Joined: 23 Jan 2008
Location: Rochester, NY
|Diabetic Testing Strips Gray Market
"Cash For Your Diabetic Testing Strips"
I saw a sign with the above on it and a phone number taped to a traffic light beam a week ago, which prompted a Google search which led to this article:
Blood money: Black, gray markets for diabetes test strips a big business
At $1 apiece retail, these slivers cost pennies to make, prompting thieves to steal them and some diabetics to compromise their health.
Before he connected with a rogue pharmacy tech in Washington state, before the enticing eBay ads and the deals with a Boca Raton-based medical supply company, Donald Alan Pepin appeared to be nothing more threatening than a business owner who drank too much.
Sentenced to a stint in federal prison, the North Palm Beach man is, according to court documents, newly sober and abjectly sorry for his role in the black market for diabetic test strips.
To diabetics, the tiny pieces of plastic are a lifeline to health. To pharmaceutical companies, middlemen and thieves, the pricey strips are worth their weight in gold.
Pepin is not the only local involved in such shadowy sales. A Boynton Beach businessman is facing prison for a fake diabetes supply scheme spanning three countries.
At the heart of both cases are the booming black and gray markets for the expensive strips.
True, companies frequently give away blood-testing devices to diabetics, or sell them for a low price.
But those devices call for a diabetic to prick a finger, apply the blood to the chemically treated strip, which is “read” by the equipment to measure the amount of sugar in the blood.
And the strips, which can be used just once, are anything but free.
Although some estimates peg the manufacturing cost at about a dime per strip, it’s not unusual for a single strip to retail for $1 or more. And it’s not unusual for diabetics dependent on insulin to have to test three to 10 times a day. The cost quickly adds up.
“It’s out of reach of most people,” said Lemoyne Bloom, who advertised on craigslist to buy unused test strips in South Florida with the goal of reselling them at bargain-basement prices — but with enough of a profit margin to still make money.
“One of the barriers to good diabetes control is because of the cost,” said Dr. Mary Vaccarello-Cruz, medical director of Florida Atlantic University’s Diabetes Education and Research Center. “It’s a known problem.”
Two markets, big money
Such resales of unused test strips are not necessarily criminal. But when crimes do occur as part of the illegal black market in strips, such as counterfeiting or stealing them, the theft can be big. Take Abbott Laboratories. On a warm June evening in 2011, a truck driver delivering goods from Abbott Laboratories parked his tractor-trailer in Louisville, Ky.
In the morning, the truck was gone, hijacked for its estimated $4 million cargo: pallets loaded with boxes of test strips.
One shade away from this black market is the largely legal practice of buying unused strips from diabetics or their middlemen and then reselling them, usually over the Internet. The so-called gray market circumvents full retail prices charged by pharmaceutical companies.
Advocates of such resales say the only victim is Big Pharma, which has priced its products so high that diabetics no longer can afford them. The marketplace is doing what big pharmaceutical companies won’t: providing test strips at a low enough cost that diabetics have a shot at regular testing.
“Some people just give us their strips and we don’t resell those, we donate them,” Bloom said. “That’s why we’re here, to help people.”
Trailer park purchases
Not even the Food and Drug Administration, which has sounded alarms about potential resale problems — including the resale of foreign test strips, strips that are not handled properly and expired strips — will guess at just how big this gray market is. But on a recent weekday, there were 1,446 eBay ads selling test strips at sharply reduced rates.
“It’s huge,” Bloom said.
Few people know that as well as Jim Cockrum. The lanky, jeans-clad self-styled Internet sales guru all but promises you can make a mint reselling the product.
In one online interview, Cockrum sums it up: “I’m going to be so bold as to say that if you can’t make money on the Internet selling diabetic test strips on eBay, you definitely need to just shut off your Internet connection, stick to the real world, and stay away from the Internet.”
One rich source of acquiring the supplies: trailer parks, where, Cockrum said, he has found unusually large numbers of people willing to sell their test strips.
Craigslist is another fertile ground for middlemen picking up unused test strips. The South Florida edition of the online marketplace is flooded with ads from those hoping to buy unused test strips with the intent of reselling them.
Who sells their test strips to these middlemen? “A lot of people have insurance and get strips they don’t need,” Bloom said.
Boatloads of resales
Florida’s taxpayer-financed Medicaid program is among those insurers paying for strips: $10 million in the most recent fiscal year. That’s up 64 percent from fiscal 2007.
The steep hike in payments appears to be at odds with another set of numbers: The percentage of Floridians monitoring their blood sugar at least once a day actually fell slightly at the same time Medicaid payments for test strips were going up.
There’s no set of numbers that would confirm extra test strips purchased by Medicaid, or Medicare, are being sold by diabetics and then resold by middlemen.
Even so, “I know seniors in Florida have boatloads of test strips and are not testing. Absolutely they are selling,” said David Kliff, editor of the online newsletter Diabetic Investor, which tracks the business of diabetes.
“I think if you are a senior living on a fixed income, it’s no skin off your nose.”
Maybe not, but Medicare frowns on the practice, said Don McLeod, a spokesman with the federal Centers for Medicare and Medicaid Services.
“Nobody knows of a specific law forbidding resale, but the important point is that beneficiaries should be using unused supplies before accepting more at taxpayer expense,” he said. “Continuing to allow shipments so that you can resell the items could constitute fraud and is definitely not OK with us. “
Pharmaceutical companies heavily invested in the test strip business and contacted by The Palm Beach Post were reluctant to talk. Only LifeScan, a subsidiary of Johnson & Johnson, responded to requests for comment. And LifeScan’s concern focused on a black market threat: counterfeit strips.
Jacques Duplessis, with his modest Boynton Beach home and three-figure savings account, does not fit the image of an international criminal.
