Conspirators in a South Jersey health insurance fraud ring targeting state employees, which federal prosecutors say led to $50 million in illegal claims for compounded medications, followed the playbook of many of the similar schemes happening around the country.
“Right now there is absolutely a crisis of it,” said attorney David Lieberman, an attorney at the Whistleblower Law Collaborative in Boston, who represents clients under the False Claims Act. The Act allows the federal government to prosecute fraud against its entities.
Of the nearly $4 trillion spent annually on health care in the United States, the National Health Care Anti-Fraud Association estimates anywhere from 3 to 10% — tens of billions of dollars — is a result of fraud.
CAMDEN — The chief executive officer of a Louisiana pharmacy used by numerous individuals to…
Last month, Haley Taff, the chief executive officer of Central Rexall, a century-old Louisiana compounding pharmacy that shuttered in 2016, became the 31st person to plead guilty in the South Jersey fraud case pending in U.S. District Court in Camden. In all, 41 people have been charged. The first sentence was handed down in June.
The defendants have included area teachers, firefighters, pharmaceutical sales representatives and doctors.
While the methods of defrauding health care programs are common across the nation, New Jersey’s case has its own unique twist.
CAMDEN — Three more people, including a Somers Point doctor and a Linwood man, were indicted…
“This is actually one of the first ones that I’ve seen that exclusively targets state employee benefits,” Lieberman said, noting that a primary target is usually TRICARE, the government’s health insurance for the military.
In South Jersey’s case, the fraud allegedly involved recruiters, more than a dozen of their subordinates and at least two out-of-state pharmacies that conspired to defraud the New Jersey state health benefit plan by having public employees submit claims with their health insurance provider for specially made, or “compounded” medications, which they didn’t really need.
Compounded medications, which are unregulated by the FDA, are specially formulated by pharmacists for patients with allergies to specific ingredients.
According to the bevy of plea agreements in this case, the conspirators had capitalized on the fact that New Jersey’s State Health Benefits Plan and School Employee Health Benefit Plans both generously reimbursed pharmacies for these medications. Prosecutors say the ring collected the reimbursements, using some of the profit to pay kickbacks to doctors and employees who’d submitted the prescription.
Data from the U.S. Attorney’s Office shows that last year there were 485 health care fraud cases filed in federal court.
What makes prescription fraud, particularly related to compounded medications, so appealing is the way they are reimbursed by insurers and the flexibility pharmacies have to set the price.
According to a U.S. Government Accountability Office report on TriCare’s reimbursement practice, the agency said that non-FDA-approved “bulk” drugs — typically raw powders — drove a significant rise in prescription costs between 2004 and 2013, from $5 million to $259 million during those years.
The Defense Health Agency attributed the high cost to “several factors,” including the significant artificial inflation of the price by the manufacturers.
This led to an industry of pharmacists building drugs designed specifically around reimbursement costs and not if they actually help people, similar to what Taff pleaded guilty to in August, according to court documents. Taff’s attorney J. Garrison Jordan of Hammond, Louisiana, did not respond to a request for comment.
Central Rexall was suspended by the Defense Health Agency in April 2015 for having filled faulty prescriptions for compounded drugs to patients with TRICARE, the military health insurance company, an accusation the pharmacy denies, court documents show. The pharmacy sued the DHA to have its TRICARE claims paid. The litigation was settled out of court in 2019, according to federal court records.
Central Rexall was also named in a June 2017 affidavit for a search warrant used to raid Linwood endocrinologist James Kauffman’s medical office in relation to a health benefits fraud and murder investigation.
According to the Kauffman affidavit, Atlantic County Prosecutor’s Office subpoenaed records from pharmacy benefit manager Express Scripts and found that between January 2015 and June 2016, Kauffman prescribed 750 compounded medications; more than 650 were from Central Rexall Drugs. Each charge was for more than $5,000, and there were multiple instances of a script being prescribed to multiple patients on the same day, the affidavit states. Kauffman was never charged in the prescription fraud ring, but was charged in the murder of his wife before dying by suicide in Hudson County Jail.
The Hammond, Louisana, pharmacy, owned by Don Fellows and his daughter, Taff, closed Dec. 30, 2016, after compounding medications for more than 120 years, filling prescriptions for patients all over the U.S., according to its website.
Lieberman’s colleague at the Whistleblower Law Collaborative, Bruce Judge, a former federal prosecutor with more than two decades’ experience in fraud cases, said the inclusion of an out-of-state pharmacy shows the depth of the fraud happening in South Jersey.
