Public Hearing: Criminal Drug Diversion of Non-Controlled Substances to Consider Legislation Criminalizing the Improper Transfer and Inappropriate Possession of Non-Controlled Substances and the Subsequent Effects on Medicaid Expenditures and Public Health

Executive Deputy Commissioner 9 HRA, Investigation, Revenue, and

Enforcement Administration 10

Philip Schaffroth, Jr. 55 70 11 Assistant Director

NYC IREA Bureau of Fraud Investigation 12 Prescription Drug Division 13 Craig Burridge, M.S., CAE 74 90

Executive Director 14 Pharmacists Society of the State of NY 15 16 * * * * * 17 18 19 20 21 22 23 24 25 1 SENATOR HANNON: This is the Senate Standing 2 Committee on Health and the Senate Standing 3 Committee on Codes. 4 Today is June 7th, Tuesday. This is Hearing 5 Room A. 6 We're starting late because we've been 7 pyramiding with, senate finance laws took longer, 8 senate health took longer. But, Senator Saland, the 9 chair of codes, and myself as chair of health, felt 10 that we should have this hearing. 11 It's a subject area that has not received 12 sufficient attention. It is about the expanding 13 black market in non-controlled substances. 14 While everybody is focused on the bigger 15 questions, supposedly, this has been an expanding 16 area. And we have a series of experts to come and 17 check today, led off by our state Medicaid inspector 18 general, James Sheehan. 19 Then we have the special narcotics prosecutor 20 for the entire city of New York, Bridget Brennan. 21 We have the -- Peter Jenik, who is the 22 executive deputy commissioner of HRA, in the city. 23 Then we have the assistant director of the 24 bureau of fraud investigation, Philip Schaffroth. 25 And, finally, we have the very capable 1 executive director of the Pharmacist Society of the 2 state of New York, Craig Burridge. 3 So, this is not as formal as some hearings, 4 but this is an idea of obtaining some information, 5 exchanging some ideas, and trying to see how we can 6 do a better job as a state in each of the 7 subdivisions, and the very important subdivision in 8 New York City, in controlling these items. 9 Senator Saland, do you have any comments to 10 begin with? 11 SENATOR SALAND: I'll be very brief, 12 particularly since we are running a little late. 13 Certainly, the problem of substance abuse and 14 drugs are in the media, day in and day out. 15 And somehow or other, the idea that there may 16 be this vast market in other medications and 17 prescription drugs seems to go, to a considerable 18 degree, unnoticed, or perhaps not noticed enough, 19 but it is a very serious problem. It is a problem 20 which certainly ripples through our Medicaid system, 21 and one which, hopefully, with the results of 22 today's hearing, may well warrant even greater 23 public attention than it has received to date, and 24 should appropriately be receiving. 25 And I thank Senator Hannon for his leadership 1 and willingness to work collaboratively in trying to 2 structure a means by which to better deal with what 3 seems to be an ever-growing, burgeoning problem. 4 SENATOR HANNON: And Senator Martin Golden, 5 who has a background in law enforcement, and an 6 interest, and continuing interest, in all matters 7 health, on the committee. 8 SENATOR GOLDEN: I'm just here to be 9 informed, and to help, if any legislation can be 10 brought forward to make some corrections, and to get 11 this under control. 12 And I congratulate my colleagues, the two 13 chairmen here, from Codes and from Health, in moving 14 this forward. 15 Thank you. 16 SENATOR HANNON: Thank you. 17 Mr. James Sheehan, New York State Medicaid 18 Inspector General. 19 Thank you for taking the time to come and 20 join us, and share your insights. 21 MR. SHEEHAN: Thank you, Chairman Hannon. 22 SENATOR HANNON: A considerable list of items 23 in your background to give us good insights. 24 MR. SHEEHAN: Thank you, Mr. Chairman. 25 Chairman Hannon -- 1 SENATOR HANNON: Oh, I just -- we are all 2 being taped. And, so, this R2D2 device opposite you 3 is the cam. 4 We don't have -- this takes place with 5 stenographers. And, also serves, we'll be putting 6 the hearing up on the senate website. 7 MR. SHEEHAN: Excellent. 8 Excellent, I think, as long as it goes well. 9 Chairman Hannon, Chairman Saland, 10 and Senator Golden, I appreciate the opportunity to 11 speak to you today about the Office of the Medicaid 12 Inspector General. 13 And I work on the issue of prescription drug 14 diversion. 15 SENATOR HANNON: Could you pull the mic a 16 little closer? 17 MR. SHEEHAN: Sure. Sorry. 18 The Medicaid program, as with other payers, 19 has been impacted by those who seek to profit from 20 the practice of prescription drug diversion. 21 As the chairman is well aware, we were 22 created to prevent, detect, and investigate fraud 23 and abuse within Medicaid. And I want to talk today 24 about OMIG's work to combat this issue. 25 Of course, at the outset, I would say that 1 the vast majority of physicians and pharmacists and 2 Medicaid enrollees are honest, and we're going to 3 focus today on the exceptions. 4 The issue of prescription drug diversion has 5 been the subject of focus for the department of 6 health for a substantial period of time. 7 As early as 2002, the department investigated 8 drug-diversion incidents of Serostim, which is an 9 HIV anti-muscle-wasting drug, which is also one of 10 the highest-cost Medicaid-provided drugs. 11 It was also a popular drug in the 12 body-building industry; very expensive and very 13 difficult to obtain. 14 In 2003, the state department of health and 15 our predecessor agency investigated a doctor named 16 Mikhail Makhlin, the state's top prescriber of 17 Serostim. 18 Upon reviewing medical data, the department 19 and those recipients participating, Dr. Makhlin 20 had no history of receiving anti-viral medications 21 or Serostim. 22 Four of these recipients were identified as 23 having negative HIV test results. And these 24 recipients receiving the drug apparently were 25 reselling it. 1 As a result of the state's investigation, 2 Dr. Makhlin was excluded from the Medicaid 3 program, had his license revoked, and was ordered to 4 pay -- repay more than $140,000. 5 And the state department of health placed 6 Serostim on a prior-approval drug list which 7 required the prescriptions receive approval before 8 being filled. 9 After OMIG was established in 2006, we began 10 to focus on the issue of prescription drug 11 diversion. 12 In 2007, we identified two recipients who 13 received large quantities of prescription narcotics 14 by a doctor named Michael Chait. 15 Dr. Chait pled guilty to fraud in the 16 Medicaid program. He surrendered his license, and 17 he was ordered to repay $944,000. 18 As a result of the work with Dr. Chait, 19 there was an expanding review of recipients using 20 him to obtain prescriptions and narcotics, resulting 21 in a restriction of 23 Medicaid enrollees. 22 Problem doctors are not the only wrongdoers 23 engaged in prescription drug diversion. Pharmacies 24 are part of this fraud as well. 25 In 2009, OMIG formed a specialized pharmacy 1 investigations unit of Medicaid investigators, 2 subject-matter-expert pharmacists, to investigate 3 Medicaid fraud and abuse in pharmacy. 4 Prescription drug diversion is a principal 5 goal of this unit. 6 In 2010, we investigated improper behavior 7 and drug diversion as a result of an agency-wide 8 initiative to review Medicaid claims submitted for 9 deceased recipients; which I think I've discussed 10 before, here. 11 In one case, OMIG identified 46 prescriptions 12 dispensed to 17 deceased Medicaid recipients, all 13 17 at one skilled-nursing facility. 14 Upon further investigation, we discovered 15 that the supervising pharmacy consultant, 16 Brian McCutcheon, who owned Echo Pharmacy which 17 serviced the skilled-nursing facility, at the time 18 of the OMIG review, they did not have an in-house 19 Medicaid-enrolled pharmacy. 20 Mr. McCutcheon created false telephone and 21 fax prescriptions for dead recipients who had 22 resided at the SNF. He funneled those prescriptions 23 to his pharmacy, Echo, and did not dispense or 24 deliver the prescriptions and refills to the SNF. 25 Echo's records reflect that 35 prescriptions 1 telephoned into the pharmacy. 2 The Echo produced four original prescriptions 3 which had the SNF nursing home printed at the top, 4 which had reportedly been faxed to the pharmacy. 5 We interviewed the physicians, and they said 6 they use their own individual prescription pads; 7 would never use the SNF's prescription pads. 8 They also stated, they had never seen, and 9 had not signed, the false prescriptions. 10 As a result, we did an inventory review, 11 which is one very common technique in this area, to 12 compare Medicaid claims and invoices from 13 wholesalers. 14 Echo was unable to demonstrate adequate 15 quantities of purchased drugs to match its Medicaid 16 billings. 17 Mr. McCutcheon and Echo Pharmacy were 18 excluded from Medicaid, and they were required to 19 repay $269,000 to the state. 20 At the end of 2010, our pharmacy 21 investigations unit began an inventory-verification 22 review initiative. 23 These types of reviews look for pharmacies 24 with significant surges in billings over short 25 periods. 1 We looked at new pharmacies that bill 2 Medicare [sic] several million dollars in one year 3 as compared to the neighboring pharmacies. 4 We do "CVRs," credential verification, and 5 look at purchase information for their top 10 drugs. 6 Again, the concern is, that pharmacies are 7 buying drugs from elicit sources or gray-market 8 sources. 9 If the pharmacy has billed more than they 10 purchased, we test out our drug-diversion theory. 11 At this time, the initiative uncovered two 12 pharmacies with discrepancy in their inventories; in 13 one case, upward of a quarter million dollars, and 14 another with a similar substantial amount. 15 But the key here is, we expect to find, when 16 we go in, that the invoices that come from 17 wholesalers exceed the Medicaid purchases. And what 18 this allows us to do, is to identify both the 19 organization and individuals involved in the 20 diversion. 21 Pharmacy investigations also looked at 22 another pharmacy, Loving Pharmacy, storing 23 prescription drugs for non-clients with other 24 pharmacy labels on the bottles, all right, and 25 storing medications without any labels; all of these 1 activities in violation of the law. 2 And this can be indicative of a pharmacy 3 buying drugs from non-authorized sources, and then 4 using those sources to fill prescriptions for its 5 own customers. 6 The pharmaceuticals were seized by the 7 [unintelligible] department of education, and Loving 8 Pharmacy was excluded. 9 In addition, there's also involvement of 10 Medicaid recipients. 11 In cases of recipient involvement, OMIG 12 places the recipient on what's called "restriction"; 13 limiting the individual to just one doctor and one 14 pharmacist. 15 In the last reporting year, OMIG saved 16 New York State 433 million from restricted 17 recipients. And that, basically, is a comparison of 18 the medical purchases, primarily pharmaceuticals, 19 before the restriction, and the amount of drugs, and 20 other things, used after. 21 This year, OMIG investigated a recipient we 22 will call "John Doe," for drug-diversion activities. 23 Doe confessed that he was approached by 24 another individual who promised to pay Doe between 25 300 and 400 for her [sic] prescription refilled. 1 This seemed like a pretty good business to 2 Mr. Doe, and he began to recruit other recipients 3 for this activity. 4 He offered other recipients $50 to $100 to 5 borrow or rent their benefit cards. 6 He took the cards, had prescriptions printed 7 in each borrowed-recipient's name. Went to the 8 pharmacy to fill them. Convinced the pharmacist 9 that he was an AIDS activist, filling and picking up 10 the prescriptions for the different recipients. 