1 From 2000 to 2004, there have been 142 counterfeit drug cases opened by the FDA. A few of these involved Internet “pharmacies”, however, which are not considered in this article. Food and Drug Administration, Combating Counterfeit Drugs: A Report of the Food and Drug Administration Annual Update (May 18, 2005), http://www.fda.gov/oc/initiatives/counterfeit/update2005.html (last visited Oct. 18, 2005).

2 KATHERINE EBAN, DANGEROUS DOSES: HOW COUNTERFEITERS ARE CONTAMINATING AMERICA's DRUG SUPPLY (2005) [hereinafter EBAN].

3 Id. at 334-336.

4 I use the term “Trojan Drugs” advisedly. This is not (yet) a term of art.

5 See JODY FEDER, CONGRESSIONAL RESEARCH SERVICE REPORT FOR CONGRESS, PRESCRIPTION DRUG IMPORTATION AND INTERNET SALES: A LEGAL OVERVIEW, Order Code RL32191 (Jan. 8, 2004), available at http://www.law.umaryland.edu/marshall/crsreports/crsdocuments/RL32191.pdf (last visited Feb. 27, 2006). See also The Partnership for Safe Medicine, Safety Resources, http://www.safemedicines.org/safety/ (last visited Feb. 27, 2006), including articles by the FDA, the American Pharmacists Association, the National Association of Chain Drug Stores, Medline Plus, and the National Consumers’ League; regarding internet pharmacies. See e.g., Susan Coburn, A Web Bazaar Turns Into a Pharmaceutical Free-For-All (October 25, 2000), http://www.nytimes.com/library/tech/00/10/biztech/technology/25cobu.html (last visited Sept. 15, 2005).

6 Before starting a career as a drug counterfeiter, Michael Carlow was sentenced for armed robbery of a business (1973), for grand theft (1984), selling cocaine (1986) and in 2000 was convicted of buying AIDS and cancer drugs from the trunk of a car at a Miami intersection. See EBAN , supra note 2, at 60-61; DONALD DEKIEFFER, EDDI, INC, INDIVIDUAL REPORT ON MICHAEL ALLYN CARLOW [hereinafter CARLOW REPORT]. EDDI, Inc. is a specialist in identifying potential product diverters, counterfeiters, money launderers and other forms of commercial fraud. See EDDI, Inc., http://www.eddi-inc.com (last visited Feb. 27, 2006).

7 CARLOW REPORT; EBAN, supra note 2, at 56-60.

8 See EBAN, supra note 2, at 94-100, 200-203 for a fairly complete analysis and description of the Carlow operation.

9 Carlow at one point had more than 15 front companies registered in several states. See CARLOW REPORT, supra note 6 and EBAN, supra note 2, at xv-xi, 44-48, 61-64, 68-69, 95-96, 129, 202, 222-223, 284-285.

10 EBAN, supra note 2, at 92-97; Sally Kestin and Bob La Mendola, Former Convicts Try a Safer Venture: Pharmaceuticals, SUN SENTINEL, May 26, 2003, available at http://www.hhs.gov/importtaskforce/session2/presentations/newsArticlesOnCounterfeiters.doc (last visited Oct. 20, 2005); SUPREME COURT OF FLORIDA, CASE NO: SC02-2645, SECOND INTERIM REPORT OF THE SEVENTEENTH STATEWIDE GRAND JURY, REPORT ON RECIPIENT FRAUD IN FLORIDA's MEDICAID PROGRAM (Dec. 2003), http://myfloridalegal.com/interimjury17.pdf (last visited Feb. 27, 2006).

11 EBAN, supra note 2, at 92-97.

12 Id.

13 Id.

14 Lipitor is a trademark of Pfizer Co. It is a cholesterol-lowering medication (atorvastatin calcium). Liptor (atorvastatin calcium) Cholesterol Medication, http://www.lipitor.com (last visited Feb. 27, 2006).

15 At least some of the drugs handled by the Carlow ring were distributed from the Playpen South, a strip club in Fort Lauderdale, FL. See EBAN, supra note 2, at 195-201.

16 CARLOW REPORT, supra note 6; EBAN , supra note 2, at 269, 271; Sally Kestin and Bob LaMendola, Florida Agents Bust Large Pharmaceutical Counterfeiting Ring, SUN-SENTINEL, July 22, 2003, available at 2003 WLNR 12447012.

17 Amerisource Bergen Corporation (NYSE: ABC) has over 14,000 employees, and annual sales of around $50 billion. Americsource Bergen, Investor Relations, http://www.amerisourcebergen.com/investor/phoenix.zhtml?c=61181&p=irol-irhome (last visited Feb. 27, 2006).

18 Cardinal Health (NYSE: CAH) of Dublin, Ohio has annual sales in excess of $65 billion.

19 McKesson Corporation (NYSE:MCK) with headquarters in San Francisco, is the largest of the “big three” distributors. It has sales over $80 billion.

20 U.S. Food and Drug Administration, FDA's Counterfeit Drug Task Force Interim Report (October 2003), http://www.fda.gov/oc/initiatives/counterfeit/report/interim_report.html (last visited Sept. 14, 2005) [hereinafter Interim Report]; EBAN, supra note 2, at 90; Joshua Walker, Forrester Research, Inc., Can RFID Help Pharma's Drug Distribution Problem? (March 12, 2004), http://www.cyclonecommerce.com/media/pdfs/rfid_in_pharma.pdf (last visited Feb. 27, 2006).

