Marv Shepherd conducted research exploring whether hospital pharmacies could be a source of diverted drugs. A survey of Texas hospitals found that 25% reported being contacted by "grey market" vendors weekly or daily to purchase pharmaceuticals. Additionally, over 85% of hospitals reported being contacted by such vendors in the last month to sell drugs. While the size of this illicit market is unknown, the findings suggest some hospitals may be unlawfully diverting drugs. Further analysis found no significant associations between vendor contacts and hospital size, ownership, or location. The research indicates opportunistic vendors are actively trying to obtain drugs from some hospitals in Texas.

1. ―Grey Market‖ and
―Opportunistic‖ Vendor
Activities and Drug Shortages
in Texas Acute Care Hospitals
Marv Shepherd, Ph.D.
President
Partnership for Safe Medicines
and
Director Center for Pharmacoeconomic
Studies
College of Pharmacy
University of Texas at Austin
Email: marvshepherd@austin.utexas.edu

2. The focus of this research was to explore a
possible source of diverted drugs—
hospital pharmacies.
As we know the counterfeit drug trade is
directly linked to the diverted drug trade,
when drug diverters have used falsified
drugs to meet their supply issues.
Diverted drugs may be expired, diluted,
contaminated, stored under the wrong
conditions (excessive heat, shaken or
shock, exposed to sunlight, extreme cold
temperatures) or relabeled with wrong
information.

3. Definition of Prescription Drug Diversion



Prescription drug diversion is the unlawful
removal of an approved pharmaceutical
product from the legal distribution system
and subsequent distribution to an illicit
market place.
Diversion can occur anywhere in the legal
chain of distribution from pharmaceutical
manufacturer, drug
packager, transporter, wholesaler, to the
retail pharmacies, clinics and hospitals or
the patient.
Diverted pharmaceuticals can be distributed
to legal and illegal markets.

4. A group of wholesalers and 23 people have been
accused of generating $605 million in sales from 2007
through 2011 in selling diverted prescription drugs NOT
approved by FDA to chain and independent pharmacies
in Detroit Miami, New York, Los Angeles, and
Washington DC.
The press release stated, “There was evidence that the
drugs were expired and had counterfeit labels, some
with incorrect dosages.‖

5. Some of the drugs listed were
Advair®, Celebrex®, Lipitor®, Nasonex®, Valtre
x® and Viagra® and drugs to treat HIV, cancer
and depression, according to an indictment.
The indictment stated:
“The pedigrees falsely stated the drugs were
obtained from authorized distributors when they
actually originated from a network of unlicensed
suppliers based mostly in California and New
York.”

6. The indictment listed 61 charges against 23
individuals including three wholesalers. The
majority were unlicensed suppliers to three Puerto
Rico wholesale operations and one Arizona
wholesaler.
The indictment stated the unlicensed suppliers
usually obtain diverted pharmaceuticals by buying
pills from patients, from “closed-door” pharmacies
or by putting fake labels on expired drugs (drugs
from reverse distributors).

7. The indictment lists the diverted drugs came from:
1.“Rozemberg Group‖ network of suppliers ( California
Pharmaceutical Specialist, Infinite Health Wholesaler, Global
Health Advocates). Falsely stated pedigree came from
McKesson. Products came from various sources. Sold
$69
million diverted drugs. Only one in the group had a
CA license and it was temporary.
2. RTL Health Source, Hawaii Conducted business w/o a
license in CA. Falsely stated pedigrees came from H.D.
Smith, McKesson and AmerisourceBergen. Sold
$91
million diverted drugs.
3. EMED Medical Products, Missouri license—Distributed
product in CA w/o a license. Obtained products from Rozemberg
Group and other groups, unknown sources. Sold
million diverted drugs.
$21

8. 4. BowRX Inc. and Oahu Wholesalers BowRx
licensed in New Hampshire, Oahu licensed in
Hawaii. Both shipped drugs from a UPS store in
CA w/o a license. Drug source unknown. Sold
$34 million diverted drugs
5. Arbudol Corp, Columbus Wholesale and
Cimax Corp. Located in MD and PA. Shipped
drugs w/o license from UPS stores in New York
City. Sold $169 million diverted drugs to
DDLL and LLC.

