“It’s tremendously concerning that at the same time policymakers and law enforcement professionals are waging a war on the growing prescription drug crisis, new super-drugs could well be on their way, flooding the market,” said Sen. Charles Schumer, D-N.Y. “The FDA needs to grab the reins and slow down the stampede to introduce these powerful narcotics.”

A message seeking comment from the Food and Drug Administration was not immediately returned Friday.

The Associated Press reported last month about addiction experts’ fears over four drugs being tested that contain a more powerful version of one of the nation’s most abused painkillers — hydrocodone.

Schumer is particularly concerned about legalizing the drugs for prescriptions because they would be prized commodities in the black market.

Experts say painkiller addiction has been driven partly by a loophole in the 1970 Controlled Substances Act that classified pure hydrocodone — a super painkiller — as a strictly controlled Schedule II drug. But the law put combination products, such as pills containing hydrocodone and acetaminophen, into the less strict Schedule III.

Because of the loophole, patients can refill a prescription for a hydrocodone-acetaminophen drug like Vicodin up to five times. A prescription for a similar oxycodone product, such as Percocet, can be filled only once. Critics say the loophole has flooded American medicine cabinets with hydrocodone.

In 1999, the Drug Enforcement Administration and FDA began reviewing whether they should reschedule hydrocodone combination products. But an AP review of regulatory documents and court filings shows the agencies have repeatedly passed the rescheduling study back and forth, with no final decision made.

A New Year’s Eve robbery at a Long Island pharmacy netted prescription painkillers and cash and left the robber and a federal agent dead. In June, four died in another Long Island pharmacy robbery in which 11,000 hydrocodone pills were stolen.

If the pure hydrocodone drugs are approved, Schumer wants a “robust post-market surveillance” of the drugs as they are marketed, advertised and sold.

 The Food and Drug Administration last year rejected the company’s drug to treat a subset of leukemia patients whose tumors had a particular genetic mutation. The main problem was not the drug itself, the agency said. Rather, ChemGenex had not specified a companion test that could reliably detect the mutation so that the drug could be given to the patients it is intended to help.

He said that when it became evident that the F.D.A. would make a decision on Xalkori earlier than expected, Abbott had to work nights and weekends to get the test ready. “Rule No. 1 is that the diagnostic can never slow down the development of the therapeutic,” he said.

Companion diagnostic developers have been pushing to share more in the bounty of a successful drug, perhaps via royalties on sales of the drug. But drug companies have resisted this.

“The value is in the combination, so why should one company get all the value?” said Mark R. Trusheim, an executive in residence at the Massachusetts Institute of Technology Sloan School of Management, who has studied the economics of companion diagnostics.

One reason the diagnostic companies do less well, Mr. Trusheim said, is that while drugs typically have market exclusivity because of patents and federal laws, tests often face instant competition.

Some laboratories at cancer hospitals, for instance, already have their own tests for the melanoma mutation that governs use of Zelboraf and are reluctant to switch to the approved test, which might be less convenient or more costly. Tests developed by a lab for its own use typically do not require F.D.A. approval.

To protect their investments, some developers of companion diagnostics want the name of the test to be specified in the label of the drug, arguing in part that unapproved tests might not be as accurate. Some pathologists oppose this.

The F.D.A. has so far taken a middle ground. The labels for Zelboraf and Xalkori state that an F.D.A.-approved test should be used. But they do not name the test, leaving open the possibility that additional tests can be approved.

Plexxikon, one of the developers of Zelboraf, said in comments submitted to the F.D.A. that linking a drug to a single approved test could allow a diagnostics company “to hold the entire drug development program hostage.”

Plexxikon, which is owned by Daiichi Sankyo, is developing a drug aimed at a type of leukemia with a particular mutation. K. Peter Hirth, Plexxikon’s chief executive, said that a company holding exclusive patent rights on the test for this mutation was “demanding incredibly high dollars in terms of upfront payments and support, which is prohibitive.”

Jeffrey E. Miller, chief executive of the company in question, Invivoscribe, said his company’s charges were reasonable considering the possible consequences of not having a validated companion test.

“The cost of developing the companion diagnostic,” he said, “is trivial compared to the cost of a failed drug.”

[FirstWord] Merck & Co. disclosed Monday in an SEC filing that it received a subpoena from the US Department of Justice as part of a “federal health care investigation under criminal statutes” into the company’s marketing of three drugs acquired in its merger with Schering-Plough. Merck spokesman Ron Rogers said the drugmaker is cooperating with the probe.

Specifically, the agency requested information from January 2004 to the present on the brain cancer drug Temodar (temozolomide), hepatitis C therapy PegIntron (pegylated interferon alfa-2b), and Intron A (interferon alfa-2b), which is approved for the treatment of certain cancers and other conditions. Sales of the drugs totalled $481 million, $319 million and $96 million, respectively, in the first six months of this year.

Separately, Merck revealed that the justice department and Environmental Protection Agency (EPA) are pursuing civil penalties of more than $2 million against the company for alleged violations of environmental regulations at two Pennsylvania facilities. The action results from the EPA’s inspection of the West Point and Riverside sites in 2006, and Merck’s submission of information to the agency. However, the drugmaker indicated that it believes it has meritorious defences against the allegations.

