Regulatory Focus™ > News Articles > Legislators: Abusive Practices Leading to Drug Shortages, Massive Markups

Legislators: Abusive Practices Leading to Drug Shortages, Massive Markups

Posted 26 July 2012 | By

A new investigative report out by a trio of democratic legislators show abusive practices to be rampant in pharmaceutical wholesaling, with re-selling of some drugs contributing heavily to the amount of drug shortages.

"Shining Light on the 'Gray Market'," written by Sen John Rockefeller (D-WV), Sen. Tom Harkin (D-IA) and Rep. Elijiah Cummings (D-MD), comes after hospitals and other healthcare providers had raised concerns about their inability to procure injectable cancer drugs from their usually reputable sources while simultaneously being bombarded with solicitations from unknown distributors who claimed to be selling the drug.

In an earlier 11 June letter, Cummings and Rockefeller wrote they were especially concerned about alleged price-gouging and companies intentionally exacerbating shortage situations by obtaining the drugs while having no intent to use them themselves. Safety issues were also raised in the letter, as the legislators noted there were few assurances the drugs had been handled correctly.

Their letter coincided with a piece of legislation sponsored by Cummings, the Gray Market Drug Reform and Transparency Act, which aims to modify the system in which wholesalers are allowed to operate by restricting the purchase of products from pharmacies, establishing a national wholesaler database and establishing industry user fees.

Drugs 'Leaking' In and Out of Supply Chain

The concerns of the legislators were borne out in their 26 July report, they said, with the preponderance of evidence pointing to a "leak" of drugs from pharmacies and distributors. "In more than two-thirds (69%) of the 300 drug distribution chains reviewed in this investigation, prescription drugs leaked into the gray market through pharmacies," the congressmen wrote. "Instead of dispensing the drugs in accordance with their professional duties, state laws, and the expectations of their trading partners, these pharmacies re-sold the drugs to gray market wholesalers."

Some pharmacies even went as far as to sell their entire inventories to gray-market purchasers, legislators said, which in turn led to a series of wholesaler markups. In one instance, a $7 vial of fluorouracil originally sold by McKesson to a pharmacy would go on to be re-purchased five additional times before finally reaching a California medical center, which purchased the same vial for $600-a markup of 8471%.

The potential for huge profit margins has allowed some pharmacies to turn the business into an enterprise of sorts, recruiting pharmacies to act as purchasing fronts for their operations, the report claims. While the example provided above was an outlier case, the legislators said their investigation "regularly" found markups between 900% and 1,900%.

Another surprising finding of the report: drug products are sold and re-sold quickly. "On average, the prescription drugs examined in this investigation were owned by three to four different gray market businesses before being sold to a hospital; most of the drugs traveled through the gray market in five days or less," they wrote. Even same-day price changes were not uncommon, with investigators finding firms marking up the price of the same drug to a different hospital by $100 in the course of a single day.

Read more:

Shining Light on the 'Gray Market'

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