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Thomas Schallus, 42, of Northfield, is charged with conspiracy to commit health care fraud and wire fraud, individual acts of health care fraud and wire fraud.

The arrests last week of seven area residents, who all pleaded not guilty, in the ongoing federal investigation into health benefits fraud has brought renewed attention to the case that has seen 23 South Jersey residents plead guilty since 2017.

In his plea agreement with the government, Margate physician Dr. John Gaffney admitted writing phony prescriptions for at least 200 public employees.

Federal subpoenas issued to the cities of Ventnor, Margate and Atlantic City, as well as the Margate School District and Mainland Regional High School, between June and August 2017 requested listings of all police, fire and city employees using Express Scripts, Medco and/or NJ Direct, the state’s health insurance plan. Medco was acquired by Express Scripts in 2013.

The two companies are examples of “pharmacy benefits managers” and essentially are the middlemen between insurance companies and pharmacies.

What is the scheme?

Prosecutors say the local scheme was the result of a group of pharmacy sales reps, doctors and public health employees working together to defraud the benefits plans.

Doctors allegedly wrote unnecessary prescriptions for specially mixed creams to their patients, who were public employees and part of the state’s health insurance benefits program.

The prescriptions were for libido, pain or vitamin creams. The patients numbered in the hundreds. But the common thread was that they all went to one pharmacy in Louisiana, which filled them and billed New Jersey $50 million. Of that money, prosecutors say $26 million went back to a company formed in Northfield.

The recruiters, allegedly led by William and Sara Hickman, of Northfield, had the public employees fill the prescriptions through the Louisiana pharmacy, and the participants in the scheme would receive kickbacks from the pharmacy.

What is drug compounding, and is it legal?

Yes, it is legal.

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 U.S. Food and Drug Administration.

Although the process is legal, it’s not without controversy. Efforts to make the drugs subject to FDA approval followed sickening and injuries that stemmed from unsafe compound medications.

But for some people, the compounding of a specially mixed drug is their only solution. People may require compounded medication due to allergies to specific ingredients in the commercial drug manufacturing process, or to create a specific application or dosage, said Keith Hartman, owner of the Egg Harbor Township compounding pharmacy Curexa.

Then why are compounding drugs being targeted?

Compounded medications, which are unregulated by the FDA, are legal and pharmacies can receive large payouts from insurers for the often expensive medications, which contributes to the abuse, said Michael Barnett, a professor of management and global business at Rutgers University and a fellow with the Institute of Ethical Leadership at the school.

Why target the state health benefits plans?

Louis Saccoccio, CEO of the National Health Care Anti-Fraud Association, said similar schemes have been committed using other large health benefits systems because of the vulnerability due to the amount of claims that come in and the fact they are processed online.

— Claire Lowe and Colt Shaw

Staff Writer

I began covering South Jersey in 2008 after graduating from Rowan University with a degree in journalism. I joined The Press in 2015. In 2013, I was awarded a NJPA award for feature writing as a reporter for The Current of Hamilton Township.

Staff Writer

I cover breaking news on the digital desk. I graduated from Temple University in Dec. 2017 and joined the Press in the fall of 2018. Previously, I freelanced, covering Pennsylvania state politics and criminal justice reform.

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