In addition, Merck said that it agreed to pay a $260 000 fine and sign a consent decree to resolve alleged environmental violations at its Las Piedras facility in Puerto Rico in connection with an EPA inspection in 2008.

[Bloomberg] Teva Pharmaceutical Industries Ltd. (TEVA), the world’s largest generic-drug maker, was sued by a joint venture of GlaxoSmithKline Plc (GSK) and Pfizer Inc. (PFE) for infringing a U.S. patent for the HIV drug Epzicom.

Teva has applied to the U.S. Food and Drug Administration for permission to sell generic Epzicom tablets in violation of a 2002 patent, lawyers for ViiV Healthcare said in an Aug. 5 complaint filed in federal court in Wilmington, Delaware.

Teva’s FDA submission “constitutes infringement” and “ViiV will be irreparably harmed” by the low-cost version of Epzicom if it’s sold before the patent expires in 2016, according to court papers.

GlaxoSmithKline, based in Brentford, England, and New York- based Pfizer announced the ViiV joint venture to combat HIV in 2009. The lawsuit seeks a permanent injunction to block Israel- based Teva’s U.S. sales of the drug and damages if the generic medicine is sold.

ViiV has facilities in Brentford and at Research Triangle Park in North Carolina, according to court papers.

Teva spokeswoman Denise Bradley declined to comment on the suit

The case is ViiV Healthcare UK Ltd. v. Teva Pharmaceuticals USA Inc., U.S. District Court for the District of Delaware (Wilmington).

The survey by audit and advisory consultants KPMG LLP found 83 percent of pharmaceutical executives believe their company likely will be a buyer or a seller in a deal in the next two years. Just over half think it will take longer than that before the economy fully recovers.

The survey, conducted in May and June and released Wednesday, found 41 percent of those surveyed said their biggest area of spending in the next year will be for acquisitions. Spending for new products or services, and on research and development, follow close behind.

“Mergers and acquisitions will be exceptional forces over the next two years, as industry executives look to gain access to new products and markets, and new revenue streams,’’ said Ed Giniat, KPMG’s U.S. head of pharmaceuticals.

“Industry leaders have their work cut out for them to offset the patent losses and regulatory and pricing pressures,’’ Giniat added.

The pharmaceutical industry has just entered an era with an unprecedented number of blockbuster drugs going off patent. New generic rivals to those pills are expected to slash tens of billions of dollars from the revenue of the brand-name drugmakers.

Meanwhile, government health programs, particularly in Europe, and private health insurers in the U.S. continue to squeeze pharmaceutical companies for lower prices for the drugs they cover. At the same time, regulators who approve sales of new prescription drugs have gotten tougher, refusing approval of or setting limits on the use of some drugs that have serious side effects.

So drugmakers have been cutting thousands of jobs, particularly in administration, sales and manufacturing, to reduce overhead, and putting new factories and sales forces in emerging markets, which are seen as their best hope for new sales.

“The good news is companies have cash to invest in or acquire new medicine breakthroughs, or markets and customers to drive some growth,’’ said David Blumberg, lead partner in KPMG’s national advisory pharmaceutical sector.

More than a third of the executives said they were already boosting capital spending and about the same percentage said they would do so before the end of 2012’s first quarter.

The drug executives said their management is putting the most energy into organic growth (23 percent), cost-reduction programs (16 percent) and improving operations and related technology (also 16 percent).

However, they don’t see a full economic recovery anytime soon. Of the 100 senior U.S. pharmaceutical executives surveyed, 31 percent see a full recovery by the end of next year, but 27 percent each don’t expect it until the end of 2013 or the end of 2014.

The survey found 41 percent plan to add staff next year, 15 percent by the end of 2013 and 23 percent by the end of 2014 or later. However, 23 percent never expect hiring to return to the level before the recession.

Just under half of executives expect revenue to be moderately higher a year from now, and only one in six expect it to be significantly higher then.

[WSJ]- The vast majority of U.S. hospitals have restricted the use of life-saving chemotherapy drugs and other critical-care medications in the past six months to cope with unprecedented shortages, according to a survey released Tuesday.

More than 80% of hospitals surveyed by the American Hospital Association reported they had to delay treatment, and nearly 70% said patients received less effective substitute drugs.

Three out of four hospitals reported rationing or restricting the use of drugs in short supply. For some drugs, such as a leukemia drug called cytarabine, there are no effective substitutes.

The survey of 820 hospitals was released by the AHA on Capitol Hill as part of push for legislative action. A separate survey commissioned by the American Society of Health-System Pharmacists estimated additional labor costs for hospitals to deal with the shortages at $216 million a year. Pharmacists and technicians spend about 17 hours a week managing drug shortages.
Most of the drugs in question are generic and not highly profitable, and are now made by only one or two companies. Teva Pharmaceutical Industries Ltd. and Hospira Inc. are two of the bigger producers of generic drugs.

The shortages are growing more severe, in part, because of industry consolidation and manufacturing problems in the past year. When one company runs into a manufacturing problem with a product or decides to quit making a drug, competing companies can’t quickly fill the void. In April, Teva reopened a California plant that it had shut down voluntarily for about a year, in part to retool to meet Food and Drug Administration manufacturing guidelines.