“What that indicates is that the federal law enforcement has been investigating this in a way that’s expanded significantly the scope of the criminal activity,” Judge said. “And it also highlights the scale, the dollar amounts that were being generated through this compounding pharmacy scheme that, in this case, was victimizing the public employee plan for the state of New Jersey.”
Although the South Jersey fraud ring made a lot of money, Lieberman characterized the conspirators as a “fly-by-night, borderline criminal network” that probably has little means to pay it back other than from property seizures. He and Judge agreed that recouping all of the money in this case would be nearly impossible.
Combating this type of fraud is also difficult.
“There are two ways they get caught. One is what we do. We have people of conscience come to us and say this is wrong I know it’s wrong what do we do about?” Lieberman said of his own work. “The other is increasingly the government is running analytics on its own claims.”
Lieberman said regulations that prohibit the reimbursement of non-FDA-approved drugs helps to stem this kind of fraud.
“There are reimbursement changes that can be made to minimize this, but the other driver of this is the kickback piece. That is illegal and that’s solved by cracking down on these really egregious kickback examples,” Lieberman said.
Atlantic County Prosecutor Damon G. Tyner said his office continues to investigate this same fraud on a local level.
“We continue to work with our federal law enforcement partners. Upon the conclusion of the matter on the federal level, we will pursue those individuals who have violated state law,” Tyner said.
Contact: 609-272-7251 CLowe@pressofac.com Twitter @clairelowe.
Who has been charged in the prescription fraud case?
Kristie Masucci
Kristie Masucci, of the Cedar Run section of Stafford Township, a former pharmaceutical representative from Ocean County was sentenced in August 20, 2019, to 24 months in prison, three years probation and faces restitution of more than $1.8 million.
Masucci served as a recruiter from January 2015 through February 2016, persuading individuals in Atlantic County and elsewhere with state benefits to obtain medically unnecessary compounded medications from an out-of-state pharmacy. She admitted to receiving $388,608 for her role in the conspiracy.
Matthew Tedesco
Matthew Tedesco, 42, of Linwood, leaves the U.S. District Court for the District of New Jersey in Camden after pleading guilty to committing conspiracy to commit health fraud charges. Thursday, August 17
Matthew Tedesco, of Northfield, a pharmaceutical sales representative, was the first to plead guilty to health care fraud charges in this case in August 2017. Tedesco also recruited patients to request expensive, unneeded drugs, without having seen a doctor, according to his plea.
Robert Bessey
Robert Bessey, of Philadelphia, a gym floor installer, agreed to forfeit $485,540 and pay restitution of at least $2.7 million.
Steve Urbanski
Steve Urbanski and his wife leaves Federal Court in Camden on Friday. August 18, 2017 (Craig Matthews / Staff Photographer)
Steve Urbanski, a pharmacological broker, served as a recruiter in the conspiracy. As part of the plea agreement, Urbanski will forfeit more than $113,668 and pay restitution of $752,291.
Michael Pepper
Michael Pepper, of Northfield, a retired Atlantic City firefighter, pleaded guilty to conspiracy to commit health-benefits fraud. As part of the plea agreement, Pepper will forfeit $113,627 and pay restitution of $719,481.
Thomas Hodnett
Thomas Hodnett, of Voorhees, a pharmaceutical sales representative, served as recruiter in the conspiracy. Hodnett agreed to forfeit more than $269,966 and pay restitution of $1.5 million.
John Gaffney
John Gaffney, then 47, of Linwood at Atlantic City International Airport in Egg Harbor Township. Wednesday November 4, 2009
John Gaffney, of Linwood, a Margate doctor, pleaded guilty to conspiracy to commit health-benefits fraud. According to court documents, Gaffney signed more than 200 unnecessary prescriptions for teachers, police and firefighters covered under the NJ Direct insurance plan.
Judd Holt
Judd Holt, of Marlton, a Burlington County pharmaceutical representative, pleaded guilty to separate charges of conspiracy to commit health care fraud. Holt defrauded health-insurance plans of more than $769,000 and must forfeit more than $95,000.
George Gavras
George Gavras, of Moorestown, a Burlington County pharmaceutical representative, pleaded guilty to separate charges of conspiracy to commit health care fraud. Gavras admitted to defrauding plans of more than $679,000 and must forfeit more than $204,000.
