Premier Healthcare Alliance just released Buyer beware: Drug shortages and the gray market, a fascinating but disheartening report on the secondary market for drugs facing shortage.The report gathers innovative data about the financial underbelly of the gray market. The results aren’t pretty, with mark-ups on key generic oncology and critical care drugs averaging 650%.
It’s really depressing to see the illegitimate secondary market thriving. Someone out there must be buying drugs with questionable heritages and sky-high price tags. Otherwise, the gray market would vanish.
Fans of irony will appreciate the FDA’s July 14 decision to back away from full pedigree information due in part to a lawsuit by secondary wholesalers. Really?!?
Read on for some reflections on this crisis.
THE MARKUPS
The drug shortage situation has recently hit the national media, including USA Today, CBS Evening News, The New York Times, and many others.
The Premier report makes an important contribution by adding new facts to the debate. (By now, you know how I feel about data.)
Premier gathered sales offers made to its acute-care members over a two-week period earlier this year. They collected 1,745 examples of gray market offers sent to 42 acute care hospitals. All drugs offered were manufacturer back-ordered or unavailable drugs. They were able to identify the prices and NDCs for 310 different generic drugs with a Premier contract price.
Here are the five highest mark-ups for manufacturer back-ordered drugs:
- Labetalol (cardiology): 4,533%
- Cytarabine (oncology): 3,980%
- Dexamethasone 4mg inj. (oncology and rheumatology): 3,857%
- Leucovorin (oncology): 3,170%
- Propofol (critical care sedation and surgery): 3,161%
WHO?
There were 18 secondary vendors, although a few vendors accounted for most of the volume. (See the table on page 3.) Premier turned that information over to “the government.”
Who has jurisdiction here. FBI? DEA? FDA? CSI:Miami?
It’s scarily plausible that some secondary vendors are technically playing by the rules given the crazy patchwork of laws and regulations across the country. Check out HDMA’s ever-evolving map of Distributor Licensing and Pedigree Requirements by State. I presume that gray market vendors will likely gravitate to the 20 states with no legislation or regulation.
And just to be clear:
- The national and regional pharmaceutical wholesalers no longer participate directly in the secondary market. Inventory Management Agreements (IMAs) and Fee-for-Service agreements dramatically reduced secondary market activity in the U.S. wholesale channel. This has limited product leakage into the gray market and closed a significant entry point for counterfeit drugs. Cardinal Health (NYSE:CAH) even had to promise Eliot Spitzer that they would stay away from secondary markets. See Cardinal's Sins.
- Pharmaceutical Research and Manufacturers of America (PhRMA) issued a statement over the weekend reminding everyone that the “the majority of drug shortages have involved generic drugs.” This is true. There are well-established procedures by which brand-name manufacturers notify both the FDA and the trade about shortages.
How do these mysterious vendors get access to drugs in short supply?
Who knows? It could be legitimate product being sold out the back door of a pharmacy or a provider. It could be stolen product. Heck, it could even be outright counterfeits being sold to take advantage of the shortage. Criminals can view the ASHP drug shortages web page and label a vial of water as anything they want.
As I have been sad to point out, stolen products have a disturbing tendency to find their way back into the legitimate supply chain, typically when a pharmacy purchases from a shady vendor. Examples here, here, and here.
WHAT TO DO
I sympathize with the conundrum facing hospitals when drugs are in short supply. As Premier notes:
“In times of shortage, pharmacies may have no choice but to purchase from companies that are not among their traditional contracted suppliers...In order to avoid an unwitting purchase from the gray market, pharmacies must take additional steps and perform due diligence to ensure that the products are genuine, safe and handled appropriately, in accordance with all state and federal laws.”Well, good luck with that. Premier’s recommendations (page 6-7) are reasonable but essentially boil down to “Caveat Emptor” for an overburdened hospital pharmacy buyer. Hardly the way we want our pharmaceutical supply chains to function.
PEDIGREE TO THE RESCUE?
In light of a booming secondary market, you may be surprised by the FDA’s recent reversal over pedigrees.
On July 14, the FDA proposed that wholesalers only document the chain of custody (“pedigree”) back to the last authorized distributor of record (ADR) that handled the drug rather than requiring pedigrees to be documented back to the manufacturer. Read this scintillating Federal Register notice.
As far as I know, the FDA is still enjoined from implementing the pedigree requirements of the 1987 (!) Prescription Drug Marketing Act due to a lawsuit victory by secondary wholesalers way back in December 2006. See No PDMA for You!
Submit your comments to the FDA by September 12, 2011.
I’VE GOT THE PROFITEERING BLUES
The image for this post comes from a long-forgotten song from 1920. I learn so many fun facts researching Drug Channels!
To any readers under the age of 25: The music in the video is coming from something called a "record player," which is how we listened to our MP3s back in the olden days.
Click here if you can’t see the video.
