[Congressional Record Volume 147, Number 25 (Wednesday, February 28, 2001)]
[Extensions of Remarks]
[Pages E244-E245]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




  BRISTOL-MYERS SQUIBB COMPANY ABUSE OF AVERAGE WHOLESALE PRICE SYSTEM

                                 ______
                                 

                        HON. FORTNEY PETE STARK

                             of california

                    in the house of representatives

                      Wednesday, February 28, 2001

  Mr. STARK. Mr. Speaker, I have recently sent the following letter to 
Bristol Myers Squibb highlighting the extent to which this company has 
been inflating its drug prices and engaging in other deceptive business 
practices.
  The evidence provided shows that Bristol-Myers Squibb Co. has 
knowingly and deliberately inflated their representation of the average 
wholesale price (``AWP'') which is utilized by the Medicare and 
Medicaid programs in establishing drug reimbursements to providers.
  In doing so, Bristol-Myers Squibb Co. 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 
percent of these inflated drug costs. And American taxpayers are 
picking up the rest of the tab.
  To help bring an end to these harmful, misleading practices, I have 
called on the FDA to conduct a full investigation into such business 
practices.
  These practices must stop and these companies must return the money 
to the public that is owed because of their abusive practices.
  I submit the following letter to Bristol-Myers Squibb Co. to the 
Congressional Record.


                                                February 22, 2001.
     Mr. Peter Dolan,
     President, Bristol-Myers Squibb Co., New York, NY.
       Dear Mr. Dolan: Ongoing Congressional investigations have 
     uncovered compelling evidence that Bristol-Myers Squibb 
     (``Bristol'') has for many years deliberately overstated the 
     prices of some of its prescription drugs in order to cause 
     the Medicare and Medicaid programs to pay inflated amounts to 
     Bristol's customers. Bristol's participation in this scheme 
     is costing American taxpayers billions of dollars in 
     excessive drug costs and is jeopardizing the public's health 
     safety and welfare. Bristol touts itself as ``America's Most 
     Admired Pharmaceutical Company'' and says it is 11 out of 
     1,025 companies measured for ``social responsibility''. Yet, 
     I think it is outrageous that your company would falsely 
     inflate prices at a time when Medicare and the states' 
     Medicaid Programs battle the crisis of spiraling prescription 
     drug prices.
       The price manipulation scheme is executed through Bristol's 
     falsely inflated representations of average wholesale price 
     (``AWP''), direct price (``DP'') and wholesaler acquisition 
     cost (``WAC''), which are utilized by Medicare, Medicaid and 
     most private third party payers in establishing drug 
     reimbursements to providers. The difference between the 
     inflated representations of AWP, DP and WAC versus the true 
     prices that providers are paying is regularly referred to in 
     your industry as ``the spread''.
       Bristol has control over the AWP's, DP's and WAC's 
     published for its drugs and directs national publishers to 
     change their prices. An internal Bristol document directing a 
     national publisher of drug prices to increase all of 
     Bristol's AWPs for oncology drugs by multiplying Bristol's 
     supplied direct prices by a 25% factor rather than the 
     previous 20.5% factor. A variance of 16% to 20% between 
     direct drug prices and AWPs represents a range that would 
     more than generously cover inventory costs, normal price 
     variances and any reasonable mark-up on oncology drugs 
     occurring in the wholesale marketplace [Bristol sold the vast 
     majority of its infusion oncology drugs directly to 
     oncologists through its wholly owned OTN subsidiary, and 
     while OTN did not mark up drug prices or at any time own the 
     drugs, it was instead paid a commission directly from Bristol 
     without the occurrence of any significant mark-ups at the 
     wholesale level]. None of the 4.5% price increase was 
     intended to provide more revenues to Bristol or enable 
     wholesalers to charge higher prices to oncologist. There were 
     no significant price markups at the wholesale level. Instead, 
     the increase in the AWP created a spread that, in itself, 
     provided a financial kickback to oncologists for prescribing 
     Bristol's cancer drugs.
       Since the additional 4.5% orchestrated by Bristol in 1992, 
     the Medicare Program has needlessly paid more than an 
     estimated $60 million dollars for just two of Bristol's 
     cancer drugs-this taxpayer abuse does not even account for 
     additional Medicare beneficiary co-payments. To add insult to 
     injury, one of the drugs Taxol (Paclitaxel) was significantly 
     developed with taxpayer funds by the National Institute of 
     Health.
       A similar AWP increase by Glaxo drew the following 
     objection from its competitor, Smith Kline Beecham: In an 
     apparent effort to increase reimbursement to physicians and 
     clinics, effective 1/10/95, Glaxo increased AWP for Zofran by 
     8.5% while simultaneously fully discounting this increase to 
     physicians . . . The net effect of these adjustments is to 
     increase the amount of reimbursement available to physicians 
     from Medicare and other third party payors whose 
     reimbursement is based on AWP. Since the net price paid to 
     Glaxo for the non-hospital sales of the Zofran multi-dose 
     vial is actually lower, it does not appear that the increase 
     in AWP was designed to increase revenue per unit to Glaxo. 
     Absent any other tenable explanation, this adjustment appears 
     to reflect an intent to induce physicians to purchase Zofran 
     based on the opportunity to receive increased reimbursement 
     from Medicare and other third party payors. In fact, we have 
     had numerous verbal reports from the field concerning Glaxo 
     representatives who are now selling Zofran based on the 
     opportunity for physicians to receive a higher reimbursement 
     from Medicare and other third-party payors while the cost to 
     the physician of Zofran has not changed.
       The evidence clearly shows that Bristol has intentionally 
     reported inflated prices and engaged in other improper 
     business practices in order to cause its customers to receive 
     windfall profits from Medicare and Medicaid when submitting 
     claims for certain drugs. The evidence further reveals that 
     Bristol manipulated prices for the express purpose of 
     expanding sales and increasing market share of certain drugs 
     where the arranging of a financial benefit or inducement

