On January 17, 2013 a federal grand jury indicted three individuals in 28 counts connected with Cumberland Distribution, a pharmaceutical distribution company licensed in Tennessee, on charges of conspiracy, mail fraud, money laundering and obstruction of justice. Notably, some of the evidence used against the alleged co-conspirators are the pedigrees that they allegedly forged in an attempt to make their business look legitimate to their unsuspecting customers.
Now, as the press release about the indictment from the U.S. Department of Justice (DoJ), Middle District of Tennessee points out, “An indictment is merely an accusation and is not evidence of guilt. All defendants are presumed innocent unless and until proven guilty in a court of law.” So let’s just look at the evidence and how the DoJ is using it to build their case against the defendants in this case. From that we can see what impact pedigrees might have in other cases like this.
The charges are for activities that are alleged to have happened between 2006 and 2008 in which the three defendants are alleged to have generated gross proceeds of $58 million and profits of $14 million. All this money allegedly came from diversion of pharmaceuticals.
See the full indictment here. The charges allege that the defendants knowingly bought drugs from a network of “street collectors” who bought prescription pharmaceuticals from people who had legitimate prescriptions, but who apparently preferred to be paid a fraction of the market value for their drugs rather than receive the therapeutic effects of those drugs. The two places mentioned where the drugs were “collected” are New York and Miami. The defendants or their employees allegedly removed the patient prescription labels that had been applied by the original, legitimate patient’s pharmacists and attached new drug information documents (outserts) to make the packages appear to be new.
HIDING BEHIND A SUPPLY CHAIN FAÇADE
But apparently that wasn’t enough. Cumberland Distribution was apparently not an authorized distributor of record (ADR) of any drug manufacturer. It might be easy to get a license to distribute pharmaceuticals in many states, but it is apparently harder to get drug manufacturers to anoint you as their official ADR and sell their product directly to you, even with that license. Because Cumberland was not an ADR, they were required by the Federal Prescription Drug Marketing Act (PDMA) of 1987 to provide a pedigree to their customers. That pedigree was supposed to show how they had acquired the drugs, and all such transactions all the way back to the manufacturer or to the last ADR that owned them.
Readers of RxTrace may recall that part of the PDMA pedigree provisions were eliminated as the result of the RxUSA lawsuit a few years ago (see “Impact of RxUSA v. HHS On Future Pedigree Legislation”), but that just eliminated certain specific contents within pedigrees and made a few other adjustments. Pedigree are still required for supply chain drug sales that are not made by ADRs. For a detailed explanation of the impact of the original preliminary injunction in the RxUSA v. HHS lawsuit on the PDMA, see the FDA document “ADDENDUM to FDA’s Guidance for Industry: PDMA Pedigree Requirements – Questions and Answers Related to the Preliminary Injunction ordered 12/5/06 in RXUSA Wholesalers, Inc. v. HHS 12.15.06”.
So if you are not an ADR and you want to sell drugs within the supply chain, you’d better be able to provide your customer with a pedigree. Reintroduction of drugs into the supply chain that were previously dispensed to patients by a pharmacist is not legal. It is one of several forms of diversion. In this case, as the DoJ alleges, the defendants didn’t have a pedigree for the drugs that they bought from the “collectors”, so they had to create fake ones—pedigrees that showed a false supply chain ownership history back to either the manufacturer or a true ADR.
But if you create a fake pedigree and falsely claim that you bought the drugs directly from the manufacturer or an ADR, that kind of thing is pretty easy to check, one pedigree at a time anyway. It might appear that one way to improve your chances would be to create additional sales to make it look like you bought the drugs legitimately from someone else and they bought them from someone else, ultimately ending up where someone else bought the drugs from either the manufacturer or an ADR. These long chains of ownership are pretty typical of past cases of supply chain crimes documented by Katherine Eban in her book “Dangerous Doses”, and also in the case of stolen insulin that was illegally reintroduced into the supply chain by Ocean Pharmed back in 2009 (see my essays “Lessons from ‘Drug Theft Goes Big’”, “Reliance on Trust in the U.S. Pharma Supply Chain”, and “InBrief: Pharma Supply Chain Criminals Get Justice”).
In the case of Cumberland Distribution, the DoJ alleges that the defendants themselves created at least one other distribution company just to provide another layer of distance in the supply chain from the “collectors”. Some of the fake pedigrees allegedly even listed Ocean Pharmed as one of the prior owners, which, if true, provides a link to another known criminal organization.
Adding more layers on a pedigree may seem to provide more “cover”, but it also makes it easier for prosecutors to nail the perpetrators. The more false information added to a pedigree, the more opportunities there are to show that is was done intentionally to hide illegal activity.
Legitimate companies who buy drugs from suppliers who are not ADRs should expect to receive pedigrees with their shipments as required by the PDMA. If you pay a lower price than you can get from an ADR you should be at least a little suspicious. This alone, does not indicate criminal activity, but if that lower price comes with a pedigree that has 3 or more wholesale distribution sales on it, you might want to make a few phone calls to check on its legitimacy. If you don’t get the answers you expect, I suggest you contact the FDA Office of Criminal Investigation (OCI) and see if they are interested in having a look at those pedigrees. It still doesn’t mean the drugs are illegitimate or the seller is a criminal, but it’s pretty hard to believe that four companies were able to squeeze out a profit and then the last one is able to offer the drugs to you at a price lower than you can get through an ADR. Do some checking in the interest of your patients, and your own.
FALSIFIED PEDIGREES LEAD CRIMINALS TO PLEAD GUILTY
In light of the falsified pedigrees in the Ocean Pharmed case, William Rodriguez and the owners of Altec Medical of South Carolina all plead guilty in 2012. That was smart because those pedigrees would have been so easy to prove false in court, and there were apparently enough witnesses that could have testified that these company owners knew they were fake. That’s about as incriminating as you can get. I assume these people received a lower sentence than if they had gone to trial claiming innocence and had been found guilty.
In the Cumberland Distribution case, we don’t yet know if the accused are actually guilty. It will be interesting to see how they plead.