11 What we discovered was, that, his 12 prescriptions were put on stolen blank prescription 13 pads. 14 He cost, we think, at least $20,000. 15 He was placed on "restriction referred." 16 We're working with local enforcement to track 17 down other members of this drug-diversion ring. 18 Recipient restrictions have -- as we said, 19 have allowed us to place 2,579 recipients on 20 restriction, primely based upon pharmaceutical 21 abuses. 22 During the same calendar year, over 23 9,000 recipients had restriction at some point 24 during the year. 25 We're pleased to be joined here today by 1 representatives of the New York City's Human 2 Resources Administration and the special drug 3 prosecutor. 4 We have active relationships with these 5 offices, and with the DA's office in Manhattan. 6 Just last one -- last week, one case was 7 jointly developed against a physician named 8 Suresh Hemrajani, resulting in an indictment based 9 upon $700,000 case of fraud. 10 According to the indictment, Dr. Hemrajani 11 had been prescribing AIDS drugs for patients who did 12 not suffer from AIDS, and falsifying lab tests to 13 pave over his activities. 14 These are high-cost drugs. The retail value, 15 per recipient, is over $1,500 a month, which should 16 explain why they're in such high demand. 17 Dr. Hemrajani involved a number of recipients 18 in this practice. And we're continuing to look at 19 both the recipients and other physicians. 20 Governor Cuomo has shown great leadership in 21 tackling the issue of Medicaid fraud and abuse. 22 His Medicaid redesign team, on which 23 Chairman Hannon participated, was successful in 24 finding ways to reign in spending on the Medicaid 25 program. 1 The changes encompassed within the MRT 2 proposals, such as the requirements for long-term 3 pharmacies to dispense drugs in smaller quantities, 4 and the transition of much of the pharmacy benefit 5 to managed care will yield reductions and 6 opportunities for diversion. 7 OMIG will also be developing new activities 8 as a result of the Medicaid redesign team. 9 Proposal 154-5 has the goal of allowing OMIG 10 access to the cash-payment prescription data 11 currently corrected [sic] by the bureau of narcotics 12 enforcement, which will allow us to identify 13 Medicaid recipients who are paying cash for 14 medications, especially narcotics. 15 It will also allow us to restrict and refer 16 recipients to local districts and law enforcement. 17 Thank you, Senators, for the chance to speak 18 today. 19 I'll be happy to answer any questions you may 20 have related to the prescription drug diversion and 21 OMIG's work. 22 SENATOR HANNON: In jumping to what the press 23 usually does, is: So, Mr. OMIG, how much does 24 this cost the state every year? 25 MR. SHEEHAN: This is -- 1 SENATOR HANNON: Do you have any way of 2 quantifying? 3 Because I'm going to get asked that. And 4 I've looked at all of different numbers here, and it 5 looks pretty difficult. 6 MR. SHEEHAN: It's very difficult for us to 7 quantify. This is an activity which is cyclical. 8 The FBI's first investigation of health care 9 was a prescription drug diversion -- a series of 10 prescription drug diversion cases back in the early 11 '90s. 12 It really respond- -- it's a very marketplace 13 driven activity. It responds to the cost of drugs 14 and the availability of expensive prescriptions. 15 So, it seems to me the key is, to make sure 16 that you're looking at the data to stay on top of 17 what's going on, and also your reacting to the 18 street information. 19 SENATOR HANNON: The -- it's the street -- I 20 would guess, part of the major tool of detecting is 21 knowing which drugs are susceptible to diversion. 22 And -- because, at the beginning, we had the 23 human -- the stuff for the bodybuilders that was -- 24 MR. SHEEHAN: Right. 25 SENATOR HANNON: But this is getting to be 1 much beyond that. It's just not used for another 2 purpose. 3 MR. SHEEHAN: Uhm -- the -- right, the key 4 here is, if you look at the average wholesale price 5 of a drug, or the stated price of a drug, and 6 compare it to what's -- if you have a source of free 7 access to get the drug, you look for the margin that 8 you're going to make. 9 So, the drugs we would focus on are drugs 10 which have very high average wholesale prices and 11 are in common use. 12 And there are a lot more high-priced drugs 13 than there were 10 years a ago. 14 SENATOR HANNON: And, then, part of the 15 diversion is not diverting from, say, the AIDS 16 community to the bodybuilding community, but now 17 it's recycling it back into the rogue pharmacy? 18 MR. SHEEHAN: Well, it's the -- the recycling 19 issue has been around for a long time. And one of 20 the difficulties is, that, in 19 -- the 21 Prescription Drug Marketing Act, back in about 1990, 22 said to the FDA: You have to develop pedigrees for 23 drugs. So, we want to make sure, if drugs are 24 brought into pharmacies or sold through wholesalers, 25 we can tell where they came from. 1 The FDA took no action on that until 2006. 2 And when they did, they said, pharmacies 3 don't have to look at this issue. It's focused on 4 the wholesalers, and which ones didn't get the drugs 5 from the manufacturers. 6 So, part of the difficulty is the loophole 7 that federal law has allowed to exist. 8 SENATOR HANNON: And has that been filled in 9 now by the FDA? 10 MR. SHEEHAN: The FDA -- 11 SENATOR HANNON: Are they starting to? 12 MR. SHEEHAN: -- in 2006, they issued new 13 regulations which apply to wholesalers, which do 14 make it somewhat easier. But the pharmacies are not 15 required to do anything with that. 16 Does that make any sense? 17 SENATOR HANNON: Yeah. 18 And the requirements are things, like, bar 19 coding everything, and every package? 20 MR. SHEEHAN: It's -- actually, it's what's 21 called "a pedigree," which is a document identifying 22 the source of prescription drugs. 23 SENATOR HANNON: Oh, so it's not on the drug 24 itself. It would be, like a bill of lading? 25 MR. SHEEHAN: Right -- well, essentially, 1 yes. 2 And, in addition, the FDA issued guidance 3 last year, concerning what you're thinking of, which 4 is: How do you identify the product by bar code and 5 for physical reading? 6 SENATOR HANNON: So, okay. 7 All of which, so, we're in an evolving area 8 as we're moving forward with this? 9 MR. SHEEHAN: Well, I think some of these 10 issues are being addressed. 11 We certainly are addressing it at OMIG in 12 terms of the fraud issues. But some of the control 13 issues are federal. 14 SENATOR HANNON: And do you have enough 15 tools? 16 I mean, you talked about excluding people 17 from the Medicaid program, which is a determination, 18 I believe, you issue. 19 But, also, limits on utilization. 20 Is that another formal action? 21 MR. SHEEHAN: Right. That's -- we take 22 what's called "a restriction action." 23 We review the recipient's medical history, 24 and then it's reviewed by medical professionals. 25 And then we issue a decision, which says, 1 "You're hereby restricted to one physician and one 2 pharmacy." 3 SENATOR HANNON: And how complicated and 4 lengthily a process is that? 5 MR. SHEEHAN: It was -- it has been pretty 6 complicated in the past. 7 "MRT," the Medicaid redesign team, created a 8 shorter path to the same result, which we think will 9 be very helpful in undertaking these activities. 10 SENATOR HANNON: Thank you. 11 SENATOR SALAND: Just a couple of questions, 12 and they're not necessarily related, your response 13 to some of the questions from Senator Hannon. 14 The discussion has basically been delving 15 into an issue as an intrastate issue. 16 And, is there, to some extent, interstate, or 17 given our proximity to Canada, international 18 ramifications to this issue? 19 MR. SHEEHAN: One of the issues the FDA has 20 faced -- they have a task force on drug diversion 21 and counterfeiting -- is that it's not a state -- 22 it's not, you know, these drugs are fungible. They 23 go across state borders. 24 And the question is: How do drugs get in the 25 distribution system, whether they are from the 1 activity we're talking about today, which is 2 diversion; or counterfeit; or improper importation? 3 All three of those are -- contribute to this, 4 what's called "the gray market." 5 SENATOR SALAND: And if I could just, 6 unrelated, but piggyback onto some question that 7 Senator Hannon asked: When you're dealing with 8 providers, as distinguished from recipients, I noted 9 in your testimony, in one instance, somebody lost 10 their license. 11 What is the range of sanctions that you are 12 able, either to recommend or to seek? 13 And, to the extent that there are criminal 14 aspects or sanctions, is that within your realm, or 15 does that befall a district attorney's office that 16 you work cooperatively with? 17 MR. SHEEHAN: The criminal sanction is within 18 the responsibility of the Medicaid fraud control 19 unit, the attorney general's office, and the 20 district attorneys for each district. And, of 21 course, the special prosecutor for narcotics in 22 New York City. 23 So, we -- when we identify the probable 24 cause, or a suspicion of fraud, we'll refer those 25 cases to those agencies, and work collaboratively 1 with them. 2 We also work with the U.S. Attorney's Office 3 and task forces throughout New York State. 4 So, the remedies we've talked about -- the 5 remedy of exclusion; the remedy of restriction; the 6 revocation of licenses, which takes place in 7 education or in the office of professional medical 8 misconduct -- is within the state executive branch. 9 The criminal prosecution is within my 10 colleagues in the prosecutors' offices. 11 SENATOR SALAND: Thank you. 12 SENATOR HANNON: Senator Golden? 13 SENATOR GOLDEN: Thank you, Mr. Chairman. 14 The matrix that you use, the criteria for 15 that matrix, is that different than, downstate, 16 upstate? 17 Is it -- and how is it -- how do you get, and 18 set, that criteria? 19 MR. SHEEHAN: Are you -- Senator Golden, are 20 you speaking of, for providers, or for the recipient 21 restriction? 22 SENATOR GOLDEN: Both. 23 MR. SHEEHAN: For the providers, I can't say 24 we have a matrix. We consider all the evidence. 25 There are cases that are different enough, and we've 1 tried to develop the evidence and follow where it 2 leads. 3 With respect to recipient restriction, we use 4 the same model throughout the state, which is, 5 primarily, a data analysis and medical-record 6 review. 7 So, that it would not differ, depending on 8 the county. 9 SENATOR GOLDEN: And that matrix is updated 10 monthly, from -- 11 MR. SHEEHAN: Well, it's -- I wouldn't say 12 monthly. 13 As improvements occur, as we see -- one of 14 our questions always is: Where do our cases -- 15 successful cases come from? 16 And, so, it's a collaborative process, to 17 say: 18 How many pharmacies should this -- do we see 19 patients going to? 20 How many physicians do we see them getting 21 prescriptions from? 22 SENATOR GOLDEN: And you have enough dollars 23 there for the technology and for the matrix and for 24 the criteria that you created? And, you're able to 25 create cases, based on the dollars that you have and 1 on the technology? 2 MR. SHEEHAN: Senator Golden, would you try 3 that question again? I'm having trouble hearing. 4 SENATOR GOLDEN: On the dollars that you have 5 presently, and the workforce that you have -- 6 Pardon me? 7 SENATOR SALAND: Closer to the mic. 8 It's terrible acoustics. 9 Brand new, and terrible here. 10 SENATOR GOLDEN: The cases that you presently 11 worked, the technology that you use for the matrix, 12 and the criteria that you've created, is there 13 enough technology? is there enough money? do you 14 have enough dollars? to be able to do these 15 overlays, this matrix, and be able to come up with 16 the cases that you need? 17 MR. SHEEHAN: We've been very fortunate, 18 Senator, in two ways. 19 First, is: We have access to, I think, the 20 best tools of any state in the country, on these 21 issues. 