Published – CommPRO.biz 2013.10.18

Shortages That Kill

It seems that every time we try to get something right, some scumbag figures out a way to game the system. While this fact of life is annoying wherever it shows up, it’s deadly when it rears its viperous head in life and death situations. So it is with generic drugs. Once we get past the inflated profits Big Pharma reaps -based on the phonied-up costs to develop a truly new drug- our expectation is that generic versions will serve us at reasonable costs.

We know all about the inexplicably legal game Big Pharma plays where they get to pay off the generic manufacturers to hold off production until they can squeeze the last drop of bloated profit out of the original patented version. As if that isn’t bad enough, it turns out there’s another equally ridiculous legal loophole allowing drug buying groups to bribe their way to higher profits at a cost of billions (out of our pockets) and -more important- at the cost of life itself.

This situation, according to published reports from medical and pharmaceutical practitioners, has its roots in 1987. You remember the “eighties” when “K” Street lobbyists seemed able to write any crazy thing into a law and find one of those we elected to serve us, willing to serve their special interest – for cash. Well, in 1987 Congress passed the “Medicare Safe Harbor Act” giving pharmaceutical buying groups a get-out-of-jail-free card to take vendor kickbacks (AKA bribes).

Since then these huge entities have controlled the manufacturers of generics that are mostly injectables used in hospital settings, antibiotics, pain meds, chemo drugs and anesthetics among others. These buying groups have in some cases limited manufacture to a single company. They have driven pricing so low, that eventually no competitors to their “Favored One” are left standing.

How are low prices bad for us? When a dominant buyer is able to drive pricing below the level of reasonable profits for the producers, there is no longer a truly competitive marketplace. That’s exactly what’s happened in the generic pharma world, resulting in unacceptable and dangerous shortages. A buying group source claims that they “encourage the free market by competitive bidding and multiple rewards for the best supplier performance.” We are with him until the multiple rewards part (sounds like bribes to us).

All of this was thought to be addressed in a 2012 law. Instead by mid-2013 drugs in short supply had soared from near two hundred to near three hundred, a fifty percent surge in one year. How did that happen? While we have no details, we’re betting it had to do with the buying group lobbyists. While we don’t pick up these drugs from our family drug store, we all have a vital stake. It is past time for this perverse law, the innocent sounding 1987 “Medicare Safe Harbor Act,” to have its quarter century of greed driven rule brought to an end. It is time to restore ethics and a true free market to this vital healthcare sector.

So, What Else Is New?

What starts out as a straight forward ethical issue can sometimes turn quickly into a legal problem. Saturday (04.21.12) the New York Times laid out in detail (nearly 7,600 words and a baker’s dozen photos) the slide down the proverbial slippery slope that Walmart has taken over the last decade in Mexico. And maybe in other nations as well.

One in every five Walmart stores is in Mexico. The company is very popular south of the border and very profitable. Under the leadership of Eduardo Castro-Wright Walmart exploded in Mexico, opening new stores by the hundreds. This dazzling pace left their competitors in the dust. According to the Times account growth fueled by millions in bribes to local officials. Building permits, zoning and environmental issues, all the bureaucratic paperwork that normally takes weeks and months to clear, melted away in days. 

Castro-Wright was hailed for his success, promoted into a senior position in the United States and rumored to be a candidate for the top post at Walmart. There is, however, strong evidence that Castro-Wright encouraged the use of bribery to achieve the spectacular growth of Walmart de Mexico. So how could this happen without the knowledge of folks at headquarters? It couldn’t, it didn’t, they knew; in fact it appears it was decided at the highest levels to sweep it under the rug. 

When evidence surfaces that some individual or organization has strayed from the straight and narrow, invariably the number one response is, “everybody does it.” While that’s not what Walmart is saying now, it seems to have played a major role in overlooking the use of bribes in Mexico. 

Walmart headquarters’ rationale followed the “that’s just the way they do business down there” line of thinking. The most disturbing aspect of this mess is that it seems to have permeated every level at Walmart. That makes it part of the company culture. 

While Walmart has made positive moves on many fronts, it seems every time something big like this scenario rises, they fall short. That’s culture. The Times report isolates one of the moments in this scenario when Walmart lost their way big time. Their internal investigation had exposed the bribery in Mexico. Instead of putting an end to the misconduct and firing those responsible, they turned on their own investigators, “accusing them of being overbearing, disruptive and naïve about the moral ambiguities of doing business abroad,” AKA, everybody does it.

There is nothing morally or ethically ambiguous about what went on in this case. If their code of ethics amounts to anything more than words on paper, the first mention of a bribe should have been rejected out of hand. It seems inconceivable –given the jobs and taxes that a Walmart store offers a community– that bribes would have to be paid to local officials to get them built. So once again the culture doesn’t live up to the words in the Walmart Code of Ethics; surprise, surprise, surprise.