Guides

A tough pill to swallow

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The furor over escautf8g prescription drug prices has inspired dozens of state investigations and civil lawsuits in recent years across the United States, most of them targeting manufacturers.
But another factor in the increases quietly surfaced Oct. 6 in a Boston federal courthouse. Two major Bay Area companies were accused in court documents of infutf8g the cost of prescription drugs to the tune of an estimated $7 billion between 2001 and 2005.
The Wall Street Journal first reported in early October that a drug data publishing company based in San Bruno called First DataBank had reached a settlement with a group of unions in Massachusetts and Pennsylvania over how the company gathered and presented prices in the pharmaceutical catalog that it’s maintained for years.
First DataBank is a subsidiary of the New York–based media empire Hearst Corp., owner of the San Francisco Chronicle, Esquire, and dozens of other publications across the country. Another company still being targeted by the plaintiffs is the San Francisco–based drug wholesaler McKesson Corp., which earned $88 billion in revenue last year and is ranked 16th among Fortune 500 companies.
First DataBank’s price listings play an enormous role in determining what Americans pay for medications. When you receive a bottle of antibiotics to treat an infection, for instance, your private health insurer or state Medicaid program (known as Medi-Cal here) will refer to First DataBank’s listed drug prices as a benchmark to determine what it’ll pay the pharmacy as a reimbursement. That means if the benchmark goes up, so too can your insurance premiums and the cost to state governments.
The settlement, according to federal records, forces First DataBank to adjust the formula it uses to determine those prices. An economist hired by the plaintiffs testified that the savings in 2007 alone for consumers could amount to a staggering $4 billion. First DataBank has also agreed to cease publishing the prices in their drug guides within two years.
Physicians, hospitals, pharmacists, and all manner of other health care professionals pay First DataBank a subscription rate for access to a digital clearinghouse of information on drug dosages and allergies, among other things.
More importantly, First DataBank publishes what’s known as an “average wholesale price” for more than 290,000 pharmaceuticals. There are three major drug wholesalers in the United States, including McKesson, that buy drugs directly from manufacturers and then mark up the price before selling the drugs to pharmacies. The average wholesale price — widely used around the country to determine what pharmacies will get as a reimbursement — is supposed to be a reasonable reflection of what the pharmacies pay the wholesalers for drugs.
First DataBank claimed to survey these wholesalers to come up with an average price that includes the markup, which it then lists in its drug-pricing database. But in recent years, the Journal reported, such surveys have been few and far between, and sometime around 2002, First DataBank inexplicably froze the markup at 25 percent, even though the prices pharmacies were actually paying fluctuated dramatically due to competition.
Citing testimony from one employee, the Journal notes that First DataBank began surveying only one company to come up with its average: McKesson. The cost to pharmacies still varied, but McKesson had reportedly standardized its markups on paper at 25 percent. That meant insurers and state health care administrators relying on First DataBank were making reimbursements that translated to higher profits for the pharmacies.
