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South Jersey prescription fraud ring follows national playbook
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South Jersey prescription fraud ring follows national playbook

Medical fraud pleas

U.S. District Court in Camden

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.

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.

“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.

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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 Twitter @clairelowe.

Who has been charged in the prescription fraud case?

Contact: 609-272-7251

Twitter @clairelowe

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Staff Writer

I began covering South Jersey in 2008 after graduating from Rowan University with a degree in journalism. I joined The Press in 2015. In 2013, I was awarded a NJPA award for feature writing as a reporter for The Current of Hamilton Township.

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