Proposed Rule2022-01929
National Standards for the Licensure of Wholesale Drug Distributors and Third-Party Logistics Providers
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Published
February 4, 2022
Issuing agencies
Health and Human Services DepartmentFood and Drug Administration
Abstract
The Food and Drug Administration (FDA, the Agency, or we) is proposing national standards for the licensing of prescription drug wholesale distributors ("wholesale distributors" or "wholesale drug distributors") and third-party logistics providers ("3PLs"), as directed under the Drug Supply Chain Security Act (DSCSA) (Title II of the Drug Quality and Security Act). Pursuant to the Federal Food, Drug, and Cosmetic Act (FD&C Act), as amended by the DSCSA, the proposed rule would establish standards for all State and Federal licenses issued.
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[Federal Register Volume 87, Number 24 (Friday, February 4, 2022)]
[Proposed Rules]
[Pages 6708-6757]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-01929]
[[Page 6707]]
Vol. 87
Friday,
No. 24
February 4, 2022
Part III
Department of Health and Human Services
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Food and Drug Administration
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21 CFR Parts 10, 12, 16, et al.
National Standards for the Licensure of Wholesale Drug Distributors and
Third-Party Logistics Providers; Proposed Rule
Federal Register / Vol. 87 , No. 24 / Friday, February 4, 2022 /
Proposed Rules
[[Page 6708]]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Food and Drug Administration
21 CFR Parts 10, 12, 16, and 205
[Docket No. FDA-2020-N-1663]
RIN 0910-AH11
National Standards for the Licensure of Wholesale Drug
Distributors and Third-Party Logistics Providers
AGENCY: Food and Drug Administration, Department of Health and Human
Services (HHS).
ACTION: Proposed rule.
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SUMMARY: The Food and Drug Administration (FDA, the Agency, or we) is
proposing national standards for the licensing of prescription drug
wholesale distributors (``wholesale distributors'' or ``wholesale drug
distributors'') and third-party logistics providers (``3PLs''), as
directed under the Drug Supply Chain Security Act (DSCSA) (Title II of
the Drug Quality and Security Act). Pursuant to the Federal Food, Drug,
and Cosmetic Act (FD&C Act), as amended by the DSCSA, the proposed rule
would establish standards for all State and Federal licenses issued.
DATES: Submit either electronic or written comments on the proposed
rule by June 6, 2022. Submit comments on information collection issues
under the Paperwork Reduction Act of 1995 by March 7, 2022.
ADDRESSES: You may submit comments as follows. Please note that late,
untimely filed comments will not be considered. The <a href="https://www.regulations.gov">https://www.regulations.gov</a> electronic filing system will accept comments until
11:59 p.m. Eastern Time on June 6, 2022. Electronic comments must be
submitted on or before that date. Comments received by mail/hand
delivery/courier (for written/paper submissions) will be considered
timely if they are postmarked or the delivery service acceptance
receipt is on or before that date.
Electronic Submissions
Submit electronic comments in the following way:
<bullet> Federal eRulemaking Portal: <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
Follow the instructions for submitting comments. Comments submitted
electronically, including attachments, to <a href="https://www.regulations.gov">https://www.regulations.gov</a>
will be posted to the docket unchanged. Because your comment will be
made public, you are solely responsible for ensuring that your comment
does not include any confidential information that you or a third party
may not wish to be posted, such as medical information, your or anyone
else's Social Security number, or confidential business information,
such as a manufacturing process. Please note that if you include your
name, contact information, or other information that identifies you in
the body of your comments, that information will be posted on <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
<bullet> If you want to submit a comment with confidential
information that you do not wish to be made available to the public,
submit the comment as a written/paper submission and in the manner
detailed (see ``Written/Paper Submissions'' and ``Instructions'').
Written/Paper Submissions
Submit written/paper submissions in the following ways:
<bullet> Mail/Hand Delivery/Courier (for written/paper
submissions): Dockets Management Staff (HFA-305), Food and Drug
Administration, 5630 Fishers Lane, Rm. 1061, Rockville, MD 20852.
<bullet> For written/paper comments submitted to the Dockets
Management Staff, FDA will post your comment, as well as any
attachments, except for information submitted, marked and identified,
as confidential, if submitted as detailed in ``Instructions.''
Instructions: All submissions received must include the Docket No.
FDA-2020-N-1663 for ``National Standards for the Licensure of Wholesale
Drug Distributors and Third-Party Logistics Providers.'' Received
comments, those filed in a timely manner (see ADDRESSES), will be
placed in the docket and, except for those submitted as ``Confidential
Submissions,'' publicly viewable at <a href="https://www.regulations.gov">https://www.regulations.gov</a> or at
the Dockets Management Staff between 9 a.m. and 4 p.m., Monday through
Friday, 240-402-7500.
<bullet> Confidential Submissions--To submit a comment with
confidential information that you do not wish to be made publicly
available, submit your comments only as a written/paper submission. You
should submit two copies total. One copy will include the information
you claim to be confidential with a heading or cover note that states
``THIS DOCUMENT CONTAINS CONFIDENTIAL INFORMATION.'' The Agency will
review this copy, including the claimed confidential information, in
its consideration of comments. The second copy, which will have the
claimed confidential information redacted/blacked out, will be
available for public viewing and posted on <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
Submit both copies to the Dockets Management Staff. If you do not wish
your name and contact information to be made publicly available, you
can provide this information on the cover sheet and not in the body of
your comments and you must identify this information as
``confidential.'' Any information marked as ``confidential'' will not
be disclosed except in accordance with 21 CFR 10.20 and other
applicable disclosure law. For more information about FDA's posting of
comments to public dockets, see 80 FR 56469, September 18, 2015, or
access the information at: <a href="https://www.govinfo.gov/content/pkg/FR-2015-09-18/pdf/2015-23389.pdf">https://www.govinfo.gov/content/pkg/FR-2015-09-18/pdf/2015-23389.pdf</a>.
Docket: For access to the docket to read background documents or
the electronic and written/paper comments received, go to <a href="https://www.regulations.gov">https://www.regulations.gov</a> and insert the docket number, found in brackets in
the heading of this document, into the ``Search'' box and follow the
prompts and/or go to the Dockets Management Staff, 5630 Fishers Lane,
Rm. 1061, Rockville, MD 20852, 240-402-7500.
Submit comments on information collection issues under the
Paperwork Reduction Act of 1995 to the Office of Management and Budget
(OMB) at <a href="https://www.reginfo.gov/public/do/PRAMain">https://www.reginfo.gov/public/do/PRAMain</a>. Find this
particular information collection by selecting ``Currently under
Review--Open for Public Comments'' or by using the search function. The
title of this proposed collection is ``National Standards for the
Licensure of Wholesale Drug Distributors and Third-Party Logistics
Providers.''
FOR FURTHER INFORMATION CONTACT: Aaron Weisbuch, Center for Drug
Evaluation and Research, Food and Drug Administration, 10903 New
Hampshire Ave., Bldg. 51, Rm. 4261, Silver Spring, MD 20993, 301-796-
3130. With regard to the information collection: Domini Bean, Office of
Operations, Food and Drug Administration, Three White Flint North, 10A-
12M, 11601 Landsdown St., North Bethesda, MD 20852, 301-796-5733,
<a href="/cdn-cgi/l/email-protection#88d8dac9dbfce9eeeec8eeece9a6e0e0fba6efe7fe"><span class="__cf_email__" data-cfemail="98c8cad9cbecf9fefed8fefcf9b6f0f0ebb6fff7ee">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Executive Summary
A. Purpose of the Proposed Rule
B. Summary of the Major Provisions of the Proposed Rule
C. Legal Authority
D. Costs and Benefits
II. Table of Abbreviations/Commonly Used Acronyms in This Document
III. Background
A. Introduction
B. Need for the Regulation: The DSCSA and Establishment of
National Standards for Licensure
[[Page 6709]]
C. Changes From the Prescription Drug Marketing Act (PDMA)
IV. Legal Authority
V. Description of the Proposed Rule
A. Scope/Applicability (Proposed Sec. Sec. 205.1 and 205.2)
B. Definitions (Proposed Sec. 205.3)
C. National Standards for Third-Party Logistics Providers
D. Approved Organizations for Third-Party Logistics Providers
E. National Standards for Wholesale Distributors
F. Approved Organizations for Wholesale Distributors
VI. Proposed Effective/Compliance Dates
VII. Preliminary Economic Analysis of Impacts
VIII. Analysis of Environmental Impact
IX. Paperwork Reduction Act of 1995
X. Federalism
A. Scope of Preemption
B. Effective Date of Preemption
XI. Consultation and Coordination With Indian Tribal Governments
XII. References
I. Executive Summary
A. Purpose of the Proposed Rule
The Drug Quality and Security Act (DQSA) was enacted on November
27, 2013. Title II of the DQSA, the Drug Supply Chain Security Act
(DSCSA), includes provisions designed to strengthen the integrity of
the pharmaceutical distribution supply chain. Among other measures,
section 204 of the DSCSA amends section 503(e) of the FD&C Act (21
U.S.C. 353(e)), which requires licensure of prescription drug wholesale
distributors (wholesale distributors or wholesale drug distributors or
WDDs) and adds section 583 to the FD&C Act (21 U.S.C. 360eee-2), which
requires FDA to establish by regulation national standards for the
licensure of prescription drug wholesale distributors. Section 205 of
the DSCSA adds section 584 to the FD&C Act (21 U.S.C. 360eee-3), which
requires licensure of third-party logistics providers and requires FDA
to establish, by regulation, national standards for the licensure of
third-party logistics providers.
This proposed regulation, when finalized, will establish the
national standards for the licensure of wholesale drug distributors and
3PLs required under sections 583 and 584 of the FD&C Act, as amended by
the DSCSA. As required by statute, the standards, terms and conditions
for licensure established by this regulation will apply to both Federal
and State licenses (503(e)(1)(B), 583(b), and 584(a)(1)(A) of the FD&C
Act).
As discussed in section X (Federalism), section 585(b)(1) of the
FD&C Act (21 U.S.C. 360eee-4(b)(1)) preempts States and localities from
establishing or continuing requirements for 3PL or WDD licensure that
are different from the national standards and requirements applicable
under sections 584 and 503(e) of the FD&C Act. However, the statutory
provisions themselves do not establish these ``standards and
requirements''; instead, this regulation, once effective, will
establish them. Accordingly, State and local licensure requirements
will be preempted only once this regulation, when finalized, takes
effect; until such time, current licensing of WDDs and 3PLs may
continue. As discussed below, this determination will help avoid supply
chain disruption, based on licensing uncertainties, during the period
between DSCSA's enactment and the effective date of this regulation.
Avoiding such interim period supply chain issues accords with
Congress's overall intent to secure and strengthen the supply chain, as
evidenced by other FD&C Act provisions added by DSCSA that recognize
State licensure of WDDs and 3PLs prior to this regulation becoming
effective.
In addition, pursuant to section 585(c) of the FD&C Act (21 U.S.C.
360eee-4(c)), regulation of areas within the historical police powers
of the States would be unaffected by this regulation, including
prohibiting employees of WDDs and 3PLs from engaging in criminal
activity related to prescription drugs, provided that the State
requirements involved are not related to licensure of 3PLs or WDDs.
The requirements for state licensing of wholesale distributors are
currently established under 21 CFR part 205, and FDA is now proposing
the withdrawal of that regulation and for part 205 to be replaced with
this proposed rule. Where a state from which a drug is being
distributed has not established a licensing program in accordance with
the regulation, the DSCSA establishes FDA as the licensing authority
for wholesale distributor and 3PL licenses (sections
503(e)(1)(A)(i)(II) and 584(a)(1)(B) of the FD&C Act). When finalized,
the national standards set forth in the proposed rule will provide
greater assurance that these supply chain participants are sufficiently
vetted and qualified to distribute products, further strengthening the
supply chain and the safety of prescription drugs provided to American
consumers.
When finalized, this proposed rule will also set forth the
standards applicable to, and the requirements for approval of, third-
party organizations involved in the licensure and inspection process
(``approved organizations'' or ``AOs''). Sections 583(c) and
584(d)(2)(A) of the FD&C Act provide, respectively, that FDA may
approve ``third-party accreditation'' or inspection services or
programs to conduct inspections of facilities used by wholesale
distributors seeking licensure and to review the qualifications of 3PLs
for licensure. This proposed rule will also address the standards and
requirements for approving such third-party accreditation or inspection
services or programs.
Overall, this proposed rule is designed to ensure that the supply
chain remains secure and that those prescription drugs subject to the
DSCSA that are moving through the supply chain are properly stored,
handled, and transported. These measures are intended to help protect
American consumers from drugs that may be counterfeit, stolen,
contaminated, or otherwise harmful.
For purposes of this proposed rule, FDA has defined ``entity'' or
``entities'' to mean a business organization, such as a corporation,
company, association, firm, partnership, society, or joint stock
company. Unless otherwise noted, the term ``3PL'' or ``third-party
logistics provider'' in this proposed rule includes both the 3PL entity
and the individual 3PL facilities requiring a license.
B. Summary of the Major Provisions of the Proposed Rule
FDA is proposing to replace the current part 205 with a new part
205 that will implement the licensure requirements of the DSCSA and
govern licensure of 3PLs and wholesale distributors. When finalized,
the new part 205 will replace the existing part 205 in its entirety.
Subpart A will set forth the national licensing standards for State and
Federal licenses issued to 3PLs pursuant to section 584 of the FD&C
Act, and subpart C will set forth the national licensing standards for
State and Federal licenses issued to wholesale distributors pursuant to
sections 503(e) (as amended) and 583 of the FD&C Act. Subparts B and D
will set forth the applicable standards and processes for approved
organizations to perform licensure reviews and conduct inspections.
1. National Standards for the Licensure of Third-Party Logistics
Providers
The DSCSA identifies 3PLs as separate members of the drug supply
chain--distinct from wholesale drug distributors--and specifically
precludes States from regulating 3PLs as wholesale distributors
(585(b)(2) of the FD&C Act). FDA is required by section 584 of the FD&C
Act to establish national standards for the licensure of 3PLs, and
[[Page 6710]]
the Agency is proposing those standards in subpart A of proposed part
205. When finalized, each facility of an entity meeting the definition
of a 3PL in section 581(22) of the FD&C Act (21 U.S.C. 360eee(22)) will
be required to be licensed by a State or Federal licensing authority in
accordance with the standards articulated in subpart A of proposed part
205.
2. National Standards for the Licensure of Wholesale Drug Distributors
Prior to DSCSA's enactment, wholesale distributors engaging in
interstate commerce were required to be licensed by the State in which
they were operating pursuant to section 503(e)(2) of the FD&C Act (as
then in effect). This section established minimum standards, terms, and
conditions for licensing of wholesale distributors pre-DSCSA. As
required by sections 503(e)(1)(B) (as amended by the DSCSA) and 583 of
the FD&C Act, FDA is proposing to establish national standards, terms,
and conditions through this rulemaking for the licensure of wholesale
distributors that, when final, will apply to all State licensing
programs as well as to the new Federal licensing program to be operated
by FDA. These new standards would replace the previous standards set
forth in current part 205.
3. Approval of Third Parties To Conduct Licensure Reviews and
Inspections
In accordance with section 584(d)(2)(A) of the FD&C Act, FDA is
proposing to establish a process by which third-party organizations
will be approved by FDA to review a 3PL's qualifications for licensure.
In addition, in accordance with section 583(c) of the FD&C Act, FDA is
proposing to establish a process by which third-party organizations
will be approved by FDA to conduct inspections of wholesale
distributors for the purpose of licensure.
4. Conforming Changes
The regulation also proposes to amend 21 CFR 10.50(c) and
12.21(a)(2), which list statutory authorities that provide the
opportunity for a formal evidentiary public hearing under 21 CFR part
12. Because the regulation proposes that wholesale distributors and
3PLs could request a formal evidentiary public hearing under part 12
for review of decisions affecting the denial, suspension, or revocation
of 3PL or wholesale distributor licenses issued by the Secretary of
Health and Human Services (Secretary), sections 503(e), 583, and 584 of
the FD&C Act would be added to the list of statutory sections under
which there is the opportunity for a hearing under Sec. Sec. 10.50(c)
and 12.21(a)(2), regarding such decisions. We are also proposing a
conforming change to 21 CFR 16.1(b) to describe procedures for
regulatory hearings that would add actions related to approved
organizations under proposed Sec. Sec. 205.19 and 205.33 respectively,
including revocation or suspension of approval, to the list of actions
for which a regulatory hearing under 21 CFR part 16 may be held.
C. Legal Authority
We are issuing this proposed rule under sections 301, 501, 502,
503(e), 582, 583, 584, 585, 701(a), and 704 of the FD&C Act (21 U.S.C.
331, 351, 352, 353(e), 360eee-1, 360eee-2, 360eee-3, 360eee-4, 371(a),
and 374).
D. Costs and Benefits
In this rulemaking, we propose new national standards for the
licensing of prescription drug wholesale distributors and third-party
logistics providers as directed under the Drug Supply Chain Security
Act, Title II of the Drug Quality and Security Act. If finalized, the
rule would also establish a Federal licensing system for wholesale drug
distributors and third-party logistics providers to use in the absence
of a state licensure program that is consistent with the proposed
national standards.
The standards for prescription drug wholesale distribution in the
proposed rule would result in benefits to consumers and benefits to
distributors from reducing the diversion of prescription drugs. Other
monetized benefits include cost savings from reducing the frequency and
quantity of licensure applications and cost savings from reducing state
licensing standards in some states. We estimate that the annualized
benefits over 10 years would range from $1.25 million to $31.50 million
at a 7 percent discount rate, with a primary estimate of $10.66
million. We estimate that the annualized benefits would range from
$1.26 million to $32.18 million at a 3 percent discount rate, with a
primary estimate of $10.89 million.
We also expect that the proposed rule, if finalized, would impose
costs on wholesale drug distributors, third-party logistics providers,
states, approved organizations, and the Food and Drug Administration
(FDA). Costs to wholesale drug distributors and third-party logistics
providers include costs of learning about the rule, reporting to FDA,
undergoing routine inspections, writing and revising standard operating
procedures, and conducting background checks. Wholesale-drug
distributors would also incur costs to furnish surety bonds to their
state licensing authority to obtain or renew their licenses.
Costs to states include the time spent reading and understanding
the rule, passing or revising the laws and regulations governing their
licensure programs, and inspecting WDD and 3PL facilities. Approved
organizations would incur legal, application, and training costs, as
well as costs to inspect WDD and 3PL facilities. FDA costs include the
costs to establish and operate a reporting database and a licensure
program for wholesale drug distributors and third-party logistics
providers and the costs to establish and operate an approval program
for approved organizations.
We estimate that the annualized costs over 10 years would range
from $13.21 million to $20.63 million at a 7 percent discount rate,
with a primary estimate of $16.92 million. We estimate that the
annualized costs over 10 years at a 3 percent discount rate would range
from $12.83 million to $20.10 million, with a primary estimate of
$16.47 million.
II. Table of Abbreviations/Commonly Used Acronyms in This Document
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Abbreviation/ acronym What it means
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3PL................................ Third-Party Logistics Provider.
AO................................. Approved Organization.
CFR................................ Code of Federal Regulations.
DSCSA.............................. Drug Supply Chain Security Act.
DQSA............................... Drug Quality and Security Act.
FDA or the Agency.................. U.S. Food and Drug Administration.
FD&C Act........................... Federal Food, Drug, and Cosmetic
Act.
