New Senate Report IDs Gray Market Players, Including Some Surprising Names

On Wednesday, the Senate Committee on Commerce, Science and Transportation held an eye-opening hearing titled Short-Supply Prescription Drugs: Shining a Light on the Gray Market. 

The Committee simultaneously released a report documenting gray market activity by some well-known companies. Briefly:

• Most drugs enter the gray market through pharmacies.
• These pharmacies usually buy drugs from legitimate Authorized Distributors of Record (ADR), including AmerisourceBergen, Cardinal Health, McKesson, and H.D. Smith.
• While some buyers are “fake pharmacies,” others appear to be legitimate purchasers, such as Walgreens Infusion Services and a Medicine Shoppe franchisee.
• Multiple secondary wholesalers handle gray market products, adding huge mark-ups along the supply chain.

Check out the diversion maps below for a peek at how these companies participate—perhaps inadvertently—in the gray market. There was conflicting witness testimony about who should be blamed. (Links below.) I’ll let you make up your own mind on those competing arguments.

The Senate hearing is part of the investigation launched by Rep. Elijah E. Cummings of Maryland. See Congress Asks Where Gray Market Drugs Come From.

The full report—Shining Light On The “Gray Market”: An Examination Of Why Hospitals Are Forced To Pay Exorbitant Prices For Prescription Drugs Facing Critical Shortages—is worthwhile reading.  Key observation:

“In almost all instances, the drugs were sold by a primary distributor to a buyer that the primary distributor expected to act as a dispenser, at prices that reflected the negotiated rates of manufacturers, distributors, and dispensers. Instead of dispensing the drugs to doctors and patients, however, the expected dispensers re-sold the drugs to gray market companies, which marked up the drugs to exorbitant prices before selling them to hospitals.”

The Appendix to the Report contains five gray market drug distribution models.

Here's one featuring APP, Cardinal Health, and a Medicine Shoppe pharmacy:

Here’s one with Bedford Laboratories, AmerisourceBergen and Walgreens.

Needless to say, the companies operating in the “gray market” boxes were generally acting unethically and illegally. The report details their many transgressions, including establishing fake pharmacies to buy short-supply drugs or selling their entire inventory into the secondary market rather than dispensing to patients.

Witness testimony included:

• Disapproving statements from primary wholesalers (John Gray of Healthcare Distribution Management Association)
• Pleas not to over-regulate pharmacies because of a few bad apples (John Coster of the National Community Pharmacists Association)
• A critique of the Premier drug shortage study and a strident defense of secondary wholesalers (from Patricia Earl of the National Coalition of Pharmaceutical Distributors)

I encourage you to read the testimony yourself and make up your own mind. Unlike certain drugs, there's no shortage of blame.