Price Gouging Spikes Drug Costs Up to 4500%, Purchasing Group Says

Unscrupulous companies are engaging in price gouging of scarce, life-saving drugs on the so-called "grey market," with markups averaging 650% but as high as 4,500% before they even get to the hospital.

Those are among the findings of Premier Healthcare Alliance, a quality improvement and purchasing organization with 2,400 hospital and other provider members.  Premier spoke about its report  on the findings in a briefing with U.S. Senators Amy Klobuchar, (D-MN) and Richard Blumenthal, (D-CT) and Bona Benjamin of the American Society of Health System Pharmacists.

Five years ago, such high markups were seen in sales of only about 50 drugs. But now industry representatives say 170 essential medications were exploited in 2010 and expect as many as 360 on the list by the end of 2011.

Mike Alkire, chief operating officer of Premier, said the practice they've uncovered represents "a growing trend of price gouging efforts by grey market vendors (who are) attempting to capitalize on the desperation of pharmacies directors within hospitals and other buyers who are finding it increasingly difficult to secure sufficient supplies of the drug needed to meet patient care needs."

A recent American Hospital Association survey of 820 hospitals across the nation found that almost all of them reported a drug shortage in the last six months.

Alkire added that, "Considering the nation's budget crisis and our skyrocketing healthcare bills, these markups are nothing more than profiteering at the expense of patients and providers who are struggling to afford vital medicine to provide great patient care...taking advantage of our most vulnerable citizens."

In a recent two-month period, he said, Premier reviewed 1,750 sales offers from grey market vendors that came through e-mails and fliers offering scarce drugs. "Pediatric pharmacist members have let us know that infants and children have been at risk because of shortages in nutritional and electrolyte" compounds.

• A 3,170% markup for leucovorin, a drug to help cancer patients retain bone marrow
• A 3,161% markup for, propofol, a sedation drug
• A 2,979% markup for a medicine to dilate veins and prevent brain or heart spasms and
• A 2,642% markup for drugs to prevent damage during a heart attack.

Nearly half of the drugs reviewed were marked up more than 1,000%.

"It's not unheard of for a drug to be bought and sold four or five times in the same day," he said.

Alkire said the situation "begs several questions:

"Where and how (is the grey market) getting medicines no one else can have access to (and) how can the integrity of these drugs be ascertained if it's best practice or even acceptable to purchase drugs from these sources." 

When these drugs are bought and sold across state lines, moved in whole or partial lots, repackaged and relabeled, resulting in a complex web of transactions involving dozens of trading partners, (it makes) it almost impossible to determine the supply source or authenticity."

Klobuchar, who spoke at a briefing Tuesday to release the latest report, said she considers the issue to be "a crisis, with unprecedented shortages for a record number of these medications, especially the drugs treating cancer."

She cited the case of a 4-year-old Minnesota boy with leukemia whose family "learned that the drug cytarabine, an essential drug for his treatment, was in short supply and would not be available.

"It threw them into a panic right before the chemotherapy, and the pharmacist and hospital searched everywhere for some cytarabine," she continued. They found it at the last minute, but not without a waste of a huge amount of pharmacists' and hospital employees' time, she said.

According to the Premier report, cytarabine was being sold at more than 4,000% higher than its list price, the second only to labetalol, a drug for cardiology which was sold at 4,500% markup.

Added Blumenthal, who said he has asked the U.S. Government Accountability Office for a report on the practice: "I'm committed to cracking down on this activity ... This kind of egregious and shocking behavior should be a target for Washington. We should say absolutely no to the free-market playing Russian roulette with our healthcare system."

He added that these grey market, high-priced drugs "can either be counterfeit, or improper dosages, or otherwise threatening to patients' health."

Other investigations and activities are underway, including a bill that would require pharmaceutical companies that perceive shortages of certain essential drugs to notify the U.S. Food and Drug Administration in advance.

Also, Sen. Herb Kohl (D-WI) wants the U.S. Federal Trade Commission to examine the impact that consolidation in the pharmaceutical industry may be having on the nation's drug supply.

In its Tuesday report, Premier issued several recommendations with a warning to hospitals, doctors and pharmacists to avoid buying from such grey market companies.

"Understand[ing]...the possibility that supplied drugs may be counterfeit, stolen, diverted, mishandled and/or adulterated," is the first of Premier's eight recommendations to healthcare purchasers to avoid getting caught by this practice," Premier admonished in its report.

The purchasing alliance said health system purchasers should develop a policy guiding which distributors and suppliers they will do business with, and document specific reasons for any exceptions.

Premier issued the following additional recommendations:

• Confirm receipt of drug pedigree with all appropriate information and assure that each transaction can be authenticated and tracked to the manufacturer or manufacturer's approved distributor of record.
• Confirm the wholesaler, distributor and supplier licensure with authorities.
• Keep records of suspect organizations.
• Compare and scrutinize purchases and don't use drugs if there are concerns.
• Consider reporting any suspect suppliers to appropriate authorities.

"Our suggestion is to stay out of these markets," said Alkire.

A hearing has been scheduled Sept. 21 before the U.S. Food and Drug Administration.

See Also:
Drug Shortages Increasing at 'Alarming Rate,' Says AHA
Senator Urges FTC to Examine Link Between Drug Shortages, Pharma Consolidation
Oncology Drug Shortage Rising
Drug Shortages Raise Costs, Put Patients at Risk