22 So, we have an excellent data warehouse. 23 We have a salient product which has been very 24 helpful to us in looking at these kinds of patterns. 25 In addition, because New York is the largest 1 Medicaid program in the country, and because we have 2 $200 billion worth of stored data about claims, 3 vendors in this area come to us, and say: We will 4 come to you for free, and we'll show you how our 5 product works, so it will help you to identify the 6 issues. 7 We've been taking advantage of those in the 8 last couple of years, very aggressively. 9 SENATOR GOLDEN: Thank you. 10 MR. SHEEHAN: And taking advantage in a 11 positive way. 12 SENATOR HANNON: Thank you. 13 SENATOR SALAND: Thank you. 14 MR. SHEEHAN: Thank you, Senators. 15 SENATOR HANNON: Appreciate your time and 16 your insights. 17 Bridget Brennan, special narcotics prosecutor 18 for the city of New York. 19 Whoever printed these cards up; the reason I 20 hesitated, instead of saying, "prosecutor," it says 21 "prospector." 22 [Laughter.] 23 SENATOR HANNON: Now, you're joined, with -- 24 by...? 25 MS. BRENNAN: I'm joined by my executive 1 assistant district attorney, Christine Hammond, 2 who's worked very hard on legislation in this area. 3 SENATOR HANNON: Great. Welcome. 4 SENATOR GOLDEN: I have to excuse myself, 5 Mr. Chairman. I've just been called to a meeting. 6 SENATOR HANNON: Okay. 7 SENATOR GOLDEN: Thank you. 8 SENATOR HANNON: This is a busy day, so, 9 excuse us. 10 You're going to make a presentation. And I 11 believe that people will be able to see it on the 12 sides there. 13 MS. BRENNAN: Okay. 14 Thank you very much. 15 I greatly appreciate the opportunity to 16 address this committee. 17 And I want to thank, in particular, 18 Senator Saland and Senator Hannon for their interest 19 in this area. 20 It is a growing problem that we are facing, 21 day in and day out. 22 I'm the special narcotics prosecutor for 23 New York City. 24 Typically, my office prosecutes felony 25 narcotics crimes throughout the five boroughs of 1 New York. And, we come to this area almost by 2 accident. 3 [Slide being shown.] 4 My agency has identified an escalation in the 5 diversion and abuse of all prescription drugs, 6 controlled substances and non-controlled, over the 7 past five years. 8 We're facing an epidemic of abuse of opiate 9 drugs, like oxycodone and Percocet. 10 Because these drugs are opiate-based, with 11 the same primary ingredient as heroin, they're 12 considered narcotic drugs when not properly 13 prescribed and used for medicinal purposes. 14 My office is bringing more criminal 15 prosecutions involving these opiate-based 16 prescription drugs throughout New York City than 17 ever before. 18 In New York City last year, for example, we 19 surpassed 1 million prescriptions for oxycodone 20 alone in 2010, that, in a city of 8 1/2 million 21 people. Enough oxycodone to fill one prescription 22 for every eighth man, woman, and child in that city. 23 Overdose deaths related to prescription drugs 24 continue to soar. 25 The city health department noted a 20 percent 1 increase from 2007 to 2009. 2 And our caseload in my office involving 3 criminal investigation into the diversion of 4 prescription drugs has tripled over the past 5 three years. 6 And, so, as I say, we come to this area 7 almost by accident. 8 Against this backdrop, my office has run into 9 a startling oversight in the state law when it comes 10 to the sale and resale of non-controlled substances. 11 [Slide being shown.] 12 Just by way of background: Non-controlled 13 substances are generally non-addictive. And, so, 14 they are not generally the subjects of the cases 15 that we typically bring. 16 However, these drugs can be highly expensive 17 medications, like HIV drugs or asthma drugs or 18 cholesterol medications. 19 And when I speak of "diversion," I'm talking 20 about the distribution of these drugs, not by 21 pharmacists who have obtained them directly from a 22 pharmaceutical company and maintained them under 23 conditions carefully specified by the manufacturer. 24 I'm referring to organizations which purchase 25 prescriptions from people, often Medicaid 1 recipients, then repackage the drugs and sell them 2 in any number of retail outlets. 3 We have seen non-controlled substances sold 4 in bodegas, storefronts, which maintain them in far 5 from sanitary conditions, and then resell them. 6 We have also seen unscrupulous pharmacies 7 repurchase these drugs on the black market, and use 8 them to fill legitimate prescriptions, often billing 9 Medicaid a second time for the same drugs which were 10 already purchased. 11 We have seen criminal organizations collect 12 and stockpile these drugs, sometimes, we believe, 13 for shipment to overseas sellers. 14 I would like to show you what we have found, 15 evidence we recovered, in a case about one year ago. 16 [Slide being shown.] 17 $4 million in pills recovered in Yonkers. 18 All these drugs were non-controlled substances. 19 Nearly 6,500 bottles of illegal prescription 20 drugs, carrying a street value of $4.25 million, are 21 pictured here. 22 And as I say, we come to these cases almost 23 by accident. 24 In this instance, we believed we were 25 investigating a very high-level narcotics 1 organization that was running an organization 2 throughout New York City. 3 It had all the same hallmarks of a narcotics 4 organization: a hierarchy, certain 5 counter-surveillance techniques, a lot of money was 6 changing hands. 7 And we obtained a search warrant for this 8 location, only to find that it was stockpiled with 9 6,500 bottles of prescription medication, but all 10 non-controlled substance. 11 The list of drugs that we recovered in this 12 case fills 45 pages. 13 In this case, that we worked with the drug 14 enforcement administration -- because, as I said, we 15 believed we were on to a narcotics organization that 16 was operating in New York City -- we arrested two 17 individuals. 18 Once we inventoried the drugs that we had, 19 and found that we had no narcotic drugs, and not 20 even any controlled substances, substances like, 21 Ambien, which might be typically abused; and, 22 therefore, fall under the jurisdiction of some state 23 statute, we realized that what we had was mere 24 possession of a non-controlled prescription drug, 25 which is prescribed, which is prohibited by no 1 statute in New York State. 2 We contacted the Westchester DA's Office. 3 They couldn't prosecute the case. 4 We contacted federal authorities. 5 And, this had been going on for some time 6 now. 7 And we recently learned that they did not 8 believe that they were going to have sufficient 9 evidence to be able to prosecute this case. 10 What we believed was happening here, was 11 that, these drugs were being collected from numerous 12 people who were using either Medicaid or insurance, 13 but not paying substantial amounts of money for 14 these drugs. 15 There were collection points. 16 These drugs were then being collected by 17 middlemen, and brought to, what we would call, in 18 narcotics terms, "a stash house"; where, then, the 19 drugs were being repackaged, so that they would look 20 like they were in pristine condition, and that they 21 could be sold back to a pharmacy. 22 Now, what we don't know, is where these -- 23 exactly where these drugs were destined, after we -- 24 or, were destined to be retailed, because we had no 25 leverage over those defendants whom we arrested, and 1 attempted to commence a prosecution. 2 And so, then, we couldn't learn -- neither, 3 could we really learn their organizational 4 structure, in terms of stockpiling the drugs; nor 5 could we learn where these drugs were intended to 6 go. 7 Obviously, that's critical information. 8 This is a huge amount of drugs. And they are 9 not being handled under the conditions which would 10 be recommended for these drugs. 11 And, if these drugs would then be 12 distributed, it certainly has the potential for 13 jeopardizing the health of thousands of New Yorkers. 14 And this is not the only case like this we 15 have seen. We have, in a sense, stumbled into these 16 cases in my office, time and time again. 17 And that is why I'm so pleased that you have 18 called this hearing. And that you are also inviting 19 our partners in this, who we have been talking to 20 for the last two years, since we really began to 21 focus on the oversight in the law with respect to 22 these drugs. 23 Remember, to criminal organizations, anything 24 that is worth money is fair game. 25 And these drugs are worth very substantial 1 amounts of money. 2 Let me show you just one drug. 3 [Slide being shown.] 4 This drug, we had, I believe, hundreds of 5 boxes of this drug. This is an AIDS drug. 6 We had half a million dollars. 7 Each box of this drug that we recovered, 8 based on our inventory, was worth one-quarter of a 9 million dollars. 10 And we had two boxes of this, this drug 11 alone. 12 And to criminal organizations, you see, they 13 have clearly identified a failing in our oversight 14 system, which is worth $4.5 million to them, and 15 they have little to no exposure. 16 And, clearly, they are exploiting it, at 17 great cost to all of us. 18 You've already heard from 19 Inspector General Sheehan, with regard to the issues 20 for Medicaid cost. And Medicaid dollars are 21 precious now. 22 But, there are huge costs in terms of public 23 health. 24 We are well aware of stories throughout the 25 nation, of drugs that turned out to have been 1 diverted, but end up in legitimate pharmacies and 2 are obtained by people who have illnesses. 3 By diabetics who take insulin, which has not 4 been maintained under the conditions that it was 5 supposed to be maintained, and their blood sugar 6 escalates to very unsafe levels. 7 These kinds of stories we have heard again 8 and again. 9 So, the issue is, basically, two-pronged: 10 There is certainly a major public-health 11 issue that we're seeking to address with this 12 legislation. 13 And, in addition, there's a major Medicaid 14 cost, and insurance cost as well. 15 [Slide being shown.] 16 The drug diversion is so rampant on certain 17 street corners, like this one on 157th Street and 18 Broadway in Manhattan, which has become known as a 19 spot where people can sell all of the prescription 20 drugs they have collected through whatever means 21 they might employ. 22 Through theft, through fraudulent 23 prescriptions, those are the primary ways that we 24 see. 25 "The New York Times" ran a story on this 1 particular corner. 2 [Video-still being shown.] 3 And this particular corner is a source of 4 many complaints in Manhattan. So many, that the 5 police have put up a surveillance camera on the 6 corner because, people, ordinary citizens, complain, 7 that, when they leave a pharmacy, they're accosted 8 by someone asking them to sell them their 9 prescriptions. 10 So, I would like, at this point, if you would 11 allow me to have Christine Hammond explain to you 12 the kind of operation that you -- we typically see, 13 and you'll see how much it mirrors our typical 14 drug-dealing organizations. 15 Christine? 16 [Video playing.] 17 MS. HAMMOND: What you have here is a 18 surveillance tape. It goes about two minutes. 19 You'll see a subway exit there. 20 That is the location where many people are 21 accosted for their drugs if they happen to have a 22 Duane Reed bag in their hand. 23 This gentleman, here, is -- you're going to 24 see, he has a prescription bottle in his pocket that 25 he's about to sell. 1 He's connected to these two gentlemen that 2 are walking in front of him. They're going into 3 this doorway, here, where it's a little hard to see 4 because the picture is small. 5 But, they're going into the doorway, where 6 the -- they're looking -- the gentleman who is 7 buying the prescription medication, is looking at 8 the bottle -- right here, you can see, he's looking 9 at the bottle -- to make sure that it's sealed, 10 because it has less value if it's not sealed. It's 11 harder to sell back into a pharmacy if it's opened. 