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With drugs in short supply, reports rise about price gouging on the "gray market"

With the list of lifesaving drugs in dangerously short supply growing ever longer, Tampa Bay's hospitals are getting inundated with unorthodox sales pitches from companies promising speedy delivery of medications unavailable anywhere else.

"Answer this riddle correctly ... you will receive free ground shipping on your order,'' was the recent e-mailed offer from a Miami-based company that listed medicines on the federal government's shortage list it claimed it could assist with.

It didn't quote prices, but pharmacy buyers say they know to expect markups averaging as much as 650 percent over the costs they're accustomed to paying. That's the price of doing business with the pharmaceutical industry's so-called gray market.

"It's not illegal to price-gouge medications. Not yet anyway," said Brian Coleman, a pharmacy buyer at Florida Hospital Tampa. Like other area hospitals surveyed for this story, Coleman's so far has avoided purchasing medications from the gray market by relentlessly searching out alternatives. "It's getting really tough, though. Really really tough. We're getting to the end of our rope."

So far this year, at least 213 drugs have been declared in short supply. These range from medications used to treat cancer and relieve pain, to those needed to provide basic nutrients to patients on IV feeding.

With desperation rising among patients and health care providers, President Barack Obama last week issued an executive order calling on federal regulators to do more to address the shortages and to investigate reports of price gouging. Members of Congress also have begun to look into drug speculation.

"The shortage of prescription drugs drives up costs, leaves consumers vulnerable to price gouging and threatens our health and safety," Obama said.

• • •

Worried about the safety and authenticity of drugs from unfamiliar suppliers, hospital officials in the Tampa Bay region say they consider the gray market — so dubbed because critics say it can straddle the line between an illicit black market and legitimate sources — a last resort.

The drug buyer at All Children's Hospital in St. Petersburg receives 20 to 30 sales pitches each week from unfamiliar suppliers who find her by phone or e-mail.

"They will ask you, 'What are you having a hard time getting?' " said Kathy Hawkins, laughing at the suggestion that she would share such details. "That's the worst thing you can do, because then they will go and buy it all up from the manufacturers."

She and her counterparts at other local hospitals wonder how their callers are obtaining medications unavailable anywhere else — a question politicians and investigators also are asking.

What's clear is that the prices are astonishing.

This summer, a national survey found that gray marketers were offering a blood pressure medication, labetalol, at markups exceeding 4,500 percent. And it reported cytarabine, used to treat leukemia, was being marketed at premiums of 3,980 percent.

"It's one thing to price-gouge on gas or something else, but it's another thing when we're talking about drugs," said Amanda Forster, a spokeswoman for Premier health care alliance, which conducted the survey among the not-for-profit hospitals for which it negotiates drug prices on the mainstream market. "In some respects, it's preying on the most vulnerable citizens."

The survey by Premier, whose members include the BayCare Health System, Bayfront Medical Center, Moffitt Cancer Center and Adventist's Florida hospitals, found that gray market pricing averaged 650 percent more than what hospitals would typically expect to pay for drugs.

Last month, U.S. Rep. Elijah Cummings, a Maryland Democrat on the Committee on Oversight and Government Reform, requested information from five companies that appear to be taking advantage of the shortages. Among the companies was Miami-based Allied Medical Supply.

In a letter, Cummings noted that the company had offered to sell cytarabine for more than $990 per vial — exceeding 80 times the typical sales price. He asked Allied about its suppliers and finances, and how it handles delicate medications.

Allied, which is cooperating with the congressional inquiry, responded to the Times in a statement that "published surveys, highlighted in the media, grossly misrepresent Allied's business model and practices."

Industry veteran Pat Earl, a former executive at a major wholesaler, said some small suppliers are being unfairly maligned as gray marketeers. Many clients she now represents are legitimate, well-established businesses that fill a niche in a complicated drug supply chain. Cut out of the pricing negotiations that allow hospitals to purchase most of their drugs in volume at major discounts, they have to charge more because they pay more, she said.

"All of a sudden they are just all being painted gray — and quite frankly, we don't think it's that black and white," she said. "There's a lot of complexity in what's going on."

• • •

An e-mail recently sent to a local hospital pharmacy opened with a riddle in blue and red letters: "If it takes 10 men three hours to dig one hole, how many men does it take to dig half a hole in the same amount of time.''

Answer correctly, the representative for Miami-based Diversified Biologicals wrote, and qualify for free ground shipping.

The pitch was followed by a list of shortage medications that the company could assist with, from drugs to control bleeding to injections used to treat a variety of cancers.

"It's not anything sleazy by any stretch of the imagination. I wouldn't allow that," said Owen Parr, CEO of Diversified Biologicals, noting that his company is licensed in Florida and has been in business since 2006. "We are an ethical, pharmaceutical wholesale distributor."

The riddle in the e-mail — an occasional pitch — was intended as a fun way to interact with customers, he said.

The company procures shortage medications from large wholesalers, other distributors and even drugmakers. Parr said it tracks the authenticity of every drug back to the original manufacturer. And while its higher costs are reflected in its pricing, he doesn't charge anything outrageous like the reported 650 percent markups.

As alarmed as hospitals are at price inflation, they're even more worried about the purity of what's being sold. In this regard, Floridians do have some protection.

In 2003, a statewide grand jury investigation found fake versions of lifesaving drugs were tainting Florida's drug supply chain. So the state passed a law requiring "pedigree papers" for many medications that detail their origins.

Yet only three states — Kentucky, Maine and Texas — have price-gouging laws specifically addressing pharmaceuticals, according to the National Conference of State Legislatures. Florida law generally prohibits "unconscionable prices" during state-declared emergencies, such as hurricanes.

The Institute for Safe Medication Practices has not heard of any deaths from gray market purchases, although more than half of the nearly 550 hospitals it surveyed this summer purchased at least one drug from gray market vendors in the past two years.

But the group is aware of more than a dozen fatalities related to the drug shortage crisis. Many resulted from efforts to substitute an alternative for a drug on the shortage list.

Finding such alternatives has become critical to Tampa Bay hospitals keen on avoiding the gray market. But if drug shortages continue to worsen, as many expect, some fear there could come a day when the gray market is their only option.

"It's a balancing act between making sure that you obtain safely and securely and are able to procure the drug. It's becoming more and more challenging," said Gene Wetzstein, director of pharmacy service at Moffitt Cancer Center.

"I wish there would be better control over these companies so we could feel more confident."

Information from the Associated Press was used in this report. Letitia Stein can be reached at lstein@sptimes.com or (727) 893-8330.

. Fast facts

Why are drugs

in short supply?

For five years, the number of drugs reported in short supply — especially injectable medications used mostly by medical centers — has increased annually.

The FDA reported 178 drug shortages last year and says there are more this year. The University of Utah's Drug Information Service, which tracks shortages for the American Society of Health-System Pharmacists, has documented a tripling of the problem over the past five years.

There are many reasons for shortages. Raw materials can be scarce. Government inspectors can shut down production because of quality concerns. Demand can suddenly outstrip supply. Manufacturers may choose not to make low-profit, low-demand medications.

"The main cause of drug shortages is economic," wrote Dr. Thomas J. Smith of Johns Hopkins' Sidney Kimmel Comprehensive Cancer Center and Virginia Commonwealth University pharmacist Mandy Gatesman in last week's New England Journal of Medicine.

Information from Times wires was used in this report.

With drugs in short supply, reports rise about price gouging on the "gray market" 11/06/11 [Last modified: Sunday, November 6, 2011 9:45pm]

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