The employee’s testimony and documents in the case indicated that McKesson knew exactly what was happening. What remained unclear at press time was why First DataBank would choose to survey only McKesson or how it might have benefited from the decision.
The Journal notes the pharmacies were the only ones that stood to profit from the standardized markups, not McKesson directly. But internal McKesson e-mails show the company not only was aware of its impact on First DataBank’s published figures but hoped pharmacies would see McKesson working in their best interests — a marketing scheme, if you will.
An e-mail from one McKesson product manager gleefully exclaims that the profit for pharmacies dispensing a bottle of the cholesterol drug Lipitor leaped from $6.86 to $17.18.
First DataBank admitted no wrongdoing and is not paying money to the plaintiffs of the Boston settlement. The company was founded in 1977, and Hearst purchased it in 1980. Federal records show that in 1998, Hearst bought a $38 million company that owned one of First DataBank’s only real competitors, Medi-Span.
A later investigation by the Federal Trade Commission revealed that Hearst had failed to turn over key documents to the Justice Department’s antitrust division during the sale. As a result the feds slapped Hearst with a $4 million fine in 2001, at that time the largest premerger antitrust penalty in US history. The FTC also belatedly concluded that Hearst’s ownership of Medi-Span gave it a monopoly over the drug database market and not only required that Hearst give up Medi-Span but forced the company to disgorge $19 million in profits generated from the acquisition.
Hearst spokesperson Paul Luthringer directed us to a bare-bones statement when the Guardian called with questions about the Boston suit. “The allegations made in these actions have raised concerns with respect to the integrity of the pricing information that is provided to First DataBank for purposes of publishing [the average wholesale price],” the release states. “In light of these concerns, First DataBank has determined to make certain changes in its drug pricing reporting practices.”
Climbing drug costs can’t be attributed mainly to First DataBank or McKesson, of course. In fact, recent investigations and civil suits spearheaded to find out why prices have skyrocketed have focused on the manufacturers. During those inquiries First DataBank has been hit with dozens of subpoenas nationwide requesting company records and testimony, according to San Mateo Superior Court records. Many of those cases are still ongoing.
Attorneys for the plaintiffs in Boston who made McKesson and First DataBank defendants in the summer of 2005 declined to comment. McKesson also has remained tight-lipped since the Journal story was published. Spokesperson James Larkin said the company would not answer questions beyond a prepared statement.
“If First DataBank decided to survey McKesson only, it did so without telling McKesson,” the statement reads. “In fact, First DataBank has affirmed in an earlier lawsuit involving other parties that it never told McKesson that at times McKesson was the only wholesaler being surveyed.” SFBG
Here are links to key documents, including federal court records of the Oct. 6 Boston settlement with the Hearst-owned First DataBank (www.hagens-berman.com/first_data_bank_settlement.htm), the Justice Department’s antitrust fine of Hearst in 200l (www.usdoj.gov/atr/cases/indx330.htm), and the Federal Trade Commission decision requiring Hearst to give up its monopolistic subsidiary, Medi-Span (www.ftc.gov/bc/healthcare/antitrust/commissionactions.htm).

