Nov. 22, 2016 11:09 a.m. ET
Before they were arrested last year, Alabama doctors John Couch and Xiulu Ruan were prized customers of Insys Therapeutics Inc., maker of a powerful and highly addictive type of synthetic opioid known as fentanyl.
rs. Couch and Ruan prescribed a combined $4.9 million of the painkiller, called Subsys, to Medicare patients in 2013 and 2014, among the most of any doctors in the U.S., federal data show.
Insys, based in Chandler, Ariz., went to unusual lengths to keep these high-prescribing doctors happy. Insys Executive Chairman John N. Kapoor, the company’s billionaire co-founder, personally traveled to Mobile, Ala., to attend a business dinner with them, said people familiar with the matter. The doctors were also frequent speakers and consultants for Insys, which paid them $270,700 in combined fees over 21 months, according to government data.
Many of those fees were bribes paid by Insys to reward the doctors for prescribing large quantities of Subsys, federal prosecutors allege in a 22-count criminal indictment filed in Mobile against the doctors this April. Overall, the pair wrote more than a quarter-million prescriptions for fentanyl, oxycodone and other controlled substances including Subsys over five years, some of which were abused by addicts or diverted to drug traffickers, the indictment alleges.
The doctors deny the allegations. Insys declined to respond to specific questions for this article but said in a statement that it is “committed to working with the health care community to help ensure the proper prescribing and use of our products.” The company itself hasn’t been accused of any crimes.
Fentanyl, an opioid drug up to 50 times as powerful as heroin, is helping to fuel an addiction crisis in America that killed 29,500 people in 2014. Most of the illegal use involves street versions of the drug, which can be quickly made from chemical ingredients—often imported from China—and pressed into pills or cut into heroin. But prescription fentanyl is an increasing focus of law-enforcement authorities, including Subsys, a mouth-spray form approved for treating severe pain.
Just a handful of doctors, many with close ties to Insys, are responsible for outsize levels of prescribing of Subsys, according to a Wall Street Journal analysis of government databases, court documents and interviews with former company employees. Of the top 20 physician-prescribers of Subsys to Medicare patients in 2014, more than half were also among the 20 largest recipients of consulting and other fees from Insys that year, a Journal analysis of recently released federal data shows.
Federal and state prosecutors and regulators in more than 15 jurisdictions are investigating Insys’ business practices or doctors with whom Insys has ties, the company has said in financial statements.
Two former Insys employees charged with participating in a kickback scheme allegedly “helped feed this devastating surge of opioid addictions by tapping into another age-old addiction, greed,” U.S. Attorney for the Southern District of New York Preet Bharara said in a statement announcing the charges in June.
The two former employees have pleaded not guilty and declined to comment. In its statement, Insys said it “is committed to complying with all laws and regulations that govern our products and business practices,” and it has designed a “compliance program and protocols that strive to ensure that our employees are properly trained, monitored, and disciplined consistent with industry standards and applicable laws and regulations.”
Florida’s attorney general is investigating the company for potential violations of the state’s civil-racketeering laws, according to a subpoena sent to the company and reviewed by the Journal. Among the documents requested in the subpoena are communications by Dr. Kapoor and other executives regarding the company’s use of doctors to promote Subsys at speaking events.
Last month, federal prosecutors in Boston arrested the former head of Insys’ reimbursement unit, alleging she oversaw and encouraged widespread fraud in obtaining payment for Subsys from pharmacy-benefit managers.
Subsys is one of several fentanyl drugs that are absorbed through the mouth or nose. The delivery method allows for fentanyl’s pain-relieving and euphoric effects to take hold rapidly, but also significantly raises the risk of addiction, overdose and death, says Lewis Nelson, chairman of emergency medicine at Rutgers New Jersey Medical School. It is approved by the Food and Drug Administration for the treatment of extreme cancer pain.
Because of the dangers, the FDA requires that the drugmakers enroll doctors, pharmacies and patients in a database. Doctors must pass an exam on the drugs’ risks.
“If you’re going to die in a few months, you should be getting a medication that works really well and even carries danger, but if you’re going to live another 30 years, the risk-benefit changes a lot,” says Dr. Nelson.