[[Page E245]]

     would influence the decisions of healthcare providers 
     submitting the Medicare and Medicaid claims. Indeed, Bristol 
     did not falsify published prices in connection with other 
     drugs, where sales and market penetration strategies did not 
     include the arranging of such financial ``kickbacks'' to the 
     healthcare provider.
       In the case of the drugs for which Bristol sought to 
     arrange a financial kickback at the expense of the government 
     programs, the manipulated discrepancies between your 
     company's falsely inflated AWP's and DP's versus their true 
     costs are staggering. For example, in the 2000 edition of the 
     Red Book, Bristol reported an AWP of $1296.64 for one 20mg/
     ml, 50ml vial of Vepesid (Etoposide) for injection [NDC 
     #00015-3062-20], while Bristol was actually offering to sell 
     the exact same drug to Innovatix members (a
       In addition to Bristol's unconscionable price manipulation 
     of Vepesid, I am also concerned about Bristol's newer drug 
     Etopophos. As the following excerpts from Bristol's own 
     documents reveal, Bristol's earlier participation in the 
     false price manipulation scheme with respect to Etoposide 
     (Vepesid) interfered with physicians medical decisions to use 
     Etopophos:
       ``The Etopophos product profile is significantly superior 
     to that of etoposide injection . . .''.
       ``Currently, physician practices can take advantage of the 
     growing disparity between VePesid's [name brand for 
     Etoposidel list price (and, subsequently, the Average 
     Wholesale Price [AWPI] and the actual acquisition cost when 
     obtaining reimbursement for etoposide purchases. If the 
     acquisition price of Etopophos is close to the list price, 
     the physician's financial incentive for selecting the brand 
     is largely diminished''.
       Bristol thus acknowledges that financial inducements 
     influence the professional judgment of physicians and other 
     healthcare providers. Bristol's strategy of increasing the 
     sales of its drugs by enriching, with taxpayer dollars, the 
     physicians and others who administer drugs is reprehensible 
     and a blatant abuse of the privileges that Bristol enjoys as 
     a major pharmaceutical manufacturer in the United States.
       Physicians should be free to choose drugs based on what is 
     medically best for their patient. Inflated price reports 
     should not be used to financially induce physicians to 
     administer Bristol's'drugs. Bristol's conduct, in conjunction 
     with other drug companies, has cost the taxpayers billions of 
     dollars and serves as a corruptive influence on the exercise 
     of independent medical judgment.
       Bristol employed a number of other financial inducements to 
     stimulate the sales of its drugs at the expense of the 
     Medicare and Medicaid Programs that were concealed from the 
     Government. Such inducements included volume discounts, 
     rebates, off invoice pricing and free goods designed to lower 
     the net cost to the purchaser while concealing the actual 
     cost of the drug from reimbursement officials. Bristol 
     provided free Etopophos to Drs. Lessner and Troner in 
     exchange for the Miami oncologist's agreement to purchase 
     other Bristol cancer drugs. This arrangement had the effect 
     of lowering the net cost of the cancer drugs to the 
     oncologist and creating an even greater spread than would 
     already result from the invoiced prices. The value of the 
     free goods is often significant: Similarly, other exhibits 
     show that Bristol provided free Cytogards in order to create 
     a lower than invoice cost to physicians that purchased other 
     cancer drugs through the Oncology Therapeutic Network.
       It is important to note that the above free good examples 
     created financial incentives to the physicians that were over 
     and above the spread created by the difference between 
     Bristol's reported prices and regular prices provided to the 
     market.
       Bristol's price manipulation scheme was directed at both 
     the Medicare and Medicaid Programs. Bristol commonly reported 
     prices directly to Medicare carriers as well as State 
     Medicaid Programs. Exhibit 8, attached hereto, contains 
     examples of Bristol's price reports that were routinely 
     directed to State Medicaid Programs and Medicare carriers 
     through Western Union Mailgrams.
       This scheme is further illustrated by Bristol's fraudulent 
     price representations about its drug Blenoxane. Bristol's AWP 
     fraud with respect to Blenoxane is clearly demonstrated in 
     Composite Exhibit 9, attached hereto, which consists of 
     invoices relating to sales of the drug by Oncology 
     Therapeutic Network to Jeffery N. Paonessa, MD, an oncologist 
     practicing in St. Petersburg, Florida. In 1995, Bristol 
     caused an AWP to be published of $276.29 when it sold 
     Blenoxane to Dr. Paonessa for $224.22. In 1996, Bristol 
     increased its reports of AWP to $291.49, while continuing to 
     sell the drug to Dr. Paonessa for $224.27. In 1997, Bristol 
     falsely reported that it had increased its AWP to $304.60 
     when, in reality, it lowered the price to oncologists as 
     reflected by its price to Dr. Paonessa of $155.00. In 1998, 
     Bristol again reported a false AWP of $304.60 while reducing 
     its price to oncologists as reflected by the $140.00 price to 
     Dr. Paonessa. The following chart summarizes this 
     information:

