Gray market is defined as “the redirection of authentic product to unauthorized distribution channels” and is legal in the U.S. and E.U. The gray market exists because it is profitable for medical supply distributors (typically 20 percent to 40 percent more in additional profit) vs. acquiring the same product directly from the manufacturer. Virtually all distributors in the U.S. and many health care facilities purchase product from the gray market.
How gray market product is acquired
There are three primary methods that gray market product is acquired: product theft, diversion or counterfeit.
Product theft. Product is initially “acquired” by one of these methods, sold to a diverter (a.k.a. Alternative Supply Vendor), then sold to an authorized medical supply distributor or directly to a medical facility. Hospital staff and warehouse personnel, including clinicians, have been prosecuted along with manufacturer and distributor sales representatives for theft.
Diversion. An example of product diversion is when a product is earmarked for sale outside the U.S. (OUS), diverted back to the U.S., or it never makes it out of port.
Counterfeit. The gray market is the avenue of choice by counterfeiters as the easiest way to get their products into the healthcare marketplace. In fact, since 2005, every case of counterfeit product prosecuted by the F.B.I. has entered the supply chain system through the gray market. Some samples of counterfeit product include; implantable devices, blood glucose test strips, contact lenses and numerous pharmaceutical products.
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