Ugly Shades of Gray

Ever thought you were paying too much for your meds?

A new report just released by the US House Committee on Oversight and Government Reform’s entitled  “Shining Light on the Gray Market” has examined the how’s and why’s of this.

The House staff investigation examined a group of companies that buy and sell prescription drugs used by hospitals and other health care providers. As SRxA’s Word on Health has previously reported, over the past several years there have been a growing number of supply shortages of prescription drugs. Operating outside of authorized distribution networks, “gray market” companies take advantage of these shortages to charge exorbitant prices for drugs used to treat cancer and other life-threatening conditions.

These companies’ questionable business practices put patients at risk and cost the US health care system hundreds of millions of dollars each year.

Here’s how it works. During drug shortages, hospitals find themselves unable to buy drugs from their normal trading partners – usually one of the three large national “primary” distributors, AmerisourceBergen, Cardinal Health, or McKesson.

At the same time, hospitals are deluged by sales solicitations from gray market companies offering to sell the same drugs for prices that are often hundreds of times higher than normal.  Not surprisingly, hospital pharmacists want to know why the hospitals can’t get these products but the ‘scalpers’ can.

The drug pedigree documents reviewed in the investigation show that some short-supply injectable drugs do not reach health care providers through the manufacturer-wholesaler distributor-dispenser chain.  Instead, these drugs leak into 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.

And this is not happening at nights, in dark alleys.  In 69% of the 300 drug distribution chains reviewed, prescription drugs leaked into the gray market through pharmacies. Instead of dispensing the drugs in accordance with their professional duties and state laws, these pharmacies re-sold the drugs to gray market wholesalers. Some pharmacies sold their entire inventories into the gray market. The wholesalers in turn sold the drugs, usually at significant markups, to other gray market companies.

As the drugs pass through these gray market distribution chains, they are significantly marked up, sometimes to prices that are hundreds of times higher than the prices that hospitals and other health care providers normally pay. The markups in these chains often bear no relation to the companies’ cost of purchasing, shipping, or storing the drugs. Instead, they reflect an intent to take advantage of the acute demand for short supply drugs.

In the example above, each company in the chain marked up the meds, even if they never took physical custody of them. The hospital that purchased the drug ended up paying $600 per vial for a drug that a pharmacy had purchased for $7 per vial.

Hospitals say they have no choice but to pay exorbitant prices for short-supply drugs because they need to take care of their patients.

Carmen Catizone, executive director of the National Association of Boards of Pharmacy has called for federal legislation to control pharmacies that are re-selling drugs on the gray market.

We need to take some steps to remove pharmacies’ ability to act as wholesalers, in the way that they are. The end point of these transactions should be to patients and not to wholesalers,” Catizone said.

While some of the pharmacies that are selling drugs on the gray market are not necessarily doing anything illegal, according to Catizone it is a moral and ethical issue. “There are provisions in state laws in which pharmacies can wholesale up to 5% of their product. The intent was that, if you have a situation where a pharmacy runs short on a product, they can buy it from another pharmacy or wholesaler for that patient. They are violating the intent of those laws, morally and ethically.”

Well said, Mr. Catizone, well said.