Senate attacks drug distributors for price gouging
July 25th, 2012
06:05 PM ET

Senate attacks drug distributors for price gouging

The Senate Commerce Committee bashed drug distributors for up-charging patients at a hearing Wednesday about the “grey-market” for short-supply drugs.

The “grey market” is the second-hand market, where drugs, frequently in short supply, are re-distributed and sold by various distributors and wholesalers.

It’s an already dire situation for many patients in need. According to the U.S. Food and Drug Administration, drug shortages have increased nearly 300% since 2005. Many of the drugs on this list are cancer treatments. The “grey market” only exacerbates the price and the shortage issue.

Drug distributors "are profiteers, people who exploit the misery of sick patients to make a quick buck," said committee chairman Sen. Jay Rockefeller (D- West Virginia).

The committee unveiled a new joint investigation, conducted with the House Oversight Committee, which found drug distributors sold to multiple distributors, and charged hospitals up to 85 times what the initial distributor charged. In one case, a hospital paid a 1,200% mark-up over what the drug was initially priced.

Fluorouracil, a cancer drug that was initially $7 per vial, was sold to five different distributors, until the hospital ended up paying $600 for the vial. That’s a mark-up of nearly 8,500%.

Congressman Elijah Cummings, D-Maryland, who chairs the House Committee, testified that this wasn’t an isolated incident. The report surveyed 125 different drug distribution companies and reviewed 300 different drug transaction chains.

“This system makes absolutely no sense for patients who need these critical drugs or for hospitals that treat them. The current system allows this network of private companies to boost their profits,” said Cummings.

“Secondary distributors have come under fire recently,” said Patricia Earl, of the National Coalition of Pharmaceutical Distributors. “The arguments have ranged from accusations of price gouging to shifting product between multiple companies as a means to increase profits to working with fake pharmacies.”

Earl argued that distributors have to abide by the laws and can’t price gouge to remain competitive. She claimed that frequently these small distributors are the only way people can get the drugs they need.

When asked about the high costs the distributors charged, Earl said the price that people see doesn’t reflect what goes into getting the drug. She said the prices “do not show much was spent on things like shipping, which can be much more expensive than the drug itself if the hospital needs it delivered overnight.”

She maintained that a drug changing multiple distribution hands was an anomaly. Rockefeller replied, “Cancer is anomaly. Cancer hurts. It costs and it hurts. And people die. “

While no concrete solutions were determined on how to manage the “grey market,” Sen. Rockefeller closed the hearing by saying, “We’re trying to root-out bad behavior.”

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  3. Vincent Demonbreun

    I applaud the senators that are exposing this and not receiving money from drug companies.

    July 27, 2012 at 09:05 | Report abuse | Reply
    • Keith

      Those senators didn't think they were getting big enough checks. This is just a shake down; as soon as the money starts to roll in they will report that everything has been taken care of.

      July 29, 2012 at 13:46 | Report abuse |
  4. US citizen....

    According latest industry market share reports, the 3 major drug distributors in the US now control over 90% of the US Market. McKesson is by far the most corrupt of the bunch and by far more poweful than any of the big drug companies....if you can imagine that!

    When will the DoJ, the US Government (especially Republicans) start enforcing anti-trust laws? When will the US Government start working for and represent the PEOPLE (individual consumers)? It's time to end the era or Reagonomics and power to the corporation...it's time for power to the people!

    July 27, 2012 at 09:40 | Report abuse | Reply
    • 60minuteman


      July 27, 2012 at 12:00 | Report abuse |
    • inthebiz

      I can tell you from experience that the little wholesalers are much more difficult to work with than the large ones. Mainly because they don't understand basic accounting.

      July 27, 2012 at 16:20 | Report abuse |
    • PraiseTheLard

      If you're waiting for the Republicans to do something about this price gouging, don't hold your breath!

      July 28, 2012 at 21:52 | Report abuse |
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  6. thinkifyoucan

    Here's a silly question... Why can't hospitals by direct? Or why do distributors by from other distributors? I understand that JC Penny buys Jeans from Levi, as does Macy's and some Bon Ton stores, to then turn and sell to the public. But I've never heard of Macy's buying levi's from JC Penny and then upcharging for it. I also know in the computer parts industry, Newegg, CDW, and Insight all buy from a myriad of sources, but I also have never heard of them buying from each other. Why does this happen in drugs other than the high demand/profit opportunity? It is a kin to ticket scalping.... buy a $30 ticket to a basketball game and the sell it for 180, calling the 600% markup a "service charge".... rediculous when you think about how this effects healthcare costs, let alone that they are manipulating people's lives, well-being, and their inalienable right to live, work, and pay taxes. Criminal doesn't even begin to describe it. These big drug companies should only deal with MD's and Pharm-Ds... not businessmen.