But starting in 2006, he has been chased by a multinational drug company and then federal authorities for his role in a scheme to import fake diabetic test strips from London and Shanghai to the United States.
For Duplessis, trouble hit home when pharmaceutical powerhouse Johnson & Johnson filed a civil suit in Brooklyn. As part of the suit, both his home in Boynton and hotel room in Las Vegas’ Imperial Palace were raided by law enforcement officers searching for incriminating paperwork.
What Johnson & Johnson eventually found were two transactions. In one, Duplessis had purchased 1,000 boxes of test strips from a company in London. The packages were identical to those used by Johnson & Johnson for one popular brand of its test strips. The product, though, was counterfeit, prosecutors said.
In the second instance, Duplessis did business with a Chinese company run by a figure identified as Henry Fu. Fu appeared reputable to Duplessis: He was a member of the Shanghai Chamber of Commerce, Duplessis later explained.
Fu’s company, Halson Pharmaceutical International, supplied 5,000 boxes of test strips in Johnson & Johnson packaging.
Duplessis hardly got rich off the twin transactions. According to a court statement, he reaped relatively modest profits of $24,000.
That appeared to have evaporated quickly, for by the time Johnson & Johnson sued Duplessis, he filed bankruptcy papers stating personal income of less than $2,000 a month and a wedding ring and watch worth a combined $70.
This summer, Duplessis threw in the towel. Having pleaded guilty to criminal charges of introducing misbranded medical devices into interstate commerce and entry of goods into the United States by means of false statements, he now faces a maximum of three years in jail and up to $350,000 in fines.
For his part, Duplessis contended in court filings that he never knew the contents of the test strip boxes were counterfeit. “I had never seen actual counterfeit product before at all,” he said. In fact, some of the product was genuine, said his defense attorney — but not all of it, and that was enough for law enforcement in the United States and China.
Fu was arrested by Chinese authorities by 2007 and sentenced to 3½ years in jail.
Duplessis is believed to be the only U.S. resident charged in the international scheme, which placed the bogus strips in the hands of wholesalers nationwide, including Boca Raton-based MC Distributors.
Ten-year-old MC Distributors sells more than 4,000 diabetes products. The company purchases supplies from both large and small wholesalers at discounts and resells to corporate customers such as pharmacies.
When it comes to those wholesalers involved with Duplessis, “It is likely that (they) either knew that the test strips were counterfeit or, at a minimum, were willfully blind to the facts,” Johnson & Johnson wrote of MC Distributors and others handling Duplessis-supplied strips.
Not true, responded Ronald Friedman, MC Distributors’ Food and Drug Administration compliance attorney. Duplessis and his counterfeit products duped many distributors, Friedman said. “It looked perfect,” he said. “A number of people were fooled.”
MC Distributors was fooled twice: It was also buying test strips from Donald Pepin, the local businessman who would later land in prison. And Pepin was getting his from the storerooms of Providence Medical Center, a hospital in Everett, Wash.
There, according to court documents, hospital pharmacy technician Michael Worley was stealing both insulin and test strips.
Pepin, a one-time real estate agent, had been scouring eBay for his own one-man medical supply business when he found Worley advertising insulin and test strips. Pepin persuaded Worley to sell directly to him.
But the stolen strips weren’t just coming to Pepin from Washington. In California, Jose Rivera and Oliver Aguirre were stealing test strips for Pepin from San Francisco Medical Center. In Philadelphia, Steven Holt was stealing test strips off the loading docks of Einstein Medical Center.
Pepin, in turn, was working locally to resell the strips. In Boca Raton, MC Distributors was both buyer and eventual reseller.
“They would buy whatever Mr. Pepin would find,” said attorney Franklin Prince, who represented Pepin.
There’s a reason for that, Friedman said. Pepin had established a reputation with MC Distributors as a trusted supplier. “Pepin for years was a genuine reputable salesman and then suddenly not. God knows why he decided to do what he did.”
While court records don’t reflect exactly how much merchandise Pepin bought, federal investigators pegged the retail value of the products stolen from Providence Medical Center alone at more than $1.2 million.
Whatever the amount Pepin bought, stolen goods shipped to his Jupiter office were not always refrigerated, a point hammered home in charges brought against Pepin. Heat can damage both insulin and test strips, rendering them useless to unknowing diabetics.
Charged with 11 counts involving conspiracy to commit wire fraud and interstate transport of stolen property, Pepin pleaded guilty in December to a single count and was sentenced to 28 months in prison, three years’ probation — during which he may not drink — and ordered to pay restitution of $823,577.
There were no named victims in the charges brought against Pepin. But Pepin had a Palm Beach Gardens businessman handle the stolen property. Eight months before the charges were filed against Pepin, the businessman committed suicide. Death came with a product he had ready access to: insulin.
Mod Edit: gave a less spammy title.
Thu Dec 13, 2012 12:14 pm
Joined: 15 Aug 2005
Location: North Smithfield, RI
Coincidentally I'm trying to find free or low-cost testing strips for my father who tests 2-3 times per day and has no medical coverage or insurance of any kind. He's self-employed and probably exceeds the income level for qualifying for government assistance in this area, but also can't really afford the out-of-pocket expense of insurance either, so he's stuck between a rock and a hard place. To make matters worse, he's not very tech savy when it comes to the internet, so he's unsure of where to go looking for good test strips that aren't $1 a pop. It's really frustrating that he finally started to address his health later in life, went through the trouble of dropping a bunch of weight on his own with a strict diet, and now can't even find an affordable way to ensure that his blood sugar levels are remaining at a healthy level. Learning they cost 10 cents a piece to make is even more frustrating.
Sun Dec 16, 2012 11:46 am
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