Regulatory Focus™ > News Articles > Reform Bill Takes Aim at 'Gray Market' Causes for Drug Shortages

Reform Bill Takes Aim at 'Gray Market' Causes for Drug Shortages

Posted 20 May 2013 | By Alexander Gaffney, RAC

A prominent congressional Democrat this week announced the reintroduction of a bill that looks to ban the practice of so-called "gray market" drug sales, the practice of which has been partially blamed for causing and exacerbating endemic drug shortages within the US.


The bill, The Gray Market Drug Reform and Transparency Act of 2013(PDF), is sponsored by Rep. Elijah Cummings (D-MD), who first introduced it in the House of Representatives last year.

The legislation came after a report Cummings co-authored with Sens. John Rockefeller (D-WV) and Tom Harkin (D-IA) found that many hospitals and healthcare providers were unable to procure injectable cancer drugs from their usual and reputable sources. At the same time, those sources had reported being bombarded with unsolicited calls offering the hospitals and healthcare providers the same drugs, but with a catch: The drugs were subject to massive markups.

The report went on to find a "leak" of drugs from pharmacies and distributors, leading to so-called "gray market" operations in which rogue or unscrupulous pharmacies would purchase as many supplies of a drug experiencing a shortage situation as possible, and then gouge the price of the product knowing that they could command nearly any price they wished.

"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 in their 2012 report. "Instead of dispensing the drugs in accordance with their professional duties, state laws, and the expectations of their trading partners, these pharmacies resold 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 repurchased 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%.

Proposed Legislative Solutions

If the case is that the sector's behavior hasn't always been scrupulous, the path forward has been far more opaque. According to congressional records, the 2012 version of the legislation did not pass out of the Energy and Commerce Committee's Subcommittee on Health, perhaps owing to a lack of support for a Democratic bill in the Republican-controlled House.

But now Cummings is attempting to revive the legislation for another round, and the legislation is nearly identical to his previous effort.

The bill would, among other things:

  • prohibit wholesale distributors from purchasing prescription drugs from pharmacies
  • establish a "National Wholesaler Database," which would track information about wholesalers' licenses, personal information, contact information and areas of operation
  • establish fees for wholesale distributors
  • require companies selling drugs experiencing a shortage to provide purchasing organizations with the original purchase price of the drugs
  • encourage state regulators to share wholesaler information, including records of disciplinary action, with the proposed National Wholesaler Database

"Nobody should be allowed to engage in profiteering at the expense of children and adults with cancer or other critical illnesses by jacking up the price of drugs that are in critically short supply," said Cummings in a statement last year.  "This bill closes down loopholes in the supply chain and ensures that consumers have more information about who is handling their drugs."

The new bill, H.R. 1958, has been introduced in the House Energy and Commerce Committee, where it will most likely be referred to the Subcommittee on Health, a committee on which Cummings serves.

HR 1958: The Gray Market Drug Reform and Transparency Act of 2013

2012 Report: Shining Light on the Gray Market

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