July 17, 2012 -- Four dozen people have been charged in one of the largest drug-diversion schemes ever, a federal prosecutor said Tuesday. The alleged Medicaid fraud is estimated to have cost taxpayers a half-billion dollars.
"The defendants worked a fraud on Medicaid, 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," said Preet Bharara, U.S. Attorney for the Southern District of New York.
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.
The fraud started on the streets of New York City, where AIDS patients sold pricey drugs they received for free through Medicaid.
"People with real ailments were induced to sell their medications on the cheap rather than take them as prescribed," said Janice Fedarcyk, Assistant Special Agent in Charge of the FBI field office in New York.
Buyers would pay $50 for medicine that cost Medicaid $650 per bottle.
"In any population there may be people who, notwithstanding the fact that they need to take medication, are willing to sell that medication if they're in dire straits," Bharara said.
Over seven years, according to court documents, the criminals exploited 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.
Authorities said they dismantled a "national, underground market" for some of the most expensive drugs available to treat HIV, schizophrenia and asthma. The pills ended up in Texas, Florida, Nevada, Utah and Alabama. From there they were resold to pharmacies across the country.
The pills were kept in uncontrolled and sometimes egregious conditions.
"End users of the diverted drugs were getting second-hand medication that may have been mishandled, adulterated, improperly stored, repackaged and expired," Fedarcyk said.
Among the medicines allegedly resold by Medicaid patients were Zyprexa, an antipsychotic, and the HIV drugs Atripla, Trizivir, Prezista, Reyataz, Isentress, Intelence, Kaletra, Sustiva and Truvada.
The FBI has asked anyone who may have purchased second-hand prescription drugs to call an FBI hotline at 212-384-3555.
Roger Sergel and Bruce Geryk contributed to this report.