                     Blenoxane 15--NDC#00015-3010-20
------------------------------------------------------------------------
                                                  Price to
               Year                  Red Book     Florida       Spread
                                       AWP       oncologist
------------------------------------------------------------------------
1995.............................      $276.29      $224.22       $52.07
1996.............................       291.49       224.22        67.27
1997.............................       304.60       155.00       149.60
1998.............................       304.60       140.00       164.60
------------------------------------------------------------------------

       It is essential that the Health Care Financing 
     Administration (``HCFA'') and other government reimbursement 
     authorities receive truthful and accurate information from 
     Bristol regarding drugs for which the government reimburses. 
     The evidence uncovered by the Congressional investigations to 
     date seems to reveal a conscious, concerted and successful 
     effort by Bristol to actively mislead HCFA and others about 
     the price of their drugs. I have forwarded this matter to the 
     Department of Justice and request that Bristol's conduct be 
     investigated under the Anti-Kickback and Prescription Drug 
     Marketing Statutes.
       Bristol's price manipulation has already caused the 
     Medicare and Medicaid Programs unconscionable damage. The 
     inflation index for prescription drugs continues to rise at a 
     rate of more than twice that of the consumer price index. The 
     American taxpayer, Congress and the press are being told that 
     these increases are justified by the cost of developing new 
     pharmaceutical products. Bristol and several other 
     manufacturers are clearly exploiting the upward spiral in 
     drug prices by falsely reporting that prices for some drugs 
     are rising when they are in truth and in fact failing. This 
     fraudulent price manipulation cannot be permitted to 
     continue. I urge Bristol to immediately examine its corporate 
     conscience, correct its behavior and make amends for the 
     injuries it has caused government programs to date. It is 
     time to earn your claims for social responsibility.
       Please share this letter with your Board of Directors and 
     in particular with the Board's Corporate Integrity Committee.
           Sincerely,

                                                   Pete Stark,

                                                   Ranking Member.

     

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