Date: 2000-10-03
Speaker: FRED HASSAN (republican)
Chamber: H

Chief Executive Officer. Pharmacia & Upjohn Co.. Inc.. Peapack. NJ. DEAR MR. HASSAN: You should by now be aware of Congressional investigations suggesting that Pharmacia & Upjohn has for many years been reporting and publishing inflated and misleading price data and has engaged in other deceptive business practices in order to manipulate and inflate the prices of certain drugs. The price manipulation scheme is executed through Pharmacia & Upjohns inflated representations of average wholesale price ("AWP") and direct price ("DP"). which are utilized by the Medicare and Medicaid program in establishing drug reimbursements to providers. The difference between the inflated representations of AWP and DP versus the true prices that providers pay is regularly referred to in your industry as "the spread." In turn. this has caused the Medicare and Medicaid Programs to expend excessive amounts in paying claims for certain drugs. The evidence amassed by Congress clearly shows that Pharmacia & Upjohn has reported inflated prices and has engaged in other improper business practices in order to cause its customers to receive a windfall profit from Medicare and Medicaid. The manipulated disparities between your companys reported AWPs and DPs are staggering. For example. in 1997. Pharmacia & Upjohn reported an AWP of $946.94 for 200 mg. of Adriamycin PFS while offering to sell it to American Oncology Resources (AOR) for $168.00 and to Comprehensive Cancer Center for $152.00 (Composite Exhibit 1"). Your company then aggressively marketed its cancer drugs to health care providers by touting financial inducements and other types of incentives. Pharmacia & Upjohn created and marketed the financial inducements for the express purpose of influencing the professional judgment of doctors and other health care providers in order to increase the companys market share. Pharmacia & Upjohns strategy of increasing the sales of its drugs by enriching with taxpayer dollars. the doctors and others who administer the drugs 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 & Upjohns own internal documents which reveal that the company abused its position as a drug innovator in an initial Phase I FDA clinical trial for a cancer drug used to treat lymphoma (Composite Exhibit "2"). .. Clinical Research Trials Initial Phase III Protocol trial for "Oral Idamycin" in lymphomas: This trial will offer AOR $1.1M [million] in additional revenues. Two hundred twentyfive (225) patients at $5.000 per patient ... The above . . . items are contingent on the signing of the AOR Disease Management Partner Program. AORs exclusive compliance to the purchase of the products listed in the contract product attachment is also necessary for the above items to be in effect." The linking of doctor participation in FDA clinical drug trials to their purchase and administration of profitgenerating oncology drugs is entirely inconsistent with the objective scientific testing that is essential to the integrity of the trial. I am hopeful that the FDA will take immediate action to stop such behavior by your company. The FDAs inability to act to ensure the validity of drug trials will necessitate legislative action. Doctors must be free to choose drugs based on what is medically best for their patients. SSIONAL RECORD- Extensions 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 Pharmacia & Upjohns drugs to patients. In particular. Pharmacia & Upjohns 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. In addition to Pharmacia & Upjohns action in the context of the Phase III FDA clinical trial. internal Pharmacia & Upjohn documents secured through Congressional investigations clearly establish that Pharmacia & Upjohn created and then exploited misleading information about its prices. Following is one example: "Some of the drugs on the multisource list offer you savings of over 75% below list price of the drug. For a drug like Adriamycin. the reduced pricing offers AOR a rtimbursement of over $8.000.000 profit when reimbursed at AWP. The spread from acquisition cost to reimbursement on the multisource products offered on the contract give AOR a wide margin for profit" (Exhibit "3"). It is clear that Pharmacia & Upjohn targeted health care providers. who might be potential purchasers. by creating and then touting the windfall profits arising from the price -manipulation. For example. Pharmacia & Upjohn routinely reported inflated average wholesale prices for its cancer drug Bleomycin. 15u. as well as direct prices. The actual prices paid by industry insiders was in many years less than half of what Pharmacia & Upjohn represented. Pharmacia & Upjohn reported that the average wholesale price for Bleomycin. 15u. rose from $292.43 to $309.98. while the price charged- to industry insiders fell by $43.15 (Composite Exhibit "4"). Congress attempted to address the issue of inflated drug reimbursement. in part. in 1997 legislation requiring Medicare to reimburse drug costs at 95% of AWP. Unfortunately. Congress was unaware that. while it intended to improve Medicares solvency. Pharmacia & Upjohn was submitting -false price reports to further inflate reimbursement amounts for both Medicare and Medicaid that would nullify the effects of Congressional action. Composite Exhibit "5" demonstrates that Pharmacia & Upjohn increased its price reliresentations for its cancer drug Toposar by 5% in October 1997 while taking care to ensure customers that the changd in reported prices would not have any impact on the lower. true prices being paid. but would increase government reimbursement. The following excerpt. addressing Medicaid reimbursement. is illustrative of the steps Pharmacia & Upjohn took to ensure that government health programs paid the inflated reimbursement resulting from false price reports: "FYIHeads up. The following P&U price increases may create a spread between purchase price and Medicaid reimbursement that may create sales complaints if not resolved in reasonable time period by customary Medicaid updates. Therefore. your action may be required in some instances if over the next few months Medicaid does not automatically pick up the price changes" (Exhibit "6"). Pharmacia & Upjohn reported price increases in October 1997 with full knowledge that the true prices of the drugs were falling. For example. Composite Exhibit "7" reveals that Pharmacia & Upjohn voluntarily lowered its price of Adriamycin PFS 200 mg to $152.00 while reporting an AWP of $946.94: "Dear Willie. A (VPR) Voluntary Price Reof Remarks October 3. 2000 duction will become effective May 9. 1997. The wholesalers have been notified. however it may take two weeks to complete the transition . " Additionally. internal Pharmacia & Upjohn documents secured through the Congressional investigations show that Pharmacia & Upjohn also utilized a large array of other inducements to stimulate product sales. These inducements. including "educational grants" and free goods. were designed to result in a lower net cost to the purchaser while concealing the actual price beneath a high invoice price. Through these means. drug purchasers were provided substantial discounts that induced their patronage while maintaining the fiction of a higher invoice pricethe price that corresponded to reported AWPs and inflated reimbursements from the government. Composite Exhibit "8" highlights these inducements: