Black Market in AIDS Drug Flourishes

California’s health program for the poor has exercised slack control over reimbursements for a costly AIDS drug, enabling a black market to thrive among bodybuilders and others with no medical need for it.

In the last four years, Medi-Cal has spent about $175 million on the human growth hormone Serostim, which fights wasting in people with AIDS and costs as much as $7,000 a month per patient. Last year, the state spent more on the drug than New York, Florida and Texas combined.

But some of the supply was never used by AIDS patients. Instead, it was diverted into an underground market that flourished at gyms from San Diego to San Francisco. Doctors without AIDS expertise gave prescriptions to patients who did not require them. Forgers wrote bogus prescriptions. And some patients with AIDS sold their medicine instead of using it.

State officials defend Medi-Cal expenditures for Serostim, which can improve an AIDS patient’s quality of life. But they acknowledge that myriad abuses have cost taxpayers tens of millions of dollars.

California’s rules governing reimbursement for Serostim remain more lenient than those in other states with large numbers of people with AIDS. Three-month supplies are available with only a doctor’s prescription and no state review, as is typically required elsewhere. Medi-Cal keeps a tighter grip on nutritional supplements and some other prescriptions costing a fraction as much as Serostim.

State Health Services Director Diana M. Bonta said the department has gradually tightened regulations and reduced costs while delivering an expensive, federally approved drug to eligible Medi-Cal recipients. She said, “You learn from the abuse,” deciding on the balancing of restrictions versus need.

Serostim is the first biotechnology-derived drug approved by the Food and Drug Administration for AIDS wasting, which causes the body to consume organ and muscle tissue. But there is debate about its price and whether steroids that cost far less are as effective.

“A monthly cost of $7,000 for a drug of dubious value at a time of critical shortage of health-care dollars is scandalous,” said Michael Weinstein, president of the AIDS Health Care Foundation, which provides medical care to more than 5,000 Californians. “And I would think that, at a minimum, a third of the money is going to resale, fraud, the black market.”

The hormone is just one of hundreds of medicines on the state’s $3-billion annual pharmacy tab, the second most rapidly growing part of the $27-billion-a-year Medi-Cal program, which now faces budget cuts.

Meanwhile, the federal government and the state attorney general are examining the marketing practices of Serono Inc., the U.S. affiliate of the Swiss firm that makes Serostim. Authorities in the state already have prosecuted fraud rings that have peddled millions of dollars’ worth of Serostim. And the drug has been copied in California and elsewhere; authorities say they do not know how much counterfeit Serostim the state has paid for.

“It has a huge potential for abuse,” said Dr. Eric Daar, chief of Harbor-UCLA Medical Center’s HIV division. “Anabolic steroids have abuse potential,” he said, because people “want to bulk up ... and Serostim has the added factor of street value.”

Underground Trade

Partly because of the price, Serostim is known as the Cadillac of drugs that help chisel bodies. And the underground trade operates at every level, often starting with physicians who prescribe the drug for patients who may not have AIDS, let alone be experiencing the emaciation that accompanies the advanced stages of the disease.

The Medical Board of California confirmed that it is investigating a number of doctors for allegedly writing Serostim prescriptions for people who do not have AIDS wasting. The board’s enforcement staff is “well aware of the increasing number of improper prescriptions,” said a spokeswoman, Candis Cohen.

A year ago, after an 11-month probe by state health investigators, nine people were indicted in San Diego County on charges of stealing more than $3.5 million from Medi-Cal.

The case began when a pharmacist caught a Medi-Cal recipient trying to fill a counterfeit Serostim prescription. Police found other prescriptions and a laptop computer in the alleged forger’s SUV. Then the computer provided state health department investigators with what they describe as a diary of a statewide scam.

Serostim was being sold for discount prices at spas and gyms statewide. Authorities say the trail led to a former radiology technician who knew how to steal patients’ identities and how to dupe pharmacies.

James L. Mayfield, a supervising state health investigator, said some doctors who prescribed Serostim were dermatologists and others outside the AIDS specialty.

“Doctors admitted they did not even know what Serostim was,” or that a prescription costs $7,000, he said. “You could put every investigator in the state on this drug and you still could not catch all the fraud.”

Dr. Peter Ruane, an HIV specialist in Beverly Hills, said one of his Medi-Cal patients was trading half of his prescription back to his pharmacist for Viagra and other drugs.

He said another patient “told me ... that he was in a room where Serostim was changing hands and there was a briefcase with $50,000 in it. It had all the marks of trading in narcotics.”

Dr. Bisher Akil, an HIV specialist and former medical director of the Venice Family Clinic, said he has patients who are buying Serostim on the street. “They are using it mainly for cosmetic purposes” and as an energy booster, he said.

David Pieribone, associate director of education at AIDS Project Los Angeles, said he participated in Serostim’s clinical trials and considers it a very effective drug that boosted his muscle mass and feeling of well-being.

He said he also has viewed the dark side. “I was offered this drug by people at my gym,” he said. “They generally were people who got it for themselves,” then stopped taking it or reduced their doses.

“They offer a two-week supply ... for $1,000,” he said.

A Top Seller

Since Serostim became available in 1996, it has become one of Serono’s top sellers, accounting for $137 million in worldwide sales in 2000, $125 million in 2001, and $95 million last year.

California’s tab for Serostim grew rapidly from several million dollars in the last few months of 1996, when it was introduced, to $38.5 million in 1999, $53.5 million in 2000 and $48.6 million in 2001. The amount declined last year to $33.2 million, including pharmacy fees, which officials say indicates that tighter controls are working.