The FDA reported a record 178 drug shortages in 2010. Although the agency doesn’t have figures for 2011, it said the shortages “have continued at a rapid pace.”

Most of the shortages involve older, generic drugs administered by injection or intravenously. They include chemotherapy drugs to treat cancer, antibiotics to treat infections and nutritional drugs for patients who can’t eat. There are also continuing shortages of drugs used in emergency rooms and intensive-care units.

More than 90% of hospitals in the hospital-association survey reported shortages of surgery or anesthesia drugs and emergency-care drugs, and two-thirds reported shortages of chemotherapy drugs. Almost half of the hospitals reported coping with 21 or more shortages in the past six months.

The pharmacists’ survey showed the biggest shortage in 2010 involved the drug succinylcholine, used in procedures to insert a tube into patients’ airways to help them breathe.

The product is made by Hospira and Sandoz, a unit of Novartis AG. Production at Hospira was slowed last year when the company couldn’t get enough active pharmaceutical ingredients and Sandoz couldn’t immediately fill the gap. Hospira said full production has resumed. Sandoz didn’t immediately respond to a request for comment.

Bills introduced in the House and Senate would require companies to notify the FDA when they have a problem that could result in a shortage. Current law requires companies to report to the FDA in cases when they are the only supplier of a drug and they plan to quit making it.

The House bill, sponsored by Reps. Diana DeGette (D., Colo.) and Tom Rooney (R., Fla.) would subject companies to fines of up to $10,000 a day, with a cap of $1.8 million, for failure to comply with reporting requirements.

The measure would also allow the FDA to post letters online from companies informing the FDA of potential or actual shortages, to give hospital pharmacists a better gauge of how long a particular shortage might last. Hospira and the FDA support the bill.

Sen. Amy Klobuchar (D., Minn.), co-sponsor of a similar Senate bill, said the legislation is meant as an early warning system. While some companies do notify the FDA about potential problems like shortages of ingredients used to make drugs, Ms. Klobuchar described the current system as “haphazard.”

The FDA has said 38 shortages were prevented in 2010 when companies voluntarily gave the agency early notification of a problem with a drug. In some cases, the advanced warning gave the FDA time to work with competing manufacturers to ramp up production.

The goal of the new grant program is to build upon and enhance the developments from the Encyclopedia of DNA Elements (ENCODE) Project by stimulating development of novel technologies and to expand the available tool box of methods for identifying and testing these genomic elements.

These grants will fund development of efficient technologies, both experimental and computational, that have the promise to generate revolutionary tools in a number of areas, including, but not limited to high-throughput genome-wide experimental methods for finding functional elements that reduce the cost of genome-wide assays and lower the sample size needed in single cell assays; high-throughput methods for biological validation and characterization, such as functional assays for testing large numbers of sequence-encoded elements and assays to identify physiologically relevant targets; and computational methods for characterizing functional elements, such as ways of integrating functional genomics data to assign elements to biological functions.

Under one of the programs, NHGRI expects to commit up to $5 million in fiscal 2012 to fund between 10 and 14 R21 exploratory/developmental research grants with a total of $275,000 each for two years.

The institute also has committed $750,000 next year to fund up to three awards under its Small Business Innovation Research program for Phase I or Phase II grants.

Another NHGRI program will provide up to $5 million next year to fund 10 to 14 awards for research projects that will last up to three years.

The trend, which is slowly gaining momentum, is being driven by several factors, including the emergence of “personalized’’ medicines based on an individual’s genetic makeup, and the success of companies such as Genzyme Corp. that already specialize in making drugs to treat rare diseases.

Swiss pharmaceutical company Novartis AG is developing drugs for as many as 40 rare diseases from tuberous sclerosis to spinal muscular atrophy as well as medicines for diseases seen in the developing world, such as liver cancer and infectious illnesses.

Now it’s seeking to open a conversation — especially with academic researchers and smaller biotechs with whom it can collaborate — on how to broaden the drug discovery approach, through a two-day “health equity symposium’’ that concludes today.

The event is being held at the company’s global research and development headquarters in Cambridge and features keynote speaker Dr. Julio Frenk, dean of the Harvard School of Public Health and the former minister of health in Mexico.

“It’s a very important and neglected area, this discrepancy in health,’’ said Dr. Mark C. Fishman, president of the company’s research operation, called the Novartis Institute for BioMedical Research. “Drug companies historically focused on certain populations in certain countries and not on others.’’

As the field of personalized medicine evolves and individual genomes can be sequenced for close to $1,000, “we will have more information about your genetic profile,’’ Fishman said. “We will know what rare variance of genes you possess that will determine what diseases you have and what treatments are available.’’

Novartis isn’t the only company working to expand its disease targets as it becomes more financially attractive to target smaller patient populations.

French drug maker Sanofi Aventis AG, which has research and cancer operations in Cambridge and last month bought Genzyme, plans to use the newly acquired biotechnology company as a global platform for expanding its own research into rare diseases. Genzyme is known for its expensive drugs to treat enzyme deficiencies such as Gaucher and Fabry diseases.