21 Alliance for Health Reform, Covering Health Issues, Appendix D – Department of Veterans Affairs, http://www.allhealth.org/sourcebook2004/pdfs/appendixd.pdf (last visited Sept. 14, 2005); United States General Accounting Office, Major Management Challenges and Program Risks: Department of Veterans Affairs, Performance and Accountability Series at 19 (January 2003), http://www.gao.gov/pas/2003/d03110.pdf.

22 For purposes of this article, the term “secondary wholesalers” means any licensed wholesaler except the “big three” a discussed above. In the industry, many people refer to “tertiary wholesalers” to describe those companies which are on the very margins of legitimacy, such as most of the Carlow entities. The distinction between secondary and tertiary wholesalers, however, is indistinct.

23 See HOUSE COMM. ON ENERGY & COMMERCE, SUBCOMM. ON OVERSIGHT & INVESTIGATIONS, 99TH CONG. 2D SESS., UNCERTAIN RETURNS: THE MULTIMILLION DOLLAR MARKET IN REIMPORTED PHARMACEUTICALS __ (Comm. Print 99-GG 1986). See also Ortho Pharmaceutical Corp. and Johnson & Johnson (Hong Kong) Ltd. v. Sona Distributors, Inc. and Elmcrest Trading, Ltd., 663 F. Supp. 64 (S.D.Fla. 1987); Final Rule Announcing Procedures and Requirements to Implement PDMA, 64 Fed. Reg. 67720, 67729 (Dec. 3, 1999) (discussing the comment that “a large proportion of the ‘export’ drugs that are diverted never actually leave the United States”); American Society of Consultant Pharmacists, Policy Statement on Reimportation of Prescription Drugs (approved July 29, 2002), at http://www.ascp.com/public/pr/policy/reimportation/.

24 In May, 2005, Cardinal Health announced that it would stop purchasing from the secondary market:

James Frederick, Cardinal latest wholesaler to curb secondary dealing, DRUG STORE NEWS, May 23, 2005, at 8, available at 2005 WLNR 8725663.

25 The secondary pharmaceutical market is a “behind-the-scenes” venue in which wholesalers purchase and sell medications to each other “outside the normal drug-manufacturing channel.” Stephanie Saul, Subpoenas Seek Data On Resale of Drugs, N.Y. TIMES, Apr. 9, 2005, at C1. Medications on the market come from a number of sources, including manufacturer overstocks and wholesalers who have purchased too much product and want to resell it. Id. The drugs also come from pharmacy benefit managers, hospitals and mail-order pharmacies that receive preferential pricing on products and then want to resell excess supplies, according to Sandy Greco, vice president of pharmaceutical distributor Kinray. Id. While many such sources are legitimate, foreign markets -- from which the drugs are stolen and then resold in the United States -- and counterfeiters, who make fraudulent medications to sell to wholesalers, also provide drugs to the secondary market. Id.

26 EBAN, supra note 2, at 91, 373 (note to page 91, stating that in October 2003, a person associated with Cardinal showed the author a document from the Cardinal trading company listing the amounts saved by making purchases from alternative secondary distributors). See also, First Interim Report of the Seventeenth Statewide Grand Jury, Supreme Court of Florida, Case No: SC02-2645, at 7 (2003) [hereinafter First Interim Report], http://myfloridalegal.com/pages.nsf/4492D797DC0BD92F85256CB80055FB97/09558F82389E020785256CDA006DB01A?OpenDocument; FDA, Profile of the Prescription Drug Wholesaling Industry: Examination of Entities Defining Supply and Demand in Drug Distribution, Final Report (Feb. 12, 2001) at 1.3 [hereinafter final report]; EASTERN RESEARCH GROUP, INC., PROFILE OF THE PRESCRIPTION DRUG WHOLESALING INDUSTRY § 1.3 (2001), available at http://www.fda.gov/oc/pdma/report2001/; Bruce W. Hamilton, Letter to Anthony L. Young Re: Impact of New PDMA Rules on the Pharmaceutical Distributor Markets (Oct. 26, 2000)(attached to Testimony of Anthony L. Young on Behalf of the Pharmaceutical Distributors Association, Public Hearing on Regulations Implementing the PDMA, Oct. 27, 2000, available at http://www.fda.gov/ohrms/dockets/dailys/00/oct00/103000/103000.htm).

27 Cf Melissa Davis, Gray Clouds Imperil Drug Firms, TheStreet.com, at http://www.thestreet.com/stocks/melissadavid/10240816_2.html (Sept. 6, 2005).

28 See e.g. 38 U.S.C. § 8126 (2005) (discussing Veteran's Administration regulations on the procurement and supply of prescription drugs); Final Rule for Pharmaceutical and Industrial Production on Plants Genetically Engineered to Produce Industrial Compounds, 70 Fed. Reg. 23009 (May 4, 2005); Field Testing of Plants Engineered to Produce Pharmaceutical and Industrial Compounds, 68 Fed. Reg. 11337 (March 10, 2003); Industry Guidance on Drugs, Biologics, and Medical Devices Derived From Bioengineered Plants for Use in Humans and Animals, 67 Fed. Reg. 57828 (Sept. 12, 2002); Dep't of Agric. Policies on Regulation of Biotechnology, 51 Fed. Reg. 23302, 23303 (June 26, 1986); U.S. GEN. ACCOUNTING OFFICE, GAO-03-110, PERFORMANCE AND ACCOUNTABILITY SERIES: MAJOR MANAGEMENT CHALLENGES AND PROGRAM RISKS; DEPARTMENT OF VETERANS AFFAIRS 19 (January 2003), available at http://www.gao.gov/pas/2003/ (last visited Mar. 2, 2006); ALLIANCE FOR HEALTH REFORM, COVERING HEALTH ISSUES Appendix D (2004), available at http://www.allhealth.org/sourcebook2004/toc.asp.

