Dear Chairman Upton and Chairman Murphy:
On behalf of National Taxpayers Union’s (NTU) members across the United States, I write to offer our views and recommendations relating to your announcement last month that the Committee was investigating “management concerns with the FDA Office of Criminal Investigations (OCI).” This exercise of the Committee’s oversight prerogatives has major implications for taxpayers, and should be conducted with the utmost diligence as well as forethought.
NTU stands second to no other organization in its support for federal employees who come forward with vital information pertaining to potential maladies within an agency’s managerial culture. We continue to actively advocate for improvements to whistleblower protection statutes as well as administrative procedures undergirding them. Furthermore, as a consequence of our work on behalf of safeguards for taxpayers involved in proceedings with the IRS, we are abundantly aware of the need to carefully monitor the resources and powers given to those who enforce the laws. NTU has also taken a longstanding interest in federal, state, and local policies that affect the cost of health care, including the fiscal aspects of ensuring the integrity of prescription drug markets. It is for all of these reasons, along with our obvious interest in ensuring that taxpayer dollars are spent wisely, that we write to you today.
Although the Committee’s investigation has made mention of two reports from the Government Accountability Office (GAO) and the Department of Health and Human Services’ Inspector General (HHS-IG), apparently some impetus has been given to this effort from a September 8 story on OCI from Reuters entitled, “FDA Criminal Office Draws Fire from Agents and Doctors over Drug Import Crackdown.” This account, along with the GAO and HHS-IG documents, does indeed contain allegations whose impact on OCI’s ability to operate effectively could be considerable. Nonetheless, there are a number of points raised in these proceedings that should, in our opinion, be kept in proper and prudent perspective. Among them:
1) Protecting the public from adulterated medicines is expensive and difficult to practice selectively. For a number of reasons, NTU has long opposed schemes to mandate widespread, legal importation of drugs from foreign sources. Aside from involving our government even more deeply in price control regimes and limiting the benefits of innovation (see below), there would be more immediate practical considerations. The Medicare Modernization Act of 2003 included a section directing the Food and Drug Administration (FDA) to “promulgate regulations permitting pharmacists and wholesalers to import prescription drugs from Canada into the United States.” However, the law also requires the FDA to certify “that the implementation of this section will a) pose no additional risk to the public’s health and safety; and b) result in a significant reduction in the cost of covered products to the American consumer.” No such certification has occurred, and a report released by the Department of Health and Human Services late in 2004 helps to explain why.
The report estimated that approximately 10 million packages would annually enter the United States with imported prescription drug products; developing an FDA regime to screen all these packages for safety would add up to nearly $3 billion—or approximately the total potential savings from an importation regime, according to the Congressional Budget Office. The significant costs necessary to preserve the integrity of the pharmaceutical supply chain – costs that have only increased due to the proliferation of counterfeit Internet pharmacies – could easily overwhelm whatever price breaks drug importation could produce.
Rather than simply recite OCI’s budget levels, we bring this information to your attention because it more effectively illustrates the enormity of the challenge in policing the drug supply chain, with or without legal importation.
Some would say it also illustrates the need for OCI to steward its resources more vigorously – a statement with which NTU would thoroughly agree. This does not, however, translate into easy choices about which cases to investigate. Focusing on particular countries of origin is of no help: as a recent FDA sting operation determined, 85 percent of the drugs promoted by the targeted scammers were advertised as Canadian-based, but came instead from more than two dozen countries. One of the more notorious online distributors, Amazon Medica, portrays itself as providing “FDA approved products” as the UK’s “#1 Parallel Importer.”
Focusing on particular drugs is likewise not as an easy an answer as it would seem. The Reuters article of September 8 airs the complaints of several employees at OCI who say they have become the “Botox Police,” owing to the workload associated with following up on cases involving that particular injectable medication. Unfortunately, counterfeit or improperly stored Botox can not only be ineffective, it can result in serious conditions such as paralysis. In any case, Botox is no longer solely a cosmetic treatment. It has been approved for treating migraines, and some “off-label” uses include treatment of Post Traumatic Stress Disorder in veterans, muscular spasms, and overactive bladder conditions. In fact, the manufacturer of Botox reported that its second quarter U.S. revenues for “therapeutic” uses of the drug were nearly $300 million, dwarfing receipts from “cosmetic” uses by more than $100 million. As recently as last year, the FDA was warning U.S. providers of counterfeit Botox.
Furthermore, bad actors do not always discriminate over the particular brands in which they ply their illegal trade. Rather, they prey upon providers and consumers of products that represent the biggest financial windfall, including not only cosmetic injectables but also cancer treatments. It would not be unreasonable to assume that a black- or gray-market importer of one product is also trafficking in others. As AARP reported last year, “a series of recent breaches shows that crooks who once focused on drugs like Botox and Viagra have turned to lifesaving drugs, including medications for cancer, high cholesterol and mental health conditions.”
It may be possible for OCI to direct its investigations toward particular geographic areas where illegal importation occurs most often. South Florida, which has served as a hotbed of such activity over the past decade, might be one logical choice. These questions deserve the Committee’s attention.
2) Taxpayers have a huge stake in ensuring the drug supply chain is secure. Although governments take great care to ensure that the prescription drugs administered through their programs are genuine and correctly handled, the system is hardly foolproof. Because secondary distributors and other intermediaries might come into several points between a manufacturer and a health provider, there remain many opportunities for unsafe medicines to find their way to unsuspecting patients. The Drug Supply Chain Security Act of 2013 promises advanced detection measures such as unique packaging barcodes, but this technology remains more than a year away from implementation; an integrated, electronic tracking system will not be up and running until 2023.
