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a ‘second- Hand’ Drug Ring Bust

R.H. Locals Among 48 Cuffed For Fraud Scheme

A prescriptionsecond-hand” drug trafficking and fraud scheme has been busted in a joint city/federal investigation, leading to charges against 48 people including two Richmond Hill residents, the U.S. Attorney for the Southern District of New York announced on Tuesday, July 17.

U.S. Attorney Preet Bharara, Janice K. Fedarcyk, the Assistant Director in-Charge of the New York Field Office of the FBI, NYPD Commissioner Ray Kelly and Human Resources Administration (HRA) Commissioner Robert Doar, made the joint announcement of the unsealing of charges detailing the defendants’ participation in the trafficking of hundreds of millions of dollars’ worth of prescription drugs that had previously been dispensed to Medicaid recipients in the New York City area, commonly known as “second hand” drugs, in a national underground market.

As a result of the fraud, Medicaid lost more than an estimated $500 million in reimbursements for pills that were diverted into this black market.

Thirty-four of the defendants were arrested this morning in connection with the charges; 15 were taken into custody in New York and New Jersey, and an additional defendant from the area was expected to surrender later Tuesday. Nineteen more were arrested in Pennsylvania, Massachusetts, Florida and Texas. The remaining 14 defendants are at large.

Among those arrested were Luis Santana and Bayohan Diaz of Richmond Hill, who were charged with conspiracy to commit wire, mail and healthcare fraud. They each face up to 20 years in prison if convicted.

“As alleged, these defendants ran a black market in prescription pills involving a double-dip fraud of gigantic proportions. It worked a fraud on Medicaid-in some cases, two times over-a fraud on pharmaceutical companies, a fraud on legitimate pharmacies, a fraud on patients who unwittingly bought second-hand drugs, and ultimately, a fraud on the entire health care system,” Bharara said in a Tuesday statement. “With the dozens of arrests we made today, we have taken a significant step toward exposing and shutting down the black market for second-hand drugs, and our investigation is very much ongoing.”

“It’s one thing when people sell their blood for money; it’s another when they sell their drugs, especially when the diversion compromises the pharmaceutical supply with tainted and outdated drugs,” added Kelly.

The prescription drugs involved in the scheme were drugs designed to treat various illnesses, including HIV, schizophrenia, and asthma, among others, and were non-controlled substances that did not lend themselves to abuse.

These second-hand drugs were originally dispensed to Medicaid recipients in the New York City area who then sold them into collection and distribution channels that ultimately ended at pharmacies, for resale to unsuspecting consumers.

The defendants and their co-conspirators profited by exploiting the difference between the cost to the patient of obtaining the prescription drugs through Medicaid, which was usually nothing, and the hundreds of dollars per bottle that pharmacies paid to purchase those drugs to sell to their customers. In order to maximize their profits, they targeted the most expensive drugs, which often cost more than $1000 per bottle.

The fraud scheme

The lowest level participants in the scheme (the “Medicaid Beneficiaries”) were typically AIDS patients or individuals who suffered from other illnesses that required expensive drug therapies.

Using their Medicaid benefits to cover the cost, the Medicaid Beneficiaries filled prescriptions for monthlong supplies of drugs at pharmacies throughout the New York City area and then sold them to “collectors” for cash instead of using them for treatment.

These transactions occurred at street corners and bodegas in and around New York City, including in the Washington Heights neighborhood of Manhattan and in the Bronx.

Collectors then sold the secondhand bottles to higher level participants in the scheme (called “aggregators”), who typically bought large quantities of second-hand drugs from multiple collectors.

These transactions repeated themselves at increasingly higher levels of aggregators who purchased the drugs from multiple, lower level aggregators.

The pills were ultimately sold to wholesale prescription drug distribution companies, which then sold them to pharmacies and to other wholesale prescription distribution drug companies across the country.

Ultimately, these pharmacies then dispensed the second-hand drugs to unsuspecting customers, some of whom likely were Medicaid beneficiaries. Therefore, in some cases, Medicaid would have reimbursed patients for the same drugs twice-the second time for drugs that were misbranded, adulterated and possibly expired- and would therefore have been defrauded twice.

The defendants charged include collectors, aggregators, and owners and operators of the corrupt distribution companies who were carrying out this scheme in states including New York, New Jersey, Pennsylvania, Florida, Texas, Massachusetts, Utah, Nevada, Louisiana, and Alabama.

In addition, several defendants were also charged with narcotics trafficking offenses for buying and reselling drugs including Oxycodone and Oxymorphone.

The labeling scheme

Because the prescription drugs involved in the scheme were not drugs that were usually abused and were ultimately going to be resold in the legal drug distribution chain, it was essential that they be packaged in bottles that appeared to contain new drugs that came directly from the manufacturer, via authorized and licensed wholesale distributors.

Therefore, the defendants and their co-conspirators had to restore the previously dispensed bottles to their original appearance, with the manufacturer’s label still intact, but without the patient labels that pharmacies affix when dispensing drugs to a patient.

After purchasing the second-hand bottles originally dispensed to Medicaid beneficiaries, the defendants and their co-conspirators used lighter fluid and other means to dissolve the adhesive on the patient labels so that they could be removed.

During the process, the manufacturers’ labels sometimes became damaged, and the second-hand drugs were found to be close to their expiration dates or already expired. When the bottles were not re-saleable because of damaged manufacturers’ labels or expiration date problems, some of the defendants replaced the original manufacturers’ labels with counterfeit labels or altered the labels to backdate their expiration dates.

Some of these counterfeit prescription drug manufacturers’ labels were obtained by two of the defendants from the Dominican Republic. In other instances, the defendants and their co-conspirators removed the drugs from the bottles and trafficked in loose pills, which were then completely untraceable.

E-mails obtained by search warranta revealed that some of the defendants bought and sold more than $62 million worth of second-hand prescription drugs during an approximately 12-month period during the conspiracy, which they meticulously documented in a businesslike manner through purchase orders and receipts scanned onto their computers and uploaded into email accounts.

The second-hand pills

The second-hand pills that found their way back into the legal drug distribution stream were potentially dangerous to the unwitting consumers who purchased them for several reasons.

For example, the defendants and their co-conspirators stored the drugs in uncontrolled conditions, such as car trunks, residences, and rented storage facilities, which would have compromised the medical efficacy of the drugs over time.

During the investigation, the FBI seized more than $16 million worth of second-hand prescription drugs, comprised of more than 33,000 bottles and more than 250,000 loose pills, kept in uncontrolled and sometimes egregious conditions by various defendants and their co-conspirators.

Bharara thanked the efforts of the FBI, NYPD and HRA for their work on the case, as well as the New York FBI Health Care Fraud Task Force, which is comprised of agents, officers, and investigators from the FBI, NYPD, the state Insurance Fraud Bureau, U.S. Department of Labor, U.S. Office of Personnel Management Inspector General, U.S. Food and Drug Administration, the state Attorney General’s Office, the state Office of Medicaid Inspector General, the state Health and Hospitals Inspector General and the National Insurance Crime Bureau.

The case is being prosecuted by the Office’s Organized Crime Unit. Assistant U.S. Attorneys Jason A. Masimore and Russell Capone are in charge of the prosecution. Assistant U.S. Attorney Alexander Wilson of the Office’s Asset Forfeiture Unit is responsible for the forfeiture of assets.

It was noted that the charges contained in the dndictment and the complaint are merely accusations, and the defendants are presumed innocent until proven guilty.

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