Date: Wed, 22 Oct 2003
Subject: #280 Washington Post Series Exposes Internet Drug Sales
WASHINGTON POST SERIES EXPOSES INTERNET DRUG SALES
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DrugSense FOCUS Alert # 280 October 21, 2003
As the newspaper of record in the nation s capital, the Washington
Post is one of the most influential newspapers in America. So when
the Post runs a series of front page articles on the pharmaceutical
industry, it will be read by members of Congress. The five-day series
identifying and documenting the shadow market for prescription drugs
resulted from a yearlong investigation by two Washington Post
reporters that included more than 500 interviews and the analysis of
100,000 pages of court filings, regulatory cases, investigative
reports and computer records.
The ongoing series presents a wealth of opportunities for activists to
get a drug policy reform argument into a newspaper read by key
policymakers. Potential talking points include:
* Pain management: due to an overzealous Drug Enforcement
Administration, under treatment of chronic pain is a serious problem
for Americans who suffer from intractable pain. Legislators need to
take great care to not further exacerbate the problem when attempting
to close the loopholes that have given rise to the growing trade in
illegal pharmaceuticals. For best results, make it personal when
using this argument.
* Skewed priorities: potentially deadly drugs are easily obtained via
the Internet, record numbers of Americans are abusing prescription
drugs, yet drug czar John Walters is focusing the federal governments
limited resources on a reefer madness revisited campaign. By raiding
voter-approved medical marijuana providers in California, the very
same federal government that claims illicit drug use funds terrorism
is forcing cancer and AIDS patients into the hands of street dealers.
* Market forces: the government s artificial manipulation of legal
drug supply has a created a highly-profitable shadow market in
pharmaceuticals replete with the same problems that plague the illegal
drug market. Drugs of dubious origin and fluctuating purity do pose a
public health risk. The experience of drug prohibition suggests that
government may be the problem, not the solution.
* Thank you: civility increases the likelihood of a published
response. Regardless of the reform angle you choose, be sure to
commend the Post for exposing serious problems within the
pharmaceutical industry.
Thanks for your effort and support.
It’s not what others do it’s what YOU do
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CONTACT INFO
Source: The Washington Post
Contact: Letters@washpost.com
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ORIGINAL ARTICLE
The entire series can be found at:
http://www.washingtonpost.com/wp-dyn/health/specials/pharmaceuticals/
U.S. Prescription Drug System Under Attack
Multibillion-Dollar Shadow Market Is Growing Stronger
By Gilbert M. Gaul and Mary Pat Flaherty
Washington Post Staff Writers
Sunday, October 19, 2003; Page A01
First of five articles
For half a century Americans could boast of the world’s safest, most
tightly regulated system for distributing prescription drugs. But now
that system is undercut by a growing illegal trade in pharmaceuticals,
fed by criminal profiteers, unscrupulous wholesalers, rogue Internet
sites and foreign pharmacies. In the past few years, middlemen have
siphoned off growing numbers of popular and lifesaving drugs and
diverted them into a multibillion-dollar shadow market. Crooks have
introduced counterfeit pharmaceuticals into the mainstream drug chain.
Fast-moving operators have hawked millions of doses of narcotics over
the Internet. The result too often is pharmaceutical roulette for
millions of unsuspecting Americans. Cancer patients receive
watered-down drugs. Teenagers overdose on narcotics ordered online.
AIDS clinics get fake HIV medicines. Normally, drugs follow a simple
route. Manufacturers sell them to one of the Big Three national
wholesalers — Cardinal Health Inc., McKesson Corp. and
AmerisourceBergen — which sell to drugstores, hospitals or doctors
offices. Regulators and industry officials have long considered this
straightforward chain to be the gold standard.
The shadow market exploits gaps in state and federal regulations to
corrupt this system, creating a wide-open drug bazaar that endangers
public health. A yearlong investigation by The Washington Post has
found: Networks of middlemen, felons and other opportunists operating
out of storefronts and garages fraudulently obtain deeply discounted
medicines intended for nursing homes and hospices.
The diverters have stored drugs in U-Hauls and car trunks in blazing
heat, stuffed them in plastic sandwich bags and traded them in a daisy
chain of transactions with no purpose except to enrich the traders.
Those drugs are ultimately sold to unwitting patients. The diverters
pave the way for counterfeiters who use pill-punching machines and
special inks to produce near-perfect copies of the most popular and
expensive drugs. Some fakes have passed undetected through wholesalers
to the shelves of retail pharmacies.
