Investigative Reporters and Editors, Inc. The IRE Journal: ROGUE MARKET

Shadow distribution system calls into question safety, origin of diverted drugs

Think you know where your prescription medicines come from?

Think again.

In October, The Washington Post revealed how a vast, corrupt network of criminals and profiteers has infiltrated the nation's drug supply chain, buying, stealing, selling and counterfeiting many of the lifesaving medications that wind up in Americans' medicine chests. The five-part series, "Pharmaceutical Roulette," documented the rise of a new form of organized crime that threatens public health, and quickly prompted calls for reforms from regulators, Congress and trade groups representing drug wholesalers and legitimate online pharmacies.

Far more than collecting random anecdotes, the stories identified and exposed the interlocking pieces that form a multibillion-dollar enterprise of such breadth, depth and sophistication that it has eluded federal regulators and harmed and killed unsuspecting patients from coast to coast.

We called this illicit enterprise the shadow market because it operates in the shadows of the legitimate drug distribution chain and constitutes a largely unrecognized and lethally dangerous marketplace for prescription drugs. It includes felons who illegally obtain and trade steeply discounted medications, rogue Internet pharmacies that sell tens of millions of doses of narcotics, domestic and foreign counterfeiters and the growing cross-border trafficking in medicines, especially from Mexico and Canada.

No guarantee of safety

Like many investigative projects, ours started out to be one thing and ended up being something quite different.

In the summer of 2002, we were looking at drug pricing in private and public insurance programs. But after several months, the subject began to feel a little too familiar and we started branching out. Earlier we had stumbled across several felons who had managed to acquire tens of millions of dollars worth of prescription drugs. This begged several interesting questions: Where did they get the drugs and what did they do with them? Who were their customers? What did the pharmaceutical industry and regulators know? What were the risks to patients?

By the fall we had shifted gears. Using many of the traditional tools of investigative journalists - civil and criminal court filings, business records, regulatory documents and interviews with state and federal investigators - we were able to identify and develop backgrounds on some of the most notorious felons trading in prescription drugs. With this knowledge and our newfound vocabulary, we were able to establish credibility with the handful of investigators and prosecutors familiar with drug diverters, gaining information and leads that might otherwise have been out of reach.

One of our most difficult tasks was unraveling how the felons operate. Many have dozens of small, interlocking companies and use false fronts. They obtain the drugs from entities known as "closeddoor pharmacies" that exclusively serve nursing homes and other institutional patients, and benefit from steep discounts of up to 80 percent from drug manufacturers. The felons set up fake pharmacies or bribe existing closed-door pharmacies to obtain these discounted drugs. Then they mark up the drugs and resell them to other middlemen, pharmacies and drug wholesalers, earning millions in profits.

The problem is once the medicines get outside the normal channels of distribution, there is no guaranteeing their safety. We uncovered evidence of expensive AIDS medicines stored in a car trunk, drugs left in U-Haul trailers in blazing heat and medicines requiring refrigeration left on warehouse floors.

Tracking the felons is no easy task. Most states don't distinguish between retail pharmacies and closed-door pharmacies in their licensing requirements, so paper trails are sparse. Several pharmacy board investigators helped us to identify suspect operators. We also found long lists of closed-door pharmacies contained in civil suits in Santa Ana, Calif., and White Plains, N.Y. Those lawsuits, as well as hundreds of other records, also helped us show that some of the largest drug wholesalers in the nation were buying prescription medicine from illicit middlemen and brokers.

Prescription abuse problems

By this time, we had become aware that the Internet was fast becoming a sprawling pipeline for narcotics. Dozens of rogue Web sites were hawking Vicodin and other highly addictive painkillers based on little more than a short medical questionnaire or a fiveminute telephone call with a contract physician.

We spent weeks online identifying these sites and attempting to track the owners, doctors and pharmacies. While that sounds simple enough, we can report without embarrassment that it isn't. Many of the Web sites are fronts for other sites; in some instances, we found dozens of sites that collapsed back into a single site. Many state pharmacy boards don't license online pharmacies or require that they disclose such basic information as location and telephone numbers.

We overcame this hurdle by concentrating on Internet pharmacies operating in the United States. We cross-matched incorporation records with domain name filings, pharmacy board records where they existed and court filings. Fortunately, for us, the Nevada State Board of Pharmacy kept a fairly detailed public file on a Las Vegas Web site that peddled more than five million doses of narcotics in 18 months. From a license application, we were able to determine that the owner was a 23-year-old woman with no pharmacy background, whose previous work history was as a restaurant hostess. We discovered that she was fronting for her father, who had been convicted of a felony in 1992 and had a long history of working with closed-door pharmacies. Disciplinary records revealed that two of the three pharmacists working for the Internet operation had been cited for drug abuse. The third had quit the business.

Some pharmacy boards collect detailed breakouts of every prescription filled by pharmacies, organized by the prescribing physician. In Nevada, we were able to obtain files in a spreadsheet format covering prescriptions for more than 3.5 million doses of narcotics sold by prescriptiononline.com - or two-thirds of its book of business. The files included the date of the prescription, prescribing physician, generic and brand name of the drug, dose, town, ZIP code and other data.

We spent weeks sorting and manipulating the data, identifying the prescribing patterns by physicians, type of drug, dose, town and ZIP code. With some enterprise, we were able to identify addresses and customers in some cases and tracked multiple orders for narcotics originating on the same date at the same address by as many as five different customers. With the help of database editor Sarah Cohen, we mapped more than 30,000 prescriptions by ZIP code and town, revealing that 40 percent of all the sales went to small towns with widely known prescription abuse problems in four Southern states. Some small towns such as Mountain Home, Tcnn., were saturated with more pills than there were residents. When we showed these data to a doctor who had written 14,000 of the prescriptions, he expressed shock and said he had no idea where the drugs were going.

A federal prosecutor in Knoxville, Tenn., close to many of the small towns, said the government had been trying unsuccessfully for months to map Internet purchases. "You guys did it. This is stunning," she said.

Our experience is that the performance of pharmacy boards is uneven at best. But it never hurts to become friendly with the executives and investigators or to ask if they collect physician prescribing profiles and pharmacy-specific data that are public. Disciplinary records and closed files of investigations also are public. And if you have the names of doctors writing for Internet pharmacies, you can run them through Medical Licensing Boards for disciplinary actions.

We were able to identify about three dozen doctors writing for Web sites. Most of them had at least one disciplinary action. Five had been cited for alcohol and drug abuse. Two were under care for bipolar disorder. A half-dozen suffered from depression. One was addicted to Demerol and hydrocodone. Several had filed for bankruptcy or had severe financial problems. In short, probably not the kind of doctors with unclouded vision one hopes for when getting a script.

Investigating counterfeiters requires dogged attention to detail and patching together information from widely disparate paper records, computerized data and interviews. In order to prove a single case we had to track sales records across six states from middlemen in Florida to a small-town pharmacy in Missouri. Maxine Blount, who died of breast cancer, received a diluted, repackaged cancer drug.

"You're very angry," Blount told us one month before she died. "Now whenever I get my medicine I wonder where it's coming from. But what can I do? I need it. I have to have it. And I'm scared of it, every time."

BY GILBERT M. GAUL & MARY PAT FLAHERTY

THE WASHINGTON POST

Gilbert M.Gaul and Mary Pat Flaherty are project reporters at the Washington Post. Gaul is a twotime Pulitzer winner, including for his writing about safety problems in the blood supply. Flaherty won a Pulitzer for writing about abuses in organ donations and transplants.