12 And, so, they have made the exchange. The 13 man in the blue shirt has given it to the man with 14 the sleeveless T-shirt. 15 This second man, here, is now coming out and 16 giving him the money. 17 You're going to see in a second, the exchange 18 of the money. 19 This gentleman, here, is now -- has the 20 prescription drugs. The man in the black shorts has 21 the prescription drugs in his pocket. 22 And they're now walking off. 23 The gentleman in the black shorts is going to 24 be walking off, up the street, to bring that sealed 25 prescription bottle to the stash house, which you 1 saw. Bridget Brennan showed you pictures of the 2 stash house. That's -- would be where you gather 3 the drugs. 4 And, these -- there's several people here, 5 who are all part of this organization, buying the 6 prescription drugs, waiting for people to walk up. 7 This is 157th and Broadway; well-known in 8 this business, for where you go if you want to sell 9 prescription drugs that is non-controlled. 10 And, now, the guy we call "the runner," has 11 walked up the street and taken the drugs to the 12 stash house. 13 MS. BRENNAN: So, you see at this stage, we 14 have no real effective laws to address this 15 particular issue. 16 We have diagrammed for you, the basic outline 17 of the scheme. 18 [Slide being shown.] 19 Medicaid recipients receive the drugs -- get 20 the drugs from the pharmacies, sell them to street 21 dealers who pay a fraction of the costs that 22 Medicaid is paying. 23 The drugs are collected at stash houses. 24 From those stash houses, they can go to any 25 number of points for redistribution. 1 Some of the drugs, if they're the opiate 2 drugs, may be siphoned off and be used in street 3 deals. 4 Some of the drugs, we believe, may be going 5 overseas. Some may be going to online pharmacies. 6 Some may be going to legitimate pharmacies. 7 They do sometimes have the identifying information 8 altered so that they can get them back into the 9 regular chain. 10 But, in any event, obviously, that's not my 11 area of expertise. 12 My great concern is, we can't find out where 13 those drugs are going. And we have no effective 14 means of addressing this problem. 15 And not only do we see it from the 16 public-health perspective, and the perspective of 17 protecting our public resources, but, also, ordinary 18 citizens complain about it. 19 At this point, I would like to turn the 20 microphone over to Christine Hammond, so she can 21 describe to you the statute that we have been 22 working on with some of our partners who testified 23 here today, or will testify here today, that we 24 believe might address this legislative oversight. 25 1 SENATOR SALAND: May I interrupt for a 2 question? 3 MS. BRENNAN: Yes, sir. 4 SENATOR SALAND: And perhaps either of you, 5 or Mr. Sheehan, might: Is there ever a set of 6 circumstances, that you might be aware of, where: A 7 legitimate producer, a major pharmaceutical house, 8 is producing the, X, Y, Z, drug, and they have more 9 product than they can market; and, they dumped that 10 product, either in another country, someplace else; 11 and, they dump it at such prices, that are so below 12 the market here, that it becomes attractive for 13 somebody else to buy that product, bring it back 14 here, even without any criminal intent? 15 Is there such an industry or business 16 process? 17 MS. BRENNAN: I wouldn't be able to answer 18 that question. 19 SENATOR HANNON: It's called Canada. 20 MR. SHEEHAN: Senator Saland, I have looked 21 at this issue previously, in my past job. And 22 the -- there's what's called "the gray market." 23 All right? 24 And that's, basically, those are -- that's 25 product that wholesalers are marketing to hospitals 1 and to pharmacies, which did not come directly, 2 officially, from the manufacturer. 3 So, that gray market does exist. 4 And -- 5 SENATOR SALAND: Is that part of this illegal 6 trade? Or is that -- 7 MR. SHEEHAN: In certain circumstance -- 8 SENATOR SALAND: -- is there any oversight to 9 that? 10 MR. SHEEHAN: In certain circumstances, it is 11 legal to engage in those transactions. 12 As we talked earlier about the pedigree 13 issue? If you buy from that kind of a wholesaler, 14 if the wholesaler is selling that drug, he or she 15 has to maintain a pedigree, saying where the drug 16 came from. 17 And, obviously, it has to be accurate. It 18 would be a violation of FDA law. 19 SENATOR SALAND: So, there's a paper trail, 20 there's registration, there's -- 21 MR. SHEEHAN: That's the theory. 22 But if the problem is at the pharmacy level, 23 they don't have to maintain the pedigree, under 24 federal law. 25 Thank you. 1 I interrupted. I'm sorry. 2 MS. BRENNAN: No, that's all right. 3 I'm just going to give a brief overview of 4 the bill that has been introduced by both of you. 5 SENATOR HANNON: Closer to the mic. 6 MS. HAMMOND: Oh, sorry. 7 I'm just going to give a brief overview of 8 the bill; it has three parts. 9 One is: An enhancement of the criminal 10 diversion of prescription medication. 11 [Slide being shown.] 12 The second is: A new Article 179, which 13 deals with fraudulent prescription dispensing and 14 procurement of non-controlled prescription 15 medication. 16 I think one of biggest challenges of this 17 bill is just giving its title. 18 The next part of this bill is Article 219, 19 which deals with the unlawful possession of 20 non-controlled substances. 21 I'm just gong to go through those briefly. 22 [Slide being shown.] 23 Article 178, as you probably know, has been 24 around for many years. And it basically deals with 25 the sale, for money -- unlike a drug deal, which 1 does not require actual money exchanged -- the sale 2 for money of prescription medications. 3 And that is, essentially, a misdemeanor. 4 What it does not have, and where we needed an 5 enhancement, is for the people who are buying those 6 prescription drugs; the guy in the black pants that 7 you saw in the video, the guy who's doing it all day 8 long, and buying from Medicaid recipients. 9 A Medicaid recipient might just show up once 10 a month when they get their prescription. 11 The guy in the black pants is there, doing it 12 all day long. And, the current law does not cover 13 him sufficiently. 14 [Slide being shown.] 15 So, we put in enhanced penalties for multiple 16 sales. 17 We put in a provision to allow an undercover, 18 to buy, or to sell, the drugs without reducing the 19 penalties. 20 And we also put in extra penalties if a 21 physician or a pharmacist is involved in this 22 diversion of prescription medication. 23 We also looked at good-faith exceptions, of 24 course, for Good Samaritans. 25 Someone, who, for example, is bringing a 1 prescription medication home to grandma, something 2 like that, we certainly would not want to 3 criminalize that kind of Good Samaritan behavior; 4 nor for wholesalers who are transporting the drugs. 5 [Slide being shown.] 6 The second piece that we worked on was this 7 new Article 179, which has a title that's quite a 8 mouthful. 9 I broke it into three pieces, just for the 10 ease of describing it. 11 One is: Fraudulent prescribing. 12 And this is completely new. 13 So, it is -- it criminalizes someone 14 prescribing drugs, whether or not they're a 15 physician, if they're not authorized to issue a 16 prescription. 17 If you are authorized to issue a 18 prescription, but you know the person to whom you're 19 prescribing the medication has no medical need for 20 it, or it is not issued in good faith. 21 For example: Willful blindness. 22 We see some of these doctor mills, where 23 doctors are not asking any questions before they 24 prescribe medication. 25 And the penalties are higher for licensed 1 physicians, and for repeated conduct. 2 [Slide being shown.] 3 The case that Inspector General Sheehan just 4 mentioned, that was in the newspaper just on Friday, 5 dealt with a doctor exactly along these lines. 6 He was writing HIV prescriptions to people 7 who came in, and simply said, "I have HIV." 8 No tests were done. It was never verified 9 they were actually sick. 10 And that allowed these Medicaid patients to 11 get into the circle of, getting the Medicaid to pay 12 for their prescriptions, into the stash houses, and 13 back into the black market. 14 [Slide being shown.] 15 Fraudulent dispensing is another piece of it. 16 This is aimed particularly -- primarily at 17 the pharmacies. 18 This is where, if the pharmacist knows, and 19 has reasonable grounds to believe that the person 20 receiving the medication has no medical need; or, if 21 the prescription -- knowing, and has reasonable 22 grounds to know, the prescription was forged; or, 23 was not issued by a physician in good faith. 24 This last provision is of, we have seen 25 examples where doctors and pharmacists are working 1 hand in hand. 2 An unscrupulous doctor is working with an 3 unscrupulous pharmacist, would be a good example of 4 that. 5 There are higher penalties for licensed 6 pharmacists than non-licensed pharmacists. 7 And higher penalties for repeated conduct. 8 [Slide being shown.] 9 Finally, within this one -- Section 179, we 10 looked at criminalizing fraudulent procurement. 11 These are people who are submitting the 12 prescriptions, and receiving medication, knowing 13 that they have no medical need for it, or knowing 14 that the prescription was forged. 15 And, again, there are higher penalties for 16 repeated conduct. 17 [Slide being shown.] 18 We've seen any number of examples of 19 fraudulent procurement; people who are in the 20 business of submitting forged prescriptions. 21 We have seen one case, where, a gentleman 22 would call in prescriptions, posing as a doctor. 23 And I believe that Phil Schaffroth has some 24 great examples of the lengths to which they go to 25 pose as doctors. 1 We included in the recent amendment to the 2 bill, electronic prescriptions. This is a new thing 3 that we're seeing that doctors are using. 4 I think the criminal element is still 5 learning how to use this, but I fully expect that, 6 shortly, that will be part of the criminal process. 7 So, we included that. 8 We also included prescription forms. 9 We've seen, in a case that Bridget Brennan 10 had, where, the sale of blank prescription forms. 11 You can imagine how powerful that is; to sell 12 a blank prescription form, because then you can 13 write anything in it you want. 14 And, so, we wanted to make sure that that was 15 covered by the statute as well. 16 Here is a typical prescription form. 17 [Slide being shown.] 18 It is not something that can be duplicated on 19 a color copier. 20 It has many different items that make it hard 21 to counterfeit. It's got a bar code. It has 22 various things on it, that, if it you rub it or 23 touch it, it changes color. 24 So, they are quite valuable. 25 [Slide being shown.] 1 Finally, the provision has, in Article 219, 2 this is the one that deals with unlawful possession 3 of non-controlled prescription medication. 4 As Bridget Brennan said, there was no crime 5 to charge for that $4 million worth drugs in that 6 one location. 7 So, in this context, we certainly created a 8 good-faith exception for physicians, pharmacists, 9 and Good Samaritans. 10 But the penalties increase with, value, and 11 the quantity of the medication possessed. 12 So, for example: The lowest level, which is 13 a misdemeanor, is someone who possesses, 20 pill, or 14 medication worth more than $200; going up to the 15 highest, which is a B felony, of 10,000 pills with a 16 value of over $100,000. 17 Those "possession" statutes will help us to 18 prosecute and investigate runners, like the 19 gentleman in the black shorts, all the way to the 20 person who had the 4.25 million worth of 21 prescription drugs in their stash location. 22 And, so, we are very happy that you are 23 supporting this bill. And we think there's a great 24 need, and it will save the state a great deal of 25 money. 