Featured Articles

Gray Market, Black Heart: Pharmaceutical Gray Market Finds a Disturbing Niche During the Drug Shortage Crisis

Widespread accounts of frustration, outrage, and serious compromises to patient care came across loud and clear from purchasing agents and pharmacists at 549 hospitals who participated in our July-August survey1 on gray market activities associated with drug shortages. When critical medications become scarce and are no longer available through a hospital’s usual channels of distribution, unscrupulous gray market distributors have been quick to jump in with inexplicably obtained supplies of these drugs that they are more than willing to sell to healthcare providers at exorbitant costs. Capitalizing on the desperation of pharmacy directors and buyers,2 these distributors have been unrelenting in their quest to make huge profits by supplying hospitals with lifesaving medications that are otherwise unavailable.

Our survey generated hundreds of comments from respondents who feel unsupported by regulatory agencies that have not stepped in to control the gray market, betrayed by some pharmaceutical manufacturers or wholesalers who they presume may have sold medications in short supply to gray market vendors, perplexed regarding how gray market vendors know about pending drug shortages before hospitals do, outraged by the price gouging that accompanies the sale of these vital medications, and frustrated by the wasted time spent on unsolicited communications (telephone calls, emails, faxes) from gray market vendors. Several quotes from survey respondents are provided in italics as we discuss the survey findings.

Gray market solicitations in hospitals
”You are hesitant to tell gray market vendors what you need because they will buy it all up if they find it, and then harass you [to buy it] for months afterwards.”

More than half (56%) of all respondents reported receiving daily solicitations from up to 10 different gray market vendors, mostly by phone (90%), email (76%), and fax (68%), to purchase medications no longer available through the manufacturer or usual wholesaler. According to a recent gray market study by Premier, these marketing offers often contain language such as “We only have 20 of this drug left and quantities are going fast.”2 More than a quarter (28%) of our survey respondents reported receiving weekly solicitations. Respondents from university hospitals reported more frequent solicitations from gray market vendors than respondents from other types of hospitals. Overall, only 8% of all respondents reported never receiving solicitations from gray market vendors.      

More than 13% of respondents also reported receiving solicitations, mostly weekly, from gray market vendors who wanted to purchase vital medications in short supply from the hospital, presumably to sell to other hospitals at steeply inflated prices. Again, these solicitations occurred more often in university hospitals (19%). 

How gray market vendors get medications
”I would like to know why hospitals can’t get these products, but the ‘scalpers’ can. It is unreal to have to deal with ‘scalpers’ in healthcare…”

 The most prevalent concerns expressed by survey respondents involved the perplexing questions of how gray market vendors learn about impending drug shortages before many others, and how they obtain these scarce products when the usual wholesalers cannot. Several respondents have directly asked wholesalers and manufacturers if they sell their products to these vendors; many of them said no, but some admitted to selling products—even those in short supply—to distributors that are not a manufacturer-authorized distributor of record. Another respondent said a gray market vendor told him they watch the wholesaler’s supply, and if they sense an impending shortage, they buy the entire supply. The vendor insisted there was nothing wrong with selling these medications at hugely inflated prices, knowing full well that patients need these drugs. 

Purchasing products from gray market vendors
”Our physicians DO NOT want to hear that a drug is ‘unavailable’.”

About half (52%) of all respondents reported purchasing one or more pharmaceutical products from gray market vendors during the past 2 years. Most (80%) of these respondents told us that their purchases had increased in the past 2 years as drug shortages began hitting record highs. No significant differences were seen among university, community, and critical access hospitals. However, pediatric hospitals fared a little better with only 40% of respondents from these hospitals reporting purchases from the gray market during the past 2 years. While most respondents (54%) reported purchasing products from only one or two gray market vendors, a quarter (25%) of university hospitals reported purchases from more than five vendors. Very few (4%) respondents have enacted restrictions on the purchase of gray market products for specific patient types (e.g., pediatrics) or medication types (e.g., chemotherapy, erythropoiesis-stimulating agents). 

Numerous respondents reported feeling pressured by physicians and hospital administrators to purchase medications from the gray market. Any resistance to the purchase, despite expressed risks, pegs the pharmacist as the “bad guy.” While some states have enacted regulations that require documentation of authenticity (pedigree) of any purchased pharmaceutical products, half (50%) of respondents in these states with pedigree laws still reported purchasing medications from the gray market during the past 2 years. Of these, only 35% reported always receiving the required documentation of authenticity. 

