How Counterfeit Drug Diversion Operations Worth $431 Billion Are Putting Lives at Risk

Lives at risk from counterfeit drugs 

Counterfeit drugs linked to criminal operations, drug networks, and gangs have become a worrying problem in the US. As these drugs are often used by patients whose lives depend on the medication, thousands of lives are at risk. The operations are increasing in numbers as counterfeiting lifesaving medications is a lucrative criminal enterprise.

 The value of the global fraud is estimated to be $431 billion, according to the World Health Organization from a CNBC report. This is a huge concern for big pharmaceutical companies like Gilead Sciences and Johnson & Johnson who are fighting a battle against criminals.

The extent of drug counterfeiting in the US

As per the CNBC report, about 2,121 incidents of counterfeiting were reported in the US in 2022. This was up by 17% from the prior year, according to the Pharmaceutical Security Institute, which tracks industry trends. One of the most devasting schemes is the drug diversion schemes which the criminals use to resell drugs for a profit.

What is a drug diversion scheme?

In a drug diversion scheme, a patient fills a prescription for a medication that is worth several thousand dollars. This cost is paid for by Medicare, Medicaid, or any insurance. Then, the patient sells the same drug for a fraction of the list price in cash to criminal buyers called aggregators.

These aggregators then remove the patient information, alter the bottle packaging, and sell it to the wholesale distributor, who sells it back to the pharmacy. In a recent case, Steven Diamanstein, the owner of Scripts Wholesale, based in the Brooklyn borough, was indicted on charges of buying more than $150 million worth of illegally diverted prescription HIV medication and reselling it to pharmacies, according to a Department of Justice news release.

What is the problem with counterfeit medicines?

Mayall, pharma company Gilead’s head of anti-counterfeiting and product security, explained that counterfeit drugs mostly have a bottle with the wrong tablets, the wrong cap or label, and even the leaflet attached to the bottle that contains important information.

Mayall said that the company has received complaints related to Biktarvy, a lifesaving HIV medication in the recent past. In the counterfeits, Biktarvy primarily contained another medication called Seroquel, which is an antipsychotic. The wrong pills were even packaged with a counterfeit seal. In one case a patient temporarily could not walk or talk after taking the wrong medication, Mayall told CNBC.

Criminal drug schemes

While the sale of prescription medication is supposed to be tracked under the federal Drug Supply Chain Security Act, criminals haven’t stopped running their operations. Lazaro Hernandez from Florida circumvented the process by altering the labels and prescription paperwork and counterfeiting the supply chain documentation. While gambling with people’s lives, Hernandez oversaw a nationwide $230 million scheme to counterfeit prescription medications, particularly targeting lifesaving HIV drugs.

Hernandez’s operation altered bottles for HIV medications including Biktarvy, Descovy, and other pharmaceuticals, and even swapped the pills for Seroquel, according to court records. Hernandez used the proceeds from the counterfeiting operation to take private jets to Las Vegas and participated in numerous poker tournaments. However, Hernandez was arrested in 2023 and he pleaded guilty in April to conspiracy charges related to distributing adulterated and misbranded drugs and money laundering in the $230 million fraud case. He was sentenced to 15 years in prison in June 2023.

Action taken by pharmaceuticals

Pharmaceutical companies have made it a priority to find and fight prescription drug diversion and counterfeiting. Gilead filed a lawsuit in July 2021 against 161 defendants, which included pharmacies and wholesale pharmaceutical distributors. The company accused them of participating in the scheme to alter the company’s medications Biktarvy and Descovy.

Further, in April 2022, Johnson & Johnson also filed a similar lawsuit against 27 defendants over its HIV medication Symtuza. Both the suits are pending. The Gilead lawsuit named four licensed distributors, Safe Chain Solutions, Scripts Wholesale, ProPharma Distribution, and ProVen.While Safe Chain Solutions denied the allegations, ProPharma Distribution settled the suit for $3.3 million and agreed to be permanently prohibited from selling Gilead medications. The report also suggested that other lifesaving drugs including cancer medications, have been counterfeited over the past several years, according to industry experts and law enforcement officials.

Gilead has even created a “war room” at its headquarters where tens of thousands of pills and bottles confiscated as counterfeits are stored. Most of these were connected to the Hernandez case. Mayall further told CNBC that most of the counterfeits’ paperwork contains numerous misspellings.