Shades of gray

Sec­ondary drug dis­trib­u­tors raise ques­tions

Modern Healthcare - - THE WEEK IN HEALTHCARE - Jaimy Lee

Drug short­ages have fu­eled ques­tions about thou­sands of sec­ondary dis­trib­u­tors that pro­vide hos­pi­tals and phar­ma­cies with back-or­dered drugs, of­ten ask­ing more than 10 times a prod­uct’s av­er­age whole­sale price.

Hos­pi­tal phar­ma­cists and oth­ers in the in­dus­try are dis­con­certed by the lack of uni­for­mity in the sec­ondary mar­ket— re­fer­ring to the busi­nesses they view as less than sa­vory as gray­mar­ket ven­dors—with some com­pa­nies au­tho­rized by man­u­fac­tur­ers and ac­cred­ited by a national as­so­ci­a­tion and oth­ers with his­to­ries of re­voked phar­macy li­censes and al­le­ga­tions of price-goug­ing.

“There’s a lack of in­for­ma­tion,” said Michael Co­hen, pres­i­dent of the In­sti­tute for Safe Med­i­ca­tion Prac­tices. “There’s not a cer­ti­fi­ca­tion sys­tem or a sanc­tion from all of our ma­jor group pur­chas­ing or­ga­ni­za­tions that these guys are OK.”

Only Ken­tucky, Maine and Texas have price-goug­ing laws that cover drugs. With no fed­eral statute in place, reg­u­la­tion of drug prices does not fall un­der the Fed­eral Trade Com­mis­sion’s purview, ac­cord­ing to an agency spokesman.

In fact, it is not clear that any agency reg­u­lates the sec­ondary drug-dis­tri­bu­tion mar­ket at the fed­eral level. The Food and Drug Ad­min­is­tra­tion said it does not; the Drug En­force­ment Ad­min­is­tra­tion said it reg­u­lates only com­pa­nies that dis­trib­ute con­trolled sub­stances, which in­clude some pre­scrip­tion drugs such as nar­cotics or stim­u­lants.

Last week, Rep. Eli­jah Cum­mings (D-Md.) iden­ti­fied five sec­ondary drug dis­trib­u­tors that he says buy and sell drugs in short sup­ply and re­quested in­for­ma­tion about their busi­ness prac­tices. The closely held com­pa­nies tar­geted by the law­maker’s let­ters are Al­lied Med­i­cal Sup­ply, Mi­ami; Su­pe­rior (Colo.) Med­i­cal Sup­ply; Premium Health Ser­vices, Columbia, Md.; PRN Phar­ma­ceu­ti­cals, Rockville, Md.; and Re­liance Whole­sale, Mi­ami.

Cum­mings said in the let­ters that he is con­cerned the com­pa­nies are en­gag­ing in “drug spec­u­la­tion.”

“It’s just not true,” said Steven Green­wald, CEO of PRN Phar­ma­ceu­ti­cals. Green­wald said be­cause PRN has to buy drugs at higher prices— PRN does not pur­chase from the large whole­salers—it also has to sell its prod­ucts at a higher rate than hos­pi­tals and phar­ma­cies typ­i­cally pay.

A state­ment from Al­lied Med­i­cal Sup­ply said the com­pany will co­op­er­ate with the in­ves­ti­ga­tion and that it plays “a vi­tal role” in en­sur­ing hos­pi­tals and pa­tients get the drugs they need.

Sev­eral so­lic­i­ta­tions sent to hos­pi­tals show that some dis­trib­u­tors have of­fered drugs in short sup­ply at sub­stan­tially higher prices that what a hos­pi­tal may re­ceive on con­tract with its whole­saler. The num­ber of drug short­ages, which has steadily in­creased since 2006, is on track to ex­ceed 280 this year.

An of­fer pro­vided by a hos­pi­tal phar­ma­cist to Modern Health­care shows that Premium Health Ser­vices charged $277 for acetyl­cyst, a mu­colytic used to thin mu­cus se­cre­tions in the lungs and bronchial tubes, which has an av­er­age whole­sale price of $19.56.

