[Congressional Record Volume 146, Number 121 (Tuesday, October 3, 2000)]
[Extensions of Remarks]
[Pages E1655-E1656]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




PHARMACIA & UPJOHN ABUSE OF AVERGE WHOLESALE PRICE SYSTEM: STARK CALLS 
                         FOR FDA INVESTIGATION

                                 ______
                                 

                        HON. FORTNEY PETE STARK

                             of california

                    in the house of representatives

                        Tuesday, October 3, 2000

  Mr. STARK. Mr. Speaker, I have today sent the following letter to 
Pharmacia & Upjohn, highlighting the extent to which this company has 
been inflating its drug prices and engaging in other deceptive business 
practices.
  The evidence I have been provided shows that Pharmacia & Upjohn has 
knowingly and deliberately inflated their representations of the 
average wholesale price (``AWP''), wholesale acquisition cost (``WAC'') 
and direct price (``DP'') which are utilized by the Medicare and 
Medicaid programs in establishing drug reimbursements to providers.
  In doing so, Pharmacia & Upjohn is abusing the public trust, 
endangering patients by affecting physician prescribing practices, and 
exploiting America's seniors and disabled who are forced to pay 20% of 
these inflated drug costs. American taxpayers pick up the rest of the 
tab.
  These findings are particularly timely as the Ways and Means 
Subcommittee on Health will today markup a Medicare bill that seeks to 
delay any administrative action by the Department of Health and Human 
Services (HHS) to alleviate this problem. This is bad policy. And I 
strongly oppose this provision of the bill. Reform of current Medicare 
drug reimbursement policy is needed now to protect taxpayer funds and 
public health.
  To help bring an end to these harmful, misleading practices, I have 
today called on the FDA to conduct a full investigation into Pharmacia 
& Upjohn business practices.
  These practices must stop and these companies must return the money 
that is owed to the public because of their abusive practices.
  I would like to submit the following letter to Pharmacia & Upjohn 
into the Record.


[[Page E1656]]


                                    Congress of the United States,


                                     House of Representatives,

                                  Washington, DC, October 3, 2000.
     Mr. Fred Hassan,
     Chief Executive Officer, Pharmacia & Upjohn Co., Inc., 
         Peapack, NJ.
       Dear Mr. Hassan: You should by now be aware of 
     Congressional investigations suggesting that Pharmacia & 
     Upjohn has for many years been reporting and publishing 
     inflated and misleading price data and has engaged in other 
     deceptive business practices in order to manipulate and 
     inflate the prices of certain drugs. The price manipulation 
     scheme is executed through Pharmacia & Upjohn's inflated 
     representations of average wholesale price (``AWP'') and 
     direct price (``DP''), which are utilized by the Medicare and 
     Medicaid programs in establishing drug reimbursements to 
     providers. The difference between the inflated 
     representations of AWP and DP versus the true prices that 
     providers pay is regularly referred to in your industry as 
     ``the spread.'' In turn, this has caused the Medicare and 
     Medicaid Programs to expend excessive amounts in paying 
     claims for certain drugs. The evidence amassed by Congress 
     clearly shows that Pharmacia & Upjohn has reported inflated 
     prices and has engaged in other improper business practices 
     in order to cause its customers to receive a windfall profit 
     from Medicare and Medicaid.
       The manipulated disparities between your company's reported 
     AWPs and DPs are staggering. For example, in 1997, Pharmacia 
     & Upjohn reported an AWP of $946.94 for 200 mg. of Adriamycin 
     PFS while offering to sell it to American Oncology Resources 
     (AOR) for $168.00 and to Comprehensive Cancer Center for 
     $152.00 (Composite Exhibit 1''). Your company then 
     aggressively marketed its cancer drugs to health care 
     providers by touting financial inducements and other types of 
     incentives. Pharmacia & Upjohn created and marketed the 
     financial inducements for the express purpose of influencing 
     the professional judgment of doctors and other health care 
     providers in order to increase the company's market share.
       Pharmacia & Upjohn's strategy of increasing the sales of 
     its drugs by enriching with taxpayer dollars, the doctors and 
     others who administer the drugs is reprehensible and a 
     blatant abuse of the privileges that Pharmacia & Upjohn 
     enjoys as a major pharmaceutical manufacturer in the United 
     States. This is perhaps best illustrated by Pharmacia & 
     Upjohn's own internal documents which reveal that the company 
     abused its position as a drug innovator in an initial Phase 
     III FDA clinical trial for a cancer drug used to treat 
     lymphoma (Composite Exhibit ``2'').

