SOLUTION: Hofstra Link BW Competitive Advantage and Corporate Social Responsibility Case

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CASE 32
Profiting from Pain: Business
and the U.S. Opioid Epidemic
Anne T. Lawrence
San Jose State University
I
n 2017, McKesson Corporation, a leading wholesale drug distributor, agreed to pay $150 million
in fines to the U.S. Department of Justice. The
charges were that the company had failed to implement effective controls to prevent the diversion
of prescription opioids for nonlegitimate uses, in
violation of the Controlled Substances Act.1 For
example, McKesson had supplied pharmacies in
Mingo County, West Virginia—a poor, rural county
with the fourth-highest death rate from opioid overdoses in the nation—with 3.3 million more hydrocodone pills in one year than it had in five consecutive
earlier years.2 At the time, Mingo County had just
25,000 residents. Yet, the company had not flagged
these orders to federal drug enforcement officials as
out-of-the-ordinary.
McKesson, which at the time was the fifth largest company in the United States—with almost $200
billion in annual revenue—played a largely unnoticed
middleman role in the pharmaceutical industry. The
firm’s main business was shipping legal, governmentapproved medicines to pharmacies, hospitals, and
health systems. McKesson’s unmarked trucks rolled
out at midnight from its 28 enormous, highly automated distribution centers, on route to their morning
deliveries of one-third of all pharmaceuticals sold in
North America. Although distributors like McKesson
did not either manufacture or dispense opioids,
they were responsible for notifying the federal Drug
Enforcement Administration (DEA) and corresponding state regulators if orders suggested that controlled
substances were being improperly diverted.3
McKesson and other drug distributors were
not the only businesses implicated in the nation’s
tho75109_case32_C406-C414.indd
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burgeoning epidemic of addictive opioids. Drug
companies—such as Purdue Pharma, the maker of
OxyContin—had developed new prescription opioids and aggressively marketed them to doctors
and patients, making vast profits for their owners. Entrepreneurs had opened pain clinics where
unscrupulous doctors could write big scripts for the
addictive pills, and pharmacies had looked the other
way while dispensing drugs to suspicious patients.
And illegal businesses, from producers of street
drugs like heroin to networks of dealers, had also
played their parts. What responsibility did these
businesses bear for the tragedy of opioid addiction,
disability, and death?
THE OPIOID EPIDEMIC
At the time of the McKesson’s settlement with the
Justice Department, the United States was deep in
the throes of what the Centers for Disease Control
and Prevention (CDC) had called “the worst drug
overdose epidemic in [U.S.] history.”4
Fueling the epidemic was addiction to prescription opioids. Opioids were a class of painkillers
derived from the opium poppy. Also referred to as
narcotics, opioids included legal prescription medications such as morphine, codeine, hydrocodone,
oxycodone, and fentanyl, as well as illegal drugs such
as heroin. Opioids worked by dulling the sensation of
pain. At high doses, they could also cause feelings of
intense euphoria. The journalist John Temple, author
of the investigative report American Pain, described
Copyright ©2018 Anne T. Lawrence; all rights reserved.
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Case 32
Profiting from Pain: Business and the U.S. Opioid Epidemic
the “high” experienced by users of oxycodone, a
strong opioid, this way:
To understand oxycodone, imagine everything that
makes a man or woman feel good, all the preoccupations and pastimes we are programmed to enjoy. Sex,
love, food. Money, power, health. Synthesize all of that
­pleasure-seeking potency, and multiply by ten. Then cram
it all into a pebble-sized blue pill. That’s ­oxycodone—one
of the most irresistible opioid narcotics ever cooked up
in the six-thousand-year old history of dope.5
Opioids were highly addictive, and as users developed tolerance, they required larger and larger doses
to get high or just to feel normal. Withdrawal from
opioids, which could occur after even a single dose,
could be excruciating. Users in withdrawal often
experienced intense cravings, fever, sweats, and pain—
sensations that addicts referred to as “jonesing.”
Addiction caused physical changes in the brain, weakening a user’s impulse control and making it almost
impossible to quit without medical assistance.6
Opioids were killers. In high doses, these drugs
caused breathing to slow and finally stop, bringing death by respiratory arrest. In 2015, 33,091
Americans died from an opioid overdose.7 This was
just slightly less than the number that died that year
in car accidents. Between 1999 and 2015, the rate of
death from opioid overdose (number of deaths per
100,000 people) quintupled, that is, it was five times
higher in 2015 than it was a decade and a half earlier.8
Deaths from opioid overdose cut across all
geographical regions and demographic groups, but
some places and people were harder hit than others.
