Drug Shortages Pave Way for Price 'Gougers'

Hospitals report calls from drug scalpers trying to profit from shortages.

ByCARRIE GANN, ABC News Medical Unit
August 19, 2011, 5:56 PM

Aug. 22, 2011— -- Ryan Stice, pharmacy director at Porter Adventist Hospital in Denver, says he gets inundated daily with phone calls, emails and faxes from pharmaceutical vendors who promise to provide drugs that are in short supply at his hospital. But there is a catch -- their prices are high, and their practices can seem questionable.

"I have a story about one of these vendors calling on a Friday night, lying to a staff member to get approval for shipment, and sending their products for Saturday delivery to avoid our normal safeguards on bogus shipments and invoicing," Stice said.

Operating in the semi-legal "gray market" of pharmaceuticals, this network of distributors works outside the normal drug supply chain, stockpiling vital drugs and offering to sell them to hospitals and clinics at inflated prices.

According to an analysis by Premier Healthcare Alliance, a national organization that collects and analyzes clinical and financial data from its member hospitals, recent unprecedented drug shortages have enlivened this "gray" pharmaceutical market.

The Food and Drug Administration currently lists 180 drugs that are in short supply around the nation, including drugs used to treat cancer and sedate patients for surgery and care. Mike Alkire, the chief operating officer at Premier Healthcare Alliance, which published data on drug price-grouging practices last week, said these shortages have left many hospitals scrambling for supplies of these vital medicines.

"When quantity decreased, demand increased, and so did the price," said Alkire.

Premier analyzed nearly 2,000 sales offers from "gray market" distributors and found an average price markup of 650 percent for drugs used to treat cancer and other critical illnesses, as well as sedate patients for surgery, that have been in short supply in recent months. The analysis found that 96 percent of the markups offered were at least double the normal price of the drugs. The highest markup was for the drug lebetalol, used to treat high blood pressure. Lebetalol usually sells for $25.90, but "gray market" offers priced it at $1,200.

The "gray market" offers come in a barrage of phone calls, faxes and emails sent to hospital pharmacies, all offering to sell drugs that hospitals desperately need.

Stice said these offers try to capitalize on the most vulnerable hospitals.

"The companies tend to be cagey about pricing, attempting to get a commitment based on the level of desperation of the hospital pharmacy buyer," Stice said. "We try to ensure our staff is educated to not agree to purchase anything from a nonapproved vendor, no matter how desperate we are."

Most hospitals don't buy drugs from "gray market" vendors, and inflated pricing isn't the only reason. These distributors often get their drugs from "quasi-legal sources," said Alkire, that may not store, ship and handle the drugs according to the manufacturer's standards. This decreases the safety and effectiveness of the drugs. Another worry is that "gray market" vendors sell drugs that are diluted or completely fake.

"In essence, this adds insult to injury," said Alkire. "Not only are pharmacies being asked to pay the price gouger's premium, but in some cases they can't be sure that the medicine they're buying is safe or even the real thing."

Some U.S. drug manufacturers try to keep their drugs off the "gray market." Debra Lynn Ross, a spokeswoman for drug manufacturer APP Pharmaceuticals, said the company only deals with authorized wholesalers and distributors. She said APP has started shipping drugs directly to hospitals and clinics to discourage stockpiling and reselling by gray-market vendors.

Hospitals have struggled to adjust to the drop in drug supplies. For some drugs, there may be equally effective alternatives that doctors can substitute in treatments. But other drugs have few options. Stice said when supplies of some drugs get too low, nurses and pharmacists mix drug doses in smaller sizes than usual, potentially decreasing waste when a medication is stopped early or changed.

Jeffrey Smerage, medical director of infusion at the University of Michigan Comprehensive Cancer Center, said doctors there have had to make hard choices about which patients get the most effective drugs. "None of those decisions are fair or easy, but we had few options," he said.

Alkire said it's hard to determine how these distributors get access to drugs to sell at increased prices in the first place. The "gray market" is a complex web of transactions in which medicines are bought and sold across state lines, moved in whole or partial lots, repackaged and relabeled, making it nearly impossible to determine where the supplies came from or how authentic they are. "No easy solution exists to address the problem," Alkire said.

Premier recommends that hospitals and pharmacists take precautions in dealing with drug vendors, such as checking that the vendor is a licensed, authorized distributor of the drug, and to report suspect suppliers to authorities.

But Michigan's Smerage said the best way to deal with price-gouging vendors is to fix the dwindling supplies of drugs.

"In the end, you wouldn't have a gray market and you wouldn't have markups if there wasn't a drug shortage," he said.

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