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Justice News

Department of Justice
U.S. Attorney’s Office
District of New Jersey

Wednesday, February 14, 2018

New York Man Admits Orchestrating $45 Million Dollar Compounding Pharmacy Scheme

NEWARK, N.J. – A North Tonawanda, New York, man today admitted running a large-scale scheme to defraud private and federally-funded health care benefit programs out of millions of dollars by submitting fraudulent claims for medically unnecessary compounded medications, U.S. Attorney Craig Carpenito announced.

Steven M. Butcher, 39, a former pharmaceutical sales representative turned owner and operator of MedMax LLC, a marketing company for compounded medications, pleaded guilty before U.S. District Judge John Michael Vazquez in Newark federal court to an information charging him with conspiracy to commit health care fraud and violate the Anti-Kickback Statute.

According to documents filed in this case and statements made in court:

Butcher admitted that from July 2014 through April 2016, he organized a large-scale scheme to defraud health insurance plans by submitting phony claims for medically unnecessary prescription compounded medications, including scar creams, pain creams, and metabolic supplements marketed by MedMax for certain compounding pharmacies. 

Through MedMax, Butcher and others targeted individuals covered by private and federally-funded insurance plans that paid for compounded medications and convinced these individuals to obtain them regardless of medical necessity. Butcher also admitted that from December 2014 through June 2015, he conspired with others to pay kickbacks to persuade individuals to bill TRICARE – a health care benefit program for members of the military and their families – for medically unnecessary compounded medications.

During the scheme, Butcher would either send prescriptions directly to a compounding pharmacy or to a billing distribution company, which would then refer the prescription to a particular compounding pharmacy and submit a claim to the appropriate health insurance plan on behalf of that pharmacy. In return, Butcher received anywhere between 40 and 53 percent of the reimbursement received for each paid claim. At that time, health insurance plans were reimbursing compounding pharmacies anywhere between $3,000 and $43,000 for each compounded prescription.

To maximize profit in the compounding scheme, Butcher recruited several individuals as “sales representatives” who were paid a certain percentage for each compounded medication that they caused to be billed to a targeted health insurance plan. If a sales representative was a direct beneficiary of a targeted health insurance plan, Butcher paid them to obtain medically unnecessary compounded medications for themselves or their family. In addition, Butcher paid sales representatives for any individual that they recruited to the scheme. 

For instance, Butcher recruited former pharmaceutical employee Peter Pappas, 45, of Drexel Hill, Pennsylvania. As a MedMax sales representative, Pappas received medically unnecessary prescriptions for himself and also recruited several other individuals, including other former pharmaceutical sales representatives Jason Cerge, 41, of Media, Pennsylvania, and Julie Andresen, 40, of Haddonfield, New Jersey. Cerge recruited an individual identified in the information as “CC-1,” a New Jersey resident who targeted TRICARE beneficiaries.

Butcher paid Pappas for each of his personal compounded prescriptions and for each medically unnecessary medication Cerge, CC-1, and Andresen caused to be billed to a targeted health insurance plan.

Butcher and other conspirators, including Pappas, Cerge, and Andresen, took advantage of their relationships with physicians and other health care professionals to get prescriptions.  For instance, Butcher used his relationship with an individual identified in the information as “Physician Assistant 1,” to request that Physician Assistant 1 prescribe several medically unnecessary compounded medications for TRICARE beneficiaries. Physician Assistant-1 agreed and Butcher and others profited from phony claims to TRICARE.

As part of his plea agreement, Butcher must forfeit $4,584,597.92 in criminal proceeds and pay restitution of at least $45 million.

Of the $45 million loss Butcher caused to health care benefit programs, at least $3 million was attributable to TRICARE. 

For the conspiracy to commit health care fraud charge, Butcher faces a statutory maximum of 10 years in prison. For the conspiracy to violate the Anti-Kickback Statute charge, Butcher faces a statutory maximum of five years in prison. Each offense is also punishable by a $250,000 fine, or twice the gross gain or loss from the offense. Sentencing is scheduled for May 18, 2018.

Pappas, Andresen and Cerge have all pleaded guilty to their roles in the scheme. Pappas and Cerge await sentencing. Andresen was sentenced Feb. 7, 2018 to 15 months in prison.

U.S. Attorney Carpenito credited special agents of the FBI, under the direction of Special Agent in Charge Timothy Gallagher in Newark; and the U.S. Department of Defense, Office of the Inspector General, Defense Criminal Investigative Service, under the direction of Special Agent in Charge Leigh-Alistair Barzey, with the ongoing investigation leading to today’s plea.

The government is represented by Assistant U.S. Attorneys Erica Liu and Vikas Khanna, Deputy Chief of the U.S. Attorney’s Office Health Care and Government Fraud Unit in Newark and Assistant U.S. Attorney Jafer Aftab of the Asset Forfeiture and Money Laundering Unit.

To date, the New Jersey U.S. Attorney’s Office has prosecuted 19 individuals involved in various compounding pharmacy schemes across New Jersey to defraud health care benefit programs, and has recovered more than $4 million through forfeiture and restitution. These schemes have caused a total loss of more than $70 million to the health care industry, which has affected state, federal and private health care benefit programs. 

The New Jersey U.S. Attorney’s Office reorganized its health care practice in 2010 and created a stand-alone Health Care and Government Fraud Unit to handle both criminal and civil investigations and prosecutions of health care fraud offenses. Since that time, the office has recovered more than $1.38 billion in health care fraud and government fraud settlements, judgments, fines, restitution and forfeiture under the False Claims Act, the Food, Drug and Cosmetic Act and other statutes.

Defense counsel: Herbert L. Greenman Esq., Buffalo, New York

Health Care Fraud
Press Release Number: 
Updated February 15, 2018