Atlantic City firefighter, two drug reps plead guilty in Shore Rx scheme

A retired Atlantic City firefighter and two pharmaceutical representatives pleaded guilty in federal court in Camden on Friday to their roles in a $28 million prescription drug benefits scheme that prosecutors say ensnared Shore firefighters, police officers, teachers, and a state trooper.

Michael Pepper, 45, of Northfield, N.J., a 10-year veteran of the Atlantic City Fire Department, pleaded guilty to participating in a conspiracy to defraud public health benefits with a kickback scheme involving compounded prescription benefits. His role netted him $113,000, prosecutors said, which is now subject to forfeiture.

Steven Urbanski, 37, of Marlton, and Thomas Hodnett, 41, of Voorhees, both pharmaceutical sales representatives, entered guilty pleas earlier in the day before U.S. District Judge Robert B. Kugler.

The pleas were the second day of public salvos in the FBI's unraveling of a far-reaching scheme to defraud public benefits programs with a kickback scheme involving an out-of-state compounding pharmacy between January 2015 and April 2016. Three drug representatives, the firefighter, and a gym-floor installer have pleaded guilty.

The ringleader, Matthew Tedesco, 42, pleaded guilty Thursday to overseeing the scheme, which involved recruiting firefighters, teachers, and police officers whose benefits plans covered the expensive individualized prescriptions.  The money paid to an unidentified compounding pharmacy was then passed along to drug representatives and others who recruited for and were recruited to the scheme.

The prescription drug scheme has for months been the subject of relentless rumors and anxiety in Shore towns worried about the impact on their public safety departments and schools.

The Margate, Ventnor, and Atlantic City governments have been subpoenaed by a federal grand jury this summer for lists of city employees with state health benefits. The Atlantic County Prosecutor's Office is also investigating health-care fraud and issued subpoenas for city and school district employees.

Pepper retired this month from the department and is now working in construction. He told the judge he had sought grief counseling three weeks ago when his best friend committed suicide. Pepper was close to Atlantic City Firefighter Albert Mallen Jr., who was struck by a train and killed June 27 in Absecon, on railroad tracks a few miles outside Atlantic City.

His attorney, Joseph A. Levin, said in a statement that Pepper "has acknowledged his mistake and accepted full responsibility for his actions."

"He has started the process of remediation by pleading guilty, by agreeing to forfeiture, by promising to pay restitution and by taking other positive action," he said.

"Everyone makes mistakes, and this mistake should not define Mr. Pepper, who has otherwise been an exemplary person who has served our country, state and community with honor and distinction," he said.

Chris Filiciello, chief of staff to Atlantic City Mayor Don Guardian, declined to comment and said Pepper "is no longer an employee."

Urbanski pleaded guilty to a role in obtaining $752,000 in fraudulent prescriptions, netting himself $113,668, which he will have to forfeit under the plea agreement. Hodnett's role totaled just under $1.5 million, netting him nearly $270,000.

James Leonard Jr., representing Hodnett, said in a statement: "Mr. Hodnett has accepted full responsibility for his participation in this enterprise and tremendously regrets his involvement."

Both men's roles involved recruiting public employees with health benefit plans that cover the prescription medicines, and arranging for prescriptions to be filled out with their information, signed by medical professionals, and sent to the compounding pharmacy, which paid a percentage of their reimbursements to the coconspirators.  That was then distributed down the line in the form of rewards and kickbacks to those involved, prosecutors said.

They face up to 10 years in prison in addition to the financial penalties. Sentencing was set for Dec. 5.

On Thursday, Tedesco admitted in court recruiting public employees — firefighters, police officers, teachers, and the trooper — with state and school employee public-health benefits to fraudulently obtain medically unnecessary prescriptions for compounded vitamins, pain cream, scar cream, libido cream, and anti-fungal cream.

Compounding is a practice in which "a licensed pharmacist combines, mixes or alters ingredients of one or more drugs in response to a prescription to create a medication tailored to the medical needs of an individual patient," typically used if a patient is allergic to an ingredient in a standard drug, according to the criminal information accompanying the plea.

The unnamed pharmacy involved in the charges outlined by the U.S. Attorney's Office was paid more than $50 million by the health plan's pharmacy benefits administrator for prescriptions mailed to individuals in New Jersey during 2015 and 2016. New Jersey was billed for those costs, the U.S. Attorney's Office said.