Richard Zappala
ZAPPALA
Richard Zappala, of Northfield, a pharmaceutical sales representative, admitted to fraud totaling $4.3 million, which he must pay back. According to court documents, Zappala acted as a recruiter in the scheme, getting individuals to obtain expensive and medically unnecessary compounded medications from an out-of-state pharmacy from January 2015 through April 2016.
Michael Neopolitan
Michael Neopolitan, of Willow Grove, a pharmaceutical sales representative, has admitted to defrauding New Jersey state health benefits programs and other insurers out of millions of dollars by submitting fraudulent claims for medically unnecessary prescriptions.
Andrew Gerstel
Andrew Gerstel, of Galloway Township, is a pharmaceutical representative. As part of his plea agreement, Gerstel must forfeit $184,389 in criminal proceeds he received for his role in the scheme and pay restitution of at least $483,946. He faces up to 10 years in federal prison and a $250,000 fine.
Timothy Frazier
Timothy Frazier, of Galloway Township, a commercial construction estimator, submitted fraudulent claims for medically unnecessary prescriptions.
Michael Pilate
Michael Pilate, of Williamstown, and a Pleasantville High School guidance counselor, was described in court as a mid-level conspirator who received $500 from a co-conspirator per prescription he filled, according to court testimony. He also recruited other people and paid them each $500 per prescription, according to court testimony. As part of Pilate’s plea agreement, he must forfeit $392,684 and pay restitution of $3.49 million — the amount of fraud resulting from his participation in the scheme.
Shawn Sypherd
Shawn Sypherd, of Upper Township, a middle school teacher, admitted to conspiracy to commit fraud of the State Health Benefits Plan. Sypherd’s actions resulted in more than $2.4 million in fraudulent reimbursements from the State Health Benefits Plan. He received more than $354,264 for his role as a recruiter, according to court documents.
Nicholas Tedesco
Nicholas Tedesco, of Linwood, is a retail director for a local candy company. Tedesco admitted defrauding state benefits programs and other insurers out of more than $2 million by submitting fraudulent claims for medically unnecessary prescriptions, U.S. Attorney Craig Carpenito and New Jersey Attorney General Gurbir S. Grewal said.
Michael J. Sher
sher , mike Archived photo of Mike Sher, 2011
Michael Sher, of Northfield, retired unexpectedly from the Margate Fire Department in May 2018. Sher became the first Margate municipal employee to sign a plea agreement in this case.
Richard Erick McAllister
Richard Erick McAllister
Richard “Erick” McAllister, of Ocean City, teaches English at Pleasantville High School. He must forfeit $456,806 and pay restitution of at least $3.4 million for his role in the scheme, according to his plea agreement.
William Hunter
William Hunter, an industrial equipment salesman from Sewell, must forfeit about $245,020 and pay restitution of at least $1.32 million, according to his plea agreement.
Tara LaMonaca
Lamonaca In this 2010 Press file photo, Tara Lamonaca of Linwood is seen at the Amazing Taste auction event at the Linwood Country Club.
Tara LaMonaca, of Linwood, a pharmaceutical representative, faces up to 10 years in federal prison and a $250,000 fine. LaMonaca must forfeit the $89,855 she received for her role in the scheme.
Robert Madonna
Robert Madonna, of Somers Point, a mortgage consultant at Trident Mortgage Company, in his Margate office, Monday Nov. 4, 2013
Robert Madonna, formerly of Atlantic County, currently of Florida, was one of the owners of a company formed to market prescription compounded medications, according to New Jersey Attorney General Gurbir S. Grewal. From May 2015 through February 2016, Madonna and others associated with the company persuaded individuals in New Jersey to obtain expensive and medically unnecessary compounded medications, Grewal said.
James Wildman
James Wildman, of Marmora, an Ocean City school maintenance worker, admitted serving as a recruiter in the conspiracy, persuading individuals, especially those on the state health benefits plan, to obtain medically unnecessary compounded prescriptions in exchange for money. Wildman said he received $657,040 for his role in the scheme.
Corey Sutor
Corey Sutor, of Egg Harbor Township, a Ventnor firefighter, admitted to receiving about $150,000 for his role in the scheme. He joined the Ventnor Fire Department in 2008.
Edward Sutor
Edward Sutor, of Linwood, a Ventnor firefighter, admitted to receiving about $335,552 for his role in the scheme. Edward Sutor stated with the department in 2013.
Mark Bruno
Mark Bruno, 45, a pharmaceutical sales representative from Northfield, pleaded guilty before U.S. District Court Judge Robert B. Kugler to conspiracy to commit health care fraud and obstruction of justice on Dec. 17, 2019.