Pharmaceutical peddlers take advantage of lax regulations to move
millions of prescription drugs into the United States from Canada,
Mexico and elsewhere. Overwhelmed customs workers inspect less than 1
percent of an estimated 2 million packages containing medicine shipped
into the country each year. Virtually all of those shipments are
illegal, yet the Food and Drug Administration fails to enforce its own
import regulations, saying it lacks the resources to intercept the
illegal packages.
Rogue medical merchants set up Internet pharmacies that serve as
pipelines for narcotics, selling to drug abusers and others who never
see doctors in person or undergo tests. The sellers move tens of
millions of doses of hydrocodone, Xanax, Valium, Ritalin, OxyContin
and other controlled substances. Scores of customers have become
addicted, overdosed or died. The shadow market, which includes both
legal and illegal operators, has grown rapidly yet received little
public attention.
Isolated problems nationwide have attracted the interest of some state
and federal prosecutors and resulted in lawsuits. But the increasing
recalls of tainted medicines, overdoses on Internet-bought drugs and
cross-border pharmaceutical trade are part of a larger pattern. Taken
together, the worst elements of the shadow market constitute a new
form of organized crime that now threatens public health.
In St. Charles, Mo., Maxine Blount, a 61-year-old woman with advanced
breast cancer, received a diluted drug distributed to her local
drugstore. “It makes you angry,” she said in an interview last year.
“It shakes your faith. It saps strength you need to live.” She died of
her cancer a month after the interview.
In La Mesa, Calif., Ryan T. Haight, 18, died in his bedroom of an
overdose after taking narcotics obtained on the Internet.
In Sacramento, James Lewis, 47, shopped the world for painkillers that
flowed unimpeded from pharmacies in South Africa, Thailand and Spain.
His wife discovered him dead of an overdose on the living room couch.
These victims are emblematic of the dangers that occur when
profiteering and cowboy criminality invade the nation’s drug
distribution system.
The shadow market takes advantage of technology, global trade, vast
disparities in pharmaceutical prices, the explosive growth of enticing
new miracle drugs and the self-medicating habits of an aging baby-boom
population. It extends from small, backroom operations to buck-raking
Internet pharmacies to the warehouses of the nation’s largest drug
distributors.
Diverters reap millions illegally by buying drugs at a discount to
sell to secondary wholesalers, which then sell them to other
distributors, including the Big Three wholesalers that supply most
major hospitals and chain stores. The Big Three risk buying from these
secondary sources because they can get drugs more cheaply than if they
bought them directly from manufacturers. In some cases, the drugs have
turned out to be diverted, diluted or counterfeited.
William K. Hubbard, senior associate FDA commissioner, stressed that
the U.S. drug distribution system is the safest in the world. “People
can have a high degree of confidence,” he said in an interview. Yet he
acknowledged that in recent months the FDA has been overwhelmed by
illegal imports from Canada and offshore pharmacies. The agency also
had to apologize to Congress in June for releasing a quarantined
shipment of fake Viagra to consumers. And the FDA is now scrambling to
keep up with a rise in drug counterfeiting.
Phony medicines have surfaced in pharmacies from Florida to Hawaii,
including tens of thousands of doses discovered in warehouses of the
Big Three wholesalers. Last summer, nearly 200,000 tablets of Lipitor,
the world’s best-selling cholesterol-lowering medication, was found to
be counterfeit and recalled by a small Missouri wholesaler. Some of
the pills had already reached Rite Aid and CVS pharmacies.
“This is hurting people,” said Thomas E. Getz, a federal prosecutor in
Cleveland who has pursued pharmaceutical fraud. “It’s one thing to ask
people to choose between name brand or generic,” he said. It’s another
to “choose a bottle that came from a manufacturer or one that’s been
sitting in a hot semi for three weeks.” In the past year, a Texas
wholesaler bought cancer drugs that had been spirited out in backpacks
and, at least once, in a fast-food bag, from Methodist Hospital and
the University of Texas M.D. Anderson Cancer Center in Houston. A
drugstore in Scotch Plains, N.J., sold insulin and brand-name drugs
stolen from Beth Israel Deaconess Medical Center in Boston. Pharmacies
and wholesalers from Miami to Los Angeles sold medicines that Medicaid
fraud rings bought on the streets.
The growth of the shadow market comes as Americans are spending more
money than ever on prescription drugs. Between 1994 and 2001, the
number of prescriptions swelled to 3.1 billion — a nearly 50 percent
increase. In nearly the same period, sales soared from $61 billion to
$155 billion. There were several reasons for this. Americans took
advantage of new and better medicines, including a range of preventive
drugs. Insurers promoted the use of prescription drugs to keep down
the number of more expensive hospital stays. Employers picked up a
large share of drug costs. And advertising by drug manufacturers drove
demand, especially for lifestyle drugs such as Viagra and Celebrex.