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III. Background
A. Introduction
The DSCSA (Title II of Pub. L. 113-54) was signed into law on
November 27, 2013, to better protect the U.S. drug supply chain. FDA's
implementation of the DSCSA includes many activities, including this
proposed rule. Once final, this rule will establish national standards
for licensure of wholesale distributors and 3PLs, as required by the
DSCSA. For information on additional FDA activities related to the
DSCSA, a web page describing FDA's implementation activities can be
found at: <a href="https://www.fda.gov/Drugs/DrugSafety/DrugIntegrityandSupplyChainSecurity/DrugSupplyChainSecurityAct/default.htm">https://www.fda.gov/Drugs/DrugSafety/DrugIntegrityandSupplyChainSecurity/DrugSupplyChainSecurityAct/default.htm</a>.
B. Need for the Regulation: The DSCSA and Establishment of National
Standards for Licensure
The U.S. drug supply chain remains one of the safest in the world.
However, the increasingly globalized nature of the supply chain brings
with it complexities
[[Page 6711]]
that increase threats to the safety and security of the U.S. drug
supply. A breach at any point in the supply chain carries potential for
dangerous, and even deadly, outcomes for American consumers.
In passing the DSCSA, Congress recognized the need for national
standards for the storage, handling, and transport of prescription
drugs and directed FDA, in sections 583(a) and 584(d) of the FD&C Act,
to establish such standards by regulation for WDDs and 3PLs,
respectively. These national standards will help diminish opportunities
for dangerous and criminal conduct affecting the supply of prescription
drugs in the United States. When final, every U.S. wholesale
distributor and 3PL facility will be held to these standards through
the statute's licensure requirements. Where a State does not have a
licensing program in accordance with the regulation, FDA will be the
licensing authority.
This proposed rule, when finalized, will provide much needed
certainty and clarity for wholesale distributors and 3PLs seeking
licensure. In passing the DSCSA, Congress believed the existing system
of different regulation regarding supply chain security by each state
created a patchwork system of governance and that a uniform national
standard would address this concern. See statements of Senator Mikulski
(Ref 1), Congressmen Mathis (Ref 2) and Congressman Latta (Ref 3).
Requirements for wholesale distributors currently vary
significantly across State lines, and many wholesale distributors and
3PLs have facilities in multiple States. Specifically, State
requirements and standards for licensure can vary on topics such as the
length of time for which records must be maintained; qualifications of
facility managers and designated representatives; facility
requirements; licensure duration; renewal procedures; exemptions from
the definition of wholesale distribution; and inspection and approval
requirements by certain, specific organizations in order to receive
licensure in certain States. This proposed rule, when finalized will be
an important first step in harmonizing these requirements, thus
allowing for greater compliance and management of licensure.
Additionally, we note that commenters on FDA's draft guidance
entitled ``The Effect of Section 585 of the FD&C Act on Drug Product
Tracing and Wholesale Drug Distributor and Third-Party Logistics
Provider Licensing Standards and Requirements: Questions and Answers''
(Ref 4) agreed that creation of a uniform national standard for
licensure, through the issuance of these regulations, should be the
goal of FDA (see, e.g., Ref 5). Commenters noted that the patchwork of
licensing standards was precisely the regulatory burden that the DSCSA
was intended to eliminate. (see, e.g., Ref 6) Comments added that
tracking and complying with different standards in different States on
a continuing basis would be very time consuming and add unnecessary
costs to the distribution chain (see, e.g., Ref 7).
We believe that the issuance of these regulations, when finalized,
will provide far greater clarity to both States and regulated industry
as to the requirements and expectations FDA has with respect to
licensure. The publication of these regulations, when finalized, and
the approach to preemption discussed in this document will reflect the
national standard Congress intended, but will detail FDA's expectations
with respect to licensure. This will allow for greater certainty in the
logistics and distribution industry, and in the supply chain as a
whole.
Since the passage of DSCSA, States have implemented disparate
policies with respect to licensure of 3PLs. Some States repealed or
eliminated 3PL as a licensure category, others are waiting for FDA to
publish its regulations before determining how to proceed, some are
licensing 3PLs under some other form of licensure, and some do not
regulate 3PLs at all (Ref 8). These regulations, when finalized, will
provide certainty and clarity in the logistics industry.
The Agency believes finalizing these proposed regulations is
crucial to implementation of licensure of 3PLs as intended by DSCSA.
Under section 582(a)(7) of the FD&C Act (21 U.S.C. 360eee-1(a)(7)),
3PLs are deemed licensed until the effective date of these regulations
unless the Secretary has made a finding that the 3PL does not utilize
good handling and distribution practices and publishes notice thereof.
Until these regulations are issued, and the framework for licensure
established, the Agency cannot institute the provisions and the goals
of DSCSA--to further secure the supply chain by including 3PLs as an
authorized member of the supply chain through the licensure provisions,
which will ensure that they are appropriately credentialed, inspected,
and therefore duly qualified to participate in the supply chain.
Theft and diversion of prescription drugs continue to be major
issues, contributing to drug shortages and creating significant
financial losses, the effects of which cascade throughout the supply
chain to consumers. FDA has observed that these instances often involve
products distributed by unlicensed wholesale distributors. FDA
standards, oversight, and regulations, including to implement the
requirements of DSCSA, will lessen and hopefully eliminate product
diversion in the legitimate supply chain. According to the National
Association of Boards of Pharmacy (NABP)'s 2013 report entitled
``Wholesale Drug Distribution: Protecting the Integrity of the Nation's
Prescription Drug Supply,'' drug diverters and bad actors seek out gaps
in the distribution and regulatory structure, specifically seeking out
States whose licensure framework is less stringent (Ref. 9). This
proposed rule, when finalized, and the preemption of inconsistent State
provisions will remedy this forum shopping for drug diverters who seek
to take advantage of the lack of uniform framework.
Additionally, NABP's 2013 report also contends that the so-called
``five percent rule'' is a policy that has been ripe for exploitation
due to the policy being inconsistently legislated, interpreted, and
enforced from State to State. This was a policy under which FDA had
previously concluded that sales of prescription drugs by a retail
pharmacy to licensed practitioners for office use would be considered
to be minimal and not constitute wholesale distribution, if the total
dollar volume of these sales does not exceed 5 percent of the total
dollar volume of that retail pharmacy's annual prescription sales (see
further discussion in ``Definitions'' section below). However, this
interpretation was not codified. The NABP observed that ``pharmacies
acting as wholesalers have been found to take advantage of the
parameters set by some States [regarding minimal quantities] when it
comes to drug distribution. Rather than dispensing the drugs as
mandated, these pharmacies retain them to resell to wholesalers at an
amount exceeding the specified quantity of prescription medications as
permitted in certain States (often times 5% of annual sales). Some have
gone as far as to sell their entire inventory into the gray market''
This proposed rule, when finalized, codifies the principle that the
five percent rule only applies to pharmacy sales for office use. Sales
above five percent for office use, or any sales to a wholesale
distributor, require the pharmacy to become licensed and regulated as a
wholesale distributor. This proposed rule will clarify this requirement
and close a potential loophole that could lead to diversion of products
and excessive sales from dispensers who are not licensed and registered
as wholesale distributors
[[Page 6712]]
when they are engaging in wholesale distribution.
Unlicensed wholesale distribution has been a major source of
diverted products both leaving and reentering the supply chain.
Significant amounts of drug diversion involve wholesale distributors,
either diverting the product themselves from the supply chain, or
purchasing product that was diverted by another actor. The DSCSA, which
requires uniform national standards for licensure of wholesale
distributors, will cut down on these types of instances of diversion
since supply chain trading partners are required to transact with only
other trading partners who meet the strict requirements laid out in
these regulations. There are many examples of diversion and criminal
action by wholesale distributors under the current regulatory scheme,
which these regulations, when finalized, will discourage, or possibly
even prevent, in the future.
As an example, from 2007-2014, individuals involved with the
Minnesota Independent Cooperative bought prescription drugs from a
network of illegal and unlicensed sources and sold approximately $393
million worth of diverted prescription drugs to wholesalers and retail
pharmacies throughout the United States. These individuals falsified
transactional documents, as well as licensure documents, to enter into
fraudulent transactions with dispensers and other wholesalers. In a
2008 example detailed in the indictment, the unlicensed individuals
involved allegedly bought a truckload of stolen asthma inhalers for
$662,000 and sold them through the Minnesota Independent Collective to
another wholesaler for about $1 million (Ref 10). These regulations,
when finalized, and the DSCSA requirements that trading partners only
transact with authorized, licensed trading partners, and verify suspect
and illegitimate product, will make these schemes far more difficult to
achieve. Had DSCSA been the prevailing regulatory scheme at the time,
other wholesale distributors and dispensers would have been deterred
from doing business with the Minnesota Independent Collective because
they were not an authorized trading partner.
In 2014, two individuals pleaded guilty to their involvement in a
drug diversion and distribution scheme through an entity called
Cumberland Distribution. Both defendants admitted that Cumberland
Distribution purchased prescription drugs from individuals and entities
that were not licensed to engage in the wholesale distribution of
prescription drugs and were not authorized to distribute prescription
drugs. Cumberland Distribution then distributed these products to
dispensers. The prescription drugs were acquired through various
networks of ``diverters'' who obtained prescription drugs from other
unlawful sources. As a result, Cumberland Distribution could not
lawfully resell the drugs. Pharmacies throughout the United States
purchased these diverted prescription drugs from Cumberland
Distribution under the guise that the products had been in the custody
of licensed wholesale distributors or other authorized distributors
since being sold by the original manufacturer (Ref 11). Under DSCSA,
the licensure status of these purported wholesale distributors is
easily searchable and verifiable, thus making diversion schemes, such
as this, far more difficult to achieve. In addition to requiring FDA to
establish national licensure standards, the DSCSA outlines critical
steps for building an electronic, interoperable system to identify and
trace certain prescription drugs as they are distributed in the United
States (section 582(g) of the FD&C Act). This system will enhance FDA's
ability to protect American consumers from exposure to drugs that may
be unfit for distribution and will increase efficiency in the detection
and removal of potentially dangerous drugs from the U.S. drug supply
chain.
The FD&C Act, as amended by DSCSA, requires FDA to establish
national standards for the licensure of two critical members of the
supply chain: wholesale drug distributors and 3PLs. It also requires
that only those wholesale distributors and 3PL facilities licensed
according to these national standards may engage in wholesale
distribution or 3PL activities, respectively. Only licensed wholesale
drug distributors and 3PLs whose facilities are so licensed will be
considered ``authorized trading partners'' permitted under the FD&C
Act, as amended by DSCSA, to engage in transactions related to the sale
and distribution of certain prescription drugs with other members of
the supply chain.
To create the standards proposed in the regulations, FDA conducted
a comprehensive review of existing State standards for licensure
including storing, handling, and holding prescription drugs, as well as
other nationally recognized standards and model rules for wholesale
distribution and logistics, such as those created by the NABP (Ref 12),
Healthcare Distribution Alliance (Ref 13), World Health Organization
(Ref 14), and the Pharmaceutical Inspection Convention and
Pharmaceutical Inspection Co-operation Scheme (jointly referred to as
PIC/S) (Ref 15). The Agency believes that the proposed standards align
with existing practices and will help ensure that 3PL and wholesale
distribution activities are undertaken in a manner that minimizes
diversion and threats to the regulated supply chain.
C. Changes From the Prescription Drug Marketing Act (PDMA)
Prior to the DSCSA's enactment, the last comprehensive legislative
action related to prescription drug distribution was the Prescription
Drug Marketing Act of 1987 (PDMA) (Pub. L. 100-293). Among other
things, the PDMA required wholesale distributors to obtain licenses
from States in which they were operating (sec. 6 of the PDMA; also see
FDA's 2001 Report to Congress on the PDMA (Ref 16)). Under the PDMA,
FDA promulgated regulations that established minimum standards, terms,
and conditions for licensure of wholesale distributors. The PDMA
provided neither a specific definition of 3PL-type entities nor
specific oversight over them; without a distinct regulatory framework
for 3PLs, some States chose to regulate and license 3PLs as wholesale
distributors, with some others choosing to license 3PLs as separate
entities. The DSCSA requires that all wholesale distributor and 3PL
licenses meet the standards established by FDA (sections 503(e)(1)(B)
and 584(a) of the FD&C Act), and that 3PLs not be licensed as wholesale
distributors (section 585(b)(2) of the FD&C Act).
If an entity owns a facility in which it is engaging in 3PL
activities and wholesale distribution out of the same facility, the
entity will be required to hold a 3PL license and a separate wholesale
distributor license for the distinct functions they perform.
IV. Legal Authority
The Agency is proposing this rule under the authority to propose
national standards for the licensing of wholesale distributors and 3PLs
granted to it by various sections of the FD&C Act, including sections
301, 503(e), 582, 583, 584, 585, 701(a), and 704 (21 U.S.C. 331, 351,
352, 353(e), 360eee-1, 360eee-2, 360eee-3, 360eee-4, 371(a), and 374).
Section 503(e) requires wholesale distributors to be licensed
according to the standards, terms, and conditions established by the
Secretary, and section 583 requires FDA to establish by regulation
national standards for the licensure of prescription drug wholesale
distributors. Section 584 requires 3PLs to be licensed according to
standards established in regulations promulgated
[[Page 6713]]
by FDA for the licensure of 3PLs. Section 301(t) prohibits the failure
to comply with the requirements under sections 584 and 503(e). Section
301 also prohibits a number of actions concerning adulterated and
misbranded drugs. Section 585 provides that states cannot implement
licensing standards, requirements, or regulations that are inconsistent
with, less stringent than, directly related to, or covered by the
standards applicable under sections 503(e) and 584. Section 585 also
precludes states from regulating 3PLs as wholesale distributors. To
enforce these and other provisions of the FD&C Act, section 704
authorizes FDA to conduct inspections. Section 701(a) of the FD&C Act
provides general authority to issue regulations for the efficient
enforcement of the FD&C Act. By establishing national standards for the
licensing of wholesale distributors and 3PLs, this rule, when
finalized, is expected to aid in the efficient administration and
enforcement of the FD&C Act, and in particular would help efficiently
enforce the provisions relating to licensure of wholesale drug
distributors and 3PLs.
V. Description of the Proposed Rule
The national standards for the licensure of 3PLs, required by
section 584 of the FD&C Act, as amended by DSCSA, are set forth in
subpart A of proposed part 205. The national standards for the
licensure of wholesale distributors, required by sections 503(e) and
583 of the FD&C Act, as amended by DSCSA, are set forth in subpart C of
proposed part 205. The process and standards for third-party
accreditation programs to become approved by the Federal Government to
evaluate the qualifications of 3PLs for licensure, as required by
section 584(d) of the FD&C Act, are established in subpart B of
proposed part 205. The process and standards for third-party
accreditation and inspection services to become approved by the Federal
Government to conduct inspections of wholesale distributors, as
permitted by section 583(c) of the FD&C Act, are set forth in subpart D
of proposed part 205.
A. Scope/Applicability (Proposed Sec. Sec. 205.1 and 205.2)
In accordance with section 584 of the FD&C Act, FDA is proposing to
establish the national standards for licensing by State and Federal
licensing authorities set forth in subpart A of part 205 that would
apply to 3PL facilities in any State (see proposed Sec. 205.1).
Furthermore, in accordance with section 503(e)(1) of the FD&C Act, FDA
is proposing to establish the national standards for wholesale
distributors set forth in subpart C of part 205 that would apply to
wholesale distributors of prescription drugs in any State (see proposed
Sec. 205.1). The standards, terms, and conditions for licensure
established under part 205, subparts A and C, once finalized, would
apply to all State and Federal 3PL and wholesale distributor licenses.
All 3PL facilities are required to obtain a 3PL license for each
facility of such 3PL. The FD&C Act, as amended by DSCSA, prohibits
States from regulating 3PLs as wholesale distributors. A 3PL that also
engages in wholesale distribution in the same facility in which it
engages in 3PL activities must obtain a separate wholesale distribution
license (see proposed Sec. 205.1).
An entity is considered a wholesale distributor if the entity is
engaged in the distribution of a drug subject to section 503(b)
(relating to prescription drugs) of the FD&C Act (21 U.S.C. 353(b)), to
a person other than a consumer or patient, with a few exclusions. Under
section 201(g) of the FD&C Act (21 U.S.C. 321(g)), a drug includes a
bulk drug substance, and under current FDA regulations, the term bulk
drug substance means any substance that is represented for use in a
drug and that, when used in the manufacturing, processing, or packaging
of a drug, becomes an active ingredient or a finished dosage form of
the drug. The term does not include intermediates used in the synthesis
of such substances (21 CFR 203.3(e)). FDA believes that the
distribution of bulk drug substances must have the same safeguards and
provisions as the distribution of finished drug products. The same
safeguards that prevent diversion and theft and secure the
pharmaceutical distribution supply chain generally must include the
transfer of bulk drug substances, as they are subject to the same
concerns as the distribution of prescription drugs in finished dosage
form.
FDA is proposing to establish the process and standards that would
apply to any third-party accreditation or inspection services seeking
to obtain or maintain approval by FDA to evaluate qualifications of
3PLs for licensure or to conduct inspections of wholesale distributors
(see proposed Sec. 205.1). Once finalized, proposed subparts B and D
of part 205 would establish the process and standards for third-party
accreditation and inspection services to become approved by the
Secretary to review the qualifications of 3PLs for licensure, as
required by section 584(d) of the FD&C Act, and to conduct inspections
of wholesale distributors, as permitted by section 583(c) of the FD&C
Act (see proposed Sec. 205.2) (i.e., to become ``approved
organizations'').
B. Definitions (Proposed Sec. 205.3)
By its terms, the definitions of terms in section 581 of the FD&C
Act (21 U.S.C. 360eee) applies in subchapter H. However, because those
terms are also used throughout section 503(e) of the FD&C Act (as
amended by the DSCSA), FDA considers the definitions and
interpretations contained in section 581 of the FD&C Act to apply to
those terms when used in proposed part 205. Specifically, the
definitions of the following terms contained in section 581 of the FD&C
Act apply when used in proposed part 205: Affiliate, authorized,
dispenser, illegitimate product, licensed, manufacturer, product,
repackager, return, specific patient need, suspect product, third-party
logistics provider, and wholesale distributor. In addition, FDA is
proposing the definition of the following additional terms to help
clarify the requirements. FDA believes that these proposed definitions
align with existing law and regulations, as well as current industry
practices.
<bullet> 3PL Activities: Includes warehousing and ``other logistics
services'' that are undertaken with respect to a product (as defined in
proposed Sec. 205.3(k)).
<bullet> Change of Entity Ownership: Recognizing that businesses
often undergo changes in corporate structure through mergers,
acquisitions, and other transactions, FDA proposes that ``change of
entity ownership'' be defined to help ensure consistency with regard to
how such changes will affect licensure. The definition describes the
events that would constitute a change in ownership with respect to a
partnership, unincorporated sole proprietorship, corporation, or
limited liability company.
<bullet> Co-Licensed Partner: One of two or more entities that have
entered into an agreement for the right to engage in the marketing of a
prescription drug. The Agency believes this definition is in alignment
with industry practice and existing laws.
<bullet> Designated Representative: An individual who is designated
as the representative of the facility manager and, as such, is
identified by the licensee as responsible for managing the daily
operation of the establishment in compliance with licensure
requirements and has the authority to implement corrective action when
necessary. This individual is also responsible for ensuring that
personnel are appropriately qualified, assigned, and
[[Page 6714]]
trained to accomplish their duties. The Agency believes this definition
reflects current practices and understanding.
<bullet> Entity or Entities: A business organization, such as a
corporation, company, association, firm, partnership, society, sole
proprietorship, or joint stock company.
<bullet> Facility: A site at one general, permanent, physical
location used to store or handle prescription drugs. For purposes of
proposed part 205, a facility does not include a site, such as a
corporate office or headquarters, where the sole activity conducted at
the site is one of oversight, support, or business administrative
function.