“There are some learnings that we gain out of that business,’’ Sanofi chief executive Christopher A. Viehbacher told European investors in February, suggesting Genzyme’s expertise in producing treatments for rare genetic disorders could hasten Sanofi’s push into personalized medicine. “People might say if you follow personalized medicine to an extreme, every disease is a rare disease.’’

Even companies that concentrate on more common diseases are coming under pressure to test their drugs on different segments of the population.

At a public hearing of a Food and Drug Administration antiviral drugs advisory committee in Silver Spring, Md., last week, some committee members faulted Vertex Pharmaceuticals Inc. for not recruiting more African-American patients into clinical trials for telaprevir, the Cambridge company’s experimental drug to treat hepatitis C. The FDA is expected to decide later this month whether to approve the drug.

“I was disappointed your recruitment of blacks was so low given the significant portion of the disease in that population,’’ said Dr. Elizabeth Connick, a member of the advisory panel who is an associate professor of medicine at the University of Colorado Denver.

Vertex has said it plans to launch a post-approval trial on the effects of telaprevir — which it will market under the name Incivek — on black patients.

“One of our priorities following approval will be to conduct an additional study of Incivek in African-Americans,’’ said Vertex spokesman Zachry A. Barber.

Minority populations may be more susceptible to certain diseases, such as diabetes and hypertension, and may respond differently to medications, said Kenneth Getz, founder and chairman of the Center for Information and Study on Clinical Research Participation in Boston. As a result, the FDA has guidelines, but not requirements, that minorities be represented in clinical trials — though they often continue to be underrepresented.

“The onus is on the companies to be more inclusive,’’ Getz said. “When we think of the growth of the minority populations in our nation, this points to the need for us to be smarter and more targeted in the way we design our studies and the way we test in patient populations.’’

Getz cautioned that researchers don’t fully understand the biological basis for diseases that disproportionately affect certain populations, and diet and culture are factors that also come into play.

Above: Testing a G.M. vehicle. The Transportation Department says each life saved is worth $6 million.

[NYTimes] — As the players here remake the nation’s vast regulatory system, they have beengrappling with a subject that is more the province of poets and philosophers than bureaucrats: what is the value of a human life?

The answer determines how much spending the government should require to prevent a single death.

To protests from business and praise from unions, environmentalists and consumer groups, one agency after another has ratcheted up the price of life, justifying tougher — and more costly — standards.

The Environmental Protection Agency set the value of a life at $9.1 million last year in proposing tighter restrictions on air pollution. The agency used numbers as low as $6.8 million during the George W. Bush administration.

The Food and Drug Administration declared that life was worth $7.9 million last year, up from $5 million in 2008, in proposing warning labels on cigarette packages featuring images of cancer victims.

The Transportation Department has used values of around $6 million to justify recent decisions to impose regulations that the Bush administration had rejected as too expensive, like requiring stronger roofs on cars.

And the numbers may keep climbing. In December, the E.P.A. said it might set the value of preventing cancer deaths 50 percent higher than other deaths, because cancer kills slowly. A report last year financed by the Department of Homeland Security suggested that the value of preventing deaths from terrorism might be 100 percent higher than other deaths.

The trend is a sensitive subject for an administration that is trying to improve its relationship with the business community, much of which has bitterly opposed the expansion of regulation. The White House said the decisions on the value of life were made by the agencies. The agencies, for their part, referred any questions to the White House.

“This administration utilizes the best available science in assessing the benefits and costs of any potential regulation, drawing on widely accepted methodologies that have been in use for years,” Meg Reilly, a spokeswoman for the Office of Management and Budget, which oversees the rule-making process, said in an e-mail.

Several independent experts, however, said that the increases were long overdue, noting that some agencies had been using the same values for more than a decade without adjusting for inflation. One office at the E.P.A. cut the value of life in 2004.

“Agencies have been using numbers that I thought were just too low,” said W. Kip Viscusi, a professor of economics at Vanderbilt University whose research is cited by most of the federal agencies as the basis for their calculations.

Businesses would prefer to discuss the consequences of the increases — new regulations and higher costs, which they say are hampering economic growth — rather than suggest that the government has overstated the value of life.

But some industry representatives said assigning a value to life was inherently subjective, and that the recent changes were driven by the administration’s pursuit of its regulatory agenda rather than scientific considerations.

“It looks like they just cooked the books — they just doubled the numbers,” said Todd Spencer, executive vice president of the Owner-Operator Independent Drivers Association, a trade group for the trucking industry, which faces higher costs under some of the Transportation Department’s new rules. The Bush administration rejected a plan in 2005 to make car companies double the roof strength of new vehicles, which it estimated might prevent 135 deaths in rollover accidents each year.

At the time, Transportation officials figured that the cost of the roofs would exceed the value of lives saved by almost $800 million. So the agency proposed a smaller increase in roof strength that might save 44 lives a year.

Last year, the Obama administration imposed the stricter and more expensive roof-strength standard, and it published a new set of calculations showing that the benefits outstripped the costs.

Most of the difference came from the increased value of human life. By raising that number to $6.1 million from a figure of $3.5 million in the original study, the Obama administration rendered those 135 lives — and hundreds of averted injuries — more valuable than the roofs.

