The Emergence of Phantom Pharmacies

Federal health officials have failed in their efforts to police the emergence of phantom pharmacies, fly-by-night storefront operations that bilk millions of dollars in false Medicare bills then vanish with the cash. See CNN Money for more.

No permits are needed. There is no store or pharmacy as we know them. There are no medicines on the shelves, no employees, no ‘real’ in-store customers.  And yet, these fake pharmacies produce huge bills for medication, defrauding Medicare of millions of US dollars per year. Incredible, but true.  

How is this accomplished?  Thieves, crooks, fraudsters use a legitimate address to establish a fake pharmacy business; Then, using stolen ID and patient insurance ID numbers (mostly from seniors), scammers write fraudulent prescriptions for expensive drugs that were never actually prescribed; Next, they submit these fake prescriptions for reimbursement to insurers, Medicare or Medicaid. In a single claim, a fake pharmacy can make anywhere from $2,000 to $8,000.  Some "fraudster pharmacies" only exist a few days. By the time the fake reimbursements have been collected, the phantom pharmacies have long since closed and their operators have disappeared without a trace.

How could this happen you may ask?  Apparently, easily and via loopholes (what else is new) in the federal system of accountability. The fraudsters make use of a law that states that insurance companies have to settle bills submitted online by pharmacies within two weeks. The deadline for postal claims is 30 days.  Hence by the time authorities find out the storefront is a scam the fake pharmacy has moved on to ‘new’ targets.

Also not surprising is that these scams are growing and although it’s not clear how much money is being ‘stolen’ from the system this ‘fake pharmacy fraud’ costs taxpayers and insurers more than $60 billion a year. see cases below:

Senator Charles Grassley from Iowa pointed to eight phantom pharmacies from Miami and Los Angeles that were uncovered in 2008. A fraudster from Miami raked in $245,000 in less than three months before disappearing to Europe.

Another phantom pharmacy from Miami only existed for two days…billing $106,000 for HIV medicines. It was only after a neighbor came forward to confirm that the pharmacy did not exist that the insurer stopped the payments.

Two phantom pharmacies from Los Angeles each billed the same insurance company for one and a half years…one claiming 1.3 million dollars. The second ‘fake’ pharmacy billed 5 million dollars; the deception finally coming to light in an audit.

Sadly, trained health-care professionals are participating in these schemes and in some cases, ‘trusted’ corrupt doctors write prescriptions, while legitimate pharmacists operate the "phantom" business on the side.  In addition, organized crime rings have some involvement as well.

If this newest Medicare fraud triggered by independent “phantom pharmacies” doesn’t highlight the need to resist ANY efforts to dismantle programs that fight fraud, waste, and abuse; please tell us what does!

Clearly, it is difficult to nail these phantom pharmacies because their duration is short; most lasting between two and eight months before moving to a new address…and the quick disbursement of the claims for Medicare poses a huge challenge in stopping illegal claims.  The law (obviously it could use an overhaul) requires Medicare to settle these claims within two weeks…not nearly enough time to verify claims.

These “phantom pharmacies” bill Medicare, Medicaid and every other private insurer for fake prescriptions, hoping that no one will notice in time to report it…hence, defrauding the industry out of millions of dollars each year.

Consistently it seems, the government makes it extremely easy for for these (and other fraudsters) to ‘rip-off’ the taxpayers.  Medicare and Medicaid do not send out any statements of who charged what or how much, so if fraudulent activity is going on, no one is the wiser.  Although not sending out statements to clients/customers is seen as ‘cost effective’ it actually opens the door to fraud.

CNBC’s, CRIME Inc, first aired Deadly Prescriptions, June 27, 2011…it was an eye-opener to the additional havoc wreaked by illegal sales…20,000 persons dying each year from prescription drug sales and use gone awry.  The program airs again this week on CNBC…for times

The senior population is most often targeted by these types of fraud. Be aware of any ‘medicine’ activity in your family and be on the look-out for illegal prescription drug sales as well. 

Sara-Lynn Reynolds has a Degree in Health Education from UMASS, Amherst and is currently the Community and Education Liaison for Home Instead Senior Care Northern Bristol County, office located in Attleboro, MA. Her columns will offer advice, articles, stories and pertinent information regarding health, wellness and fitness