Friday, July 27, 2012

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


  1. American Regent is a commercial compounder. Magnesium Sulphate can be and is compounded in small lots by other sterile injectable compounding labs. This would help ease the shortage and in turn, help resolve gray market drug diversion.
    That being said, you create a whole new set of problems by doing this because computerized medical billing systems are not designed to easily bill custom compound medicine.
    It is a sad commentary on our society when computer glitches and red tape keep us from being able to successfully resolve a drug shortage

  2. B BerditzmannJuly 27, 2012

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  3. B BerditzmannJuly 27, 2012

    Great story today!  My question, are not the wholesalers to be reviewing and monitoring the customers they serve?  It is interesting that as long as finances are ‘ok’, the sales go through.

    It would be interesting if they placed a system in place similar to what I have seen with my CII product. They actually required validation of the prescription prior to shipping product.

  4. 50 shades of gray?

  5. Wow, I'm embarrassed that I didn't make that connection for the article.

  6. Yet another example of morons in government.  It's clear that none of these Senators understand the distribution business or even the healthcare delivery system.  We're all better off if they'd just stay out of it.  I wonder how much money they spent on this.