In Las Vegas, Lazaro Hernandez was a flamboyant, jet-setting poker player shown in televised tournaments with stacks of colourful chips. However the casually dressed gambler spotted on security cameras with wads of money on the casino cage was hiding a secret life.
And federal investigators say he was gambling with people’s lives. Hernandez, they are saying, oversaw a nationwide $230 million scheme to counterfeit prescription medications, particularly lifesaving HIV drugs, wherein pill bottles were altered and sold back to pharmacies at an enormous discount.
Hernandez’s operation altered bottles for Biktarvy, the No. 1 prescribed drug for HIV, in addition to Descovy, one other HIV medication, and other pharmaceuticals, in accordance with court records. In some cases, the records show, the pills within the bottles were swapped for Seroquel, an antipsychotic drug.
Hernandez, based in south Florida, gambled with proceeds from the counterfeiting operation, taking private jets to Las Vegas and appearing in quite a few poker tournaments, authorities say.
The drug counterfeiting scheme was a part of what the World Health Organization estimates is as much as $431 billion in drugs counterfeited worldwide annually. Within the U.S., there have been 2,121 incidents of counterfeiting in 2022, up 17% from the prior 12 months, in accordance with the Pharmaceutical Security Institute, which tracks industry trends.
It’s an enormous concern for Gilead Sciences, which has made it a priority to search out and fight prescription drug diversion and counterfeiting more broadly.
The corporate filed a lawsuit in July 2021 against 161 defendants, including pharmacies and wholesale pharmaceutical distributors, accusing them of participating within the scheme to change the corporate’s medications Biktarvy and Descovy. Johnson & Johnson filed the same lawsuit against 27 defendants over its HIV medication Symtuza in April 2022. Other lifesaving drugs have been counterfeited over the past several years, including cancer medications, in accordance with industry experts and law enforcement officials. The suits are pending.
“These criminals are preying on probably the most vulnerable,” said Lori Mayall, Gilead’s head of anti-counterfeiting and product security.
What makes a counterfeit medicine?
Lori Mayall, Gilead Sciences’ head of anti-counterfeiting and product security.
Source: CNBC
In an interview at Gilead’s headquarters in Foster City, California, Mayall explained what constitutes a counterfeit: Altered packaging, a bottle with the unsuitable tablets, the unsuitable cap or label and even the leaflet attached which accommodates necessary information in regards to the medication.
Here’s how drug diversion works: A patient fills a prescription for a drugs that’s value several thousand dollars but is paid for by Medicare, Medicaid or insurance. The patient then sells it for a fraction of the list price in money. The client, often known as an aggregator, removes the patient information, alters the bottle and sells it to the wholesale distributor, who sells it back to the pharmacy.
Biktarvy has a package list price of $3,795, although most patients’ copays are typically far less or they might obtain significant discounts through the corporate’s patient assistance programs, in accordance with Gilead.
Within the Gilead counterfeiting operation, which authorities say was overseen by Hernandez, the corporate discovered it had a possible problem in August 2020. That is when an independent pharmacy reported that a patient had received a sealed bottle of Biktarvy with Excedrin pills inside, in accordance with the lawsuit.
The bottle and label gave the impression to be authentic. Over the subsequent several months, the corporate received more complaints from patients and pharmacies that other sealed bottles of Biktarvy contained other medications, primarily Seroquel, the antipsychotic. Mayall said counterfeiters had obtained authentic empty bottles, filled them with the unsuitable pills and packaged them with a counterfeit seal. In a single case, she said, a patient temporarily couldn’t walk or talk after taking the Seroquel, but soon recovered.
“What we have seen is our bottles reused,” Mayall said. “They’re cleaned and repackaged to seem like real Gilead products.”
Every sale of a prescription medication is alleged to be tracked to supply a sequence of custody back to the manufacturer under the federal Drug Supply Chain Security Act. But that hasn’t stopped criminals comparable to Hernandez from circumventing the method by altering the labels and prescription paperwork and counterfeiting the availability chain documentation, in accordance with law enforcement officials interviewed by CNBC.
Typically, the crime starts at the road level, where patients are approached outside a homeless shelter or clinic, Mayall said. They’re induced to sell their month’s supply of Biktarvy, for instance, for several hundred dollars or less.
