[Congressional Record (Bound Edition), Volume 146 (2000), Part 16]
[Extensions of Remarks]
[Pages 22826-22827]
[From the U.S. Government Publishing Office, www.gpo.gov]



CALLING FOR AN FDA INVESTIGATION INTO ABUSE OF AVERAGE WHOLESALE PRICE 
                                 SYSTEM

                                 ______
                                 

                        HON. FORTNEY PETE STARK

                             of california

                    in the house of representatives

                       Thursday, October 12, 2000

  Mr. STARK. Mr. Speaker, last week, I sent the following letter to the 
FDA, in support of an investigation concerning how some of the nation's 
leading drug manufacturers are using false pricing data to distort the 
practice of medicine in America.
  The letter details what I believe to be the bilking of the Medicare 
system by a number of large, powerful drug companies. The evidence I 
have been provided shows that certain drug companies are making 
enormous profits available to many doctors on the ``spread'' between 
what Medicare and other payers reimburse for a drug (the average 
wholesale price), and what that drug is really available for.
  These companies have increased their sales by abusing the public 
trust and exploiting America's seniors and disabled. It is my firm 
belief that these practices must stop and that these companies must 
return the money to the public that is owed because of their abusive 
practices.
  The data in the letter is an indictment of the companies' abuse of 
the taxpayer and of the patient.
  The letter follows:

