Four dozen people were charged in documents unsealed in Manhattan federal court with running a scheme to repackage and sell medication bought on the street from recipients of Medicaid, the medical insurance program for the poor and disabled.

Federal prosecutors and the Federal Bureau of Investigation said that Medicaid beneficiaries, some of them AIDS patients, would fill their monthly prescriptions at little or no cost only to immediately sell the drugs for cash to aggregators.

The aggregators then altered the drug containers to make them appear new and sold the medicines through an underground distribution market to pharmacists, who would buy the drugs at discounts, the authorities said.

No pharmacists or any of the Medicaid recipients who originally sold the drugs have been charged, Manhattan U.S. Attorney Preet Bharara said. Pharmacies have an "absolute duty" not to buy and sell second-hand drugs, which may in some cases be expired and dangerous to consume, Bharara said.

In one instance, a Medicaid recipient in the New York borough of the Bronx was paid $50 by one of the aggregators for a bottle of HIV drug Kaletra, New York City Police Commissioner Raymond Kelly said a press conference. Kaletra, marketed by Abbott Laboratories, retails for over $600, he said.

"People with real ailments were induced to sell their medications on the cheap rather than take them as prescribed," Janice Fedarcyk, head of the FBI's New York office, said at the press conference.

HIV medication Atripla, which Medicaid prices at $1,635 per bottle, was among the drugs that authorities said was illegally resold. Atripla is made by Gilead Sciences Inc and Bristol-Myers Squibb. Other drugs that were resold included asthma medication, schizophrenia drugs and pain killers.

Authorities said that in the last 15 months, the scheme cost Medicaid $108 million. In total, going back seven years, the fraud could be as much as $500 million, they said.

Charges were brought against 48 people. FBI spokesman Peter Donald said that 35 people were in custody, including 16 in the New York area, 13 in Florida and two in Pennsylvania.

The charges included conspiracy to commit wire fraud, mail fraud and healthcare fraud, as well as conspiracy to commit money laundering and prescription drug fraud. The defendants, who range from 21 to 75 years old, could face up to 20 years in prison if convicted.

The cases are USA v. Alex Oria et al and USA v. Juan Viera et al, U.S. District Court, Southern District of New York, Nos. 12-mag-1854 and 11-cr-1072.

(Reporting By Basil Katz; Editing by Martha Graybow, Paul Simao, Tim Dobbyn and Dan Grebler)

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