1 Thank you. 2 MS. BRENNAN: Thank you very much. 3 I would like to also make mention of the 4 great help that we have received from the bureau of 5 narcotics enforcement. 6 As we have had more and more cases in this 7 area, we have found them to be just a tremendous 8 resource. Extraordinarily helpful, dedicated. 9 And I wanted to make sure to acknowledge 10 their hard work at this hearing. 11 I would be happy to take any questions that 12 you have. 13 SENATOR HANNON: To what extent will their 14 people say: We have legitimate reasons to have 15 drugs that are not prescribed to us? 16 Do we have things that are transferred within 17 a family? Do we have clinics? Do we have -- I 18 mean, are there any legitimate reasons that there 19 will be objections raised? 20 MS. BRENNAN: We've tried to address this in 21 the language of the bill, with Good Samaritan 22 exceptions, with that sort of language crafted into 23 the bill. 24 We're happy to work on it further. 25 Obviously, that's not our intent. We 1 don't -- we have no interest in capturing that sort 2 of an individual. 3 Our real concern is, both, to protect the 4 public health, and to provide a mechanism for 5 addressing this huge issue of siphoning off precious 6 Medicaid dollars. 7 SENATOR HANNON: In a similar vein, would we 8 have objections from pharmacies who say, We didn't 9 know"? Or from wholesalers who said, "We didn't 10 know"? 11 Is there -- does this arise? 12 MS. BRENNAN: Again, we tried to build in the 13 language. 14 I'm going to let Chris speak to that, 15 specifically. 16 MS. HAMMOND: Well, one of the elements of 17 the crime, which, as you know, as prosecutors, we 18 have to prove every element of a crime beyond a 19 reasonable doubt. 20 And one of the elements would be, that the 21 pharmacist, or whoever, knew, or reasonably should 22 have known, that these bad acts were happening. 23 So, it is not someone who is clueless. 24 Because, we understand, in many instances, a 25 perfectly legitimate pharmacist will not know any of 1 this. 2 So, this is solely for a pharmacist who knows 3 that they are dispensing medication, based on a 4 forged prescription, or based on a prescription 5 written by a doctor who knows that the patient is 6 not ill. 7 But they have to know, and we have to prove 8 that beyond a reasonable doubt. 9 SENATOR HANNON: Because I can think of other 10 reasons, causes, for incentives to have drugs enter 11 the system, if, once it's already established. 12 You could have people trying to label as a 13 proprietary drug, something that is actually 14 generic; so, that, it does have the same effect, but 15 it may cost one-tenth of the price. 16 Or, something that's totally fraudulent, but 17 is introduced, and it's -- it is falsely identified. 18 And, so, people can monetize that type of 19 elicit behavior. 20 MS. BRENNAN: Yes, I don't believe, 21 specifically, that this bill would address the issue 22 with respect to mislabeling the drugs. 23 I have seen other state statutes which have 24 done that in other states, but this bill would not 25 address that issue. 1 SENATOR HANNON: No, I know you're trying to 2 fill the gap. 3 But, I'm just trying to think of, once you 4 have the system going, then people can take 5 advantage of the system, that that four-cornered 6 chart that you had, showing how you can get money 7 out of this whole thing. 8 MS. BRENNAN: Yes. 9 I mean, clearly, there is a lot of public 10 money at stake. And criminals look to exploit any 11 advantage that they can in the system, where they 12 see some weaknesses. 13 And they've identified a weakness here, and 14 they're trying to exploit it. 15 SENATOR HANNON: Yeah. 16 And, while we've had the inspector general 17 talking about Medicaid, I would imagine, given the 18 fact that we have a very thorough, it doesn't -- 19 it's not 100 percent, but it covers 80 percent of 20 the people in the state, as simple as, private 21 health insurance. 22 So, I would imagine, the same type of fraud 23 is being conveyed to -- and they're supposed to have 24 investigative units in each of the private plants. 25 Have you worked with them at all, or contact? 1 MS. BRENNAN: It has come up in some of our 2 cases. And we have worked with them from time to 3 time. 4 You're absolutely right, that it's not -- the 5 issue is not Medicaid per se. 6 The advantage that's exploited, is that, 7 someone else is paying for the drugs. 8 And, then, the individual obtaining them can 9 turn around and sell those drugs at no cost to 10 himself, and he's made money. 11 And we have worked with different private 12 insurers. 13 It's a very difficult area to work in, but we 14 have -- it has come up in some of our cases. 15 SENATOR HANNON: Thank you. 16 Thank you very much. 17 SENATOR SALAND: Just, briefly: Your 18 possession counts, your lower counts, your 19 misdemeanor counts -- 20 MS. HAMMOND: Yes? 21 SENATOR SALAND: -- would they apply, if, for 22 example: You had a vial of Nexium which had been 23 prescribed to you; I'm a Nexium user; you are no 24 longer using Nexium because you've switched to 25 something else, and you gave it to me? 1 MS. HAMMOND: If I gave you more than 2 20 pills, or it was worth more than $200, it might. 3 We were trying to find a line, where we 4 understand -- 5 SENATOR SALAND: But assume no money 6 exchanged. 7 MS. HAMMOND: No, I understand. 8 Yes, it would not be money exchanged. 9 We understand that people do share 10 medication, at some limited level. Of course, there 11 is health implications to it. 12 But, we were trying to find the -- the amount 13 above which. I just can't imagine the people 14 sharing that large number of medications. 15 But, this is what we've been discussing, to 16 try and find that. 17 SENATOR HANNON: It is absolutely amazing 18 what people have on hand. 19 I, and many of my colleagues, have been 20 having "Shed the Med" programs. 21 MS. HAMMOND: Yes. 22 SENATOR HANNON: And the police have picked 23 up on those. I think they had a universal one. 24 Standing there on a Saturday morning, 25 watching people walk up to us -- now, we have a 1 police officer to handle the diversion -- shopping 2 bags of drugs that have been left by their parents 3 who died, or they had an illness and they don't have 4 it anymore. 5 It's just astounding how much is out there. 6 So... 7 MS. BRENNAN: It is absolutely astounding. 8 And I think it's great that we have those drug 9 take-back programs, for all kinds of reasons, 10 including a pattern that we've seen among groups of 11 young people, which is, people bring handfuls of 12 prescription drugs in, just have, pill parties; 13 pharma parties. 14 You know, the best practice is, just to get 15 rid of what you're not using. 16 SENATOR HANNON: I thank you. 17 We have a couple more folks. 18 MS. BRENNAN: Thank you so much. 19 SENATOR HANNON: I really appreciate all of 20 your hard work, and your time to come up here. And, 21 that's a very effective video. 22 MS. HAMMOND: Thank you. 23 SENATOR SALAND: Thank you. 24 25 1 SENATOR HANNON: Next joining us is the 2 executive deputy commissioner of HRA, Peter Jenik. 3 And he's going to testify with 4 Philip Schaffroth, who is the assistant director of 5 the IREA Bureau of Fraud Investigation. 6 MR. JENIK: Thank you, Senator. 7 SENATOR HANNON: Thank you for taking the 8 time. 9 MR. JENIK: Thank you for inviting us today 10 to speak here. 11 We're going to give you an approach of what 12 the city is doing to combat prescription fraud. 13 The bureau that oversees this was formed some 14 30 years ago. And over the years, we have seen 15 changes in welfare fraud. 16 SENATOR HANNON: For the record, "HRA"? 17 MR. JENIK: Human Resources Administration of 18 New York City. 19 SENATOR HANNON: Of the city of New York. 20 MR. JENIK: The department of social 21 services. 22 SENATOR HANNON: Okay. 23 And, then, Philip, would you give us the full 24 identification of "IREA," and the agency you're 25 with. 1 MR. JENIK: No, IREA is the parent of HRA. 2 It's called "Investigation, Revenue, and 3 Enforcement Administration," which I oversee. 4 And Phil works in the bureau of fraud 5 investigation that handles and investigates all 6 criminal actions within the social services program. 7 SENATOR HANNON: Thank you. 8 So, you're both, HRA, city of New York. 9 MR. JENIK: Right. 10 SENATOR HANNON: Thank you. 11 I just wanted to put that on the record. 12 MR. JENIK: What a mouthful. 13 So, we're going to take an approach of what 14 we're doing in the city. 15 And as I was saying before, the bureau, which 16 was founded over 30 years ago, was to investigate 17 potential fraudulent activities in the welfare 18 system. 19 [Slide being shown.] 20 In 2000, we came together, and we saw that 21 the people who may prey on the system changes their 22 approaches, and we have been tracking that over the 23 years. 24 It came to light that we were seeing more 25 activity in the Medicaid program. 1 We sat down, and we decided at this point of 2 time, we should get together with our partners in 3 the state and city. 4 [Slide being shown.] 5 We set up a meeting with the department of 6 health, the Medicaid fraud units, and this has grown 7 into the special narcotics in the office of the 8 MEG -- OMIG operation, and Jim Sheehan's operation. 9 We primarily looked at clients, what was 10 happening in street, and we took that approach. 11 But, the approach we wanted to do, was to take the 12 providers, because the clients lead to providers, 13 and everyone's involved in this. 14 So, we then put a team together and took the 15 approach. 16 So, when we do investigations at this present 17 time, we invite all these parties in, with us, to do 18 the investigation. We bring the OMIG in, we bring 19 the local prosecutor, or we'll bring in the special 20 narcotics. 21 We work with the NYPD very closely because 22 they have a great intel on the ground, and funnels 23 investigations in to us. But we also are working 24 with the FBI task force, on Medicare, and various 25 other agencies, such as the DEA and other state 1 agencies. 2 [Slide being shown.] 3 Just to give you a little highlight: Since 4 the program started in 2000, over 2,600 arrests have 5 been conducted. And way over 95 percent of people 6 have been convicted in this area. 7 We've restricted, by recommending to the 8 state, to put 6,000 people on restrictions. 9 And we have identified $35 million of 10 fraudulent diversion of prescriptions, where we 11 actually get a forge, or we know that the 12 prescription was diverted. 13 And over -- the $7 million of cost avoidance 14 by putting people on restriction. Then, by closing 15 down bad doctors or pharmacies, we do save money in 16 that way too. 17 MR. SCHAFFROTH: I'd like to discuss how I 18 think this problem originated. 19 What happened, going back some time, probably 20 in late 1990s, drug dealers saw an opportunity out 21 there to approach Medicaid recipients at methadone 22 clinics that had obvious drug problems. 23 They saw the recipients had drug problems, 24 and they'd have benefits to pay for the drugs that 25 they were able to obtain. 1 So, what they did initially is, they would 2 get all the forged prescriptions. And at the time, 3 they would use -- they could go in for a 4 prescription for, like cough medicine, to a doctor, 5 white-out the information, and then -- 6 SENATOR SALAND: Excuse me, may I ask you, as 7 I should do, to pull your mic just a little closer. 8 MR. SCHAFFROTH: Sure. 9 SENATOR SALAND: Thank you. 10 MR. SCHAFFROTH: So, what they did is, they 11 would go into a doctor's office, get a prescription 12 for cough medicine, then white-out the information 13 on the prescription, and then write it for whatever 14 medication they want. 15 The state addressed this issue by making 16 state-issued prescription pads. 17 [Slide being shown.] 18 However, the problem has continued because 19 what they now do is, they pay -- they pay people to 20 go in and dress up as doctors, to go into clinics. 