The pattern of increases is scrambling a long-standing political dynamic. The business community historically has pushed for regulators to put a dollar value on life, part of a broader campaign to make agencies prove that the benefits of proposed regulations exceed the costs.

But some business groups are reconsidering the effectiveness of cost-benefit analysis as a check on regulations. The United States Chamber of Commerce is now campaigning for Congress to assert greater control over the rule-making process, reflecting a judgment that formulas may offer less reliable protection than politicians.

Some consumer groups, meanwhile, find themselves cheering the government’s results but reluctant to embrace the method. Advocates for increased regulation have long argued that cost-benefit analysis understates both the value of life and the benefits of government oversight.

“If analysis is going to be imposed on the rule-making process, we want higher values for injury and for fatalities,” said Robert Weissman, president of Public Citizen, which pushed the Transportation Department to reconsider the roof-strength regulation.

But Mr. Weissman said he still believed that such analysis was an impediment to necessary regulation.

“The bigger picture is absent,” he said. “How do you do cost-benefit analysis on global warming? It constrains the imagination. It really is a constraint in terms of bounding what is given serious consideration.”

The current rise in the value of life is based on the work of Professor Viscusi, who wrote his first paper on cost-benefit analysis as a Harvard undergraduate in the early 1970s. He won a prize and found a career.

The idea he and others have since developed in a long string of studies is that differences in wages show the value that workers place on avoiding the risk of death. Say that companies must pay lumberjacks an additional $1,000 a year to perform work that generally kills one in 1,000 workers. It follows that most Americans would forgo $1,000 a year to avoid that risk — and that 1,000 Americans will collectively forgo $1 million to avoid the same risk entirely. That number is said to be the “statistical value of life.”

Professor Viscusi’s work pegs it at around $8.7 million in current dollars.

Before the current administration, only the E.P.A. had fully embraced this methodology. Other agencies relied instead on the results of surveys asking Americans how much they would spend to avoid a given risk. This technique tends to produce significantly lower results. An even older technique, which yields even lower numbers, is to sum the wages lost when a worker dies. In 2000 the E.P.A set a baseline of $7.8 million, updated to current dollars. But in 2004, the office that issues clean air regulations reduced that baseline by $500,000 in an analysis of proposed limits on emissions from industrial boilers.

Last year, the E.P.A. directed its various offices to return to the 2000 baseline, adjusting that figure for inflation and wage growth. In some recent studies, the E.P.A. has used a figure of $9.1 million after making those adjustments.

The agency said at the same time that it was working to set a new standard. In a white paper issued in December, it raised the possibility that people might place a higher value on avoiding a slow death from cancer than a quick death in a car accident. It also broached a concept it described as “altruism,” the idea that people may place a higher value on the common good than on their own survival.

John D. Graham, who oversaw the use of cost-benefit analysis during the George W. Bush administration, said that the scientific justification was “quite strong” for raising the values used by the Transportation Department, but he cautioned that the E.P.A. was going too far.

“Why should the same clinical condition be valued differently at different federal agencies?” Mr. Graham, now dean of the School of Environmental and Public Affairs at Indiana University, asked in an e-mailed response to questions.

Many experts similarly ask why life itself should be valued differently. Agencies are allowed to set their own numbers. The E.P.A. and the Transportation Department use numbers that are $3 million apart. The process generally involves experts, but the decisions ultimately are made by political appointees.

The Office of Management and Budget told agencies in 2004 that they should pick a number between $1 million and $10 million. That guidance remains in effect, although the office has more recently warned agencies that it would be difficult to justify the use of numbers under $5 million, two administration officials said.

Close observers of the process point to two reasons for the variation in numbers. First, they say that setting a single standard is not worth the high-stakes battle that would be required with advocates on both sides. The Obama administration, like its predecessors, has preferred to deal with the issue informally, on an agency-by-agency basis.

Second, they say the lack of a standard preserves flexibility.

The Food and Drug Administration issued a rule in 2009 requiring new warning labels on packages and bottles of acetaminophen and other drugs. Its justification valued life at $5 million. A few months later, the agency acknowledged that it had calculated the cost of adding one new label, while requiring two new labels. However, the agency continued, the benefits still exceeded the costs because the value of life was $7 million.

A few months later, in an unrelated rule regarding salmonella, the agency once again cited a value of $5 million, which it said best reflected the available research. And in its recent study on cigarette labels, the agency cited a value of $7.9 million.

“The reality is that politics frequently trumps economics,” said Robert Hahn, a leading scholar of the American regulatory process who is now a professor at the University of Manchester in England. But he said that putting a price tag on life still was worthwhile, to help politicians choose among priorities and to shape the details of their proposals.

“Even small changes,” he said, “can save billions of dollars.”

Half of the gains that wealthier children show on tests of mental ability between 10 months and 2 years of age can be attributed to their genes, the study finds. But children from poorer families, who already lag behind their peers by that age, show almost no improvements that are driven by their genetic makeup.

The study of 750 sets of twins by Assistant Professor Elliot Tucker-Drob does not suggest that children from wealthier families are genetically superior or smarter. They simply have more opportunities to reach their potential.