29 Departments and agencies such as the Department of Defense have their own requirements for packaging and coding of pharmaceuticals.

30 For a complete list of substances controlled by the DEA, see http://www.deadiversion.usdoj.gov/schedules/listby_sched/sched2.htm.

31 The Center for Drug Evaluation and Research (CDER) has oversight responsibilities for prescription, over-the-counter and generic drugs. CDER, Frequently Asked Questions to CDER, Question No. 2, “What drugs are regulated by CDER?,” at http://www.fda.gov/cder/about/faq/default.htm#2 (last modified Sept. 19, 2002).

32 The basic “consumer protection” statute enforced by the Commission states, inter alia, that “unfair or deceptive acts or practices in or affecting commerce are…declared unlawful.” FTCA, 15 U.S.C. §45(a)(1)(2005). “Unfair” practices are defined to mean those that “cause or [are] likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.” 15 U.S.C. § 45(n).

33 These include inter alia, the Coast Guard, FBI, Customs (CBP and ICE), and numerous department-specific police.

34 As in the Michael Carlow case, see EBAN, supra note 2, at 45, 58, 64, 92-93; Carlow Report, supra note 6; See also First Interim Report, supra note 26, generally.

35 EBAN, supra note 2, at 320-328 (recounting Nevada's battle for control of its prescription drug supply).

36 In 2003, the Washington Post published a series of investigative articles dealing with drug diversion and counterfeiting; one of these contained an especially critical analysis of the state of enforcement. Gilbert M. Gaul & Mary Pat Flaherty, U.S. Prescription Drug System Under Attack: Multibillion-Dollar Shadow Market Is Growing Stronger, WASH. POST, Oct. 19, 2003, at A1 (hereinafter “Gaul & Flaherty”), available at http://www.washingtonpost.com/ac2/wp-dyn/A44908-2003Oct18. It noted in passing, “Nationwide, there are an estimated 6,500 small wholesalers, yet most states have only a handful of inspectors. In some states, amusement park rides, elevators and even dog kennels are inspected more frequently than drug wholesalers.” Id.

37 E.g. EBAN, supra note 2, at 28, 106, 108-109, 174-178.

38 Congressmen Rahm Emanuel (D-Illinois), Gil Gutknecht, (R-Minn), and Senators Byron Dorgan (D- ND), John McCain (R- AZ), and Edward Kennedy (D-MA) have been particularly vociferous in this regard.

39 Governors Tim Pawlenty (MN), Rod R. Blagojevich (IL), Craig Benson (NH), Jim Doyle (WI), Brad Henry (OK) and John Hoeven (ND) have been outspoken in their support of increased drug imports, especially from Canada.

40 Springfield, Massachusetts mayor Michael Albano became the first to import Canadian drugs, closely followed by several others. In 2003, for example, Boston mayor Thomas M. Menino said that he was looking into buying Canadian prescription drugs for Boston city workers and would “very seriously” consider flouting the Food and Drug Administration ban on imports if it was not lifted. Christopher Rowland, Menino Eyes Drug-Import Plan Mayor Say He’d Consider Flouting FDA to Cut Costs, BOSTON GLOBE, Oct. 29, 2003, at F1, available at 2003 WLNR 3440595.

41 The PDMA is incorporated into the FDCA, and proscribes a variety of conduct set forth in the FDCA's “prohibited acts” section at 21 U.S.C. § 331(t)(2005). The penalties for these offenses are set forth at 21 U.S.C. §333(a) and (b). The PDMA, which was signed by the President on April 22, 1988, was enacted to ensure that prescription drug products purchased by consumers would be safe and effective and to avoid an unacceptable risk that counterfeit, adulterated, misbranded, subpotent, or expired drugs were being sold to the American public. FDA, PRESCRIPTION DRUG MARKETING ACT: REPORT TO CONGRESS, Executive Summary 4 (June 2001), available at http://www.fda.gov/oc/pdma/report2001/default.htm. Congress decided that legislation was necessary because there were insufficient safeguards in the prescription drug distribution system to prevent the introduction and retail sale of substandard, ineffective, or counterfeit drugs and that a wholesale drug diversion submarket had developed that prevented effective control over, or even routine knowledge of, the true sources of drugs. Id.

42 See Lexchin, Joel, Drug withdrawals from the Canadian market for safety reasons, 1963– 2004, 172 CAN. MED. ASS’N J. 765 (2005)CrossRefGoogle ScholarPubMed(but questioning the adequacy of Canadian statistics on drug withdrawals), available at http://www.cmaj.ca/cgi/content/full/172/6/765/.

43 The FDA's own website notes, “A growing number of Americans obtain their medications from foreign locations, often seeking out suppliers in Canada. But FDA cannot ensure the safety of drugs bought from these sources.” FDA, Importing Prescription Drugs, at http://www.fda.gov/importeddrugs/ (last visited Mar. 2, 2006).

44 See e.g. Aidan Hollis and Aslam Anis, Rx for Canada: Close the Internet Pharmacies, 205 C. D. HOWE INSTITUTE COMMENTARY 1 (2004), available at http://www.cdhowe.org/english/publications/currentpubs.html. The authors (both Canadian) argue that Internet pharmacies are a threat to Canadian drug prices, and that both Canadian consumers and the drug companies will benefit by closing them down. Id.