9. That’s a lot of “buy backs” from
consumers, acquisitions of expired
drugs and buys from “closed door”
pharmacies. However, from the FBI
news release on Monday (10-21-13)
which names 48 people allegedly
involved in a massive consumer
Medicaid drug buy back program, I
now consider ―buy backs‖ a major
source.

10. Source: http://www.fbi.gov/newyork/press-releases/2012/manhattan-u.s.-attorneyannounces-charges-against-48-individuals-in-massive-medicaid-fraud-schemeinvolving-the-diversion-and-trafficking-of-prescription-drugs

11. Initially what gained my interest
with the Puerto Rico Case was the
acquisition of drugs from ―closeddoor‖ pharmacies. Also, the total
amount of diverted drugs being
supplied was startling– extraordinarily
high at $400 million in product cost.

12. What is a closed-door pharmacy?
A closed-door pharmacy is one that usually does
not provide pharmaceuticals to “walk-in” patients
such as a community pharmacy. Most common
“closed-door” pharmacies are:
Hospital Inpatient Pharmacies which only
dispense to inpatients. Plus it is illegal for
these pharmacies to compete with community
pharmacies due to their huge discounts.
Pharmacies which are only dedicated to longterm care facilities.

13. The indictment did not delineate the
proportion or amounts by source:
―closed-door‖ pharmacies,
―buy-back‖ drugs from patients or
expired drugs obtained from reverse
distributors.

14. So where do diverted
drugs come from?

15. Drug Sources for Gray Market Diverters
Drugs intended
for export to
charitable foreign
missions
Counterfeit
drugs
Special priced drugs
obtained illegally from
closed
pharmacies, hospitals, p
hysician offices
Stolen
drugs
Unauthorized
or foreign
source
distributors/
Internet
operations
―Gray Market‖
Diverted Drug
Distributors
Closed-door
pharmacies
Drug samples
―Buy-Back‖ drugs
from consumers
Medicaid,
Medicare, 3rd party
patients
Repackaged foreign
drugs

16. Stolen drugs may be a source.
However, when you examine U.S.
major cargo pharmaceutical thefts,
the totals are relatively small
compared to $400 million. In 2013,
pharmaceutical cargo drug theft is
estimated tol be close to $3.5
million and this is a record setting
year. FYI, we have already had over
56 cargo thefts.

17. To reiterate, it was the ―closed-door‖
pharmacies, specifically inpatient hospital
pharmacies that interested me. To what extent
are hospitals a supplier for diverted drugs?
My graduate student, Tawfik Rabid, and I
conducted a study on how acute care Texas
hospitals manage drugs in short supply.
So I added a couple questions to the
questionnaire to explore the buying and selling
by “opportunistic” wholesalers which may be
“grey market” vendors.

18. These results are preliminary and we
are still exploring the data, but I
believe you will find it most
interesting.
A total of 313 Texas acute hospital
pharmacy directors were surveyed.
We received 125 completed
questionnaires (39.84%).

19. Responses to: ―In regard to your facility, have hospital
pharmacy staff been contacted by ―grey market
vendors‖ or ―opportunistic‖ vendors in the last month
(April 2013)?‖
N= 2
1.6%
N=16
12.8%
Yes
No
N=107
85.6%
Don't Know

20. Number of times ―grey market‖ vendors contacted the
hospital pharmacy personnel in the last month
(April, 2013), (N=73)
Number of Frequency (%)
times
Number of Frequency (%)
14
1 (1.4%)
times
15
2 (2.7%)
1
1 (1.4%)
20
6 (8.2%)
2
1 (1.4%)
22
1 (1.4%)
3
7 (9.6%)
25
3 (4.1%)
4
7 (9.6%)
30
2 (2.7%)
5
8 (11.0%)
35
1 (1.4%)
6
5 (6.8%)
45
1 (1.4%)
7
1 (1.4%)
50
2 (2.7%)
8
2 (2.7%)
80
1 (1.4%)
9
2 (2.7%)
100
4 (5.5%)
10
11 (15.1%)
200
1 (1.4%)
11
1 (1.4%)
Total
73 (100%)
12
2 (2.7%)

21. How often hospital pharmacy staff were
contacted by grey market or opportunistic
vendors for the purpose of SELLING their
drugs.
Times
Contacted
Daily
Number
Percent
57
53.3%
Weekly
43
Monthly
5
Less than once 2
a months
40.2%
4.7%
1.9%

22. When asked if their hospital was
contacted by ―grey market
vendors‖ to try to BUY drug from
the hospital, a total of 82
pharmacy directors indicated ―no‖
they were not contacted to sell
their drug inventory.

