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Executive Summary

The Federal Bureau of Investigation arrested 33 pharmacists in the state of New York on June 30 as a result of a 21-month investigation of prescription drug fraud and diversion, the FBI announced at a sameday press conference. In conjunction with the arrests, 36 New York pharmacies were searched by federal agents, and allegedly diverted drugs were seized from 11 of the pharmacies. In addition to pharmacists, the FBI arrested 36 other individuals in its investigation in New York state. Most of these arrests were "non-con" men, who specialize in diverting non- narcotic prescription drugs for resale. The FBI explained that in a typical scheme, a Medicaid beneficiary is recruited by a physician, who writes a prescription for an unnecessary drug and bills Medicaid for services not provided. The patient has the prescription filled by a cooperating pharmacist and sells the drugs to a non-con. The non-con subsequently sells the drugs to other diverters or repackages them for resale by a pharmacy. The arrests in New York were the largest total for any one of the 50 areas that the FBI said were investigated as part of its nationwide "Operation Goldpill." The bureau said that a total of 103 people had been arrested and 107 search warrants had been served as of July 2. Of those arrested, at least 82 were pharmacists. Other major centers of alleged pharmaceutical fraud included Chicago (13 arrests) and San Juan (17 arrests). The FBI stressed that the pharmacies involved in alleged fraud were not members of chains. The bureau said that no employees of pharmaceutical manufacturers or U.S. wholesalers have been arrested in the investigation and that only one physician has been arrested. That differs from the Pharmoney investigations in the mid-1980's which led to investigations of wholesalers and pharmaceutical sales reps. One Puerto Rican wholesaler, Drogueria A. Arguelles & Co., is charged with "conspiracy to purchase and receive in interstate commerce from New York quantities of diverted and misbranded prescription drugs," FBI documents state. Among the drugs A. Arguelles & Co. is charged with receiving and selling is Retrovir (Burroughs Wellcome's AZT). Those arrested in the operation could be charged with a variety of felonies and could face from five to 15 years in prison and fines of up to $250,000 for their roles in the scheme, the FBI said. FBI Director William Sessions called the arrests "the tip of the iceberg" and promised that FBI investigations in health care fraud will continue. The FBI did not release specific figures on the diverted drugs. The bureau maintained, however, that the value of the diverted drugs seized is in the millions of dollars. Sessions added that "FBI agents are executing federal warrants to seize tens of millions of dollars worth of homes, financial accounts, and property, all proceeds of criminal activity." Sessions said Goldpill also included investigations of fraudulent billing practices used by pharmacists against both federal and private insurance programs. The FBI director outlined four fraudulent billing practices encountered by the bureau: "filling prescriptions with generic drugs and billing for the more expensive brand-name product"; "billing Medicaid and insurance carriers multiple times for the same prescription"; billing for "prescriptions never written or filled"; and "filling only a portion of a prescription" so that pharmacists receive additional dispensing fees. Operation Goldpill has been under way for 21 months and has involved "more than 1,000 FBI agents, along with 120 law enforcement officers from other agencies" including FDA, Sessions said. In addition to FDA, the HHS Office of the Inspector General, officers of the Drug Enforcement Administration, Postal Inspection Service, state Medicaid fraud control units, state Boards of Pharmacy, state attorneys generals' offices, state Medical licensing boards, Blue Cross and Blue Shield special investigative units, as well as local police units, were involved in the investigation. "Pharmaceutical industry managers" of unspecified companies also assisted Operation Goldpill, Sessions reported. The FBI officially credits Sessions with leading Operation Goldpill. Sources close to the investigation identify an FBI agent, Supervisory Special Agent Joseph Ford, as a key figure in the day-to-day efforts. FDA's participation in Operation Goldpill included some of the agency's recently-recruited special investigators. The HHS IG's Office said it contributed about 40 of its undercover agents to the operation in Portland, Ore., New York, Chicago, and Washington, D.C. Operation Goldpill included monitoring of state and private insurance databases for unusual billing practices and employed electronic surveillance techniques and undercover agents who bought and sold diverted prescription drugs, the FBI said. The investigation was conducted out of 16 FBI district offices across the U.S. The FBI said it has "several hundred" agents devoted full time to combating healthcare fraud of all types. The bureau noted that it transferred 350 agents who were formerly assigned to counter-intelligence and counterterrorism to its Safe Streets and Health Care Fraud Initiative in February. Sessions highlighted the potential danger to public safety of healthcare fraud by noting that diverted drugs are frequently repackaged in incorrectly labeled or unlabeled containers and "are often stored in unacceptable and unsanitary conditions" that could affect drug stability. Sessions showed photographs of decomposed AZT tablets that had been stored at 110 degrees Fahreneheit. He emphasized that "whenever the FBI and FDA suspected any medications of being adulterated or expired, they were seized." FDA's Enforcement Reports for 1992 do not show any obvious seizure actions related to the investigations. Other photos showed severely adulterated and decomposed tablets of Ciba's Voltaren. Pictures show that a bottle labeled as Ciba's Lopressor containing Knoll's Isoptin, a bottle labeled as Mason's flurazepam holding Voltaren tablets, a bottle labeled as SB's Dyazide containing an unknown drug, and a tissue box containing Voltaren tablets. Another photo depicts diverted bottles without expiration dates that are hand labeled as holding: Clinoril, Tenormin, Seldane, Mevacor, Provera and Cardizem. To monitor public questions about the operation and ease any fears, FDA has set up a temporary hotline (1-800-332-5568) for consumers to ask questions about their prescription drugs. In the first two days of operation, the agency received 800 calls on the hotline, FDA said. The high-profile announcement of the operation provided opportunities for praise and admonishment of the Administration's actions against fraud. At the press conference announcing Goldpill, HHS Secretary Sullivan characterized the operation as "part of the Bush Administration's pledge to prevent criminal activity in our healthcare program." In a July 1 release, Sen. Pryor (D-Ark.) called the alleged actions of those arrested in Operation Goldpill "unethical, unprofessional, and repugnant." However, attributing political motives to the move, he said it was "unfortunate that the Administration has waited until five months before a national election to make this a priority issue." Pryor added that he plans to introduce "legislation establishing a federal task force to coordinate federal, state, and private sector anti-fraud and abuse efforts."

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