Taxpayers, not just patients, suffer from these breakdowns. Medicare, Medicaid, and CHIP were alone responsible for $115 billion in prescriptions in 2014, while the Departments of Veterans Affairs and Defense accounted for $8.5 billion more. Taxpayers also subsidize nearly ¾ of the premium costs for the Federal Employees Health Benefits Program (FEHBP). While DoD and VA tend to purchase many medications directly from manufacturers and wholesale distributors, others like Medicare and FEHBP heavily rely on reimbursing third-party providers, making them more vulnerable to illegally imported drugs. Last year, a doctor in Tennessee was convicted of fraudulently charging Medicare close to $7.5 million for Botox that had not been FDA-approved. In 2013, several individuals associated with the distributor Gallant Pharma were sentenced for having offloaded potentially compromised (and illegally imported) injectables to nearly 50 providers, many of whom would have been able to accept government-backed health plans.
Given the fact that even Botox is now being used in more medical capacities than cosmetic ones, it would be a mistake to underestimate the importance of investigations into illegal trafficking of the substance. OCI’s budget and human resources allocations must be weighed against the potential savings to government health programs from fraud prevention, improvement in patient outcomes, and reductions in costly follow-up care that might be required for those who had adverse reactions to illegally imported medications. Other “downstream” considerations must also include the economy-wide damage to our system of intellectual property rights, along with the possibility that terrorist groups such as Hezbollah may be profiting from the sale of counterfeit drugs.
3) Policymakers should beware of far-reaching agendas. Several of the sources interviewed for the Reuters article contended that the problem of compromised imported drugs results from a lack of price controls on such products in the United States. They argue that the temptation to rely on cheaper sources for medications (which later turn out to be bogus or flawed) would be diminished if the government mandated deeper reductions in costs for U.S. products, and as a result OCI’s caseload in this area might be reduced. From a policy standpoint, the perils of price controls for a market-based economy, as well as for taxpayers, are well-known. Stripping America’s status as an island of pricing freedom for prescription drugs would prevent many discoveries from ever taking place, and in the process deprive taxpayers of therapies that reduce long-term government health program costs such as hospitalizations and surgeries. As Chairs of Committee and the Subcommittee, you have often taken commendable stances against these statist impulses, and it is entirely appropriate that you do so as well in this investigation.
4) Much of the information on OCI’s managerial challenges is now several years old. The GAO report largely encompasses findings from 2009 data. Even the recent Reuters article contains anecdotes from as far back as 2010. It is quite true that the gears of the federal bureaucracy grind slowly, but we believe that the Committee is making a wise decision in avoiding a rush to judgment and asking for an update on the progress of OCI’s stated intent to implement the recommendations from GAO and HHS-IG. For example, an internal review committee to “improve FDA’s enforcement efforts” was established more than seven years ago. Clearly the agency has taken some steps toward reform, and the key to determining whether additional actions are necessary begins with having the most current information possible.
5) Pinpointing managerial issues at OCI is vitally important to properly tailored responses. In the course of our service to the National Commission on Restructuring the IRS and the subsequent 1998 law that made sweeping changes at the tax agency, we discovered many facets of the management culture that had to be addressed in carefully targeted ways. While they appeared to be interrelated, in many cases they stemmed from entirely separate problems. We discovered not only incidents of agents employing abusive tactics against taxpayers, we also encountered personnel policies that provided the wrong incentives (e.g., emphasizing prosecutions over restoring public confidence in the fairness of the tax system). Each problem required a different solution. We believe OCI’s issues may require a similar approach. The incident Reuters described from earlier this year involving an unwarranted FDA motorcade might call for individual disciplinary action, while expensive temporary relocations of supervisors might require an adjustment of personnel policy. None of these necessarily reflect on decisions of which investigative leads should be followed in the area of counterfeit or mislabeled drugs.
6) Prosecutions are not, and, should not be, the sole benchmark of OCI’s performance. GAO’s 2010 report quite justifiably identified serious weaknesses in OCI’s performance, much of which was traceable to a lack of coherent performance measurements. Yet, a great deal of concern has been expressed over OCI’s poor rate of cases resulting in criminal prosecutions. Through an examination of documents obtained by FOIA, the Reuters article noted that between fiscal years 2008 and 2015, “more than half of OCI cases … were closed without action,” worse than for other agencies such as the IRS. Our examination of recent statistics in the 2015 IRS Data Book sheds some light on this comparison. The most current year of data shows that 73 percent of all investigations the IRS completed were referred for prosecution; within this overall figure, however, prosecution rates were significantly higher among narcotics-related cases than in tax crime cases.
This analysis aside, GAO’s 2010 report explored several reasons why prosecutors might be declining to take OCI’s recommendations, beyond lack of merit. This includes “the extent to which the case falls under the [U.S. Attorney] office’s current investigative and prosecutorial priorities.” Furthermore, the IRS’s jurisdiction over tax crimes is fairly straightforward, while “isolating the effects of [a given] agency’s investigative work from other factors that might affect a given measure.” Other law enforcement entities have established such benchmarks successfully, especially by accounting for the particular parameters of their mission. So it should be with OCI. To give one example, reassuring the public of the safety of the drug supply chain should, irrespective of prosecutions, be a top priority.
The Committee’s September 20 letter to FDA Commissioner Robert Califf seeks responses to 11 well-formulated topics, and NTU would appreciate the opportunity to meet with your staff after you have had a chance to review FDA’s reply to your request. We gladly offer you the full measure of nearly 50 years of experience with efforts to improve the fiscal accountability and transparency of government agencies.
We hope that the foregoing guidance we have offered will prove useful for your deliberations, and will assist in balancing the many complex factors involved with ensuring that OCI and the Office of Internal Affairs at FDA are fulfilling their missions in an efficient, effective manner. Please contact us should you require any additional information, and thank you for your consideration.