Senate committee reports pharmaceutical gray market fueled by unscrupulous pharmacies

WASHINGTON — The Senate Committee on Commerce, Science and Transportation on Wednesday released a staff report on the investigation into the gray market for pharmaceuticals — what the committee defined as "shady operators who make enormous profits by buying hard-to-find drugs and reselling them at huge markups" — specifically naming pharmacies as a primary culprit.

According to the report, gray market drugs "leak" out of authorized distribution chains. "In more than two-thirds (69%) of the 300 drug distribution chains reviewed in the investigation, prescription drugs leaked into the gray market through pharmacies," the report read. "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 sold their entire inventories into the gray market. The wholesalers in turn sold their drugs — usually at significant markups — to other gray market companies."

"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 healthcare system," stated Jay Rockefeller IV, D-W.V. "These opportunists have figured out how to exploit the urgency of the healthcare 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. We need to close down this gray market, and do a better job making sure prescription drugs are safe and affordable."

The National Community Pharmacists Association, in its testimony before the committee, cautioned that a balanced approach needs to be adopted in efforts to augment recently enacted legislation that helps address the prescription drug shortage problem, otherwise patient care could be inadvertently jeopardized.

"We urge Congress to not take actions that might limit the ability of pharmacies to take care of their patients," stated John Coster, NCPA SVP government affairs, in his testimony. “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 noted. "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."
 
The investigation was launched by Rep. Elijah Cummings, D-Md., last fall and staff from the House and Senate conducted the wide-ranging investigation that resulted in the release of the staff report. The staff report is available here.

Other key findings from the joint congressional investigation:

  • Gray market companies aggressively mark up drug prices. The markups in the distribution chains often reflect an intent to take advantage of the acute demand for short-supply drugs by charging healthcare providers exorbitant prices. The drugs are significantly marked up, sometimes to prices that are hundreds of times higher than the prices that hospitals and other healthcare providers normally pay;

  • Gray market companies take advantage of drug shortages. During drug shortages, hospitals are sometimes unable to buy drugs from their normal trading partners, usually one of the three large national "primary" distributors. At the same time, they are deluged by sales solicitations from gray market companies offering to sell the shortage drugs for prices that are often hundreds of times higher than the prices they normally pay. Hospital pharmacists reluctantly pay gray market distributors for life-saving drugs needed to treat patients;

  • "Fake pharmacies" acquire prescription drugs from authorized distributors and then sell them into the gray market. The investigation has identified a number of businesses holding pharmacy licenses that appear to operate for the sole purpose of acquiring short-supply drugs that can be sold into the gray market; and

  • "Drug brokers" recruit pharmacies to purchase drugs for the gray market. Some gray market wholesalers gain access to shortage drugs by engaging third-party brokers to recruit pharmacies to act as their purchasing agents.

NCPA offered the following recommendations to the committee:

  • Pharmacies should be allowed to continue returning outdated or short-dated products to wholesalers or distributors, or products that were sent to the pharmacy in error;

  • Pharmacies also should be allowed to continue selling pharmaceutical products to other pharmacies, because it helps to alleviate temporary shortages, especially in rural areas where daily wholesaler deliveries may be more sporadic; and

  • Uniformly raise the bar for all entities engaged in this line of business and encourage all participants in the supply chain to perform the appropriate due diligence.


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