21 They approach the cleaning crews that work in these 22 locations. They pay them $100 per prescription, 23 to -- and that's not for a pad. That's per 24 prescription, which there's no charge. There's no 25 real charge if someone steals the prescription pad 1 because there's no value designated towards it. 2 They also address -- they also have people 3 who are working in doctors' offices, that are making 4 minimum wage, and they'll pay them a certain amount 5 of the money to steal the prescriptions for them. 6 And, then, if the doctor's office calls -- I 7 mean, if the pharmacy calls the doctor's office, 8 they answer the phone and verify the prescriptions. 9 In addition to this, what happened is, they 10 would approach the people at the methadone clinics 11 and ask them to fill a forged prescription. And 12 they'd pay them, like, maybe, between $50 and $100 13 to fill the forged prescription, at which time, 14 these medications that they were writing for were 15 non-controlled substances. 16 Initially, the majority were controlled 17 substances at first. But then there was a switch to 18 non-controlled, because they realized that there 19 were no real charges to be able to be generated 20 against them for them possessing this. 21 The medications range -- and it's not just 22 AIDS medications. They range from, approximately, 23 $400 of one prescription, to $13,000. 24 So, they saw an opportunity to take these -- 25 to sell these prescriptions back -- put it in the 1 black market and sell it back to pharmacies. 2 Now, a pharmacy who would -- might 3 traditionally buy a medication from the manufacturer 4 or the distributor, for a $13,000 medication, they 5 would, traditionally, have to pay, let's just say, 6 12,900, to give an example. So, maybe they'd make 7 $100 profit on a prescription. 8 But, if they could buy it from the black 9 market for $6,000, then they're making a 10 $7,000 profit per prescription. 11 So, what they do now is, they create what's 12 called the "wish list." 13 [Slide being shown.] 14 And, the wish list is a list that's given to 15 the stash houses and the buyers on the street, to -- 16 what drugs they're looking for for that particular 17 month. 18 These filter down, from the stash houses, to 19 the street people that you saw in the video. 20 Those street people then give it to bodegas 21 and storefronts throughout the entire city, because 22 this black market is so vibrant, that it's all over 23 the city. 24 So, where its initial point is, is that, the 25 Medicaid recipients, besides the forged 1 prescriptions that they were filling and selling to 2 the writers, that would eventually make its way to 3 the black market, these people are now selling their 4 legitimate medication that they need to take. 5 And they might take, instead of -- if they -- 6 if they're HIV positive, rather than take the 7 medication, maybe it's a prescription for medication 8 with five refills, they'll take the -- they'll sell 9 the first four, and then take the final one, so, if 10 they go to the doctor and they're tested, it will 11 show in their blood system that they are taking the 12 medication, when, in actuality, they're not, and 13 their conditions are worsening. And, then, they're 14 prescribed the medication again. 15 But, these medications that they sell on the 16 black market work its way back through the whole 17 filter, to -- eventually, to the stash houses, and 18 then back to the pharmacies. 19 Now, what these stash houses are doing, is, 20 they prefer sealed bottles. And what they do is, 21 they remove the label off of the bottle -- the 22 manufacturer bottle. 23 [Slide being shown.] 24 And they do this with a lighter fluid. And 25 the lighter fluid removes the label from the -- 1 removes the pharmacy label without doing any damage 2 to the manufacturer label. 3 So, once the label is peeled off, the rest of 4 it evaporates, and it looks like it's in pristine 5 condition, for them to sell back to the pharmacy. 6 [Slide being shown.] 7 Now, we come across -- some of the health 8 risks that we're seeing is, like I said, the -- 9 we're talking about: Expired medication here. 10 We're talking about spoiled. We're talking about 11 contaminated. 12 Some of these stash houses are -- the 13 conditions that these medications are found on, at 14 the time: 15 Loose pills sitting out on a table, past the 16 expiration date. 17 In a hot trunk of a car, once we -- we've had 18 some pull-overs, where we find medication kept in a 19 trunk that's probably 120 degrees, way past the 20 point of spoil. 21 So, when someone like me or you goes to pick 22 up a legitimate medication, or our families, we're 23 potentially buying medication that's spoiled, 24 expired, and won't work for us, that's been paid for 25 multiple times, over and over again, by the 1 taxpayer. 2 [Slide being shown.] 3 This is an example of -- now, what we're 4 finding is, when we come into the stash houses, like 5 Christine addressed earlier, the charges that apply 6 for possessing this are non-existent. 7 And the only way we're able to get to the 8 next level of finding out the pharmacies, is, we're 9 finding these logbooks that are kept in the stash 10 houses, indicating how much their payout to the 11 pharmacy is, what they're getting for each 12 medication, the names and numbers of the pharmacies. 13 If we do not find these logbooks, there's no 14 leverage over these people to get any information 15 with regards to the next level. 16 And we've had several confidential informants 17 that have worked closely with us, that were part of 18 the -- part of this organized crime, part of this 19 drug-diversion family, here, which they've updated 20 us, that, they're told to say that these 21 medications, at time of arrest -- because they know 22 they're going to be out tomorrow -- that these are 23 being diverted overseas to family members, and being 24 sold over there. 25 When, in actuality, that's not the truth. 1 That's the story they're told to tell. 2 These are all going back to pharmacies, 3 according to multiple sources, and according to 4 these logbooks that we found in these stash houses. 5 [Slide being shown.] 6 This is one of the first cases, 7 "Operation Fraud Way," back in 2000, at which, if 8 you look at the medication, some of those are in 9 loose bags. 10 Those are the medications that are being 11 rebottled, resealed. 12 They actually have resealing equipment to put 13 it in, so it looks like it's in pristine condition; 14 where, they cut the tinfoil, reseal it to the 15 bottle, put it on, and it looks like it's in fine 16 condition. 17 They pay a little bit less for the unsealed 18 bottles because they have to do the extra work, but 19 they're still paying for these pills out on the 20 street. 21 In addition to this, this is -- this case, 22 back in 2001, we found $1 million worth of 23 medication in this stash house. 24 The medication that we found, that was only 25 collected in one month's time. 1 So, back in nineteen ninety -- back in 2001, 2 this medication cost the taxpayers $1 million. 3 That's only for one month. 4 This operation was going on for well over a 5 year. So, that's $12 million, right there, from 6 that stash house. 7 This was the first of many stash houses to 8 come. 9 [Slide being shown.] 10 [Slide being shown.] 11 [Slide being shown.] 12 This is a recent takedown, which I can't give 13 too much detail to because the case is still active. 14 It's a $10 million stash house that we took 15 down in April of 2011. 16 $10 million, like I said, once again, of the 17 taxpayer money, this was only one month's worth of 18 medication. 19 We could tell by the dates on labels that 20 this was gathered only in the last month. 21 So, this stash house is bringing in 22 $120 million of our taxpayer money, on a regular 23 basis, per year. 24 And this is the stuff that's going back to 25 the pharmacies. 1 This has become so prevalent, that, the 2 people on the black market, the area that Christine 3 showed in Washington Heights, it's probably about a 4 seven-block radius, where -- originally, this was 5 where all the medications that were gathered 6 throughout the entire city. 7 If it was bought in a bodega, the bodega 8 would eventually -- like, a bodega in Brooklyn, it 9 would eventually be brought back to 10 Washington Heights and sold to these individuals 11 here. 12 What happened is, gangs got interested in 13 this. And they'll go around the perimeter, and 14 they'll buy the medication from the recipients 15 before they ever reach the center core. 16 As soon as they buy it, they'll take it, go 17 one more block in, and sell it. 18 Now, these people are wise to not buy 19 controlled substances, because they know of the 20 charges that they can face by buying the controlled. 21 They know not to carry weapons, but they do 22 have enforcers; what they refer to as "enforcers." 23 If there's an issue out there, where they 24 feel their life is in danger, or someone's going to 25 rob them, they call an enforcer down, that carries a 1 weapon. 2 And they'll come down, he'll flash his 3 weapon, to let you know that, you know, this is 4 going to be handled, and taken care of. 5 So, there is a lot of violence that overlays 6 into this also. 7 [Slide being shown.] 8 We had a case recently, March 2010; it was a 9 stash house that originally started off in 10 Washington Heights, and made its way over into 11 Jersey. 12 And there was a complaint from one of the 13 people; it was in an apartment in New Jersey. They 14 received a complaint, that they could smell gases 15 coming through the floor. So, they called the local 16 police. 17 The police showed up at the apartment, 18 knocked at the door, and three individuals wearing 19 gas masks opened the door. 20 When they opened the door, they saw all 21 the -- the entire apartment was sealed with plastic, 22 to try and prevent the gases from going up. And 23 they found, at that time, $5 million worth of 24 medication. 25 Now, the boxes that you see there, at the top 1 left-hand corner, with the yellow containers, that's 2 the lighter fluid that I referred to earlier, used 3 to remove the labels. 4 These people make approximately $500 a day, 5 just from removing these labels from this 6 medication. 7 These prescriptions -- all these 8 prescriptions that were found, came from New York 9 City at this particular thing. So, they moved 10 outside, so as not to raise anyone up in 11 Washington Heights because that is an interested of 12 target. 13 The black market has become so prevalent, 14 that, like I said, the health risks of these people, 15 some that are on legitimate medication, and the fact 16 that, we could potentially buy, and our family 17 members buy, this medication back, is a true 18 problem. 19 The forged prescriptions that are going on, 20 these people become -- that are still going on for 21 the non-controlled substances, they're stealing 22 blank prescription pads, which doesn't have the 23 doctor's information on it. 24 They'll get from it a hospital, because -- 25 1 SENATOR HANNON: Aren't they supposed to be 2 using forge-proof prescription pad? 3 MR. SCHAFFROTH: Yeah, it's forge-proof, but 4 what happens is, they're sent to hospitals that 5 might have, maybe, you know, 50 or 60 doctors at the 6 hospital. 7 So, what the hospital will do is, they'll buy 8 a box of prescriptions, the state-issued pads, but 9 it doesn't have the doctor's information printed on 10 it yet. 11 They're able to get these prescriptions. And 12 what they're doing is, they're printing the 13 legitimate doctor's name on there, the legitimate 14 doctor's license number; or, what they're putting 15 down is, the drug dealer's phone number on there, so 16 that, when they actually call to verify the 17 prescription, at the pharmacy, they're calling the 18 drug dealer up who is verifying. 