<bullet> Key Personnel: Any individual who has responsibility for
managing the operations of the wholesale distributor, including any
principal, owner, director, officer of the wholesale distributor,
designated representatives, and other individuals who are authorized to
enter areas where prescription drugs are held and are likely to handle
those prescription drugs as a part their responsibilities within the
operation.
[cir] Section 583(b)(5) of the FD&C Act, as amended by DSCSA,
requires that FDA establish standards for the ``establishment and
implementation of qualifications for key personnel'' of wholesale
distributors. These key personnel must be sufficiently qualified and
screened to carry out the important responsibilities that come with
positions within a wholesale distribution company. FDA believes
individuals who hold these positions must be held to a high standard of
qualification as they are entrusted with important aspects of
protecting the pharmaceutical distribution supply chain.
<bullet> Minimal Quantities: An annual dollar volume of
prescription drugs sold by a retail pharmacy to licensed practitioners
for office use that does not exceed 5 percent of the total dollar
volume of that retail pharmacy's annual prescription sales.
[cir] Section 503(e)(4) of the FD&C Act excludes a number of
activities from the definition of wholesale distribution. One excluded
category, listed at section 503(e)(4)(E) of the FD&C Act, is ``the
distribution of minimal quantities of a drug by a licensed retail
pharmacy to a licensed practitioner for office use.'' FDA has
previously considered what constitutes minimal quantities in
determining when the practices of a retail pharmacy become wholesale
drug distribution and thereby subject to licensure (see 64 FR 67720,
December 3, 1999). For example, in preamble discussions around
codifying provisions related to wholesale distribution, FDA proposed a
minimal quantities limit, considered comments, and ultimately concluded
that sales of prescription drugs by a retail pharmacy to licensed
practitioners for office use would be considered to be minimal and not
wholesale distribution, if the total dollar volume of these sales does
not exceed 5 percent of the total dollar volume of that retail
pharmacy's annual prescription sales.
[cir] The Agency continues to maintain its position that a 5-
percent limit to what constitutes minimal quantities is sufficient ``to
meet the needs of licensed practitioners who may not purchase enough
prescription drugs to go through a wholesale distributor and thus may
not otherwise be able to easily obtain drugs for office use'' (64 FR
67720 at 67748). We believe this standard is still relevant and is the
industry standard. We note that in January 2013, the NABP passed a
resolution that supports limiting the five percent rule to allow for
transfer ``between pharmacies, or from pharmacy to or from pharmacies
to practitioners, only for the purpose of dispensing or administration,
but not for resale; and to prohibit the transfer, distribution, or sale
of prescription drugs from pharmacies to wholesalers for resale'' (Ref
17). The transfer or sale from dispenser to dispenser for a specific
patient need is already considered to not be wholesale distribution
under the FD&C Act (see section 503(e)(4)). This NABP resolution
accords with FDA's proposed definition of minimal quantities. We
request comment on the codification of this 5 percent limit for office
use and of the definition of minimal quantities.
[cir] Accordingly, a licensed retail pharmacy that distributes more
than 5 percent of its annual sales to licensed practitioners is
engaging in wholesale distribution, subject to all the requirements for
wholesale distributors, unless its activities are otherwise excluded
from the definition of wholesale distribution. The exemption for
distributing minimal quantities of drugs by retail pharmacies to
licensed practitioners for office use was ``not created to confer a
special benefit on retail pharmacies, but to meet the legitimate need
of licensed practitioners'' (64 FR 67720 at 67748). For purposes of
section 503(e)(4)(E) of the FD&C Act, FDA is proposing to codify its
position on ``minimal quantities'' in the proposed Sec. 205.3(h) to
mean the ``total annual dollar amount sold to licensed practitioners
for office use does not exceed 5 percent of the total dollar volume of
that retail pharmacy's annual prescription drug sales.''
[cir] The Agency also notes that this exclusion only applies to
sales of prescription drugs from licensed pharmacies to licensed
practitioners for office use. FDA understands that some States and
other entities have expanded the applicability of this exclusion from
the definition of wholesale distribution to allow for distribution from
pharmacies to other entities outside of licensed practitioners for
office use, but FDA notes that this practice is not allowed under
current Federal law. The statutory language at section 503(e)(4)(E) of
the FD&C Act specifically limits the exclusion to the distribution of
minimal quantities of a drug between a licensed retail pharmacy and a
licensed practitioner for office use. Unless a specific sale or
transfer of a drug from one dispenser to another dispenser is outside
of the definition of wholesale distribution because it is to a consumer
or patient (e.g., to fulfill a ``specific patient need,'' as defined at
section 581(19) of the FD&C Act), a pharmacy that sells or trades
prescription drugs to other pharmacies or other entities falls within
the definition of wholesale distribution. Such activity is considered
wholesale distribution under section 503(e)(4) of the FD&C Act, subject
to all the requirements of wholesale distributors.
<bullet> Other Logistics Services: Services provided by entities
that accept or transfer direct possession of products from that
entity's facility within the United States and its territories on
behalf of a trading partner (e.g., manufacturer, wholesale distributor,
dispenser), but that do not take ownership of the product or have the
responsibility to direct a product's sale or disposition. It also
includes services undertaken with respect to a product for a repackager
that is acting on behalf of a manufacturer, wholesale distributor, or
dispenser.
[cir] Under the DSCSA, the definition of 3PL includes entities that
conduct ``other logistics services'' on behalf of a manufacturer,
wholesale distributor, or dispenser of a product. The Agency recognizes
that 3PLs may perform 3PL activities for repackagers and proposes to
include in the definition of ``other logistics services'' those
services undertaken with respect to a product for a repackager acting
on behalf of a manufacturer, wholesale distributor, or dispenser.
[cir] Under this proposed definition, a common carrier that only
transports a product, but does not take ownership of the product, is
not conducting ``other logistic services.'' Similarly, an entity
[[Page 6715]]
that directs the sale or disposition of the product but does not take
possession (such as a broker) would not be conducting ``other logistics
services'' and does not meet the definition of a 3PL, but may be
engaged in activities that meet the definition of a manufacturer or
wholesale distributor.
<bullet> Other Than a Consumer or Patient: A person receiving the
drug who is not (i) the individual identified as the recipient of the
prescription drug, (ii) a dispenser fulfilling a specific patient need,
or (iii) the clinical investigator, as defined in 21 CFR 312.3(b) (or
any successor regulation).
[cir] FDA considers certain types of prescription drug distribution
as outside the scope of ``wholesale distribution'' under section
503(e)(4) of the FD&C Act because they constitute ``the distribution of
a drug'' to a ``consumer or patient,'' which is excluded from the
definition of wholesale distribution. The first of these is the
distribution to, or receipt by, the patient, who, for purposes of
DSCSA, FDA considers to be the individual intended to take or be
administered the prescription drug. This would typically be the
individual whose name appears on the prescription.
[cir] FDA also considers the transfer or sale of a drug from one
dispenser to another to fulfill a ``specific patient need'' to be
outside the scope of wholesale distribution. Specific patient need is
defined at section 581(19) of the FD&C Act as ``the transfer of a
product from one pharmacy to another to fill a prescription for an
identified patient.'' FDA would note, however, that a dispenser who
transfers or sells a drug to a trading partner other than another
dispenser, or to another dispenser where there is no specific patient
need evidenced by a prescription, is distributing a drug to someone
other than a consumer or patient, which, if not otherwise excluded
under section 503(e)(4) of the FD&C Act, would be engaging in wholesale
drug distribution requiring a wholesale distributor license.
[cir] Finally, FDA considers the sale or transfer of a drug for
investigational or research purposes to an investigator, as defined in
21 CFR 312.3 (or any successor regulation), under an investigational
new drug application (IND) submitted to FDA to be outside the scope of
wholesale distribution because the drug is used for in vitro, clinical,
or other research purposes under an IND.
[cir] For these reasons, FDA is proposing to exclude these types of
transactions from the scope of wholesale distribution.
<bullet> Product: A prescription drug in a finished dosage form
that is ready for administration to a patient without substantial
further manufacturing (e.g., capsules, tablets, lyophilized products
before reconstitution).
[cir] The definition of ``product'' proposed here is broader and
more inclusive than that used for purposes of product tracing detailed
in section 582 of the FD&C Act as defined in section 581(13). As used
in section 584 of the FD&C Act for purposes of licensure of a 3PL, the
term ``product'' excludes active pharmaceutical ingredients intended
for incorporation into a finished drug product but have yet to undergo
substantial further manufacturing to become the finished dosage form
for administration. Of note, for purposes of section 582 of the FD&C
Act (21 U.S.C. 360eee-1), the definition for ``product'' excludes
certain types of prescription drugs in finished dosage form (section
581(13) of the FD&C Act).
<bullet> Significant Disciplinary Action: Any action by a State or
Federal licensing authority that would limit or prevent a 3PL from
conducting 3PL activities, or would limit or prevent a wholesale
distributor from distributing or facilitating the distribution of
prescription drugs. This includes suspension or revocation of a 3PL or
wholesale distributor license, State controlled substances license, or
Drug Enforcement Administration (DEA) registration, and potentially
includes other disciplinary actions such as a consent decree or final
ruling of a State licensure board, depending on the impact on the 3PL's
or wholesale distributor's legal ability to perform licensed
activities.
<bullet> Unfit for Distribution: A prescription drug that has been
identified as a drug whose sale would violate the FD&C Act. This
definition includes prescription drugs identified as suspect or
illegitimate (582(c)(4) of the FD&C Act); adulterated, including drugs
rendered nonsaleable because conditions (such as return, recall,
damage, or expiry) cast doubt on the drug's safety, identity, strength,
quality, or purity (section 501 of the FD&C Act); or misbranded
(section 502 of the FD&C Act (21 U.S.C. 352)).
[cir] FDA believes that prescription drugs unfit for distribution
must be segregated from those that are fit for distribution to protect
patients from receiving potentially defective or harmful prescription
drugs and prevent the distribution of drugs that are unfit for
distribution.
[cir] A wholesale distributor or 3PL could potentially identify a
prescription drug as unfit for distribution through their own
examination of incoming and outgoing shipments of prescription drugs as
outlined by proposed 21 CFR 205.12(c)(1) for 3PLs and 205.26(c)(4) for
wholesale distributors, through inventory review under proposed 21 CFR
205.12(c)(4)(i) for 3PLs and 205.26(c)(5)(i)(B) for wholesale
distributors, through other internal means designed to detect product
that is unfit for distribution, or be notified of a prescription drug's
status as unfit for distribution by a trading partner or others.
<bullet> Wholesale distribution:
[cir] Section 503(e)(4) of the FD&C Act defines wholesale
distribution as ``the distribution of a drug subject to [section 503(b)
of the FD&C Act] to a person other than a consumer or patient, or
receipt of a drug subject to [section 503(b) of the FD&C Act] by a
person other than the consumer or patient.'' The definition then goes
on to list 19 activities that are not considered wholesale
distribution. Of these, FDA is providing clarification about several
that may be causing some confusion for industry and the States.
[cir] Section 503(e)(4)(C) of the FD&C Act states that the
distribution of a drug or an offer to distribute a drug for emergency
medical reasons, including a public health emergency declaration
pursuant to section 319 of the Public Health Service Act, does not
constitute wholesale distribution. In addition to distribution of a
drug during a declared public health emergency pursuant to section 319
of the Public Health Service Act, FDA considers the following
circumstances to constitute emergency medical reasons and therefore be
excluded from the definition of wholesale distribution: (1) The
distribution of a drug to a first responder or other authorized
individual administering prescription drugs to acutely ill or injured
persons in an emergency situation and outside a healthcare facility,
and (2) a long-term care facility receiving an emergency kit containing
drugs for use in emergency situations to treat acutely ill or injured
persons during hours of the day when necessary drugs cannot be obtained
from a dispenser. Pursuant to 503(e)(4)(C) of the FD&C Act, this
exclusion from the definition of wholesale distribution does not
include distributing a drug during a shortage unless such shortage was
caused by a public health emergency.
[cir] The exclusion at section 503(e)(4)(E) of the FD&C Act for the
distribution of minimal quantities of prescription drugs by a licensed
retail pharmacy to a licensed practitioner for
[[Page 6716]]
office use is discussed in the description of the term ``minimal
quantities.''
[cir] Section 503(e)(4)(H) of the FD&C Act excludes ``the
distribution of a drug by the manufacturer of such drug'' from
wholesale distribution. Therefore, FDA considers the activities of a
manufacturer, as defined at section 581(10) of the FD&C Act, when
distributing its own drug, as excluded from the definition of wholesale
distribution and not subject to the requirements that apply to
wholesale distributors. FDA believes this is supported by the term
``wholesale distributor,'' which is defined at section 581(29) of the
FD&C Act, in relevant part, as ``a person (other than a manufacturer, a
manufacturer's co-licensed partner . . .) engaged in wholesale
distribution.'' The Agency notes, however, that if Manufacturer A
purchases and distributes Manufacturer B's drug, for which Manufacturer
A has no affiliation and is not a co-licensed partner, Manufacturer A
is engaged in wholesale distribution, subject to all the requirements
for wholesale distributors.
C. National Standards for Third-Party Logistics Providers
1. 3PL Licensure
3PL facilities are required to be licensed in order to conduct
activities in any State (section 584 of the FD&C Act). As such, the
proposed regulation provides that a 3PL facility may not conduct 3PL
activities unless it is licensed by the State from which it conducts
3PL activities, or by FDA if the State from which 3PL activities are
conducted has not established a licensure program in accordance with
the regulations, as set forth in section 584(a) of the FD&C Act (see
proposed Sec. 205.4(a)). In addition, the requirement in 584(a) of the
FD&C Act that each facility of the 3PL must be licensed, such that a
3PL with multiple facilities in a single State will have multiple
licenses from that State, is set forth in proposed Sec. 205.4(b).
Under FDA's proposed regulation, if a 3PL owns or leases a facility
serving as a warehouse for products, the State in which the facility is
located will be considered the State from which the 3PL ``conducts
activities'' and will be the State from which the 3PL must obtain a
license for that facility under proposed Sec. 205.4(a)(1). FDA
understands there has been some confusion about whether an entity hired
or contracted by another trading partner to provide labor, logistic, or
administrative services for that trading partner in that trading
partner's facility would be considered a 3PL. This could occur, for
example, where a wholesale distributor hires a contractor to provide
such support services from within the wholesale distributor's facility
exclusively for that wholesale distributor. In this scenario, the
contractor's activities from within the wholesale distributor's
licensed facility would be captured by the wholesale distributor's
license and obligations for compliance, and the facility would not be
considered a 3PL or required to have a 3PL license. However, an entity
that operates a facility in which it engages in wholesale distribution
and performs 3PL activities on behalf of other trading partners for
products it does not own or direct the sale or disposition of is
required to obtain both a wholesale distributor and 3PL license for
that facility.
Additionally, pursuant to section 584(a)(2) of the FD&C Act, if a
product is distributed in interstate commerce, the 3PL must be licensed
by the State into which the product is distributed if that State
requires such license; however, section 584(a)(2) of the FD&C Act also
provides that if the 3PL is licensed by FDA, as described in section
584(a)(1)(B), the 3PL is not required to obtain a license from the
State into which the product is distributed (see proposed Sec.
205.4(a)(3)). Finally, to ensure that a facility and those responsible
for its operations meet the licensing standards, FDA proposes to
require that 3PL licenses be facility- and owner-specific and not
transferable to another establishment or owner (see proposed Sec.
205.4(c)). 3PL licenses must be held at the licensed facility and must
be made available to State, Federal, or other licensing authorities
upon request (see proposed Sec. 205.4(d)).
Section 584 states that the national licensing standards for 3PLs
established by regulation take effect 1 year after the date such final
regulation is published (section 584(d)(1) and (3) of the FD&C Act).
National licensing standards for wholesale distributors established by
regulation take effect 2 years after the date such final regulation is
published (section 583(a) and (e)(3) of the FD&C Act). For several
reasons, including those discussed below, FDA does not intend to
enforce the licensing requirements for 3PLs until 2 years after the
final regulation is published.
FDA recognizes that 1 year may be insufficient time for States to
implement 3PL licensure programs, should they decide to implement such
a program, and for 3PLs to apply for licensure under these programs.
Setting up a state licensure program may require additional time. This
is especially true in States that will require State legislative action
to implement a licensure program, with some State legislatures only
meeting biennially.
Considering these factors, FDA does not intend to enforce these
requirements with respect to the national standards for licensure until
2 years after the regulation is finalized. This will help ensure there
is time for States to establish or modify their licensure programs in
accordance with the new standards and time for 3PLs to apply and obtain
a new license.
For 1 year after the effective date of the final regulation, FDA
also does not intend to enforce the requirements of section 582(b)(3),
(c)(3), (d)(3), and (e)(3) of the FD&C Act with respect to a
manufacturer, wholesale distributor, dispenser, or repackager who has
as a trading partner a 3PL that is not licensed, unless the 3PL is not
licensed because the Secretary or a state licensing body has made a
finding that the 3PL does not utilize good handling and distribution
practices and has published notice thereof.
2. General Application Requirements for Licensure
The general requirements that must be met for a State or Federal
licensing authority to issue a license to a 3PL facility are proposed
in Sec. 205.5. As proposed, Sec. 205.5(a) includes requirements
applicable to the individual who submits the application and states
that the applicant must submit all required information and pay any
applicable licensing fee to be issued a license.
The information that would be required as part of a 3PL's
application for licensure of a facility is set forth in proposed Sec.
205.5(b). FDA believes this information is necessary for the licensing
authority to assess whether the 3PL is in good standing and has the
infrastructure and capabilities to fulfill its duties and obligations
under these national standards for 3PL licensure. This includes
disclosing whether the 3PL facility manager or designated
representative has ever been convicted of a felony relating to
prescription drug distribution (see proposed Sec. 205.5(b)(7)). FDA
believes that this information is crucial to protect the integrity of
the prescription drug supply chain by ensuring that those responsible
for the daily operations of a 3PL facility do not have a history of
violating the FD&C Act. In addition, in its application for licensure
renewal, under proposed Sec. 205.7, a 3PL would be required to certify
that the 3PL facility has continually met the requirements of Sec.
205.5 and will inform the licensing authority of certain changes to
[[Page 6717]]
information if such changes have not already been submitted to the
licensing authority (see proposed Sec. 205.5(c)).
3. The Federal Licensure Process
Section 584(a)(1)(B) of the FD&C Act gives FDA the authority to
license 3PLs directly if the State from which a 3PL conducts 3PL
activities has not established a licensure requirement in accordance
with the regulations. The process that FDA will use for issuing
licenses to 3PLs is detailed in proposed Sec. 205.6. While Sec. 205.6
is only applicable to 3PLs obtaining a license from FDA, FDA suggests
that States implement similar procedures. FDA intends to help
stakeholders understand who the appropriate licensing authority is in
the 3PL's State.
The FDA licensure process begins when a 3PL seeking licensure for a
facility submits an application to FDA for review and consideration
(see proposed Sec. 205.6(a)). The DSCSA permits FDA to approve third-
party organizations, referred to as approved organizations or AOs, to
evaluate a 3PL's qualifications for licensure (section 584(d)(2)(A)-(B)
and 584(e) of the FD&C Act). If FDA has approved one or more
organizations to review a 3PL's qualifications for licensure, a 3PL
should note the AO it prefers on its application. FDA generally intends
to review a 3PL's qualifications for licensure only if the review
cannot be completed by an FDA-approved AO. The licensure review
consists of a review of all documents submitted in support of the
application and an inspection of the facility pursuant to proposed
Sec. 205.16. FDA intends for the licensure application process to be
electronic (see proposed Sec. 205.6(a)) and to leverage existing
technologies to streamline the licensure process.