In Manitoba, located just across the border from North Dakota, 1,500 people are employed by Internet pharmacies that cater to hundreds of thousands of US residents. Jesse C. Vivian, B.S. Pharm., J.D., Canadian Drug Imports, U.S. PHARMACIST (July 15, 2003), available at http://www.uspharmacist.com/index.asp?show=article&page=8_1113.htm.

“One Manitoba pharmacy estimates that 90% of its business comes from US prescriptions. According to the Manitoba Pharmaceutical Association, the number of Internet pharmacies in Manitoba that mail prescription drugs to Americans has risen to 51 from 30 since January 1, 2003. Many of these Canadian pharmacies deal in more than 1,000 medications and fill as many as 2,000 drug orders a day, and each order typically contains a three-month supply. Canadian pharmacists claim that Americans can save as much as 80% by buying prescription drugs in Canada, thanks to government price controls and the relatively weak Canadian dollar.” Id.

45 The argument of the pharmaceutical industry is not as crass as this, of course. They argue that amending the PDMA to permit drug importation would also import foreign government price controls into the U.S. “These price controls stifle the much needed innovations that create new and better medicines. Rather than turning to foreign government price fixing, Congress should enhance access to needed medicines by completing work on a market-based Medicare prescription drug benefit.” See the PhRMA websites at http://www.phrma.org.

46 Letter from James R. Office, Vice President and General Counsel, Victory Wholesale Grocers, to Donald S. Clark, Secretary, Federal Trade Commission (May 20, 2004), available at http://www.ftc.gov/os/comments/rfid-workshop/508920-0001.pdf. In commenting upon proposed FTC rules implementing Radio Frequency Identification (RFID) of packaging for food and drugs, Victory Wholesale Grocers (an admitted diverter) noted, “Victory's presence in the marketplace increases competition, improves overall market efficiency and uniformity, and benefits retailers and consumers through access to lower priced goods”.

47 FDA's Counterfeit Drug Task Force Interim Report (Oct. 2003), available at http://www.fda.gov/oc/initiatives/counterfeit/report/interim_report.html (last accessed Sept. 14, 2005).

48 See, e.g., PAN AMERICAN WORLD HEALTH ORGANIZATION, ANTIRETROVIRAL PRICES AGREED IN THE NEGOTIATIONS OF THE 10 LATIN AMERICAN COUNTRIES (June 2003), available at http://www.paho.org/English/AD/FCH/AI/negociaciones-arv-la-25.pdf. (last accessed Sept. 15, 2004). See also WHO MEMBERSTATES AND MEDICINES PRICE INFORMATION, available at http://www.who.int/medicines/areas/access/ecofin_who_memberstates/en/index.html.

49 E.g., Australia, Canada, Norway, Sweden and the United Kingdom.

50 See e.g., MÉDECINS SANS FRONTIÈRES, UNTANGLING THE WEB OF PRICE REDUCTIONS: A PRICING GUIDE FOR THE PURCHASE OF ARVS FOR DEVELOPING COUNTRIES (8th ed. June 28, 2005), available at http://www.accessmedmsf.org/prod/publications.asp?scntid=28620051846504&contenttype=PARA& (last accessed Sept. 15, 2005).

51 See Matthew Chapman, Trade in Aids Drugs, BBC NEWS, April 24, 2005, available at http://news.bbc.co.uk/2/hi/uk_news/4476329.stm (last accessed Sept. 16, 2005).

52 Sarah Boseley & Rory Carroll, Profiteers resell Africa's cheap Aids drugs, GUARDIAN UNLIMITED, Oct. 4, 2002, available at http://www.guardian.co.uk/aids/story/0,7369,804387,00.html. “At least $18m (£12m) worth of Combivir and other highly effective antiretroviral drugs made by the British company GlaxoSmithKline is believed to have been hijacked. The drugs were to be sold at significantly discounted prices to clinics in Senegal, Ivory Coast, the Republic of Congo, Togo and Guinea-Bissau under a scheme to offer some drugs at lower prices to poor countries agreed by Glaxo and four other drug companies with the World Health Organization. But about 3m doses of Combivir - a third of the supply - was diverted back to Europe by profiteering wholesalers as it arrived at the African airports or even earlier. ‘There are indications that perhaps some of these batches never even left Europe,’ said Alan Chandler, a Glaxo spokesman.”

53 For a description of the problem and further references, see http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTHEALTHNUTRITIONANDPOPULATION/EXTHSD/0,,contentMDK:20188673∼menuPK:438756∼pagePK:148956∼piPK:216618∼theSitePK:376793,00.html

54 See THE WORLD BANK, Counterfeiting, Diversion, Corruption, at http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTHEALTHNUTRITIONANDPOPULATION/EXTHSD/0,,contentMDK:20188673∼menuPK:438756∼pagePK:148956∼piPK:216618∼theSitePK:376793,00.html. (Gives a description of the problem and further references).

55 The Economist, A line in the sand, THE Economist, Sept. 16, 2000. During the U.N. interventions in Liberia and Sierra Leone in the early 1990s, for example, peacekeepers were accused of looting, trafficking in diamonds, selling arms to rebel militias, and committing wholesale human rights abuses. By 1997, more than 10,000 Nigerian troops had been deployed in and around Freetown, Sierra Leone's capital. The peacekeepers were accused of selling munitions and drugs to rival factions and mined diamonds alongside them. In 2000, the Commander of the United Nations force in Sierra Leone (UNAMSIL),Vijay Jetley, charged the Nigerians with sabotaging peace in the country and duplicity in prolonging the conflicts in West Africa for personal gain.

