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    Legal Issues with Compounding Pharmacies

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    You are a new associate at the law firm of Dewey, Chetum, and Howe. John, a former researcher at PharmaCARE, comes to your office. He has concerns about PharmaCARE's use of AD23, one of the company's top-selling diabetes drugs. Two years ago, after PharmaCARE's research indicated that AD23 might also slow the progression of Alzheimer's disease, John and his team of pharmacists began reformulating the drug to maximize that effect. In order to avoid the Food and Drug Administration's (FDA) scrutiny, PharmaCARE established a wholly-owned subsidiary, CompCARE, to operate as a compounding pharmacy to sell the new formulation to individuals on a prescription basis. CompCARE established itself in a suburban office park near its parent's headquarters. To conserve money and time, CompCARE did a quick, low-cost renovation.

    CompCARE benefited from PharmaCARE's reputation, databases, networks, and sales and marketing expertise, and within six (6) months had the medical community buzzing about AD23. Demand soared, particularly among Medicare, Medicaid, and Veterans Affairs patients. Seeing the opportunity to realize even more profit, CompCARE began advertising AD23 directly to consumers and marketing the drug directly to hospitals, clinics, and physician offices, even though compounding pharmacies are not permitted to sell drugs in bulk for general use. To circumvent this technicality, CompCARE encouraged doctors to fax lists of fictitious patient names to CompCARE. PharmaCARE sold CompCARE to WellCo, a large drugstore chain, just weeks before AD23 was publicly linked to over 200 cardiac deaths.

    As CompCARE and its new parent company enjoyed record profits and PharmaCARE's stock price approached $300 per share, reports started surfacing that people who received AD23 seemed to be suffering heart attacks at an alarming rate. The company ignored this data and continued filling large orders and paying huge bonuses to all the executives and managers, including John, whose wife recently died from a heart attack after using AD23. John has come to you with an internal company memo describing the potential problems with AD23, and information describing the company's willingness "roll the dice" and continue to market the drug. Your senior partner has asked you to write a memo outlining the following issues for review by the senior partners.

    Write an eight to ten page paper in which you:
    1. Research three to five ethical issues relating to marketing and advertising, intellectual property, and regulation of product safety and examine whether PharmaCARE violated any of the issues in question.
    2. Argue for or against Direct-to-Consumer (DTC) marketing by drug companies. Provide support for your response.
    3. Determine the parties responsible for regulating compounding pharmacies under the current regulatory scheme, the actions that either these parties or the FDA could / should have taken in this scenario, and whether PharmaCARE could face legal exposure surrounding its practices. Support your response.
    4. Analyze the manner in which PharmaCARE used U.S. law to protect its own intellectual property and if John has any claim to being the true "inventor" of AD23. Suggest at least three ways the company could compensate John for the use of his intellectual property.
    5. Summarize at least one current example (within the past two years) of intellectual property theft, and examine the effect on that company's brand.
    6. Analyze the potential issue surrounding the death of John's wife and other potential litigants against PharmaCARE as a result of AD23.
    7. Specify both the major arguments that John can make to claim that he is a whistleblower and the type of protections that he should be afforded. Justify your response.
    8. Use at least three quality resources in this assignment.

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    Solution Preview

    This is not intended as an assignment completion.

    Ethical Issues in Marketing, Property Rights, and Product Safety

    Product safety and pharmaceutical product promotion.
    Pharmaceutical companies, like other companies involved in development of new products and services, must balance stakeholder interests. Often, the interests of one stakeholder group will conflict with the interests of another stakeholder group. For instance, profitability and sales may benefit shareholders and employees, but may not benefit consumers, if a product is unsafe. The safety of the new AD23 drug for Alzheimer's comes under additional scrutiny, as it did not receive FDA approval before being offered to patients. Pharma Care bypassed FDA approval by developing a subsidiary, Comp Care, to serve as a compounding pharmacy filling prescriptions for the drug ordered by physicians. The ethical concern is based on promoting a product without knowing all the potential side effects or harm caused to patients, without the advantage of conducting clinical trials and seeking FDA approval. Off label use of prescription drugs is often promoted with little hard data to help consumers and their physicians make sound, safe choices for treatment (Greene & Noah, 2014).

    Promoting products to uninformed consumers.
    Whether a company offers pharmaceuticals, home goods, automobiles, or another type of product, the public has a right to know if the products pose a safety risk. The Comp Care promotion of AD23 to physicians and patients is unethical, because it fails to warn the physicians and patients (consumers) of the dangers of using the product. Companies that produce defective products, particularly when those products cause injury or death, are typically required to provide compensation to victims in civil litigation.
    Auto maker General Motors has been in the spotlight in the past decade, due to its failure to recall cars with faulty ignition switches, which led to the deaths of 13 people. GM was more concerned about the costs to fix the defect in other vehicles, than with the pain and suffering of the families and the 13 people who died. The 2009 bail out of the auto makers eliminated the legal requirement to financially compensate families, though the auto maker has been investigated.(Hirsch & Puzzaghera, 2014). The negative publicity alone had caused some damage to the auto makers reputation and before 2009, General Motors had experienced a severe slump in sales. New leadership at GM have hired a compensation expert and are currently considering compensation for the victims and their families, as they are concerned with ethical and legal guidelines for corporate behavior, rather than with legal loopholes to avoid taking responsibility. Pharma Care should be concerned with the deaths linked to the drug and with the company's civic responsibility to acknowledge the losses and prevent further harm. Like General Motors consumers, Pharma Care consumers should be informed of the potential for harm, so they can make the decision about whether to use the product or an alternative. Failing to provide all the information severely limits the decision making ability of consumers.

    Potential physician liability.
    Comp Care products were sold in bulk to physicians, by encouraging them to make up fictitious patient lists, so they could acquire the drugs in bulk. While physicians play a role in unethical behavior, those that did not order or receive bulk supplies may have still prescribed the AD28 to patients. Physicians' reputations are at stake, when patients suffer from cardiac death after taking the drug. They are also more likely to face legal issues when patients' families initiate litigation for malpractice. Liability for pharmaceutical drug damage falls under three categories: manufacturing defect; design defect; and failure to warn (HG Legal Resources, 2014). Pharmaceutical companies work with many other health care professionals, including pharmacists and physicians, they have a legal obligation to maintain uphold ethical and legal standards within the health care relationships designed to improve patient outcomes.

    Direct to Consumer Drug Marketing
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    Solution Summary

    The discussions focus on a case involving a parent company and its use of a subsidiary to operate a compounding pharmacy. Issues such as liability, compensation, litigation, and whistleblowing are covered.