Government data showed that although drug overdose deaths grew for all groups, those in mid-life (aged
45 to54) had the highest rates. Rates were higher for
non-Hispanic whites than for other ethnic groups.
The states with the worst opioid problems were West
Virginia, New Hampshire, Kentucky, and Ohio, with
Rhode Island, Pennsylvania, Massachusetts, and
New Mexico not far behind.9 Opioid use was higher
where the economy was bad; as unemployment rates
rose, so did overdose deaths.10 Some researchers
called these drug overdoses a “death of despair,”
part of a broader pattern of rising mortality among
­middle-aged whites in the United States. “Ultimately,
we see our story as about the collapse of the white,
high-school educated working class after its heyday
in the early 1970s, and the pathologies that accompany that decline,” these researchers wrote.11
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Many opioid overdoses occurred in private, but
a startling number occurred in full view of the community. As Margaret Talbot reported in The New
Yorker, “At this stage of the American opioid epidemic, many addicts are collapsing in public—in gas
stations, in restaurant bathrooms, in the aisles of big
box stores.” She related this story about the experience of two small-town paramedics, who responded
to an emergency call from a softball field:
It was the first practice of the season for the girls’ Little
League team, and dusk was descending. [The paramedics] . . .stopped near a scrubby set of bleachers, where
parents had gathered to watch their daughters bat and
field. Two of the parents were lying on the ground,
unconscious, several yards apart. As [one of the paramedics] later recalled, the couple’s thirteen-year-old
daughter was sitting behind a chain-link backstop with
her teammates, who were hugging her and comforting
her. The couple’s younger children, aged ten and seven,
were running back and forth between their parents
screaming, “Wake up! Wake up!”
The parents survived after the paramedics
administered a drug called naloxone, but were later
arrested on charges of child neglect.12
The pain inflicted by the opioid epidemic went
well beyond overdose deaths. People who were
addicted to opioids stole from their neighbors to
support their habit, ignored their work and family
responsibilities, and strained public welfare and law
enforcement systems. Some were incarcerated, filling the jails. They made more visits to hospital emergency rooms and drove up health care costs. Babies
born to addicted mothers often suffered from neonatal abstinence syndrome, going through painful
withdrawal after birth.13 Grandparents, other relatives, and foster parents were raising the children of
addicted parents.
The costs to local governments were often crushing. Ross County, Ohio, for example, saw its child
services budget almost double from $1.3 million to
$2.4 million from 2009 to 2016. “This has introduced
an entirely different metric, an entirely different
unpredictability in budgeting,” said the top official
of Indiana County, Pennsylvania, which had drawn
on contingency funds to cover extra costs associated
with the opioid crisis.14
Some research showed that opioid abuse had
hurt the economy by keeping people out of the workforce. A survey of men between the ages of 25 and
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Cases in Crafting and Executing Strategy
54 who were not working or looking for work found
that almost half had taken pain medication the previous day, and two-thirds of these had taken a prescription pain medication.15 Of course, these men
may have been out of the work force because they
were ill or injured, not because they were hooked
on opioids. But anecdotal evidence was suggestive.
The owner of an auto parts supplier in Michigan, for
example, reported that she had great difficulty filling jobs at her factory. Part of the problem: when
she sent new hires for a routine drug test, 60 percent
failed to show up.16
PURDUE PHARMA AND
THE RISE OF OXYCONTIN
Many observers traced the modern opioid epidemic
to the introduction, in 1996, of a new prescription
medication called OxyContin.17 The company that
developed it was Purdue Pharma, a privately-held drug
maker based in Connecticut.18 In 1952, three brothers, Andrew, Raymond, and Mortimer Sackler—all
physicians—had purchased Purdue Frederick, a small
pharmaceutical firm whose main products at that
time were earwax removers and laxatives. The company later introduced MS Contin, an extended-release
form of morphine used mainly by cancer patients.
As the patent for this drug approached expiration,
Purdue turned to development of an extended-release
form of another opioid, oxycodone, which had long
been available as a generic. The firm spent around
$40 million to develop and test its new drug, which it
named OxyContin. In late 1995, the Food and Drug
Administration (FDA) approved the 80-mg. dose of
the drug (it later approved other doses).