56 See e.g., EBAN, supra note 2, at 90-91; Gaul, supra note 36; NATIONAL ASSOCIATION OF BOARDS OF PHARMACY, TASK FORCE ON DRUG DIVERSION THROUGH INSTITUTIONAL OUTLETS (2000), available at http://www.nabp.net/ftpfiles/task_force_reports/Task_Force_on_Drug_Diversion_through_Institutional_Outlets.doc (last accessed Oct. 20, 2005).

57 Gaul & Flaherty, supra note 36. The case of David Dyck is summarized.

58 See id.

59 See First Interim Report, supra note 26.

60 See Gaul & Flaherty, supra note 36. The case of Marty Rubin is summarized.

61 DAVE ESCALANTE, ACHIEVING EFFICIENCY THROUGH OUTSOURCED SAMPLE MANAGEMENT (Product Management Today 2004). “Delivering a sample product to a physician is a pharmaceutical company's single most important promotional activity for increasing product awareness and utilization, growing market share and revenue.”

62 See, e.g. REPORTS U.S. ATTORNEY, Six Additional TAP Employees Charged with Conspiracy and Kickback Crimes, PR NEWSWIRE, July 16, 2002.

63 Id.

64 Id.

65 Id.

66 See e.g., Jamie Herzlick, LI Firm Execs Face Charges; Ex-chairman, others arrested, Newsday, Aug. 13, 2003. This sort of scheme was perfected by Allou Distributors of Brentwood, NY in the early 1990s. Allou, which has since gone bankrupt, was one of the major diversion “facilitators” in the U.S. until it collapsed in 2003. Prosecutors unraveled numerous schemes including insurance fraud, money laundering and even arson.

67 The National Association of Drug Diversion Investigators (NADDI) offers on-line reports of current pharmaceutical hijackings, burglaries, thefts and other forms of drug diversion. NADDI Home Page, www.naddi.org (last visited Mar. 2, 2006).

68 See e.g., John Burke, NADDI, Drug Diversion: The Scope of the Problem at 4, available at http://www.naddi.org/publications/scope.pdf (last accessed Sept. 20, 2005).

69 U.S. v. Hurwitz, N0. 03-cr-00467 (E.D. VA filed Sept. 25, 2003, judgment April 21, 2005) (William E. Hurwitz sentenced to 25 years imprisonment and fined $ 1 million for conviction on 50 counts of illegal drug distribution, including conspiracy to distribute controlled substances and charges related to drug trafficking that resulted in one death and serious bodily injury to others). See also Hurwitz v. Bd. of Medicine, 46 Va. Cir. Ct. 119 (1998) (denying Hurwitz's petition challenging the decision of the Virginia Board of Medicine, which exercised its summary suspension power on the ground that the doctor's unprofessional conduct in inadequate history-taking, and referrals to other professionals, coupled with an apparent unquestioning compliance with patients’ requests for prescriptions and refills, justified board intervention).

70 See Centers for Medicare and Medicaid Services, Most Common Medicaid “Rip Offs,” available at http://new.cms.hhs.gov/FraudAbuseforConsumers/04_Rip_Offs_Schemes.asp#TopOfPage; some of the latest scams have been collected by the Coalition of Wisconsin Aging Groups in Fraud Alert, available at http://www.cwag.org/legal/medicare/index.aspx?ID=112); Clifford J. Levy and Michael Luo, New York Medicaid Fraud May Reach Into Billions, N.Y. TIMES, July 18, 2005, available at http://www.nysacra.org/nysacra/news/NYMedicaidFraudBillions.htm; Mark Sherman, Associated Press, GlaxoSmithKline agrees to pay $150 million to settle drug price fraud case (Sept. 20, 2005), available at http://www.boston.com/news/local/massachusetts/articles/2005/09/20/glaxosmithkline_pays_150_million_to_settle_drug_price_probe/?rss_id=Boston+Globe+--+City+Weekly; Melody Peterson, Bayer Agrees To Pay U.S. $257 Million in Drug Fraud, N.Y. Times, April 17, 2003, available at http://query.nytimes.com/gst/fullpage.html?sec=health&res=9B07E1DD163AF934A25757C0A9659C8B63.

71 See, e.g., Guadalupe TX County Commissioners Court, Agenda, December 28, 2004, Discussion and possible motion to approve an Addendum to Bid No. 05-3910 re: the motion to advertise and open bid specifications for prescription drugs for the Adult Detention Center; California State Auditor's Report 2004-406 (Feb. 2004), Special Report to Assembly and Senate Standing/Policy Committees, State of California: Its Containment of Drug Costs and Management of Medications for Adult Inmates Continue to Require Significant Improvements, available at http://bsa.ca.gov/pdfs/reports/2004-406.pdf (last accessed Oct. 18, 2005).

72 In 2001, for example, Dr. Jerome Feldman, 59, billed Medicaid for drugs that patients did not need or in quantities far greater than they needed. Sometimes, he gave them only a fraction of what they needed and diverted the rest. Feldman allegedly sold the excess medicines to wholesale pharmacies in Broward, Palm Beach and Miami-Dade (FL) counties. The firms resold the prescription drugs at sizable profits to legitimate buyers or illegal dealers. Others in the group laundered the money through corporations. Sun-Sentinel (Fort Lauderdale, FL) April 20, 2001.