While the DSCSA permits AOs to review a 3PL's qualifications for
licensure and to recommend to FDA whether a 3PL should be licensed, the
responsibility for determining whether a 3PL meets all applicable
requirements and to issue the license remains with FDA (see proposed
Sec. 205.6(b)).
So as not to delay the licensure process, when reviewing an
application, FDA intends to work with 3PLs to correct minor errors made
on the application and communicate with the 3PL about additional
information the Agency may need (see proposed Sec. 205.6(c)). When FDA
determines that a 3PL facility meets the applicable requirements and
that none of the prohibited factors listed in proposed Sec.
205.9(a)(1) are present, FDA will send the applicant an approval letter
and a licensing certificate, effective on the date it is issued (see
proposed Sec. 205.6(d)).
FDA recognizes that a 3PL may have concerns about what happens to
the status of its license if the AO that reviewed its qualifications
for licensure has disciplinary sanctions taken against it that affect
its approval status or if it is otherwise no longer considered an
approved AO. While a 3PL facility should not be penalized for the
actions of the AO that reviews its qualifications for licensure, FDA
must ensure that the AO's review and findings provide a reliable basis
for licensing decisions.
As such, FDA is proposing that the approval status of the AO that
performed the licensure review for a 3PL facility will not
automatically affect the licensure of a licensed 3PL facility that is
otherwise in good standing (see proposed Sec. 205.6(e)). Rather, in
the event that an AO has disciplinary sanctions taken against it, ends
its business, or is otherwise no longer considered an approved AO, the
license of any 3PL facility reviewed by that AO will be subject to
appropriate action in accordance with Sec. 205.9 and other applicable
statutes or regulations. FDA may verify the 3PL's compliance status and
review the facts in that situation to determine the potential effect,
if any, on the licensure of 3PL facilities reviewed by that AO.
FDA intends to publish additional guidance regarding the process
and procedures related to obtaining and maintaining a 3PL license
issued by FDA.
4. Changes to Information, Location, or Ownership of a Licensed 3PL
For the licensing authority to effectively carry out its
responsibilities, a 3PL must keep its license information current and
report any changes in information, including those that may
significantly affect operations such as changes in location or
ownership, to the licensing authority. Presently, the reporting
requirements for these types of changes vary by State. FDA is proposing
in Sec. 205.7 that changes to certain information, including, for
example, any changes in information submitted as part of an application
for licensure, be submitted electronically to the licensing authority
within 30 calendar days of the change (see proposed Sec. 205.7(a)).
Additionally, because a license is facility- and-owner specific (see
proposed Sec. 205.4(c)), the Agency is proposing that changes in the
location or the ownership of a facility will require a new license (see
proposed Sec. 205.7(b) and (c)).
5. Expiration and Renewal of Licenses
The DSCSA requires that the regulations establishing national
standards for 3PLs provide that a 3PL license expires 3 years after the
date of issuance, with the option for renewal for additional 3-year
periods (section 584(d)(2)(H) of the FD&C Act). FDA is proposing to
implement this requirement under proposed Sec. 205.8 by saying that
all 3PL licenses, whether newly issued or renewed by the licensing
authority, expire 3 years from the date of issuance or renewal. FDA
also proposes that 3PLs may not submit renewal applications more than
90 days prior to the license's date of expiration to ensure that
licenses are renewed based on current information. While we do not
anticipate lengthy administrative delays by the licensing authority, if
a 3PL files an application for a license renewal within the appropriate
time period and there is an administrative delay reviewing the license
application that causes the 3PL license to lapse, the 3PL will not be
penalized for that administrative delay. In this scenario, the 3PL's
license will be considered valid during the period of the
administrative delay (see proposed Sec. 205.8).
The Agency understands that at the time a final rule covering these
proposed national standards goes into effect, there are likely to be
3PLs with existing licenses under State law. Nevertheless, 3PLs with
existing State licenses must obtain new licenses in accordance with
section 584(a) of the FD&C Act. These national licensing standards
serve an important function of ensuring consistency across the domestic
market. However, as described above, FDA does not intend to enforce the
requirements with respect to the national standards for licensure of
3PLs until 2 years after the regulation is finalized. FDA's proposed
requirements are further detailed in proposed Sec. 205.16, which
discusses the required inspections prior to licensure.
6. Licensure Denial, Suspension, Reinstatement, and Revocation--Notice
and Opportunity To Request a Hearing
The standards for licensure denial are set forth in proposed Sec.
205.9.
Proposed Sec. 205.9(a)(1) enumerates 9 circumstances under which
the licensing authority would be required to deny a 3PL's request for
licensure or license renewal. FDA believes that this list will help
3PLs focus on good storage practices outlined by FDA that are necessary
to protect the integrity of the products in the pharmaceutical
distribution supply chain. To avoid
[[Page 6718]]
denial or delays of their applications, 3PLs should ensure that they
address the reasons for denial of a license outlined in proposed Sec.
205.9(a)(1) when they file for licensure.
Proposed Sec. 205.9(a)(2) details the process afforded to 3PLs
whose applications for licensure have been denied. FDA is proposing to
provide applicants with the opportunity to provide additional
information for reconsideration of the denial. If the licensing
authority denies a 3PL's request for licensure after reconsideration,
the 3PL will receive a notice of opportunity to request a hearing under
existing FDA hearing procedures. FDA requests comment regarding the
reconsideration and appeal process outlined in this regulation for 3PLs
whose applications for licensure have been denied.
The proposed standards for suspending a 3PL license are set forth
in Sec. 205.9(b) and (c) and are based on the severity of risk posed
to the public health. Under most circumstances, we anticipate that a
3PL would have the opportunity for a hearing before licensure
suspension. However, under certain circumstances that involve repeated
conduct detrimental to the public health or refusal to correct
significant issues that could lead to the dissemination of illegitimate
product, the Agency may suspend a license immediately while giving the
3PL an opportunity to request a hearing. Under proposed Sec. 205.9(b),
a 3PL's license may also be suspended after the 3PL receives a notice
of opportunity to request a hearing. A suspended 3PL must cease all 3PL
activities until their license is re-instated. This provision applies
when the licensing authority has a reasonable belief that the 3PL is
not in compliance with licensure requirements. FDA is proposing for
Sec. 205.9(b) to require the licensing authority to notify the 3PL in
writing of the intent to suspend its license. A 3PL will have 30 days
from the date listed on the notice of intent to suspend a license to
provide additional information to the licensing authority so it may
reconsider its decision.
If reconsideration is not sought or is denied, the licensing
authority will inform the 3PL in writing of its formal intent to
proceed with license suspension. The notice will contain a statement
informing the 3PL that it can request a hearing on the question of
whether there are sufficient grounds for suspension. The 3PL will have
10 days from the date on the notice to inform the licensing authority
of its intent to request a hearing; otherwise the opportunity for a
hearing will be waived and the license suspended. FDA believes this
process will afford 3PLs a sufficient opportunity to present
information and attempt to remedy noncompliance issues which may
threaten the safety of products in the supply chain. FDA requests
comment regarding this reconsideration and appeal process.
Proposed Sec. 205.9(c) allows for license suspension prior to
opportunity for hearing and effective immediately if the 3PL's
noncompliance poses an imminent threat to public safety. For example,
if a 3PL is warehousing or shipping illegitimate product, and once made
aware, corrective actions to protect the public health from the threat
of these products are not taken, the 3PL's license could be suspended
immediately. Another example could be a scenario where the conditions
under which drugs are held or warehoused cause the product to be
illegitimate and the 3PL refuses to correct the conditions or continues
to ship these illegitimate products. Under the proposed regulation, in
such a situation, the licensing authority will inform the 3PL in
writing that its license is suspended. The notice will also contain a
statement informing the 3PL that it may request a hearing and that a
hearing, if granted, will be afforded within 10 days upon the receipt
of the 3PL's request for hearing. The 3PL has 10 days from the date on
the notice of suspension to request a hearing; otherwise its
opportunity for a hearing will be waived. FDA believes that this limits
the amount of time a 3PL license would be suspended while providing a
reasonable amount of time both for the 3PL to review the notice of
suspension and collect the necessary information to demonstrate that
its license should not be suspended, and for FDA to consider a request
for a hearing and to schedule and prepare for a hearing, if the hearing
request is granted. FDA believes immediate suspension of a 3PL license
is crucial in cases where continued operation of the 3PL presents an
imminent threat to public safety and the pharmaceutical supply chain.
Under proposed Sec. 205.9(d), a 3PL's suspended license may be
reinstated if the 3PL can demonstrate to the licensing authority that
it is in compliance with regulation requirements.
Under the proposed rule, the process outlined at 21 CFR 10.75 is
the default for appeals regarding a denied application for a 3PL
license, and the hearing process outlined at 21 CFR part 16 is the
default for appeals regarding a suspended or revoked 3PL license.
However, the 3PL may request any of the procedures in 21 CFR parts 10
through 16. FDA believes that this proposed approach is consistent with
current practice and suggests that States develop comparable processes.
The standards for revoking a 3PL license are set forth in proposed
Sec. 205.9(e). The licensing authority will revoke a license if it
finds that a 3PL whose license has been suspended is unable or refuses
to comply with the licensing requirements. The requirements governing
the revocation of a 3PL license are set forth in proposed Sec.
205.9(e)(2) through (5) and mirror those outlined in Sec. 205.9(b)(2)
through (7) for licensure suspension, with one exception: When the
licensing authority informs the 3PL of its intent to revoke a license,
the 3PL is given no opportunity for reconsideration since it already
had an opportunity to rectify deficiencies while its license was
suspended.
In addition, where a 3PL fails to timely renew its application, the
license will be considered expired and a 3PL will need to submit an
application for new licensure because the licensing authority may be
unable to confirm that the 3PL continues to meet all necessary
licensure requirements (see proposed Sec. 205.9(f)).
FDA is also proposing to terminate a 3PL's license upon request
from the 3PL when the request includes a notice of the 3PL's intent to
discontinue its activities and a waiver of an opportunity for a
hearing. The 3PL will be required to apply for a new license should it
decide to resume 3PL activities (see proposed Sec. 205.9(g)).
7. Good Storage Practices for 3PL Facilities
The DSCSA charges FDA with creating national standards for the
licensure of 3PL facilities, including the requirement that 3PLs comply
with storage practices as determined by the Secretary (see section
584(d)(2)(C) of the FD&C Act). Those requirements are detailed in
proposed Sec. 205.10. FDA considers the requirement that ``each
facility of such [3PL]'' be licensed ``in accordance with the
regulations'' (section 584(a) of the FD&C Act) to mean that 3PLs
without a facility are not required to be licensed. Section 584 of the
FD&C Act provides that FDA will establish licensure standards that
include requirements relating to storage of product. These standards
address issues regarding access and maintenance that presuppose the
existence of a physical facility where product is maintained. As such,
the requirements apply to each 3PL facility that is owned, rented, or
leased by the 3PL. If the 3PL shares the same name and location as
another trading partner
[[Page 6719]]
(for example, a wholesale distributor), each entity must be separately
licensed and must have separate systems and processes in place for
their separate functions (see proposed Sec. 205.10(b)).
The requirements for 3PL facilities regarding how products will be
stored and adequate security maintained are set forth in proposed Sec.
205.10(c). This provision includes requirements for storage of
nonsaleable products within the 3PL facility. If the facility is in
possession of a suspect product, the facility must have clearly defined
areas in which to quarantine the suspect product until the product is
dispositioned (section 584(d)(2)(C)(i) of the FD&C Act).
FDA is also proposing to require that 3PLs keep illegitimate
product and other products unfit for distribution in a clearly defined
and designated area, separate from saleable products, until
dispositioned so the illegitimate or otherwise unfit product is not
inadvertently combined with saleable products (see proposed Sec.
205.10(c)(2)). An illegitimate product poses as great a risk to public
health, if not a greater risk, as a suspect product because a product
is illegitimate when there is credible evidence shows that the product
is counterfeit, diverted, stolen, intentionally adulterated such that
the product would result in serious adverse health consequences or
death to humans, is the subject of a fraudulent transaction, or appears
otherwise unfit for distribution such that the product would be
reasonably likely to result in serious adverse health consequences or
death to humans (section 581(8) of the FD&C Act). As such, it is
counter to public health to store products that are unfit for
distribution alongside saleable product. Furthermore, it would be
illogical to move suspect product that has been determined to be
illegitimate out of quarantine and into another area to be potentially
stored with saleable product.
8. Personnel Requirements Necessary for Good Storage Practices
Ensuring that 3PL personnel are appropriately qualified is integral
to establishing good storage practices (section 584(d)(2)(C) of the
FD&C Act). For this reason, proposed Sec. 205.10(b)(3) requires that a
3PL facility must be designed in such a manner that only personnel who
possess appropriate and verifiable experience and training will have
access to areas in which products are held. While not proposed to be
required in part 205, FDA believes that a best practice in order to
maintain the security of prescription drug products, would be for a 3PL
to screen personnel who work in areas of its facility where
prescription drug products are held for records of Federal or State
criminal convictions relating to the possession, control, or
distribution of prescription drugs. While also not proposed to be
required in part 205, FDA believes it would be a best practice for a
firm to request that employees state that they are not engaged in and
will not engage in the illegal use of controlled substances while
serving in their capacity within the 3PL.
FDA also proposes requiring that 3PLs maintain and make available
to the licensing authority certain information about their facilities'
managers and designated representatives (see proposed Sec. 205.11).
Furthermore, FDA is establishing specific employee qualifications with
respect to facility managers or designated representatives that are
necessary to effect good storage practices (see proposed Sec.
205.11(b)). Specifically, FDA is proposing to require that a facility
manager or designated representative of the facility manager serve in
either capacity for only one facility at any one time (see proposed
Sec. 205.11(b)(2)). FDA believes that a facility manager or designated
representative of the facility manager must be accountable for all
operations of a 3PL facility. That facility manager or designated
representative must be present within the facility, and must be
familiar with the day-to-day operations of that facility. FDA believes
that the best way to ensure the accountability and familiarity required
for compliance is for a designated representative or facility manager
to serve only one facility at a time. This is to ensure that the
facility manager or designated representative is actively engaged in
managing the daily operations of the facility and that they remain
aware of any non-compliance issues that may arise. To ensure the
qualified designated representative can fulfill their obligations to
manage and carry out daily operations, FDA proposes to require that a
3PL provide its designated representative with adequate authority and
the necessary resources (see proposed Sec. 205.11(c) and (d)). FDA
believes that establishing these requirements will help ensure that the
products handled by a 3PL are properly safeguarded to protect the
supply chain and the public health.
Section 584(d)(2)(E) and (F) of the FD&C Act requires mandatory
background checks for facility managers or the designated
representatives of facility managers to ensure that neither the 3PL's
facility manager nor the designated representative has engaged in the
prohibited behaviors outlined in proposed Sec. 205.11(e).
Additionally, FDA is outlining other activities which may lead to the
denial of licensure in proposed Sec. 205.11(f). They are not bars to
licensure, but they are factors that may be considered by licensure
authorities when reviewing an application for licensure to determine
whether the 3PL has storage practices sufficient to maintain adequate
security over the facility. FDA requests comment on this section of the
regulation and the scenarios outlined therein.
Requiring that individuals with significant authority over 3PL
activities be subject to a criminal background check adds an additional
layer of safety and security to the supply chain (see proposed Sec.
205.11(g)). Theft of product by personnel who have direct access to
areas where products are stored is a known problem across the
healthcare industry; the background checks required by section
584(d)(2)(F) of the FD&C Act that FDA is proposing here are necessary
precautions to prevent the potential theft, loss, or abuse of
prescription drugs.
FDA suggests an additional best practice for a 3PL to utilize when
staffing their operation. This best practice, related to staff who work
within a 3PL, is designed to ensure security within a 3PL. FDA
recommends to 3PLs that the individuals who work within their operation
and have access to prescription drugs should not have a record of
criminal activity involving violations of the FD&C Act or other laws
involving prescription drugs.
When screening personnel who work in areas of a 3PL facility where
products are held, including the facility manager or designated
representative, FDA recommends that a 3PL consider whether such
personnel have (1) engaged in a pattern of violating the requirements
of section 584 of the FD&C Act that present a threat of serious adverse
health consequences or death to humans; (2) been found to have
committed or facilitated commission of any prohibited acts under the
FD&C Act or violated or facilitated any violations of any of the
regulations in this part or analogous provisions of the State licensing
authority, as applicable; (3) been convicted of any violation of
Federal, State, or local laws relating to drug samples, wholesale or
retail drug distribution, distribution of controlled substances, or
third-party logistics services; or (4) been convicted of any felony
under Federal, State, or local laws involving or related to
prescription drugs. FDA believes that 3PLs should consider an
applicant's history of violations of the FD&C Act, or other
[[Page 6720]]
laws involving prescription drugs, when making staffing decisions.
9. Required Written Policies and Procedures
Section 584(d)(2)(C)(iii) of the FD&C Act enumerates certain types
of written policies and procedures that FDA regulations must require,
and tasks FDA with defining the content with more specificity. Those
written policies and procedures are set out in proposed Sec. 205.12.
All 3PLs would be expected to establish, maintain, and follow the
written policies and procedures set forth in these proposed subsections
for each 3PL facility, to the extent that the requirements of those
sections are relevant to the scope of their specific 3PL activities.
Under the proposed regulation, all written policies and procedures will
be made available to the licensing authority upon request, and the
licensing authority will be permitted to have access to and copy
records of the 3PL to ensure that the 3PL facility is following its
written policies and procedures (see proposed Sec. 205.12(a)). Written
policies and procedures include those that are stored and maintained
electronically.
FDA is implementing the statutory requirements listed in section
584(d)(2)(C)(iii) of the FD&C Act through proposed Sec. 205.12(c)(1)
through (6). Under these requirements, 3PLs must maintain written
policies and procedures to address a product's receipt, security,
storage, inventory, shipment, and distribution. Proposed Sec.
205.12(c)(1) through (6) details the specific elements that such
written policies and procedures must contain. Such elements are
necessary to maintain supply chain integrity and align with current
industry practices to protect the integrity of the drugs that are
distributed through the supply chain.
To ensure good storage practices, FDA is also proposing to require
that 3PLs establish written policies and procedures for handling not
only expired product as required in section 584(d)(2)(C)(iii)(VI) of
the FD&C Act, but also products that are unfit for distribution (see
proposed Sec. 205.12(f)). Furthermore, any drug unfit for distribution
should be segregated and returned or destroyed to prevent its
distribution to the patient (see proposed Sec. 205.12(f)(1)). These
requirements will ensure that drugs, the distribution of which would
violate the FD&C Act and which may not be fit for consumption by
American consumers for a variety of reasons, are not distributed into
the supply chain. FDA believes that these proposed standards align with
current industry practices.
Similarly, to further ensure the safety and efficacy of drug
products, FDA is proposing that 3PLs maintain written policies and
procedures related to the storage, inventory, and disposition of both
suspect and illegitimate products. In the case of a suspect product,
the written policies and procedures must include the procedure for
quarantine or destruction of the product if directed to do so by the
product's manufacturer, wholesale distributor, dispenser, or an
authorized government agency. In the instance of an illegitimate
product, written policies and procedures must be in place to ensure
that illegitimate product is appropriately dispositioned as directed by
the respective manufacturer, wholesale distributor, dispenser, or
authorized government agency. This may include segregation in a clearly
defined, designated area from which the product may be dispositioned.
FDA believes that these proposed standards align with current industry
practices and will give 3PLs a clear roadmap for dealing with
potentially difficult situations involving suspect and illegitimate
product.
