‘Gray mar­ket’ drugs’ high price

Congress re­fo­cuses on gray mar­ket in drug short­falls

Modern Healthcare - - FRONT PAGE - Jaimy Lee

Frus­trated law­mak­ers are seek­ing to as­sign blame to the or­ga­ni­za­tions, reg­u­la­tory poli­cies and busi­ness prac­tices that they say have caused or ex­ac­er­bated drug short­ages. A re­port re­leased in June by the House Com­mit­tee on Over­sight and Gov­ern­ment Re­form at­trib­uted the record num­ber of drugs in short sup­ply to the Food and Drug Ad­min­is­tra­tion’s stepped-up en­force­ment ac­tions. It also cited the Medi­care Mod­ern­iza­tion Act’s im­pact on generic drug pric­ing and the mar­ket struc­ture of group pur­chas­ing or­ga­ni­za­tions as con­trib­u­tors to drug short­ages.

Now, some of the same law­mak­ers have turned their at­ten­tion back to the so-called gray mar­ket, a sec­ondary drug dis­tri­bu­tion chain that has of­ten served as the only source of some scarce drugs for providers in need.

Rep. Eli­jah Cum­mings (D-Md.) launched an in­ves­ti­ga­tion into sec­ondary drug dis­trib­u­tors last year, al­leg­ing that some of the closely held dis­tri­bu­tion com­pa­nies are en­gaged in drug spec­u­la­tion.

Last week, Cum­mings, along with Sens. Jay Rock­e­feller (D-W.Va.) and Tom Harkin (D-Iowa), re­leased a re­port pro­vid­ing in­for­ma­tion about the sec­ondary drug dis­tri­bu­tion mar­ket and par­tic­i­pated in a Se­nate Com­merce Com­mit­tee hear­ing about the gray mar­ket.

“Gray-mar­ket drugs leak out of au­tho­rized dis­tri­bu­tion chains, of­ten through phar­ma­cies that sell to whole­sale dis­trib­u­tors, and are sold to end users at ag­gres­sively marked-up prices,” the re­port’s authors wrote. “The ques­tion­able busi­ness prac­tices of the dis­trib­u­tors and phar­ma­cies en­gaged in gray-mar­ket sales re­sult in higher health­care costs and po­ten­tial risks to pa­tients.”

The re­port an­a­lyzed 300 drug pedi­grees and found that dis­trib­u­tors ac­quired nearly 70% of drugs sold into the gray mar­ket from phar­ma­cies.

The Cal­i­for­nia State Board of Phar­macy reached a sim­i­lar find­ing af­ter an in­ves­ti­ga­tion last year. Vir­ginia Herold, the phar­macy board’s ex­ec­u­tive of­fi­cer, tes­ti­fied dur­ing the Se­nate hear­ing that the in­ves­ti­ga­tion was prompted by a phar­ma­cist who in­quired about the le­gal­ity of buy­ing drugs in short sup­ply with the sole in­ten­tion of sell­ing them to a dis­trib­u­tor.

The board found that 55 phar­ma­cies in Cal­i­for­nia had pur­chased drugs in short sup­ply and sold them to Pri­or­ity Phar­ma­ceu­ti­cals, a San Diego-based sec­ondary dis­trib­u­tor, more than 500 times. The board cited and fined the phar­ma­cies and phar­ma­cists. Some of the phar­ma­cies and phar­ma­cists have ap­pealed. Al­though Pri­or­ity is listed in the ci­ta­tions, the board’s in­ves­ti­ga­tion into the com­pany is on­go­ing. Patricia Earl, an in­dus­try an­a­lyst for the Na­tional Coali­tion of Phar­ma­ceu­ti­cal Dis­trib­u­tors, a trade group that rep­re­sents sec­ondary

dis­trib­u­tors, ar­gued dur­ing the hear­ing that sec­ondary dis­trib­u­tors are a valu­able part of the sup­ply chain, in part be­cause they pro­vide drugs to health­care providers dur­ing off hours and to re­mote re­gions. Sec­ondary dis­trib­u­tors also serve as a backup source for phar­ma­cies, ac­cord­ing to the Na­tional Community Phar­ma­cists As­so­ci­a­tion.

