FedEx Indicted for Distributing Illegal Internet Pharmacy Drugs

The U.S. Attorney for the Northern District of California has indicted the FedEx Corporation, FedExExpress, Inc. and FedEx Corporate Services, Inc. (collectively, FedEx) for conspiring with two separate—but related— online Internet pharmacy organizations, the Chhabra-Smoley Organization and Superior Drugs, to distribute controlled substances and prescription drugs to U.S. consumers who had no legitimate medical need for them based on invalid prescriptions.


Since 1998, when Internet pharmacies first began offering consumers prescription drugs, some of these pharmacies have been filling orders based only on the completion of an online questionnaire, without a physical examination, a proper diagnosis, or a face-to-face meeting with a physician. This practice violates both federal and state laws governing the distribution of prescription drugs and controlled substances.

Warnings Made to FedEx

According to the indictment, as early as 2004, FedEx had been warned by the FDA, the Drug Enforcement Administration (DEA), and Congressional members and their staff that illegal Internet pharmacies where using FedEx services to distribute prescription drugs and controlled substances in violation of the FDC Act, the Controlled Substances Act (CSA), and other state laws.

Knowledge of Illegality Alleged

The indictment also alleges that in response to these warnings, FedEx established an Online Pharmacy Credit Policy requiring that all online pharmacy shippers be approved by the Credit Department prior to opening a new account. FedEx purportedly established a Sales policy in which all online pharmacies were assigned to a “catchall” classification to protect the commission-based compensation of its sales professionals from the volatility caused by online pharmacies moving shipping locations often to avoid DEA detection.

The indictment further alleges that, as early as 2004, FedEx clearly knew that it was delivering drugs to dealers and addicts because FedEx’s couriers expressed safety concerns to management that FedEx trucks were stopped on the road by online pharmacy customers demanding drugs, that the delivery address was a parking lot, school, or vacant home, and that FedEx drivers were threatened if they insisted on delivering packages to an address instead of giving the packages to individuals who demanded them. In response, the indictment alleges that FedEx merely held Internet pharmacy packages for problem shippers for pick up at specific stations, rather than delivering them.

FedEx’s employees are also alleged to have known that the Chhabra-Smoley and Superior Drugs online pharmacies had been shut down, and that their owners, operators, pharmacists, and doctors had been indicted, arrested, and convicted of illegally distributing drugs. Nevertheless, FedEx allegedly continued to deliver controlled substances and prescription drugs for these organizations.

Specific Statutory Violations

The indictment specifically charges FedEx with knowingly and intentionally conspiring with the Chhabra-Smoley Organization (from 2000 through 2008) and Superior Drugs (from 2002 through 2010) to violate the CSA, 21 U.S.C. Secs. 841 and 846, and the FDC Act, 21 U.S.C. Secs. 331, et seq., by distributing controlled substances and prescription drugs, including Phendimetrazine (Schedule III); Ambien, Phentermine, Diazepam, and Alprazolam (Schedule IV), to customers who had no legitimate medical need for them based on invalid prescriptions.

FedEx must appear in federal court in San Francisco on July 29, 2014, to answer the charges.

HIV Vaccine Results Faked by Iowa State Assistant Professor

The Associated Press (AP) and USA Today report that federal prosecutors in the Southern District of Iowa have filed charges against former Iowa State University assistant professor of biomedical sciences Dong-Pyou Han, after he confessed to spiking samples of rabbit blood with human antibodies to make an investigational HIV vaccine look promising. The AP reports that Han received millions in fraudulent National Institutes of Health (NIH) grants over several years based on his research. As USA Today reported in December 2013, the rabbit blood results were presented at numerous scientific meetings over the years, and other laboratories became suspicious when they could not duplicate Han’s results.

It has also been reported that in September 2013 Han wrote a two-page letter, littered with grammar errors, announcing his resignation from Iowa State. In that letter, Han stated “I am very ashamed myself about my misconduct. My misconduct is not done in order to hurt someone. All cause by my foolishness and are my faulty and responsibility.” A spokesperson for Iowa State University has confirmed that Han resigned in October 2013.

The AP spoke to Ivan Oransky, a co-founder of Retraction Watch, which tracks research misconduct, who says there have been only a handful of similar prosecutions in the last 30 years because the U.S. Office of Research Integrity, which investigates misconduct, doesn’t have the authority to prosecute, and most cases involve smaller amounts of money.

James Bradac, who helps oversee AIDS vaccine grants for NIH told USA Today in December 2013 that Hans apparently added human blood components to the rabbit blood to skew results. Bradac said this was the worst case of research fraud he had seen in his 24 years at NIH. According to Bradac, the human blood came from people whose bodies had produced antibodies to HIV. The presence of these antibodies in the rabbits’ blood made it appear that the vaccine was spurring the animals to build defenses against HIV, Bradac said.

Physician Shortages, Streamlining Medical Education Addressed by AMA Policy

The American Medical Association (AMA) has voted at its annual meeting to adopt a new policy supporting state legislation to increase graduate medical education (GME) funding that will increase the number of physicians trained to meet workforce needs in undersupplied specialties and underserved areas; and advocating for innovative pilot programs that will increase the number of GME positions and create quality health outcomes.

