June 15, 2021
Perils of the "Gray Market": Reselling to Providers and Second-Tier Wholesalers
Hosted by American Association for Homecare; Sponsored by McKesson
Presented by: Jeff Baird, Esq. of Brown & Fortunato
The standard distribution channel is for the DME supplier to purchase products from the manufacturer or the wholesaler...and then resell the products to consumers. In purchasing from the manufacturer/wholesaler, the supplier will normally agree to sell the products only to the end user (i.e., the consumer). In return for this commitment, the manufacturer/wholesaler will offer special pricing to the supplier.
Unfortunately, it is not uncommon for suppliers to sell these restricted products on the “gray market” - that is - suppliers will resell the products to medical clinics, home health agencies, long term care facilities that, in turn, provide the products to their patients. Alternatively, the DME supplier will resell the restricted products to second tier wholesalers that operate in the gray market.
By diverting products from the normal distribution channel into the gray market, DME suppliers are opening themselves up to liability from different sources. The manufacturer/wholesaler can (i) terminate its relationship with the supplier and/or (ii) sue the supplier for breach of contract and possibly under a tort theory such as fraud in the inducement. In addition, there have been a number of federal criminal cases brought against DME suppliers and pharmacies that have diverted products into the gray market.
This program will discuss the restrictions that DME suppliers normally agree to when they purchase products from manufacturers and wholesalers. The program will then describe the gray market and the legal risks to suppliers that operate in the gray market. Lastly, the program will discuss the compliance steps that DME suppliers can take to steer clear of the legal pitfalls associated with the gray market.