Senator Raises Concerns About Medicare Fraud at 'Phantom Pharmacies'

Grassley Says Sebelius has ignored warnings about fly-by-night drug stores.

Apr. 5, 2010 — -- Federal health officials have failed to police the emergence of phantom pharmacies – fly-by-night storefront operations that bill millions of dollars in false Medicare bills and then vanish -- according to Sen. Charles Grassley.

The Iowa Republican wrote to Health and Human Services Secretary Kathleen Sebelius Monday to ask why complaints about what he termed "phantom pharmacies" have repeatedly gone unanswered by her agency.

" In recent months, one private insurer approached my office with concerns over the lack of responsiveness by HHS when presented with credible evidence that fraudulent pharmacies were defrauding Medicare," Grassley wrote.

"These pharmacies included empty store fronts, apparently without customers, that nonetheless billed millions of dollars to private insurers."

Grassley included in his letter several examples of allegedly fraudulent operations, most of them based out of Florida and California. According to his aides, the scam starts when a phony pharmacy operator tricks unsuspecting patients – often seniors or immigrants -- into turning over their Medicare billing information. This information is then used by the start-up pharmacy to submit phony reimbursement requests to the federal government. After rushing to collect claims, the pharmacies shut their doors before the fraud can be discovered.

"A Los Angeles area pharmacy billed $1.3 million under the Part D program in a period of 18 months, more than double the Rite Aid pharmacy blocks away," Grassley's letter asserts.

One Miami pharmacy recovered $245,000 in suspect claims from the government in less than three months. The owner subsequently abandoned the facility "and bought a one-way ticket to Europe, where he is at large," Grassley 's letter said.

A spokesman for Sebelius, Peter Ashkenaz, told ABC News "we are reviewing the letter, which was just received, and will take immediate and appropriate action to investigate these allegations."

In his letter, the senator wrote that he only became aware of the problem after an investigator for an insurance company approached him. The insurer, whom Grassley does not identify in his letter, told Grassley that he spent a year trying to bring evidence of the criminal behavior to the attention of investigators at HHS.

"This situation is troubling on so many levels," Grassley wrote. "I am disturbed by the cavalier attitude of the Department. Why would the Department fail to respond to these red flags?"

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