“Americans want their Lipitor,” said David B. Nash, a physician who
directs the Office of Health Policy and Clinical Outcomes at Thomas
Jefferson University in Philadelphia. “They want to be able to take it
on their way to McDonald’s.”
The Drug ‘Diverters’
At the center of the shadow market are the “diverters” — armies of
little-known brokers who illegally gain control of discounted
medicines intended for nursing homes, hospices and AIDS clinics. Those
drugs are supposed to be sold only to small pharmacies that serve
those facilities and have no retail business. In return for favorable
prices from drug manufacturers — as much as 80 percent off — the
pharmacies must enter into contracts pledging not to resell those
drugs on the open market. For that reason, they are also known as
“closed-door pharmacies.” But criminals often hide behind those closed
doors.
An examination of numerous court filings shows that drug diverters
from Florida to North Dakota to California have set up hundreds of
institutional pharmacies, buying billions of dollars’ worth of
prescription drugs. In some cases, the diverters get their own
licenses in states where regulation is lax. In other instances, they
use straw men to front for them. In still others, the diverters bribe
owners of closed-door pharmacies to order drugs for them.
Often, fraudulent closed-door pharmacies consist of little more than a
desk, a fax machine and a few shelves. Yet they place excessively
large orders with drug manufacturers. Anthony Rizzo, who owned a small
drugstore in Jamestown, N.Y., obtained millions of dollars in
discounted drugs by claiming to serve nursing homes with 4,100 beds.
In fact, he served none, court records show. “In an ideal world, the
volume of his orders should have raised red flags, but everyone was
too happy to be making a buck,” said John E. Rogowski, who prosecuted
Rizzo, now in prison. The diverters take the discounted drugs, mark up
the prices and rapidly move them to small wholesalers who add another
markup and sell to other wholesalers. In some cases, pharmaceuticals
may change hands six or more times, going from state to state.
No one knows how big the drug diversion market is. State and federal
investigators say losses easily amount to billions of dollars
annually. If Jesse James were alive, “he wouldn’t make his money
robbing banks,” said Terrell Vermillion, who oversees criminal
investigations for the FDA. “He would have a cell phone, fax and mail
drop and be an illicit-drug diverter.”
One of the masters is Marty Rubin, a hulking 53-year-old with a
penchant for Las Vegas gambling tables. Rubin moved from Brooklyn to
California with hopes of pitching in the major leagues. When that did
not happen, he became a stock boy in a drugstore and found the
business “he loved,” his lawyer later said. His real business was
fraud. Three times since 1989, Rubin has been caught diverting
medications. Federal cases in Phoenix, Kansas City, Mo., and Los
Angeles depict Rubin as the man behind pharmacies and wholesaling
operations throughout the West and Southwest that illegally moved $12
million worth of drugs. He has repeatedly apologized to judges and
promised not to divert again. Each time, he has broken his promise.
Rubin, who declined requests for an interview, is finishing up a
five-year federal sentence. As drugs are diverted, the integrity of
the country’s drug distribution chain is imperiled, said Louis Ling,
general counsel to the Nevada State Board of Pharmacy. Diversion, he
said, has “gone from being an embarrassing nuisance to a dangerous
piracy.”
Many Licenses, Few Inspectors
Existing laws and regulations present few barriers to entry into the
wholesale drug market. It can be harder to become licensed as a
beautician than as a pharmaceutical distributor. With a $700 permit
fee and a $200 bond, a pair of Florida manicurists got a license to
sell intravenous drugs. An auto body shop owner in Miami got a license
to sell drugs in Maryland. Nevada awarded a license to a 23-year-old
former restaurant hostess to operate an Internet pharmacy that
specialized in narcotics. “The problem is, just about anybody can get
a license: 50 states, 50 sets of rules, 50 places to venue shop,” said
Joe Riley, an FBI agent in Newark who has investigated pharmaceuticals
stolen in cargo heists. “And that’s the first thing that’s thrown back
once they’re caught with stolen goods or counterfeit drugs: ‘Hey, the
guy I bought from faxed me a copy of his license.’ ” Florida gave
licenses to at least a half-dozen felons, records show. Two states —
Georgia and Tennessee — gave a wholesaler license to James R. Suozzo
of Fort Lauderdale, Fla., a convicted cocaine user with a long history
of heroin abuse, investigative records show. Suozzo’s background
surfaced when he was arrested in February on suspicion of attempting
to sell adulterated Procrit, Epogen and Neupogen to another small
wholesaler. His attorney, Ty Terrell, declined to comment.
