Countering Counterfeit Drugs
We have all received them – spam emails offering cheap Viagra or other such male enhancement drugs.
Chances are that they’re one of the millions of counterfeit drugs that flood the pharmaceutical market every year.
The World Health Organization (WHO) estimates that at least half of all drugs sold today on illegal websites that conceal their physical address are counterfeit. While counterfeit drugs account for only 1 percent of all medicines sold globally, that still amounts to $200 billion, according to the International Institute of Research Against Counterfeit Medicines.
Law enforcement agencies across the world have seen a huge increase in the manufacture, trade and distribution of counterfeit, stolen and illicit medicines in the last 10 years, with the WHO estimating that worldwide sales have increased by about 90 percent since 2005.
“Counterfeit medicines affect all types of legitimate drugs and threaten the entire health system by creating mistrust.” — Cyntia Genolet, associate manager, regulatory and health policy, International Federation of Pharmaceutical Manufacturers & Associations
“Counterfeit medicines affect all types of legitimate drugs and threaten the entire health system by creating mistrust,” said Cyntia Genolet, associate manager, regulatory and health policy at the International Federation of Pharmaceutical Manufacturers & Associations (IFPMA).
“They can be fake versions of patented, generic or over-the-counter medicines, and exist in all therapeutic areas.”
Counterfeit drugs not only put at risk the lives and health of millions of patients who believe that their prescription medicines are both safe and effective; they also cost the pharmaceutical industry billions of dollars in lost revenue every year and leave companies exposed to a host of reputational and liability risks.
Increasingly complex global supply chains, the rise of internet pharmacies and new advancements in technology have all made it far easier for criminals to produce and sell counterfeit drugs.
“We are seeing a geographical intensification of counterfeiting which is no longer focused on one or two parts of the world, but is now global, largely because of the internet,” said Geoffroy Bessaud, associate vice president of anti-counterfeit coordination at Sanofi.
Risk to Human Health
The main risks of taking counterfeit drugs are that they may contain the wrong ingredients, or they may contain too little, too much or no active pharmaceutical ingredient or API (which is what makes the drug effective) at all, according to Matthew Bassiur, deputy chief security officer at Pfizer.
That means patients are not receiving the therapeutic value they need and may suffer adverse effects of taking the wrong ingredients, ultimately putting their health, and lives, at stake.
“It really becomes a game of Russian roulette because you have no way of knowing what it is you’re ingesting,” Bassiur said.
In some cases, these drugs have been found to contain toxic substances such as leaded highway paint, floor polish, brick dust, antifreeze and even rat poison, often because they are being manufactured in unsafe and dirty conditions, he added.
“Counterfeit medicines are being produced in some of the most deplorable and unsanitary conditions imaginable,” he said. “So it’s no surprise that you find these kinds of contaminants in these bogus drugs.”
Worse still, in the case of treatment for infectious diseases with antibiotics or anti-malarials, some diseases can develop drug-resistance if the wrong dose of API has been administered.
To give an idea of the scale of the problem for human health, in 2008 the FDA recorded 81 deaths and about 600 allergic reactions resulting from a batch of counterfeit Herapin, a drug used to prevent blood clots.
“Counterfeit drugs raise significant public health concerns because their safety and effectiveness is unknown.” — Howard Sklamberg, deputy commissioner for global regulatory operations and policy, FDA
“Counterfeit drugs raise significant public health concerns because their safety and effectiveness is unknown,” said Howard Sklamberg, the FDA’s deputy commissioner for global regulatory operations and policy.
Supply Chain Problems
The problem of counterfeit drugs is made worse by an increasingly complex global supply chain network.
With almost 40 percent of all drugs that Americans take being made overseas, according to the FDA, the opportunity to infiltrate the supply chain with counterfeit drugs is far greater than before.
The fact that these drugs are imported also means they may have been mishandled, adulterated or counterfeited before entering the country.
“Patients expect the supply chain to work properly and if there’s a flaw in that chain it’s not only a potential risk to their own health, but also the reputation of the company making and selling that drug,” said Jim Walters, managing director of Aon Risk Solutions’ life sciences and chemical group.
Ned Milenkovich, principal and co-chair of the health care law practice at law firm Much Shelist, said that globalization was a key factor in the surge in counterfeit medicines.
“On the whole, the situation is worse internationally than in the U.S., where at least we have some safeguards to prevent these drugs entering the market,” he said.
The majority of counterfeit drugs are manufactured outside the U.S., in largely unregulated markets such as China and India, according to the FDA.
