Second Hand Drugs Sell for Billions as FBI Breaks Open a Nation-Wide Prescription Drug Scam

In what is believed to be the largest prescription drug diversion scheme ever to be charged at one time, the FBI has just reported that 48 individuals have been arrested for their participation in a huge fraud scheme involving the unlawful diversion and 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 (“second-hand” drugs), in a national underground market. An estimated $500 million in reimbursements for pills that were diverted into this second-hand black market was lost by Medicaid as a result of the fraudulent scheme. According to the FBI, forty-two of the defendants were charged in a superseding indictment, and six more were charged in a complaint in locations varying from New York City to as far as Florida and Texas.

Upon announcing the crackdown last week, Manhattan U.S. Attorney Preet Bharara said, “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, and 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. 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.”

And the lowest level participants involved in the scheme were unfortunately, those who actually needed the medicines. Medicaid beneficiaries, many of whom were AIDS patients or others who suffered from illnesses that required expensive drug therapies, would fill their prescriptions for month-long supplies of their drugs, and instead of taking the medicines, they would then sell them to “collectors,” who paid cash for the drugs. This part transpired in various areas of New York City. The collectors would then sell the second-hand bottles to higher participants in the scheme, who are called “aggregators.” These people would buy large quantities of drugs from many different collectors, and would ultimately sell them to prescription drug distribution companies, which then sold them to pharmacies and then to other wholesale prescription drug distribution companies across the United States. Once there, the prescription drugs were then sold again to unsuspecting individuals, some of whom were also most likely Medicaid beneficiaries. This means that Medicaid paid twice for the exact same pills, but only one individual actually used the medicine.

The fraud didn’t stop there. To make the medicines look official, the packaging had to be redone on the pills so that they would look like they were new drugs that came directly from the manufacturer. According to the FBI, more than $16 million worth of second-hand prescription drugs was siezed during the investigation, 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. Among those charged included everyone from the collector stage to the drug company stage.

FBI Assistant Director in Charge Janice K. Fedarcyk said, “The scheme to collect, aggregate, and resell costly prescription drugs was bad medicine in three ways: profiting so obscenely by breaking the law is the very definition of unjust enrichment. The scheme was theft, plain and simple, from a program funded by taxpayers. And the scheme posed serious health risks at both the collection and distribution ends. People with real ailments were induced to sell their medications on the cheap rather than take them as prescribed, while end-users of the diverted drugs were getting second-hand medicine that may have been mishandled, adulterated, improperly stored, repackaged, and expired.”