Last week, the Manhattan U.S. Attorney unveiled a massive $500 million (alleged) fraud involving Medicaid patients who sold their prescription drugs to aggregators and resellers, who subsequently resold the drugs to pharmacies via “Corrupt Distribution Companies.” (Read the press release)
Kudos to the Department of Justice for catching the crooks, but … Yikes! Anyone interested in pharmaceutical supply chain security should check out the DOJ’s diversion map (reproduced below).
Alas, we once again observe diverted products finding their way back into the legitimate supply chain, when a pharmacy purchases from a shady vendor. Perhaps you won’t be surprised to find out that New York is one of many states without pedigree requirements.
WHAT (ALLEGEDLY) HAPPENED
For full details read the Complaint and Indictment.
The Manhattan U.S. Attorney provided this helpful schematic of the scheme:
- The lowest level participants in the scheme (the “Medicaid Beneficiaries”) were typically AIDS patients or individuals who suffered from other illnesses that required expensive drug therapies.
- Using their Medicaid benefits to cover the cost, the Medicaid Beneficiaries filled prescriptions for month-long supplies of drugs at pharmacies throughout the New York City area and then sold them to “Collectors” for cash instead of using them for treatment.
- Collectors then sold the second-hand bottles to higher level participants in the scheme (“Aggregators”), who typically bought large quantities of second-hand drugs from multiple Collectors. These transactions repeated themselves at increasingly higher levels of Aggregators who purchased the drugs from multiple, lower level Aggregators.
- The pills were ultimately sold to wholesale prescription drug distribution companies (“Corrupt Distribution Companies”), which then sold them to pharmacies and to other wholesale prescription distribution drug companies across the United States.
The indictment doesn't identify the pharmacies or “corrupt distribution companies" (CDC) so we can't name names. However, I'm willing to bet that none of the CDCs are Authorized Distributors of Record (ADRs) for any pharmaceutical manufacturer.
One big player was “a co-conspirator not named as a defendant” who “controlled and operated an organization of individuals and Corrupt Distribution Companies in Texas, Nevada, Utah, Alabama, and elsewhere.”
Three of those four states actually have pedigree legislation, but that doesn’t matter because the buyers appear to be in legislation-free New York. See the HDMA’s map of Distributor Licensing and Pedigree Requirements by State.
In one instance, a batch of second-hand drugs was sold by this organization to “a New York-based national healthcare company that provided specialty pharmacy and disease management services focused on HIV/AIDS patients.” I highlighted the appearance of stolen products in legitimate pharmacies in at least three previous articles: Why is Stolen Shire Product Being Returned for Credit?, How did stolen GSK product end up in pharmacies?, and Drug Theft + Diversion Gets Bigger :(.
Three final observations:
- The FDA requires all manufacturers to post an ADR list on a public website. Apparently, these lists are ignored by pharmacy buyers, who just look for a "good deal." Hmmm, sounds just like Greedy Physicians Invite Fake Avastin Into the Supply Chain.
- The crooks were reselling legitimate (vs. counterfeit) product, even it was grossly mishandled and completely fraudulent.
- It’s sad and disturbing to think about the Medicaid patients with HIV who chose to sell their drugs rather than take the medicine.