NCPA - National Center for Policy Analysis

Drug Resales Get Scrutiny

March 23, 2012

The American pharmaceutical industry has been rocked by shortages of major drugs in recent years, many of which have been of vital importance for fighting major diseases such as cancer.  While major providers scramble to keep drugs in stock, federal lawmakers seem to have uncovered a strikingly unethical business practice that some pharmacies are using to drive up prices, says the Wall Street Journal.

The basic procedure is that drug distributors set up additional and unnecessary middlemen in the supply chain between wholesalers and health care providers.  These intermediary companies allow greater opportunity to inflate prices and better exploit drug shortages for profit.

A document reviewed by the Wall Street Journal regarding a distributor in North Carolina demonstrates the model:

  • Cardinal Health, one of three major drug wholesalers in the United States, sold the cancer drug fluorouracil to LTC Pharmacy of Durham, N.C.
  • The pharmacy then sold the drug to International Pharmaceuticals Inc., a North Carolina distributor.
  • It was subsequently discovered that LTC Pharmacy and International Pharmaceuticals Inc. are owned by the same person.
  • Furthermore, North Carolina's Department of Agriculture, which conducts annual inspections of drug wholesalers in the state, discovered that they shared the same building.
  • The faux intermediary company allows the eventual distributor to further inflate the price of the final sale to the provider.

As additional cases in other states, including Maryland and New Jersey, demonstrate, the scheme can allow distributors to inflate prices by orders of magnitude.

  • The drug from the North Carolina case eventually made it to PRN Pharmaceuticals, a Rockville, Maryland, distributor, which had offered it to hospitals for $350 a vial.
  • The drug normally sells for $15 a vial.
  • A Maryland-based pharmacy, Priority Healthcare, bought fluorouracil for $6.77 a vial and then sold it to Tri-Med America, which then sold the drug to another company for $69 a vial.

Source: Jennifer Corbett Dooren, "Drug Resales Get Scrutiny," Wall Street Journal, March 22, 2012.

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