    July 27, 2012 at 12:41 | Report abuse | Reply
    • Matt

      Buying from distributors is generally the cheapest and most efficient. The cited case is truly the anomaly and was likely used to stir things up. The truth is that hospitals usually get drugs at a discount and mark them up on their own.

      July 30, 2012 at 09:19 | Report abuse |
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  10. John

    Pft. This is news? Pharmaceutical distributors have been gouging prices for decades under the pretense of "private enterprise."

    Most telling proof I found. Getting my associates in chemistry, we made a visit to a local independent company who specialized in producing the least-profitable drugs; the ones that require a script and are limited to specific diseases and conditions. Without any government funds, no tax breaks, and a heavily unionized workforce they were making drugs at between 5 to 10 cents a pill and that was well over 100% profit. Those same pills when found were being sold at 5 to 10 DOLLARS each without having traveled more than 200 miles from their place of manufacture. So somehow there was a 100-fold increase in cost that couldn't be explained by shipping or sales. So either these distributors are have grossly inefficient plans that waste massive amounts of money, or they're abusing "gentlemen's agreements" among the manufacturers that limit the supply to artificially inflate the price to make a quick buck. My money is on the later – if they were that inefficient they wouldn't be posting double and triple-digit increases in profits every year.

    Frankly the best way to stop it is just outlaw the entire practice of buying any drug in short supply unless you are distributing it directly to the patient. Cut out these opportunists and prices all around fall, including the prices paid by Medicare to cover their part of drug costs. Heck, veterinarians have already been doing this for years because the manufacturers refuse to sell to pure distributors. Sure hasn't hurt the drug companies bottom line or the practices.

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  12. felixelgato

    Pharma, the political arm of the pharamaceutical industry, is responsible for keeping the cost of medications so ridiculously high in the U.S. And all it takes is a few million dollars in bribes to "our" political representatives, each year.

    July 29, 2012 at 09:48 | Report abuse | Reply
    • Hasbaya

      Pharma has nothing to do with these shortages. These drugs are generics, produced by fly-by-night companies that all eventually run into production and/or quality problems. Gullible people like you who have bought into the "evil big pharma" myth are also responsible, due to the "no price is low enough" mindset. As this article points out, the cost of shipping generic drugs "can be much more expensive than the drug itself." Why is this appropriate? Aren't life saving medicines worth more than NASCAR memorabilia or flt screen TVs? You get what you pay for, and in the case of generic drugs, that means routine lack of availability. Get over it, or else be willing to pay what these drugs are worth.

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    July 29, 2012 at 11:32 | Report abuse | Reply
    • whatsaquokka

      Yes! It doesn't help that everyone now wants the ultra-cheap $4 generics from the big box store pharmacies in an unlimited supply. Just because the generic costs less, does not make the ingredients less expensive, the labor or even just the costs associated with licensing and operating an approved, safe manufacturing facility.... It has to be financially worth it for companies to manufacture these drugs.

      July 30, 2012 at 09:51 | Report abuse |
  14. us_1776

    The Big Pharma crooks don't just want a decent profit on their drugs.

    They want OBSCENE profits, usary profits, immoral profits.

    And by all kinds of devious methods they are obtaining such profits. Only they funnel them through these "distributor" networks that they've setup so that these outrageous profit levels never appear to exist in just one company. They've spread them out over many companies.


    July 29, 2012 at 14:09 | Report abuse | Reply
    • Hasbaya

      Really? If "evil big Pharma" is making such obscene profits, why would they short the market? You have no idea what you are talking about, Sparky. The drugs for which there are chronic shortages are not made by Big Pharma. They are made by generic producers who exist on ultra-slim margins (very little profit at all; they depend on volume). One production hiccup, and they shut their doors. The result? A shortage of the drugs they used to make. You get what you pay for, and in this case, lack of availability is what results from the de facto price controls put in place by state formularies, government enforced "rebates" and a political class who prey on gullible sick people by vilification of companies who research, develop and register new drugs.

      July 29, 2012 at 15:20 | Report abuse |
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    July 29, 2012 at 15:19 | Report abuse | Reply
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  17. dan

    I wonder how much our lawmakers have made off the drug market in the last thirty years.

    July 30, 2012 at 12:41 | Report abuse | Reply
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    July 30, 2012 at 15:04 | Report abuse | Reply
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    July 30, 2012 at 15:34 | Report abuse | Reply
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Get a behind-the-scenes look at the latest stories from CNN Chief Medical Correspondent, Dr. Sanjay Gupta, Senior Medical Correspondent Elizabeth Cohen and the CNN Medical Unit producers. They'll share news and views on health and medical trends - info that will help you take better care of yourself and the people you love.