These findings go to the heart of the age-old debate about whether “nature” or “nurture” is more important to a child’s development. They suggest the two work together and that the right environment can help children begin to reach their genetic potentials at a much earlier age than previously thought.

“You can’t have environmental contributions to a child’s development without genetics. And you can’t have genetic contributions without environment,” says Tucker-Drob, who is also a research associate in the university’s Population Research Center. “Socioeconomic disadvantages suppress children’s genetic potentials.”

The study, published in the journal Psychological Science, was co-authored by K. Paige Harden of The University of Texas at Austin, Mijke Rhemtulla of the University of Texas at Austin and the University of British Columbia, and Eric Turkheimer and David Fask of the University of Virginia.

The researchers looked at test results from twins who had taken a version of the Bayley Scales of Infant Development at about 10 months and again at about 2 years of age. The test, which is widely used to measure early cognitive ability, asks children to perform such tasks as pulling a string to ring a bell, putting three cubes in a cup and matching pictures.

At 10 months, there was no difference in how the children from different socioeconomic backgrounds performed. By 2 years, children from high socioeconomic background scored significantly higher than those from low socioeconomic backgrounds.

In general, the 2-year-olds from poorer families performed very similarly to one another. That was true among both fraternal and identical twins, suggesting that genetic similarity was unrelated to similarities in cognitive ability. Instead, their environments determine their cognitive success.

Among 2-year-olds from wealthier families, identical twins (who share identical genetic makeups) performed very similarly to one another. But fraternal twins were not as similar— suggesting their different genetic makeups and potentials were already driving their cognitive abilities.

“Our findings suggest that socioeconomic disparities in cognitive development start early,” says Tucker-Drob. “For children from poorer homes, genetic influences on changes in cognitive ability were close to zero. For children from wealthier homes, genes accounted for about half of the variation in cognitive changes.”

The study notes that wealthier parents are often able to provide better educational resources and spend more time with their children but does not examine what factors, in particular, help their children reach their genetic potentials. Tucker-Drob is planning follow-up studies to examine that question.

The full study is available at http://pss.sagepub.com/content/early/2010/12/17/0956797610392926.full.pdf+html

He uses his upscale Miami Beach home as a production studio for Playboy photo spreads, and his MySpace page shows him posing with celebrities such as Paris Hilton and Aerosmith’s Steven Tyler.

Alexia Fodere There’s something else about Dr. Wayne that doesn’t resemble a normal family-practice doctor: his earnings from Medicare, the government insurance program for the elderly and disabled. Dr. Wayne took in more than $1.2 million from Medicare in 2008, according to a person familiar with the matter, a large portion of it from physical therapy. That’s more than 24 times the Medicare income of the average family doctor, according to a Wall Street Journal analysis of Medicare-claims data.

The regimen of physical therapy Dr. Wayne said he usually provided—30 minutes each of heat packs, massage, electrical stimulation and ultrasound—is also unusual.

Stephen Levine, a former board member of the American Physical Therapy Association, said those services are usually used in conjunction with more sophisticated forms of therapy, such as neuromuscular reeducation. Used on their own, with rare exceptions, “it’s a form of abuse,” said Mr. Levine. “Wouldn’t we all love to…have someone rub our backs and have the government pay for it—but it’s just not appropriate,” he added.

Dr. Wayne, a 50-year-old osteopath, denies abusing the system and hasn’t been accused of wrongdoing by authorities. He says his regimen “does wonders” if used correctly. He adds that he gave physical therapy to “patients who needed it, with appropriate diagnoses, and I should get paid for it.”

Medicare administrators apparently felt otherwise. In 2009 he says he was placed on heightened scrutiny and eventually sold his business. But not until he had received more than $2.6 million from Medicare between 2007 and 2009, according to the person familiar with the matter.

Physical therapy, which cost Medicare almost $3.5 billion in 2008, offers a case study in how Medicare polices its payments. Even when Medicare identified providers whose physical-therapy billing raised red flags, it kept paying thousands or even millions of dollars, sometimes for years, The Wall Street Journal found. Among the cases:

•A physical therapist in Brooklyn who billed for so much therapy—more than $2.5 million in 2008 alone—that it would have been virtually impossible for him to have performed it all within state and Medicare guidelines, fraud experts say. Medicare has continued to pay him, shelling out nearly a million dollars through July of this year.

•A second doctor in Florida who pocketed more than $1.8 million from Medicare in 2007, much of it from physical therapy on patients with an extremely rare condition. Even after a Medicare antifraud contractor flagged this doctor, the agency paid him at least $6.7 million over more than two years.

•A Houston doctor whose Medicare billing under her provider number spiked from zero to more than $11.6 million in less than a year. At the time, this doctor was being investigated for misconduct in a company owned by a Nigerian with an alleged history of fraud.

There are plenty of reasons why Medicare often fails to stop questionable payments up front. To protect law-abiding doctors and hospitals—the vast majority—Medicare is required to pay nearly everybody within 30 days. Medicare says it is reluctant to suspend payments to providers who may have made honest mistakes, out of concern that beneficiaries might go without needed treatment. Law-enforcement agencies and Medicare contractors, overwhelmed by the sheer volume of Medicare fraud cases, can’t investigate and prosecute them all. Sometimes, prosecutors and investigators ask Medicare to keep paying so as not to tip off targets of an investigation.