19 They've taken it one step further in regards 20 to, they will call the doctor's office, the drug 21 dealers being, and they'll record the message from 22 the drug dealers onto their voice mail, so, if they 23 don't pick up, you're hearing a doctor's voice, 24 saying that you've reached the doctor's office and 25 that he can't get to the phone right now. 1 And, then, they're able to put the 2 prescriptions through. 3 The phone-in prescription is another huge 4 issue because there's no restrictions in regards to, 5 you don't have to steal the pads in the first place. 6 And what they'll do is, they'll call multiple 7 pharmacies, maybe 12 pharmacies. And whoever has 8 the medication in stock and says it can be ready in 9 5 minutes, that's the pharmacy that they go to to 10 fill it. 11 Now, they know they're not going to receive a 12 call back because they're calling from the doctor's 13 office in the first place. 14 There's a website that exists out there that 15 people are able to go through, and use the website, 16 so it shows that the phone call being placed is 17 coming from the doctor's office. 18 If they were to look at their caller ID, the 19 phone number will come up as the doctor's office. 20 And, they're able to alter their voice 21 through this website. 22 And, so, there's no reason for these 23 pharmacies to call back to these locations and 24 verify these prescriptions. 25 And, then, if it's going take anywhere over 1 an hour, because they know we normally take, you 2 know, an hour to get there, to respond to a forged 3 prescriptions, they're filling the prescription at 4 whichever pharmacy will give it to them the 5 quickest. 6 So, this problem is -- it's out of control at 7 this point. And there's nothing really to move up 8 to, to the pharmacies, to get anything on them. 9 SENATOR HANNON: Suppose they have one of 10 these prescription pads. 11 Is there any chain used for non-controlled 12 substances, to determine -- absent an investigation, 13 is there anything for them to fear, that there's 14 going to be any tracing of these forged 15 prescriptions on the, quote, non-forged prescription 16 pad? 17 MR. SCHAFFROTH: Is there any change for them 18 to fear? 19 SENATOR HANNON: "Chain." 20 MR. SCHAFFROTH: Chain? 21 SENATOR HANNON: Chain of authenticity of the 22 prescription. 23 MR. SCHAFFROTH: The only thing is, if a 24 prescription pad is stolen, doctors are required to 25 report to the bureau of narcotics enforcement that 1 the pad has been stolen. 2 And those numbers can be, like, you know, you 3 can be alerted that "this pad" was stolen. 4 However -- 5 SENATOR HANNON: Hence the report, the state 6 DOH? 7 MR. SCHAFFROTH: "B&E"; bureau of narcotics 8 enforcement. 9 Problem being, is that these people are wise 10 to this. And when they steal pads, they -- 11 sometimes, they'll steal from the middle of the pad. 12 They won't use the initial numbers. 13 So, they'll leave the pad behind, they'll 14 steal the bulk of it, and the doctor doesn't even 15 realize it. 16 But there's so many people within the 17 doctor's office that are involved in, the ordering 18 of the pads, securing the pads, that these people 19 are involved. They're making minimum wage. And 20 they'll sell these pads for $100 per prescription. 21 Because of, you know, if you can get $400 to 22 $13,000 per prescription, it's an investment worth 23 investing in. 24 SENATOR HANNON: Thank you. 25 This is very rich, in terms of the 1 information, and very deep. And the implications go 2 to the -- obviously, the criminal law, the tools you 3 have. 4 And, then, to think -- for instance, I would 5 think we have to tighten up the way the hospitals 6 get this. 7 They certainly have new doctors coming in 8 waves, once a year. But, there has to be exceptions 9 to that, but it doesn't have to be as loose. 10 And, of course, the forge-proof prescription 11 is just a recent innovation, three or four years 12 old, at least for New York State. 13 MR. SCHAFFROTH: Yes. 14 SENATOR HANNON: So, that would be -- 15 MR. SCHAFFROTH: Thank you. 16 SENATOR HANNON: Appreciate it. 17 MR. SCHAFFROTH: Thank you very much. 18 SENATOR SALAND: Thank you. 19 SENATOR HANNON: Craig Burridge, the 20 Pharmacists Society of the state of New York. 21 MR. BURRIDGE: Good afternoon, Senators. 22 Thank you for allowing the 23 pharmacists society to speak on this issue. 24 It's near and dear -- 25 SENATOR HANNON: Well, after you heard the 1 testimony before you, you see why it was a logical 2 thing. 3 MR. BURRIDGE: It's been something that we've 4 supported, actually, for a number of years. We've 5 gotten the language put in several different 6 governors' budgets. It's always been pulled out. 7 And, you know, it is a frustration with our 8 members. 9 And, you know, over our 132 years as an 10 organization, you know, this society, and certainly 11 my predecessor, who is sitting behind me, has been 12 involved. 13 We've worked the bureau of narcotic 14 enforcement. In fact, three years in developing the 15 serialized form through the New York State 16 Pharmacy Conference, which we gather with Medicaid 17 and with the board of pharmacy, schools of pharmacy, 18 and all the pharmacy organizations, about four times 19 a year. 20 This is the process we use to make sure this 21 was a workable form. Unfortunately, it's not 22 without its bugs. 23 One of the -- as my -- my tenure as 24 consecutive director, which has been a little over 25 18 years, I've heard this story from pharmacists, 1 frustrated by the shortcomings of the present 2 statute to deal effectively with the organized 3 version of prescription medications, that begins 4 with an individual standing outside the pharmacy, 5 offering to buy prescription drugs for cash. 6 Now, we refer to these street vendors as 7 "backpackers," as they almost always have a backpack 8 on them, and are known -- or, just a single word, as 9 when spotting a potential seller, and that's 10 "Medicaid." 11 In fact, a few years ago, one of our 12 independent pharmacy owners down in New York City 13 succeeded in getting law enforcement to show up, 14 because he had a backpacker who was outside his 15 pharmacy every day. 16 He had him arrested, but he was back on the 17 sidewalk the same day, before he closed his 18 pharmacy. 19 Extremely frustrating. 20 And, then, this is when we started to 21 investigating, well, why was this individual being, 22 basically, slapped on the wrist and let go? 23 And what we found was, that the possession of 24 prescription drugs for the purpose of resale, and we 25 were just astonished ourselves, that, in most cases, 1 this was just considered a misdemeanor, even though 2 the average backpacker, when he was busted, had 3 $44,000 worth of drugs in their backpack. 4 So, you know, when -- and the only way it was 5 a felony under current law, was if the street price 6 was $1,000. And they couldn't use the aggregate of 7 the drugs in the backpack, but only a single 8 product. 9 So, those authorities that have successfully 10 prosecuted diversion rings tell us -- again, they're 11 the ones that told us about the average bust and 12 what was in their backpacks -- one of the things we 13 did, prior to the OMIG being created, we contacted 14 the Office of Medicaid Audit and Control, and we 15 asked the state officials if they had any idea how 16 pervasive this was in the selling of Medicaid drugs. 17 And at that time, the Medicaid auditors 18 believed that the value of the diverted medications 19 could be as high as 10 to 20 percent of the entire 20 Medicaid drug budget. 21 10 to 20 percent; if you looked at, in terms 22 of today, $5 billion is somewhere between a half -- 23 half a billion and a billion dollars a year. And 24 based on some of the numbers I've been hearing, they 25 may not be too far off. 1 Recently, I spoke to an OMIG staff member, 2 and the estimate he worked on, on patient 3 diversions. And he said it was approximately 4 15 percent. 5 So, we're somewhere between 10 and 6 20 percent; so we're talking hundreds of millions of 7 dollars. 8 And the shame is, and what has been said is, 9 some of these patients actually need these 10 medications, but somehow they need -- they prefer 11 the cash. 12 We've had instances where I have had a 13 pharmacist tell me, they've had HIV patients who, 14 again, will sell their medications for a couple 15 months, take it the third month. And, again, this 16 is to buy heroin, and which is how they got HIV in 17 the first place. 18 So, it's a very distressing situation. 19 Well, based on a number of reports when we 20 reached out to our members, we really reached out 21 more to our New York City-based independent pharmacy 22 owners, what we understood from them, was that the 23 New York City police did not routinely respond to 24 them when it involved a backpacker or a diversion 25 case. And this was very frustrating to them. 1 And we -- certainly, we look to work with law 2 enforcement. 3 I recently met with the DEA on one of the 4 take-back programs. It's really to have a number 5 that pharmacies can call to get this resolved. 6 So, this frustration caused PSSNY to more -- 7 or, led to our advocacy. 8 And what happened was, several years ago, we 9 were invited, some of our members, to a meeting -- 10 an informal work group on drug diversion, comprised 11 of, federal law enforcement, and state officials 12 from Medicaid audit control, the bureau of narcotic 13 enforcement. 14 And this is where, one pharmacy owner 15 described the following: 16 He said, "Each day, at the same time, a white 17 non-descript van would stop at the street corner, 18 collect a full backpack and switch it for an empty 19 one." 20 And after months of investigations, I 21 understand, there were five wholesalers in 22 North New Jersey that were arrested and prosecuted. 23 It is not easy for a pharmacist to know 24 whether or not a medication has been through the 25 gray market. 1 I had a pharmacist call me, this was earlier 2 this year. He was very concerned. 3 He said, "You know, I just have three bottles 4 I just got from my wholesaler, sitting on my shelf." 5 And he said, "I noticed they didn't have the 6 manufacturer's insert attached to them." 7 That's -- that describes the drug, the 8 chemical compound, if there's any black box. 9 And he said, "Should I be concerned?" 10 And I said, "Well, why don't you bring one of 11 the bottles over to the phone." 12 And I said, "Hold it up to the light and see 13 if you can see any kind gumming on there, like, if 14 there was a label." 15 And he said, there was. 16 He said, "Obviously, there was a label on 17 these bottles." 18 I said, "You need to contact that 19 wholesaler." 20 He didn't get any discounts on this. He paid 21 the regular price. It came in his bin with all his 22 other medications. But, it was just these three 23 bottles that did not have that manufacturer's 24 insert. 25 You know, they either come in the box, or 1 they're attached to the bottle. 2 So, that's probably one indicator; if it's 3 sitting on the shelf without that insert, that it 4 probably came from the gray market. 5 Now, we are -- first of all: We are 6 gratified that the senate is taking a close look at 7 this issue. 8 We did have one concern, under S5260A, and 9 that was with the section, 179.10, paragraphs 2(A) 10 through -(D). And I did discuss this on the 11 prosecution. This has to do with fraudulent 12 prescription dispensing. 13 Here's our concerns: And, it's not so much 14 that we think that pharmacists would be prosecuted 15 for this for unknowingly. 16 It's, we're more concerned about, what's the 17 OMIG going to do if there was an investigation 18 started on a pharmacy, to see if there was anything? 19 You know, would they be automatically cut off 20 from Medicaid? -- which could literally put them out 21 of business before there was any result to the case. 22 But -- there is a reason one. 23 In paragraph 2(A), prescriptions do not 24 require that a diagnosis be listed. 