Two veterans will serve prison terms for their roles in a scam that defraudedTRICARE out of $65 million in which he paid sailors and Marines to sign up for medications to treat erectile dysfunction and other medical conditions that they didn’t have, according to the Justice Department.

Marine veteran Joshua Morgan and Navy veteran Kyle Adams were recently sentenced to 21 months and 15 months in prison respectively, a Justice Department news release says. Other participants in the fraud have already been sentenced.

Both took part in a scheme between October 2014 and July 2015 that involved recruiting people to receive “compounded medications,” which are custom made to fit the needs of an individual patient, and then submitting fraudulent claims to TRICARE, court records show.

“For recruiting bogus patients, defendants Morgan and Adams were paid an illegal kickback of between 3 and 7% of the total TRICARE reimbursement paid to the pharmacy for the drugs sent to their recruits,” the Justice Department news release says.  “By the time this fraud scheme was in full swing, the average cost for these compounded drugs was over $13,000 for a 30-day supply, peaking at around $25,000 for individual drugs.” 

All told, Adams and Morgan defrauded TRICARE out of $11.5 million and $4.4 million respectively in insurance reimbursements, which they must now repay with interest as restitution, according to the Justice Department.

Crimes such as these took a heavy toll on the military’s healthcare system.

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“In mid-2015, TRICARE, the health care program that covers members of the military and their families, was facing insolvency because of a more than $2 billion explosion in liability for compounded prescription drugs, court records show. “The sharp increase in the number of these prescriptions was the result of multiple fraud schemes, including this one, that popped up around the country to take advantage of a billing change that led to fraudulently inflated costs for these rarely necessary hand-tailored drugs.”

Morgan was first approached by his cousin Amanda Morgan about being part of the scheme in November 2014, when he was a sergeant assigned to Marine Aviation Logistics Squadron 11 at Miramar Air Station, California, according to court records. He was told that he could receive $300 per month for receiving compounded creams and filling out evaluation forms.

“As he described it, as a Marine at the bottom of the pay scale, with a large car payment, he badly needed the extra money,” court records show. “Morgan signed up by filling out an ‘evaluation agreement’ and a medical form on which he checked boxes indicating he wished to receive two compounded creams, for stretch marks and scars, and a ‘general wellness tablet.’”

Eventually, Morgan agreed to recruit other Marines to sign up for compounded medications, for which he received a commission of 5% of the TRICARE reimbursements for the drugs. All his initial straw patients, who lived in military bases, received about $300 per month.

“As Morgan described it in his testimony in Tennessee, it wasn’t so much that he was marketing prescription creams, it was that he was marketing a free $300 per month to people who desperately needed the extra money,” according to court records.

Morgan was initially told to sign up people for two creams and one tablet, but he was later encouraged to recruit people to get an erectile dysfunction medication, for which TRICARE reimbursed patients $30,000 per month, court records show. As a sweetener, he offered people an extra $50 per month in kickbacks to sign up for the erectile dysfunction supplement.

For Morgan, money came with ease, according to court records. In fact, Morgan became so successful that he ended up hiring 28 other people to recruit bogus patients. Of the roughly $3 million Morgan earned, he paid about $438,000 to his underlings.

“As Morgan put it, ‘It took very little work to sign people up to receive free money,” court records show. “With his cut of the proceeds, Morgan reports that he spent lavishly, if profligately, on nightclubs and top-shelf alcohol. He also bought two luxury automobiles and converted a substantial amount to cash equivalents, which were seized by the United States.”

One of the people whom Morgan recruited to get more people to sign up for medications they didn’t need was Adams, who was an active-duty sailor assigned to Marine Corps Air Station Miramar, California at the time, court records show.

Adams later told prosecutors that his now ex-wife warned him that what he was doing was illegal based on her experience working for a medical company that got into trouble for something similar, according to court records.

“Adams ultimately conceded in his proffer that he had ‘turned a blind eye’ to the illegality of the scheme,” according to court records. “He explained that with the influx of so much money, ‘his processes shut off’ and ‘he was not thinking clearly.’ Adams ‘just went with it.’ Following his second payment from Jimmy Collins of $429,924.16, Adams stated that he ‘needed to stop selling the creams, but by then it was too late.’”

Eventually, Adams would oversee 88 sub-marketers, some of whom recruited even more people into the scheme, according to court records. He personally raked in more than $1 million in profits.

“With his cut of the proceeds, Adams bought gold and silver bullion, a motorcycle, a Lexus, paid off other debt, and converted a substantial amount to cash or equivalents,” court records show.

The sentencing of Adams and Morgan marks the last chapter in a fraud scheme that helped to push TRIDARE to the brink of bankruptcy, said Tara McGrath, U.S. Attorney for the Southern District of California. 

“Our military members and taxpayers deserve so much better,” McGrath said in an April 12 statement. “The magnitude and significance of this case reflects our continued dedication to the well-being of the armed forces and their families, as well as our steadfast protection of the U.S. taxpayer.”

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