3 in S.D. Charged With Illegal Sale of ‘Diverted’ Medicine

Three San Diego County men, including two pharmacists, were among the seven Californians and 43 persons named in a federal grand jury indictment unsealed Tuesday in Atlanta and charged with illegal sales of diverted and stolen pharmaceutical drugs.

Pharmacist Leonard Schlein, identified as the owner of Rancho San Diego Pharmacy in La Mesa; his business partner, Frank J. Macosky, and Santee pharmacist Alan Bierman were named as defendants in the case. Bierman works at Valumed Pharmacy in Santee.

Other Californians named were Jerald Grossman, a physician from Mill Valley in Northern California; Stephen Blechman, a drug wholesaler also of Mill Valley; Roger A. Johnson, a drug wholesaler from La Habra Heights in Los Angeles County, and Murray Roggo, no address given and identified only as a drug wholesaler.

Ed Horne, an FBI spokesman in Atlanta, said that none of the California defendants is in custody but court appearances have been scheduled for them this week and next. Horne said that charges have been filed against people living in 11 other states.

The charges, which were also leveled against three companies, included federal wire fraud, mail fraud, conspiracy, interstate transportation of drugs obtained by fraud, and drug adulteration and misbranding.

Schlein referred all calls to his attorney, Christopher Schatz, who did not return a reporter’s calls. A pharmacist at Valumed said that Bierman was unavailable for comment, and Macosky could not be reached for comment.

Schlein and Macosky were identified in court records as “diverters” and “shuckers” of pharmaceutical drugs. Diverters buy discount and sample drugs from physicians and nonprofit hospitals and sell them to wholesalers, who turn around and sell them to retail pharmacists. The physicians and nonprofit hospitals receive free samples from drug companies, who also sell pharmaceuticals to nonprofit hospitals at great discounts.

Shuckers were identified as people who remove sample drugs from their original packaging and sell them in plastic bags or other containers. According to a search warrant affidavit filed in U.S. District Court in San Diego, Schlein paid children in the United States and Mexico a penny a capsule for punching the capsules out of their bubble packs and putting them in plastic bags.

Most of those nabbed in the investigation were caught in an FBI “sting” operation by the bureau’s Atlanta office that used a phony drug company. FBI undercover agent Carl F. Christiansen posed as Bill Scott of Pharmacy Services Company. The FBI investigation began two years ago, when a Georgia state investigator discovered the drug scam.

According to a search warrant affidavit filed in San Diego, Christiansen met with Schlein and Macosky at a San Diego motel room on May 5. The meeting was videotaped and, according to court records, the men told the agent how Schlein was able to obtain diverted drugs and return them to his wholesaler for the full price charged to a retail pharmacy for such drugs. The drugs were originally sold to a nonprofit clinic at a cost 90% less than that charged a retail pharmacy.

Affidavits filed in the case allege that Schlein bragged to the undercover agent that he was able to fill prescriptions at his pharmacy with diverted drugs that were four years out of date. Schlein also allegedly provided the agent with several drugs manufactured in Mexico.

The Mexican drugs included Diabinese, for diabetics; Keflex, a powerful antibiotic, and Procardia, a heart medicine. The affidavit also alleges that Schlein showed the agent several bottles of Tolectin, an arthritis medicine, that had been removed from sample packages.

“Schlein stated that he has told customers that the word sample which was imprinted on each (Tolectin) capsule is pronounced samplay and is the name of the French manufacturer,” said the affidavit.

The investigation revealed that some diverted drugs have ended up on drugstore shelves across the country incorrectly labeled and with potency dates that have expired. Investigators say that the Mexican drugs are being sold illegally in the United States without warnings, directions or lot numbers, making them impossible to recall. Most pharmaceuticals manufactured abroad are not approved for sale in this country by the Food and Drug Administration.

An official with the state pharmaceutical board, who did not want to be identified, expressed surprise that the list of indictments did not include any hospitals.

“It surprises me that what we are talking about here is the diversion of drugs from nonprofit hospitals. But the people being indicted are pharmacists and wholesalers. Where are the hospitals? I would suspect that the hospitals were also acting illegally in diverting drugs,” said the official.

Officials at several San Diego-area hospitals said they were not sure if it is illegal for nonprofit hospitals to profit from the sale of discount drugs. However, Jensen Wong, pharmaceutical purchaser for San Francisco General Hospital, said that the selling of discount drugs at a profit by nonprofit hospitals is still “a gray area in terms of legality.” Wong said that courts in some states have declared the practice illegal, but in California the issue remains unresolved. San Francisco General is a nonprofit hospital.

“It may not be illegal, but it is clearly unethical,” Wong said. “All nonprofit hospitals sign an agreement with the drug companies not to sell discount drugs at a profit. We have to do this in order to get a special price on the drugs. When a nonprofit hospital sells discount drugs at a profit, it competes unfairly with for-profit hospitals. When that happens, you usually hear cries of protests from retail pharmacists and for-profit hospitals.”

California Deputy Atty. Gen. Earl Plowman agreed that the issue is “a gray, murky area.” Plowman, who represents the California Pharmaceutical Board on legal issues, said that no state laws are violated when a nonprofit hospital sells discount drugs at a profit.

“But technically, it is a violation of federal law,” he said. “But I’ve never heard of a nonprofit hospital being indicted for selling drugs in order to make money.”

The actions Tuesday underscored a congressional report, released last month by a House subcommittee, that described the growing problem of drug diversion and charged that the federal government had “lost control” of prescription drug sales. In turn, that report was prompted by last year’s discovery that millions of counterfeit, subpotent birth control pills had been distributed in at least a dozen states.

“Our investigation indicates that drug diversion practices are quite widespread,” U.S. Atty. Larry Thompson said. The Atlanta-based prosecutor said 40 additional subjects are still under investigation.