Purdue’s introduction of OxyContin coincided
with changing attitudes in the medical community
toward pain management. For many years, opioids
were generally used only for end-stage cancer patients
or those suffering from acute traumatic injuries or
short-term post-surgical pain. Because of the risk of
addiction, opioids were not considered appropriate
for the treatment of chronic pain, and they were often
mixed with other medicines like acetaminophen to
discourage patients from taking larger amounts. In
the 1980s, however, some physicians began to advocate for treating chronic pain more aggressively,
saying that many patients with conditions like arthritis, back injuries, migraines, and fibromyalgia were
tho75109_case32_C406-C414.indd
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suffering needlessly. Some campaigned to have pain
recognized as the “fifth vital sign” (the other four
were body temperature, pulse rate, respiration rate,
and blood pressure). Because clinicians could not
measure pain objectively, some adopted a 1-to-10
scale, from “no pain” to “the worst pain” the patient
had ever experienced.19
Purdue allied itself with this view, cultivating relationships with professional associations, such as the
American Pain Society and the American Academy
of Pain Medicine, which promoted the idea that pain
was undertreated. It sponsored pain-management
educational conferences in resort locations for doctors. The company also hired more sales representatives, more than doubling its sales force from 318 to
767 between 1996 and 2000. Purdue sales reps were
well compensated, earning an average of $126,500
a year, including bonuses based on sales. In 2001
alone, the company paid $40 million in bonuses. The
company’s detailers, as its sales representatives were
known, used prescriber profiles to target general
practitioners and those who were frequent prescribers of opioids. They handed out coupons for a 30-day
free supply of OxyContin to doctors, who could pass
them along to patients.
Purdue’s sales representatives downplayed
OxyContin’s potential for addiction, claiming the risk
was less than one percent. This dubious assertion was
based on a five-sentence letter to the editor that had
appeared in a 1980 issue of the New England Journal
of Medicine, based on records of hospitalized patients
in controlled settings. Sales representatives also
argued that OxyContin’s extended-release formula
made it less susceptible to abuse; although the pill
contained a large dose of oxycodone, users would not
get a sudden rush because the drug’s effects would be
spread out over a 12-hour period, they told doctors.
Despite the company’s claims that OxyContin’s
extended-release mechanism made it hard to abuse,
addicts quickly discovered that they could crush one
of the pills and then swallow, inhale, or inject it to produce an intense high. As the number of prescriptions
for opioid medications rose, so did overdose deaths.
Exhibit 1 shows the quantity of opioids prescribed
from 1999 to 2016, alongside the number of deaths
from prescription opioid overdose. (The exhibit
reports all opioids prescribed, not just OxyContin.)
As a private company, Purdue had no obligation
to file annual reports, and its owners and managers rarely spoke publicly. But the company’s senior
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EXHIBIT 1 Overdose Deaths from Prescription Opioids (per 100,000) and Opioid
Prescriptions (Morphine Milligram Equivalents per 100), United States,
1999–2016
ˆ°
Deaths from opioid overdose
Opioids prescribed
ˆ˜
˙
˝
˛
°
˜
ˆˇˇˇ
°˜˜˜
°˜˜ˆ
°˜˜°
°˜˜˘
°˜˜˛
2005 °˜˜˝
2007 °˜˜˙
°˜˜ˇ
°˜ˆ˜
°˜ˆˆ
°˜ˆ°
°˜ˆ˘
°˜ˆ˛
2015 °˜ˆ˝
Sources: “Prescription Opioid Overdose Death Rate per 100,000 Population,” The Henry J. Kaiser Family Foundation, at www.kff.org; Centers
for Disease Control and Prevention, Annual Surveillance Report of Drug-Related Risks and Outcomes, United States, 2017, T able 1B; Gery
P. Guy, Jr. et al., “Vital Signs: Changes in Opioid Prescribing in the United States, 2006–2015, ” Centers for Disease Control and Prevention
Weekly, July 7, 2017, and personal correspondence with Dr . Guy. Deaths from legal and illegal fentanyl cannot be distinguished, so both
are included in the KFF data base. Data on prescriptions in MMEs for 2000 to 2005 are unavailable, but data on opioid pain reliever sales
in kilograms per 10,000 show a steady rise during this period (“Vital Signs: Overdoses of Prescription Opioid P ain Relievers, United States,
1999–2008, ” Centers for Disease Control and Prevention Morbidity and Mortality Weekly Report, November 4, 2011).
medical director did tell a reporter in 2001, as awareness of OxyContin’s risks began to spread in the public health community: “A lot of these people [addicts]
say, ‘Well, I was taking the medicine like my doctor
told me to,’ and then they start taking more and more
and more. I don’t see where that’s my problem.”20
Purdue Pharma’s marketing campaign for
OxyContin was highly effective. In 1996, the company’s revenue from OxyContin was $44 million; it
continued to rise, peaking at $3.1 billion in 2010.
