5 year analysis of Pharmacy Burglary and Robbery Experience

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1 PHARMACY CRIME Page 1 of 13 5 year analysis of Pharmacy Burglary and Robbery Experience Data used in this report is derived primarily from I-Partners claims information and Pharmacists Mutual s proprietary Crime Initiative Database. Customer and cost information has been deleted from this version of the report. Please contact Pharmacists Mutual Risk Management for questions or reprint permission at or by at January, 2013

2 PHARMACY CRIME Page 2 of 13 Topic Description Page Background Prescription drug diversion and pharmacy crime Impact of pharmacy crime on our customers Origin and extent of the problem 3 National and State Actions to Address the Problem Key Findings What we ve done and where we need to go Key efforts to address prescription drug diversion and the impact these efforts have on our customers and their risk for pharmacy crime Key findings of a 5 years study of pharmacy crime impacting our customers. What we ve learned about the relative effectiveness of various control measures Research, education, resources for customers, underwriting tools for risk selection and improvement Report results ` Data includes a short discussion on results Pharmacy Crime Frequency 7 Number of PMC Commercial Pharmacy Policies RxPatrol Historical Crime Data 8 PMC Pharmacy Crime Total Costs PMC Pharmacy Crime Average Costs 9 Frequency by Size of Loss Robbery vs. Burglary 10 Methods of Entry Average Cost by Method of Entry 11 Video Surveillance Arrest Rates and Video Surveillance 12 Police Response Times Arrest Rates by Police Response Time 13 Alarm Notification

3 PHARMACY CRIME Page 3 of 13 Background Burglaries and robberies represent a significant expense to pharmacies in the United States. Beyond direct insurance costs, which are driven by loss experience, pharmacists experience financial, business interruption and psychological costs. Pharmacists are concerned about armed robberies, and even finding that a store has been burglarized overnight can be upsetting and cause the expenditure of thousands of dollars in an effort to prevent reoccurrence. Beyond what is covered by insurance, customers pay deductibles that can easily be exceeded as a result of criminal efforts to gain entrance. Pharmacists that are victimized face hours of dealing with police, the DEA, board of pharmacy, contractors and their insurance company. As state and national efforts increase to address the underlying problem of prescription drug diversion, pharmacists face increasing administrative and regulatory compliance costs. When we seek methods to effectively combat the problem, it is important to understand the larger problem of prescription drug diversion and how it fuels pharmacy burglaries and robberies. Described by the Centers for Disease Control as having reached epidemic proportions in the United States, demand for prescription narcotics, coupled with a widely available supply, create an environment that is ripe for criminal activity. While the U.S. represents only 4.6% of the world s population, we consume 80% of the global opioid supply Five million Americans use opioid painkillers for non-medical use We experience almost 17,000 deaths from prescription narcotic overdoses annually. In a 4 year period, more deaths than we experienced in the Vietnam War. Morphine production was at 96 milligrams per person in By 2009, that number increased by 8 fold. The origins of the problem are complex, but are based on a cycle of over-prescribing that has occurred over the past two decades. While well intentioned, liberal prescribing coupled with aggressive marketing, incentives and even encouragement to physicians to relieve pain at all costs sparked the fire. Unchecked by adequate physician education on drug diversion and dependency, and a lack of appropriate chronic pain management protocols, demand and dependency increased. As demand increased, so did production levels, opportunities for profit and creative methods of diversion. Pharmacy crime involves every part of the distribution chain from manufacture through wholesale, retail, and ultimately to the end user. Pharmacists have been victims of deceptive practices, prescription fraud, employee diversion, burglaries and robberies. According to the Centers for Disease Control, prescription drug diversion, measured by drug overdose deaths and pharmacy crime, are at epidemic proportions. National and State actions taken to address the problem Significant efforts continue to be taken at the national and state levels to combat the problem, and with various degrees of success. Each of these has a direct impact on how customers conduct business. Unfortunately, most will have no short term impact on reducing the probability of pharmacy burglaries, robberies or employee diversion. Prescription Drug Monitoring Programs Inputting data on prescriptions written and prescriptions filled, particularly for opioid based narcotics is an effective measure for identifying doctor shoppers, abusers and other drug seekers. While the programs are in place in 49 states, most do not connect with each other. This allows a drug seeker to get a prescription in one state and have it filled in another. Use of the program varies significantly by state between being mandatory, voluntary or somewhere in between. In addition, many of the programs are set up on a free trial basis for 5 years. As the trial periods are expiring, funding is becoming

