Grand Jury Indicts 14 in L.A.-Based OxyContin Ring that Allegedly Distributed Over 1 Million Pills of the Highly Addictive Painkillers

Two Doctors and Pharmacist Charged in Scheme that Used Medicare to Pay for Drugs that Were Diverted to Black Market through Street Sales

LOS ANGELES – Federal and state authorities this morning arrested 10 defendants – including two doctors – who are named in a federal indictment that alleges members of a drug trafficking organization illegally obtained and distributed more than 1 million OxyContin pills obtained largely through fraud against public insurance programs such as Medicare.

The indictment, which names 14 defendants, outlines the first scheme alleged in California in which Medicare Part D was victimized. The drug distribution ring allegedly was run out of a Los Angeles medical clinic, where doctors wrote OxyContin prescriptions for Medicare, Medi-Cal and uninsured patients who did not need the powerful painkiller. The OxyContin was obtained from pharmacies, often by fraudulently billing the public insurance programs, and leaders of the organization allegedly resold the OxyContin on the street, reaping millions of dollars in profits.

More than 1 million maximum-strength OxyContin pills were diverted to the street, where they were sold for between approximately $23 and $27 per pill, according to the indictment.

The indictment also alleges that some of the OxyContin was obtained through prescriptions for “patients” whose identities and Medicare beneficiary information had been stolen, and that members of the organization simply paid full retail price – approximately $1,200 for a single bottle – for some of the OxyContin because resale on the black market brought such large profits.

“The two-year investigation into this organization reveals the sophisticated nature of today’s drug traffickers,” said United States Attorney André Birotte Jr. “With a medical clinic and doctors to lend it legitimacy, the organization not only flooded the streets of Los Angeles with an extremely dangerous narcotic, it also bilked a government-run program designed to help the poor and elderly.”

The indictment alleges a conspiracy to distribute controlled substances, a conspiracy to commit health care fraud, substantive health care fraud charges, and unlicensed wholesale distribution of prescription drugs.

“Our agents dismantled a well-organized drug trafficking network including doctors, clinic administrators and pharmacists who were supposed to help people, but instead conspired to defraud the state,” stated California Attorney General Kamala D. Harris. “I commend their work.”

The scheme was orchestrated by Mike Mikaelian and Anjelika Sanamian, who operated the Lake Medical Group on West 8th Street in Los Angeles, according to the indictment, which calls the clinic a “prescription mill” that both generated prescriptions for unneeded OxyContin and submitted claims to Medicare and Medi-Cal for medical services that were unnecessary or were never performed. The indictment alleges that medical doctors Eleanore Santiago and Morris Halfon knowingly diverted the OxyContin by prescribing it to individuals who did not have a medical need. The indictment further alleges that a significant percentage of the prescriptions were filled at pharmacies owned by defendant Theodore Yoon.

The indictment alleges that Lake Medical Group used recruiters – generally called “cappers” – who brought Medicare and Medi-Cal patients to the clinic in exchange for cash or other rewards. The “patients” were seen by a medical doctor or physician’s assistant, who would provide a prescription for the maximum dosage of OxyContin – 90 pills at 80mg strength – and order unnecessary medical tests and procedures to help justify the OxyContin prescriptions. “Runners” employed by the Lake Medical Group took the recruited “patients” to pharmacies, where they obtained the OxyContin, which was then delivered to Mikaelian, who then sold it on the street.

“Prescription drug abuse has reached epidemic levels, with more than 7 million people using prescription drugs for non-medical reasons every month,” said Timothy J. Landrum, Special Agent in Charge of the Drug Enforcement Administration in Los Angeles. “Today’s arrests have taken a complex network of drug dealers out of our communities – drug dealers who were abusing their authority in the medical community to profit from those vulnerable to these drugs.”

In many cases, Lake Medical Group was able to obtain the OxyContin for free. The indictment alleges that the pharmacy dispensing the OxyContin received payment for the narcotics by billing the “patients’” Medicare Part D prescription drug programs for the OxyContin prescriptions.

The clinic operated for approximately 18 months, during which time doctors working at Lake Medical Group prescribed OxyContin 10,833 times. During this time, Medicare Part D and Medicare prescription drug programs paid more than $2.7 million for OxyContin prescriptions generated by the clinic and its doctors.

During the same period – August 2008 through early February 2010 – the clinic and its doctors fraudulently billed Medicare approximately $4.6 million and Medi-Cal approximately $1.6 for alleged medical services that were either not performed or were unnecessary, according to the indictment.

“Today’s coordinated arrests make clear we will pursue all the links – be they doctors, pharmacists, or others – in the Medicare fraud chain,” said Glenn Ferry,  Special Agent in Charge of the U.S. Department of Health and Human Services, Office of Inspector General’s region in Los Angeles. “Schemes that steal from taxpayers to pay for high-profit street drugs – as the government alleges in this case – will trigger investigation and prosecution.”

Thomas Emerick, Special Agent in Charge of the U.S. Food and Drug Administration’s Office of Criminal Investigations, Los Angeles Field Office, commented: “The defendants in this case demonstrated blatant disregard for the health and welfare of the general public by illegally obtaining and distributing prescription drugs. We commend our law enforcement partners for their dedicated and collaborative efforts in pursuing this prosecution.”

Those taken into custody today, either through arrest or self-surrender to authorities, are expected to be arraigned this afternoon in United States District Court. A complete list of defendants is attached to this press release.

An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed innocent until and unless proven guilty.

This investigation, which was called Operation “Dirty Lake,” was conducted by the California Department of Justice, Bureau of Medi-Cal Fraud and Elder Abuse; the United States Department of Health and Human Services, Office of the Inspector General; the California Department of Health Care Services, Investigations Branch; the
Los Angeles County Sheriff’s Department – HALT Team; the United States Food and Drug Administration, Office of Criminal Investigations; the Federal Bureau of Investigation; and the Drug Enforcement Administration.

Suspected Medicare fraud can be reported to the HHS Office of Inspector General Hotline at: 1-800-HHS-TIPS (1-800-447-8477). To obtain more information or report suspected fraud, go to http://www.oig.hhs.gov/fraud/report-fraud/index.asp.

The California Bureau of Medi-Cal Fraud and Elder Abuse Hotline number is 1-800-722-0432. Suspected fraud related to the Medi-Cal program can be made at http://ag.ca.gov/bmfea/.