     ``. . . Clinical Research Trials
       Initial Phase III Protocol trial for ``Oral Idamycin'' in 
     lymphomas. This trial will offer AOR $1.1M [million] in 
     additional revenues. Two hundred twenty-five (225) patients 
     at $5,000 per patient. . . .
       The above . . . items are contingent on the signing of the 
     AOR Disease Management Partner Program. AOR's exclusive 
     compliance to the purchase of the products listed in the 
     contract product attachment is also necessary for the above 
     items to be in effect.''
       The linking of doctor participation in FDA clinical drug 
     trials to their purchase and administration of profit-
     generating oncology drugs is entirely inconsistent with the 
     objective scientific testing that is essential to the 
     integrity of the trial. I am hopeful that the FDA will take 
     immediate action to stop such behavior by your company. The 
     FDA's inability to act to ensure the validity of drug trials 
     will necessitate legislative action.
       Doctors must be free to choose drugs based on what is 
     medically best for their patients. It is highly unethical for 
     drug companies to provide physicians with payments for FDA 
     clinical trials and inflated price reports that financially 
     induce doctors to administer Pharmacia & Upjohn's drugs to 
     patients. In particular, Pharmacia & Upjohn's conduct, along 
     with the conduct of other drug companies, is estimated to 
     have cost taxpayers over a billion dollars. It also has a 
     corrupting influence on the exercise of independent medical 
     judgment both in the treatment of severely ill cancer 
     patients and in the medical evaluation of new oncological 
     drugs.
       In addition to Pharmacia & Upjohn's action in the context 
     of the Phase III FDA clinical trial, internal Pharmacia & 
     Upjohn documents secured through Congressional investigations 
     clearly establish that Pharmacia & Upjohn created and then 
     exploited misleading information about its prices. Following 
     is one example: ``Some of the drugs on the multi-source list 
     offer you savings of over 75% below list price of the drug. 
     For a drug like Adriamycin, the reduced pricing offers AOR a 
     reimbursement of over $8,000,000 profit when reimbursed at 
     AWP. The spread from acquisition cost to reimbursement on the 
     multi-source products offered on the contract give AOR a wide 
     margin for profit'' (Exhibit ``3'').
       It is clear that Pharmacia & Upjohn targeted health care 
     providers, who might be potential purchasers, by creating and 
     then touting the windfall profits arising from the price 
     manipulation. For example, Pharmacia & Upjohn routinely 
     reported inflated average wholesale prices for its cancer 
     drug Bleomycin, 15u, as well as direct prices. The actual 
     prices paid by industry insiders was in many years less than 
     half of what Pharmacia & Upjohn represented. Pharmacia & 
     Upjohn reported that the average wholesale price for 
     Bleomycin, 15u, rose from $292.43 to $309.98, while the price 
     charged to industry insiders fell by $43.15 (Composite 
     Exhibit ``4'').
       Congress attempted to address the issue of inflated drug 
     reimbursement, in part, in 1997 legislation requiring 
     Medicare to reimburse drug costs at 95% of AWP.
       Unfortunately, Congress was unaware that, while it intended 
     to improve Medicare's solvency, Pharmacia & Upjohn was 
     submitting false price reports to further inflate 
     reimbursement amounts for both Medicare and Medicaid that 
     would nullify the effects of Congressional action. Composite 
     Exhibit ``5'' demonstrates that Pharmacia & Upjohn increased 
     its price representations for its cancer drug Toposar by 5% 
     in October 1997 while taking care to ensure customers that 
     the change in reported prices would not have any impact on 
     the lower, true prices being paid, but would increase 
     government reimbursement.