73 In 2005, more than two years after a massive pharmaceutical theft ring was discovered at the Fort Riley, KS Army facility and other government hospitals, the Justice Department is still investigating the matter. The most recent indictments occurred in July, 2005. See Press Release, U.S. Attorney, Dist. of Kan., (July 27, 2005), available at http://www.usdoj.gov/usao/ks/press/july2005/July27b.html.

74 EBAN, supra note 2. Index under “Carlow, Michael,” “businesses and shell companies” and chart at 359 “The Epogen Trail to Timothy Fagan.”

75 See e.g. id., at 179-185, discussing state regulations on pedigree papers in Florida and Nevada. In late 2002 the Florida Supreme Court convened the Seventeenth Statewide Grand Jury to report on Florida's escalating counterfeit drug problem. The Grand Jury's First Interim Report was issued in February 2003 and triggered the passage of new legislation in Florida as well as serving as a model for the FDA in formulating a national strategy to combat counterfeit drugs. See FLORIDA SUPREME COURT, FIRST INTERIM REPORT OF THE SEVENTEENTH STATEWIDE GRAND JURY, Feb. 2003, available at http://myfloridalegal.com/grandjury17.pdf; INTERIM REPORT, supra note 20, at II.D.2.

76 Regarding Federal legislation, Congress enacted the Prescription Drug Marketing Act (“PDMA”) in 1988, Pub. L. No. 100-293 (codified as 21 U.S.C. § 353. 21 U.S.C. § 353(e) was amended in 1992 to its present form, Pub. L. No. 102-353.

Each person who is engaged in the wholesale distribution of a drug subject to subsection (b) of this section [prescription drugs] and who is not the manufacturer or an authorized distributor of record of such drug shall, before each wholesale distribution of such drug (including each distribution to an authorized distributor of record or to a retail pharmacy), provide to the person who receives the drug a statement (in such form and containing such information as the Secretary may require) identifying each prior sale, purchase, or trade of such drug (including the date of the transaction and the names and addresses of all parties to the transaction).

On Dec. 3, 1999, the FDA published final regulations in 21 CFR part 203 implementing the provisions of the PDMA as amended. 64 Fed. Reg. 67,720 (Dec. 3, 1999)). After publication, the FDA began to receive comments from industry, trade associations and members of Congress objecting to the regulations on the pedigree requirement as well as a petition for a stay of actions supported by entities that would be considered “unauthorized distributors” under the final rule. As a result, the FDA delayed the effective date for the pedigree rules, 21 C.F.R. §§203.3(u) & 203.50, until Oct. 1, 2001, 65 Fed. Reg. 25,639 (May 3, 2000). Since then, the final rule on pedigree papers has been stayed four more times – until Dec. 1, 2006 . 66 Fed. Reg. 12,850 (March 1, 2001); 67 Fed. Reg. 6,645 (Feb. 13, 2002); 68 Fed. Reg. 4,912 (Jan. 31, 2003); 69 Fed. Reg. 8,105 (Feb. 23, 2004). For further information see FDA REPORT TO CONGRESS, THE PRESCRIPTION DRUG MARKETING ACT (June 2001), available at http://www.fda.gov/oc/pdma/report2001/; see also EBAN, supra note 2, at 162-165, 334-339.

Regarding State legislation, the FDA states that all 50 states have enacted some sort of legislation to implement PDMA, Interim Report, supra note 20, at II. D.2. Following the lead of Florida and Nevada in passing more stringent regulation of wholesale distributor licensing and documentation, however, the FDA has supported the National Association of the Boards of Pharmacy (NABP) in formulating and updating Model Rules for States to adopt regulating wholesale distribution of prescription drugs. Id. The Model Rules provide for pedigrees in Section 4: Minimum Requirements for the Storage, Handling, Transport, and Shipment of Drugs and Maintenance of Drug Records, Section 5: Security and Anti-Counterfeiting, and Section 10: Recordkeeping. It rejects, however, a requirement for paper pedigrees, which could be implemented immediately. Rather, the NABP recommends that the pedigree provisions come into effect on December 31, 2007 or whenever the technology is available for implementation of electronic pedigrees.

The FDA reports that as of May 2005, four states had laws in place that are similar to the NABP Model Rules (Florida, Nevada, California, and Indiana) and at least two other states are considering adopting the Model Rules (New Jersey and Iowa). Annual Update, supra note 1.

77 EBAN, supra note 2, at 92, 98, 134, 153, 184, 189, 216-217.

78 Interim Report, supra note 20, at II; See e.g., EBAN, supra note 2, at 94 (describing the “pharmaceutical repacking operation” in Michael Carlow's laundry room and garage).

79 See, e.g., Comparison of authentic packaging to packaging of counterfeit Procrit, ORTHO BIOTECH PRODUCTS, available at http://www.orthobiotech.com/common/counterfeit/PROCRIT/letter.html; view counterfeit Lipitor packaging, available at http://www.pharmacist.com/articles/h_ts_0300.cfm; view counterfeit Serostim, Neupogen, and “Knockoff” from India, available at http://www.fda.gov/oc/initiatives/counterfeit/archive.html (last accessed Oct. 19, 2005). See also EBAN, supra note 2, at 154 (low-dose Epogen repackaged as high-dose Epogen).

80 EBAN, supra note 2, at 87-89.

81 See Final Report, supra note 26, at 1.2. As of Jan. 2001, the 28,216 wholesale distributor licenses were current in the 50 States. This figure represents the total number of licenses for wholesale operation; multi-state wholesalers presumably hold licenses in all States where they operate and are required. The total number of licenses does not represent an estimate of the number of unique wholesalers. Packaging and repackaging is a major function of wholesalers, performed by 71% of the license-holders. Id.

