[Congressional Record (Bound Edition), Volume 146 (2000), Part 17]
[Extensions of Remarks]
[Pages 25779-25780]
[From the U.S. Government Publishing Office, www.gpo.gov]



ABBOTT LABORATORIES OVERCHARGES TAXPAYERS AND JEOPARDIZES PUBLIC HEALTH

                                 ______
                                 

                        HON. FORTNEY PETE STARK

                             of california

                    in the house of representatives

                       Tuesday, October 31, 2000

  Mr. STARK. Mr. Speaker, I am today submitting for the Record a letter 
I sent to Mr. Miles White, Chief Executive Officer of Abbott 
Laboratories. Recent congressional investigations have collected 
evidence that Abbott has reported inflated prices and has engaged in 
other improper business practices in order to create windfall profits 
for providers submitting Medicare and Medicaid claims for certain 
Abbott drugs.
  Such drug company behavior overcharges taxpayers and jeopardizes the 
public health system. The letter follows:

                                    Congress of the United States,


                                     House of Representatives,

                                 Washington, DC, October 31, 2000.
     Mr. Miles White,
     Chief Executive Officer, Abbott Laboratories, Abbott Park, 
         IL.
       Dear Mr. White: You should by now be aware of Congressional 
     investigations revealing that Abbott has for many years 
     reported and published inflated and misleading price data and 
     has engaged in other deceptive business practices. This 
     letter is a call for your company to immediately cease 
     overcharging taxpayers and jeopardizing the public health.
       The price manipulation scheme is executed through Abbott'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 price providers 
     are paying, is regularly referred to in your industry as 
     ``the spread.'' The evidence amassed by Congress clearly 
     shows that Abbott has intentionally reported inflated prices 
     and has 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 Abbott manipulated 
     prices for the express purpose of expanding sales and 
     increasing market share of certain drugs. This was achieved 
     by arranging financial benefits or inducements that 
     influenced the decisions of health care providers submitting 
     Medicare and Medicaid claims.
       Contrary to Abbott's recent assertions in the national 
     media, the price manipulation conduct was in no way required 
     by or consistent with existing reimbursement laws or 
     policies. Indeed, Abbott did not falsify published prices in 
     connection with other drugs, where sales and market 
     penetration strategies did not include arranging financial 
     ``kickbacks'' to health care providers.
       In the case of the drugs for which Abbott sought to arrange 
     a financial kickback at the expense of government programs, 
     the manipulated discrepancies between your company's reported 
     AWPs and DPs versus their true costs are staggering. For 
     example, in the 2000 edition of the Red Book, Abbott reported 
     an AWP of $2,094.75 and a DP of $1,764.00 for a package of 
     Acyclovir Sodium 1 gm. 10's
       Acyclovir Sodium is an important drug in the treatment of 
     AIDS related illnesses and it is essential that government 
     health programs be able to accurately estimate its 
     acquisition cost in setting reimbursements. Even more 
     devastating, Abbott has intentionally caused the government 
     to pay inflated amounts for this important drug at a time 
     when AIDS health benefits were being limited due to budgetary 
     constraints.
       Another example of Abbott's drug price manipulation 
     concerns the IV antibiotic Vancomycin, the drug of last 
     resort in combating many life threatening infections. The 
     public health crisis associated with the overutilization of 
     Vancomycin is now of immediate concern. Exhibit #2, article 
     from Hospital Pharmacist Report entitled Under Attack 
     Vancomycin-Resistant S. Aureus Hits U.S. Shores, states: 
     Indeed, as stated in the article, the problem has reached the 
     level where the CDC has called for strict limits on the use 
     of this vital drug.
       In recent press reports, Abbott attempts to avoid 
     responsibility for financially inducing health care providers 
     to administer Vancomycin. Abbott has suggested that the 
     drug's usage in the outpatient setting is minimal. The 
     evidence developed by the Congressional investigators, 
     however, reveals that outpatient utilization of Abbott 
     Vancomycin has grown substantially in recent years as Abbott 
     inflated its price reports to drug price publishers, while 
     the true price to health care providers fell. Enclosed as 
     Composite Exhibit #3 are excerpts from the Red Book showing 
     Abbott's false price reports for Vancomycin in 1995, 1996 and 
     1999, together with advertisements available to industry 
     insiders reflecting the lower actual prices. The following 
     chart summarizes this information:
       The evidence uncovered shows that providers will purchase 
     and utilize pharmaceutical manufacturers' products that have 
     the widest spread between the providers' true costs and the 
     reimbursement paid by third parties--including State Medicaid 
     Programs and Medicare. In 1996, Abbott, Fujisawa, Lederle, 
     Lilly and Schein all made representations of Wholesaler 
     Acquisition Cost (``WAC'') to the State of Florida, as 
     summarized in the chart below (Exhibit ``4''). The chart sets 
     out the reimbursement amount paid by Florida Medicaid, the 
     industry insider's true cost and ``the spread'' between 
     Medicaid reimbursement and true cost. A review of the chart 
     below clearly demonstrates that the vast majority of 
     providers utilize Abbott's Vancomycin, the drug with the 
     greatest spread between the true wholesaler acquisition cost 
     and the inflated false WAC reported by Abbott.
       Exhibit ``5'', prepared by the National Association of 
     Medicaid Fraud Controls Units in conjunction with their 
     ongoing investigation, further demonstrates that Abbott 
     maximized sales volume and
       The following document (Exhibit ``6'') reflects misleading 
     price representations that Abbott sent to Medi Span (now 
     acquired by First Data Bank) concerning two package sizes of 
     Vancomycin. Medi Span's data acquisition specialist attempted 
     to clarify with ``Jerrie,'' from Abbott, the pricing 
     discrepancies and confusion over the prices of the two 
     packages:
       Abbott's apparent price manipulation created a financial 
     incentive for doctors to increase their usage of Vancomycin, 
     at the very time that overutilization of the drug created a 
     health crisis. This is an especially reprehensible misuse of 
     Abbott's position as a drug manufacturer.
       Additionally, as indicated by the evidence below, Abbott 
     has provided or arranged for a number of other financial 
     inducements to stimulate sales of its drugs at the expense of 
     the Medicaid and Medicare Programs. Such inducements include 
     volume discounts, rebates, off invoice pricing, and free 
     goods, and are designed to result in a lower net cost to the 
     purchaser, while concealing the actual cost. For example, a 
     product invoiced at $100 for ten units of a drug item would 
     in reality only cost the purchaser half that amount if a 
     subsequent shipment of an additional ten units is provided at 
     no charge. The same net result can be achieved through a 
     ``grant,'' ``rebate,'' or ``credit memo'' in the amount of 
     $50. The following excerpts from Abbott's internal documents 
     (Composite Exhibit ``7'') are examples of Abbott's creation 
     of off invoice price reductions that conceal the true price 
     of drugs and impede the Medicare and Medicaid Programs from 
     accurately estimating the acquisition cost of drugs:
       As I am sure you are aware, the inflation index for 
     prescription drugs continues to rise at a rate of more than 
     twice that of the consumer price index. The American 
     taxpayers, Congress and the press are being told that these 
     increases are justified by the cost of developing new 
     pharmaceutical products. Abbott and certain 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 fact falling. For example, the 
     actual price being paid by industry insiders for Abbott's 
     drug, Sodium Chloride 0.9 percent, was in many years less 
     than half of what Abbott represented. Abbott falsely reported 
     that the average wholesale price to health care providers for 
     Sodium Chloride 0.9 percent, 500 ml 24s, [NDC # 00074-7983-
     03], rose from $206.06 to $229.43 during the years 1993 
     through 1996. The Congressional investigations have revealed 
     that, in fact, the true price to industry insiders from 
     Florida Infusion was only $43.20 in 1993 and the price 
     actually fell to $36.00 by 1996. (Composite exhibit 8).
       Abbott's knowledge that true wholesale prices were falling 
     for many of its drugs at the very time that it falsely 
     reported that its prices were rising is evidenced by an 
     internal Abbott document (Exhibit ``9'') dated March 10, 1994 
     to a wholesaler, Florida Infusion, which states the 
     following:
       ``The first three pages, identified as Florida Infusion 
     Price Changes indicate the products in which prices were 
     changed and their new contract price. Favorable factory cost 
     in 1994 have lead the way for these price reductions! 
     (emphasis added).
       Shortly after informing Florida Infusion that its prices 
     were being reduced, Abbott falsely informed Red Book that its 
     prices were being increased, as evidenced by the internal 
     memo dated May 26, 1994 (Exhibit ``10''):
       ``As you are aware, on at [sic] the beginning of April, 
     Abbott took a list price increase. This also has an effect on 
     our AWP (Average Wholesale Price) which Red Book quotes for 
     reimbursement purposes.''
       Abbott created and marketed these financial inducements for 
     the express purpose of influencing the professional judgment 
     of doctors and other health care providers. Abbott's strategy 
     of using taxpayer funds to increase company drug sales and 
     enriching