Reasons for not purchasing products from the gray market
”We have been facing budget cuts, pay cuts, and layoffs. I live on a resort island and, when we are facing a hurricane and vendors overcharge for generators, they face jail time. SOMETHING must be done to help us provide better care and protect our dwindling budgets.”

In general, the most common reasons respondents did not purchase medications (48%) from gray market vendors during the past 2 years were: concerns with authenticity (74%), ethical concerns (66%), cost (69%), and concerns about the storage conditions prior to purchase (58%). Interestingly, respondents from states without pedigree laws found concerns with authenticity (82%) a more compelling reason to avoid gray market products than respondents from states with pedigree laws (69%). Respondents from university hospitals cited ethical concerns (83%) as the most significant reason to avoid gray market products, whereas all other types of hospitals reported authenticity issues as the primary concern. A few respondents reported that prior experiences with problematic gray market purchases years ago—poor product performance, short expiration dates, lawsuits and scandals—were the driving force for their current ban on gray market drug purchases. Many respondents also reported that they do not purchase medications from the gray market because they feel the gray market causes and/or exacerbates the ongoing problem with drug shortages. Only one respondent reported that he had not purchased medications from the gray market because he had not encountered a need. 

Pricing of gray market products
”Once, the gray market vendor increased the price of a 25-count box of electrolytes from $200 to $325 in a period of 4 hours because he informed me, ‘That’s what the market will bear.’ My contract price for the same electrolytes is $17.”

About a third of respondents from critical access hospitals (31%) and community hospitals (35%) who had purchased a product from the gray market during the past 2 years reported that they most often encountered a price mark-up that was 10 times or more than the contract price (900% mark-up). More than half (53%) of the respondents from university hospitals reported pricing this high. Some respondents also reported unusually high costs for the shipping and handling of gray market products.

Similar findings were found in the recent Premier survey, which identified an average mark-up of 650% from the contract price, with higher mark-ups for some critical care drugs, oncology drugs, and anesthetics.2 For example, those who responded to the Premier survey reported more than a 4,000% mark-up for labetalol and more than a 3,000% mark-up for cytarabine, dexamethasone injection, leucovorin, and propofol during April 2011.2 When quantity decreased, demand increased, and so did the price. Our survey respondents also provided examples of exorbitant mark-ups when purchasing products from the gray market during the past 2 years, including a box of calcium gluconate that cost $750 instead of the contract price of $50 (1,400% mark-up), and a supply of propofol that cost $25,000 instead of $1,500 (1,567% mark-up).

Safeguards before purchase
”We are truly making daily decisions that balance patient care against fiscal responsibility.”

Among all respondents, only 23% told us they require documentation of authenticity from the gray market vendor before purchase. The percent of respondents who require such documentation was highest among university hospitals (35%) and hospitals in states with a pedigree law (35%), although in both cases, almost a quarter of respondents admitted that they never require documentation of authenticity. Approximately two thirds of all respondents never checked the manufacturer’s website to see if the secondary distributor was authorized by the manufacturer—most were unaware that this information is available. 

 Authenticity issues, medication errors, or adverse reactions
”The product was purchased from the manufacturer and then sold numerous times...  from New Jersey to Arizona to Georgia to Tennessee.”

Up to 12% of respondents reported awareness of a product authenticity issue, medication error, or adverse drug reactions associated with the use of gray market products in the past 2 years. Most cited errors associated with using a different strength of a product than usual stock, issues with improper storage of drugs that must be refrigerated, sale of recalled or stolen products, illegal importation of pharmaceuticals, questionable chain of custody, and sale of counterfeit products and placebos. According to FreightWatch International, which advises on supply-chain security, prescription drugs account for 15% of annual cargo theft.3 Of the 54 major pharmaceutical thefts reported in 2010, the average value per event was $3.7 million. These drugs are typically sold back into the supply chain by corrupt wholesalers. Meanwhile, the medications can lose potency if not stored and shipped properly.

Risk is also lurking for those who have resisted purchases from the gray market during a time of drug shortage: the risk of errors from using unfamiliar alternative medications, concentrations, and dosage forms. We are also aware of fatal errors that have occurred when pharmacists in hospitals and outsourcing companies have compounded a product in short supply using raw materials. 

”When are manufacturers going to address this market? … It constitutes unethical business practices, and I truly believe manufacturers choose to look the other way.”