82 Interim Report, supra note 20, at II. A & B (showing prominence of repackagers in the U.S. drug distribution center). See also Advanced Packaging, Inc. advertisement for pharmaceutical bottling, at http://www.a1advancedpkg.com/pharmaceutical_bottling.html (last accessed Oct. 19, 2005); EBAN, supra note 2, at 89.

83 Federal law and regulations assume that packers and distributors might be indicated on prescription drug labels in addition to, or instead of, manufacturers. See 21 U.S.C. § 321(g)(2); 21 C.F.R. §201.57(k).

84 One reason for the secrecy appears to be that the PDA Members intended to disregard the pedigree requirement if passed by Congress. See, e.g., Regulations Implementing the Prescription Drug Marketing Act, as amended: Hearings Before the U.S. Department of Health and Human Services, Docket No. 92N-0297 (testimony of Anthony L. Young on Behalf of the Pharmaceutical Distributors Association (stating that small distributors are “keeping their heads down because they fear they will find themselves the subject of an enforcement action if they choose simply to stay in business despite this final rule.”)) (Oct. 26, 2000).

85 The list of members of the Pharmaceutical Distributors Association was supplied to the author by the FDA, Department of Health & Human Services, Office of the Commissioner in response to a Freedom of Information Act request (Sept. 15, 2004) submitted by the author to the FDA. The member companies are: Associated Medical Distributors, Inc., Columbia Medical Distributors, AK Medical Supply Co., Inc., Chicago Medical Equipment and Supply, J M Corporation, LAL Consultants Group, JAM Pharmaceutical, High Country Medical, Grand Canyon Medical Enterprises, Expert-Med, Inc., Drugmax, Inc., DIT Healthcare Distribution, Inc., Advance Medical Sales, MC Distributors, MedSource Direct, Michigan RX Brokerage, LLC, National Pharmaceutical, Ltd., PDI Enterprises, Inc., Parke Medical Supply, Priority Pharmaceuticals, Purity Wholesale Grocers, Inc, R & S Sales, LLC, Rx Drug Services, Rebel Distributors Corp., Resource Healthcare Inc., South Pointe Wholesale, Inc., and Wise Choice Health Care.

86 Hearings Before the House Committee on Small Business, Subcommittee on Regulatory Reform and Paperwork Reduction (June 8, 2000)(Testimony of Sal Ricciardi, President, Purity Wholesale Grocers, Inc., on behalf of the Pharmaceutical Distributors Association), available at http://www.fda.gov/ohrms/dockets/dailys/00/Jul00/072000/c000116_tab0005.pdf.

87 For information on McKesson, see McKesson's website at: http://www.mckesson.com/company.html.

88 For information on Amerisource Bergen, see generally http://www.amerisourcebergen.com.

89 For information on Cardinal Health see generally http://www.cardinal.com.

90 Whereas federal law regulates the content and format of labeling for human prescription drugs directed to health care practitioners (21 C.F.R. § 201.57 (2006)), state law regulates the contents of the package or bottle labels of prescription drugs; see, e.g., N.Y. EDUC. LAW §6810 (McKinney 2003), which provides:

91 The term “orphan drug” refers to a product that treats a rare disease affecting fewer than 200,000 Americans. Orphan Drug Act, 21 U.S.C. § 360bb (2006), available at http://www.fda.gov/orphan/oda.htm. In 1983, Congress passed the Orphan Drug Act to support research, development, and approval of products that treat rare diseases. See id. § 360aa-360ee. See also Food and Drug Administration, Orphan Drugs, at http://www.fda.gov/cder/handbook/orphan.htm. The major provisions of the Orphan Drug Act are administered by the FDA Office of Orphan Products Development, see generally http://www.fda.gov/orphan/index.htm.

92 World Health Organization, Fact Sheet No. 275, available at http://www.who.int/mediacentre/factsheets/fs275/en/ (February 2006).

93 The 20-year patent term provision is contained in 35 U.S.C. § 154(a)(2) (2005).

94 See FDA, CENTER FOR DRUG EVALUATION AND RESEARCH, 2004 REPORT TO THE NATION, IMPROVING PUBLIC HEALTH THROUGH HUMAN DRUGS 6-7, http://www.fda.gov/cder/reports/rtn/2004/rtn2004.htm. “There has been a slowdown – instead of the expected acceleration – in innovative medical therapies reaching patients. The medical product development path is becoming increasingly challenging, inefficient and costly.” Id. at 6. The report also notes new approvals and average duration of the approval process. Id. at 14-29. See also FOOD AND DRUG ADMIN., INNOVATION OR STAGNATION: CHALLENGE AND OPPORTUNITY ON THE CRITICAL PATH TO NEW MEDICAL PRODUCTS (2004), http://www.fda.gov/oc/initiatives/criticalpath/whitepaper.html.

According to federal statute, the FDA must “promote the public health by promptly and efficiently reviewing clinical research and taking appropriate action on the marketing of regulated products in a timely manner.” 21 U.S.C. § 393(b)(1) (2005). But cf. Kulynych, Jennifer, Will FDA Relinquish the “Gold Standard” for New Drug Approval? Redefining “Substantial Evidence” in the FDA Modernization Act of 1997, 54 FOOD & DRUG L.J. 127, 128 (1999)Google ScholarPubMed(“despite FDAMA's emphasis on FDA's duty to reach approval decisions promptly, the agency – traditionally headed by scientists, not politicians – takes a decidedly cautious approach to its role as gatekeeper of new medical products”), http://www.fdli.org/pubs/Journal%20Online/.

