Lawmakers hear evidence of gray market in shortage drugs

More than two-thirds of the 300 drug distribution chains reviewed by congressional investigators involve prescription medication leaking into unauthorized distribution channels through pharmacies.

By Jennifer Lubell — Posted Aug. 20, 2012

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An investigation by congressional staff concluded that so-called gray market companies were identifying weak points in the drug distribution system and taking steps to drive up prices for drugs that were determined to be in short supply.

These companies are profiteers that zero in on short-supply drugs and sell them at inflated prices, said Sen. Jay Rockefeller (D, W.Va.), chair of the Senate Committee on Commerce, Science and Transportation. During a July 25 committee hearing, Rockefeller unveiled the findings of a price-gouging investigation in which his office collaborated with the staffs of Sen. Tom Harkin (D, Iowa) and Rep. Elijah Cummings (D, Md.).

“We have learned that there are people in the drug supply chain who ignore their professional and business obligations and sell their drugs to gray market companies instead of to doctors and patients,” Rockefeller said. These drugs can spend weeks circulating in the gray market.

Cummings, who testified before the panel, highlighted a transaction involving the cancer drug fluorouracil after the drug made at least nine stops within the supply chain. In each of the stops, entities marked up the price of the drug, which started at $7 per vial when it was sold by an authorized distributor. The price went up to $50, $275 and $375 until it finally was sold to a hospital for $600 per vial, “more than 85 times its price,” Cummings said.

In nearly 70% of the 300 drug distribution chains reviewed, prescription drugs leaked into the gray market through pharmacies, according to a summary of the investigation. “Even legitimate pharmacies are being used by unscrupulous gray market companies to obtain access to shortage drugs,” Cummings said.

John Coster PhD, RPh, senior vice president of government affairs with the National Community Pharmacists Assn., acknowledged that reports had been surfacing about “shell” pharmacies buying drugs in short supply from primary wholesalers to sell them to “seemingly unethical secondary wholesalers.” Coster noted that the congressional investigation focused mainly on infusion and injectable drugs that typically are not sold or dispensed by community pharmacies.

Coster said questionable practices should be investigated, but he urged that Congress not take actions that might disrupt the pharmaceutical supply chain. Some options being discussed by lawmakers, such as prohibiting pharmacies from selling drug products to wholesalers, could have unintended consequences for patients, he said.

Rockefeller said several entities identified as gray market companies in the investigation declined his invitation to testify at the hearing. “They know what they’re doing is wrong,” he said.

Patricia Earl, an industry analyst with the National Coalition of Pharmaceutical Distributors, which represents mostly small and independent pharmaceutical distributors, said she couldn’t defend such companies “because I do not know the circumstances that led to this situation.” She said incidents in which multiple distributors handle a single product before it gets to a patient are rare.

NCPD always vets every potential new member with a background check, Earl said. These distributors know that if they were perceived as price-gougers, they would not get repeat business, she added.

With drug shortages at the core of this issue, David Mayhaus, PharmD, commended language in the recently enacted prescription drug user fee reauthorization law that established an early-warning system for drug shortages. This “will give providers like myself more timely notice ahead of a critical shortage,” said Mayhaus, chief pharmacy director of Cincinnati Children’s Hospital Medical Center in Ohio.

Mayhaus said his hospital has looked to using alternative wholesalers as a last resort only in the event that a drug shortage could pose harm to patients. In most cases, Cincinnati Children’s Hospital uses two primary wholesale companies to purchase its medications, he said.

At its Annual Meeting in Chicago in June, the American Medical Association approved new policy urging an independent report on the causes of drug shortages. “Such an analysis should consider federal actions, the number of manufacturers, economic factors, including federal reimbursement practices, as well as contracting practices by market participants on competition, access to drugs and pricing,” the AMA stated.

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A snapshot of the drug gray market

In analyzing 636 unsolicited “gray market” medication sales offers to acute care hospitals in the spring of 2011, the Premier health care alliance found that the average markup for short-supply drugs was 650%. The single-highest recorded markup offered was 4,533% for a drug designed to treat hypertension. Of the marked-up price offered, 96% were at least double the normal costs. For specific types of drugs, offered markups were as high as:

3,980% for chemotherapy drugs used to treat non-Hodgkin’s lymphoma and leukemia.
3,170% for drugs to help cancer patients retain bone marrow.
3,161% for medicines to sedate patients for surgeries.
2,979% for medicines to prevent brain or heart spasms and dilate veins.
2,642% for drugs used to prevent damage during a heart attack.

Source: “Buyer beware: Drug shortages and the gray market,” Premier health care alliance, August 2011 (link)

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External links

“Shining Light on the ‘Gray Market,’ An Examination of Why Hospitals Are Forced to Pay Exorbitant Prices for Prescription Drugs Facing Critical Shortages,” House and Senate Democratic committee staff, July 25 (link)

“Buyer beware: Drug shortages and the gray market,” Premier health care alliance, August 2011 (link)

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