Bruno worked for a company that marketed compounded medications and received a percentage of the insurance payments. Bruno admitted that he received $68,872 from the company and caused $524,935 in losses.
Sentencing is scheduled for Oct. 20 in Camden.
William Hickman
William Hickman, 42, of Northfield Charged with conspiracy to commit health care fraud and wire fraud, individual acts of health care fraud and wire fraud, conspiracy to commit money laundering, individual acts of money laundering
William Hickman, of Northfield, a pharmaceutical sales representative, was one of the alleged local ringleaders, who recruited a network of people to submit fraudulent claims for medically unnecessary prescriptions.
He pleaded guilty June 16 to conspiracy to commit fraud and money laundering charges. As part of his plea agreement with the U.S. Attorney’s Office, Hickman faces up to 30 years in prison without parole. He also agrees to a full restitution of at least $53 million, as well as forfeiture of property, including $26 million. Hickman also agreed to forfeit specific property obtained with criminal proceeds, including five investment accounts and four real estate parcels.
Sentencing is scheduled for 10 a.m. Nov. 6.
Sara Hickman
In this combination of two photos, William and Sara Hickman are escorted out of the FBI office in Northfield on March 15, 2019, after being charged with participating in the ongoing health benefits fraud scheme.
Sara Hickman, of Norhtfield, created Boardwalk Medical LLC which received roughly $26 million in kickbacks for its role, some of which it distributed to others in the enterprise for their services as recruiters.
During his plea agreement, William Hickman said he had asked his wife to create Boardwalk Medical LLC in 2013 to conceal the medical sales for other companies from his employer, and never told his wife what he was doing was illegal. He said he would use his wife’s email to conduct business in her name to conceal his involvement.
Brian Pugh
Brian Pugh, 41, of Absecon Charged with conspiracy to commit health care fraud and wire fraud, individual acts of health care fraud and wire fraud, conspiracy to commit money laundering, individual acts of money laundering
Brian Pugh, of Absecon, co-owner of Tony’s Baltimore Grill and owner of BP Med 1 LLC., was charged with conspiracy to commit health care fraud and wire fraud and with individual acts of health care fraud and wire fraud.
Thomas Schallus
Thomas Schallus, 42, of Northfield, is charged with conspiracy to commit health care fraud and wire fraud, individual acts of health care fraud and wire fraud.
Thomas Schallus, a Ventnor police officer, was allegedly recruited by Pugh.
Christopher Broccoli
Christopher Broccoli, of West Deptford, Gloucester County, a Camden firefighter, was charged with conspiracy to commit health care fraud and wire fraud and with individual acts of health care fraud and wire fraud
Thomas Sher
Thomas Sher, a Margate firefighter, was one of six people arrested Friday at the FBI field office in Northfield.
Thomas Sher, of Northfield, at left. He and his brother, John Sher, 37, of Margate, not shown, both Margate firefighters, were allegedly recruited by their brother Michael Sher, another Margate firefighter. Michael Sher pleaded guilty in the case earlier. Originally barred from meeting with his brothers without a lawyer or parent present, the bail condition was lifted by Judge Robert Kugler on March 27.
John Sher
John Sher, 37, of Margate, is charged with conspiracy to commit health care fraud and wire fraud, individual acts of health care fraud and wire fraud.
John Sher, 37, of Margate, a Margate firefighter, charged with conspiracy to commit health care fraud and wire fraud and with individual acts of health care fraud and wire fraud. Originally barred from meeting with his brothers without a lawyer or parent present, the bail condition was lifted by Judge Robert Kugler on March 27. The Shers' fourth brother, Dennis, was considered a potential witness to the alleged fraud.
Jason Chacker
Jason Chacker, 36, of Feasterville, Pennsylvania, a physician’s assistant who practiced in Mercer County, pleaded guilty in October 2019 before Judge Robert Kugler to conspiracy to commit health care fraud in the scheme involving compounded medications.
Steven Monaco
Laboratory sales representative Steven Monaco, 37, of Sewell, who founded and operated SMJ Consultants LLC, pleaded not guilty in October 2019 after being charged in a 33-count indictment with conspiracy to commit health care fraud and wire fraud.
Daniel Oswari
Dr. Daniel Oswari, 48, of Bordentown, who operated a practice in Trenton, pleaded not guilty in October 2019 after being charged in a 33-count indictment with conspiracy to commit health care fraud and wire fraud.