Because of the relatively low production costs and the ease of transportation, as well as lighter penalties compared to other crimes like narcotics, they have become a magnet for international organized criminal gangs.
The markups are also far greater. For example, based on an investment of $1,000, the estimated profit from counterfeiting a blockbuster drug can be as high as $500,000 versus $20,000 for heroin.
“The criminal world has recognized the margins that can be made from counterfeit medicines and it is much easier to copy these kinds of drugs than it was five to 10 years ago,” said Aon’s Walters.
Counterfeiting is also closely linked to money laundering, drug trafficking and terrorism, said Robert Lane, global practice leader at Willis Resolutions and executive vice president at Willis Global Solutions.
“Terrorism is at the core of this,” he said. “There is a lot of money involved and because of advances in technology, criminals are able to create counterfeit products and maintain a relatively low profile in the process.”
Advances in Technology
Advancements in technology and the internet have also made it easier for criminals to sell their counterfeit drugs online, many of which are a fraction of the price of the original and are dispensed without prescriptions.
Many use sophisticated marketing techniques or fraudulent web storefronts to sell their wares, according to the FDA.
And because of increased technological sophistication, counterfeiters are often able to pass off fake medicines as the real thing, said Bassiur.
“The real danger in ordering these medicines over the internet is a complete lack of transparency and intentional deception, which is a big problem in developed nations where patients are increasingly turning to online to source their medicines,” he said. “However, there are places that people can safely buy prescription medicine online.”
While a patient’s health can be compromised by counterfeit drugs, manufacturers and pharmaceutical companies can suffer a huge financial loss in terms of sales.
It can also infringe on their patent and trademark rights, as well as damage their brand reputation as a result of the negative publicity.
“Essentially what is happening is that your drug is being hijacked,” said Lane.
“There’s infringement across the board in every context and the reputational and financial hit you take as a result can be substantial.”
A company stands to lose not only the benefit of its investment in research and development and advertising that drug, but also the expense of hiring outside experts to look into the problem, according to Dan Torpey, partner in EY’s fraud investigation and dispute services.
“Essentially, someone else is getting the benefit of all your work and effort off the back of sales of a counterfeit product,” he said. “Unfortunately, because a lot of these counterfeiters are rogue individuals or small groups there’s not much recourse for recovery other than enforcement.”
Laura Sunderlin, life sciences underwriter at Beazley, said that the bigger problem is for those companies in the supply chain who buy the drug without knowing it is counterfeit.
“The worst case would be a large distributor buying a big quantity of the drug and then it being passed on down the supply chain to the end consumer and the potential [repercussions] that could bring,” she said.
Tackling the Issue
The pharmaceutical industry has had some success in the fight against counterfeit drugs. In 2012, 79 arrests were made and $10.5 million worth of potentially lethal medicines was seized in Interpol’s Operation Pangea V, targeting illegal online pharmacies.
In November 2013, President Obama signed into law the Drug Supply Chain and Security Act. The act was designed to protect the public from exposure to counterfeit, stolen or otherwise harmful drugs by enabling the monitoring of certain prescription drugs as they move through the supply chain.
Many drugs companies have also implemented new technologies such as radio frequency identification (RFID) chips and tags to track and trace their products.
They also work with governments, regulators and bodies such as the IFPMA to combat the problem and to raise public awareness, as well as their own operations.
Sanofi, for example, has a dedicated team of experts who search for counterfeit drugs on the internet and has set up a central anti-counterfeit laboratory to analyze suspect products.
Walters, however, was a bit more skeptical about the problem. “While across the board there are lots of ways that companies are tackling the problem, conceivably there is no way that you are going to be able to monitor every single pill or capsule,” he said.
Provided that there was no intent to defraud and they were unaware that they were buying and passing on counterfeit drugs in the first place, most companies in the supply chain will be covered by professional and product liability and errors and omissions insurance, said Sunderlin.
However, she said that the problem would continue until an international standard is brought in for monitoring all drugs.
“Until there is an international, required standard of protection for technologies used in legitimate drug packaging which would track a product from manufacturer to consumer, and would make it difficult and very expensive to try to counterfeit, there will be an increasing number of counterfeits introduced and sold around the world,” she said.
Bassiur added: “Counterfeiting is a multibillion dollar enterprise. Large profits, combined with little risk of meaningful penalties in many countries, fuel this illicit industry.
“At the end of the day, the counterfeiter doesn’t care about your health and safety or whether you live or die, they only care about getting your money and lining their own pockets.”