Finally, FDA views it as a best practice for a 3PL to establish
written policies and procedures to ensure that it only engages in 3PL
activities on behalf of authorized trading partners with respect to a
product. DSCSA requires that all other entities that accept or transfer
direct possession or ownership in the supply chain are only permitted
to do business with other authorized trading partners (section 582 of
the FD&C Act). FDA believes that, to further ensure supply chain
security and integrity, it is important that 3PLs also only do business
with other authorized trading partners. 3PLs that engage in
transactions with non-authorized trading partners may expose the supply
chain to potentially harmful or substandard product. FDA notes that
3PLs are included in the wholesale distributor and third-party
logistics provider reporting public database (available at <a href="https://www.fda.gov/Drugs/DrugSafety/DrugIntegrityandSupplyChainSecurity/DrugSupplyChainSecurityAct/ucm423749.htm">https://www.fda.gov/Drugs/DrugSafety/DrugIntegrityandSupplyChainSecurity/DrugSupplyChainSecurityAct/ucm423749.htm</a>) which allows manufacturers,
wholesale distributors, repackagers, and dispensers to determine if the
3PL is authorized. Similarly, 3PLs should include using the publicly
available information regarding other trading partners in their written
policies and procedures to ensure they are doing business with only
authorized trading partners.
10. Recordkeeping and List of Trading Partners
The maintenance, availability, and accuracy of the records made
available for inspection under section 584(d)(2)(D) of the FD&C Act is
critical to demonstrate that 3PLs are acting in compliance with
relevant laws and regulations and to ensure their records can be relied
upon to identify any potential risk to the public health. As such, FDA
is proposing to require that all records be securely stored, with
procedures in place to restrict access and protect record integrity,
and that any alterations made to records be signed and dated while
preserving the original information contained in the record (see
proposed Sec. 205.13(a)). These records can be stored and maintained
electronically. These records maintenance requirements will allow for
greater confidence in both the information that is preserved at the
facility and the information potentially disseminated to other trading
partners.
FDA is proposing that all records must be retained for a minimum of
3 years, except for records related to suspect and illegitimate
products, product quality complaints, and destroyed, returned, and
recalled products, which each must be retained for a minimum of 6 years
(see proposed Sec. 205.13(b)). Such record retention is necessary not
only to ensure 3PLs are complying with the FD&C Act, but also to ensure
that there is consistency and continuity in the access to the
information across the records required pursuant to sections 582, 583,
and 584 of the FD&C Act. The DSCSA requires that, upon the licensing
authority's request, 3PLs provide the licensing authority with a list
of the trading partners (manufacturers, wholesale distributors, and
dispensers) for which the 3PL conducts 3PL activities (section
584(d)(2)(G) of the FD&C Act). This requirement would be codified in
proposed Sec. 205.14 and would also include repackagers for which the
3PL provides services when those repackagers are acting on behalf of a
manufacturer, wholesale distributor, or dispenser of a product, as
explained in the definition of other logistics services at Sec.
205.3(i).
11. Annual and Other Reporting to FDA
Under DSCSA, 3PLs must report certain information to FDA to be
considered an authorized trading partner (sections 581(2)(C) and 584(b)
of the FD&C Act). The annual reporting requirements for 3PLs went into
effect on November 27, 2014. Proposed Sec. 205.15 clarifies the
statutorily
[[Page 6721]]
prescribed annual reporting requirements and proposes the collection of
additional information to provide complete and useful information about
3PLs that can be used by FDA, States, and trading partners.
The DSCSA requires 3PLs to report to FDA for each facility: (1) The
State by which the facility is licensed; (2) the facility's license
number; (3) the facility's name and address; and (4) all trade names
under which the facility conducts business (section 584(b) of the FD&C
Act). If a facility conducts more than one type of activity, such as
3PL activities and wholesale distribution activities, the facility must
be licensed as both a wholesale distributor and a 3PL and must report
to FDA separately as a wholesale distributor and a 3PL (section
503(e)(2) of the FD&C Act).
FDA is proposing to require that 3PLs use an electronic system
provided by FDA for reporting (see proposed Sec. 205.15(a)). This
electronic system will increase efficiency by providing uniformity in
the content and format of reports, thereby making the information
easier to process. FDA is proposing that the annual reporting schedule
require all 3PLs to report each calendar year between January 1st and
March 31st, although an entity may update information at any time (see
proposed Sec. 205.15(b)). For example, if a 3PL chooses to update a
license on December 15, 2019, that 3PL will still have to report during
the January 1, 2020 through March 31, 2020 annual reporting period.
The specific information that 3PLs must electronically report to
FDA is set forth in proposed Sec. 205.15(c). The DSCSA requires that
3PLs report the name and address of each facility (section 584(b)(2) of
the FD&C Act). In fulfilling this requirement, the 3PL must provide the
address that is associated with the State or Federal license. Licensed
entities are also required to report to FDA the State by which they are
licensed and the license number (section 584(b)(1) of the FD&C Act). In
addition, FDA is proposing to require that the reported company name be
identical to the official company name appearing on the license (see
proposed Sec. 205.15(c)(2)). Maintaining an account in FDA's
electronic system for each 3PL facility license during the reporting
period is integral to FDA's ability to provide oversight, as each
facility of a 3PL must be licensed in order for the 3PL to conduct 3PL
activities.
In addition to the requirements specified in the statute, FDA is
proposing to require an additional data element that FDA views as
important to the Agency, the States, and trading partners. This
additional information will inform other trading partners that the 3PL
is in fact an authorized trading partner with whom they can do
business. To this end, FDA is proposing to require that 3PLs provide
the date each State license expires. This information is essential for
determining that licensure status for each 3PL facility is current.
Also, in addition to the physical address, which is required to be
reported by statute, FDA believes that it would be a best practice for
3PLs to submit a unique facility identifier (UFI) that corresponds with
the facility name and facility address. The UFI for a 3PL facility is
useful to FDA when identifying and confirming certain business
information. To be most helpful to FDA and other trading partners, a
3PL should obtain a separate UFI for each physical address that the 3PL
is reporting since each 3PL facility must meet the 3PL requirements,
and licensure is facility specific. FDA also believes that it would be
a best practice for 3PLs to submit the contact information of an
individual who will interact with FDA, including that individual's
name, telephone number, and email address. FDA recommends as a best
practice that the 3PL designate a contact person who is familiar with
the daily operations of the 3PL facility, such as the designated
representative, to ensure efficient processing of inquiries and
minimize the impact inquiries may have on the daily operations of the
facility.
It is important for other trading partners and FDA to know whether
a 3PL has had a license revoked or suspended or whether a 3PL has had
any other significant disciplinary actions taken against them that
limits the ability of a facility to conduct drug-related business. As
such, 3PLs must report significant disciplinary actions to FDA. This
will involve providing a DEA registration number or State controlled
substance license number when there is a significant disciplinary
action issued by the DEA or the State controlled substance licensing
authority that would limit the ability of the 3PL facility to conduct
3PL activities related to the distribution of controlled drug
substances that meet the definition of product, as defined at Sec.
205.3(k). In such a situation, information about the DEA registration
or State controlled substance license is important because the
disciplinary action would likely be associated with that specific
license or registration.
A significant disciplinary action is defined in the proposed
regulation as an action that limits the ability of a facility to
conduct 3PL activities related to the distribution of prescription drug
products. FDA proposes that, within 30 calendar days after a
significant disciplinary action is imposed or taken by a State or
Federal government, 3PLs must report the type of disciplinary action,
the date the action was taken, and the State where the disciplinary
action occurred, as well as submit any documents associated with the
disciplinary action, including a final ruling by the relevant State or
Federal agency or board or a consent decree.
Finally, FDA is proposing to require a 3PL to report to FDA within
30 calendar days of ceasing warehousing or other logistics services
that it is going out of business or voluntarily withdrawing a 3PL
license from a State. FDA believes reporting this information is
essential for the information in the public database to be complete,
accurate, and useful for FDA, the States, and trading partners.
To ensure efficient enforcement of FD&C Act requirements and to
make public the voluntary information provided by each 3PL facility,
FDA proposes adding 3PL licensure to the public database to make
information about 3PLs available on FDA's website. Having the license
status of 3PLs in one publicly available database will help FDA,
trading partners, and other stakeholders determine whether 3PLs are
properly licensed and authorized.
12. Inspection Provisions
Section 584(d)(2)(D) of the FD&C Act requires that the regulations
provide for periodic inspections of 3PL facilities to ensure compliance
with the national standards and directs FDA to determine the intervals
at which periodic inspections of a 3PL will be conducted by the
licensing authority to ensure a facility's compliance with the law and
this regulation. To this end, FDA is proposing to require that a
physical inspection of a 3PL facility be conducted prior to issuance of
the initial license and routinely once every 3 years thereafter (see
proposed Sec. 205.16(a) and (b)). The regulation proposes allowing the
licensing authority, or an AO, as determined by the licensing
authority, to conduct physical inspections (see proposed Sec.
205.16(a)). As used in part 205, subparts A and B, licensing authority
means the State licensing authority or FDA. When developing the
timeframes for inspections, FDA sought to balance the risk to the
supply chain while considering FDA's and State agencies' resource
constraints. FDA is proposing to require that the physical inspection
of a 3PL facility warehouse space include
[[Page 6722]]
the paper and electronically stored records detailing the processes
related to all 3PL activities (see proposed Sec. 205.16(c)). FDA has
authority to require that an inspection of a 3PL warehouse include the
3PL's records, files, and processes related to product warehousing.
Section 704(a)(1) of the FD&C Act (21 U.S.C. 374(a)(1)) states that
``in the case of any . . . warehouse . . . in which prescription drugs
. . . are held, inspection shall extend to all things therein
(including records, files, papers, processes, controls, and
facilities).'' This authority directly applies to FDA's ability to
inspect a 3PL's facility warehouse space for relevant records and files
to ensure compliance with the FD&C Act. FDA also proposes to require
that 3PLs permit inspections at reasonable times and that the licensing
authority conduct its inspection in a reasonable manner (see proposed
Sec. 205.16(c) and (d)).
D. Approved Organizations for 3PLs
1. Approval and Utilization of Outside Organizations in the Licensure
Process
The DSCSA requires that regulations codified by FDA establish a
process by which a third-party organization approved by FDA shall, upon
a 3PL's request, ``issue a license'' to each 3PL facility that meets
the requirements for licensure (section 584(d)(2)(A) of the FD&C Act).
However, in situations where a State has not established a licensure
program in accordance with the regulations, the DSCSA charges FDA with
issuing 3PL licenses, provided the applicable requirements for
licensure are met (section 584(a)(1)(B) of the FD&C Act). Accordingly,
FDA interprets the language of 584(d)(2)(A) of the FD&C Act to mean
that a third-party organization approved by FDA--an AO--will conduct a
review of the 3PL's qualifications for licensure and issue a report to
FDA regarding whether the 3PL ``demonstrates that all applicable
requirements for licensure . . . are met,'' which FDA can rely on when
issuing a license per section 584(e) of the FD&C Act.
The DSCSA allows States and FDA to approve organizations for
purposes of licensure review and periodic inspection. Proposed
Sec. Sec. 205.17, 205.18, and 205.19 contain the process that FDA will
use to approve organizations and the qualifications to become an AO.
FDA suggests that States that choose to rely on AOs for licensure
reviews have in place the same or similar processes for approved
organizations to conduct licensure reviews and for decisions affecting
the approval status of those organizations.
The scope of work AOs would be tasked with performing and the
standards an AO must meet to become approved are detailed in subpart B
of proposed part 205. The proposed rules also set forth the process by
which FDA will approve organizations to review the qualifications of
3PL facilities for licensure, which we refer to as a ``licensure
review.''
A licensure review consists of performing a review of all documents
submitted to the licensing authority in support of an application for
3PL licensure and conducting an inspection of the facility as directed
by the licensing authority. If a review of documentation supports
licensure of the 3PL facility, the facility will then be inspected by
an AO, as directed by FDA. FDA is proposing that the AO's licensure
review be completed within 90 days upon receiving notice from the
Agency to conduct the licensure review. FDA believes that this 90-day
timeframe is sufficient for an AO to perform the work with which they
are tasked while also ensuring that there are no undue delays in the
licensure process. Upon completion of the licensure review, the AO
would then provide FDA with a licensure review report within 7 days
(see proposed Sec. 205.17(b)), with a copy sent to the 3PL facility.
As proposed, using the report submitted by the AO, FDA would make the
final determination as to whether a 3PL facility should be issued a
license. The process that AOs should follow when conducting routine
inspections of 3PL facilities mirrors the process for licensure review
and is detailed in proposed Sec. 205.17(c).
It is important that FDA can verify an AO's continued compliance
with the approval requirements. Therefore, to keep its approval, FDA is
proposing to require that an AO maintain certain records for a period
of at least 5 years and these records must be readily available to FDA
upon request. Unless specified by statute, we believe it is reasonable
for the required length of maintenance of records to align with the
length of the entity's licensure term. In addition, to ensure public
safety, FDA is proposing to require that AOs report potential
violations at 3PL facilities to FDA within 24 hours of discovery (see
proposed Sec. 205.17(f)). The general qualifications for approval of
AOs are set out in proposed Sec. 205.18.
To become and remain approved, FDA is proposing to require that an
organization, and those employed by the organization, abide by certain
requirements that are intended to secure against conflicts of interest,
promote professional business practices, and protect non-public
information (see proposed Sec. 205.18(a)).
FDA is proposing to allow AOs to hire outside contractors to
conduct licensure reviews or licensure review-related activities. Under
FDA's proposed regulation, AOs who decide to use outside contractors
must ensure that the contractors not only effectively carry out the
licensure review or licensure review-related activities in a manner
consistent with this proposed regulation to ensure public health, but
the AO must also ensure that the contractors properly protect all non-
public information.
For an AO to maintain approval, FDA proposes to require that the AO
ensures contractors abide by all applicable confidentiality agreements,
that the AOs have policies and procedures in place to ensure the
contractors abide by these proposed standards, and that the contractors
have the necessary training and expertise to carry out licensure
reviews (see proposed Sec. 205.18(b)(1)). Also, before a contractor
hired by an AO may perform a licensure review of a 3PL facility, the
3PL must have entered into an agreement with the AO giving the AO
permission to share with contractors the 3PL's confidential commercial
information (see proposed Sec. 205.18(b)(2)). If such consent is not
provided by the 3PL facility, the AO must perform the licensure review
itself. FDA believes that this approach is reasonable given that it is
the AO's decision to work with contractors and, under this proposed
regulation, the ultimate responsibility for the licensure review rests
with the AO.
In addition, so FDA may keep track of which organization is
responsible for each licensure review, FDA proposes that AOs must
submit to FDA a list of the contractors used by the organization each
year and the AO must certify that such contractors comply with the
applicable requirements (see proposed Sec. 205.18(b)(3)). Finally, to
ensure that the standards set forth in this regulation are followed and
that lines of responsibility are clear, FDA proposes to require that
the AOs remain responsible for all the work performed by outside
contractors (see proposed Sec. 205.18(b)).
FDA proposes to prohibit contractors from subcontracting licensure
review or licensure review-related activities (see proposed Sec.
205.18(b)(1)(ii)). Limiting the ability of contractors to further
delegate their responsibility ensures that FDA will have accurate
information about who is conducting licensure reviews, that those
responsible for the licensure reviews have the necessary
[[Page 6723]]
qualifications, and that their conduct is governed by this proposed
regulation.
The proposed process that FDA will use to approve organizations,
including the application process, as well as the process for
suspending or revoking an organization's approval, are set forth in
proposed Sec. 205.19. To ensure compliance with DSCSA, FDA is
proposing that organizations seeking approval by FDA must first
electronically submit to FDA an application demonstrating the
organization's ability to assess compliance with all 3PL requirements
detailed in proposed Sec. 205.19 (see proposed Sec. 205.19(a) and
(b)). Organizations must also provide training that their employees
must pass before they may conduct licensure reviews (see proposed Sec.
205.19(c)). To verify information contained in the application and
further ensure compliance with the proposed regulation, FDA proposes
that, before an AO may conduct its first licensing review, it must be
audited by FDA (see proposed Sec. 205.19(d)). A new approval will be
valid for 5 years (see proposed Sec. 205.19(e)).
If an organization's request for approval is denied, the
organization may issue a request for reconsideration under 21 CFR 10.75
(see proposed Sec. 205.19(f)). In addition, to ensure compliance and
protect public health, FDA proposes that an AO may have its approval
suspended if it does not maintain the standards outlined in this part
(see proposed Sec. 205.19(g)). A suspended AO must cease all 3PL
licensure review including any pending inspections of 3PL facilities. A
suspended AO must notify any 3PLs under a pending licensure review by
the AO, of the AO's suspension within 7 calendar days (see proposed
Sec. 205.19(g)(5)). While most suspensions will happen only after
notice and opportunity to request a hearing, under the proposed
regulations, FDA reserves the ability to suspend approval prior to a
hearing if there is a reasonable probability that the organization's
noncompliance will cause imminent and serious adverse health
consequences or death to humans (see proposed Sec. 205.19(h)).
Furthermore, FDA proposes that a suspended approval can be
reinstated if the issue is resolved within 1 year from the date of
suspension (see proposed Sec. 205.19(i)), though it may be revoked if
the organization fails to rectify the situation that resulted in the
suspension (see proposed Sec. 205.19(j)). FDA believes that 1 year
provides the AO enough time to remedy most situations. An AO's approval
may also be reinstated on a conditional basis. If the AO is
conditionally reinstated, they will enter a three-year probationary
period, during which if any material deficiencies arise, their license
will be subject to immediate revocation (see proposed Sec.
205.19(i)(2)).
FDA also proposes to permit an AO to voluntarily withdraw its
approval, but it must inform FDA of any facilities with pending reviews
(see proposed Sec. 205.19(l)). To further ensure that pending
licensure reviews are not overlooked, under FDA's proposed regulation,
an AO whose approval has been suspended, revoked, or voluntarily
withdrawn has the responsibility to report this information to those
3PL facilities with pending licensure reviews (see proposed Sec.
205.19(m)); this will stop the clock on the 90-day licensure review
while the 3PL applies for licensure review from another AO or FDA.
Also, to ensure that the AOs continue to meet the standards put forth
in this subpart, and part 205 generally, under the proposed
regulations, an AO must inform FDA of any changes to information that
was submitted as part of its application for approval (see proposed
Sec. 205.19(n)(1)). Since the approval of an organization is
nontransferable, changes in ownership also require an AO to submit a
new application to FDA (see proposed Sec. 205.19(n)(2)). Finally, as
an additional assurance that an AO continues to comply with the
provisions of this part, FDA proposes to require that AO's remain
subject to periodic audits by FDA (see proposed Sec. 205.19(o)).
E. National Standards for Wholesale Distributors
1. Requirement That Wholesale Distributors Be Licensed
To implement section 503(e)(1) of the FD&C Act, FDA is proposing to
codify at Sec. 205.20(a) the requirement that a wholesale distributor
be licensed by the State from which the drug is distributed, or by FDA
if the State from which the drug is distributed has not established a
licensure requirement in accordance with the standards proposed herein,
as well as by the State into which the drug is distributed if that
State requires such a license. This requirement is consistent with how
States currently license wholesale distributors.
FDA anticipates that, for the purposes of annual reporting, a
wholesale distributor who maintains multiple licenses to engage in
wholesale distribution, will be able to report their required
information aggregately for all their licenses (section 503(e)(2) of
the FD&C Act). FDA believes this approach will increase efficiency for
both wholesale distributors and the Agency, ensure that licenses for
wholesale distribution facilities will be granted to qualified firms,
and ensure records related to their facilities will be maintained in an
organized fashion.
In addition, FDA proposes to set the licensure term for wholesale
distributors at 2 years (see proposed Sec. 205.20(b)). FDA considered
current State requirements, as well as the potential impacts on State
and Agency resources, to determine the term for licensure. Ultimately,
the Agency believes that 2 years aligns with current practices, does
not place an undue burden on State or FDA resources, and provides
adequate protection to American consumers because it ensures that
renewals will be based on current information and operations.