As drug short­ages have gained at­ten­tion from law­mak­ers, so have the gray-mar­ket prac­tices of some dis­trib­u­tors. Sev­eral mem­bers of the Se­nate com­mit­tee ex­pressed con­cern about dis­tri­bu­tion chains that show a drug be­ing bought and sold mul­ti­ple times, each time with a markup in price.

Earl said that the NCPD does not sup­port mul­ti­ple transactions within a pedi­gree or price-goug­ing.

How­ever, two of the coali­tion’s board mem­bers listed on its most re­cently avail­able In­ter­nal Rev­enue Ser­vice Form 990, from 2010, are ex­ec­u­tives of At­lantic Bi­o­log­i­cals and Re­liance Whole­sale, both of which are cited on mul­ti­ple-trans­ac­tion pedi­grees in the July 25 con­gres­sional re­port. The owner of Pri­or­ity Phar­ma­ceu­ti­cals is also listed as a mem­ber on the Form 990. A spokes­woman for the NCPD de­clined to com­ment when asked whether those ex­ec­u­tives re­main part of the board.

Sec­ondary dis­trib­u­tors aren’t the only or­ga­ni­za­tions un­der scru­tiny in Wash­ing­ton. On July 23, the FDA sent a let­ter to Cum­mings, stat­ing that the agency is not the “root cause” of drug short­ages and that the long-term com­mit­ment of drug man­u­fac­tur­ers is nec­es­sary to solve the short­ages.

The House re­port, which was re­leased in mid-June, rec­om­mended that the FDA al­low fa­cil­i­ties to make im­prove­ments un­der its su­per­vi­sion rather than shut down man­u­fac­tur­ing lines. About 30% of to­tal man­u­fac­tur­ing ca­pac­ity at the four largest generic drug man­u­fac­tur­ers in the U.S. has been shut down.

The same re­port cited the mar­ket struc­ture of the group pur­chas­ing in­dus­try, which drives down prices for its mem­bers but can lead man­u­fac­tur­ers to exit the mar­ket.

Cur­tis Rooney, pres­i­dent of the Health­care Sup­ply Chain As­so­ci­a­tion, re­sponded in a state­ment that GPOs “do not have the abil­ity— nor would it be in our in­ter­est—to force man­u­fac­tur­ers into con­tracts that un­der­mine their abil­ity to de­liver prod­uct.”

De­spite an ex­ec­u­tive or­der in Oc­to­ber 2011 that led to the preven­tion of at least 114 short­ages and the ad­di­tion of a pro­vi­sion in the re­cent FDA user-fee leg­is­la­tion that will re­quire man­u­fac­tur­ers to warn the FDA about po­ten­tial short­ages in cer­tain in­stances, some say drugshort­age prob­lems are not get­ting any bet­ter.

“We haven’t seen a lot of im­prove­ment,” said Michael Co­hen, pres­i­dent of the In­sti­tute for Safe Med­i­ca­tion Prac­tices. “It’s re­ally dis­heart­en­ing.” He noted that med­i­ca­tion er­rors have been re­ported be­cause of a clin­i­cian’s un­fa­mil­iar­ity with an al­ter­na­tive prod­uct and hos­pi­tals are now hir­ing full-time staffers to han­dle the short­ages. Propo­fol, the anes­thetic that was in short sup­ply two years ago, is again scarce.

“The point is it’s still hap­pen­ing,” Sen. Mark Begich (D-Alaska) said dur­ing last week’s hear­ing. “We could ar­gue the de­gree (that) it’s hap­pen­ing but we need to fig­ure this out be­cause sup­ply chain of phar­ma­ceu­ti­cal goods for health is crit­i­cal.”


A phar­macy buyer holds a tray of mag­ne­sium sul­fate—a drug that re­mains on the FDA’s list of drugs in short sup­ply.

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