95 FDA, Office of Generic Drugs, http://www.fda.gov/cder/ogd/#Introduction (February 10, 2006).

96 See, e.g., Department of Prevention, Assistance, Transition, and Health Access, Vermont Health Access Pharmacy Benefit Management Program, at http://www.dsw.state.vt.us/districts/ovha/pdl_06_01_04.doc (June 1, 2004). and Buygenericdrugs.com, Pharmacy Prices, http://www.buygenericdrugs.com/pharmacy/price_search_string.asp?alpha=WARFARIN (2006).

97 See Lipitor, supra note 14.

98 See generally, Office of the U.S. Attorney, Western District of Missouri, News Release, Aug. 24, 2005, http://www.usdoj.gov/usao/mow/news2005/milgrom.ple.pdf.

99 See 21 C.F.R. § 203.50 (2006). In 1999, §203.50 was added, effective Dec. 4, 2000. 64 Fed. Reg. 67721, 67761-67762 (1999), http://www.gpoaccess.gov/fr/retrieve.html. In 2000, the effective date for §203.50 was delayed until Oct. 1, 2001. 65 Fed. Reg 25639 (May 3, 2000), http://www.gpoaccess.gov/fr/retrieve.html. In 2001, §203.50 was further delayed until Apr. 1, 2002. 66 Fed. Reg. 12851 (Mar. 1, 2001), http://www.gpoaccess.gov/fr/retrieve.html. In 2002, the effective date was further delayed until April 1, 2003. 67 Fed. Reg. 6646 (Feb. 13, 2002), http://www.gpoaccess.gov/fr/retrieve.html. In 2003, the effective date was further delayed until Apr. 1, 2004. at 68 Fed. Reg. 4912 (Jan. 31, 2003), http://www.gpoaccess.gov/fr/retrieve.html. Finally, in 2004, the effective date of §203.50 was further delayed until Dec. 1, 2006. 69 Fed. Reg. 8105 (Feb. 23, 2004), http://www.gpoaccess.gov/fr/retrieve.html.

100 See, e.g., Letter from Bruce W. Hamilton, Ph.D., Professor of Economics, to Anthony L. Young, Esq. Re: Impact of New PDMA Rules on the Pharmaceutical Distributor Markets 5 (Oct. 26, 2000), reprinted in Anthony L. Young, Testimony on Behalf of the Pharmaceutical Distributors Association, Before the U.S. Department of Health and Human Services, FDA, Public Hearing on Regulations Implementing the Prescription Drug Marketing Act (October 26, 2000), available at http://www.fda.gov/ohrms/dockets/dailys/00/oct00/103000/103000.htm#_Toc498901371:

See also FOOD & DRUG ADMIN., THE PRESCRIPTION DRUG MARKETING ACT: REPORT TO CONGRESS 14-15 (2001), http://www.fda.gov/oc/pdma/report2001/.

101 Regarding Wal-Mart, see, e.g., Demir Barlas, Wal-Mart's RFID Mandate, at http://www.line56.com/articles/default.asp?articleID=4710&TopicID=2 (June 4, 2003) and Computer Business Review Online, Wal-Mart Quantifies RFID Benefits, Finally, at http://www.cbronline.com/article_news_print.asp?guid=2E769AED-4EF1-46EF-94C3-D8C078265B1A (Oct. 18, 2005). Regarding the U.S. Department of Defense, see, e.g., Office of the Deputy Under Secretary of Defense (Logistics & Material Readiness), Radio Frequency Identification (RFID), at http://www.acq.osd.mil/log/rfid/index.htm (February 23, 2006).

102 See e.g., High Jump Software, a 3M Company / Microsoft, The True Cost of Radio Frequency Identification (RFID) (2004), http://www.highjumpsoftware.com/promos/rfid-costreport.asp.

103 To address concerns on the effects of RFID on drug products that may be susceptible to change in their environment, the FDA developed a protocol for the Product Quality Research Institute (PQRI), a collaboration of FDA, academia, and industry. See Product Quality Research Institute, PQRI News, PQRI to Gather Data on RFID Effects, at http://www.ipacrs.com/PQRI.html (Feb. 2005). In addition, the Health Research Initiative of the Auto-ID Laboratories (based around the world at MIT, University of Cambridge, University of Adelaide, Keio University, Fudan University, and University of St. Gallen. See Auto-ID Laboratory at MIT, at http://ken.mit.edu/web (Apr. 22, 2005)) is conducting additional studies on the effects of radio-frequency on various drug products. See FOOD & DRUG ADMIN., COMBATING COUNTERFEIT DRUGS: A REPORT OF THE FOOD AND DRUG ADMINISTRATION ANNUAL UPDATE (2005), http://www.fda.gov/oc/initiatives/counterfeit/update2005.html.

104 See, e.g., Derren Bibby, Squaring the Circle with RFID and Privacy, at http://www.crmbuyer.com/story/38385.html.

105 Id.

106 Id.

107 See CONGRESSIONAL RESEARCH SERVICE, CRS REPORT FOR CONGRESS RL32191: PRESCRIPTION DRUG IMPORTATION AND INTERNET SALES: A LEGAL OVERVIEW (Oct, 4, 2004), http://www.opencrs.com/document/RL32191/2004-10-04%2000:00:00. Cf. HHS TASK FORCE ON DRUG IMPORTATION, U.S. DEP't OF HEALTH & HUMAN SERVS., REPORT ON PRESCRIPTION DRUG IMPORTATION (2004), http://www.hhs.gov/importtaskforce/.