Michael Goldis
Dr. Michael Goldis, 63, of Mount Laurel, who operated a practice in Stratford, pleaded not guilty in October 2019 after being charged in a 33-count indictment with conspiracy to commit health care fraud and wire fraud.
Aaron Jones
Aaron Jones, 25, of Willingboro, who worked as a medical assistant for Goldis, pleaded not guilty in October 2019 after being charged in a 33-count indictment with conspiracy to commit health care fraud and wire fraud.
Brian Sokalsky
Sokalsky Dr. Brian Sokalsky,
Dr. Brian Sokalsky, 42, of Margate, was charged with individual acts of health care and wire fraud. Officials allege that Sokalsky had an arrangement with Matthew Tedesco, of Northfield, who is awaiting sentencing after pleading guilty to conspiracy to commit health care fraud.
Tedesco would send patients to his practice, and Sokalsky would prescribe medications from a Louisiana pharmacy, which has only been identified as “Compounding Pharmacy 1” in court records.
Vincent Tornari
Vincent Tornari, 46, of Linwood, is charged with individual acts of health care and wire fraud after he allegedly hired Mark Bruno to find patients who would agree to receive medications in exchange for cash payments, according to officials. Bruno pleaded guilty in 2019 to conspiracy to commit health care fraud for his participation in the scheme. He is currently awaiting sentencing.
Ashley Lyons-Valenti
Advanced practice nurse Ashley Lyons-Valenti, 63, of Swedesboro, Gloucester County, allegedly persuaded her workers and subordinates at her medical office to receive prescription medications from the Pennsylvania pharmacy that they did not need, often without giving them a medical examination or recording the prescriptions in their medical records, officials said. Lyons-Valenti wrote prescriptions for which insurance paid over $1.25 million and she received over $90,000 in kickbacks.
Hayley Taff
Hayley Taff, 37, CEO of Louisiana-based Central Rexall Drugs, pleaded guilty in August to one count of conspiracy to commit health care fraud.
Taff faces a maximum of 10 years in prison and a $250,000 fine, or twice the gain or loss from the offense. As part of the plea agreement, Taff must pay restitution of $51,670,251 and forfeiture of $1,553,616. Sentencing for is scheduled for Dec. 1.
Keith Ritson
Keith Ritson, 40, of the Bayville section of Berkeley Township, Ocean County, is charged with defrauding the New Jersey state health benefits programs and other insurers out of more than $2.5 million and unlawfully obtained and disclosed individually identifiable patient health information, conspiracy to commit health care fraud and wire fraud, as well as individual acts of health care fraud and wire fraud, according to the release. They also are charged with a second conspiracy to wrongfully obtain and disclose patients’ individually identifiable health information.
Dr. Frank Alario
Dr. Frank Alario, 63, of Delray Beach, Florida, is charged with defrauding the New Jersey state health benefits programs and other insurers out of more than $2.5 million and unlawfully obtained and disclosed individually identifiable patient health information, conspiracy to commit health care fraud and wire fraud, as well as individual acts of health care fraud and wire fraud, according to the release. They also are charged with a second conspiracy to wrongfully obtain and disclose patients’ individually identifiable health information.
Christopher Kyle Johnston
Christopher Kyle Johnston, 41, of Mandeville, Louisiana, a former executive at Central Rexall Drugs Inc., has been charged with conspiracy to commit health care fraud and wire fraud and a second conspiracy to commit identity theft by using individuals’ personal identifying information without their consent.
Trent Brockmeier
Trent Brockmeier, 58, of Pigeon Forge, Tennessee, a former executive at Central Rexall Drugs Inc., has been charged with conspiracy to commit health care fraud and wire fraud and a second conspiracy to commit identity theft by using individuals’ personal identifying information without their consent.
Christopher Casseri
Christopher Casseri, 52, of Baton Rouge, Louisiana, a former executive at Central Rexall Drugs Inc., has been charged with conspiracy to commit health care fraud and wire fraud and a second conspiracy to commit identity theft by using individuals’ personal identifying information without their consent.
Welcome to the discussion.
Keep it Clean. Please avoid obscene, vulgar, lewd, racist or sexually-oriented language.
PLEASE TURN OFF YOUR CAPS LOCK.
Don't Threaten. Threats of harming another person will not be tolerated.
Be Truthful. Don't knowingly lie about anyone or anything.
Be Nice. No racism, sexism or any sort of -ism that is degrading to another person.
Be Proactive. Use the 'Report' link on each comment to let us know of abusive posts.
Share with Us. We'd love to hear eyewitness accounts, the history behind an article.