2. Surety Bonds
Wholesale distributors are required to obtain a surety bond to be
licensed and engage in wholesale distribution (section 583(b)(3) of the
FD&C Act). FDA is proposing to establish the terms of this requirement
in proposed Sec. 205.21. To receive or renew a license, a surety bond
of $100,000, or $25,000 if applicable (for wholesale distributors with
annual gross receipts of $10,000,000 or less), must be in place at the
time the wholesale distributor's application for licensure or licensure
renewal is submitted to the licensing authority (see proposed Sec.
205.21(b)). The surety bond is intended to ensure compliance with DSCSA
and that any administrative penalties levied by the licensing
authorities are paid. DSCSA also permits the furnishing of ``other
equivalent means of security acceptable to the State'' in lieu of a
bond (section 583(b)(3)(A)(i) of the FD&C Act). It would be up to the
State licensing authority to determine what, if anything, would
constitute an equivalent means of security to a surety bond. Where FDA
is the licensor, the wholesale distributor would need to furnish a
surety bond to satisfy the bond requirement as other equivalent means
of security appear to be specifically reserved for the States.
While a bond is required before a wholesale distributor may acquire
the necessary license, section 583(b)(3)(B) of the FD&C Act provides a
set of circumstances under which the surety bond requirement will be
waived. FDA is proposing to codify at Sec. 205.21(b)(3) the DSCSA
requirement that if a wholesale distributor can prove it has the
necessary bond for the State where the facility is located (e.g., by
providing a copy of the existing security bond
[[Page 6724]]
agreement), the requirement for an additional surety bond for another
State is waived. In this situation, the wholesale distributor does not
have to acquire an additional bond to satisfy the non-resident
licensure requirements of the State into which the wholesale
distributor plans to distribute. However, it remains unclear if and how
this waiver should apply when an equivalent means of security to the
surety bond are used. FDA requests comment specifically related to the
waiver to the surety bond requirement and whether that waiver should
apply to scenarios where some other equivalent means of security is
used in lieu of a surety bond.
The terms that a surety bond must include are outlined in proposed
Sec. 205.21(c). FDA proposes to require not only that the terms cover
the liability requirements related to administrative penalties, but
also that the bond remain in full force for 1 year after the license
expires and that the surety company guarantee payment within 30 days of
receiving notice from the licensing authority. FDA also proposes
permitting licensing authorities to make claims against the surety bond
for 1 year after the wholesale distributor's license expires or within
60 days after an administrative or legal proceeding has concluded,
whichever is longer. These timeframes seek to ensure that the rights of
the different parties involved in a potential claim will be adequately
protected. This is particularly important with respect to the waiver
because it allows the affected States equal access to the surety bond
and ensures consistent standards across States.
The implications of termination or lapse in coverage of a surety
bond are detailed in proposed Sec. 205.21(d). A wholesale distributor
may cancel its surety bond, but FDA proposes to require that it give
all impacted licensing authorities 30 days' prior notice before such
cancellation take effect. Such notice is necessary because a wholesale
distributor's license will be suspended upon the cancellation of the
surety bond unless the wholesale distributor acquires a new bond before
to the old bond is cancelled. FDA proposes that a license will be
suspended if a licensing authority discovers a lapse in bond coverage.
FDA also proposes to require that the surety bond permit actions to
be brought by either a State or Federal licensing authority (see
proposed Sec. 205.21(e)), provide the contact information for the
surety company (see proposed Sec. 205.21(f)), and name the specific
parties to the surety bond (see proposed Sec. 205.21(h)).
3. General Requirements for Licensure
This section includes the requirements for the application. FDA
notes that the applicant would have to demonstrate compliance with the
requirements as set forth in subpart C, including a satisfactory
inspection, as described in proposed Sec. 205.28, and criminal
background checks for facility managers and designated representatives,
as described in proposed Sec. 205.25, to be granted a wholesale
distributor license.
The general application requirements that must be met for a State
or Federal licensing authority to issue a wholesale distributor license
are set forth in proposed Sec. 205.22. The requirements applicable to
the individual who submits the licensure application are detailed in
proposed Sec. 205.22(a). FDA proposes to require that the applicant
submit all required information and pay a licensing fee in order to be
considered for licensure. FDA believes these general requirements align
with current industry practices.
FDA is proposing at Sec. 205.22(b) to require that the applicant
provide the surety bond or other equivalent means of security
acceptable to the State, required by section 583(b)(3) of the FD&C Act
and detailed in proposed Sec. 205.21, as part of the wholesale
distributor's application for a license.
The information that the licensing authority will require as part
of a wholesale distributor's initial application for licensure and
renewal applications is set forth in proposed Sec. 205.22(c) and (d).
This information is necessary for the licensing authority to assess
whether the wholesale distributor is in good standing and has the
infrastructure and capabilities to fulfill the duties and obligations
of licensure. For example, FDA is proposing to require that a wholesale
distributor inform FDA if it has received any citations for violating
requirements for licensure or received any significant disciplinary
actions within the past 7 years (see proposed Sec. 205.22(c)(8)). FDA
believes this information is necessary to ensure the wholesale
distributor can demonstrate that it has not engaged in a pattern of
violating the standards for licensure. The DSCSA defines prohibited
persons, in part, as licensees who have ``engaged in a pattern of
violating the requirements of this section, or State requirements for
licensure, that presents a threat of serious adverse health
consequences or death to humans'' (section 583(d) of the FD&C Act).
Therefore, this information is necessary to demonstrate that a
wholesale distributor is not prohibited from receiving or maintaining
licensure for wholesale distribution.
Finally, FDA proposes to require that a wholesale distributor's
license be readily retrievable at the facility, and that the facility
permit State or Federal inspectors, or others acting on behalf of the
licensing authority, to inspect the license (see proposed Sec.
205.22(e)).
4. The Federal Licensure Process
Section 503(e) of the FD&C Act, as amended by DSCSA, requires FDA
to license wholesale distributors directly if the State in which it
engages in wholesale distribution has not established a licensing
requirement (section 503(e)(1) of the FD&C Act). Proposed Sec. 205.23
details the process that FDA will use when issuing licenses to
wholesale distributors. While this section is only applicable to
wholesale distributors obtaining a license from FDA, FDA suggests
States implement similar procedures to ensure that all wholesale
distributor licenses issued are consistent with the proposed regulation
pursuant to section 503(e)(1)(B) of the FD&C Act. FDA plans to make
information available to clarify who is the appropriate licensing
authority in the wholesale distributor's State. FDA believes this
streamlined process for application will allow for greater clarity and
harmonization across the industry.
For wholesale distributor license applications submitted to FDA,
FDA proposes that the wholesale distributor submit the application
electronically, including the information outlined in proposed
Sec. Sec. 205.21 and 205.22, along with additional supporting
documentation (see proposed Sec. 205.23(a)(1)). The DSCSA authorizes
FDA's use of third-party organizations--AOs--to conduct inspections of
wholesale distributors required under section 583(c) of the FD&C Act.
If FDA has approved one or more AOs to inspect wholesale distributors,
the wholesale distributor should note the AO it prefers to conduct its
inspection on the application submitted to FDA (see proposed Sec.
205.23(a)(2)). If no AO has been approved, FDA will conduct the
inspection (see proposed Sec. 205.23(a)(3)). Furthermore, submission
of the application to FDA will not be considered complete until FDA
receives all pertinent information and fees (see proposed Sec.
205.23(a)(5)).
While the DSCSA permits AOs to conduct inspections of wholesale
distributors applying for licensure, the responsibility of determining
whether a wholesale distributor meets all the applicable requirements
set forth in this proposed regulation remains with FDA (see proposed
Sec. 205.23(b)). To avoid
[[Page 6725]]
delays in the licensure process, FDA intends to work with wholesale
distributors to correct minor errors made on the application (e.g.,
missing written policies and procedures) and communicate with the
wholesale distributor about additional information the Agency may need
to process and review the application (see proposed Sec. 205.23(c)).
If the wholesale distributor meets the requirements outlined in this
proposed part and none of the prohibited factors listed in proposed
Sec. 205.30(a)(1) are present, FDA will approve the application and
send an approval letter and license certificate (see proposed Sec.
205.23(d)).
FDA recognizes that a wholesale distributor may have concerns about
what happens to the status of its license if disciplinary sanctions are
taken against the approval status of the AO that conducted its
inspection when applying for licensure or if the organization is
otherwise no longer considered an approved AO. While FDA believes that
a wholesale distributor should not be penalized for the actions of the
AO, FDA must ensure that the AO's review and findings provide a
reliable basis for licensing decisions. As such, FDA is proposing that,
if the wholesale distributor is otherwise in good standing, a change in
the approval status of the AO that conducted the inspection of the
wholesale distributor will not automatically affect the licensure of a
licensed wholesale distributor (see proposed Sec. 205.23(e)). Rather,
in the event that an AO has disciplinary sanctions taken against it,
ends its business, or is otherwise no longer considered an approved AO,
the license of any wholesale distributor reviewed by that AO will be
subject to appropriate action in accordance with Sec. 205.30 and other
applicable statutes or regulations. FDA may verify the wholesale
distributor's compliance status and review the facts in that situation
to determine the potential effect, if any, on the licensure of
wholesale distributors inspected by that AO.
5. Changes to Information, Ownership, or Location of Licensed Wholesale
Distributors
FDA recognizes that information about a business can change over
time. However, for the licensing authority to effectively carry out its
responsibilities, license information must remain current and changes
in information previously submitted must be reported to the licensing
authority. Currently, the reporting requirements for these types of
changes vary by State. FDA is proposing the establishment of specific
timeframes for reporting changes (see proposed Sec. 205.24) and
believes that standardizing the timeframes will help make reporting
business-related changes less burdensome for industry and licensing
authorities. FDA is proposing that the wholesale distributor submit
changes to certain information, such as the information submitted with
a surety bond or as part of an application for licensure, to the
licensing authority within 30 calendar days of the date the change
became effective (see proposed Sec. 205.24(a)). Significant changes,
such as changes in location or changes to the person engaged in
wholesale distribution, require the added scrutiny that comes with an
inspection or review of an application for a new license to ensure that
the entity will be able to continue to meet the standards for licensure
in its new location or under its new management. For this reason, FDA
is proposing that changes in location or changes to the person engaged
in wholesale distribution will require an inspection or new license
(see proposed Sec. 205.24(b) and (c)). FDA recognizes that the
ownership of a facility from which a wholesale distributor leases the
facility and conducts wholesale distribution may change without the
wholesale distribution operation changing in any meaningful way. If
that change does not impact the wholesale distribution operation, the
wholesale distributor will not need to apply for a new license. As
described in proposed Sec. 205.24(b)(1), the date the change of
location takes place is the date the new location begins receiving
prescription drugs.
6. Prohibited Persons and Qualifications for Key Personnel
The FD&C Act, as amended by DSCSA, requires FDA to establish and
implement standards for the qualifications of wholesale distributors'
key personnel (section 583(b)(5) of the FD&C Act). As discussed above
and proposed at Sec. 205.3(g), FDA considers key personnel to include
individuals with responsibility for managing the operations of the
wholesale distributor, including any principal, owner, director,
officer of the wholesale distributor, facility manager or designated
representative, or other individuals who are authorized to enter into
areas where prescription drugs are held and are likely to handle those
prescription drugs as a part of their responsibilities within the
operation. FDA believes the qualifications for key personnel proposed
in Sec. 205.25 are necessary to ensure that all the individuals who
are responsible for operating the wholesale distributor's facility are
appropriately qualified to carry out their duties and that the
wholesale distributor meets the national standards.
Proposed Sec. 205.25(a) lists conduct that prohibits a wholesale
distributor from obtaining licensure. Proposed Sec. 205.25(b)
establishes the basic standards for key personnel working within a
wholesale distribution facility. Key personnel must have the
appropriate education, background, training, and experience necessary
to carry out their assigned functions within the operation. No one
within the facility should carry out the responsibilities of key
personnel without the proper training and expertise.
As a part of FDA's responsibility to establish and implement
standards for the qualifications of wholesale distributors' key
personnel, FDA is proposing that wholesale distributors and their key
personnel meet certain other qualifications. Licensure may be denied if
a wholesale distributor or any of their key personnel do not meet the
standards for qualification as outlined in proposed Sec. 205.25(c).
Key personnel working for a wholesale distributor hold critical
positions of trust for protecting the security of the prescription drug
supply chain. FDA believes it would be a best practice for a firm to
require that all employees not engage in the illegal use of controlled
substances while serving in their capacity in the wholesale
distribution operation and request that all employees so state.
FDA is proposing to require wholesale distributors to establish and
implement written policies and procedures to ensure that their key
personnel meet the qualifications contained in this proposed section
(see proposed Sec. 205.25(e)) and to maintain certain information
about their key personnel that demonstrates they are qualified to carry
out the duties assigned to them (see proposed Sec. 205.25(b)),
including having the proper education and training (see proposed Sec.
205.25(e)(3)). Proposed Sec. 205.25(f) also limits a facility manager
or designated representative to hold that position at one facility at a
time. This is to ensure that the facility manager or designated
representative is actively engaged in managing the daily operations of
the facility and that they remain aware of any non-compliance issues
that may arise.
The FD&C Act, as amended by DSCSA, specifically requires licensure
standards to include mandatory background checks and fingerprinting of
wholesale distributor facility managers and their designated
representatives
[[Page 6726]]
(section 583(b)(4) of the FD&C Act). Entrusting individuals with the
responsibility of distributing prescription drugs prior to a criminal
background check may jeopardize the integrity of the drug supply chain
and leave the public exposed to unnecessary harm posed by the possible
introduction of drugs that are unsafe. FDA is proposing to codify at
Sec. 205.25(g) the requirement for facility managers and their
designated representatives to submit a full set of fingerprints to
conduct local and national criminal background checks. The background
check, when completed, must demonstrate that the facility manager or
designated representative has no history of criminal convictions
pursuant to proposed Sec. 205.25(a).
FDA suggests, when a wholesale distributor staffs its operation, it
is a best practice that the individuals who work within their operation
and have access to prescription drugs not have a record of criminal
activity involving violations of the FD&C Act or other laws involving
prescription drugs. This best practice is recommended to help ensure
security within a wholesale distributor.
When screening personnel who work in areas of a facility where
prescription drugs are held, including the facility manager or
designated representative, FDA recommends that a wholesale distributor
consider whether such personnel have (1) engaged in a pattern of
violating the requirements of section 583 of the FD&C Act that present
a threat of serious adverse health consequences or death to humans; (2)
been found to have committed or facilitated commission of any
prohibited acts under the FD&C Act or violated or facilitated any
violations of any of the regulations in this part or analogous
provisions of the State licensing authority, as applicable; (3) been
convicted of any violation Federal, State, or local laws relating to
drug samples, wholesale or retail drug distribution, distribution of
controlled substances, or 3PL services; or (4) been convicted of any
felony under Federal, State, or local laws involving or related to
prescription drugs. FDA believes that wholesale distributors should
consider an applicant's history of violations of the FD&C Act or other
laws involving prescription drugs when making staffing decisions.
7. Wholesale Distributor Storage and Handling of Prescription Drugs,
and Required Policies and Procedures
The DSCSA charges FDA with creating national standards for the
storage and handling of prescription drugs by wholesale distributors,
including facility requirements (section 583(b)(1) of the FD&C Act). To
ensure confidence that the prescription drug delivered maintains its
quality and integrity throughout the distribution process, FDA believes
that wholesale distributors should establish and maintain quality
systems that encompass the organizational structure, account for
potential vulnerabilities or threats to the systems, and clearly
articulate the procedures and processes for all wholesale distribution
activity. A proper quality system should be fully documented, and the
effectiveness of the system should be continually monitored to ensure
the quality is maintained. This includes ensuring that facilities and
equipment are properly maintained for their purposes of storing and
distributing prescription drugs; that personnel are properly qualified,
screened, and trained for their positions; and that documentation is
comprehensive. Regular management review of all aspects of the quality
systems in place is important for maintaining these high standards. FDA
proposes Sec. 205.26, which establishes basic requirements that will
assist wholesale distributors in achieving these goals.
Although the FD&C Act permits an entity to be more than one type of
trading partner so long as it complies with all the applicable
requirements (section 582(a)(1) of the FD&C Act), FDA believes that the
processes and functions of each type of entity need to be kept separate
for the licensing authority to ensure the entity is complying with all
the applicable requirements. Accordingly, FDA is proposing that any
wholesale distributor's facility that is also licensed or registered as
another trading partner and operating from the same address must have
separate systems and processes in place for their separate functions
(see proposed Sec. 205.26(a)).
FDA believes that proper storage and handling of prescription drugs
inherently requires the establishment of standards that address
physical requirements for the facility space in which drugs are stored
and handled, along with standards that address the manner in which
drugs are to be securely stored and handled within the facility of a
wholesale distributor. In Sec. 205.26(b), FDA proposes the following
requirements with regard to standards placed on the wholesale
distributor's facility. FDA believes these facility requirements will
ensure that their establishments are appropriate for the distribution
(including storage) of prescription drugs.
The facility must be of a suitable size, configuration, and design
to ensure proper storage, maintenance, and cleanliness (see proposed
Sec. 205.26(b)(1)(ii) through (iv)). The facility must also be
equipped with clearly defined areas that separate drugs that are unfit
for distribution, from those that are saleable to avoid potential
mistakes when distributing the prescription drugs (see proposed Sec.
205.26(b)(1)(vi)).
The facility must be sufficiently secure to protect the
prescription drugs in the supply chain from possible theft or diversion
(see proposed Sec. 205.26(b)(2)). Facilities must protect against
unauthorized entry and ensure that the premises are well lit and not
vulnerable to intrusion (see proposed Sec. 205.26(b)(2)(i) through
(iii)). Entry and access to areas where prescription drugs are held
within the facility must be limited to those who have the appropriate
experience and training needed to conduct wholesale distribution (see
proposed Sec. 205.26(b)(2)(iv)). These basic security requirements
will help wholesale distributors protect and safeguard the prescription
drugs maintained in their facility.
A wholesale distributor has the responsibility of ensuring that
prescription drugs are stored under proper conditions to maintain the
safety and effectiveness of the drugs it distributes. Accordingly, a
wholesale distributor's facility must maintain appropriate equipment
(e.g., refrigeration and air conditioning equipment) in good working
order to ensure that prescription drugs are properly stored in the
facility (see proposed Sec. 205.26(b)(3)). To this end, FDA is
proposing to require that a wholesale distributor establish written
procedures to ensure that its equipment is installed and maintained by
qualified individuals (see proposed Sec. 205.26(b)(3)(i)). Written
policies and procedures include those that are stored and maintained
electronically. Upon inspection, a wholesale distributor must
demonstrate and verify that its equipment is in working order and has
been periodically assessed in accordance with the wholesale
distributor's written procedures to ensure the equipment's continued
functionality (see proposed Sec. 205.26(b)(3)(i)), which is critical
in ensuring that those drugs retain their safety and effectiveness
throughout the supply chain.
Additionally, a wholesale distributor must regularly conduct and
document facility assessments to make sure that drugs are properly
stored in accordance
[[Page 6727]]
with their labeling (see proposed Sec. 205.26(b)(4)).
FDA expects that, as a crucial part of the creation of a quality
system, wholesale distributors will establish, maintain, and follow
written policies and procedures regarding the safeguarding of the
prescription drugs within their control. Proposed Sec. 205.26(c)
outlines several requirements for maintaining written policies and
procedures to ensure that the requirements are carried out properly and
consistently. Wholesale distributors are not limited to establishing
written policies and procedures for the stated functions in proposed
Sec. 205.26(c), as a wholesale distributor may wish to establish
written policies and procedures pertaining to other aspects of
wholesale distribution and staffing of their facilities. The purpose of
requiring written policies and procedures is to assist staff and
management at a wholesale distribution facility to determine the
processes required to ensure safe storage and distribution of
prescription drugs.