Nationwide, there are an estimated 6,500 small wholesalers, yet most
states have only a handful of inspectors. In some states, amusement
park rides, elevators and even dog kennels are inspected more
frequently than drug wholesalers.
Virginia has nine inspectors for 684 wholesalers; Maryland has seven
for 632. Maryland permits wholesalers to operate from private homes,
which explains how Ultra Medical Inc. is licensed at a buff-colored
split-level with maroon shutters on High Tor Hill Drive, a cul-de-sac
in Columbia. The company Web site advertises products for cancer, HIV
and plasma.
Pauline Clarke answered the door recently and said she ships and
receives pharmaceuticals for Ultra Medical, whose president lives in
Atlanta. “I try not to keep the refrigerated stuff more than 24
hours,” said Clarke, who declined to allow a reporter inside. Company
president Sony Roy said in an phone interview from Atlanta that Ultra
Medical has only “two or three customers who buy from time to time.”
The Web site is out of date, Roy said, and the company “is dwindling.”
Nationwide, federal investigators cannot compensate for the outmanned
state regulators. The FDA has 170 criminal investigators who must
stretch to cover cases involving everything from spoiled food to
herbal medicine to complicated drugs.
In 1988, Congress attempted to stop diverters by passing the
Prescription Drug Marketing Act. The law required that wholesalers
provide a piece of paper — similar to a car title — disclosing all
prior sales. The paper trail, known as a pedigree, would allow each
wholesaler to verify they were buying from reputable sources. But
wholesalers objected to what they deemed to be burdensome paperwork
and said the new law would drive some smaller wholesalers out of
business. Small wholesalers fill gaps in rural and niche markets, said
Amanda Forster, spokeswoman for the Healthcare Distribution Management
Association, a trade group. The small wholesalers are part of a supply
chain that is “incredibly safe and secure.”
On four occasions, wholesalers’ protests caused the FDA to back off
from implementing the rule, leaving it in limbo for 15 years. “It is
not surprising, then, that some pharmaceutical wholesalers have fought
so hard and long to keep the federal rule in abeyance,” a Florida
grand jury concluded earlier this year. “In essence, the wholesale
industry is fighting for the right to keep secret from their own
customers the history of the drugs that they’re being sold.” Rep. John
D. Dingell (D-Mich.), who pushed the original bill, said, “Counterfeit
drugs are becoming a bigger problem now than when the bill was passed
in 1988. The FDA clearly needs to do more.” When some states crack
down, the problem shifts elsewhere.
In the late 1990s, Nevada tightened its licensing requirements and
limited the amount of product a wholesaler could sell to another
wholesaler. Nevada’s number of licensed wholesalers plummeted from
about 50 in 2002 to eight this year.
But they merely moved across the state line, said Judi Nurse,
supervising inspector for the California Board of Pharmacy. “We have
more of them now than ever,” she said. “I’m scrambling just to try to
keep up.” The Big Three Drug Wholesalers
Three Fortune 500 companies — Cardinal Health Inc. of Dublin, Ohio;
McKesson Corp. of San Francisco; and AmerisourceBergen of
Chesterbrook, Pa. — dominate the drug wholesaling industry, with
combined annual revenue of $146 billion. They are known in the
business as the Big Three. The wholesale drug industry is
characterized by high volumes and a razor-thin profit margin of about
1 percent of revenue. If the large wholesalers can purchase drugs for
less than the manufacturer’s price, the spread goes straight to their
bottom line.
The firms said they sometimes buy from smaller companies when reserves
are tight, a sudden need arises or special promotions produce better
prices. All three firms said they limit purchases from smaller
wholesalers: McKesson, 1 percent; AmerisourceBergen, 2 percent; and
Cardinal, 3 percent. And all three said that since 2001 they have been
buying cancer, injectable and other drugs attractive to criminals only
from manufacturers. James Larkin, spokesman for McKesson, said the
company does “rigorous due diligence” on the small
wholesalers.
But lawsuits and drug recalls show that deals with small wholesalers
have exposed the Big Three to counterfeit and diverted medications.
Since 2000, the large wholesalers have had to recall thousands of
bottles of counterfeit product. On occasion, the giants have sued
small wholesalers, alleging that they were the source of the bad
drugs. In 2000, AmerisourceBergen bought 52 bottles of counterfeit
Retrovir, an HIV medication, from a small Ohio wholesaler, Florida
health inspectors said. The bottles were found during a routine
inspection in 2001 at AmerisourceBergen’s Orlando distribution center.