“It’s sort of the reverse of drug dealing on the streets,” Mayall said. “They go to those locations where they know there are patients who receive medicine that is been allotted from a pharmacy, and oftentimes these medications are given to the patients through government insurance or through other free drug programs, and they’ll pay the patients for his or her medicine and the bottles that include the drugs.”
Gilead’s war room
A “war room” at Gilead Sciences accommodates 1000’s of confiscated pill bottles.
Source: CNBC
Behind a locked door marked “war room” at Gilead headquarters are tens of 1000’s of pills and bottles. All were confiscated as counterfeits, Mayall said as she took CNBC on a recent tour. A few of the fakes are obvious since the paperwork accommodates quite a few misspellings.
Legitimate Gilead medicines are manufactured at the corporate after which sold to a licensed Gilead distributor, who then sells them to a pharmacy. The counterfeit medications within the war room, most of which were connected to the Hernandez case, were repackaged to seem like Gilead products, Mayall said.
The Gilead lawsuit includes 4 licensed distributors: Protected Chain Solutions, Scripts Wholesale, ProPharma Distribution and ProVen.
Of the 4, only Protected Chain Solutions, through its attorneys, responded to CNBC’s request for comment.
Protected Chain Solutions denied claims by Gilead within the suit that it sold or bought counterfeit pills.
“Protected Chain is a family-owned, full-service wholesale pharmaceutical company that gives a big selection of pharmaceuticals and other health care products to retail pharmacies and other healthcare facilities nationwide,” the statement said. “Independent wholesalers like Protected Chain play a significant role in supplying independent pharmacies, surgical centers, and other retailers with pharmaceuticals at prices and in volumes they might not obtain from larger wholesalers.”
The corporate said it “has never knowingly sold inauthentic drugs or drugs with falsified pedigree documentation, whether manufactured by Gilead or otherwise. It has never altered or fabricated drug transaction histories. Protected Chain and its owners were, at most, victims of this conspiracy.” It said it has shipped greater than 100,000 orders with about 2 million units since its founding in 2011 and deals only with licensed suppliers.
Authorities are investigating schemes wherein pill bottles containing pharmaceuticals are altered after which resold to pharmacies.
Source: HHS-OIG
“Protected Chain also communicated extensively with Gilead to research concerns about HIV drugs. Indeed, Gilead itself learned about several of those incidents directly from Protected Chain. Protected Chain provided documentation about a whole lot of bottles that it sold and further documentation showing what transaction history it had received from its own suppliers. Protected Chain even invited Gilead to examine its facilities to guarantee Gilead of its commitment to patient safety and to work collaboratively in investigating these serious issues. These aren’t the actions of knowing and willful counterfeiters,” the statement said.
ProPharma Distribution settled the Gilead suit for $3.3 million and agreed to be permanently prohibited from selling Gilead medications, court records show. Details of the total settlement are confidential, in accordance with Gilead attorneys.
Johnson & Johnson, in an announcement to CNBC, said it learned in November 2020 that counterfeit versions of its HIV medication Symtuza were being distributed to a few pharmacies within the U.S. The corporate said it then reported that to the Food and Drug Administration.
“Counterfeiting of life-saving medications is a criminal act that puts patient lives in danger,” Dr. Dave Anderson, an organization vice chairman, said within the statement. “Along with the anti-counterfeiting measures and legal motion we now have taken, we would like to remind all stakeholders in regards to the situation and supply specific guidance on how you can discover HIV medicines.”
Criminal schemes
Geoffrey Potter, a partner with the Latest York City-based law firm Patterson Belknap Webb & Tyler, represents each Gilead and Johnson & Johnson.
“We do not know the way much counterfeit medication is within the system because there isn’t a great way of measuring it. But after we do find these schemes, they’re very large,” he said.
Within the Hernandez case, which involved distributors throughout the country, Potter said, there was no easy technique to determine whether a pill bottle was real or fake just by it.
“Virtually no person inspects their medication before taking it, so that they would not give you the chance to inform,” he said.
Potter said counterfeiters comparable to Hernandez use sophisticated methods much like those favored by drug traffickers. That may not surprising, since plenty of them have been convicted of narcotics-related crimes, he added.