23. However, 25 respondents
(23.4%) indicated ―yes,‖
―grey market‖ vendors
contacted them to BUY
pharmaceuticals from the
hospital.

24. How often hospital pharmacy staff were
contacted by such vendors for the
purpose of BUYING drugs from the
hospital.
Times
Contacted
Number
Percent
Weekly
Daily
Monthly
5
8
3
20.0%
32.0%
12.0%
Less than
monthly
Total
9
36.0%
25
100.0%

25. Admittedly, the results were startling. If
25% of vendors are contacting hospitals
to buy drugs from hospitals, then it
seems obvious that some hospitals must
be selling pharmaceuticals to vendors.
To legally do this in Texas, the hospital
must have a wholesale license.
I contacted the Texas Drug Wholesaler
licensing group and found that the
number is extremely low—only in special
cases does a hospital have a wholesaler
license.

26. Illegal Wholesaler Collusion with Hospital
Secondary
Wholesaler
Wholesaler approaches the
hospital to buy more drugs
than needed from
manufacturer. Wholesaler
pays the hospital, and diverts
the drug to the retail market or
other markets.
Drug Manufacturer
Primary Wholesaler
Distributors--Includes
Regional Wholesalers
Hospital
Community
Pharmacy

27. The most popular methods
these vendors used to contact
the hospital staff was by
telephone, followed by email.
Fax was used infrequently. U.S.
mail and personal visits were
seldom used.

28. Further analysis revealed that there was:
1. No statistical significant association between
size of hospital (number of beds) and number of
contacts hospital received from these vendors.
2. No statistical significant association between
type of hospital ownership (Non-chain versus
chain hospital) and number of contacts by these
vendors.
3. No statistical association between location of
hospital (rural, small city, and large metropolitan
area) and number of contacts by these vendors.
These vendors are NOT choosy about whom
they solicit.

29. Numbers of times hospital pharmacy personnel were
contacted by vendors controlling for facility size (N = 73)
Facility Size
Number of Grey
Market Contacts
Total
(%)
1 - 10
Greater
than 10
22
68.8%
10
31.3%
n
Row %
12
63.2%
7
36.8%
Greater than n
250 beds
Row %
11
50.0%
11
50.0%
(100%)
45
28
73
(61.6%)
(38.4%)
(100%)
Less than 100 n
beds
Row %
100 – 250
beds
Total (%)
Chi-Square Test: 2 = 1.963, n = 73, df = 2, p = 0.375
32
(100%)
19
(100%)
22

30. Numbers of times hospital pharmacy personnel were
contacted by vendors controlling for the facility type
(N = 73)
Facility Type
Number of Grey
Total
Market Contacts
(%)
1 - 10 Greater
than 10
Non –
n
22
18
40
Chain
Row % 55.0% 45.0%
(100%)
Hospitals
Chain
n
23
10
33
Hospitals Row % 69.7% 30.3%
(100%)
Total (%)
45
28
(61.6%) (38.4%)
73
(100%)
Chi-Square Test: 2 = 1.652, n = 73, df = 1, p = 0.199

31. Numbers of times hospital pharmacy personnel were
contacted by grey market vendors controlling for the
facility location (N = 73)
Facility Location
Rural/Semi- n
Urban
Row %
Small/Mediu
m
Metropolitan
Large
Metropolitan
Number of Grey
Market Contacts
1 - 10
Greater
than 10
11
10
52.4%
47.6%
Total
(%)
22
(100%)
21
75.0%
7
25.0%
n
Row %
13
54.2%
11
45.8%
(100%)
45
28
73
(61.6%)
Total (%)
n
Row %
(38.4%)
(100%)
Chi-Square Test: 2 = 3.442, n = 73, df = 2, p = 0.179
28
(100%)
24

32. Although we have more data to
examine, the fact that 25% of the acute
care Texas hospitals were contacted by
―grey market,‖ or ―opportunistic‖
vendors to BUY pharmaceuticals from
the hospitals was revealing.
I do not believe the size of this market is
extremely large, but I do believe that it
exists and needs to be monitored.

33. It is time for me to
mosey on back to my
chair. Thanks for
attending the
Interchange and for
your attention.
Glad I had the
opportunity to share
some of research.
Thanks so much,
Marv Shepherd