According to the AMA, the new policy will: (1) encourage the federal and state governments, along with private payers, to adequately fund GME and increase the number of residency slots available to graduating medical students; (2) address the current and changing needs of the physician workforce; (3) ensure all patients have access to quality care; (4) address the growth of team-based care models; and (5) encourage the Accreditation Council on Graduate Medical Education (ACGME) and the American Osteopathic Association (AOA) to develop training methods to reward physicians who are a part of patient-centered care teams.

Streamlining Medical Training

The AMA also called for a more consistent and streamlined process for students to move from medical school to residency. The AMA is encouraging the development of a common set of competencies that medical students must demonstrate to advance to the next level of their training and into practice, rather than the time-based model that medical schools currently use.

AMA Initiative

In fact, in 2013, the AMA launched an $11 million competitive grant initiative entitled “Accelerating Change in Medical Education,” designed to create the medical school of the future.

The medical schools chosen to participate in the initiative are: Indiana University School of Medicine; Mayo Medical School; New York University School of Medicine; Oregon Health & Science University School of Medicine; Pennsylvania State University College of Medicine; The Brody School of Medicine at East Carolina University; The Warren Alpert Medical School of Brown University; University of California, Davis School of Medicine; University of California, San Francisco School of Medicine; University of Michigan Medical School; and Vanderbilt University School of Medicine

Each school will receive $1 million over five years to fund educational innovations. A key component of the initiative has been the establishment of a learning consortium among the selected schools to disseminate best practices to other medical schools. The initiative had its first conference in October 2013 and met again in April 2014.

New System for Reporting Physician Payments, Ownership, Investment Interests

On June 5, 2014, CMS will publish notice of a new system of records (SOR) titled, “Open Payments,” System No. 09-70-0507, which requires applicable manufacturers and Group Purchasing Organizations (GPOs) to report: (1) payments and other transfers of value to covered physician recipients; and (2) certain ownership or investment interests held by physicians and their immediate family members in such manufacturers and GPOs. The payments and transfers of value to covered physician recipients are defined at 42 C.F.R. Sec. 403.902.

The new Open Payments SOR implements section 6002 of the Patient Protection and Affordable Care Act of 2010 (P.L. 111-148) (ACA), which added section 1128G to the Social Security Act. Under the provisions of section 1128G, CMS is required to publish the data submitted by the applicable manufacturers or GPOs on a public website. The published data must be downloadable, easily searchable, and aggregated. CMS must also make annual reports to Congress and each state summarizing the reported data.

The term “applicable manufacturer” means a manufacturer of a covered drug, device, biological, or medical supply which is operating in the United States, or in a territory, possession, or commonwealth of the United States. The term “applicable GPO” means a GPO that purchases, arranges for, or negotiates the purchase of a covered drug, device, biological, or medical supply which is operating in the United States, or in a territory, possession, or commonwealth of the United States (Soc. Sec. Act Sec. 1128G(e)).

Review of Information

Covered physician recipients and physicians who are owners or investors are entitled to (1) a 45-day review period to review data submitted about them and submit corrections prior to the data becoming available to the public, and (2) an opportunity to dispute the accuracy of such information. Applicable manufacturers and GPOs will receive a notification that the information is disputed. If a dispute is resolved or if errors or omissions are discovered, the applicable manufacturer or applicable GPO is required to submit corrected data to CMS. Upon receipt, CMS will notify the affected covered physician recipient or the physician who is an owner or investor that the additional information has been submitted and is available for review. CMS will update the website at least once annually with corrected information.


The SOR will contain information about the following individuals: (1) physicians and authorized representatives of physicians and teaching hospitals and, (2) any applicable manufacturers and applicable GPO system users. The categories of records in the SOR will be as follows:

  • Applicable manufacturers or GPOs. Records may include profile information (first and last name, business contact information, and job title) for the company and users interacting with the Open Payments system on the applicable manufacturers or GPOs’ behalf.
  • Physicians. Records may include the physician’s name, specialty, business address, business phone number, National Provider Identifier (NPI) number, state license numbers, types and descriptions as to the nature and form of payments received from applicable manufacturers or GPOs, amounts of payments, natures and context of payments, and dates of payments.
  • Payments. With regard to payments made for a covered drug, device, biological, or medical supply, the records must include the name of that covered drug, device, biological, or medical supply.
  • Physicians who hold certain ownership/investment interests in applicable manufacturers and GPOs, or who have immediate family members who hold such interests. The records will include the dollar amount invested, the value and terms of such ownership or investment, and information pertaining to any payment or other transfer of value provided to a physician holding such an ownership interest.
  • Teaching hospitals. Records include profile information for users interfacing with the SOR on the hospitals behalf, including first and last name, business contact information, and job title.

Use of the Information

CMS may use information from this new SOR to: (1) support regulatory, reimbursement, and policy functions performed by CMS contractors, consultants, or grantees; (2) assist federal agencies and their fiscal agents in performing the statutory functions; (3) assist applicable manufacturers or GPOs with the statutory reporting requirements; (4) comply with the requirements of Soc. Sec. Act sec. 1128G, and publish the information submitted on a public website; (5) support research and program evaluation activities; (6) support litigation involving the agency; (7) assist with fraud, waste, and abuse detection and prevention activities; (8) assist agencies, entities, contractors, or persons tasked with the response and remedial efforts in the event of a breach of information, and (9) assist the Department of Homeland Security cyber security personnel.

Comments on the SOR may be submitted within 30 days of the June 5 publication date. CMS’ Center for Program Integrity (CPI) may publish an amended SOR Notice based on comments received.