Doctors are largely free to prescribe drugs as they see fit, and the majority of Subsys sales have come from patients without cancer, according to people familiar with the matter. For some, the consequences were dire.
In February, a pharmacy shipped a month’s supply of Subsys to a man in his early 30s who was prescribed the drug for back pain. He broke open the spray-containers, poured the fentanyl into a cup, and suctioned it into a syringe. Within hours, he was dead. “Multiple needles” and “units of Subsys” were “found around the bed [where] the patient’s body was found,” according to an adverse-event report submitted by Insys to the FDA and obtained by the Journal with a Freedom of Information Act request.
Insys is run by Dr. Kapoor, a 73-year-old pharmaceuticals executive known for applying aggressive marketing tactics and sharp price increases on older drugs. He emigrated from India to the U.S. in 1964 and received a doctorate in medicinal chemistry from the University at Buffalo in 1972. Four decades later, the university named its school of pharmacy Kapoor Hall after the billionaire donated $10 million.
By 1987, Dr. Kapoor had gained control of LyphoMed Inc., after investing just $50,000 of his own money to acquire the company. The company attracted protests after acquiring a decades-old drug being used to treat AIDS and quadrupling its price to $100 per dose, which activists called price-gouging. Dr. Kapoor made more than $100 million when he sold the company in 1990 to a predecessor of Astellas Pharma Inc.
Dr. Kapoor co-founded Insys in 2002 with the aim of developing new ways to administer older drugs. It wasn’t until 2012 that Insys won approval for its first new product, Subsys. Booming sales of the drug helped make Insys the best-performing initial public offering in 2013.
In the summer of 2015, Subsys represented one of every two prescriptions for rapid-acting fentanyl prescribed in the U.S., according to prescription data from Quintiles IMS Holdings Inc. Insys’ revenue of $330.8 million through the end of the year had more than tripled since 2013. Profits had climbed 45% to $58.5 million.
The drug’s success was underpinned by tactics that Dr. Kapoor used to great effect at his previous companies, charging high prices and employing a low-salaried, highly motivated sales force.
Insys paid its sales representatives base salaries of $40,000, well below the industry average, but offered them the chance to make many multiples more in sales commissions. The “cost-efficient” and “incentive-based” model was similar to that used by Dr. Kapoor at his previous companies, Insys said in its IPO prospectus.
Some Insys executives, including Dr. Kapoor, described their ideal sales people as Ph.D.s—“poor, hungry and dumb,” said a person familiar with the matter.
Last year, Insys had its 250-person sales force target 1,700 doctors who prescribed the majority of fast-acting fentanyl in the U.S., with a particular “focus on the highest prescribers,” the company said in its annual report.
Successful sales reps were very well-compensated, some making more than $500,000 annually, because they received a percentage of the total cost of each prescription their doctor-clients wrote, according to people familiar with the matter and court records.
The compensation structure was designed to push reps to have doctors prescribe the highest doses possible, prosecutors have alleged. New reps received 7% of sales for Subsys doses between 100 and 800 micrograms, but received a 10% commission for the highest doses of 1200 micrograms to 1600 micrograms, according to the company’s fourth-quarter 2013 compensation plan, which was obtained by the Oregon attorney general and reviewed by the Journal.
The tiered commission structure was later discontinued, said a person familiar with the matter. But reps still had a financial incentive to push higher doses, because they were also more expensive, the Illinois attorney general alleged in an August civil complaint seeking to bar Insys from doing business in the state.
A month’s supply of the lowest Subsys dose of 100 micrograms was $930 at the beginning of 2016, up 45% from when the drug launched; the price for one of the highest doses, 800 micrograms, had more than doubled to $4,070, according to Truven Health Analytics, which tracks prices charged to wholesalers. Some doctors wrote prescriptions for as many as four doses per day, according to government allegations and FDA adverse-event reports, which at the highest doses would be more than $16,000 per month.
The FDA’s approval of Subsys instructed doctors to start all patients at the 100 microgram dose and, if needed, to slowly increase the strength that relieved the patients’ pain. At a 2013 meeting of Insys’ board of directors, the company “identified the 100 mcg starting dose of Subsys” as a “strategic challenge,” the Illinois complaint alleges. Insys flagged prescriptions for fewer than 400 micrograms and instructed reps to work with their doctors to increase the dosages, the complaint says.