But a central problem is that Medicare hasn’t fully exploited its most valuable resource: its claims database, a computerized record of every claim submitted and every dollar paid out.

“That’s really the crux of the issue,” said Kimberly Brandt, who led Medicare’s antifraud efforts from 2004 through June of this year. She said the program is “definitely on the right path” to making better use of its database, “but it’s not going to be a flip of the switch or an easy transition.”

The Wall Street Journal originally identified Dr. Wayne and the other medical providers discussed in this article through a Medicare database that is much more limited than the one available to fraud investigators. The database, obtained in conjunction with the nonprofit Center for Public Integrity, contains records only through 2008, and includes the claims of just 5% of randomly selected Medicare beneficiaries.

Under a three-decade-old court decision protecting physician privacy, Medicare is prohibited from releasing to the public details of doctors’ billings. The Journal agreed not to publish individual physician billing information obtained solely through the database as part of its arrangement with the Centers for Medicare and Medicaid Services, or CMS. Billing figures for doctors named in this article were obtained from the providers themselves or from others familiar with their businesses.

Peter Budetti, the head of CMS’s new antifraud arm, says Medicare is moving away from its traditional “pay-and-chase” approach, in which it tries to recover improper payments already out the door. He says he’d like to emulate the credit-card industry, which has developed software to flag suspicious charges before paying them. “Fraud prevention is our new emphasis,” he said.

The main responsibility for flagging fraudsters lies with a network of private contractors that are tasked with mining the data.

There are occasional false alarms. About two years ago, a claim for a prostate exam performed on a woman raised suspicions, according to executives at one Medicare contractor. It turned out to be a legitimate case because the patient had undergone a sex-change operation.

The final line of defense is law enforcement. The Bush and Obama administrations have expanded multiagency strike forces—called HEAT, for Health Care Fraud Prevention and Enforcement Action Teams—into new cities beyond their original base in southern Florida. In contrast to most previous efforts, these teams mine claims data to decide which cities, types of fraud, and providers to target. Since March 2007, federal health-fraud prosecutors with these strike forces have charged more than 850 defendants for alleged frauds exceeding $2 billion in billings, according to the government.  

A Journal analysis of the 5% database focused on the physicians and physical therapists in private practice who performed the most physical-therapy treatments per patient. Only 3% of providers administered 90 or more treatments per patient; the national average was about 40. That top 3% accounted for more than 14% of all Medicare physical-therapy expenditures from 2003-2008, or an estimated total of nearly $1.3 billion. While some of that billing would be legitimate, said Mr. Levine, much of it would likely be abusive or fraudulent.

One Florida physician—not Dr. Wayne—made almost all his money from physical therapy, according to the Journal’s analysis of the 5% database. According to separate billing totals reviewed by The Wall Street Journal, this internal-medicine doctor took home more than $8.1 million from Medicare from 2007 through 2009.

The Journal cannot name this doctor because the paper was able to learn a crucial piece of information about his practice—the type of disorder he billed for—only from the database, not from any other source.

From 2006 through 2008, more than 40% of this doctor’s patients in the database were described as suffering from brachial neuritis. That’s a rare nerve-and-muscle condition estimated to occur in about three out of every 100,000 Americans. In 2008, the Florida doctor earned at least 25% more from brachial neuritis patients than any other provider, according to the Journal’s database analysis.

A contractor in charge of ferreting out fraud in Florida—SafeGuard Services LLC, owned by Hewlett-Packard Co.—flagged this doctor for heightened scrutiny at least as early as June 2007. But it wasn’t until September 2009 when Medicare stopped paying nearly all of his claims, according to a government official with knowledge of the matter. During that time, Medicare paid out more than $6.7 million to this doctor, according to the billing totals reviewed by the Journal.

Officials from SafeGuard and CMS declined to comment, citing the policy against discussing any particular provider.

In the 1990s, this doctor filed for bankruptcy. On a recent morning a Porsche and a late-model Mustang sat in the driveway of his spacious middle-class home. Asked about his medical practice, the doctor said, “I don’t have anything to say to you,” and shut his door.

The Journal’s analysis suggests one center of intensive physical-therapy billing is Houston. That’s where Dr. Theresa Rice works. Dr. Rice, who is in her late 70s and received her medical degree in the Philippines, has been licensed to practice medicine in Texas since 1981, public records show.

In 2004, she was convicted of shoplifting $748 in jewelry from a Foley’s department store. In an interview, Dr. Rice at first denied the conviction, saying there must have been a computer error. After being told that the Journal had her booking photo, she admitted that she had shoplifted. “I lied to you,” she said.

In 2007, the Texas Medical Board began probing Dr. Rice for her involvement in a business owned by a Nigerian businessman “who has a history of fraudulent activity, and is sought by authorities under several known aliases,” according to a Medical Board document. Dr. Rice approved home health services based on patient assessments made by an unqualified physician assistant, and she could provide no medical records for those patients, the Board found.

Dr. Rice said she was duped in that case, an explanation the Medical Board accepted. She was fined $1,500 and required to take a course in medical ethics, according to the Medical Board document.