4 PHARMACY CRIME Page 4 of 13 difficult to continue the programs, notably in California and Florida. Most pharmacists support these programs, however, there has been some resistance by major chains and various state medical associations, in large part objections are based on the time it takes to enter data. Drug Courts Intended to allow persons committing crimes to recover, many of these courts eliminate or significantly reduce sentencing for burglars and, in some cases, robbers. This results in a significant level of resentment by pharmacists who are victims of crime. DEA Strike Forces In the past several years, the DEA has shifted a major portion of resources from illicit drug enforcement activity to prescription narcotics. One of the focal areas has been on monitoring the flow of narcotics to pharmacies. These efforts have resulted in sanctions and subpoenas against distributors such as Cardinal Health and Amerisource Bergen, as well as arrests of physicians and pharmacists. In some areas of the country, there are complaints of narcotic shortages as distributors restrict shipments. This pushes drug seekers to other states and areas where enforcement is not as aggressive. Changing Prescription Patterns - Where states have increased penalties against prescribing physicians and pharmacists for filling prescriptions when they should have known better, some physicians have decreased or stopped writing scripts for certain narcotics and some pharmacists have pulled them from the shelves. As chronic pain treatment guidelines are implemented and physician education on drug diversion and addiction increases, we can expect tighter controls on the management of prescription narcotics. Treatment for abuse and addiction A reality in the war against prescription narcotic diversion is that the demand exists and that the long term solution requires treatment programs that take time, cost money and are much more difficult to manage than writing and filling prescriptions. Until these programs become more available and acceptable, drug seekers will continue to find ways to obtain narcotics, including committing crimes against pharmacies. Key findings presented in this report This report covers a 5 year analysis of burglaries and robberies occurring to Pharmacists Mutual customers. These claims impact our bottom line. Data collected comes from claims department data as well as interviews with each customer victim by our claims department over the past two years. In many cases, (where requested by the customer or due to the nature of the loss), follow-up investigation is also conducted by risk management. Information obtained has been used to educate customers, underwriters and field representatives about how the crimes are committed and preventive measures that can be employed to minimize the extent of loss. What we ve learned: Frequency of pharmacy crimes (81% of PMC crimes are break-ins vs. armed robberies) has been relatively flat over the past 5 years compared to policy count. While we ve seen an 18% increase in crimes over the past 5 years, policy count has grown by 21%. RxPatrol, the only other national pharmacy crime database, has seen a slight decrease over the past 2 years, however, 60% of RxPatrol reports are for armed robberies, primarily to national chains, and much of this decrease may have been as a result in aggressive measures to address the robbery problem in chain stores such as Walgreens and CVS. Total incurred and average costs have increased steadily over the past 5 years. Almost 70% of the crimes we see are under $5, % of costs come from the 9% of claims that are in excess of $25,000.

5 PHARMACY CRIME Page 5 of 13 In 52% of cases, criminals enter through the front door or front window. One indication is that video surveillance, while at times helpful in identifying perpetrators, does not deter crime. Some of the most expensive burglaries have been those where criminals entered through the roof. Examination of these and side wall entries indicates the approach targets areas of the pharmacy that may not be adequately protected by alarm systems, or to circumvent motion detectors. In 1/3 of cases, police respond within 5 minutes. When they do, arrests result in 21% of cases. Unfortunately, most crimes take less than 2 minutes. Bottom line, if they can get in, chances are they will be successful and will get away. In areas of the country where police response times exceed 30 minutes (rural and municipalities with budget constraints), pharmacies are effectively unprotected. Most state boards of pharmacy require alarms, but situations remain where alarms are not present, are not functional or are ineffective. In many cases, maintenance and testing are non-existent, and there are suspicions that alarm codes may have been compromised. If a criminal wants to try and burglarize or rob a pharmacy, the pharmacy will likely incur property damage. However, the size of the loss can vary from a few hundred dollars to tens or even hundreds of thousands of dollars depending on control measures that are in place. What really makes a difference in keeping loss costs low? o A well designed, tested and reliable alarm system. Alarm codes need to be protected and police response needs to be adequate. o Protecting doors and windows to slow down or eliminate the possibility of entry. If the crooks cannot gain entrance within a few minutes, they will usually leave. o Installing a safe. The overwhelming majority of criminals are in and out in less than 2 minutes. Locking target drugs in a sound, well secured safe can make a significant difference in the size of the loss. o Having a plan and training employees on what to do if a robbery occurs. This can mean the difference between life and death. What we ve done at Pharmacists Mutual and what we will be doing in 2013 Over the past two years, we have met with over 15 pharmacy associations and buying groups, have published numerous white papers and articles in our semi-annual publication Pharmacists Mutual Risk Management and have spoken with hundreds of customers who have experienced pharmacy crime first hand. We have identified vendors of security products based on our loss experience. Where possible, we have arranged discounts for PMC customers who use these services. In the fourth quarter of 2012, we provided training to underwriters about pharmacy trends and tools to assist them in evaluating protection levels at pharmacies and to address specific deficiencies. For 2013, we will be implementing a pharmacy security evaluation matrix. The matrix, based on probability and loss severity data, will be used to assist pharmacies in assessing risk and in underwriting evaluation. We plan to continue publication and education efforts.

