Company Uncovers Reports Of Unethical Marketing Practices Similar To Those Now Classified As Illegal In The Pharmaceutical Industry
New York – October 7, 2013 – When the U.S. Department of Justice announced in April that it was filing a civil false claims lawsuit against Novartis Pharmaceuticals Corp. for alleged kickbacks paid by the company to health care providers; Americord’s management exchanged knowing looks with one another. They are all too familiar with the practice of inappropriate compensation influencing doctors within their own industry. Over the past few years, as Americord’s staff has reached out to doctors and hospital staff from New York to California to provide information about the company’s cord blood banking products and services, they have been told time and again, in one way or another, that Americord doesn’t quite offer what othercord blood banks offer.
For Americord’s staff and management, this pushback raised suspicions. Americord not only delivers the same or better quality of services and products by objective industry standards, Americord does it at substantially lower cost to clients. What Americord discovered through interviews with obstetricians and former sales representatives from the other leading cord blood banks is allegedly a well-organized and highly unethical program of paying doctors for cord blood banking referrals to their clients.
Payments such as these in the cord blood banking industry appear to mimic the widespread, and illegal, use of kickbacks in the pharmaceutical industry. In the past year alone, the pharmaceutical industry has paid dearly for the practice. In July of 2012, GlaxoSmithKline pleaded guilty to a variety of criminal charges, including bribing doctors, under the U.S. government’s False Claims Act, and agreed to a record-breaking $3 billion settlement while Pfizer and Eli Lilly & Co. each paid tens of millions of dollars to the United States to settle allegations of illegal behavior in multiple countries around the world, including bribing regulators and medical personnel to approve and prescribe their drugs.
Due to a loophole in the law, however, cord blood banks are not subject to the same federal bans, including the recently enacted Sunshine Act, on providing kickbacks to doctors.
Beyond the ethical issues that these payments present in the cord blood banking industry, they may also be driving costs higher. If kickbacks are part of a company’s sales and marketing efforts, the cost is likely passed through to clients. Americord estimates that many of its competitors spend approximately 50% of their revenue on marketing and sales expenses. In contrast, Americord spends closer to 5% of its revenue on sales and marketing, which is a significant factor in the company’s ability to offer cord blood banking at about half the cost of its competitors. According to Dr. Robert Dracker, Americord’s Medical Director, “It is Americord’s mission to provide the highest quality services, at the lowest possible cost, while supporting unique and innovative ways to improve the therapeutic utility of cord blood stem cells to improve patients’ lives.”
Martin Smithmyer, CEO of Americord stated, “We promote transparency and ethical behavior in all dealings with our clients as well as doctors. We do not, and never will, pay kickbacks.” Between 2011 and 2012, Americord’s client base grew by over 1200% almost entirely from word-of-mouth referrals and direct marketing to consumers at trade shows and online, making the company the fastest growing company in the industry.