A Bitter Pill
In February, New York Attorney General Eric T. Schneiderman asked GNC, Target, Walmart, and Walgreens to stop selling a variety of store-brand nutritional supplements after DNA tests indicated that only 21 percent of the products contained the plant species listed on the labels, and more than a third contained plant species not on the labels.
Now, a multistate coalition of attorneys general pursuing an expanded probe of the nutritional supplement industry is asking Congress to launch a comprehensive inquiry and to consider a more robust oversight role for the Food and Drug Administration (FDA).
The Council for Responsible Nutrition (CRN), a supplement industry trade group, is questioning the validity of the New York attorney general’s DNA tests.
CRN says the tests have been “roundly criticized by botanical scientists who question whether DNA barcoding technology is an appropriate or validated test for determining the presence of herbal ingredients in finished botanical products.”
According to CRN, DNA can be damaged or removed during the manufacturing process. And since DNA barcoding does not indicate the amounts of ingredients found in the products, any contaminants found may be within “well-established legal thresholds that allow for trace amounts of some ingredients.”
VIDEO: CBS reports on the claims by the New York attorney general that some store brand supplements could “significantly endanger” consumers.
Jim Walters, managing director of Aon’s life sciences industry practice group, said the controversy is “a lot to do about nothing.”
But more than a dozen lawsuits have already been filed in connection with Schneiderman’s findings.
The most immediate exposure could be product liability if there is evidence of bodily harm — for instance, an allergic reaction to one of the unlabeled ingredients.
Phil Walls, chief clinical and compliance officer at myMatrixx, thinks such liability would be relatively narrow and potentially hard to prove.
“The repercussions would be proportional to the harm done. So if the product caused death, that’s going to be severe. But if it simply didn’t do what it was supposed to do, then I would think that the class action would be much smaller,” Walls said.
Walters agreed that any litigation would likely focus on bodily injury.
“In order for their product liability carriers to have a claim, there needs to be bodily injury, there needs to be a problem that’s not just something like they wouldn’t have bought it if they had known this and they seek reimbursement. That’s outside the scope of insurance,” Walters said.
“Think of the billions of dollars a year spent on supplements for people trying to drive better health results.” — Mark Ware, senior vice president and managing director, technology and life sciences industry practice, IMA Financial Group
Others, including Mark Ware, senior vice president and managing director of the technology and life sciences industry practice at IMA Financial Group, said allegations of harm could focus on health benefits denied to consumers who took a product that was missing the labeled active ingredient.
“Think of the billions of dollars a year spent on supplements for people trying to drive better health results.
“If they’re not driving those health results and they feel they’ve been injured, there’s going to be people banging on the door claiming all types of bodily injury because they haven’t been getting the benefits of the … supplements that have been touted as a benefit to them,” Ware said.
Ware sees broader liability issues, as well.
“This is going to trigger more than just potential product liability claims,” he said.
Companies that are publicly traded could see shareholder values impacted, potentially affecting directors and officers coverage, he said. There could also be allegations of false advertisement that could impact general liability policies.
“There are a lot of ways these claims could come about,” Ware said.
The manufacturers would likely be primary targets, but retailers may be exposed as well.
According to Ware, retailers are generally contractually indemnified and held harmless in the event of any claim or litigation due to a fault in a product.
But he pointed out, “As a retailer selling that product in your store, you will still have defense costs and could incur indemnification if [these manufacturers] don’t have the wherewithal to withstand the kind of class action suits that are coming their way.”
If the manufacturers are overseas, that may also make the retailers more attractive to plaintiff’s attorneys.
Either way, the party ultimately on the hook may be the manufacturer’s or retailer’s insurer. If the labeling discrepancies were due to outright fraud, as opposed to human error or equipment failure, that would trigger exclusions to coverage.
But such fraud may not be easy to prove.
“A court of law would have to judge that there was truly a fraudulent act and that they did it intentionally,” said Ware.
“Until fraud is proven, I don’t think these carriers are going to be able to walk away from it.”
“In any major litigation, carriers will point to exclusions to reserve their rights. So could you envision a situation where someone is reserving their right based on that? Yes. But I think that’s a stretch and I think they would have a hard time upholding that exclusion.”
And litigation could be quite costly.
“There’s a lot of ways these claims could come about, but I think in order to prove this, it’s going to take a little bit of time and a lot of litigation costs,” Ware said.
“I would imagine that the number of expert witnesses that are going be called in to testify for both sides would be lengthy, and it is simply a matter of who has the best experts. It’s just not an easy question to answer,” said myMatrixx’s Walls.
Ironically, if it comes down to a battle of expert testimony, the extensive resources that make the retail chains attractive targets for litigation would make them particularly formidable legal opponents as well.