Dr. Rice billed Medicare nothing in 2007 for services she performed or supervised, according to a person familiar with her business. But starting in October 2008, billing under her provider number skyrocketed. In less than a year, Medicare received claims totaling over $11.6 million and paid out more than $7.1 million.

Medicare stopped paying in mid-2009, when federal investigators shut down the clinic where she worked, City Nursing. That clinic was owned by a different Nigerian businessman, Umawa Imo. At least seven people have been indicted on health-fraud charges connected to the clinic, in what a senior law-enforcement official called the largest physical-therapy fraud in Houston history. The alleged scheme involved several people of Nigerian descent as well as at least two American doctors, according to the federal indictment and law-enforcement officials. Medicare paid out about $27 million over 28 months, according to the indictment.

Dr. Rice wasn’t indicted and maintains she was duped again. Mr. Imo has pleaded not guilty to health-care fraud and conspiracy charges. His lawyers said he is innocent and trusted the people running the clinic.

Short of an audit or investigation, there is often no way to tell who actually performs physical therapy. That’s because doctors who “directly” supervise physical therapists—meaning the doctor is in the same office suite at the same time the therapy is being performed—don’t need to state on the claim form who administered the therapy. It’s billed as if the doctor performed it.

In the case of City Nursing, the clinic where Dr. Rice worked, an affidavit for a search warrant alleges there was only one physical therapist. The indictment charges that patients were paid to sign documents saying they had received physical therapy that never happened.

Dr. Rice is now working at a storefront operation called Clinica de la Familia. A CMS spokesman said she’s no longer eligible to get paid by Medicare and declined to provide further details. Of her current clinic, Dr. Rice said, “We are not doing any fraudulent thing.”

Federal authorities say that in Brooklyn, physical-therapy abuse appears to be especially rife among Russian immigrants. A Journal analysis of the 5% database shows that eight of Medicare’s 30 top-earning physical therapists work in Brooklyn. Seven of them have names that seem Russian or from neighboring nations.

Brooklyn physical therapist Aleksandr Kharkover billed Medicare for more than $2.5 million in 2008, according to a person familiar with his business, and received more than $1.8 million.

On an autumn weekday at about 9:00 in the morning, two Journal reporters arrived at Mr. Kharkover’s home, a brick bungalow. He appeared in a white T-shirt emblazoned with the slogan, “Freedom isn’t free.” Asked if billing $2.5 million to Medicare fit with his records, he replied, “I’d say that fits.”

Mr. Kharkover and two people familiar with his practice said he sees patients only in their homes. Fraud experts say this makes it virtually impossible for him to have legitimately billed such high amounts.

New York State allows a physical therapist to supervise only two assistants on home visits, and the therapist must be in the same home at the same time as his assistants, according to New York State and Medicare officials. Unless Mr. Kharkover held therapy sessions in which several patients congregated in one home, he would effectively be limited to billing little more than what he himself could perform.

Under generous assumptions, a single therapist could earn $1 million from Medicare in a year by working 12.5 hours a day, seven days a week, with no time off. Medicare paid Mr. Kharkover more than $960,000 in the first seven months of this year, according to the person familiar with his business.

CMS and its main New York antifraud contractor, SafeGuard Services, declined to comment on Mr. Kharkover.

Mr. Kharkover declined a second interview. His attorney, Montell Figgins, said his client is a “successful businessman,” adding that “there is no reason to believe my client was doing anything illegal.”

As for Dr. Wayne, he said he expanded physical therapy at his clinic near Miami’s design district because his patients needed it. Medicare regulations require that physical therapists billing under a physician must have completed an accredited physical-therapy education program. But Dr. Wayne said he trained his “office girls” to do the work in part because hiring full-fledged physical therapists was too expensive.

Referring to Medicare’s therapist-education requirement, he said, “I interpret that as, ‘If I train them in physical therapy, that should be good enough.’”

Dr. Wayne acknowledged grossing $1.1 million or $1.2 million from Medicare in 2008, and estimated his take-home that year from his clinic was roughly $400,000. He said his Medicare reimbursements plummeted after March 2009, when he says Medicare tightened scrutiny of his billing. According to the person familiar with the matter, Medicare paid only about 12.5% of his claims in the second half of 2009.

Dr. Wayne said he is appealing many of the denied claims, but that the drop in Medicare reimbursements and other business issues led him to sell his practice and caused him financial distress. On a recent evening, he opened envelopes from a bank, and said they were notices of bounced checks.

Still, full-scale replicas of medieval knights’ armor greet guests at his home, and hanging on the walls are what he said are two original Picassos, several Dalis and photographs by Helmut Newton. Also present recently was Eliza Carson, a Playboy model who said she’s 20 years old. She barely glanced up from texting on her phone as she asked Dr. Wayne how he managed to keep his hair spiky when he sleeps. He explained that he uses an airplane pillow.

Dr. Wayne now works in a pain-management clinic in Fort Lauderdale. He said he doesn’t have a board certification in pain management, and said the clinic accepts only cash. Of his patients at the clinic, Dr. Wayne said, “I write their pain prescriptions, and they’re gone.”

—James Oberman, Anton Troianovski and Gina Chon contributed to this article.