                                    Congress of the United States,


                                     House of Representatives,

                                  Washington, DC, October 3, 2000.
     Dr. Jane E. Henney,
     Commissioner, Food and Drug Administration,
     Rockville, MD.
       Dear Dr. Henney: I would like to share with you concerns I 
     have regarding the conduct of certain drug companies that are 
     regulated by your agency. Internal drug company documents and 
     other evidence from an industry insider, obtained through a 
     Congressional investigation, have exposed deliberate price 
     manipulation by some drug companies. I believe drug 
     companies' misleading acts are exploiting the health care 
     needs of our most seriously ill, poor, disabled and elderly 
     citizens and taking money from the pockets of innocent 
     Medicare beneficiaries who are required to pay 20% of 
     Medicare's current limited drug benefit. These wrongful 
     actions cost federal and state governments, private insurers, 
     and others billions of dollars per year in excessive drug 
     payments and corrupt the professional independence of medical 
     decision makers.
       The compelling evidence recently amassed by Congressional 
     investigators reveals that certain drug companies have been 
     reporting and publishing inflated and misleading price data 
     and have engaged in other deceptive business practices in 
     order to manipulate and inflate the prices of certain drugs. 
     The drug manufacturers have perpetrated this fraudulent price 
     manipulation scheme for the express purpose of causing the 
     Medicare and Medicaid Programs to expend excessive amounts in 
     paying claims for certain drugs. The inflated reimbursement 
     arranged by certain drug companies is used to aggressively 
     market the drugs in question, to influence physician 
     prescribing practices, and to increase sales and market 
     share.
       The evidence I have seen indicates that the drug companies 
     involved have knowingly, deliberately, and falsely inflated 
     their representations of the average wholesale price 
     (``AWP''), wholesaler acquisition cost (``WAC'') and direct 
     price (``DP'') which are utilized by the Medicare and 
     Medicaid programs in establishing drug reimbursements to 
     providers. The evidence also clearly establishes that, 
     contrary to previous drug company representations, the 
     initial source of the price data is the drug companies 
     themselves and those acting in concert with them. I have 
     learned that the difference between the inflated AWP and WAC 
     versus the true prices paid by providers is regularly 
     referred to by industry insiders as ``the spread.''
       The Congressional investigation establishes that this 
     ``spread'' has not occurred accidentally but is the product 
     of conscious and fully-informed business decisions. Bristol-
     Myers Squibb (BMS) documents, for example, demonstrate drug 
     company control over the spread and knowledge that the spread 
     acts as a financial inducement that affects medical 
     judgments. I am told that BMS, as the innovator of the cancer 
     drug Etoposide, repeatedly published inflated prices of 
     approximately $138 while the true market price fell to less 
     than $10. BMS then developed Etopophos, a newer, 
     therapeutically superior substitute for Etoposide. As the 
     following excerpts from EMS' own documents reveal, BMS' 
     earlier participation in the false price maniuplation scheme 
     with Etoposide interfered with physician medical decisions to 
     use Etopophos:
       ``The Etopophos product profile is significantly superior 
     to that of etoposide injection . . .'' (Exhibit #1).
       ``Currently, physician practices can take advantage of the 
     growing disparity between VePesid's [name brand for 
     Etoposide] list price (and, subsequently, the Average 
     Wholesale Price [AWP]) 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'' (Exhibit #2).
       ``BMS' control over the AWPs published for its drugs is 
     revealed in the following excerpt from a letter to the 
     national publisher of drug prices relied on by the Medicaid 
     Program:
       ``Bristol-Myers Squibb Company:
       ``Edward Edelstein, First Data Bank . . .
       ``Dear Mr. Edelstein: Effective immediately, Bristol-Myers 
     Oncology Division products factor used in determining the AWP 
     should be changed from 20.5% to 25%. This change should not 
     affect any other business of Bristol-Myers Squibb Company'' 
     (Exhibit #3).
       As a result of BMS' instructions, I am told First Data Bank 
     recalculated BMS' AWPs and reported them to the State 
     Medicaid agencies and Medicare Carriers as a BMS price 
     increase when in truth it was nothing more than a means of 
     creating a greater ``spread'' for BMS drugs.
       Additionally, the drug companies in question often falsely 
     state that they have no control over the AWPs and other 
     prices published for their drugs. Comparing the following 
     excerpts from a 1996 Barron's article entitled, ``Hooked On 
     Drugs,'' and Immunex's own internal documents reveals that 
     drug companies do indeed have control over their prices:
       ``But Immunex, with a thriving generic cancer-drug 
     business, says its average wholesale prices aren't its own. 
     `The drug manufacturers have no control over the AWPs 
     published . . .,' says spokeswoman Valerie Dowell'' (Exhibit 
     #5).
       ``Kathleen Stamm, Immunex Corporation . . .
       ``Dear Kathleen: This letter is a confirmation letter that 
     we have received and entered your latest AWP price changes in 
     our system. The price changes that were effective January 3, 
     1996 were posted in our system on January 5, 1996. I have 
     enclosed an updated.
       ``Sincerely, Lisa Brandt, Red Book Data Analyst'' (Exhibit 
     #6)
       The drug companies involved are well aware of the 
     destructive impact their price manipulation has on 
     prescription drug costs, as stated in the following excerpt 
     from a Glaxo internal document:
       ``Is the [pharmaceutical] industry helping to moderate 
     health care costs when it implements policies that increase 
     the cost of pharmaceuticals to government?'' (Exhibit #4).
       These examples of clear deception appear to be ``only the 
     tip of the iceberg'' as demonstrated by the evidence 
     reflected in composite Exhibit #5. This evidence indicates 
     that an official of the state of Florida Medicaid pharmacy 
     program contacted Hoechst Marion Roussel directly requesting 
     pricing information for Hoechst's new drug Anzemet. Exhibit 
     #5 is a copy of the fax sent to the Florida Official by 
     Hoechst containing Hoechst representations of its prices.
       The following chart represents a comparison of Hoescht's 
     fraudulent price representations for its injectable form of 
     the drug versus the actual prices paid by the industry 
     insider. The industry insider was aware that a 100 mg vial of 
     Anzemet could be purchased from a wholesaler/distributer for 
     $70.00. The chart compares Hoescht's price representations 
     for the tablet form of Anzemet and the insider's true prices. 
     It is extremely interesting that Hoescht did not create a 
     spread for its tablet form of Anzemet but only the injectable 
     form. This is because Medicare reimburses doctors for the 
     injectable form of this drug and not the tablet form. And by 
     providing doctors a profit, Hoescht can influence 
     prescribing. The tablet form is usually dispensed by 
     pharmacists who accept the doctor's order. This example 
     reflects the frustration that federal and state regulators 
     have experienced in their attempts to estimate the truthful 
     prices being paid by providers in the marketplace for 
     prescription

