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DRUG DIVERSION CONTINUES TO BE "THRIVING BUSINESS" DUE TO FDA’s FAILURE TO ENFORCE LAW, REP. DINGELL ASSERTS AT HEARING TO SUPPORT RESTORATION OF IG AUTHORITY

Executive Summary

Prescription drug diversion is "a thriving business," relatively unaffected by the enactment of the 1988 Prescription Drug Marketing Act, Rep. Dingell (D-Mich.) declared at a June 20 House Energy & Commerce/Oversight subcommittee hearing. FDA's failure to cope with drug diversion is indicative of its larger inability to enforce the FD&C Act, Dingell suggested. Dingell maintained that FDA's failure to publish regulations on the diversion act more than two years after its passage is exemplary of the negative consequences of intragovernmental turf battles between the offices of the inspectors general and the Justice Department. "As we will hear...today," Dingell said in his opening statement, "the Department of Justice assurances" in the post-HHS IG oversight authority period "were thoroughly misleading. The villains who have learned to flout the Food, Drug and Cosmetic Act with impunity are, once again, free to ignore the law." The quick passage of the Dingell-Bliley FDA Emergency bill (HR 4810) "will assure that the diligent and honest cops are returned to the cases," Dingell asserted. One of the witness panels at the hearing consisted of drug enforcement officials, who described in turn the shortcomings of FDA as a felony investigatory body when presented with evidence of prescription drug diversion. Georgia Drugs & Narcotics Agency Senior Agent Richard Allen pointed the finger at FDA for not promulgating regulations for the Dingell Drug Diversion Act of 1988. Allen, who had testified at 1985 and 1986 Dingell hearings on the FBI's "Pharmoney" drug diversion scandal, told the subcommittee: "From what I know, and from what my sources across the country have told me, prescription drug diversion has now reached a level of activity comparable to what it was before Pharmoney." Some Pharmoney players continue to be suspected of trafficking in diverted drugs, according to Allen. Asked by staffer David Nelson about Moore Medical, (formerly H.L. Moore), Allen said "they were the prime suspects" in the shipment of "$100,000 worth of steroids into Georgia last September to a doctor." Asked if he "recognized" any current or former members of the National Association of Pharmaceutical Manufacturers who had been involved in Pharmoney, Allen said "yessir." Dingell's investigation into the generic drug scandal has been critical of NAPM. Florida Department of Health & Rehabilitative Services State Pharmacy Officer Richard Grant concurred with Allen's assessment. He selected two examples of diversion as typical of the problems encountered in Florida. In the first, involving a Florida HMO, "we found reason to believe on at least two occasions that marketing representatives" of PMA member manufacturers "were knowingly involved," Grant told the subcommittee. The second investigation, of United Wholesale, Inc. of Ft. Lauderdale, involved "several million dollars worth of specially priced drugs," Grant told the hearing. However, the only people against whom action was taken were Florida companies because the state has been unable to obtain assistance from other states or federal agencies, Grant remarked. Specially priced drugs were shipped directly to Florida pharmacies from "major out of state drug manufacturers and billed through an Oklahoma drug company." The drugs were delivered to the pharmacies, Grant said, while the Oklahoma firm substituted invoices stating that the products were sold and shipped to United Wholesale. Diversion was easy; the Florida wholesaler diverted the drugs "simply by picking up the drugs when they were delivered," Grant explained. Florida officer Grant noted that an increasing problem in his state is the illegal reimport of diverted drugs. "Now, some drugs" that show up in diverted distribution channels "never leave the U.S., but have false papers" claiming they were exported, Grant said, recounting a new twist in diversion. The state has "at least 60" pharmacies involved in open investigations into diversion, Grant contended. One diverter routinely and openly makes deliveries of "baggies" of diverted drugs from his Rolls-Royce, Grant added. Indicating the recent growth in the problem, Grant added that the diverter used to drive a Cadillac. One case Grant reported links the problems of diversion and illegal anabolic steroids. The investigation, which is ongoing, involves a drug wholesaler with interstate shipments of "110,000 vials of which only 20,000 were accounted for with proper records. * He suggested for Dingell's consideration that future FDA reform legislation include mandatory drug lot number labeling on invoices, to make tracking of the "paper trail" of diverted goods easier on state investigatory agencies. Both Grant and Allen also suggested that manufacturers should implement a rigid audit program. Wyeth-Ayerst, Schering and SmithKline Beecham already are implementing audit systems, according to Allen, but "not more than 10-12 or 15" companies are following suit. He suggested that most companies are "taking a wait-and-see attitude to see if a federal agency will oversee" the systems. Grant noted that Florida is trying to implement its own system but has "some concern" that manufacturers "may try to build a wall" to prevent the state from regulating the flow of diverted goods. Rep. Dingell's aide David Nelson, presenting an overview of 81 criminal activity enforcement cases returned to Justice after HHS Secretary Sullivan rescinded HHS-IG oversight over FDA investigations in January, highlighted numerous instances of diversion (see text of Nelson's account of several diversion cases on following page). NARD VP, Government Affairs and General Counsel John Rector, testifying with a panel composed of pharmacy associations, commented that: "You could throw a dart at a map of America" and come up with several instances of diversion each time. He laid the blame partly at the feet of FDA for its failure to enforce the resale provisions of the Dingell Drug Diversion Act of 1988 and partly on multi-tier pricing policies. "It is our view and continues to be," Rector said "that the sanctions of the [Prescription Drug Marketing Act] would provide both the general and specific deterrant necessary to help curb the havoc that discriminatroy pricing practices have spawned." To date, he noted, "we have seen little evidence of any willingness to enforce the resale provisions of the PDMA, in fact we hear through the grapevine" of NARD members that FDA "has little or no interest in enforcing" these provisions, which prohibit the resale of drugs by hospitals and other health care entities or charities. * Although no regs have been issued, FDA has published a number of guidances for the drug diversion law; the latest, issued Jan. 26, deals with revisions in product return policies ("The Pink Sheet" Feb. 5, T&G-9). Therefore, NARD "strongly" supports oversight of FDA criminal investigation enforcement activities by the HHS Inspector General as laid out in the Dingell-Bailey bill. Additionally, NARD recommended that the PDMA's "reward" provisions be applied in resale case prosecutions -- that is rewarding individuals who assist in the successful prosecution of such cases. NARD is also seeking amendments to require the destruction of any diverted drug that is adulterated or misbranded (safe and efficacious drugs could be "used for true charitable purposes"); require development of a consumer/pharmacist "diversion alert" guide; and make nonprofit groups that have been convicted of resale violations ineligible for Medicare/Medicaid reimbursement.
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