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WASHINGTON | Wed., Mar. 21, 2012 5:16pm EDT (Reuters) - Lawmakers are investigating three 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.

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 last week, 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.

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.

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 5% of their supply to other distributors in rare or emergency circumstances.

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

© 2011 Thomson Reuters. Click for Restrictions.

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