25 Something we've ask for, we've had 1 legislation in, where the medical society does not 2 like that. 3 We would prefer to have a diagnosis code. 4 It's a patient-safety issue as well. 5 Any prescription written on a New York 6 State-issued serialized forms are considered to be 7 valid. 8 Again, we have all the checkpoints on them. 9 Pharmacists do not have access to a patient's 10 medical record or diagnosis. And the dispensing 11 pharmacy should not make a diagnosis determination 12 at the pharmacy counter. 13 The pharmacists are responsible for judging 14 whether a prescription is valid, based on, 15 information available from the patient, in the 16 patient's profile, and on the prescription. 17 When in doubt, the pharmacist must contact 18 the prescriber and/or may refuse to fill the 19 prescription. 20 By the way, this happens hundreds of times a 21 day. 22 We have had pharmacists murdered; stabbed to 23 death right in their doorway, stabbed to death when 24 leaving their pharmacy, for refusing to fill 25 prescriptions. 1 Robberies are up, I think, 1,300-plus this 2 year alone, nationwide. 3 Secondly, in paragraph 2(B), it is a 4 professional misconduct for a licensed pharmacist to 5 dispense a prescription drug, with the exception of 6 an emergency supply, without a prescription. 7 Pharmacists who dispense a medication without 8 a valid prescription would be sanctioned by the 9 Office of Professional Discipline. And would then 10 likely be listed as disqualified from Medicaid and 11 Medicare in a follow-up action by the OMIG. 12 Again, this is the concern, is, the follow-up 13 action, you know, being charged, but never 14 convicted. And, then, losing your Medicaid and 15 Medicare business, which basically puts you out of 16 business. 17 Paragraph 2(C); PSSNY supported the 18 initiative to create official New York State 19 serialized prescription forms as a way to prevent 20 prescription forgeries. 21 OMIG estimates the Medicaid savings from this 22 forgery prevention initiative is 50 million a year. 23 That was the initial estimate that we got 24 from these forms. 25 Unfortunately, the system, and as you heard 1 earlier, is not 100 percent foolproof, as 2 prescription pads can be stolen. 3 Typically, if a full pad is stolen, the 4 prescriptions are written, and it's sent into the 5 pharmacies, typically, within a 24-hour period. 6 In these cases, PSSNY has cooperated with B&E 7 by notifying all pharmacies in surrounding counties 8 via our e-alert system. 9 And that would be pharmacies that are 10 obviously members ours and set up for our e-alert. 11 We also do a fax alert, which gets out to the 12 majority. And we typically saturate the area. 13 We've used this system in the past when 14 serialized forms were just for narcotics, for 15 controlled substances. And we're able to work very 16 closely with the DEA on that. 17 In fact, when a prescriber reports a stolen 18 pad to either the board of pharmacy or the 19 department of health, to B&E, the prescriber, in 20 many cases, is also referred to PSSNY so that the 21 serialized-number sequence gets on out to the 22 pharmacies as quickly as possible. 23 We, typically, if that pad comes in, that 24 e-Alert is sent out immediately. We don't -- you 25 know, we have a person in the office who is 1 dedicated to that. We typically have the numbers, 2 and we put our members on notice. 3 And, finally, in part of 2(D), at the point 4 of dispensing, it is not possible for the dispensing 5 pharmacist to determine whether or not a prescriber 6 is acting in good faith. 7 Several times in past, PSSNY has asked 8 Medicaid officials to add a hard-edit, so that a 9 prescription claim would be denied immediately if 10 the prescriber had been disqualified from the 11 Medicaid program, even if the prescription is 12 written a valid state-issued serialized form. 13 This request has not yet been implemented. 14 But, one other thing that we found out that's 15 occurring, we had a doctor in the Hudson Valley 16 area, who was, in fact, "DQ'd," disqualified, but he 17 had his "NPI number," national provider 18 identification number, on it, and not his license 19 number. And he was only DQ'd under his license 20 number. 21 And he was chewing out one of my pharmacists 22 for not filling it. 23 Well, the pharmacist knew he was 24 disqualified. And he said, "I cannot" -- "I can't 25 submit this." 1 He said, "You submit this under the NPI 2 number," while he refused to fill that prescription. 3 So, we are working. 4 We did mention this at the Medicaid Pharmacy 5 Advisory Committee, and also the OMIG, that this is 6 something we need to have included in any 7 disqualification list, the NPI number of the 8 prescribing, so, if they're DQ'd, they're DQ'd under 9 both identities. 10 We find that this legislation is very 11 complex, but do applaud your effort to address a 12 serious problem that wastes taxpayer dollars. 13 But, we just remain concerned about that 14 section. We think some of it can stay in. 15 I think there's issues in the area that just 16 pharmacists have absolutely no control over. And, 17 certainly, can't read the mind of the physician as 18 to intent of that prescription. 19 One of the things that we think that's going 20 to really help in this, is, really focusing on 21 recipient fraud and criminal diversion of 22 prescriptions, targeting those individuals. 23 Again, I was down in Manhattan a few years 24 ago. I was going to a fundraiser at the 25 Sheraton New Yorker. 1 I stepped out of my cab, with my son, and we 2 heard "Medicaid." And there was a backpacker 3 standing in front of Duane Reed. 4 They typically stand, where there's four 5 corners, or there is an exit into the subway; 6 someplace where they have multiple routes of escape. 7 And my son turned, thought he was speaking to 8 him, and he said, "What did he say?" 9 I said, "He said 'Medicaid.'" 10 I said, "Wait till that door opens. If they 11 have a pharmacy" -- "a prescription bag in their 12 hand, he's going to say 'Medicaid.'" 13 Well, then, a woman stepped out with a 14 prescription bag, and he said, "Medicaid." 15 So, we know it's still going on. 16 And, by the way, that occurred several years 17 after that large bust in Jersey, where they were 18 tracking this organization. 19 One of the other things, too, is that the 20 OMIG staff, or 650 employees, they don't have very 21 many working on recipient fraud. 22 And I understood, one was laid off. I spoke 23 to him yesterday. 24 You know, we think that that needs to be 25 beefed-up a little bit, and that the penalties 1 should be stiffer. 2 I know get routed to a pharmacy. But, again, 3 there are some good tracking things. 4 You know, when you get that information -- if 5 you can catch these people when it's in the 6 backpack, or in their pocket, all the information is 7 on there: the dispensing pharmacy, the doctor's 8 name, and patient's name. 9 And I think, if there's a pattern of 10 physicians, you can find it. 11 The other thing that I would suggest to law 12 enforcement, is, really work with us. 13 We get phone calls all the time; a 14 pharmacist's looking out his window. He sees a line 15 going around the corner to a physician's office. 16 People going up, and coming out with a fistful of 17 prescriptions, like, two minutes later. 18 You know, and he said, "This is going on all 19 day." 20 They're more than willing to throw them under 21 the bus, but they have to be protected, because it's 22 dangerous for them. 23 I had a pharmacist who turned in a bodega, 24 for purchasing -- he knew was purchasing diverted 25 prescriptions. 1 And it turned out, I think the bodega was 2 doing about $50,000 a week. 3 And the owner came in, after him, and he 4 threatened this pharmacist and his family. 5 And, then, the pharm- -- and when the man -- 6 well, first of all, he said, "I had nothing to do 7 with it." 8 Well, when he left, he looks up on the wall, 9 and there's his license, that he's required by law 10 to post, with his home address right below it. 11 Right there on the wall. 12 So, he was calling me, to ask if there was 13 some way he could block that and not get in trouble 14 with the board of pharmacy. 15 Which, the board of pharmacy said, you know, 16 they understand that now, and they're going to allow 17 a pharmacists to have that left off of any renewals 18 they want in the future. 19 But, that's how concerned he was with his own 20 safety, and that of his family. 21 So, again, focus on the backpackers. 22 I think, if you -- because you have people 23 selling legitimate prescriptions, for the money, for 24 drug use, or whatever. 25 If you focus on making it tough for that 1 person who is buying it, and you cut off the source 2 of them selling it, those that need the 3 prescriptions, if there's no place for them to sell 4 it, they're going to use them, hopefully. They'll 5 be adherent with their drug regiment. 6 And the other thing, too, is, people stop 7 stealing pads if you make it difficult for, you 8 know, them to sell it. 9 And, again, for a society, we've been around 10 a long time. We're more than happy to work with 11 anybody through -- we have that New York State 12 Pharmacy Conference. 13 I would certainly invite New York City to sit 14 in on that. 15 I know a lot of the state agencies do. 16 We typically have -- our next meeting will be 17 in September. And I'll get their information, and 18 share that with them. 19 And I'm open for any questions. 20 SENATOR HANNON: Well, thank you, because 21 you've provided a greater nuance to this. And it's 22 obvious that this statute is necessary. 23 I mean, I think you pointed out some of the 24 problems with it, when you're dealing with trying 25 to -- for a pharmacist, and others, to determine 1 this injective intent of others; or, you know, have 2 reasonable cause to know a doctor is not acting in 3 good faith. 4 But, those are evidentiary standards, and 5 they have to be addressed. 6 And I do think this is necessary. And I 7 think, given the breadth of the diversion that has 8 been outlined this afternoon, that there needs to be 9 some careful thought as to, how we go forward. 10 What's the system, from retail, but, all the 11 way back to the manufacturer, and say, you know: 12 Everybody who's legitimate, that's fine. But, it's 13 a straight line. 14 But, obviously, there's a lot of diversions 15 along that straight line. 16 MR. BURRIDGE: And we understand. 17 Certainly, we've been working with 18 Assemblywoman Paulin on her legislation, with the 19 whole tracking of the drugs, right to the bottle, 20 right into the pharmacy, to the patient. 21 We don't -- you know, our concern with that, 22 right now, is really cost. 23 There are so many different ways of tracking 24 prescriptions, whether it be a microchip; whether it 25 be a three-dimensional, two-dimensional, barcoding. 1 Or, we had one particular gentleman that 2 invented a DNA-type ink, which means, each bottle 3 would have its own marker. 4 There are markers we're talking about placing 5 in the actual pill, much like they do with 6 explosives. 7 So, we're looking at that. 8 The problem that we have at the pharmacy 9 level is, you may have, like, a primary wholesaler, 10 or you may have two or three other wholesalers. 11 But, if you've got 15 different ways of tracking it, 12 you can't have 15 types of software, because, you 13 have to pay for that software every year, you have 14 to pay for the scanning devices. 15 SENATOR HANNON: We'll get there at some 16 point. 17 MR. BURRIDGE: Yeah, so, it's an issue. 18 But, thank you very much. 19 SENATOR HANNON: Thank you very much. 20 Any concluding remarks? 21 So, I thank you very much. 22 I'll ask that the hearing be drawn to a 23 conclusion. 24 And, I thank you very much for listening. 25 There has just been an absolute rich amount 1 of information for us to work on. 2 And, thank you. 3 (Whereupon, at 11:30 a.m., the joint 4 hearing of the Senate Standing Committee on Health 5 and the Senate Standing Committee on Codes was 6 concluded.) 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25