December 28, 2006
Cardinal Health agrees to stop buying on secondary market
Drug distribution giant Cardinal Health agreed to a set of reforms designed to curtail its dealings in the so-called secondary market for pharmaceuticals. The reforms came as part of a settlement this week with the New York attorney general and could compel other distributors to follow suit. In a statement, Eliot Spitzer’s office called the agreement with Cardinal the first settlement in a continuing investigation by his office into improper secondary market trading of pharmaceuticals. Under settlement terms, Cardinal agreed to buy pharmaceuticals directly from manufacturers only and, likewise, to sell pharmaceuticals only to certified wholesalers. The healthcare products and services company will hire an external auditor to ensure it complies with the terms. Cardinal also will pay $7 million to a New York non-profit corporation that offers financial support for healthcare research and another $3 million to the AG’s office to cover investigation costs. The probe, launched in 2005, determined that Cardinal purchased drugs from certain “alternate source vendors,” despite risks associated with buying from those vendors, to take advantage of higher available profit margins, the statement said. Cardinal also sold pharmaceuticals to certain customers “even in the face of evidence that those customers may have been illegally diverting the drugs outside their intended channels of distribution.” Wholesalers can create a secondary market when they trade drugs among themselves after the drugs are sold by the manufacturer but before they are purchased by a pharmacy, hospital or other end user. Such trading is not illegal but can create opportunities for the introduction of counterfeits and for companies to divert drugs from their intended distribution channels. Cardinal Health said it stopped purchasing from the secondary market in 2005.