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 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 the public.
Diluted medicine at drugstore
In St. Charles, Mo., Maxine Blount, 61, a woman with advanced breast cancer, received a diluted drug distributed to her local drugstore. "It makes you angry," she said 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 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 sofa.
These victims are emblematic of the dangers to public health 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 obtain 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 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.
Yet he acknowledged that the FDA has been overwhelmed by illegal imports from Canada and offshore pharmacies in recent months. The agency also had to apologize to Congress in June for releasing a quarantined shipment of fake Viagra to consumers. And it is scrambling to keep up with an increase 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.
Nearly 200,000 tablets of Lipitor, the world's best-selling cholesterol-lowering medication, were found to be counterfeit and recalled by a small Missouri wholesaler last summer. Some of the pills had reached Rite Aid and CVS pharmacies.
"This is hurting people," said Thomas 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."
Stolen from hospitals for resale
In the past year, a Texas wholesaler bought cancer drugs that had been smuggled in backpacks out of 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.
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 also are known as "closed-door pharmacies."
But criminals often hide behind those closed doors.
Diverters start pharmacies
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 prescriptions drugs. In some cases, the diverters get 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.
Anthony Rizzo, who owns 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 Rogowski, who prosecuted Rizzo, now in prison.
Diverters take the discounted drugs, mark up 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 cellphone, 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, N.Y., 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. Rubin has been caught diverting medications three times since 1989. 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 now is serving a federal sentence in South Carolina.
Existing laws and regulations present few barriers to entry into the wholesale drug market.
Licenses easily obtained
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 obtained a license to sell intravenous drugs. An auto-body-shop owner in Miami received a license to sell drugs in Maryland. Nevada awarded a license to a 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 Suozzo of Fort Lauderdale, Fla., a convicted cocaine user with a long history of heroin abuse, investigative records show. Suozzo's attorney, Ty Terrell, declined comment.
Nationwide, there are an estimated 6,500 small wholesalers, yet most states have only a few inspectors. In some states, amusement-park rides, elevators and even dog kennels are inspected more frequently than drug wholesalers.
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.
Congress in 1988 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."
Law goes unenforced
On four occasions, those 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 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 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." |