Past ain’t past

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› cheryl@sfbg.com
“What is the international camp language? It’s beating.” In an instant, a guide at the former concentration camp just outside of Mauthausen, Austria, transforms a group of high schoolers from giggly to terrified. From the looks of the parking lot, Mauthausen is like any other historical attraction. Sightseers roll up in enormous motor coaches, clutching digital cameras loaded only with fun-time Euro-vacation shots — until now.
There’s no narration in KZ, Rex Bloomfield’s layered doc about the Mauthausen camp’s post–World War II transformation into an exceedingly unsettling tourist destination. (KZ is short for the German word Konzentrationslager, or concentration camp.) The film is largely composed of interviews with visitors, guides (“I’ve been taking antidepressants for years,” one remarks woefully), and Mauthausen residents — many too young to remember the camp’s horrors and some too old to realize that Hitler Youth nostalgia isn’t something most folks would want caught on tape. The disconnect between town and camp, past and present, can be breathtaking. “McDonald’s” and “Mauthausen” are painted on the same billboard; a young couple shrug off the fact that their comfy home once belonged to an SS officer; and the local tavern features lederhosen, suds, and a folkie strummer whose sunny lyrics praise “the cider tavern up by the KZ.”
Though Bloomfield doesn’t shape his film with archival footage, talking-head academics, or voice-overs, the way KZ is edited makes it pretty clear he’s just as stunned as we are by the juxtapositions his film uncovers. An elderly Mauthausener remarks that during the war she wasn’t sure what was going on in the camp, just that it was “nothing good”; moments later the camera cuts to a group nervously shuffling into the KZ’s gas chamber, where they hear incredibly graphic descriptions of deaths that happened where they now stand.
For its San Francisco Jewish Film Festival engagement, KZ screens with the short The Holocaust Tourist: Whatever Happened to Never Again?, which examines the off-kilter rebirth of Jewish culture (think faux-Hebrew signage and “Jewish-style” restaurants that serve pork) in Krakow, Poland, owing to the popularity of Schindler’s List. What visitors to Mauthausen or Krakow (the closest big city to Auschwitz) actually get out of their experiences is unclear; some seem deeply moved, while others are simply checking off another stop on, say, their “Highlights of Poland” itinerary. As both films point out, being a tourist is perhaps all most people can — or should — be in places where such evil still lingers.
Meanwhile, in Tel Aviv, Israel, folks with zero interest in confronting horror head-on can’t avoid it when a suicide bomber targets their hangout, a laid-back watering hole called Mike’s Place. Amazingly, filming for the documentary Blues by the Beach — intended as a feel-good look at “real life in Israel” beyond headline-grabbing violence — had begun before the April 2003 attack. After the project’s primary catalyst, American producer Jack Baxter, was seriously injured in the blast, Joshua Faudem (an Israeli American with a filmmaking background who happened to be a Mike’s Place bartender) carried on with help from his then-girlfriend, Pavla Fleischer, also a filmmaker.
Despite this stunning chain of coincidences, Blues by the Beach unfortunately suffers from lack of focus, shifting from Baxter’s search for a doc subject to Mike’s Place to Faudem’s failing relationship with Fleischer. Though the filmmakers’ post-traumatic stress is well earned, it can get tedious. Far more inspiring is the resilience of Mike’s Place itself. Visit the bar’s Web site (www. mikesplacebars.com) for a striking illustration of how recent tragedy offers just as much opportunity for off-the-wall juxtaposition as anything left over from World War II: a page memorializing the victims of the bombing and another page proudly displaying pics from the bar’s annual “Pimp-n-Ho” costume bash. SFBG
SAN FRANCISCO
JEWISH FILM FESTIVAL
July 20–Aug. 7
See Film listings for showtimes
and venues
(925) 275-9490
www.sfjff.org

Business ethics 101

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› gwschulz@sfbg.com

Marcoa Publishing seems to be at the top of its game. The San Diegobased company bills itself as the "nation’s largest publisher of advertising-supported, local business publications."

It rarely misses an opportunity to remind prospective advertising clients and employees alike about its exclusive contract to print industry-specific guides and an annual membership directory for the San Francisco Chamber of Commerce, of which it is also a member and business partner.

In fact, Marcoa’s San Francisco offices are located just four floors below the Chamber in the heart of the Financial District, at 235 Montgomery St. But what the oldest Chamber of Commerce in the western United States may not have known is that its "exclusive publisher" is being investigated by the California Department of Industrial Relations (DIR) for possible violations of the state’s labor code.

And now the question is: Does the business community’s biggest booster have a blind spot for dubious ethics?

Paula Ceder went to work as an ad sales specialist for Marcoa’s SF office from her home in November 2004. But despite the fact that she quickly became the San Francisco office’s top seller, she realized that Marcoa had no interest in reimbursing her for business expenses. High-end salespeople regularly spend thousands of dollars a year making personal contact with their clients money that employers generally reimburse.

It’s perfectly common, and in fact legally required, for employers to reimburse workers for such expenses. And Marcoa has even promoted the claim that it offers expense reimbursements in its job postings on Monster.com.

But by the time Ceder left Marcoa, in August 2005 having worked much longer than many former Marcoa employees she told the Guardian she had accrued $2,500 in reimbursable business expenses. Over that nine-month period, she didn’t meet another employee who’d received reimbursed expenses, meaning former Marcoa employees could still be awaiting thousands of dollars in compensation. Marcoa did, however, claim to offer a taxable $10 "parking bonus" for each ad contract that the sales specialists managed to sell. But even then it took her four months to get the "bonus," Ceder said. Some ad buyers can commit as much as $12,000 to a two-page spread.

"As soon as I went to work for Marcoa, it became clear that there was no program for expense reimbursement, and I was aware that that was against the law," Ceder said recently. "That was entirely different than any experience I had ever had. Had I known I was going to have that experience, I would have never gone to work for them."

