In this episode, a struggling pharmacy gets an offer that sounds like a lifeline. But behind the paperwork sits a fake employee, a one-letter code, and a scheme that billed federal insurance programs nearly $11 million. Who finally pulled the thread?
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Welcome to the all things internal audit fraud, where things are not always what they seem.
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Each episode brings you a fictionalized fraud story inspired by real events with plenty of twists, red flags, and lessons for internal auditors along the way.
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Prescription for fraud.
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Part 1, the pitch.
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Pinnacle Health Advisors presented itself as the quiet fixer behind the scenes.
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It was a healthcare consulting firm that connected compounding pharmacies with physician networks.
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At the center of Pinnacle were four people: co-founding brothers Elwood and Marcus Stanton, Elwood's wife Renee, the vice president of finance, and Elwood's son Derek.
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Together, they controlled the decisions that mattered.
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In late 2015, the Stanton brothers saw an opportunity in Robert Callahan, the owner of Meridian Rx, a small infusion pharmacy struggling to stay open.
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Pinnacle's proposal sounded like a lifeline.
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Meridian Rx would shift from infusion medications to compounded medications custom-prepared from raw ingredients.
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Pinnacle would send prescriptions through its physician network.
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Meridian Rx would fill them.
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Then the two companies would split the profits evenly.
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On paper, there was one important boundary.
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The agreement excluded prescriptions covered by U.S.
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federal government healthcare programs, including Medicare, Medicaid, and Tricare.
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That detail mattered.
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Federal programs are covered by the U.S.
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Anti-Kickback Statute, which makes it a felony to receive payment for referring federally funded prescriptions to a particular pharmacy.
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So at first, Pinnacle and Meridian kept the arrangement to private payer business, but everyone knew where the real money was.
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Part 2, the employee who wasn't.
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To move into federal program prescriptions without making it look like Meridian Rx was paying Pinnacle directly for referrals, Elwood directed Callahan to put Derek Stanton on the pharmacy's payroll.
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On paper, Derek had a job at the pharmacy.
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He earned a base salary of $30,000 a year, except Derek did not work at the pharmacy.
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He did not report to Meridian management.
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He did not perform pharmacy duties.
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He was there as a payment channel.
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For every federal program prescription Pinnacle sent to Meridian Rx, Derek received a 45% commission.
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Then Derek funneled those payments back to the Pinnacle principles.
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The arrangement needed a paper trail, but not one that said the quiet part out loud.
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So the conspirators created a code.
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Prescriptions covered by government insurers were labeled with the prescribing physician's name followed by the letter T.
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That single letter helped them track which prescriptions triggered kickbacks without writing kickback anywhere near the transaction.
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From there, money moved through shell entities.
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Payments were divided and disguised until the original purpose became harder to see.
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Then Pinnacle found a second pharmacy.
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Beginning in late 2016, landmark specialty compounding joined the arrangement.
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This time, payments were disguised as fees to a newly formed entity called Crestview Partners.
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The explanation was simple, marketing services.
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But the purpose was familiar.
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Two pharmacies, multiple entities, different paperwork, same scheme.
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By the time the arrangement collapsed,
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Pinnacle and the two pharmacies had submitted nearly $11 million in claims to federal insurance programs and collected approximately $6 million in payments.
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Part three, the lawsuit that pulled the thread.
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The unraveling did not begin with a regulator noticing a strange code in a spreadsheet.
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It began with Daniella Rourke.
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a commercial real estate broker who had done business with Pinnacle.
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Roark filed a whistleblower lawsuit under the U.S.
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False Claims Act.
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Her complaint laid out the pharmacy relationships, sham employment, coded prescriptions, shell companies, and payments moving through them.
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That lawsuit caught the attention of federal authorities.
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The FBI and the U.S.
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Department of Health and Human Services Office of Inspector General began investigating.
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Over the next few years, investigators gathered records, interviewed witnesses, and traced money through the entities Pinnacle had created.
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In 2021, a federal grand jury indicted Pinnacle's principals and several pharmacy co-conspirators.
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All 7 defendants pleaded guilty.
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Elwood Stanton, who directed the fraud, was sentenced to 36 months in prison and ordered to pay $4.2 million in restitution.
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Renee Stanton received probation and the same restitution amount.
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Marcus Stanton was sentenced to 15 months in prison.
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Derek Stanton, the employee who was not really an employee, received 14 months.
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The pharmacy owners received prison sentences ranging from 10 to 14 months.
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The civil case continued too.
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With assistance from the U.S.
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Attorney's Office, Rourke's False Claims Act lawsuit produced more than $4 million in additional settlements and judgments.
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The Pinnacle case is a reminder that fraud does not always hide in missing receipts or fake invoices.
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Sometimes it hides in a job title.
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Sometimes it hides in a one-letter code.
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Sometimes it hides in a company created just in time to receive payments no one wants to explain too clearly.
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And sometimes the person who sees it first is not a regulator or an auditor.
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It is a business associate close enough to the deal to understand what the documents are really saying.
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You've been listening to all things internal audit fraud, featuring fictionalized accounts inspired by actual events and brought to you by the Institute of Internal Auditors.
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IIA members can find the full story in this month's issue of Internal Auditor Magazine, along with bonus materials and lessons learned.
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Visit internalauditor.theia.org to read more.
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For additional fraud resources, including guidance and thought leadership from the IIA and the ACFE, visit theiia.org/fraudresources.
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Thanks for listening.
