Next chapter in drug shortages debate focuses on independent wholesalers

The ongoing critical situation for short-supply drugs is attracting increased attention from Congress, with the House Committee on oversight and Government Reform holding a hearing in early October. The ranking minority member, Rep. Elijah Cummings (D-MD), has sent letters to what were called “gray market” distributors, wanting to investigate the claims of exorbitant price hikes in short supply drugs, an issue that Premier, Inc., a leading GPO, highlighted in August with a report claiming “price gouging,” with average offers of 650% being made. A couple weeks earlier, FDA Center for Drug Evaluation and Research (CDER) held a public meeting on the subject as well.

There is no question that the current drug-shortage situation is real, and is not quickly being resolved. But the claims of gouging are a lot harder to substantiate, based on testimony provided by the University of Utah Drug Information Service (which has a contract with the Novation GPO to track drug supplies for hospitals), the American Hospital Assn. (which surveyed members in June) and in consultations with the House committee held by representatives of the National Coalition of Pharmaceutical Distributors (NCPD; Washington).

At the CDER meeting, the University of Utah group presented data that 210 drugs were currently in short supply (which is actually down by one from 2010); and that manufacturing issued were the source of only 23% of current shortages, while 55% had “unknown” causes. (Problems with FDA inspections shutting down production have been one of the causes cited earlier.) The group also cites a “fragile” supply chain, with fewer suppliers (many of the products are single-sourced generics); and tighter inventories (an unintended consequence of the limits on inventories that most wholesalers have instituted in the past decade); among other factors.

AHA noted that only 23% of members surveyed “always” or “frequently” get notices of upcoming shortages; the majority “rarely” or “never” are informed. And 99% of hospitals have had a shortage situation in the first six months of this year, with 44% having 21 or more shortages. But one of their other data points is revealing: 85% of respondents have “purchased excess inventory” of short-supply drugs—which itself can intensify a short-supply situation.

Meanwhile, NCPD, whose members are small independent wholesalers, is fighting the accusation that they are “hoarding” drugs and then turning around and “gouging” customers. First of all, says Karen Moody, NCPD president, independent distributors are inherently unable to accumulate excess inventory, because their businesses generally run on a short inventory cycle themselves—and one of the interesting attributes of generic-drug distribution is that unless a distributor has an ADR (authorized distributor of record) arrangement with a manufacturer, they are unable to return expired or unused product.

The pricing issue cuts both ways: Pat Earl, a distributor affiliated with NCPD, notes that one of the short-supply drugs, propofol (an anesthetic needed for surgery), has a wholesale acquisition cost of around $5.60 per 20-ml vial, while its GPO price can be as low as 48 cents—a 92% discount. Factor in distributors buying at the WAC price and adding in the cost of overnight shipping to make an emergency delivery, and prices increases of 1,000% or more over the “contract” price can be seen. (Another well-known attribute of the US’s drug distribution system is that except in out-of-the-ordinary situations, buyers don’t pay delivery charges for shipments.)

Further, while the Premier report cited a high volume of solicitations from purported sources of short-supply drugs, Moody can offer a comparable high volume of requests from hospital pharmacy directors—more evidence of a real shortage, but also one indicative of buy-side as well as sell-side pressure. “Independent distributors like us exist to fill gaps in supply from the major wholesalers, who are our primary sources of supply, and the rigidity of current buyer-supplier relationships. But we exist by meeting our customers’ requests, and not by abusing them with exorbitant prices.”