GOVERNMENT
Growth of Drug Diversion Schemes Threatens Safe Drug Supply Congressional report and hearings uncover a large variety of schemes and the inadequacy of present regulations to prevent them Each year thousands of prescription drugs are diverted illegally from their proper destinations. They may be resold, relabeled, repackaged, adulterated, poorly stored, shipped overseas, or counterfeited. The result is that consumers are not always getting the pharmaceuticals they should. The issue of drug diversion is not new, but recent events have led to heightened interest. A preliminary staff report from the House Subcommittee on Investigations & Oversight and hearings held by that subcommittee uncovered a variety of schemes that have led to large profits for some and potential tragedy for others. A highly publicized court case, this summer in Georgia also exposed this type of business—one variety of which is being touted as a legal way hospitals can make profits. Congressional interest took off last year when G. D. Searle discovered that its oral contraceptive Ovulen 21 had been counterfeited. More than 2 million counterfeit birth control pills are estimated to have been imported from Panama and distributed throughout the U.S. Searle says that at least five women claim to have become pregnant because of their reliance on the phony pills. It is bad enough that bogus birth control pills were being sold as effective, but what is of real concern is how fast and easily these counterfeit drugs were distributed through what is considered a tight regulato-
ry system. The preliminary investigation of such activities by the subcommittee staff revealed that there is nothing much to prevent such abuse. That's because the drug diversion market is huge. The subcommittee staff defines drug diversion as selling any brand-name product that is not obtained directly from the manufacturer or an authorized distributor. The pharmaceuticals can be purchased by one company but really be destined to end up with an unauthorized distributor. Or nonprofit hospitals, which can purchase drugs under a special exemption from federal antitrust laws, can order more of a drug than they need
and sell the rest to a diverter, who in turn sells that excess to retailers for a profit. A particularly common abuse is selling salesmen's samples, rather than giving them to doctors. For its study, the subcommittee staff requested information from 25 large pharmaceutical firms about whether they had problems with counterfeit or intentionally misbranded pharmaceuticals. The report concludes that a significant amount of drugs is being counterfeited or pirated by foreign firms for use outside the U.S. It appears that counterfeit drugs are not yet much of a problem in the U.S. A number of the companies surveyed
Drug diversion schemes have aura of legality A major drug diversion company operates openly in California promising hospitals large profits in its "Hospital Pharmacy Enhancement Program." In the company's promotional literature, included in the House Subcommittee on Oversight & Investigation staff report, it describes two programs that could net a 100-bed hospital $3000 to $8000 per month profit. In one plan, the company immediately pays the hospital 18% over the hospital's costs for prescription drugs when they are picked up. Under the second plan, the company takes the drugs, sells them through the distribution system, then pays the hospital 50% of the profits after deducting a handling fee. The company, unnamed in the report, says that this 100-bed hospital would have to order about $20,000 worth of additional pharmaceuticals per month for the company. A hospital that received this information questioned the program's legality and got a letter from the company's attorneys assuring no problems.
The firm is a licensed wholesale pharmaceutical distributor in California and says there are no regulatory problems with the programs it runs. It claims not to violate the antitrust provision of the Robinson-Patman Act because it deals only with multisource drugs. This means, according to the company attorney, that the prices of the drugs bought are based solely on competition and not on the company's desire to give not-for-profit hospitals a price break. The company also claims that contractual agreements with pharmaceutical firms calling for no resale of drugs are invalid in California and cannot be used against the hospital in court. The House subcommittee asked the opinion of the Justice Department of these and other arguments made for the resale of drugs by the company in its report. The lengthy memo from Justice counters virtually all the company's legal claims, making it quite clear that its programs would likely be in trouble if ever challenged in court.