Proposed Sec. 205.26(c) includes the requirement that wholesale
distributors establish and follow written policies and procedures to
ensure that a wholesale distributor: (1) Only does business with other
authorized trading partners (see proposed Sec. 205.26(c)(1)); (2)
properly maintains equipment in good working order as outlined in
proposed Sec. 205.26(b)(3) (see proposed Sec. 205.26(c)(2)); (3)
transports prescription drugs in a manner designed to avoid breakage
and exposure (see proposed Sec. 205.26(c)(3)); (4) inspects shipping
containers for suspect or illegitimate products, as well as other
quality issues that may render the prescription drug unfit for
distribution (see proposed Sec. 205.26(c)(4)); (5) stores and handles
the prescription drugs they warehouse and distribute in accordance with
the prescription drug's labeling (see proposed Sec. 205.26(c)(5)); (6)
properly retains, returns, or destroys drugs removed from the supply
chain depending on the proper disposition of the prescription drug (see
proposed Sec. 205.26(c)(6)); and (7) is prepared to protect against
reasonably foreseeable crises that could affect security or operations
at the facility (see proposed Sec. 205.26(c)(7)).
8. Recordkeeping
Proper recordkeeping is essential to the timely identification,
recording, and reporting of issues arising within the supply chain.
Section 583(b)(2) of the FD&C Act requires FDA to create national
standards for establishing and maintaining records pertaining to the
distribution of prescription drugs. FDA is proposing in Sec. 205.27(a)
that these records include documentation pertaining to the security,
storage, handling, inventory, shipping, sale, purchase, trade,
delivery, and receipt of prescription drugs, as well as policies,
procedures, instructions, contracts, data, inspection reports, and any
other documentation related to compliance with this part, such as
invoices, purchase orders, packing slips, and shipping records. These
records could be stored and maintained electronically. These records
maintenance requirements will allow for greater confidence in the
information preserved at the facility and potentially disseminated to
other trading partners.
The maintenance, availability, and accuracy of the records made
available for inspection under section 583(b)(6) of the FD&C Act are
critical to ensure that wholesale distributors are acting in compliance
with this proposed regulation and that the records can be relied upon
to identify any potential risk to the public health. As such, FDA is
proposing to require that all records be securely stored, and that any
alterations made to records be signed and dated, while preserving the
original information contained in the record (see proposed Sec.
205.27(b)). This is intended to ensure that all records related to the
distribution of prescription drugs provide transparency and accurately
reflect the activities of the wholesale distributor. FDA also believes
that reliability of the records is contingent on having processes and
procedures in place that restrict access to and protect the integrity
of the data. To this end, FDA is proposing to require in Sec.
205.27(c) that wholesale distributors implement written policies and
procedures to protect the integrity of their records.
Under proposed Sec. 205.27(d), all records would be retained for a
period of 3 years, except records related to suspect and illegitimate
products, prescription drug quality complaints, and destroyed,
returned, and recalled prescription drugs, which would need to be
retained for a period of 6 years. Such record retention is necessary to
ensure compliance and consistent enforcement of the various record
keeping requirements of sections 582, 583, and 584 of the FD&C Act.
9. Inspections
Section 583(b)(6) of the FD&C Act directs FDA to establish national
standards for a mandatory physical inspection of any facility used in
wholesale distribution within a reasonable time frame from the initial
application (section 583(b)(6) of the FD&C Act). FDA believes that it
is imperative for the mandatory physical inspection to take place prior
to issuing an initial license to a wholesale distributor to ensure that
only those wholesale distributors who have the ability to properly
store, handle, and distribute prescription drugs in accordance with the
national standards are licensed. Accordingly, in proposed Sec.
205.28(a), wholesale distributors are required to undergo a physical
inspection before the licensing authority issues the initial license.
As used in subpart C, licensing authority means the State licensing
authority or FDA. To satisfy the inspection requirement, section 583(c)
of the FD&C Act permits the licensing authority to conduct the
inspection or accept an inspection by the State in which the facility
is located or by a third-party accreditation or inspection service
approved by the licensing authority in accordance with these standards.
FDA has codified this provision at proposed Sec. 205.28(a)(1) and (2).
Additionally, FDA believes that section 583(c) can be applied to State
licensure of non-resident wholesale distributors to ship into a State
and proposes that a State into which a drug is distributed may use the
same methods to satisfy the inspection requirement for non-resident
wholesale distributors (see proposed Sec. 205.28(a)(1)(iii)). FDA
believes that requiring a satisfactory inspection prior to licensure
will ensure that only wholesale distributors with appropriate
facilities and equipment for storing and distributing prescription
drugs are granted a license to participate in the supply chain.
FDA is proposing to require that the physical inspection of
wholesale distributor facilities include the facility itself, processes
related to all wholesale distribution activities, and paper and
electronically stored records; that wholesale distributors permit
inspections at reasonable times; and that the licensing authority
conduct its inspection in a reasonable manner (see proposed Sec.
205.28(b) and (c)). FDA believes that authentication of records during
an inspection is important to maintain confidence in documentation
preserved by the wholesale distributor, which may contain information
about nonsaleable prescription drugs or be disseminated to other
trading partners.
FDA proposes that a wholesale distributor be required to make
records available during inspections, including records that are held
offsite in the normal course of business. The failure of a wholesale
distributor to produce
[[Page 6728]]
records in a timely manner during an inspection can significantly
affect the licensing authority's ability to complete the inspection.
Therefore, FDA is proposing that a wholesale distributor be required to
provide offsite records within 2 business days of a request for such
records by a State or Federal official, or sooner if necessitated by
the duration of the inspection (see proposed Sec. 205.28(b)). FDA also
proposes the requirement that a wholesale distributor cooperate with
the State or Federal licensing authority, or the AO conducting the
inspection, at reasonable times, within reasonable limits, and in a
reasonable manner to achieve the objective of the inspection (see
proposed Sec. 205.28(c)).
Finally, FDA believes routine inspections are an essential tool to
ensure that wholesale distributors continue to comply with the national
standards after obtaining their initial wholesale distributor license
and move to renew that license. Accordingly, FDA is proposing to
require that wholesale distributors undergo routine inspections at
least once every 3 years (see proposed Sec. 205.28(d)). In developing
the inspection timeframes, FDA sought to balance the risk to the supply
chain with FDA's and State licensing authorities' resource constraints.
These routine inspections allow FDA or the licensing authority to
ensure that wholesale distributors maintain the levels of quality
storage and maintenance of prescription drugs at their facilities
expected by FDA to safeguard the supply chain.
10. Annual and Other Reporting to FDA
Under DSCSA, wholesale distributors must report certain information
to FDA as part of the requirement to be considered an authorized
trading partner (sections 581(2)(B) and 503(e)(2)(A) of the FD&C Act).
The annual reporting requirements for wholesale distributors went into
effect on January 1, 2015, and FDA has published draft industry
guidance that communicates draft Agency expectations for annual
reporting while these regulations are being developed (79 FR 73083,
December 9, 2014, and 82 FR 3004, January 10, 2017). Proposed Sec.
205.29 clarifies the statutorily prescribed annual reporting
requirements.
The DSCSA requires that any wholesale distributor who owns or
operates an establishment that engages in wholesale distribution report
to FDA on an annual basis: (1) The State in which the wholesale
distributor is licensed; (2) the identification number of its wholesale
distributor's license; (3) the name, address, and contact information
for the wholesale distributor; (4) all trade names under which the
licensed wholesale distributor conducts business; and (5) any
significant disciplinary actions taken against the wholesale
distributor (section 503(e)(2)(A) of the FD&C Act).
FDA is proposing to require that wholesale distributors use an
electronic reporting system provided by FDA (see proposed Sec.
205.29(a)). This electronic system will increase efficiency by
providing uniformity in report content and format, making the
information easier to process for regularly updating the public
database (section 503(e)(2)(B) of the FD&C Act). In addition, FDA
believes having the license status of wholesale distributors in one
publicly available database would be helpful for FDA, trading partners,
and other stakeholders in determining whether wholesale distributors
are authorized, as defined in section 581(2)(B) of the FD&C Act.
Reporting information for each wholesale distributor in FDA's
electronic system during the reporting period is integral to FDA's
ability to provide oversight, as wholesale distributors are prohibited
from distributing product without a license.
FDA proposes that the annual reporting schedule will require all
wholesale distributors to report each calendar year between January 1st
and March 31st, although an entity may update information at any time
(see proposed Sec. 205.29(b)). For example, if a wholesale distributor
chooses to update a license on December 15, 2019, that wholesale
distributor will still have to report during the January 1, 2020,
through March 31, 2020, annual reporting period.
The specific information that wholesale distributors must
electronically report to FDA is set forth in proposed Sec. 205.29(c).
The DSCSA requires licensed entities to report to FDA each State by
which they are licensed and each license number (section
503(e)(2)(A)(i)(I) of the FD&C Act). FDA is proposing that the
wholesale distributor also submit the expiration date of its State
licenses (see proposed Sec. 205.29(c)). The submission of the
wholesale distributor's license expiration date is paramount to FDA's
ability to establish and maintain a public database identifying each
authorized wholesale distributor as required by section 503(e)(2)(B) of
the FD&C Act. If a wholesale distributor's license expires, it is no
longer an authorized trading partner, and FDA will remove it from the
public database until the license is renewed or a new license issued.
Similarly, FDA is proposing that a wholesale distributor be required to
report to FDA within 30 calendar days that it has gone out of business
or voluntarily withdrawn a wholesale distributor's license from a State
(see proposed Sec. 205.30(e)). Again, FDA believes that requiring a
wholesale distributor to report this information about the status of
its license is essential for FDA to comply with the requirements under
section 503(e)(2)(B) of the FD&C Act and to ensure that the database is
accurate and helpful for the States and trading partners.
The DSCSA also requires that wholesale distributors report the
name, address, and contact information for each facility at which, and
all the trade names under which, the wholesale distributor conducts
business (section 503(e)(2)(A)(i)(II) of the FD&C Act). In implementing
this requirement, FDA is proposing to require the wholesale distributor
to provide the company name that is identical to the official company
name appearing on the license, along with the full business address
that is associated with the State or Federal license (see proposed
Sec. 205.29(c)(2)).
Additionally, FDA is requesting that wholesale distributors submit
a UFI that corresponds with the facility name and facility address. The
UFI for a wholesale distributor's facility is useful to FDA in
identifying and confirming certain business information. A wholesale
distributor should obtain a separate UFI for each physical address it
reports. FDA has published guidance on annual reporting that can assist
wholesale distributors if they require additional information regarding
the UFI reporting recommendation.
In addition, FDA believes the wholesale distributor's contact
information should include someone familiar with the daily operations
of the wholesale distributor's facility and who has the authority to
act on inquiries to ensure efficient processing of inquiries and
minimize the impact inquiries may have on the facility's daily
operations. Therefore, wholesale distributors must submit the contact
information of the facility manager or designated representative,
including that individual's name, telephone number, and email address,
with its annual reporting requirements pursuant to section
503(e)(2)(A)(i)(II) of the FD&C Act.
DSCSA requires a wholesale distributor to report to FDA any
significant disciplinary action taken by a State or Federal government
against the wholesale distributor (section 503(e)(2) of FD&C Act). A
significant disciplinary action is defined in the
[[Page 6729]]
proposed regulation, in relevant part, as any action by a State or
Federal licensing authority that limits or prevents a wholesale
distributor from distributing or facilitating the distribution of
prescription drugs (see proposed Sec. 205.3(l)). FDA proposes that
wholesale distributors report during the reporting period to FDA all
significant disciplinary actions that occurred during the preceding 12-
month period (see proposed Sec. 205.29(d)(1)). After the reporting
period, FDA proposes that within 30 calendar days after a significant
disciplinary action is imposed or taken by a State or Federal
government, wholesale distributors report the type of disciplinary
action, the date the action was taken, and the State where the
disciplinary action occurred, as well as submit any documents
associated with the disciplinary action, including a final ruling by
the relevant State or Federal agency or board or a consent decree (see
proposed Sec. 205.29(c)(4) and (d)). While wholesale distributors do
not ordinarily have to report DEA registration numbers or State
controlled substances licenses to FDA for annual reporting purposes,
FDA suggests that such information be provided as part of its report
under section 503(e)(2)(A)(ii) of the FD&C Act when there is a
significant disciplinary action issued by the DEA or the State
controlled substances licensing authority that would limit the ability
of the wholesale distributor to distribute controlled drug substances.
In such a situation, information about the DEA registration or State
controlled substance license should be reported since the disciplinary
action is reported under that specific license or registration.
11. Licensure Denial, Suspension, Reinstatement and Revocation--Notice
and Opportunity To Request a Hearing
The standards for licensure denial are set forth in proposed Sec.
205.30. Proposed Sec. 205.30(a)(1) lists 10 circumstances under which
a licensing authority will be required to deny a wholesale
distributor's request for licensure or licensure renewal. FDA believes
that these reasons requiring denial will ensure wholesale distributors
focus on good storage practices outlined by FDA and are necessary to
protect the integrity of the products in the pharmaceutical
distribution supply chain. Wholesale distributors should seek to ensure
that these reasons outlined in proposed Sec. 205.30(a)(1) are
addressed when the wholesale distributor files for licensure to avoid
denial or delays of their application.
Proposed Sec. 205.30(a)(2) through (5) details the process
afforded to wholesale distributors whose applications for licensure
have been denied. FDA is proposing to give applicants the opportunity
to provide additional information for reconsideration of the denial. If
the licensing authority denies a wholesale distributor's request for
licensure after reconsideration, the wholesale distributor will receive
a notice of opportunity to request for hearing under existing FDA
hearing procedure. FDA requests comment regarding the reconsideration
and appeal process outlined in this regulation for wholesale
distributors whose applications for licensure have been denied.
The proposed standards for suspending a wholesale distributor's
license are set forth in Sec. 205.30(b) and (c). A suspended wholesale
distributor must cease all receipt and distribution of prescription
drugs until their license is re-instated. The proposed standards for
suspension are based on the severity of risk posed to the public
health. For example, under proposed Sec. 205.30(b), a wholesale
distributor's license may be suspended only after the wholesale
distributor receives a notice of opportunity for hearing. If the
licensing authority has a reasonable belief that the wholesale
distributor is not in compliance with licensure requirements and such
noncompliance threatens the quality of the product or threatens public
safety, the licensing authority is required to notify the wholesale
distributor in writing of the intent to suspend its license. A
wholesale distributor will have 30 days upon the date of the notice of
intent to suspend a license to provide additional information to the
licensing authority so it may reconsider its decision to suspend the
wholesale distributor license. If reconsideration is not sought, or if
reconsideration is denied, the licensing authority will inform the
wholesale distributor in writing of its formal intent to proceed with
license suspension. The notice will contain a statement informing the
wholesale distributor that it has an opportunity to request a hearing
on the question of whether there are sufficient grounds for suspension.
The wholesale distributor will have 10 days after the date of the
notice to inform the licensing authority of its intent to request a
hearing; otherwise the opportunity for a hearing will be waived and the
license suspended. FDA requests comment regarding this reconsideration
and appeal process.
Proposed Sec. 205.30(c) allows for suspension prior to notice and
opportunity for a hearing and for suspension to be effective
immediately if the wholesale distributor's noncompliance poses an
imminent threat to public safety. For example, if a wholesale
distributor is distributing illegitimate product, and once made aware,
does not take corrective actions to protect the public from the threat
of these products, its license could be suspended immediately. Another
example would be a scenario where the conditions under which drugs are
held cause the product to be illegitimate and the wholesale distributor
refuses to correct the conditions or continues to ship these
illegitimate products. Under the proposed regulation, if the licensing
authority proceeds with suspension in such a situation, the licensing
authority will inform the wholesale distributor in writing that its
license is suspended. The notice will also contain a statement
informing the wholesale distributor that it may request a hearing and
that hearing, if granted, will be afforded within 10 days of the
receipt of the wholesale distributor's request for hearing. The
wholesale distributor has 10 days from the date on the notice of
suspension to request a hearing; otherwise its opportunity for a
hearing will be waived. FDA believes that this limits the amount of
time a wholesale distributor's license would be suspended while
providing a reasonable amount of time both for the wholesale
distributor to review a notice of suspension and collect the necessary
information to demonstrate that its license should not be suspended,
and for FDA to consider the hearing request, and to schedule and
prepare for a hearing, if the hearing request is granted. FDA believes
immediate suspension of a wholesale distributor's license is crucial in
cases where continued operation of the wholesale distributor presents
an imminent threat to public safety and the pharmaceutical supply
chain.
Under proposed Sec. 205.30(d), a wholesale distributor's suspended
license may be reinstated if the wholesale distributor can demonstrate
to the licensing authority that it is in compliance with this proposed
regulation.
Under the proposed rule the process outlined at Sec. 10.75 is the
default for appeals related to a denied application for a wholesale
distributor license, and the hearing process outlined at 21 CFR part 16
is the default for appeals related to a suspended or revoked wholesale
distributor license. However, the wholesale distributor may request any
of the procedures contained in 21 CFR parts 10 through 16. FDA believes
that
[[Page 6730]]
this proposed approach is consistent with current practice and suggests
that States develop comparable processes.
The standards for revoking a wholesale distributor license are set
forth in proposed Sec. 205.30(e). The licensing authority will revoke
a license if it finds that a wholesale distributor whose license has
been suspended is unable or refuses to comply with the licensing
requirements. The requirements governing the revocation of a wholesale
distributor license are set forth in proposed Sec. 205.30(e)(2)
through (4) and mirror the process outlined in Sec. 205.30(b)(2)
through (7), with one exception: When the licensing authority informs
the wholesale distributor of its intent to revoke a license, the
wholesale distributor is given no opportunity for reconsideration since
it already had an opportunity to rectify deficiencies while its license
was suspended.
In addition, where a wholesale distributor fails to timely renew
its application, the license will be considered expired and the
wholesale distributor will need to submit an application for new
licensure if it seeks to resume wholesale distribution activities,
because the licensing authority may be unable to confirm that the
wholesale distributor continues to meet all necessary licensure
requirements (see proposed Sec. 205.30(f)). If a wholesale
distributor's license expires, it must cease receipt and distribution
of prescription drugs until their license has been re-instated.
FDA is also proposing that the licensing authority will terminate a
wholesale distributor's license upon request from the wholesale
distributor when the request includes a notice of the wholesale
distributor's intent to discontinue its activities and a waiver of an
opportunity for a hearing. The wholesale distributor will be required
to apply for a new license should it decide to resume wholesale
distribution activities (see proposed Sec. 205.30(g)).
F. Approved Organizations for Wholesale Distributors
1. Approval of Outside Organizations and Utilization of Such
Organizations in the Licensure Process
The FD&C Act, as amended by DSCSA, allows the Federal or State
licensing authority to accept inspections of wholesale distributors
conducted by third-party accreditation or inspection services they have
approved to be part of the licensure process (section 583(c) of FD&C
Act). Subpart D of the proposed rules defines the scope of work these
approved organizations (AOs) would be tasked with performing, as well
as the standards an AO must meet to become approved by FDA.
Additionally, this subpart will explain the circumstances in which an
inspection conducted by an AO may be used, what activities the AOs have
the authority to conduct and are expected to conduct, and the
qualifications that each third-party organization must possess to
become approved by FDA. FDA suggests that States that choose to rely on
AOs to conduct inspections have in place the same or similar
qualifications and processes for approved organizations to conduct
those inspections and for decisions affecting the approval status of
those organizations.
