Nevada Gets Tough, With Mixed Results

By Mary Pat Flaherty and Gilbert M. Gaul
Washington Post Staff Writers
Wednesday, October 22, 2003

RENO, Nev. -- In 2001, Nevada adopted the tightest controls in the country for pharmaceutical wholesalers in an attempt to combat a growing illegal trade among tiny wholesalers that diverted and resold millions of dollars' worth of steeply discounted drugs. Over more than a decade, wholesalers had set up shop in Las Vegas, occupying an entire block in one industrial neighborhood.

The new measures required owners to employ an authorized representative with 6,000 hours of experience, and strictly limited resales to other wholesalers to 10 percent.

The regulators' efforts worked. Over the next two years, the number of wholesalers plummeted from 50 to eight, as distributor after distributor declined to renew its license with the Nevada State Board of Pharmacy.

But Nevada's efforts offer an object lesson in the difficulty in policing the growing shadow market in pharmaceuticals. When the Nevada regulators took action, some wholesalers simply moved operations across the state line into California. Recently, several wholesalers sued Louis Ling, the board's general counsel, and Keith Macdonald, its executive secretary, alleging that the officials impeded their business.

Nationwide, attempts at changing the pharmaceutical distribution system have been hit-and-miss. A federal law requiring more complete sales records on medications sold among wholesalers has been on hold since 1988. The regulations to implement that law, the Prescription Drug Marketing Act, have been delayed four times by the Food and Drug Administration.

A strong federal law or model legislation drafted by a government-industry task force and adopted by the states could standardize controls over distribution of pharmaceuticals, said Marvin Shepherd, a researcher in pharmacoeconomics at the University of Texas. So, too, would tougher rules on pedigree papers, the documents that are supposed to track sales of a medication as it passes among wholesalers. Those records would give regulators clout to pursue violators, he said.

If that paperwork went to retail buyers, they could be more certain about the products they were getting, Shepherd said.

In California, the pharmacy board is examining a number of proposals to tighten licensing and regulation of its 400 pharmaceutical wholesalers, said Patricia Harris, the board's executive officer. For years, the board has struggled to keep up with small, rogue wholesalers that buy steeply discounted drugs intended for nursing homes and divert them into the shadow market.

"The problem is they have no records," Harris said. "There is no way of tracking, no documentation. When we walk in, drugs are missing, and we have no way of knowing where they've gone."

One of the California board's proposals is modeled after Nevada's changes. It would limit the number of times wholesalers can sell to other wholesalers before the drug is sold to a retail chain. Another would allow the board to levy as much as $5,000 in fines each time a wholesaler violated a law, providing "economic teeth," Harris said.

Two years ago, the board adopted similar economic sanctions for Internet pharmacies, with fines of as much as $25,000 per incident for dispensing dangerous drugs online. In May 2002, the board issued citations against a Los Angeles Web site and two pharmacists that included $88.7 million in potential fines. As part of a settlement with the board, the online pharmacy recently agreed to pay a $1 million fine.

When Florida announced in 2001 that it would begin enforcing a pedigree-paper law, and then said it would go further and require that buyers verify the accuracy of the paperwork, "that hit a nerve more than anything I've seen in the 17 or 18 years I've been doing this," said Gregg Jones, a Florida pharmacy investigator.

After several delayed implementations, Florida this year passed tougher criminal penalties, elevating the falsification of pedigrees to a felony. But other tougher suggestions recommended by a special Health Department committee were put on hold.

The Health Department had suggested requiring pedigrees for all drugs. The industry objected to the full pedigree. The industry also opposed having it apply to an estimated 30,000 drugs. Industry lobbyists said the rules would drive wholesalers out of Florida and cost the state jobs and revenue.

Florida's legislation, which took effect this past July, toughened background checks for wholesalers. But full pedigrees were required for only 30 drugs.

© 2003 The Washington Post Company