Bloomberg News

Suspects Plead Not Guilty to Medicaid Drug-Resale Scam

July 23, 2012

Twenty-five people pleaded not guilty in Manhattan federal court to taking part in a scam involving the resale of hundreds of millions of dollars in government-subsidized prescription drugs.

The defendants arraigned today were targeted by an investigation spanning at least 10 states and leading to charges against at least 48 people. U.S. District Judge Denise L. Cote in Manhattan set a trial for Sept. 16, 2013, saying not all the defendants will be tried at once. Eighteen of those arraigned today were released on bond.

An indictment unsealed July 17 charged 42 people with obtaining free or low-cost drugs to treat HIV, schizophrenia and asthma through Medicaid, or buying them from Medicaid beneficiaries, and re-selling them. Six more people were charged in a separate criminal complaint. Medicaid is the federal-state program to help cover the health-care costs of people with low incomes.

Assistant U.S. Attorney Jason A. Masimore said today the U.S. obtained evidence to back its charges from wiretaps, telephone and bank records, and cooperating witnesses.

The suspects peeled the individual pharmacy labels off the drug containers, sometimes using lighter fluid to dissolve the adhesive, the U.S. alleged. They would then put counterfeit labels on the bottles, according to the indictment.

Relabeled Drugs

Once the drugs were relabeled, the defendants could sell them to wholesalers or pharmacies, who in turn resold them to consumers, the government said. In many cases, the second-hand pills had already expired, according to the indictment.

To reap maximum profits, the scheme targeted the most expensive drugs, including HIV medications such as Atripla, which costs $1,635 a bottle, and Trizivir, which costs $1,347 a bottle.

Most of the defendants today were released under pre- existing bond agreements, usually for about $50,000. Some were also required to supply two co-signers and accept restrictions on their travel. Seven remained in custody, either because they can’t meet bond requirements or because the government has opposed their release.

The case is U.S. v. Viera, 11-CR-1072, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Emily Grannis in New York at

To contact the editor responsible for this story: Michael Hytha at

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