Section 2802 of the state’s labor code reads: "An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer."

Believing she’d never see the money, she approached the California Labor Commission, which ruled in her favor and granted her $1,693 of the expenses in January. At the hearing, Marcoa CEO Stewart Robertson told the administrative judge he would produce the company’s policy regarding expenses. He never did.

During her tenure, Ceder had managed to squeeze a substantial raise out of Marcoa, due mostly, she said, to her top performance. But she said others weren’t so lucky.

Ceder said she concluded that the company not only failed to maintain any sort of policy regarding expenses but also seemed to systematically shortchange workers, from declining to pay simple business expenses to withholding commission payments for months on end or never making the payments at all. Salespeople often earn a percentage of each ad contract in the form of commission as an incentive to sell, which Marcoa portrayed as a significant part of its compensation package.

"My entire point for pursuing a claim for myself was not to receive my expense reimbursement back, although it’s always nice to get the money you put out," Ceder said. "My aim was twofold: One, to have the state investigate and prosecute Marcoa, so that the result of that investigation and prosecution would be an across-the-board change in Marcoa’s current noncompetitive business practices. And second, to get the Marcoa story out into the public."

Former Marcoa workers we interviewed appeared to corroborate Ceder’s claims.

Mario Sarafraz worked as a salesman at Marcoa for 13 months, but he’s worked elsewhere in sales for 17 years. He said he only "tolerated" Marcoa for so long because he liked working closely with the hotel and restaurant industries for the company’s semiannual Business Meetings and More publication.

"Everything else was a nightmare from the beginning," he said. Sarafraz claimed he never received a single commission check, and added that even in a profession where workers move on quickly, Marcoa "had an extremely high turnover rate."

Virtually everyone we talked to said the sales staff had to share two old computers and the company didn’t allow them access to the database of businesses that had purchased ads. Repeated phone calls to businesses that had already grown disenchanted with Marcoa were common, they complained.

A former office manager who asked not to be identified said she believed the Chamber was largely kept in the dark about annoyed advertisers waiting for sometimes long-delayed publication dates and embittered former Marcoa employees.

Carol Piasente, the Chamber’s vice president of communications, said the group had no comment and that the issue was a "personnel matter between Marcoa and their employees." Steve Falk, the Chamber’s CEO and a former publisher of the San Francisco Chronicle, wrote in an e-mail that he "had not heard any complaints about Marcoa" but failed to respond to follow-up questions. No one at the Chamber would confirm whether the group received annual fees from Marcoa for revenue generated from ads placed in Chamber publications.

"It was by far the most shady company I’ve ever worked for," one saleswoman, who also requested anonymity, said. "They turn and burn employees like you would not believe."

Although she too became a top seller for the company, she said she never received commission and never saw her last paycheck.

Dean Fryer, a spokesperson for the DIR’s Division of Labor Standards Enforcement, told us that agency officials pursue an investigation based on the case’s merit.

"On all cases that involve wages due employees, we’ll move forward to collect those wages," he said. "Our primary goal is to collect money due employees."

In Marcoa’s San Francisco office of 10 or so employees, sales can reach anywhere between $1 million and $3 million annually. The company also publishes industry, relocation, and real estate guides in at least four other major cities, including San Jose, Dallas, Austin, and Houston. Elsewhere, Marcoa publishes local resource guides for new trainees at 80 of the nation’s military installations, according to the company’s Web site.

Marcoa’s San Francisco publisher Bart Lally and CEO Robertson declined to respond to a series of detailed e-mail questions.

"Marcoa absolutely believes that it is in compliance with all relevant labor laws," Robertson wrote in an e-mail. "However, we are not going to provide specific responses to any of your questions."

Sarafraz insisted it’s not his nature to complain.

"As far as training and having a working system, I’ve never heard of an organization so out of place," he said. "Every organization has shortcomings. But these people just didn’t care." SFBG