Despite strong efforts on the part of the FDA, prescription drug shortages have been increasingly rising since 2005 and have been doing so at an alarming rate. Between 2005 and 2010, reported prescription drug shortages in the United States nearly tripled, jumping from 61 to 178 scarce drugs. As of November 2011, that number stood at 246. Among the more worrying consequences of the shortages is the fact that certain life-saving drugs are among the scarcest, including those used for oncology (Cytarabine), cardiology (Labetalol), and critical care (Papavarine).
In the wake of record drug shortages, shadow gray market providers are profiting and charging buyers exorbitant prices, often reported as high as 4,533 percent higher than the drugs’ original market value. And despite complaints of price gouging, there remains no federal law prohibiting price gouging on prescription drugs.
The problem is multifaceted. Though the U.S. commercial pharmaceutical supply chain is highly regulated, a gray market does exist. In broad terms, the complications begin when pharmacies purchase the entirety of a prescription drug already in short supply and then proceed to resell it at drastically increased prices. Some may find such a dynamic morally deplorable, yet loopholes in the current system mean that this resale remains technically legal.
The normal course of the pharmaceutical supply chain is as follows: a drug originates with the manufacturer, then proceeds to a wholesaler, and finally ends up in the hands of a pharmacy or a hospital where it is ready for consumer use. In order to maintain the integrity of the supply chain and to ensure that only authorized distributors have access to the drugs, significant regulation exists throughout all steps of the distribution process.
Gray market vendors navigate this difficult regulatory terrain through the creation of fake pharmacies. These pharmacies are able to obtain prescription drugs at drastically reduced prices by claiming to purchase discounted drugs for nursing homes, hospitals, or other similar institutions. Instead of selling to nursing homes, however, these gray market pharmacies resell the drugs to “secondary wholesalers,” who proceed to sharply raise the prices.
Gray market pharmacies also avoid regulation by skirting contractual pricing agreements. When a drug is first produced, a pricing agreement exists between a manufacturer, the initial wholesaler and a pharmacy. However, once the drugs arrive at the pharmacy, the pricing agreements disappear. Such a setup allows gray market pharmacies to purchase prescription drugs in short supply and then divert these scarce drugs to secondary wholesalers to whom credible, initial wholesalers would not normally sell.
In the past, some gray market distributors have been guilty of both buying drugs from unlicensed distributors and selling these drugs without a license. However, it remains difficult to prosecute distributors for simply raising prices. For instance, even though a leukemia drug whose average price is about $12 per vial may sell for $990 per vial in the gray market, the price gouging is not a crime. Some of the highest markups are summarized below:
• Labetalol (cardiology) – 4,533 percent
• Cytarabine (oncology) – 3,980 percent
• Dexamethasone 4mg inj. (oncology and rheumatology) – 3,857 percent
• Leucovorin (oncology) – 3,170 percent
• Propofol (critical care sedation and surgery) – 3,161 percent
• Papavarine (critical care) – 2,979 percent
• Protamine (critical care) – 2,752 percent
• Levophed (critical care) – 2,642 percent
• Sodium Chloride Concentrate (critical care) – 2,350 percent
• Furosemide Inj. (critical care) – 1,721 percent
As prices for prescription drugs soar through the roof, it is often the consumer that suffers most–and not just in terms of cost. In the face of rising shortages, hospitals are frequently left with only three options: waiting for the drug in question to once again become available, resorting to less preferable and often less effective treatments, or turning to the gray market itself.
When hospitals turn to the gray market in order to acquire drugs in short supply, they face many problems beyond exorbitantly high costs. Oftentimes, hospitals are forced to buy drugs blindly and with little guarantee of quality. When medications are distributed through the gray market supply chain, they are exposed to a high risk of contamination. Within the gray market, there is also no way to ensure that drugs being purchased are legitimate drugs and not cheap counterfeit variations.
To combat the gray market crisis, there are two major issues that states and the federal government must address: shadow distributors’ ability to acquire scarce prescription drugs, and the distributors’ ability to drastically increase drug prices.
To date, the federal government has done little to combat the prescription drug gray market. The most substantive and promising attempt to eliminate the gray market has come from the ranking member on the House Committee on Oversight and Government Reform, Congressman Elijah Cummings. In 2012, Cummings introduced the Gray Market Drug Reform and Transparency Act in an attempt to prohibit gray market wholesalers from purchasing drugs from pharmacies.
If passed, this bill would go a long way towards combatting the gray market. However, critics point out that the bill may also simply stunt the proliferation of the gray market–it is doubtful that it will do away with the gray market altogether. Patricia Roy of the United States House Committee on Oversight and Government Reform commented, “The bill would shut down a very large portion of the gray market…However, people may always invent other ways to manipulate the system in the future, so it’s hard to say that the gray market would never exist again.”
At the state level, efforts to curb prescription drug price gouging have gone remarkably absent. The principle of fighting price-gouging itself is not the worry: twenty-seven states have already enacted laws to combat price gouging with regards to gasoline. Maine currently has strictest form of price controls on prescription drugs, yet even there, the exact legal definition of price-gouging remains ambiguous–a logistical nightmare when it comes to prosecuting exorbitant prices. Crafting a national definition for price gouging is a daunting endeavor, and one that faces high resistance from the pharmaceutical industry.
In addition to simply preventing price gouging, it is clear that any comprehensive solution to fighting the prescription drug shortages should aim to eliminate the gray market altogether. Barring further legislation, however, prescription drug shortages will continue to persist, and shadow gray market dealers will continue to exact unconscionable prices on some of the most critical and lifesaving prescription drugs.
Justin Schuster is a sophomore in Branford College