The largest impact of the controversy could have to do with consumer perceptions of individual brands and the industry as a whole.
Walls, a former retail pharmacist, noted that, “If the company has a good reputation, you stock their products. If they don’t, you avoid them.
“People would always ask me the same question: ‘Which brand of supplements should I buy?’ And it always came down to nothing more than trust,” Walls said.
Even if retailers find different manufacturers for their store brands, any loss of consumer trust would likely be directed at the store-brand name on the front of the bottle rather than the manufacturer listed on the back.
GNC has already moved to mitigate any loss of trust by agreeing to implement a new national testing regimen that exceeds current FDA requirements — and uses some of the same testing methods criticized by CRN.
“People would always ask me the same question: ‘Which brand of supplements should I buy?’ And it always came down to nothing more than trust.” — Phil Walls, chief clinical and compliance officer, myMatrixx
Its agreement with the New York attorney general’s office stipulates that “GNC will perform DNA barcoding on the ‘active’ plant ingredients used in its products [and] implement testing for contamination with allergens.”
“It puts them in a better defensive position,” Ware said, “unless they don’t follow through with their own guidelines.”
Without that follow-through, the move could be a double edged sword.
“If they had had [a testing regimen] in place and this had still happened, I would think that would increase liability,” said Walls.
The controversy may also affect the supplement industry’s regulatory framework, largely defined by the Dietary Supplement Health and Education Act of 1994 and Good Manufacturing Practices established by the FDA in 2007.
Some, like Walls, think current oversight is too lax.
“With supplements, there are no regulations at the manufacturer level, no regulations at the distributor level, no regulations at the retail level.
“Only at the point of the consumer do the regulations come into play. … The only restriction on supplement manufacturers is that they cannot make false claims, and no one knows if they have made false claims until that product hits the market,” he said.
And while “false claims” might refer to claims of benefit or efficacy, they “could also refer to what the products actually are, and could trigger the FDA’s involvement.”
“The regulatory oversight is, I think, stronger than what common knowledge in the consumer world knows. FDA is strongly regulating.”
But, he added, most supplement manufacturers “believe very strongly in their reputations and their quality of manufacturing and ingredients, so to some degree I think many would welcome additional oversight.”
As for any negative impact on those insuring the supplement industry, Walters is unconcerned.
“We believe adamantly that this should not affect rates, pricing or availability of coverage.
“This is something that should not be a big issue for the insurance underwriting community that underwrites this sort of business.”
The Doctor as Partner
Professionals helping employees return to work after being on disability or a leave of absence face many challenges. After all, there is a personal story behind each case and each case is unique.
In the end, the best outcome is an employee who returns to the job healthy and feeling well taken care of, while at the same time managing the associated claim costs.
Learn what most employers want from their group disability and life benefits program.
While many carriers and claims managers work toward these goals, in the end they often tend to focus on minimizing costs by aggressively managing claims to get the worker back on the job, or they “fast track” claims, approving everything and paying little attention to case management.
Aggressively managed claims can leave many employees and their doctors feeling defensive and ill-at-ease, creating an adversarial relationship that ultimately hinders return to work and results in higher direct and indirect employee benefit costs for the employer. Fast track or non-managed claims can lead to increased durations, costs and workforce productivity issues for employers.
Is it possible to provide a positive employee benefit experience while at the same time effectively managing disability and lowering an employer’s overall benefit costs?
A Unique Approach
Liberty Mutual Insurance’s approach to managing disability and absence management focuses on building consensus among all stakeholders – the disabled employee, treating physician, employer and insurer. And a key component of this process is a large team of consulting physician specialists, leading practitioners from a variety of specialties, highly regarded experts affiliated with leading medical universities across the country.
“About 16 years ago, our national medical director, Dr. Ed Crouch, proposed that if we worked with a core group of external consulting medical specialists – rather than sending most claims for Independent Medical Evaluations – we could do a better job making disabled employees and their attending physicians comfortable, and therefore true partners in producing better disability management outcomes and employee benefit experiences,” said Tim Kastrinelis, senior vice president, Distribution Partnerships at Liberty Mutual Benefits.
“In this way, our consulting physician and the attending physician are able to work with the disability case manager, the employee and the employer to deliver a coordinated, collaborative approach that facilitates a productive lifestyle and return to work.”
The result of Dr. Crouch’s initiative has produced positive results for the clients of Liberty Mutual Insurance. This consensus building approach to managing disability with consulting physician expertise has helped achieve industry leading client retention results over the past decade. In fact, 96 percent of Liberty Mutual’s group disability and group life clients renew their programs.