Serostim has special status in California. Under state law, federally approved AIDS and cancer medicines are automatically added to the list of drugs that Medi-Cal will pay for without pre-approval. Some patients initially received the drug for months or years without a state assessment of whether they had AIDS wasting or whether Serostim was helping.

The Medicaid programs of other big states and private insurers such as Blue Cross won’t pay for Serostim prescriptions without approving them first.

The government does not keep statistics on the number of AIDS wasting cases in each state. But New York had about 57,000 AIDS patients, or 12,000 more than California at the end of 2001, according to the Centers for Disease Control and Prevention. Like California, New York was spending about $50 million a year on Serostim in 2001 and had a fraud problem. After it began requiring pre-approval a year ago, New York’s bill plunged to $20.3 million -- about 40% less than California spent last year.

“This policy is getting the medication to people who need it, but is making sure it is not prescribed inappropriately,” said New York Health Department spokeswoman Christine Smith.

Florida, with about 7,000 fewer AIDS patients than California, has required pre-authorization since 1997 and spent $4.2 million on Serostim last year. Officials there made the determination that, if they did not control expenditures on the drug, they would have to reduce benefits elsewhere.

“There is a small number of recipients, but a very high dollar,” said George Kitchens, Florida’s chief of Medicaid pharmacy services.

Texas, with about half the AIDS patients as California, spent $765,000 for Serostim last year. It limits Serostim use to three months because officials say there is no clinical evidence that longer therapy is effective.

Rules Tightened

California health officials began tightening the Medi-Cal rules for Serostim reimbursement in 2001 after receiving reports of over-prescribing by doctors, counterfeiting and illicit street sales. They limited Serostim prescriptions to 12 weeks, after which pre-approval was required to extend the prescription.

Meanwhile, they began taking steps to remove Serostim from the Medi-Cal drug list. That triggered dozens of faxes and protests from Serono, patients and health providers who feared that tougher limits would limit access for deserving patients.

Dr. Wilbur Jordan, director of the Oasis Clinic at King/Drew Medical Center near Watts, says he has come to believe that fraud and prescription abuse are so pervasive, and Serostim so pricey, that pre-authorization is a necessary evil in this budgetary climate. “When you have a patient who is poor and hears that boxes are worth $4,000 on the street,” he said, “some are going to sell it.” He said two of his patients did.

Eventually, officials said, Medi-Cal and Serono signed a contract under which the state agreed not to remove the drug from its approved list and Serono agreed to give Medi-Cal an unspecified rebate on its purchase price. Last May, the health department notified beneficiaries that new prescriptions would require prior authorization. But officials later backed off because they said it appeared that their interim controls were driving down costs.

“We thought we brought the program under substantial control,” said Stan Rosenstein, deputy director of Medical Care Services. Official knew that tougher controls “would cause an uproar in the provider community, and we knew that, unfortunately, we would be delaying the onset of treatment for a number of people.”

Medi-Cal officials said they are now paying less for each Serostim prescription than other states do. But they refused to disclose the state’s net cost, saying they cannot legally reveal Serono’s rebates or other proprietary contract details.

To close a loophole in the current policies, Bonta said the governor’s proposed budget for the next fiscal year would pay only for prescriptions written by AIDS specialists. By Medi-Cal estimates, that could save $7.5 million a year.

Firm Defends Itself

A Serono spokeswoman, Carolyn Castel, said the company has done nothing improper and has not provided gifts, free samples or discounts.

Dr. Charles Farthing, medical director of the AIDS Health Care Foundation, maintains that Serostim provides little benefit, because the wasting in most patients can be reversed with standard anti-retroviral therapy alone.

But Dr Daar of Harbor-UCLA, who was involved in clinical studies for Serostim, said he is convinced that it effectively increases muscle mass and improves the quality of life and probably the survivability of wasting patients. “I think patients who do use it benefit from it,” he said.

Both Farthing and Daar criticize the high cost of the drug. But Castel said the price reflects the cost of development, state-of-the-art manufacturing facilities and extraordinarily high standards necessary to safely treat patients with compromised immune systems.

As California has tightened its rules, some AIDS patients say they are unfairly suffering the consequences.

“I fault the system for not having controls in place that would avoid ramifications from the black market,” said Donald Nelson of San Francisco, a 57-year-old former insurance administrator who has fought to keep his Serostim. “You don’t stop fraud by denying people who need the medicine.”

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About Serostim

The product: An injectable human growth hormone derived from mammalian cells.

Legal status: Only biotech human growth hormone approved by the U.S. Food and Drug Administration for treatment of AIDS wasting.

How it works: Interacts with specific cells to build lean body mass such as muscle and organ tissue.

Market: Sold in 13 countries worldwide.

U.S. marketer: Serono Inc. of Rockland, Mass., an affiliate of Serono S.A., headquartered in Geneva.

Price: Roughly $7,000 for a 28-day supply of 6-mg doses.

Restrictions: Must be used in conjunction with antiretroviral therapy.

Adverse reactions: Include swelling of hands and feet and pain in joints.

Source: Serono

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Serostim by state

New York has more AIDS patients, but California’s Medi-Cal program spent more on the AIDS anti-wasting drug Serostim last year than Medicaid programs in the other three largest AIDS states combined.

*--* State Cases Serostim bill New York 56,792 $20.3 million California 45,428 $33.2 million Florida 38,742 $4.2 million Texas 24,936 $765,000

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Note: AIDS population statistics through 2001.

Sources: Centers for Disease Control and Prevention, and state Medicaid programs