[[Page 22827]]

     drugs. Likewise, it underscores that we cannot rely upon the 
     drug companies to make honest and truthful representations of 
     their prices, and that Congress may be left with no 
     alternative other than to legislate price controls.
       Some drug companies have also utilized a large array of 
     other impermissible inducements to mask true prices and 
     stimulate sales of their drugs. These inducements, including 
     bogus ``educational grants,'' volume discounts, and rebates 
     or free goods are designed to result in a lower net cost to 
     the purchaser, while concealing the actual cost beneath a 
     high invoice price. A product invoiced at $100 for ten units 
     of a drug item might really only cost the purchaser half that 
     amount. Given, for instance, a subsequent shipment of an 
     additional ten units at no charge, or a ``grant,'' ``rebate'' 
     or ``credit memo'' in the amount of $50, the transaction 
     would truly cost a net of only $5.00 per unit. Through all of 
     these ``off-invoice'' means, drug purchasers are provided 
     substantial discounts in exchange for their patronage, while 
     maintaining the fiction of a higher invoice price--the price 
     that corresponds to reported AWPs and inflated reimbursement 
     from the government (Composite Exhibit #6):
       The above document is particularly disturbing as it 
     indicates that at least one purpose of ``masking'' the final 
     price with free goods is so that the Federal Supply Schedule 
     (``FSS'') falsely appears to be less than that of the 
     hospital price.
       Such misleading statements about pharmaceutical products by 
     drug companies clearly entails deliberate price manipulation 
     and in my opinion appears to be directly contrary to the 
     letter and spirit of FDA law. For example, in 1997 Pharmacia 
     & Upjohn reported an AWP of $946.94 for 200 mg. of Adriamycin 
     PFS while it was offering to sell it to doctor groups such as 
     American Oncology Resources for $168.00 and to Comprehensive 
     Cancer Center for $152.00 (Composite Exhibit #7). Pharmacia & 
     Upjohn then aggressively marketed its cancer drugs to health 
     care providers by touting the financial inducements created 
     by the false price representations and other types of 
     monetary payments. It is apparent that Pharmacia & Upjohn 
     created and marketed the financial inducements for the 
     express purpose of influencing the professional judgment of 
     doctors and other health care providers.
       Moreover, Pharmacia & Upjohn's strategy of increasing the 
     sales of its drugs by enriching, with taxpayer dollars, the 
     doctors and others who administer them 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 it actually 
     abused its position as a drug innovator in an initial Phase 
     III FDA clinical trial for a cancer drug used to treat 
     lymphoma, as detailed in Composite Exhibit #8:
       The linking of doctor participation in FDA clinical drug 
     trials to the purchase and administration of profit-
     generating oncology drugs is entirely inconsistent with the 
     objective scientific testing that is vital to the integrity 
     of the trial. I am hopeful that the FDA will take immediate 
     action to stop such behavior. Such quid pro quo in connection 
     with new drug trials cannot be tolerated.
       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 their 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.
       My reading of the Federal Food, Drug, and Cosmetic Act and 
     the corresponding regulations suggests that the FDA should 
     pay particular attention to these misleading drug company 
     actions. Accordingly, I am requesting that the FDA conduct a 
     comprehensive investigation into drug company business 
     practices.
       Notwithstanding potential prohibitions under the Food Drug 
     and Cosmetic Act, it appears drug manufacturers purposely 
     create confusion and make false and misleading statements 
     about drug pricing in order to deceive the United States 
     Government and the States' Medicaid Programs. Recently there 
     has been much media coverage of this issue--an article 
     entitled ``Drugmakers Accused of Price Scheme'' in the USA 
     Today and one entitled ``How Drug Makers Influence Medicare 
     Reimbursements to Doctors'' in the Wall Street Journal.
       In the larger sense, this letter and its accompanying 
     exhibits raise questions of drug companies' wrongful 
     influence on physician prescribing behavior, which leads to 
     unsafe medical practice in the U.S. In light of these 
     findings, I urge you to undertake a comprehensive review to 
     ensure Americans are prescribed pharmaceuticals that are safe 
     and effective. Physician prescribing should be based on need, 
     not greed. I am extremely concerned that profit may be 
     causing the public to be prescribed drugs that are not safe 
     and effective for patients.
       I have referred this evidence to you so that you may take 
     action against these fraudulent schemes and, if appropriate, 
     enforce relevant law and FDA regulations. I hope that you 
     will take any and all administrative actions to ensure the 
     integrity of drug pricing on behalf of the safety of the 
     American public. And I look forward to discussing with you 
     any necessary legislative solutions.
           Sincerely,
                                                       Pete Stark,
                                               Member of Congress.

     

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