ISMP suggests that a four-pronged strategy is needed to end the gray market domination of products in short supply. First, the Food and Drug Administration (FDA) needs greatly enhanced authority to address the ongoing drug shortage crisis in the US. Legislative action is currently being explored to provide FDA with the expanded authority it needs to better manage drug shortages. In addition, consideration should be given to requiring manufacturers to stop deliveries to wholesalers/distributors when the company knows their products are, or soon will be, in short supply (as is reportedly done by some companies). This way, only direct accounts with hospitals, clinics, pharmacies, and other direct patient care providers will have access to the products at the contracted rate. With better control of drug shortages, the gray market cannot thrive.

Next, stronger regulations are needed regarding the distribution of pharmaceutical products. As suggested by many survey respondents, manufacturers and authorized distributors of record can no longer choose to look the other way and ask pharmacies to deal with this issue alone. They must welcome regulatory action—such as a national pedigree law—that limits distribution of pharmaceutical products to authorized distributors of record and other appropriately licensed distributors. Respondents further suggested that pricing for products from distributors should be standardized in a manner that prohibits unfair price gouging, even when products are in short supply.

The third prong includes taking steps in healthcare provider organizations to minimize the need for purchasing products from gray market vendors. For example, several respondents pointed out that pharmacists can use the gray market solicitations to their advantage as an additional source to gain insight into potential drug shortages, which can then lead to optimized planning for the allocation of remaining supplies available in the hospital. Other respondents mentioned local coalitions they have formed that, together, identify drug shortages, determine appropriate limitations on use, and cooperatively borrow from each other to avoid utilizing gray market vendors. Another point made by several respondents is to learn the best ways to order drugs in short supply, such as back-ordering or direct ordering from the manufacturer, and not through the wholesaler. Finally, numerous respondents noted that their pharmacy and therapeutics committees have sought out alternatives for drugs in short supply and implemented safety strategies around these alternative products to avoid errors.      

The fourth prong involves regulatory and law enforcement action against illegal activities, such as counterfeiting and theft. As a start, earlier this year, five drug manufacturers—Abbott, Eli Lilly, GlaxoSmithKline, Johnson & Johnson, and Novo Nordisk—formed a coalition that is seeking to amend the law that makes little distinction between stealing a load of cigarettes or stealing chemotherapy drugs, so that criminal penalties for drug theft can be maximized.(3) A bill has also been proposed in Congress to grant police better tools to investigate drug theft, and to enforce stronger penalties to prosecute such cases.3

Until these actions are taken, utilize the recommendations summarized in Table 1 (below), which include a series of actions developed by Premier to help organizations ensure a safe, reliable medication purchase. Readers are also referred to our October 7, 2010, newsletter article, Weathering the storm: Managing the drug shortage crisis for suggested actions, including a template of a failure mode and effects analysis to promote safe use of alternative drugs used during a drug shortage. 

Table 1. Actions to Ensure A Safe, Reliable Medication Purchase

Understand the risks associated with purchases from the gray market, including the possibility that the drugs may be counterfeit, stolen, diverted, mishandled, and/or adulterated.


Develop a policy on how your pharmacy will deal with gray market vendors, including details regarding any exceptions that may be allowed.


Purchase supplies only from distributors that are an authorized distributor of record for the drug manufacturer (which are listed on the manufacturer’s website) or an otherwise appropriately licensed and Verified-Accredited Wholesale Distributor (VAWD) (which are listed on the National Association of Boards of Pharmacy [NABP] website).


Require any non-authorized distributors of record to provide a pedigree prior to or upon purchase of a product (which they are required to keep), and authenticate and track each transaction back to the manufacturer’s authorized distributors of record.


Keep a list of suspect distributors as a resource to check prior to making purchases.


Compare the package, label, and contents of products from a non-authorized distributors of record with the manufacturer’s original product. If differences are identified, question its authenticity.


Report any suspect suppliers and violations to pedigree laws to your State Board of Pharmacy, the FDA, the Federal Trade Commission, and other applicable law enforcement authorities.

Source:  Cherici C, McGinnis P, Russell W. Buyer beware: drug shortages and the gray market. Premier, August 2011. 


1) Institute for Safe Medication Practices (ISMP). ISMP survey on gray market activities associated with drug shortages. ISMP Medication Safety Alert! June 30, 2011;16(13):4.

2) Cherici C, McGinnis P, Russell W. Buyer beware: drug shortages and the gray market. Premier healthcare alliance. August 2011.  

3) Eban K. Drug theft goes big. CNN Money. March 31, 2011.