43 Indicted on Charges of Diverting Drugs for Resale : 12 Doctors, 13 Pharmacists Accused in Alleged Scheme to Obtain Discounted Medicine

Forty-three persons, including 12 doctors and 13 pharmacists, were indicted Tuesday on fraud charges in an alleged international scheme to obtain prescription drugs at discounted prices and resell them for substantial profits, often after mislabeling or adulterating them, the Justice Department announced.

“Diverters” obtained drugs at low cost from manufacturers by claiming that they were intended for use in hospitals, nursing homes, clinics, Third World and other foreign countries and by international nonprofit organizations, said Larry D. Thompson, U.S. attorney for the Northern District of Georgia. The diverters then resold the drugs at increased prices for ultimate distribution to U.S. consumers.

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.

Growing Problem

The actions Tuesday underscored a congressional report, released last month by a House subcommittee, that described the growing problem of drug diverters and charged that the federal government had “lost control” of prescription drug sales. In turn, the 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,” Thompson said, adding that 40 additional subjects are still under investigation and more indictments are expected.

The department said that the indictments are the result of a two-year FBI undercover operation code-named Pharmoney. Undercover FBI agents in Atlanta posed as operators of Pharmacy Services Co., a phony hospital pharmacy management firm, and “dealt with individuals in all parts of the United States who performed varied functions in this ‘diversion’ process.”

Drugs, Weapons Seized

State and federal agents seized more than $620,000 worth of adulterated, misbranded and sample pharmaceuticals in six states, including California, as well as ammunition and weapons worth an estimated $70,000 in a house in Macon, Ga., Thompson said.

Other drugs were manufactured in Mexico and imported without U.S. inspection or controls, the Justice Department said.

“If these drugs had reached the general public, they would have posed a health threat,” Thompson said.

Thompson and Weldon L. Kennedy, FBI special agent in charge of the Atlanta office, said the suspects often used such items as razor blades, chemical acetone, fingernail polish or rubbing alcohol to eliminate expiration dates on packages, or the words “Sample--do not sell.”

Loose Pills in Bags

He said that they also removed some drugs from their original packages and placed loose pills in plastic bags or other unauthorized containers without accurate and verifiable lot numbers, expiration dates and other required data.

For example, he said, one batch of pills used to treat a heart condition, which required refrigeration at 36 degrees, had been stored at 100 degrees in a warehouse.

According to a statement by the Justice Department, hundreds of thousands of dollars’ worth of loose pills and liquids without identifying data were found in open boxes, used paper grocery sacks, cellophane bread wrappers, old soft drink plastic bottles, plastic bags and other containers.

Long Expired

Many of these pills had been expired for three to five years, the department said. Electric erasers and silver paint, as well as other equipment used to conceal data on bottles, also were seized, the department said.

The defendants, from 12 states, included owners, corporate officers or employees of hospital pharmacy management firms, national and regional pharmaceutical wholesalers, retail drugstore chains, neighborhood pharmacies and clinics, and physicians and sales representatives of drug manufacturers.

Those charged in California included Alan Bierman, a pharmacist and owner of Valu-Med Pharmacy, San Diego; Cooperative Purchasing Consultants, a Mill Valley wholesaler; Stephen Blechman, vice president of Cooperative Purchasing Consultants; Dr. Gerald Grossman, a physician with Cooperative Purchasing Consultants; Roger A. Johnson, general manager of Calendar Corp., a La Habra Heights wholesaler; Frank J. Macosky, owner of Frank-N-Scents, a La Mesa wholesaler, and Leonard Schlein, a pharmacist and owner of the Rancho San Diego Pharmacy, La Mesa.