March 21, 2012 / 3:00 PM / 8 years ago

Lawmakers probe pharmacy ties to price gouging

WASHINGTON (Reuters) - Lawmakers are investigating three shadowy pharmacies in Maryland and North Carolina for diverting critical but scarce drugs from patients to wholesalers, who are then able to resell the medicine at sometimes big markups.

Rep. Elijah Cummings (D-MD) questions witnesses during the House Oversight and Government Reform Committee hearing on "Credit Rating Agencies and the Financial Crisis," on Capitol Hill in Washington October 22, 2008. REUTERS/Mitch Dumke

Elijah Cummings, the senior Democrat on the House Committee on Oversight and Government Reform, began a probe in October to discover why certain companies were selling cancer drugs at more than a hundred times their normal cost.

Shortages of hundreds of drugs including cisplatin, a highly effective treatment for testicular cancer, and fluorouracil for colon and other cancers have helped create a lucrative shadow market.

The Food and Drug Administration has said the number of drugs in short supply, which also include anesthesiology and nutrition medications, had risen to 220 in 2011 from 56 in 2006.

According to preliminary details of Cummings’ investigation, made public on Wednesday, some wholesalers opened their own sham pharmacies to obtain drugs in short supply and re-sell them. One wholesaler increased the price tenfold from the pharmacy cost.

“It’s shocking to the conscience that anyone because of their greed would deny medicines to patients, who are in many instances in critical condition,” Cummings said in an interview.

“If it’s not illegal, we need to make it illegal.”

Prices in the regular supply chain are often set by confidential contracts between manufacturers and distributors, or between drugmakers and group purchasing organizations, which buy medicines on behalf of hospital chains and pharmacy systems.

Secondary wholesalers and others are under no such price constraints, though some say they must buy the drugs at higher prices initially because they have no contract.

President Barack Obama made drug shortages a national priority in October. He directed regulators to report price gouging to the Federal Trade Commission.

Cummings is investigating the price gouging along with Senator John Rockefeller, chairman of the Senate Commerce Committee, and Senator Tom Harkin, chairman of the Senate Committee on Health, Education, Labor, and Pensions.

The inquiry found cases of the pharmacy and wholesaler being headed by the same person, or by a husband and wife pair.

It was not immediately clear where the pharmacies bought the drugs in the first place, and lawmakers did not yet know how much money they might have made off the practice.

Lawmakers said the investigation continues and they are examining at least 19 other pharmacies.


In one situation described by the lawmakers, Jessica Hoppe, the president of a drug wholesaler called International Pharmaceuticals Inc, applied to get a pharmacy license to sell drugs to long-term care facilities and infusion clinics.

But during a routine annual inspection, state regulators discovered Hoppe was operating the LTC Pharmacy from part of her wholesaler office in Durham, North Carolina.

Instead of serving patients, she was funneling drugs like fluorouracil to her wholesale business within a day or two of purchasing them for the pharmacy, documents show.

A pharmacist hired to run the business surrendered her license in September, and North Carolina officials declined to renew International Pharmaceuticals’ wholesaler license at the end of 2011. Under state law, it is illegal for pharmacies to sell the bulk of their drugs to wholesalers without a license, and for wholesalers to buy drugs from unlicensed sellers.

It is unclear whether International Pharmaceuticals can still distribute drugs in 23 other states where it had a license. A person describing herself as Jessica picked up the phone at the number listed for the company, and declined to comment about the case.


Most of the nation’s drug supply passes from manufacturers like Hospira Inc and Teva Pharmaceuticals to three leading wholesalers - AmerisourceBergen Corp, Cardinal Health Inc and McKesson Corp - who distribute them to doctors, hospitals, clinics and pharmacies.

Smaller distributors help fill in the gaps in areas where larger companies may not operate or cannot meet the full demand. In recent years, a new crop of small players has surfaced, as the problem of drug shortages has worsened.

“Any time there’s a severe shortage of some critically needed good, invariably there are going to be folks who seek to exploit that,” said Jay Campbell, executive director of the North Carolina Board of Pharmacy.

Many states allow pharmacies to sell up to five percent of their supply to other distributors in rare or emergency circumstances.

The lawmakers on Wednesday sent letters to three pharmacies and wholesalers in North Carolina, Maryland and New Jersey, asking them to reply by April 11 with detailed records about their operations and profit, and if any manufacturers had authorized them to sell the drugs.

In one of the cases, a pharmacy and wholesaler in Columbia, Maryland appeared to be owned by the same person, Brenda Marshall.

No one returned messages left at the listed number for the pharmacy, Columbia Med Services. The listed wholesaler number, for Columbia Medical Distributors, appeared to be disconnected.

In another case, the lawmakers said, a woman who was the president of a pharmacy called Priority Healthcare LLC in Elkton, Maryland, appeared to pass drugs directly to her husband’s wholesale business, Tri-Med America LLC, in Clifton, New Jersey. The woman did not return a call to Priority Healthcare seeking comment, and the number for the wholesaler could not be immediately located.

According to documents from the investigation, Priority Healthcare bought fluorouracil, the cancer drug, for $6.77 a vial, then sold it to Tri-Med America for $50 a vial. The wholesaler later sold it to another company for $69 a vial.

Maryland fined the husband and wife pair $2,000 and asked them to surrender their license by the end of 2011 if they were not planning to open a real pharmacy. It is unclear whether they are still operating.

Maryland recently passed a law that sets a 60-day limit for how long a pharmacy can keep a license without operating, which will take effect in July.

Reporting by Anna Yukhananov; Editing by Michele Gershberg, Derek Caney and Tim Dobbyn

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