6 PHARMACY CRIME Page 6 of 13 Frequency, which includes burglaries and robberies but does not include thefts by employee diversion, has seen gradual increases over the past 5 years. While frequency has been flat, we ve seen an increase in the number of pharmacy commercial policies and premiums over the same period..

7 PHARMACY CRIME Page 7 of National Data Burglary Robbery RxPatrol is the only other national pharmacy crime database other than Pharmacists Mutual. Data is limited to voluntary reporting, primarily from major chain drug stores. As with PMC data, RxPatrol also shows a slight decline in frequency over the past two years. 60% of crimes reported to RxPatrol are robberies. Decreases may be associated with robbery prevention measures implemented by chain pharmacies, which have included time delay safes. In 2006, the DEA reported 385 robberies and the theft of 712,684 units of prescription medication thefts. By 2010, the number of robberies increased to 698, with 1.48 million units of prescription medication units stolen in these robberies. DEA data on robberies shows a sharp increase through 2010, however, additional data is not available. Costs have steadily been increasing results reflect a single large loss sustained during an armed robbery. Even unsuccessful (no drugs taken) burglary attempts typically result in damage to the property that typically exceeds $500.

8 PHARMACY CRIME Page 8 of 13 During the past 5 years, there has been a 39% increase in the average cost of pharmacy crimes. Historically, 9% of claims, are responsible for 50% of costs. Smaller claims are most typically smash and grabs, with about 20% of loss costs being associated with property damage.

9 PHARMACY CRIME Page 9 of 13 For the past 5 years, there have been 9 burglaries (thefts occurring when the business is closed) for every robbery. (including armed robberies). On a yearly basis, this split has been fairly consistent. Of the robberies we ve seen, about 20% involved multiple perpetrators, almost all were armed. 5 cases involved violence to pharmacy employees. On a national basis, RxPatrol reports an almost even split between the two. This may be due to the voluntary nature of reporting and the high percentage of large chains that do report crimes to the database. Walgreens and CVS are much more likely to experience an armed robbery than a community pharmacy. Overwhelmingly, the preferred method of gaining entry into a pharmacy is through the front door or window 52% of the time. In most cases, the criminal kicks the glass, throws a rock or uses a tool to smash the glass. Doors are also attacked, typically with crowbars and wrenches. One of the latest techniques is to throw spark plugs through windows. The ceramics are highly effective in breaking unprotected glass.

10 PHARMACY CRIME Page 10 of 13 The most expensive types of pharmacy burglaries occur when criminals enter through the roof or ceiling. What we ve found is that, while this takes work, a common vulnerability is that may pharmacies do no provide motion detectors in rear office areas. Another reason is that if police respond without the pharmacist to open the door, they will often call the alarm company and report a false alarm. With regard to entries through walls, criminals frequently use vacant or non-alarmed adjacent occupancies as staging areas. Many will crawl on the floor after gaining entry in the hope of avoiding detection by motion detectors. With over 50% of entries through the front of the store, video surveillance does not appear to deter thieves. It is valuable in reporting suspicious persons to the police. In the overwhelming majority of cases, the perpetrator has cased the pharmacy on multiple occasions before committing the theft.

11 PHARMACY CRIME Page 11 of 13 Arrest rates reported here are those that occur at the time of or shortly after the theft occurs. Probability of apprehension does increase if video images are available. Nationally, arrest rates for all burglaries are at 26% and for robberies, 48% (FBI Uniform Crime Report, 2009) In over 70% of cases, police respond within 15 minutes of receiving the alarm. With most crimes occurring in less than 2 minutes, the probability of arrest is small; however, the lack of alarm protection and police (or armed security) response will increase the size of the loss. We have noticed that some cities and counties have had to cut back on police services for budgetary reasons. In these cases, priority usually continues for response to violent crimes, such as robbery, but is secondary for burglary. In some areas of the country, police response times routinely exceed 30 minutes. Risks located in these areas require significant levels of protection.

12 PHARMACY CRIME Page 12 of 13 In the 33% of cases where police arrive within 5 minutes, they are able to make arrests 21% of the time. In most jurisdictions, pharmacies are required by boards of pharmacy to have alarm systems in place. Most of these are central station, and ¾ of the time they work. When failures occur, they are attributed to: Criminals disabling the alarm Lack of testing Compromised alarm codes Inadequate maintenance

13 PHARMACY CRIME Page 13 of 13 The obvious question if the Central Station Alarm system worked, why are average costs higher than when they fail? Part of this is due to the fact that the overwhelming majority of pharmacies are equipped with central station alarm systems. The other consideration is that most thefts take less than 2 minutes. Criminals attack regardless of the presence of an alarm system. Where there is no safe, these losses can be significant. Perhaps the best one two punch is a pharmacy equipped with an alarm system and a safe. Alarms limit available time and safes protect against large losses of targeted drugs primarily C2 and C3 narcotics. For questions about this article, please contact Pharmacists Mutual Risk Management at or by at

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