Pharmaceutical gray market thrives along with national drug shortage

The national prescription drug shortage I wrote about last year has advanced to a point where there’s now rationing of some drugs, and even reports of cancer patients being turned away when a needed drug is unavailable – sometimes right in the middle of a course of chemotherapy.

This public health crisis has also spawned a legion of sleazy gray market distributors that have been quick to jump in to sell supplies of otherwise impossible to obtain drugs, as long as health care providers are willing to pay their outrageous mark-up over what the drug would normally cost.

Gray-market vendors operate through unofficial supply channels. They are not vetted by the drug manufacturer and are also not listed by the manufacturer as an authorized distributor of record. Exactly how and where these somewhat shadowy vendors go about obtaining the scarce drugs they sell is never spelled out. But they do seem to have an uncanny ability to identify and obtain drug supplies that manufacturers and their authorized distributors can’t supply. So far, regulatory agencies have not done much at all to control this market.

Most of the cancer drugs and other drugs in short supply are less expensive generic injectables, so there’s plenty of room for profit. You can see a list of current drug shortages here  and here. Many of these drugs are found in the marketing solicitations that hospitals receive every day – by fax, e-mail, and telephone, most often to the chagrin of pharmacists and hospital purchasing agents.

We’ve been getting a lot of complaints lately about these vendors so in July, my group, the Institute for Safe Medication Practices, conducted a hospital survey to learn more about the gray market. The survey generated 549 replies and hundreds of comments. Of major concern was how gray market vendors happen to have access to scarce drugs that the hospitals can no longer get themselves. One major concern is that when gray market vendors sense an impending shortage, they buy whatever supplies they can find, from whatever source there may be, thus contributing to the crisis itself. Purchasers also worry about the possibility that unscrupulous individuals may participate in the supply chain, thus increasing the risk that some of the drugs may be stored improperly, contaminated, counterfeit, or even stolen. According to FreightWatch International, which advises on supply chain security, prescription drugs account for 15% of annual cargo theft. These drugs are typically sold back into the supply chain by corrupt wholesalers. Meanwhile, the medications can lose potency if not stored and shipped properly.

More than half (56%) of all respondents in our survey reported receiving daily solicitations from up to 10 gray market vendors. Of great concern was that 13% of respondents even reported being solicited, mostly weekly, from gray market vendors who wanted to purchase vital medications in short supply from the hospital. This activity just invites unethical or even dishonest behavior. I worry that at least some of these products might also be sold to vendors right off the hospital loading dock after delivery by a legitimate drug wholesaler or manufacturer. Some may be purchased legitimately by individuals or facilities that don’t really plan to use them, just so they can resell to a gray market vendor and make a profit themself. I’ve seen documentation showing up to six different turns from manufacturer to the hospital that ultimately used the drug.

Gray market purchasing is widespread. About half (52%) of hospitals reported purchasing one or more pharmaceutical products from gray market vendors during the past 2 years. But this is not an ordinary situation where the law of supply and demand takes hold, since a patient’s welfare is at stake and it isn’t them making the decision to purchase the potentially life-saving drug. Pharmacists and doctors are often faced with the ethical dilemma of balancing patient need versus the outrageously unfair pricing, the difficulty of authenticating the supply, and the fact that purchasing from the gray market will just continue the cycle. Indeed, about half the hospitals have rejected gray market solicitations entirely, out of concern about authenticity (74%), ethical concerns (66%), cost (69%), and concerns about the storage conditions prior to purchase (58%).

As for outrageous pricing, about a third who had purchased a product from the gray market reported encountering price mark-ups of 10-fold or more than the contract price (900% mark-up). This is similar to findings of another recent survey on the gray market by Premier Healthcare Alliance that showed average increases of 650%.  However, for a selection of 10 critically important back-ordered drugs, mark-ups were between 1,721 and 4,533 percent! Indeed, one hospital sent us a gray market solicitation last week where a 20 mL, 100 mg/mL vial of the leukemia drug cytarabine, which recently has been almost impossible to obtain, was being sold at $285 per vial. Normally the hospital pays around $15. So that represents a mark-up of 1,800%! Another pharmacist commented that a gray market vendor increased the price of a 25-count box of electrolytes from $200 to $325 in a period of 4 hours because, he was informed, “That’s what the market will bear.” The manufacturer’s contract price for the same electrolyte was $17.

Some states have enacted regulations that require documentation of authenticity (pedigree) of any purchased pharmaceutical product. A pedigree document lists all points of distribution of a product, from manufacturer to last point of sale, along with names of all those that had ownership. The last purchaser is then able to authenticate the supply by contacting anyone on the list. Still, even in states with a pedigree law, half reported purchasing medications from the gray market and only 35% reported always receiving the required documentation of authenticity.

Drug shortages and the gray market can be measured in terms of cost to our health system and an elevated risk of patient harm. Thus, legislative efforts are sorely needed in order to bring it under control. Indeed, two bills are pending in the US Congress  that would give FDA more authority to better manage drug shortages. We’d also like to see a requirement that manufacturers stop deliveries to wholesalers/distributors when the company knows their products are, or soon will be, in short supply. This is already done by some companies. Then, hospitals, clinics, pharmacies, and other direct patient care providers with direct accounts to primary vendors would be able to access the products at contracted rates and not fear hoarding by secondary vendors. A national pedigree law and firm authentication processes are needed to limit the distribution of pharmaceuticals only to authorized distributors of record. Finally, stricter regulatory and law enforcement action is needed against illegal activities, such as counterfeiting and theft.

The ISMP survey, with additional findings and recommendations is available on our website.

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