Profiteers Cash in on Drug Shortages

Published Online: Tuesday, August 23rd, 2011
Laura Enderle, Associate Editor

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Unauthorized vendors hoard and resell drugs at markups as high as 4533% of the normal price, analysts report.

As health care professionals and lawmakers scramble to resolve the nation’s drug shortage crisis, a new report finds so-called “gray market” sellers are making record profits. The unauthorized vendors capitalize on shortages by stockpiling drugs in short supply and reselling them to hospitals and other providers at exorbitant markups, according to the research by Premier health care alliance.

The average price increase for shortage drugs supplied through the gray market, also called a parallel market, was 650%, Premier analysts reported in the group’s August 2011 study, “Buyer Beware: Drug Shortages and the Gray Market.” The highest recorded markup was for the antihypertensive labetalol. Normally priced at $25.90, the drug was being offered at a markup of 4533%, or $1200.

Other drugs subject to extreme price gouging were chemotherapy medicines, such as cytarbine (3980%) and leucovorin (3170%), and critical care medicines, such as propofol (3161%) and protamine (2752%). Of the unsolicited offers recorded by the 42 acute care hospitals included in the Premier study, 96% were at least double the usual price, and 45% were at least 10 times the usual price.

The prolonged scarcity of drugs needed for sedation, emergency care, and chemotherapy has created a golden opportunity for unscrupulous vendors, the report says, are “capitalizing on the desperation of pharmacy directors and buyers who are finding it increasingly difficult to secure a sufficient supply of the drugs needed to meet all of their patient care needs.”

In the first half of 2011, a record 180 products were listed as either unavailable or in short supply by the FDA. In the data it collected from April to May 2011, Premier recorded a total of 1,745 unsolicited offers made by gray market vendors to providers. Offers were made through emails and fliers urging buyers to act quickly using lines such as this one: “We only have 20 of this drug left and quantities are going fast.”

The impact of drug price gouging on health systems is greater than the sum of its parts. Drugs supplied through gray market channels may be counterfeit, stolen, or otherwise ineffective, presenting a threat to patient safety. The products circumvent the usual regulatory procedures, and are instead subject to “a complex web of transactions, involving multiple subsidiaries and trading partners.” This makes it difficult or impossible to know where the drugs originated or whether they were mishandled along the way.

Stopping drug shortages at the source will close the door to gray market opportunists for good, but the needed regulatory reform is still a work in progress, says Premier’s chief operating officer Mike Alkire. He advocates a “buyer beware” approach to choosing suppliers in order to “protect the hospital, as well as patients consuming medications, from unintended harm.”

A summary of the guidelines Premier developed is available here.

For other articles in this issue, see:

TIM FORESTER August 23rd, 2011 02:08:5602:56:43 PM

Obviously any unscrupulous transactions involving stolen, counterfeit, or unapproved producs/medications should be denounced and is never acceptable; however, if a wholesaler, pharmacy, or other licensed entity does have a legitimate supply (whether they speculated and stockpiled, or by luck or accident), why shouldn't they be able to sell their goods at current market value? As a pharmacist, I constantly see drug price increases -- whether a branded product that nudges up 3% every 3 or 4 months (used to be 6-12 months before the 'donut hole' arrangement enacted this year), or a generic moves a decimal or two, drug manufacturers are already participating in what could be viewed as price gouging. Often times, such large increases can not be tied to the raw ingredient, as other products containing said ingredient do not have a corresponding increase, but occassionally can be linked to industry consolidation - whether horizontal or vertical, which when present, only worsens any negative view of the situation. How then are we to tackle this aspect of the shortage?

Diane Fisher August 23rd, 2011 04:08:2504:25:44 PM

Yes there is a large marke up of the drugs that you have to get from not only the gray market, but from reliable hard to find drug companies. I deal with them every day and the mark up is 3 or 4 times what we normally pay. Being a small hospital we cannot pay their prices which make it hard to have the meds for patients. How can these reliable companies get the meds before they are avaliable to our wholesaler?

Your comments are valuable to us. Thank you.

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