Independent pharmacies engage in diversion when shortage drugs purchased under false pretenses are re-distributed back into the supply chain instead of dispensed to patients as intended. This type of activity is often accompanied by fraud, misrepresentation, and deceit. While Congress, the Department of Justice (DOJ), and FDA’s own Office of Criminal Investigations (OCI) have characterized these shady deals as diversion, the stance of FDA leadership on this issue remains unclear. This apparent disconnect is troubling.
In its July 2012 report on drug shortages, Congress found that “fake pharmacies” purchase prescription drugs from authorized distributors for sale into the gray market. Congress added, “The short-supply generic injectable drugs examined in this investigation did not reach doctors and patients through the typical distribution chain model…Instead of following the distribution route policymakers and industry stakeholders expect them to follow, these drugs were diverted (emphasis added) into longer ‘gray market’ distribution networks in which a number of different companies bought, sold, and transferred them.”
In September 2017, DOJ announced a guilty plea in a prescription drug diversion case involving a pharmacy manager from North Carolina. According to DOJ, Karen Ann Turner “bought prescription drugs at lower prices by falsely stating that the drugs would be used to fill patient prescriptions through the pharmacies that she operated. Instead of using the drugs for patient prescriptions, Turner sold them at higher prices to unauthorized drug wholesalers. Some of the prescription drugs that Turner bought and sold were in short supply (emphasis added).”
Acting Assistant Attorney General Chad A. Readler of DOJ’s Civil Division added, “The Department of Justice is committed to prosecuting those who fraudulently divert (emphasis added) prescription drugs from their authorized and controlled distribution system…These fraud schemes increase the risk that patients will receive ineffective or unsafe drugs, and can expose hospitals to exorbitant prices for drugs that are in short supply.”
In this same press release, OCI stated, “When prescription drugs are diverted (emphasis added) from the legal supply chain, there is no longer any assurance that the products are safe and effective for their intended uses…”
Despite overwhelming support from Congress, DOJ, and even the agency’s own criminal investigators that diversion exists when independent pharmacies engage in fraudulent shortage drug sales, FDA issued a draft DSCSA guidance document in March 2018 that overlooks this activity entirely.
Specifically, FDA’s draft guidance proposed to define Diverted under the Drug Supply Chain Security Act (DSCSA) as “product that is dispensed to a consumer or patient and then reintroduced into the U.S. prescription drug distribution system to an authorized trading partner; or Product that is labeled for sale in a non-U.S. market and that is introduced into the U.S. prescription drug distribution system to an authorized trading partner.” Neither of these scenarios would apply to fraudulent shortage drug sales by independent pharmacies.
This is a major oversight by FDA. A comprehensive definition of Diverted under the DSCSA is a requirement for making suspect and illegitimate product determinations with greater frequency (the same can be said for the definition of Fraudulent Transaction). Because FDA’s proposed definition of Diverted is so narrow, shortage drug diverters will continue to operate with virtual impunity and these diverted drug products will not be subject to the DSCSA’s verification requirements for suspect and illegitimate products (assuming DSCSA compliance is otherwise met). Essentially, this means that FDA is giving a green light to shortage drug diverters. Said another way, FDA is condoning shortage drug diversion activity that was the subject of a federal criminal prosecution in 2017 and a Congressional report in 2012.
Until FDA publicly acknowledges that unethical and potentially criminal shortage drug sales by independent pharmacies is diversion, the agency will continue to be an unwitting proponent of this activity. Instead of taking a leadership role in solving this national crisis, the agency’s inaction on this issue may be continuing to fuel it.
When attempting to legitimize their shady deals, corrupt independent pharmacies and their similarly corrupt secondary wholesale distributor cohorts conveniently avoid any discussion about the limiting circumstances under which the shortage drugs may have been sold to these pharmacies. Instead, they may point to compliance with federal wholesale distributor licensing laws and DSCSA product tracing requirements when attempting to prove these sales are above board. This is an obvious smoke screen.
Contractual own-use and closed-door pharmacy provisions are designed to prevent pharmacies from re-distributing drug products intended solely for patients. These drugs may be deeply discounted for nursing homes, correctional facilities, or they may be subject to shortages. As a result, any shortage drug sales by independent pharmacies or secondary wholesale distributor affiliates of independent pharmacies should be identified and highly scrutinized to establish the presence of any underlying fraudulent conduct. These sales are not legitimized simply because an independent pharmacy is licensed as a wholesale distributor or affiliated with one. That is only one piece of the puzzle (see my related post here).
The time has come for FDA to take a stand on this issue and advocate for vulnerable patients impacted by our nation’s ongoing drug shortage crisis.
Here are some useful steps that FDA may want to consider:
- Revise its proposed definition of Diverted to include drug sales by pharmacies in violation of own-use, closed-door pharmacy, and other similar contractual provisions which prohibit further distributions of products intended solely for patients (a similar approach to the definition of Fraudulent Transaction is also warranted).
- Encourage Group Purchasing Organizations (GPOs) to detect independent pharmacy applicants that are also licensed as wholesale distributors or affiliates of wholesale distributors and exclude them from participation, when warranted.
- Encourage primary wholesale distributors to identify independent pharmacy customers that are also licensed as wholesale distributors or affiliates of wholesale distributors and establish processes for ensuring that any sales of shortage drugs to these independent pharmacy customers are not subsequently diverted.
- Train hospitals and other dispensers on validating transaction histories to identify shortage drug diversion schemes involving prior sales to: (1) independent pharmacies that are not licensed as wholesale distributors; (2) independent pharmacies that are dually-licensed as wholesale distributors; and (3) secondary wholesale distributors that are affiliates of independent pharmacies.
Deterring greedy independent pharmacy and secondary wholesale distributor alliances from siphoning life-saving shortage drugs away from vulnerable patients should be a top FDA priority. FDA leadership can and must do more to stop it from happening.