Stephen Mahmood, assistant special agent in charge on the U.S. Department of Health and Human Services’ Office of Inspector General, or HHS-OIG, said the extent of drug diversion fraud is alarming.
Stephen Mahmood, assistant special agent in charge on the U.S. Department of Health and Human Services’ Office of Inspector General.
Source: CNBC
“I’m saddened and disheartened that the schemes cross your entire United States and territories, but I’m not surprised. Fraud is all the time evolving,” Mahmood said.
Depending on the scheme, he said, a pharmacy may or may not know that it’s getting a counterfeit drug.
“A few of the pharmacies are involved with the fraudulent wholesalers. They know exactly what they’re doing,” he said. “Some are unwitting, and so they may get a fax from a wholesaler saying, ‘Hey, we now have a reduced drug.’ And as a consequence of competition and attempting to generate profits, they might buy the drug.”
In a 2014 case handled by HHS-OIG in Miami, agents used an informant wearing a hidden camera to film a lady, her husband and her adult son in a South Florida apartment altering medication bottles. The video, obtained by CNBC, shows how they used lighter fluid to remove the patient information affixed to the bottle.
“Because obviously nobody goes to sell a drug with another person’s name on it. They usually’re cleansing it to make it look latest again,” said Mahmood, describing the video as a “drug diversion in progress.”
The three were convicted of charges related to the unlicensed distribution of pharmaceuticals in 2015 and served prison time. All have since been released, and their attorneys didn’t reply to a request for comment.
A convicted felon who spoke to CNBC on the condition his identity wouldn’t be disclosed and who asked to be known as “Julio” said altering medication bottles was his life for about 10 years in South Florida.
“Julio” says he made thousands and thousands from the drug counterfeiting business.
Source: CNBC
“I used to be within the pill business. I used to have dealers within the road. The pharmacies buying pills from me, wholesale price,” he said.
He said patients desperate for money willingly forgo their essential medication.
“They’ll bring it to me. I’ll pay them. I’ll pack it up. I’ll clean it, make it look nice. Then I had a wholesaler who will buy it from me,” he said. He said the wholesaler would then sell the medications back to pharmacies.
Describing how he cleaned the bottles, he said, “Once I get them from the dealer, they arrive with the label over, with the person’s name. I even have a thing that I put — it’s like a liquid that we placed on it and we clean it, and we make it look brand latest again. It’s got to be brand latest so we are able to resell it.”
Eventually, he was caught and went to prison.
The FDA told CNBC it had nobody available to debate counterfeit drugs, but sent an announcement: “The FDA urges the general public to acquire pharmaceuticals only from state-licensed U.S. pharmacies or physicians which might be situated in the USA, where the FDA and state authorities can assure the standard of drug manufacturing, packaging, distribution and labeling. Non-FDA approved drugs may contain the unsuitable ingredients, contain too little, an excessive amount of, or no lively ingredient in any respect, contain other harmful ingredients, or be shipped and/or stored outside of approved conditions.”
For Lazaro Hernandez, his high-flying days ended abruptly earlier this 12 months. He pleaded guilty in April to conspiracy charges related to distributing adulterated and misbranded drugs and money laundering in reference to a $230 million fraud ring. In June, he was sentenced to fifteen years in prison.
In court documents, considered one of his attorneys said his “gambling addiction” was a “driving force behind his participation within the criminal conspiracy,” and said Hernandez recurrently took money from his sales of diverted drugs to casinos.
A special attorney for Hernandez said in an email that she had no comment on the case.
Not one of the distributors within the Gilead case have been criminally charged.
Nevertheless, Steven Diamanstein, the owner of Scripts Wholesale, based within the Brooklyn borough of Latest York City, was indicted in June on charges of shopping for greater than $150 million value of illegally diverted prescription HIV medication and reselling it to pharmacies, in accordance with the indictment and a Justice Department news release. He pleaded not guilty, and his attorney had no comment.
Other investigations into more counterfeit schemes are pending, law enforcement officials told CNBC, adding that altering pill bottles and the drugs themselves is just too lucrative for criminals to decelerate.
“We’d like to place locks on all of the doors and windows to maintain the criminals out,” Mayall said. “At once, it’s way too easy for these bottles which have been previously allotted to patients to make their way back into the availability chain.”