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Government said they have seen their products copied in several countries or even on several continents. Examples from these firms show a wide range of schemes for selling the fake drugs. The concern is that poorly made drugs reflect badly on the U.S. company and could harm consumers, and that these counterfeit compounds could be sold on the U.S. market, as the Ovulin 21 case shows. Aside from compounds that are out-and-out counterfeits, the main sources of diverted drugs are company samples and drugs purchased by hospitals and clinics that end up being sold to other suppliers. Testimony presented at the hearing by Richard Allen, a senior agent for the Georgia Drugs & Narcotics Agency, says a recent statewide roundup of drug diverters found literally hundreds of thousands of pills and capsules being sold illegally. Allen was part of a combined Georgia/federal operation to uncover an extensive ring for fraud, mislabeling, and adulteration of drugs centered in the Atlanta area. According to statements at the subcommittee hearing, at least 46 guilty pleas are likely to result from the investigation, and more arrests are expected. The investigation began when a hospital pharmacy contacted Allen's agency, telling it that a diverter had offered the hospital $30,000 a month profit from selling overstocked and overordered prescription drugs. The hospital receives these at a large discount, either because of the volume it buys or because of a law, the RobinsonPatman Act, that permits nonprofit hospitals to receive special discounts from drug firms without violating antitrust laws. These diverted drugs are eventually sold by retailers at full price. The problem is what happens in between. Allen described finding medicines that were more than five years out of date stored in hot attics that probably severely damaged the effectiveness of the drugs. He told of pills that had been dropped onto glass fiber insulation or spilled onto oil-spattered service station pavement. He described operations in which high school students were hired to take pills out of their original packages so t h e y could be 18
September 2, 1985 C&EN
relabeled. Many of these were drug samples from which the word "sample" had been carefully removed. Although the problem involves everyone in the drug distribution process—doctors, salesmen, pharmacists, clinics, and hospitals—one particular aspect has been singled out as the major cause of the situation. According to John F. Schlegel, president of the American Pharmaceutical Association—the professional society for pharmacists—widely varying prices for pharmaceutical products must take a great deal of the blame. "Current industrywide chaotic pricing conditions and concessions to purchasers heavily implicated in drug diversion schemes threaten to destroy the entire drug distribution system," Schlegel says. Still, Schlegel m a i n t a i n s that counterfeiting is a more pressing problem because of the potential harm to pharmaceutical users. The Pharmaceutical Manufacturers Association has been fighting this problem for a long time. It finds that patent protection in many foreign countries is extremely poor or
nonexistent and that this is contributing to the ease with which fake prescription drugs get into the U.S. Copies of U.S. pharmaceuticals that have not been approved by the FDA are being made overseas and slipped into the drug distribution chain through these same kinds of drug diversion schemes as legitimate U.S.made drugs. No one can tell what the consequences of this might be because ineffective drugs are very difficult to detect. Legislation to try to correct the problem is still far from being proposed. The subcommittee plans more hearings throughout this year, including actual testimony from pharmaceutical diverters on how their scams operate. One possible direction the bill could take is some kind of manifest system for prescription drugs that would allow each subsequent purchaser of a product to be able to determine the product's history. In the meantime, about the only thing that can be done is to tighten up local and federal enforcement of existing laws. David Hanson, Washington
Rain sulfates in West linked to sulfur emissions Scientists from an environmental group are claiming to have shown that in Rocky Mountain states a linear, or one-to-one, relationship exists between acid sulfates in rainfall and sulfur dioxide emissions from copper smelters located up to 1000 miles away. This is the first direct evidence for such a link, say the authors. And the finding is relevant to the national debate over control of sulfur dioxide emissions to stem the scourge of acid rain and to negotiations between the U.S. and Mexico over control of smelter emissions in Arizona and Sonora. The new study tracks wet deposition data from eight sites that are part of a national monitoring network, and sulfur emissions from 10 smelters distant from the monitoring sites and located in four states nestled between the Sierra Mountains and the Continental Divide. It was undertaken by scientists from the Environmental Defense Fund, which long has lobbied for control of acid rain. The nearly two-year effort ex-
amines the relationship between the annual variation of sulfur emissions from those smelters and wet sulfate deposition at monitoring sites sometimes hundreds of miles away. However, Michael Oppenheimer says he and his coauthors, Charles
Oppenheimer: first direct evidence
