Manhattan U.S. Attorney, FBI, and IRS Announce Charges Against Pharmacy Owner in Multi-Million-Dollar Medicare, Medicaid Fraud Scheme
Defendant Allegedly Sold and Received Reimbursement from Medicare and Medicaid for Illegally Diverted Pharmaceuticals Obtained from Patients

Preet Bharara, the United States Attorney for the Southern District of New York; George Venizelos, the Assistant Director in Charge of the New York Field Office of the Federal Bureau of Investigation (FBI); and Toni Weirauch, the Special Agent in Charge of the New York Field Office of the Internal Revenue Service-Criminal Investigation (IRS-CI), announced that Purna Chandra Aramalla was arrested yesterday for engaging in a scheme to defraud Medicaid and Medicare through the sale of illegally diverted prescription drugs. Aramalla was also charged with a related money laundering offense. Aramalla was arrested yesterday morning and was presented in Manhattan federal court before U.S. Magistrate Judge Debra Freeman yesterday afternoon. A preliminary hearing is scheduled for January 13, 2014.

Manhattan U.S. Attorney Preet Bharara said, “The illegal diversion of prescription medications threatens the health of those induced to sell their medication rather than take it. It threatens the health of those who unwittingly purchase the repackaged drugs believing them to be factory-fresh. And, as alleged here, Purna Aramalla’s diversion scheme defrauded millions of dollars from Medicare and Medicaid, taxpayer-funded programs established to provide health care assistance for the elderly and indigent. This office is committed not only to punishing and preventing fraud, and safeguarding Medicare and Medicaid, but also to protecting the public.”

FBI Assistant Director in Charge Venizelos said, “As alleged in the complaint, Aramalla conspired to defraud our government health care programs and profit from the illness and misfortune of others. Aramalla treated our American health care system as a vehicle to fuel his greed and line his own pockets. The FBI, in conjunction with our law enforcement partners, will continue to investigate and bring to justice criminals who bilk the system and defraud the American taxpayer.”

IRS-CI Special Agent in Charge Weirauch said, “The illegal sale of prescription drugs by pharmaceutical professionals is an escalating problem. Not only does it put potentially dangerous medications in the wrong hands, but fraudulent Medicare and Medicaid reimbursements divert resources from the government. The money laundering statutes have always been effective tools in the fight against illegal drugs. We are now applying these same laws to the illegal prescription drug business, tracing the lucrative proceeds that the sales of these drugs generate.”

According to the allegations contained in the criminal complaint unsealed today:

Aramalla operates A Fair Deal Pharmacy Inc. in Queens, New York, and Quality Health Drug Inc. in Bronx, New York. Using these pharmacies, Aramalla allegedly carried out a multi-million-dollar scheme to defraud New York State Medicaid and Medicare programs through the sale of diverted pharmaceutical drugs, that is, drugs not obtained from legitimate sources.

As part of the scheme, Aramalla purchased pharmaceuticals, including high-cost medications used to treat HIV, that were obtained from patients who sold the pharmaceuticals rather than use them to treat their illnesses. Aramalla then repackaged and resold those pharmaceuticals to his customers, as if the pharmaceuticals were new drugs obtained from legitimate sources. Aramalla requested and received reimbursement from Medicaid and Medicare in connection with these sales, even though Medicaid and Medicare would not have been willing to reimburse the cost of second-hand drugs. In addition, in some cases, Medicaid or Medicare had already paid for the pharmaceuticals when they were initially dispensed. In order to make the diverted pharmaceuticals appear to be new pharmaceuticals from legitimate sources, Aramalla and his co-conspirators used lighter fluid and other means to dissolve the adhesive on the patient labels on prescription bottles so that they could be removed and replaced with new labels.

Aramalla also sought and obtained reimbursement for pharmaceuticals that were never actually dispensed to patients. Instead, customers with prescriptions for pharmaceuticals essentially “sold” their prescriptions to Aramalla, agreeing not to take delivery of the pharmaceuticals in exchange for a share of the reimbursed proceeds.

From October 2010 to August 2012, Aramalla purchased approximately $1.7 million of certain branded HIV medications from two legitimate, licensed wholesalers that were his primary sources of legitimate drugs. During that same period, he received approximately $4.3 million in reimbursements from Medicare and Medicaid for those same drugs, an amount far in excess of what he would have been entitled to had he only sought reimbursement for the legitimately obtained drugs.

* * *

Aramalla, 65, of Port Washington, New York, is charged with one count of conspiracy to commit health care fraud and wire fraud, which carries a maximum term of 20 years in prison, and one count of money laundering, which also carries a maximum term of 20 years in prison. He was ordered detained pending satisfaction of bail conditions, including a $2 million personal recognizance bond.

Mr. Bharara praised the outstanding investigative work of the FBI and the IRS. He also thanked the U.S. Department of Health and Human Services, Office of Inspector General; the New York State Office of Medicaid Inspector General; and the New York City Human Resources Administration.

The New York FBI Health Care Fraud Task Force was formed in 2007 in an effort to combat health care fraud in the greater New York City area. The task force comprises agents, officers, and investigators from the FBI, NYPD, the New York State Insurance Fraud Bureau, U.S. Department of Labor, U.S. Office of Personnel Management-Inspector General, U.S. Food and Drug Administration, New York State Attorney General’s Office, New York State Office of Medicaid Inspector General, New York State Health and Hospitals Inspector General, and the National Insurance Crime Bureau.

If you think you may have purchased second-hand prescription drugs or were otherwise victimized by this scheme, you can call the FBI Hotline at 212-384-3555.

The case is being prosecuted by the Office’s Complex Frauds Unit. Assistant U.S. Attorney Niketh Velamoor is in charge of the prosecution.

The charges contained in the complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

Follow the FBI’s New York Office on Twitter. Sign up for our e-mail alerts to receive the latest information from the FBI’s New York Office on breaking news, arrests, and fugitives.