"Gray Market" companies exploit, profit from short supply of life-saving drugs

MIAMI - Sara Danielsen, 39, was diagnosed with a rare form of appendix cancer in March. "The tumors inside me are growing if I don't stop them," Danielsen said.

To shrink the tumors, Danielsen has endured 11 painful sessions of chemotherapy. For one of those treatments, she went without the crucial drug Flourouracil - her hospital had simply run out.

"I don't have time to take a break and let them keep growing and then try and fight them back later," she said. ""I've got to like get them now."

More than 200 drugs in critical short supply

CBS News investigative correspondent Armen Keteyian reports a record drug shortage has opened the door for so-called gray market companies that expoit the short supply. They buy up drugs for everything from cancer to infections, stockpile them, then sell them to hospitals at massive markups.

According to a recent report, the markup on average is 650 percent.

"I think they are completely unscrupulous," said Dr. James Speyer, Medical Director, Cancer Center, NYU Langone Medical Center. Speyer heads the NYU cancer center, where gray market vendors, who tried to sell Fluorouracil at more than 20 times the normal price, were turned away.

"They're not reliable, we don't know who they are all the time, we don't have the same guarantees about their source and the product," Speyer said.

Rep. Elijah Cummings, D-Md., has launched an investigation into drug shortage profiteering. "When you take a drug that is a life saving type drug and deprive a child or anybody else of that drug by hoarding it and jacking up the price as much as 5,000 times - as far as I am concerned - that is criminal."

In Miami, a company called Allied Medical Supply sells Cytarabine - a drug to treat leukemia. Cummings says Allied has taken a drug that typically sells for $12 a vial, and offers it for nearly $1,000.

Allied, with $5 million a year in revenue, makes up to 600 percent profit on some drugs it sells - according to a person with inside knowledge of the company. CBS News agreed to conceal the identity of this insider.

"They're out to make a profit plain and simple," the insider said. "Not for the interest of the public, the consumer, the patient, the hospital. Strickly to make a profit at any cost."

How did Allied know which drugs were in short supply, and to therefore target?

"They would actually go on the FDA shortage site and look up the medications. You have a list of hospitals. You would call the hospital see what they need and push that certain medication."

Allied declined to be interviewed. But in a statement, said it "...responds to daily requests from our hospital customers for medicines they need immediately for their patients......published surveys, highlighted in the media, grossly misrepresent Allied's business model and practices."

Meanwhile, Sara Danielsen continues her fight and awaits surgery. Today her hospital has just a three week supply of Fluorouracil in stock. "You don't know where the supply is coming from next, it's terrifying," she said.

The five companies that Rep. Cummings requested information from are now cooperating. CBS News has learned the FBI is looking into the gray market as well.