indictment with seven counts of soliciting and receiving kickbacks. The allegations are almost identical to those in the civil whistle-blower lawsuit.

“Our client is looking forward to vigorously challenging these allegations in court,” Mike Uhl, criminal defense attorney for Kevin Kuykendall, said Friday.

Moody pleaded guilty last month to conspiracy to solicit and receive kickbacks in a separate criminal case. He said in his plea documents that he agreed to take part in the kickback scheme even though he thought it was “shady.”

“Moody admits that he blinded himself to the fact that Michael Schneider never intended to, nor ever did, any actual work for Total RX,” the documents say.

Cheung agreed last month to plead guilty to the same charge in a separate case. He said in plea documents that the Michael Schneider employment agreement with Total RX was a way to “paper up” the illegal kickback scheme.

Nguyen agreed Thursday to plead guilty to a lesser charge in a separate criminal case. He said in plea documents that in order to continue running his Total RX pharmacy in Rowlett, he agreed to turn over 50 percent of it to a company that was run by the same people who ran Medoc.

He also said Kevin Kuykendall instructed him to “hire” Michael Schneider in order to use Schneider’s “salary and commission” to disguise Nguyen’s kickback payments to Medoc.

The FBI raided Medoc’s offices in May 2018.

The company’s website said it provides “healthcare management services to an extensive network of top-tier ancillary service providers.”

Kevin Kuykendall has been described on online biographies as an entrepreneur who also played in the Cleveland Indians minor league system in the mid-1980s.