Merchants that sell prescription drugs or wholesale pharmaceuticals are considered high-risk because of the stringent regulation of the products they sell. Payment providers need to be aware of the risks associated with facilitating transactions for these merchants and comply with applicable laws, including pharmacy regulations, controlled substances regulations, and data protection requirements.
Why are prescription drugs so heavily regulated?
Consumers rely heavily on prescription drugs to treat medical conditions, to ease pain and other symptoms, or to prevent disease. These drugs typically require a prescription from a doctor or other health professional because they have a higher potential for risks and side effects than over-the-counter drugs. Additionally, many prescription drugs are at high risk for abuse by consumers.
Illicit actors take advantage of consumers’ desire or desperation to get their hands on these drugs using two main methods. First, they will illegally sell these drugs without requiring proof of prescription. Second, they will sell counterfeit versions of the drugs which may or may not contain similar ingredients as their prescription counterparts. Regardless of the methods they use, these criminals pose enormous public safety risks.
These substances must be handled in compliance with local, state, and federal laws regarding the sale and distribution of prescription medications.
- Typical requirements for merchants to sell prescription drugs include:
- Merchants must have the necessary licenses and accreditations to sell prescription drugs legally.
- Merchants must implement robust measures for prescription verification and data security to protect patient confidentiality and prevent fraudulent transactions.
- Prescriptions can only be obtained legally with a written or electronic prescription from a licensed healthcare professional such as a physician, nurse practitioner, or dentist.
A more detailed description of pharmaceutical distribution accredications and requirements can be found on the National Association of Boards of Pharmacy (NABP) website. We support the mission and work being done by the NABP.
What are wholesale pharmaceuticals?
Wholesale pharmaceuticals include businesses that sell medical products to doctors, medical offices, or business-to-business (B2B) services. They serve as intermediaries between the medical professionals and the manufacturers that make the products. Some of these businesses are entirely virtual, as defined by the NABP, “wholesale distributors...sell a prescription drug or device but never physically possess the product.”
In addition to drugs that will eventually be sold by prescription or over the counter, wholesale pharmaceuticals also include medical devices, cosmetics, perfumes, medicinals, and other medical products sold in a wholesale or B2B capacity.
What are the risks associated with merchants that sell prescription drugs and wholesale pharmaceuticals?
Here are five types of risks that payment providers need to consider when working with merchants that offer prescription drugs and wholesale pharmaceuticals:
- Regulatory risk: Payment processors for merchants selling prescription drugs may face fines and penalties if they don’t comply with strict federal and international regulations. In the U.S., these regulations fall under legislation such as the U.S. Food, Drug, and Cosmetic Act (FDCA) and the Controlled Substances Act (CSA).
- Legal risk: Websites selling prescription drugs must have the proper licenses and accreditations required by authorities in their buyer and seller jurisdictions. If not, they may be facilitating illegal transactions, which can lead to possible civil or criminal charges.
- Reputation and brand risk: Being associated with illegal or unethical prescription drug sales can adversely impact the reputation and brand image of payment processors, resulting in loss of business or damage to a company's public image.
- Payment disputes and chargebacks: Customers who do not receive their prescriptions or are unhappy with the products provided will likely file disputes or chargeback requests, which can be time-consuming and expensive.
- Fraud and scams: Websites operating as online pharmacies may gain access to customers’ sensitive personal and financial information, which could be used for fraudulent purposes. Payment providers may face negative consequences if they enable transactions for such sites, including reputational damage or legal action.
How are pharmaceuticals regulated?
Each country has its own rules designed to protect consumers from the effects of harmful drugs. In the U.S., the Food and Drug Administration (FDA) regulates both prescription and over-the-counter (OTC) medications, and it also oversees advertising for prescription drugs. The Federal Trade Commission (FTC) regulates advertising for OTC medications.
Besides prescription and OTC drugs, the FDA also oversees vaccines, biopharmaceuticals, medical devices, blood transfusions, cosmetics, electromagnetic radiation-emitting devices, food, tobacco products, and animal food and veterinary products.
Both the FDA and FTC have the authority to issue large civil penalties for violations. In February 2024, for example, an Arizona company called Centera Bioscience and its CEO were sentenced in federal court and ordered to pay $2.4 million for distributing tianeptine and other drugs into interstate commerce without FDA approval. An FDA press release said the defendants “maintained an active online presence to advertise tianeptine” and two other drugs, including a sub-forum on Reddit where the company’s CEO posted regularly.
Counterfeit pharmaceuticals and public safety
In October 2023, INTERPOL Secretary General Jürgen Stock said, “Counterfeit medicines and the misuse of regulated medication is a significant threat to public safety around the world.” INTERPOL had just announced a major crackdown on illicit drugs across 89 countries called “Operation Pangea XVI, which resulted in 72 arrests worldwide, the seizure of $7 million of potentially dangerous pharmaceuticals, 325 new investigations, and the closure of 1,300 criminal websites.
At EverC, we are committed to educating those in the payments industry and beyond about the potential risks of selling counterfeit pharmaceuticals. We invited experts to speak on this topic at our annual Safer Ecommerce Day. One of these experts was Layla Hashemi, Ph.D., Program Director of Organized Crime and Corruption at C4ADS, a nonprofit aiming to defeat the illicit networks that threaten global peace and security
Referring to the significance of the counterfeit drug trade, Hashemi said, “The World Health Organization estimates that between one and 10% of drugs sold around the world are counterfeits. That's just a blanket statement, but that can be as high as 50% in some countries.” Ten percent may not initially sound like a lot, but it becomes an enormous amount when you consider that pharmaceutical revenues around the world totalled $1.48 trillion in 2022 alone.
Watch the full video here:
Fighting prescription drug fraud and counterfeiting
Drug counterfeiting is often linked to large criminal networks that perpetrate sinister crimes like human trafficking or terrorism. Staying ahead of these savvy criminals requires sophisticated intelligence and technology. For example, last spring EverC used artificial intelligence (AI) to expose an international network selling fake Viagra, ADHD medication, and ecstasy. Using AI, EverC was able to trace more than 1,000 websites selling machines for stamping dosage information onto counterfeit pills being sold on the black market in China.
At the time of the discovery, our CEO Ariel Tiger noted: “Bad actors use sophisticated methods to disguise themselves as they conduct illicit activity online, and it is our job to expose them and allow law enforcement to deal with them.” EverC alerted the FBI of its findings so that further investigation and action could take place.
Mitigating risks associated with prescription drugs and wholesale pharmaceuticals
Prescription and wholesale drugs are prone to counterfeiting, fraud, and scams. This poses multiple risks for payment providers enabling transactions for merchants who sell these substances. In addition, counterfeit drugs have a human cost, as they can negatively impact health and even endanger the public.
Payment providers seeking to manage their risk when working with merchants who sell prescription and wholesale pharmaceuticals need intelligent, automated tools to quickly detect and assess these merchants as well as monitor them on an ongoing basis.
EverC can help to identify merchants that are potentially involved in suspicious or criminal activity, even when their activity is purposely hidden. Our technology leverages AI for increased speed and precision in detection rates, enhancements to features and tools, and unmatched customization capability, for solutions that allow you to meet your business goals while aligning with your RBA and industry priorities.