That year, it represented 90 percent of the company’s
total sales. The private firm’s owners profited greatly
from the drug’s success. In 2015, Forbes estimated
the Sackler family’s net worth at around $14 billion,
the 16th largest fortune in the United States.21
In 2007, the company settled charges brought
by the U.S. Justice Department that it had lied about
OxyContin’s addiction risks, operating “a corporate
culture that allowed this product to be misbranded with
the intent to defraud and mislead.” The company paid
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$600 million in fines—$470 million to federal and state
governments and $130 million to resolve civil suits. Its
top three executives personally paid $34.5 million in
fines and were barred from involvement in any government health care program for 12 years.22
Government Regulation of Opioids
The federal government strictly regulated the manufacture and distribution of opioid medications like
OxyContin under the Controlled Substances Act
(CSA) of 1970.
The CSA empowered the Drug Enforcement
Administration (DEA) and the FDA to create five
lists, or “schedules,” of certain controlled substances,
ranging from one (Schedule I) to five (Schedule V).
Schedule I drugs were those that had no accepted
medical use and high potential for abuse; they
included heroin, LSD, and MDMA (“Ecstasy”).
These drugs were illegal, and physicians could not
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Cases in Crafting and Executing Strategy
prescribe them under any circumstances. Schedule
II drugs were those that did have an accepted medical use, but also had high potential for abuse and
could lead to severe psychological and physical
dependence. They included most prescription opiates, such as oxycodone, hydrocodone, codeine, and
fentanyl. The DEA registered firms and individuals
that handled controlled substances and required
them to maintain complete and accurate inventories
and records, and to store them securely. It required
wholesalers, like McKesson, to maintain a system
to detect and prevent the diversion of prescription
drugs for nonmedical use. The DEA licensed physicians to prescribe Schedule II painkillers and could
revoke a license if a doctor did not provide them for a
legitimate medical purpose.
The DEA also established annual production
quotas of various controlled substances. It negotiated these quotas with drug manufacturers, based on
amounts considered necessary for medical, scientific,
research, industrial, and export needs and to maintain sufficient reserves. This system was designed to
meet legitimate needs, while preventing diversion.
Although each company received its own quota, this
information was proprietary, and the DEA published
only the aggregate annual quota for each drug.
After the introduction of OxyContin, the DEA
repeatedly raised the aggregate quota for oxycodone
(its main component), as shown in Exhibit 2. In 1994,
the year before the FDA first approved OxyContin,
the DEA limited production to 2,995 kilograms of
oxycodone. The agency continued to raise the quota,
reaching a peak of 153,750 kilograms in 2013—more
than 50 times as high. After 2013, presumably in
response to growing concern about the opioid epidemic, the DEA reduced the quota, and by 2017, the
amount approved had dropped to 108,510 kilograms.
Pain Clinics and Unscrupulous
Physicians
A pivotal role in the opioid epidemic was played by
pain clinics—known colloquially as “pill mills”—which
dispensed opioids inappropriately for nonmedical uses.
EXHIBIT 2 Drug Enforcement Agency Aggregate Production Quotas for
Oxycodone (for Sale) By Year, in Kilograms, 1994–2017
ˆ˙˜,˜˜˜
ˆ˝˜,˜˜˜
ˆ˛˜,˜˜˜
Kilograms
ˆ°˜,˜˜˜
ˆ˜˜,˜˜˜
˙˜,˜˜˜
˝˜,˜˜˜
˛˜,˜˜˜
°˜,˜˜˜
17
20
°˜ˆ
˝
°˜ˆ
˘
1
°˜ˆ 3
˛
20
°˜˜
ˇ
°˜ˆ
˜
°˜ˆ
ˆ
°˜ˆ
°
07
°˜˜
˙
20
°˜˜
˝
°˜˜
˘
0
°˜˜ 3
˛
20
°˜˜
˜
°˜˜
ˆ
°˜˜
°
9
ˆˇˇ 7
˙
ˆˇˇ
ˇ
˝
19
˘
ˆˇˇ
ˆˇˇ
ˆˇˇ
˛
˜
Sources: Federal Register, 1994–1997; U .S. Department of Justice, Drug Enforcement Agency, Diversion Control Division, “Controlled
Substances: Final Aggregate Production Quotas,” 1998–2006, and “ Aggregate Production Quota History for Selected Substances,”
2007–2017. This chart includes only o xycodone intended for sale. The DEA maintains a separate quota for oxycodone intended for other
uses, such as manufacturing other substances.
tho75109_case32_C …
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