[[Page 25780]]

     doctors and others who administer the drugs is reprehensible 
     and a blatant abuse of the privileges that Abbott enjoys as a 
     major pharmaceutical manufacturer in the United States.
       Doctors 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 doctors to 
     administer Abbott's drugs. Abbott's conduct, in conjunction 
     with other drug companies, has cost the taxpayers billions of 
     dollars and serves as a corrupting influence on the exercise 
     of independent medical judgement both in the treatment of 
     severely ill patients and in the medical evaluation of new 
     drugs.
       Accordingly, I have requested that the Commissioner of the 
     United States Food and Drug Administration, Dr. Jane Henney, 
     conduct a full investigation into the business practices of 
     certain drug companies, including Abbott. My reading of the 
     Federal Food, Drug, and Cosmetic Act and the corresponding 
     regulations suggests that the FDA should pay particular 
     attention to Abbott's misleading price reports and take 
     affirmative action to ensure that its representations about 
     its drugs are accurate and not misleading.
       Abbott is clearly capable of representing prices that do 
     not include a kickback for many of its drugs. The following 
     chart (``Exhibit II'') specifies drugs for which Abbott 
     reported accurate prices:
       As illustrated by the preceding information, Abbott clearly 
     has the ability to accurately and competently report its 
     prices and consistently did so when it was in its own 
     economic interest.
       I urge Abbott to immediately cease reporting inflated and 
     misleading price data. Such action places the nation's health 
     care at great risk and overcharges taxpayers.
       Based on the evidence collected, Abbott should 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.
       I would appreciate your sharing 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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