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Drug Distributors: On The Gray Market

Though pharmaceutical products are tightly regulated, distributors aren’t, and that has led to a netherworld of dealers ready to exploit—or create—drug shortages.

By Timothy Gower // Summer 2011
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When hospitals can’t get drugs from their usual wholesalers, some turn to a network of distributors known as the gray market. In fact, whenever there’s a nationwide shortage of a medication, hospital pharmacists can expect to be bombarded with faxes and phone calls from gray market dealers offering to provide a few doses—typically at hugely inflated prices.

Although it’s legal to charge inflated prices for prescription drugs, groups such as the American Society of Health-System Pharmacists discourage use of the gray market. But sometimes pharmacists feel they have no choice. Last September, a young patient with Hodgkin’s lymphoma at Kootenai Medical Center in Coeur d’Alene, Idaho, needed two vials of the drug bleomycin. Unable to get bleomycin from either its wholesaler or other hospitals, Michael Brandt, Kootenai’s pharmacy supervisor, paid $724 for two vials—which would normally sell for about $45.

Gray market distributors exploit lax state laws regarding the distribution of prescription drugs. Pharmaceutical companies sell almost all of their products to a few large distributors, which control about 90% of sales to hospitals and pharmacies in the United States. However, there are hundreds of smaller distributors that purchase drugs from one another like any other traded commodity, with the hope of buying low and selling high. When shortages occur, they offer the drugs for sale to hospital pharmacists at prices that can be 100 times or more than retail.

Because gray market drugs sold this way have often passed through many hands, there’s no guarantee that they’ve been stored and handled properly. And gray market dealers may sometimes hoard supplies to create a shortfall. “A lot of shortages are manufactured by dirty wholesalers who stockpile drugs to drive up prices,” says investigative reporter Katherine Eban, author of Dangerous Doses (Harcourt, 2005). “There’s no question there’s a lot of rapacious buying.”

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