Investigation confirms price gouging by ‘gray market’ drug companies

Scalpers operating in the so-called “gray market” are profiteering from recent drug shortages by amassing medicines – including cancer drugs – in high demand and then re-selling them at preposterously high prices to hospitals desperate to provide life-saving treatments for their patients, according to a Congressional investigation led by Rep. Elijah Cummings (D-Md.).

Five cancer drugs in short supply. SOURCE: Congressional staff report “Shining Light on the ‘Gray Market’: An Examination of Why Hospitals Are Forced to Pay Exorbitant Prices for Prescription Drugs Facing Critical Shortages.”

“This investigation has found that gray market companies that operate outside of authorized distribution networks take advantage of drug shortage situations to charge exorbitant prices for drugs used to treat cancer and other life-threatening conditions,” concluded 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.”

The report detailed how gray market distributors recruit pharmacies to “leak” drugs that are in short supply, particularly injectable cancer drugs such as Cytarabine, Fluorouracil, Leucovorin, and Paclitaxel. Then the distributors would approach hospitals and health care providers to sell the in-demand drugs at a significant markup, ranging from 200% to 4,000%.

“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 by charging health care providers exorbitant prices,” the report noted.

Mark Richerson, Christus Santa Rosa Health Care’s Pharmacy Director, reported that a gray market distributor was charging $996 for a 2-gram vial of Cytarabine even though the normal market price per vial was $15.76. (Cytarabine is used to treat leukemia.)

“I don’t understand this shortage, and it makes me angry because the drug is unavailable for patients who need it…What I want to know is, how did these distributors get this drug when no one else has it, and what is the basis for their pricing? Isn’t this kind of price gouging illegal?” Richerson told the San Antonio Express-News.

Read more: FDA approves emergency importation of cancer drugs to ease shortage

While some hospitals do not deal deal with gray market distributors, some health care providers feel that they have little choice but to pay the exorbitant prices if they cannot procure enough drugs from authorized wholesalers.

“We have no other choice…We have to take care of our patients,” a hospital pharmacist told Congressional investigators.

As drug shortages have become more frequent since 2009, doctors and health care providers are confronted with very difficult choices:

A) delay treatment or medical procedures until the drug re-stocked, which could put the patient at risk;

B) use an alternative drug or treatment, which could lead to adverse side effects or turn out to be less effective than the preferred treatment;

C) or pay the steep prices charged by gray market companies, increasing the overall cost of health care. The American Society of Health-System Pharmacists estimated that drug shortages have cost hospitals more than $400 million a year.

“These companies’ questionable business practices put patients at risk and cost the United States health care system hundreds of millions of dollars each year,” the report pointed out.

In May, Rep. Elijah Cummings (D-Md.) introduced H.R. 5853 “Gray Market Drug Reform and Transparency Act of 2012”, which would prohibit pharmacies from selling prescription drugs to gray market companies. The bill is pending before the House Subcommittee on Health.

“Nobody should be allowed to profiteer at the expense of patients by jacking up the price of drugs in critically short supply,” said Cummings during his testimony before the Senate Commerce Committee in July.


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