Compounding Problems

27327724 - health care costs - stethoscope on money

Compounding interest is every investor’s friend. Over time, interest is earned on the principal amount deposited, plus the accumulated interest from previous periods. (Before you know it, even a small amount of money invested at a consistent rate can turn into a fortune.) A New Jersey doctor was hoping to earn a fortune by participating in a $25 million healthcare fraud scam that involved hundreds of municipal employees and prescriptions for compounding medical creams. (He had a lot of interest in writing hundreds of bogus prescriptions for profit, but his illegal investment only compounded his problems with the justice system.)

The South Jersey doctor was part of a ruse to defraud a prescription program available to New Jersey state and municipal employees. (Participants included firefighters, police, teachers and other employees with public health plans across several towns in the state.) The doctor, who specialized in osteopathic medicine at his medical practice in Margate, New Jersey, wrote more than 200 fake prescriptions for patients he never examined. The prescriptions included compounded concoctions like vitamins, pain cream, scar cream, libido cream and anti-fungal cream. (It seems like there is a cream for everything that ails you.)

The doctor in today’s case, along with other participating physicians, allegedly wrote prescriptions for expensive creams that were filled by the ringleader in collusion with an out-of-state pharmacy. (The ringleader influenced New Jersey healthcare beneficiaries to obtain prescriptions for compounded creams without an appropriate diagnosis or a legitimate evaluation by a medical professional.)

 Once a healthcare beneficiary agreed to participate in the scam, the ringleader or his co-conspirators would then use the state or municipal employee’s insurance information to fill out the prescription order for compounding cream, selecting the medications that paid the most over 12 months of refills. (That’s the same idea as compounding interest, only applied to compounding medical creams. A monthly reinvestment in unneeded prescriptions meant a steady income for the compounding pharmacies, co-conspirators, and the individuals who agreed to receive the creams.)

The out-of-state pharmacy involved in the scam received more than $50 million for the bogus prescriptions that were mailed to New Jersey state and municipal employees. (And, New Jersey had to pick up the bill for these costs.) Pharmacies paid more than $11 million in kickbacks to the ringleader of the scam, who then divided the profit among the many co-conspirators involved.

The 55-year-old osteopath pleaded guilty to one count of conspiracy to commit healthcare fraud for writing phony prescriptions for patients he never saw. (His medical practice is now closed.)

The judge released him on $200,000 bond, confiscating his passport, but he faces up to 10 years in prison when sentenced. As part of his plea deal, the doctor agreed to pay $25 million in restitution and forfeit $25,000. (The doctor’s attorney who said that his client got involved in the scam due to “pure stupidity” explained that the $25 million included cash, wine and dinners in exchange for his participation.) Five other co-conspirators including two pharmaceutical representatives, a retired Atlantic City firefighter, and the ringleader have all pleaded guilty and also await their fate at sentencing.

I guess the one silver lining in this case was that none of the patients who received the various creams were harmed in the process of this scam. (That would have definitely compounded problems even more.)

Today’s “Fraud of the Day” is based on an article entitled, “South Jersey doctor pleads guilty for role in $25M health-care fraud,” published by The Inquirer on September 22, 2017.

A South Jersey doctor pleaded guilty Friday to writing phony prescriptions for patients he never saw in a $25 million health-care fraud scheme that prosecutors say targeted teachers, firefighters, and police officers.

John L. Gaffney, 55, of Linwood, pleaded guilty before U.S. District Judge Robert B. Kugler in Camden to a count of conspiracy to commit health-care fraud. He faces up to 10 years in prison when he is sentenced Jan. 5, 2018.

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Larry Benson
Larry Benson is currently the Director of Strategic Alliances for Revenue Discovery and Recovery at LexisNexis Risk Solutions. In this role, Benson is responsible for developing partnerships for the tax and revenue and child support enforcement verticals. He focuses on embedded companies that have a need for third-party analytics to enhance their current offerings.