South Jersey Men Admit Defrauding State Health Care Groups: Authorities

Three men have admitted to defrauding New Jersey state health benefits programs and other insurers by submitting fraudulent claims for medically unnecessary prescriptions, Acting U.S. Attorney William E. Fitzpatrick and New Jersey Attorney General Christopher S. Porrino announced.

Northfield firefighter Michael Pepper, 45, of Atlantic City; Thomas Hodnett, 41, a pharmaceutical sales representative from Voorhees; and Steven Urbanski, 37, a pharmaceutical sales representative from Marlton, pleaded guilty to separate informations charging them with conspiracy to commit health care fraud.

From January of 2015 through April of 2016, Pepper, Hodnett, and Urbanski persuaded individuals in New Jersey to obtain very expensive and medically unnecessary compounded medications from an out-of-state pharmacy, according to documents filed in the case and statements made in court. The pharmacy is identified as the “Compounding Pharmacy.”

Compounded medications are supposed to be specialty medications mixed by a pharmacist to meet the specific medical needs of an individual patient, according to authorities. Although compounded drugs are not approved by the Food and Drug Administration (FDA), they are properly prescribed when a physician determines that an FDA-approved medication does not meet the health needs of a particular patient, such as if a patient is allergic to a dye or other ingredient.

Those involved in this case learned that certain compound medication prescriptions – including pain, scar, antifungal, and libido creams, as well as vitamin combinations – were reimbursed for thousands of dollars for a one-month supply, according to authorities.

They also learned that some state and local government and education employees, including teachers, firefighters, municipal police officers, and state troopers, had insurance coverage for these particular compound medications, authorities said.

An entity known as the “Pharmacy Benefits Administrator” provided pharmacy benefit management services for the State Health Benefits Program, authorities said. The program covers qualified state and local government employees, retirees, and eligible dependents, and the School Employees’ Health Benefits Program, which covers qualified local education employees, retirees, and eligible dependents.

The Pharmacy Benefits Administrator would pay prescription drug claims and then bill the state for the amounts paid, authorities said. The conspirators recruited public employees and other individuals covered by the Pharmacy Benefits Administrator to fraudulently obtain compounded medications from the Compounding Pharmacy without any evaluation by a medical professional that they were medically necessary, according to authorities. In return, the pharmacy paid one of Pepper, Hodnett, and Urbanski’s conspirators a percentage of each prescription filled and paid by the Pharmacy Benefits Administrator. That money was then distributed to the other conspirators.

Once they had recruited an employee covered by the Pharmacy Benefits Administrator, Pepper, Hodnett, and Urbanski would obtain the employee’s insurance information and fill out a Compounding Pharmacy prescription form, authorities said. They would select the compounded medications that paid the most without regard to their medical necessity.

Other conspirators would then get the prescriptions signed by doctors who never saw the patients and never evaluated whether the patients had a medical necessity for the compounded medication, authorities said. The prescriptions were then faxed to Compounding Pharmacy, which filled the prescriptions and billed the Pharmacy Benefits Administrator.

The Pharmacy Benefits Administrator paid Compounding Pharmacy over $50 million for compounded medications mailed to individuals in New Jersey, authorities said. Pepper received approximately $113,627.54 for his role in the scheme. Hodnett received approximately $269,966.08 for his role in the scheme. Urbanski received approximately $113,668.12 for his role in the scheme.

Each defendant faces a maximum penalty of 10 years in prison and a $250,000 fine, or twice the gross gain or loss from the offense. Sentencing for Pepper, Hodnett, and Urbanski is scheduled for Dec. 5, 2017.

As part of their plea agreements, Pepper must forfeit $113,627.54 in criminal proceeds and pay restitution of at least $719,481.65. Hodnett agreed to forfeit $269,966.08 and pay restitution of at least $1,497,541.44. Urbanski must forfeit $113,668.12 in criminal proceeds and pay restitution of at least $752,291.94.

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