A so­lic­i­ta­tion sent by Su­pe­rior Med­i­cal Sup­ply to an­other hos­pi­tal priced dox­oru­bicin, a chemo­ther­apy drug, at $125 per vial, as com­pared with the hos­pi­tal’s con­tracted price of $25.48.

In 2008, Su­pe­rior Med­i­cal Sup­ply agreed to pay $200,000 to the DEA to set­tle al­le­ga­tions that it vi­o­lated the Con­trolled Sub­stances Act by keep­ing in­com­plete records and sell­ing large quan­ti­ties of hy­drocodone to re­tail phar­ma­cies and fail­ing to re­port the or­ders. The com­pany de­nied the al­le­ga­tions. Ear­lier this year, the Ten­nessee Board of Phar­macy de­ferred grant­ing a li­cense to Su­pe­rior Med­i­cal Sup­ply in the wake of additional al­le­ga­tions made by Cal­i­for­nia’s phar­macy board.

Calls to Su­pe­rior Med­i­cal Sup­ply and Re­liance Whole­sale were not re­turned.

Dan Her­lihy, owner of Premium Health Ser­vices, said in an e-mailed state­ment that he has met with Cum­mings’ staff on sev­eral oc­ca­sions, in part be­cause of the com­pany’s ef­forts to en­act a fed­eral pedi­gree law. “I look for­ward to meet­ing Con­gress­man Cum­mings to high­light the in­ef­fi­cien­cies that have led to the short­ages we are fac­ing,” Her­lihy said. “That would in­clude the role of the GPOs and their ef­fect on in­dus­try pric­ing and prod­uct avail­abil­ity.” A chief com­plaint among sec­ondary dis­trib­u­tors is that they are re­quired to pro­vide drug pedi­grees that track the pur­chase of a drug. The re­quire­ment does not ex­tend to whole­salers and au­tho­rized dis­trib­u­tors of record.

Gen­er­ally, phar­ma­cists say that dis­trib­u­tors do not pro­vide in­for­ma­tion about where they ob­tain drugs, un­less they are op­er­at­ing within a state that has a pedi­gree law (Oct. 3, p. 14). Sec­ondary dis­trib­u­tors pur­chase drugs from a num­ber of sources, in­clud­ing man­u­fac­tur­ers, other whole­salers, hos­pi­tals, phar­ma­cies and physi­cians of­fices.

“These are the kinds of things that you hope the man­u­fac­turer and the au­tho­rized dis­trib­u­tors are mon­i­tor­ing,” Co­hen said. Some com­pa­nies, such as Su­pe­rior Med­i­cal Sup­ply and Premium Health Ser­vices, are au­tho­rized ven­dors for Hospira. Su­pe­rior is also au­tho­rized to work with Merck. But con­cerns about price-goug­ing have led some man­u­fac­tur­ers to sever con­nec­tions to sec­ondary dis­trib­u­tors.

Hospira and APP Phar­ma­ceu­ti­cals have said they cut ties with dis­trib­u­tors in­volved in the gray mar­ket. An APP Phar­ma­ceu­ti­cals spokes­woman said in an e-mail that the com­pany re­cently in­formed seven com­pa­nies sus­pected of gray-mar­ket ac­tiv­ity that it will no longer work with them.

“In a fur­ther at­tempt to pre­vent its prod­ucts from be­ing dis­trib­uted by gray-mar­ket re-sell­ers and to dis­cour­age price goug­ing of drugs cur­rently on short­age, APP Phar­ma­ceu­ti­cals sells to au­tho­rized whole­salers and dis­trib­u­tors,” said spokes­woman De­bra Lynn Ross. “In ad­di­tion, health­care fa­cil­i­ties that pur­chase di­rect from APP must go through the com­pany’s ac­count ap­proval process and con­tinue to be in good stand­ing with each or­der placed.”

A 2007 news re­port found that about 5,500



A board at the Univer­sity of Utah Hos­pi­tal in Salt Lake City shows drugs in short sup­ply, a prob­lem that’s grow­ing na­tion­ally.

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