“By getting all stakeholders on the same page and investing heavily in consulting physician specialists, we have been able to lower claim costs and shortened claim duration for our group disability policyholders. …In the end, it’s a win-win for all.”
–Tim Kastrinelis, Senior Vice President, Distribution Partnerships, Liberty Mutual Benefits
A Collaborative Approach
In the case of complex disability medical health situations, Liberty Mutual’s disability case managers play a vital role in seeking additional expertise—an area where the industry’s standard has been to outsource the claimant for independent medical examinations.
However, Liberty Mutual empowers its disability case managers with the ultimate responsibility for the outcome of each claim. The claimant and the case manager stay together throughout the life of the claim. This relationship is the foundation for a collaborative approach that delivers a better employee benefit experience and enables the claimant to return to work sooner; which more effectively controls total disability claim and absence costs.
Sending a disabled employee with complex medical needs to an external specialist may sound like a cost-effective path, but it often comes at the cost of sacrificing the relationship and trust built between the employee and case manager. The disabled employee must explain their medical history to a new clinician, which he or she is often reluctant to do. The attending physician may be uncooperative as this move can appear to question his or her treatment plan for the employee.
As a result, the entire claims process takes on an adversarial atmosphere, building major roadblocks to the ultimate goal of helping the claimant return to a productive lifestyle.
Liberty Mutual takes a different approach. Nearly 100 physicians representing more than 30 medical specialties are available to consult with its medical and claims professionals, working side-by-side with case managers.
More than 95 percent of these consulting physicians are in active practice, and therefore up-to-date on the latest clinical best practices, treatment guidelines, therapies, medications, and programs. Most of these physicians are affiliated with leading medical universities across the country. “We recruit specialists from around the country, getting the best from such prestigious institutions as Harvard, Yale, and Duke,” said Kastrinelis.
These highly-credentialed physicians help case managers focus on providing the support needed for the disabled employee to successfully return to work as quickly as appropriate. Their collaborative work with the attending physicians provides the behind-the-scenes foundation that leads to a positive claimant experience, results in a better outcome for the claimant, and more effectively reduces total claim costs.
Coordinated Care Plan
When one of these consulting physicians reaches out to an attending physician, there’s an immediate degree of respect and high regard for his or her opinion. This helps pave the way to working together in the best interest of the employee, improving treatment plans and return to work results.
In this process, the claimant is not sent to yet another doctor; instead, the consulting specialist works with the attending physician to help fill in the gaps of knowledge or provide information that only a specialist would have. Although not an opportunity to direct care, these peer-to-peer discussions can help optimize care with the goal of helping the employee return to work.
The attending physician may have no knowledge of the challenges the employee faces in order to return to work. A return to work plan created in concert with the specialist, disability case manager, employer, and attending physician can set expectations and provide the framework for a proactive and effective return to a productive lifestyle.
“Our consulting physicians bring sophisticated medical expertise to the discussion, and help build consensus around a return-to-work plan, helping us more effectively impact a claim’s outcome and costs, and at the same time provide a better claimant experience,” said Kastrinelis.
“We can work more collaboratively with the attending physician, manage expectations, and shepherd the employee through the process much more effectively and in a much more high-touch, caring, and compassionate manner. Overall, we’re able to produce better outcomes as a result of this consensus building approach.”
“Our approach – including the use of consulting medical experts – helped us significantly reduce disability costs over two years for one large health service company,” notes Kastrinelis. “We cut average short-term disability claim durations by 4.2 days in that time, while increasing employee satisfaction with our unique disability management model and collaborative, partnership approach.
How did Liberty Mutual’s unique approach lower claim costs, reduce disability duration and improve the benefit experience for one customer?
“By getting all stakeholders on the same page and investing heavily in consulting physician specialists, we have been able to lower claim costs and shortened claim duration for our group disability policyholders,” said Kastrinelis.
“Plus, we, the employee, and the employer also get the bonus of creating a better employee benefit experience. This model has shaped our disability and absence management program to more aptly reflect our core mission of helping people live safer, more secure lives. In the end, it’s a win-win for all.”
How does Liberty Mutual provide a superior employee benefit experience?
Tim Kastrinelis can be reached at email@example.com. More information on Liberty Mutual’s group disability and absence management offerings can be seen at https://www.libertymutualgroup.com/business-insurance/business-insurance-coverages/employee-benefits.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty Mutual Insurance. The editorial staff of Risk & Insurance had no role in its preparation.