Medicare spending on Subsys tripled to roughly $97 million in 2014 from 2013, and soared an additional 76% to $171.3 million last year, according to previously unpublished data provided to the Journal by the Office of Inspector General for the Department of Health and Human Services.
Gavin Awerbuch, a neurologist in Saginaw, Mich., wrote 527 Subsys prescriptions in 2014 that cost Medicare $3.7 million, according to data released this year by the Centers for Medicare and Medicaid Services. He was arrested on federal charges of health-care fraud and distribution of controlled substances in May 2014.
In 2013, Dr. Awerbuch’s Subsys prescribing to Medicare patients was even more prolific, totaling $6.4 million in the year, the most in the U.S. and nearly five times as much as the nation’s second-largest prescriber, the data show.
As with several other top Subsys prescribers, Insys had a close relationship with Dr. Awerbuch, paying him $90,000 in fees for speaking, food and travel expenses over 10 months from 2013 until his arrest, according to the federal Open Payments database, which collects data from drug and medical-device companies on their payments to doctors and teaching hospitals.
One of Dr. Awerbuch’s patients, identified in the government’s criminal complaint as D.G., was given eight Subsys prescriptions over five months, at a cost to Medicare of $28,590. The drug was “too much” for D.G., making him “incoherent and unable to function,” his spouse said, according to the complaint. Dr. Awerbuch “continually fed D.G. pain medications,” which eventually caused him to enter detoxification treatment, the spouse said, according to the complaint.
Another of Dr. Awerbuch’s patients was an undercover police officer, according to the complaint. When the officer requested OxyContin for his moderate pain, Dr. Awerbuch said the drug was “highly addictive” and that he would prescribe a new drug called Subsys instead. The first 30 doses would be free with a coupon, Dr. Awerbuch told the officer, according to the complaint.
This month, Dr. Awerbuch pleaded guilty to illegally prescribing Subsys and defrauding a Michigan health-insurer. He is scheduled to be sentenced in February.
After Dr. Awerbuch’s arrest, Patty Nixon began having panic attacks, often vomiting in the morning before going to work at Insys, she says. As a staff member of Insys’ reimbursement center she had worked often with Dr. Awerbuch’s office to get his prescriptions paid for by pharmacy-benefit managers, which oversee drug spending for employers and insurers.
Ms. Nixon’s job involved a lot of lying, she says. Many PBMs refused to pay for Subsys unless it was prescribed specifically for cancer pain or unless patients had tried a cheaper alternative first. So, when Ms. Nixon and other Insys employees called PBMs, they would often pretend to be from the doctors’ office that wrote the prescription and say the patient had cancer even when they didn’t, she says. Most patients had actually been diagnosed with chronic pain, including back, neck and shoulder pain, Ms. Nixon said.
Ms. Nixon says she and other employees were pressured to improve the approval rate for prescriptions by their boss, Elizabeth Gurrieri, the former Insys manager arrested in October. Ms. Gurrieri hasn’t entered a plea.
“She’d say, ‘Dr. Kapoor’s not happy, we have to get these approvals up,’” Ms. Nixon recalls. Ms. Nixon says she also testified to a federal grand jury in Massachusetts last year about her experiences at Insys.
Ms. Gurrieri and other Insys managers taught reimbursement-unit employees to “mislead and deceive insurers regarding their employment, patient diagnoses” and the medications patients had taken previously, according to a criminal complaint that accuses Ms. Gurrieri of wire-fraud conspiracy. “In this environment, corruption became endemic within the Reimbursement Unit,” the complaint says.
Ms. Gurrieri didn’t respond to requests for comment left on her cellphone.
In Alabama, Drs. Ruan and Couch made $40 million in illicit gains from operating “what was, in essence, a pill mill,” according to the government’s April indictment.
Prescribing opioids was especially profitable for the pair because many of their prescriptions were dispensed to patients by C & R Pharmacy, which they co-owned and operated from one of their Mobile pain clinics, the indictment says.