FDA proposes that an AO must complete an inspection no more than 90
days after receiving notice from the licensing authority to conduct an
inspection (see proposed Sec. 205.31(b)). FDA believes this allows AOs
sufficient time to perform the work with which they are tasked while
also ensuring that the wholesale distributor's activities are not
significantly delayed or otherwise impacted due to delays in the
inspection process. Upon completion of the inspection, the AO would
then provide FDA with a report based on the inspection within 7 days
(see proposed Sec. 205.31(b)(2) and (3)), with copy of the report to
the wholesale distributor facility (see proposed Sec. 205.31(b)(3)).
Using the report submitted by the AO, FDA makes the final determination
as to whether a wholesale distributor facility should be issued a
license.
It is important that FDA be able to verify an AO's continued
compliance with the requirements of the proposed regulation. Therefore,
to become an AO and keep its approval, FDA is proposing to require that
an AO maintain certain records for a period of at least 5 years and
make these records readily available to FDA upon request (see proposed
Sec. 205.31(c)). In addition, to ensure public safety, FDA is
proposing to require that AOs report certain observations at wholesale
distributor facilities to FDA immediately (see proposed Sec.
205.31(c)(4)). The general qualifications for approval are set out in
proposed Sec. 205.32.
To become and remain approved, FDA is proposing to require that an
organization, and those employed by the organization, abide by certain
guidelines intended to secure against conflicts of interest, promote
professional business practices, and protect non-public information
(see proposed Sec. 205.32(a)).
FDA is proposing to allow AOs to hire outside contractors to
conduct inspections. Under FDA's proposed regulation, AOs who decide to
use outside contractors must ensure that they effectively carry out the
inspection in a manner consistent with this proposed regulation to
protect public health, conform to conflict of interest provisions, and
properly protect all non-public information (see proposed Sec.
205.32(b)). For an AO to maintain approval, FDA proposes to require
that the AO ensure contractors abide by all applicable confidentiality
agreements, the AO has policies and procedures in place to ensure the
contractors abide by these proposed standards, and the contractors have
the necessary training and expertise to carry out inspections of
wholesale distributor facilities (see proposed Sec. 205.32(b)(1)).
Before a contractor hired by an AO may perform an inspection of a
wholesale distributor, the wholesale distributor must have entered into
an agreement with the AO giving the AO permission to share with
contractors the wholesale distributor's confidential commercial
information (see proposed Sec. 205.32(b)(2)). If such consent is not
provided by the wholesale distributor, the AO will perform the
inspection itself, without the use of contractors. FDA believes that
this approach is reasonable given that it is the AO's decision to work
with contractors and, under this proposed regulation, the ultimate
responsibility for the inspection and the protection of the wholesale
distributor's information rests with the AO.
In addition, FDA proposes that AOs must submit to FDA a list of the
contractors used by the organization and must certify that such
contractors comply with the applicable regulations (see proposed Sec.
205.32(b)(3)). Finally, to ensure that the standards set forth in this
subpart are followed, FDA proposes to require that the AOs remain
responsible for all the work performed by outside contractors (see
proposed Sec. 205.32(b)).
FDA proposes that to maintain their approved status, AOs must
prohibit contractors from subcontracting their inspection duties (see
proposed Sec. 205.32(b)(1)(ii)). Limiting the ability of contactors to
further delegate their responsibility ensures that FDA will have
accurate information about who is conducting inspections, that those
responsible for the inspections have the necessary qualifications, and
that their conduct is governed by this proposed regulation.
The proposed process that FDA will use to approve organizations,
including the application process, as well as the process for
suspending or revoking an organization's approval, are set forth in
proposed Sec. 205.33. FDA is proposing that organizations seeking
approval by
[[Page 6731]]
FDA must electronically submit to FDA an application demonstrating the
organization's ability to assess compliance with all wholesale
distributor requirements detailed in proposed part 205 (see proposed
Sec. 205.33(a) and (b)), and employees must complete the necessary
training as directed by FDA (see proposed Sec. 205.33(c)). To verify
information contained in the application and ensure compliance with the
proposed regulation, FDA proposes that, before an AO may conduct its
first inspection, a newly approved organization must be audited by FDA
(see proposed Sec. 205.33(d)). A new approval will be valid for 5
years (see proposed Sec. 205.33(e)).
If an organization's request for approval is denied, the
organization may submit a request for reconsideration under Sec. 10.75
(see proposed Sec. 205.33(f)). In addition, FDA proposes that an AO
may have its approval suspended if it does not maintain the standards
outlined in this section (see proposed Sec. 205.33(g)). A suspended AO
must cease all inspections of wholesale distributors. A suspended AO
must notify any wholesale distributors with a pending inspection to be
performed by the AO of the AO's suspension within 7 calendar days (see
proposed Sec. 205.33(g)(5). While most suspensions will happen only
after notice and opportunity to request a hearing, under the proposed
regulations, FDA reserves the ability to suspend approval prior to a
hearing if there is a reasonable probability that the organization's
noncompliance will cause imminent and serious adverse health
consequences or death to humans (see proposed Sec. 205.33(h)).
Furthermore, FDA proposes that a suspended approval can be
reinstated if the issue is resolved within 1 year from the date of
suspension (see proposed Sec. 205.33(i)), though it may be revoked if
the organization fails to rectify the situation that resulted in the
suspension (see proposed Sec. 205.33(j)). FDA believes that 1 year
provides the AO enough time to remedy most situations. An AO's approval
may also be reinstated on a conditional basis. If the AO is
conditionally reinstated, they will enter a three-year probationary
period, during which if any material deficiencies arise, their approval
will be subject to immediate revocation (see proposed Sec.
205.33(i)(2)).
FDA also proposes to permit an AO to voluntarily withdraw its
approval or otherwise cease operations as an AO under this part, but it
must inform FDA of any facilities with pending inspections (see
proposed Sec. 205.33(l)). To further ensure that pending inspections
are not overlooked, under FDA's proposed regulation, an AO whose
approval has been suspended or revoked has the responsibility to report
this information to those wholesale distributors that have pending
inspections (see proposed Sec. 205.33(m)); this will stop the clock on
the 90-day licensure review while the wholesale distributor applies for
inspection from another AO or FDA. Also, to ensure wholesale
distributors continue to comply with the provisions of this part, and
to ensure that AOs remain able to assess compliance with the wholesale
distributor requirements, an AO must inform FDA of any changes to
information that was submitted as part of its application for approval
(see proposed Sec. 205.33(n)(1)). Since the approval of an
organization is nontransferable, changes in ownership require an AO to
submit a new application to FDA (see proposed Sec. 205.33(n)(2)).
Finally, as an additional assurance that an AO continues to comply with
the provisions of this part, FDA proposes to require that AOs remain
subject to periodic audits by FDA (see proposed Sec. 205.33(o)).
VI. Proposed Effective/Compliance Dates
Section 584 of the FD&C Act states that the national licensing
standards for 3PLs established by regulation take effect 1 year after
the date such final regulation is published (section 584(d)(1) and (3)
of the FD&C Act), and that national licensing standards for wholesale
distributors established by regulation take effect 2 years after the
date such final regulation is published (section 583(a) and (e)(3) of
the FD&C Act). For several reasons, FDA does not intend to enforce the
3PL requirements until 2 years after the final regulation is published.
FDA recognizes that 1 year may be insufficient time for States to
implement 3PL licensure programs, should they decide to implement such
programs, and for 3PLs to apply for licensure under these programs.
Setting up a state licensure program may require additional time. This
is especially true in States that will require State legislative action
to implement a licensure program, with some State legislatures only
meeting biennially.
As the DSCSA states that the national standards for prescription
drug wholesale distributors established by regulation pursuant to
section 583 of the FD&C Act will take effect 2 years after the date
such final regulation is published (section 583(a) and (e) of the FD&C
Act), the national standards for licensing wholesale distributors in
subpart C will be effective 2 years after the date the final rule is
published.
Although the DSCSA states that the national licensing standards for
3PLs established by regulation pursuant to section 584 of the FD&C Act
will take effect one year after the date such final regulation is
published (section 584(d)(1) and (3) of the FD&C Act), as noted, FDA
does not intend to enforce requirements with respect to the national
standards for licensure of 3PLs until 2 years after the regulation is
finalized, in order to provide States with the opportunity to establish
or modify their licensure programs in accordance with the new standards
and time for 3PLs to apply and obtain a new license. For 1 year after
the effective date of the final regulation, FDA also does not intend to
enforce the requirements of section 582(b)(3), (c)(3), (d)(3), and
(e)(3) of the FD&C Act with respect to a manufacturer, wholesale
distributor, dispenser, or repackager who has as a trading partner a
3PL that is not licensed, unless the 3PL is not licensed because the
Secretary or a state licensing body has made a finding that the 3PL
does not utilize good handling and distribution practices and the
Secretary has published notice thereof.
VII. Preliminary Economic Analysis of Impacts
We have examined the impacts of the proposed rule under Executive
Order 12866, Executive Order 13563, the Regulatory Flexibility Act (5
U.S.C. 601-612), and the Unfunded Mandates Reform Act of 1995 (Pub. L.
104-4). Executive Orders 12866 and 13563 direct us to assess all costs
and benefits of available regulatory alternatives and, when regulation
is necessary, to select regulatory approaches that maximize net
benefits (including potential economic, environmental, public health
and safety, and other advantages; distributive impacts; and equity). We
believe that this proposed rule is a significant regulatory action as
defined by Executive Order 12866.
The Regulatory Flexibility Act requires us to analyze regulatory
options that would minimize any significant impact of a rule on small
entities. Because the proposed rule could impose significant, although
uncertain, new economic burdens on small entities, we find that the
proposed rule will have a significant economic impact on a substantial
number of small entities.
The Unfunded Mandates Reform Act of 1995 (section 202(a)) requires
us to prepare a written statement, which includes an assessment of
anticipated costs and benefits, before proposing
[[Page 6732]]
``any rule that includes any Federal mandate that may result in the
expenditure by State, local, and tribal governments, in the aggregate,
or by the private sector, of $100,000,000 or more (adjusted annually
for inflation) in any one year.'' The current threshold after
adjustment for inflation is $158 million, using the most current (2020)
Implicit Price Deflator for the Gross Domestic Product. This proposed
rule would not result in an expenditure in any year that meets or
exceeds this amount.
In this rulemaking, we propose new national standards for the
licensing of prescription drug wholesale distributors and third-party
logistics providers as directed under the Drug Supply Chain Security
Act, Title II of the Drug Quality and Security Act. If finalized, the
rule would also establish a Federal licensing system for wholesale drug
distributors and third-party logistics providers to use in the absence
of a state licensure program that is consistent with the proposed
national standards.
This rulemaking is being published in conjunction with the proposed
rule entitled ``Certain Requirements Regarding Prescription Drug
Marketing'' (or part 203), published elsewhere in this issue of the
Federal Register. We include the benefits and costs of part 203 in this
economic analysis and, unless otherwise specified, references to the
``proposed rule'' in this analysis encompass both proposed rules.
We summarize the benefits and costs of the proposed rule in table
1. The standards for prescription drug wholesale distribution in the
proposed rule would result in benefits to consumers and benefits to
distributors from reducing the diversion of prescription drugs. Other
monetized benefits include cost savings from reducing the frequency and
quantity of licensure applications and cost savings from reducing state
licensing standards in some states. We estimate that the annualized
benefits over 10 years would range from $1.25 million to $31.50 million
at a 7 percent discount rate, with a primary estimate of $10.66
million. We estimate that the annualized benefits would range from
$1.26 million to $32.18 million at a 3 percent discount rate, with a
primary estimate of $10.89 million.
We also expect that the proposed rule, if finalized, would impose
costs on wholesale drug distributors, third-party logistics providers,
states, approved organizations, and the Food and Drug Administration
(FDA). Costs to wholesale drug distributors and third-party logistics
providers include costs of learning about the rule, reporting to FDA,
undergoing routine inspections, writing and revising standard operating
procedures, and conducting background checks. Wholesale-drug
distributors would also incur costs to furnish surety bonds to their
state licensing authority to obtain or renew their licenses.
Costs to states include the time spent reading and understanding
the rule, passing or revising the laws and regulations governing their
licensure programs, and inspecting WDD and 3PL facilities. Approved
organizations would incur legal, application, and training costs, as
well as costs to inspect WDD and 3PL facilities. FDA costs include the
costs to establish and operate a reporting database and a licensure
program for wholesale drug distributors and third-party logistics
providers and the costs to establish and operate an approval program
for approved organizations.
We estimate that the annualized costs over 10 years would range
from $13.21 million to $20.63 million at a 7 percent discount rate,
with a primary estimate of $16.92 million. We estimate that the
annualized costs over 10 years at a 3 percent discount rate would range
from $12.83 million to $20.10 million, with a primary estimate of
$16.47 million.
Table 1--Summary of Benefits, Costs, and Distributional Effects of the Proposed Rule
--------------------------------------------------------------------------------------------------------------------------------------------------------
Units
------------------------------------
Category Primary Low High Period Notes
estimate estimate estimate Year Discount covered
dollars rate (%) (years)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Benefits:
Annualized Monetized ($ millions/ $10.66 $1.25 $31.50 2020 7 10 There is a high degree of uncertainty in
year). 10.89 1.26 32.18 2020 3 10 the magnitude of benefits.
Qualitative.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Costs:
Annualized Monetized ($ millions/ 16.92 13.21 20.63 2020 7 10
year). 16.47 12.83 20.10 2020 3 10
Qualitative.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Transfers:
Federal Annualized Monetized ($ 0.12 0.09 0.14 2020 7 10
millions/year). 0.11 0.08 0.14 2020 3 10
-----------------------------------------------------------------------------------------------------------------
From: States
To: Firms
-----------------------------------------------------------------------------------------------------------------
Other Annualized Monetized ($ .......... .......... .......... .......... .......... ..........
millions/year).
-----------------------------------------------------------------------------------------------------------------
From:
To:
--------------------------------------------------------------------------------------------------------------------------------------------------------
Effects:
State, Local, or Tribal Government: Annualized net costs to states over 10 years ranging from $0.62 million to $1.44 million at a 7 percent discount
and from $0.58 million to $1.38 million at a 3 percent discount rate..
Small Business: Quantified effects of more than 1 percent of average annual revenues for small 3PL firms. Unquantified effects are uncertain........
Wages: No estimated effect..........................................................................................................................
Growth: No estimated effect.........................................................................................................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
We have developed a comprehensive Preliminary Economic Analysis of
Impacts (PRIA) that assesses the impacts of the proposed rule. The full
preliminary analysis of economic impacts is available in the docket for
this proposed rule (Ref 18) and at <a href="https://www.fda.gov/AboutFDA/ReportsManualsForms/Reports/EconomicAnalyses/default.htm">https://www.fda.gov/AboutFDA/ReportsManualsForms/Reports/EconomicAnalyses/default.htm</a>.
[[Page 6733]]
VIII. Analysis of Environmental Impacts
FDA has carefully considered the potential environmental effects of
this action and has concluded, under 21 CFR 25.30(h), that this action
is of a type that does not individually or cumulatively have a
significant effect on the human environment.
IX. Paperwork Reduction Act of 1995
This proposed rule contains information collection provisions that
are subject to review by the Office of Management and Budget (OMB)
under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521). A
description of these provisions is given in the Description section of
this document with an estimate of the annual reporting, recordkeeping,
and third-party disclosure burden. Included in the estimate is the time
for reviewing instructions, searching existing data sources, gathering
and maintaining the data needed, and completing and reviewing each
collection of information.
FDA invites comments on these topics: (1) Whether the proposed
collection of information is necessary for the proper performance of
FDA's functions, including whether the information will have practical
utility; (2) the accuracy of FDA's estimate of the burden of the
proposed collection of information, including the validity of the
methodology and assumptions used; (3) ways to enhance the quality,
utility, and clarity of the information to be collected; and (4) ways
to minimize the burden of the collection of information on respondents,
including through the use of automated collection techniques, when
appropriate, and other forms of information technology.
Title: Requirements to Obtain a License to Distribute Drugs, Annual
Reporting and Recordkeeping for Procedures, for Third-Party Logistics
Providers and Prescription Drug Wholesale Distributors to Obtain a
License to Distribute Drugs; 21 CFR part 205; OMB Control Number 0910-
0251--Reinstatement
Description: The proposed rule would establish standards, terms,
and conditions for the licensing of 3PLs and prescription drug
wholesale distributors by State or Federal licensing authorities,
including process for the revocation, reissuance, and renewal of such
licenses. Sections 584 and 583 of the FD&C Act (21 U.S.C. 360eee-3,
360eee-2)) as added by the DSCSA (Title II of Pub. L. 113-54) requires
FDA to issue regulations on national standards for the licensing of
3PLs and wholesale distributors. Accordingly, FDA is proposing
requirements for licensing of wholesale distributors and third-party
logistics providers. The proposed rule outlines these requirements,
including information collection provisions, that 3PLs and wholesale
distributors must meet to obtain a license. The licensing authority is
the State, from which the 3PLs distribute drug or the State from which
wholesale distributors distribute drug. However, if a State does not
establish the licensure programs for 3PLs or wholesale distributors
consistent with these regulations, FDA will issue the licenses to 3PLs
or wholesale distributors in that State. In addition, States may
require that a 3PL or a wholesale distributor obtain a license to ship
drugs into that State. The FD&C Act does not require that States issue
these types of licenses. However, if a State chooses to implement such
a licensure requirement, the State must ensure that it is consistent
with these regulations, and any wholesale distributor or 3PL wishing to
ship products into that State must have a license.
Proposed part 205, subpart A, would set forth the national
licensing standards for State and Federal licenses issued to 3PLs
pursuant to section 584 of the FD&C Act (21 U.S.C. 360eee-3). Proposed
part 205, subpart C, would set forth the national licensing standards
for State and Federal licenses issued to wholesale distributors
pursuant to sections 503(e) and 583 of the FD&C Act (21 U.S.C. 353(e)
and 21 U.S.C. 360eee-2)) and replaces the existing regulations in
proposed part 205 that outlined guidelines for State licensing of
wholesale distributors that were developed under the Prescription Drug
Marketing Act of 1987 (Pub. L. 100-293).
In addition, the FD&C Act, as amended by DSCSA, allows FDA to
approve ``third party accreditation'' entities to evaluate the
qualifications of 3PLs for licensure or inspect wholesale distributors
facilities on behalf of FDA. These organizations are referred to in
this proposed rule as approved organizations or ``AOs.'' The
application to become an AO is the same whether the AO will be
evaluating the qualifications of 3PLs for licensure, inspecting
wholesale distributors facilities, or both. Subparts B and D of the
proposed rule outline the qualifications for AOs to perform licensure
reviews/inspections for 3PL facilities and inspections of wholesale
distributors respectively.
Description of Respondents: Respondents to the information
collection are third-party logistics providers and wholesale
distributors in any State and any entity engaging in wholesale
distribution of prescription drugs in any State. We are proposing that
these respondents submit applications for licensure and maintain
records of procedures and documents pertaining to licensure review,
inspections, policies, and training.
The DSCSA establishes 3PLs as members of the drug supply chain,
which are distinct from wholesale drug distributors, and specifically
precludes States from regulating 3PLs as wholesale distributors
(section 585(b)(2) of the FD&C Act (21 U.S.C. 360eee-4(b)(2)). FDA is
required by section 584 of the FD&C Act (21 U.S.C. 360eee-3) to
establish national standards for the licensure of 3PLs and is proposing
those standards in part 205, subpart A. When the proposed rule is
finalized, we will require that each facility of an entity that meets
the definition of a 3PL in section 581(22) of the FD&C Act (21 U.S.C.
360eee(22)) be licensed by the State or FDA in accordance with the
standards articulated in proposed part 205, subpart A.
Proposed part 205, subpart C, of the proposed rule, Sec. Sec.
205.
[…truncated; see source link]Indexed from Federal Register on February 4, 2022.
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