Theft
Investigation at the Defense Supply Center in Philadelphia
Uncovers
$180 Million Fraud
The owner of a reverse pharmaceutical distributor company located in New York and his sister were convicted of a scheme that involved mail fraud, wire fraud, theft of government property, money laundering conspiracy, obstruction of justice, and false statements in a March 2017 trial. The scheme consisted of stealing money from healthcare providers—long-term care providers, hospitals, pharmacies, and Department of Defense facilities. Pharmaceutical manufacturers often allow expired drugs to be returned for a refund. The company involved in the fraud handled this process for healthcare provider clients in exchange for a fee based on a percentage of the return value of the drugs.
During the trial, evidence proved that from 1999 through 2014 the company promised its clients to hold their not-yet-expired drugs until they expired and would then return them on the clients’ behalf in exchange for a fee. However, under the owner’s instructions, the company did not wait for the drugs to expire but returned the drugs to manufacturers and kept the full value of the refund money for themselves. This meant that the company actually stole those drugs from the various clients.
Evidence also showed that the brother, sister, and the company stole clients’ refund money by diverting a percentage of the refunds into internal company accounts, conspired to launder the proceeds for the fraud, and obstructed justice in connection with a grand jury investigation. Through this fraud, the defendants stole more than $100 million from 13,000 clients, including more than $20 million from numerous medical treatment facilities operated by the U.S. Department of Defense and other government agencies.
The owner was sentenced to five years in prison and his sister was sentenced to one year and one days’ imprisonment, followed by five years of probation.
Compliance Perspective
Failure to ensure that vendors providing pharmaceutical reverse distribution services for facilities are accurately accounting for fees they charge and refunds they receive for expired drugs or for drugs not yet expired may result in charges of theft and potential fraud, in violation of state and federal laws.
Discussion Points:
- Review policies and procedures regarding disposal of expired and not yet expired drugs and the compliance requirements for vendors providing reverse distribution of those drugs.
- Train staff about the policies and procedures for appropriate disposal of expired and not-yet-expired drugs.
- Periodically audit the facility’s transactions with vendors providing reverse distribution of expired and not-yet-expired drugs to ensure that the facility is receiving the correct refund associated with those drugs.
