Skip to main content
Press Release

Pennsylvania Man Admits Role In Scheme To Obtain Medically Unnecessary Prescription Compound Medication

For Immediate Release
U.S. Attorney's Office, District of New Jersey

Pharmaceutical Employees, Military Beneficiaries and Others Recruited as Part of the Scheme

NEWARK, N.J. – A pharmaceutical employee today admitted filling his own medically unnecessary prescriptions and recruiting others to do the same as part of a scheme to fraudulently obtain reimbursements for compound medication prescriptions, causing losses of $3.69 million, U.S. Attorney Paul J. Fishman announced.

Peter Pappas, 44, of Drexel Hill, Pennsylvania, pleaded guilty before U.S. District Judge John Michael Vazquez in Newark federal court to an information charging him with one count of conspiracy to commit health care fraud.

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

Pappas, an employee of a New Jersey pharmaceutical company, admitted that in August 2014, he was recruited by an individual identified in the information as “co-conspirator #1 (CC-1),” to assist a marketing business identified in the information as “Company A.”  Company A was paid by various compounding pharmacies for referring beneficiaries whose insurance plans would pay for compounded medication, such as pain creams, scar creams and vitamins.

CC-1 offered Pappas “commission” payments in return for compounded medication, creams and vitamins that Pappas obtained at specific specialty pharmacies for himself and family members and that were billed to his employer’s prescription drug benefit plan. In furtherance of the scheme, Pappas received a preprinted prescription form with compounded medications and creams from CC-1, took the forms to a friend who was a doctor, and asked the doctor to prescribe those medications.

Afterwards, the compounded prescription products were sent to Pappas from a pharmacy outside his home state. On Oct. 15, 2014, Pappas received a $9,023.86 check from Company A, which was a percentage of the amount paid by Pappas’s employer to the compounding pharmacy for filling the prescriptions.

From September 2014 through November 2015, Pappas refilled compounded prescriptions on forms provided by CC-1 and Company A at certain specific compounding pharmacies selected by Company A, and in return, received commission checks and wire transfers from Company A.  

Pappas also recruited co-workers and others to join the scheme, including TRICARE beneficiaries. TRICARE, which is managed by the Defense Health Agency at the U.S. Department of Defense, is a health care benefit program for uniform service members of the U.S. military and their families. Pappas admitted that he attempted to recruit TRICARE beneficiaries because he knew that TRICARE gave high reimbursements for compounded medication and creams.

Altogether, Pappas received $481,773 from Company A for his role in the conspiracy.  His employer, TRICARE, and other insurance companies lost at least $3.69 million from the scheme.   

Pappas faces a statutory maximum of 10 years in prison and a $250,000 fine, or twice the gross gain or loss from the offense. Sentencing is scheduled for Oct. 25, 2016.

On June 29, 2016, Stephanie Naar, 27, of St. Louis, Missouri, who had been an employee of the same New Jersey pharmaceutical company as Pappas, pleaded guilty before Judge Vazquez and admitted accepting thousands of dollars in exchange for obtaining and filling her own medically unnecessary prescriptions for compounded medication and creams.

U.S. Attorney Fishman 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, Defense Criminal Investigative Service, Office of Inspector General, under the direction of Special Agent in Charge Craig Rupert, with the ongoing investigation leading to today’s plea.

The government is represented by Assistant U.S. Attorney Melissa L. Jampol of the U.S. Attorney’s Office Health Care and Government Fraud Unit in Newark.

U.S. Attorney Paul J. Fishman reorganized the health care fraud practice at the New Jersey U.S. Attorney’s Office shortly after taking office, including creating a stand-alone Health Care and Government Fraud Unit to handle both criminal and civil investigations and prosecutions of health care fraud offenses. Since 2010, the office has recovered more than $1.3 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: Walter Cohen and Rebecca Warren Esqs., Harrisburg, PA

Updated July 20, 2016

Health Care Fraud
Press Release Number: 16-216