Dr. Ruan wasn’t only the top purchaser of fentanyl, oxycodone and morphine in Alabama in 2013 and 2014, but also “one of the most prolific purchasers of Controlled Substances” in the U.S., the indictment says. “He regularly out-purchased doctors in much larger cities.”
Subsys was a significant part of C & R’s business. The pharmacy was the largest dispenser of Subsys to the military insurance program Tricare in 2013, distributing 326 Subsys prescriptions at a cost of $1.6 million, or 22% of the program’s total spending on the drug, according to data obtained by the Journal through a Freedom of Information Act request. The pharmacy’s Subsys billings to Tricare reached $1.8 million in 2014.
In 2014, Insys agreed to bypass its wholesalers and sell Subsys directly to C & R Pharmacy, according to people familiar with the matter. The arrangement provided the doctors with a lower price than they would get from a wholesaler, allowing them to keep a bigger share of the drug’s retail cost when they billed insurers, the people said. Insys executives hoped the deal would give the doctors an incentive to prescribe Subsys even more, according to one of the people. The doctors sealed the deal over a dinner at Ruth’s Chris Steak House in Mobile attended by Dr. Kapoor, former Insys Chief Executive Michael Babich and sales manager Joe Rowan, one of the people said.
Through their attorneys, Dr. Couch and Dr. Ruan declined requests for interviews. Mr. Rowan declined to comment. Mr. Babich didn’t return messages left on his cellphone.
“Dr. Couch’s medical practice, including the purchase or prescription of medication, was appropriate, within the relevant guidelines and in the best interests of his patients,” said his attorney Jackson Sharman, in an emailed statement.
Dr. Ruan “attended a dinner in Mobile at the request of an Insys sales representative that routinely called upon him,” but the dinner was not “arranged or requested by Dr. Ruan” and did not influence the way he practiced medicine or the prescriptions he wrote for patients, said Dennis Knizley, an attorney for Dr. Ruan, in an emailed statement.
C & R was a reliable customer, paying its bill “like a Swiss watch,” right up until the Drug Enforcement Administration and Federal Bureau of Investigation raided its offices last year, one of the people said.
The doctors’ trial is scheduled to begin in January, and they are expected to defend themselves against charges that include prescribing opioids that led to the deaths of four patients and carry penalties of 20 years to life in prison.
The prosecution’s witnesses may include Natalie Perhacs, a former Insys saleswoman who was arrested in February 2016. She is cooperating with the government after she pleaded guilty in February to conspiring in a bribery scheme with the doctors, according to a person familiar with the matter.
Insys hired Ms. Perhacs in 2013 on the recommendation of Dr. Ruan, who “had developed a certain affection” for the woman, prosecutors allege. Over the next two years, Ms. Perhacs scheduled one speaking event per week for each doctor, most of which were designed to “funnel kickbacks to high-volume Subsys prescribers,” she admitted in her guilty plea.
Her duties also included identifying patients on low doses of Subsys and urging the doctors to prescribe higher doses, as well as securing insurance reimbursement for the doctors’ prescriptions, nearly all of which were for people without cancer, Ms. Perhacs admitted.
Ms. Perhacs made more than $700,000 over two years working at Insys, with the vast majority of the money coming from commissions on Subsys prescriptions written by Dr. Couch and Dr. Ruan, she admitted.
Through her attorney, Ms. Perhacs declined to comment.
By the spring, insurers had started cracking down on paying for Subsys when prescribed to noncancer patients, or “off-label” in industry jargon. Last year, some 80% of new Subsys patients were prescribed the drug off-label, before plunging to 20% in 2016, the person familiar with the matter said.
In September, Insys announced that Dr. Kapoor would step aside as CEO and that the company had begun a search for a new chief executive.
“Our company remains committed to overcoming the challenges that we have faced and building shareholder value,” Dr. Kapoor said in a statement announcing his planned resignation.
Write to Joseph Walker at email@example.com
Tags: a care, bribed doctors, bribes, fentanyl, health care, healthcare, Insys Therapeutics, John Couch, Kapoor, kickback scheme, Ma, Medicare, opioid addiction, Opioids, Prescribed Drugs, Subsys, synthetic opioid, Tricare, Xiulu Ruan