By turning to the smaller wholesaler rather than buying directly from
the drug’s manufacturer, AmerisourceBergen saved about $8 per bottle
on a product that costs nearly $300 a bottle, sales records show.
The company paid a $50,000 fine in the Orlando case. In a letter to
Florida authorities, the company said that it “regrets that alleged
counterfeit Retrovir was received and distributed.” The letter also
said that “due to the volume of product received daily,” the company
“is not able to inspect each piece of product that is received.” In
1999, federal prosecutors in Las Vegas targeted Amerisource as part of
a broad investigation of illegal drug diversion in the Southwest.
Working with Fred Evans, a two-time felon, the FBI set up an
undercover business known as V.N. Chicago Inc. in Las Vegas. In seven
months, V.N. bought $31.2 million worth of deeply discounted drugs
meant for hospices and nursing homes from the Sacramento division of
Amerisource.
V.N. quickly diverted the drugs to other smaller wholesalers, earning
nearly $1 million in profit. The FBI in Las Vegas shut down its
investigation in February 2000 without charging Amerisource or the
other wholesalers. The case lay dormant for two years until FDA and
FBI agents in California took over the file. In July, the U.S.
attorney in Sacramento charged Robert Strusz, a sales manager at
Amerisource’s distribution center there, with mail fraud. He pleaded
guilty in August and is cooperating with investigators. Strusz had
worked closely with Evans to arrange the sale of the discounted drugs
to V.N. Chicago. Strusz saw his bonus boosted by the sales and he also
received kickbacks, according to his plea agreement. A spokesman for
AmerisourceBergen said the diversion scheme stopped at Strusz, who
declined to comment. The spokesman said the company became suspicious
of Evans in January 2000 and stopped selling to him a month later.
‘Golden Boy’ Gets Caught
In the mid-1990s, David Dyck was known as the “golden boy” around
Bindley Western Industries Inc.’s drug distribution center in San
Dimas, Calif., federal investigators said. Personable and charming,
Dyck brought in millions in sales and played a large role in making
San Dimas one of the huge wholesaler’s most profitable hubs. Dyck’s
job included recruiting business from the hundreds of closed-door
pharmacies in the Southern California-Las Vegas corridor. He took his
job an extra, illegal step, introducing those pharmacies to diverters.
Dyck was paid handsomely, court records show. He received
approximately $500,000, which he funneled through a shell company he
set up in his daughter’s name, Santa Susanna Consultants Inc. He was
caught by a federal investigation. In 1999, he pleaded guilty to mail
fraud and began to cooperate. Nearly 18 months later, Bindley pleaded
guilty to conspiracy in federal court in Nevada and agreed to pay a
record $20 million fine.
The San Dimas case was not the first time Bindley’s name surfaced in
drug diversion. In 1989, the company pleaded guilty to mail fraud
involving its Atlanta distribution center and paid a $500,000 fine.
Four Bindley managers, including a top executive at headquarters in
Indianapolis, also pleaded guilty. Bindley did not respond to a
request for an interview. However, in a 2000 news release, company
officials said they were “shocked” to learn of Dyck’s crimes. Dyck,
who now works for another California health care company, recently
said in an interview, “Believe me, I didn’t do anything without the
knowledge of superiors. Do you think Bindley paid $20 million because
I did something wrong?”
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SAMPLE LETTER
Dear Editor,
I’ve been following your series on the pharmaceutical industry.
Apparently the legal drug market is experiencing the same problems
that have plagued the illegal market for years: counterfeit drugs,
dosages of fluctuating purity and greedy middleman. The experience of
the war on drugs does not inspire confidence in the ability of
government to regulate away the problem.
Perhaps it’s a question of priorities. When watching television I am
invariably exposed to the White House Office of National Drug Control
Policy’s ubiquitous anti-marijuana campaign. When checking email I am
invariably exposed to numerous SPAM messages from internet pharmacies
trying to sell me Viagra and prescription painkillers.
Like millions of Americans, I smoked marijuana in my youth, so I know
it’s not nearly as exciting as the drug czar’s sensationalist reefer
madness campaign would have kids believe. As a parent, I worry more
about the internet pharmacies peddling potentially deadly drugs.
Thank you for exposing a glaring public health problem that needs to
be addressed.
Sincerely,
Juan Costo
Please note: This is a sample letter only. Your own letter should be
substantially different so that it will be considered adding to the
discussion.
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