       The following excerpt, addressing Medicaid reimbursement, 
     is illustrative of the steps Pharmacia & Upjohn took to 
     ensure that government health programs paid the inflated 
     reimbursement resulting from false price reports: ``FYI--
     Heads up. The following P&U price increases may create a 
     spread between purchase price and Medicaid reimbursement that 
     may create sales complaints if not resolved in reasonable 
     time period by customary Medicaid updates. Therefore, your 
     action may be required in some instances if over the next few 
     months Medicaid does not automatically pick up the price 
     changes'' (Exhibit ``6'').
       Pharmacia & Upjohn reported price increases in October 1997 
     with full knowledge that the true prices of the drugs were 
     falling. For example, Composite Exhibit ``7'' reveals that 
     Pharmacia & Upjohn voluntarily lowered its price of 
     Adriamycin PFS 200 mg to $152.00 while reporting an AWP of 
     $946.94: ``Dear Willie, A (VPR) Voluntary Price Reduction 
     will become effective May 9, 1997. The wholesalers have been 
     notified, however it may take two weeks to complete the 
     transition. . . .''
       Additionally, internal Pharmacia & Upjohn documents secured 
     through the Congressional investigations show that Pharmacia 
     & Upjohn also utilized a large array of other inducements to 
     stimulate product sales. These inducements, including 
     ``educational grants'' and free goods, were designed to 
     result in a lower net cost to the purchaser while concealing 
     the actual price beneath a high invoice price. Through these 
     means, drug purchasers were provided substantial discounts 
     that induced their patronage while maintaining the fiction of 
     a higher invoice price--the price that corresponded to 
     reported AWPs and inflated reimbursements from the 
     government. Composite Exhibit ``8'' highlights these 
     inducements:
       AOR/PHARMACIA & UPJOHN PARTNERSHIP PROPOSAL: Medical 
     Education Grants. A $55,000 grant has been committed for 1997 
     for the AOR Partnership for excellence package including: 
     Education/Disease Management, Research Task Force, AOR Annual 
     Yearbook. A $40,000 grant to sponsor the AOR monthly 
     teleconference. This sponsorship was committed and complete 
     in February 1997. . . .
       PHARMACIA & UPJOHN, INC. INTEROFFICE MEMO: If needed, you 
     have a ``free goods'' program to support your efforts against 
     other forms of generic doxorubicin. . . .
       Use your ``free goods,'' wisely to compete against other 
     generic forms of Adriamycin, not to shift the customer to 
     direct shipments. The higher we can keep the price of 
     Adriamycin, the easier it is for you to meet your sales goals 
     for Adriamycin.
       My reading of the Federal Food, Drug, and Cosmetic Act and 
     the corresponding regulations suggests that the FDA should 
     pay particular attention to Pharmacia & Upjohn's misleading 
     price reports. Accordingly, I am today requesting that the 
     Commissioner of the FDA, Dr. Jane Henney, conduct a full 
     investigation into Pharmacia & Upjohn's business practices.
       I urge Pharmacia & Upjohn to immediately cease these acts 
     and make arrangements to compensate taxpayers for the 
     financial injury caused to federally funded programs. Any 
     refusal to accept responsibility will most certainly be 
     indicative of the need for Congress to control drug prices. 
     If we cannot rely upon drug companies to make honest and 
     truthful representations about their prices, then Congress 
     will be left with no alternative but to take decisive action 
     to protect the public.
       Please share this letter with your Board of Directors and 
     in particular with the Board's Corporate Integrity Committee.
           Sincerely,
                                                       Pete Stark,
                                               Member of Congress.

     

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