An investigation into alleged prescription benefit fraud in three Absecon Island towns could include doctors, pharmaceutical representatives and compounded drugs, Atlantic County Prosecutor Damon G. Tyner said this week.

The Prosecutor’s Office announced last week that Atlantic County grand jury subpoenas were issued July 28 to the same three towns under federal investigation — Atlantic City, Margate and Ventnor — looking into city employee health insurance information.

The FBI has declined to comment about their investigation.

While Tyner could not specify all the details of the parallel investigations, he said the process of drug-compounding fraud could be part of it and the search of Dr. James Kauffman’s office in June was partially related.

Kauffman, 68, of Linwood, remains jailed and charged with weapons offenses following a standoff with police June 13 at his Egg Harbor Township practice.

Tyner stressed “there are state offenses that are separate and distinct from federal offenses,” with different implications and consequences.

“Our investigation is not limited to just public employees,” Tyner said.

Drug compounding is a process in which a pharmacist or doctor alters or mixes ingredients into a custom drug to fit the needs of a patient, according to the federal Food & Drug Administration.

The process of mixing drugs is legal, and compounded medications can be beneficial to patients unable to take another drug because of allergies or other issues. But problems arise when the drugs, intended for one person and costing thousands of dollars, are mass-produced, said Charles Ross, a New York-based attorney who has represented clients in medical compounding cases.

Ross said the profit for compounding pharmacies can reach tens of thousands of dollars for a single tube of compounding cream.

“Pharmacies that get into mass production see that they can make a ton of money,” Ross said. “What a truly compounded cream can fetch in terms of insurance reimbursements is truly stunning.”

In recent years, the U.S. Attorney’s Office targeted cases of fraud in which compounding pharmacies have paid middlemen to steer doctors to prescribe an expensive form of compounded drugs.

Just last month, Attorney General Jeff Sessions announced a $1.3 billion health care fraud investigation that resulted in 412 people charged nationwide. Some of those cases involved compounded medications.

The alleged schemes resulted in government-funded health care programs Medicare, Medicaid and TRICARE seeing huge leaps in spending for prescriptions.

In some cases, patients, recruiters or beneficiaries were paid kickbacks for giving information to providers so bills could be submitted for services or medications that weren’t needed or never provided. In some cases, insurers were billed for unnecessary drugs and compounded medications.

For Keith Hartman, owner of Curexa, a compounding pharmacy in Egg Harbor Township, the fact that compounding practices have become the subject of criminal investigations is disheartening.

When done effectively and properly, compounding helps patients in need, he said.

“Some of the services we provide are unique and are doing significant health improvements for people,” said Hartman. “But there’s going to be bad eggs in every industry.”

Hartman mentioned the company is accredited by the PCAB — the Pharmacy Compounding Accreditation Board — which has strict standards for how drugs can be created and solicited.

When it gets to the point of sales representatives mass-producing or selling products people don’t need, that’s when the fraud is clear, he said.

“It’s not a game that we would entertain or get involved with,” Hartman said. “It’s clear lapse of judgment.”

Even before Tyner’s investigation was announced, mayors in several South Jersey towns were aware of the potential impact prescription costs can have on their budgets.

Egg Harbor Township Mayor James “Sonny” McCullough said township officials have been keeping a close eye on compounding prescription prices over the past couple of months, even though his town’s records have not been sought.

“It’s something that we are watching,” said McCullough. “We want to watch anything that will drive the principal up.”

In Margate, prescription costs jumped from $539,114 in 2010 to $3.4 million in 2015. The practice of compounding was discussed in a July 20 commission meeting that followed revelations of an investigation.

Margate Business Administrator Rich Deaney said prescription-drug fraud is not unique to Downbeach.

“Nationwide, there reportedly has been a 3,000 percent increase in the dispensing of compound drugs in the past several years,” he said.

Large leaps in prescription costs not caused by a similar increase in the number of prescriptions filled is something that could set off “red flags” for law enforcement, who would view profit-making as a “fraud on the system,” said Ross, who believes prosecutors and insurance providers are catching up to the practice.

“There have been a lot of prosecutions and a lot of convictions and people sent to jail, forfeiture of moneys, so I’m not sure there’s a lack of oversight these days,” Ross said.

Tyner urged the public to refrain from spreading rumors because it “interferes” with the investigation.

“I would just urge the community to allow us, rather than speculate, to allow us to conduct our investigation,” Tyner said. “Ultimately, time will tell as to who is implicated and what they were implicated for.”

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: 609-272-7239 Twitter @ACPressSerpico

Contact: 609-272-7046 Twitter @acpresshuba

Covering breaking news for The Press of Atlantic City since September 2016. Graduate of the University of Maryland, Central Jersey native.

Started working in newsrooms when I was 17 years old. Spent 15 years working for Gannett New Jersey before coming to The Press of Atlantic City in April 2015.

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