August 8, 2012

Gray-Market Suppliers May Be Pharmacies in Name Only

Washington, D.C.—Pharmacies are the source of most of the hard-to-find drugs that are sold into the “gray market,” where the scarce commodities are drastically marked up in price and resold, often to hospitals, according to an investigation by congressional staff members.

The report, “Shining Light on the ‘Gray Market’ – An Examination of Why Hospitals Are Forced to Pay Exorbitant Prices for Prescription Drugs Facing Critical Shortages,” was prepared for Sen. John D. Rockefeller IV (D-WV), chairman of the Senate Committee on Commerce, Science and Transportation; Sen. Tom Harkin (D-IA), chairman of the Senate Committee on Health, Education, Labor and Pensions; and U.S. Rep. Elijah E. Cumming (D-MD), ranking member of the House Committee on Oversight and Government Reform.

The report says that “some short-supply injectable drugs do not reach health care providers through the manufacturer-wholesaler distributor-dispenser chain that policymakers and industry stakeholders present as the typical model for drug distribution. Instead, these drugs ‘leak’ into longer gray-market distribution networks, in which a number of different companies—some doing business as pharmacies and some as distributors—buy and resell the drugs to each other before one of them finally sells the drugs to a hospital or other health care facility.”

In more than two-thirds (69%) of the 300 drug distribution chains reviewed in the investigation, prescription drugs were supplied to the gray market by pharmacies, the report notes, with some pharmacies selling their entire inventories into the gray market. Some of those drug providers were pharmacies in name only, however, holding pharmacy licenses but appearing to operate for the sole purpose of acquiring scarce drugs to sell them into the gray market.

“Recently, there have been troubling reports of ‘shell pharmacies’ or ‘paper pharmacies’ that seem to have been established for the sole purpose of buying medications in short supply from primary wholesalers in order to sell them to seemingly unethical secondary wholesalers,” National Community Pharmacists Association (NCPA) Senior Vice President of Government Affairs, John Coster, PhD, RPh, testified at a recent hearing on the issue. “No pharmacy should be in the business of acting as a conduit to facilitate the activities of an illegitimate gray market,” he added.

Calling for the gray market to be “closed down,” Rockefeller said, “There are some unscrupulous dealers who have found a way to make a quick buck at the expense of sick patients, hospitals, and the entire health care system. These opportunists have figured out how to exploit the urgency of the health care system and buy short-supply drugs with their only intention being to resell them for a big profit. By the time the gray market has done its work, a cancer drug that originally cost $10 can cost $500 or even $1,000. This kind of price gouging is disgusting and indefensible.”

Coster urged the congressional committee not to take action without considering unintended ramifications that could hurt patients. “The primary and secondary wholesaler markets both play an important role in ensuring that all patients have seamless access to virtually any product that they may require,” he pointed out. “Having said that, it is unethical for pharmacists to act as a conduit for the illegitimate gray market, which is contrary to the goal of providing the best patient care at the lowest cost. Problems or questionable practices should certainly be investigated and addressed, but any solution needs to be carefully tailored so that the pharmaceutical supply chain is not unduly disrupted and patients do not suffer due to shortages that may occur.”

Coster noted that independent community pharmacies obtain the overwhelming majority of their prescription drugs from large, primary wholesalers, but sometimes must use secondary wholesalers to ensure their inventory remains properly stocked. He recommended that pharmacies continue to be allowed to return outdated products, short-dated products or those sent in error to wholesalers or distributors and have the leeway to continue selling pharmaceutical products to other pharmacies to help alleviate temporary shortages, especially in rural areas where daily wholesaler deliveries may be infrequent. He also said it was important for all participants in the supply chain to do more due diligence and better understand to whom they were selling.

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