Wholesale drug distribution regulation clears White House review

By LILY ROSENFIELD | Jan. 21, 2022

The White House Office of Information and Regulatory Affairs has just completed its review of a proposed rule aimed at unifying the licensing system for wholesale distributors and third-party logistics providers, indicating the proposed rule will soon be published by the FDA.

Regulatory background on the Drug Supply Chain Security Act (DSCSA) and its impact on wholesale drug distributors and third-party logistics providers:

  • The Drug Supply Chain Security Act (DSCSA) was enacted in 2013 in the wake of several drug counterfeiting scandals in which falsified products entered the supply chain. To prevent this from happening again – and to make it easier to identify the source of a future intrusion if it did happen – the DSCSA called for the creation of a ‘track-and-trace’ system that would give each drug product a unique identifier (either at the lot- or package-level) and require supply chain entities to record those identifiers as a product moved throughout the supply chain.
  • What this means: The basic idea is that each supply chain entity (e.g., a wholesaler or pharmacy) would be able to see a valid chain of custody for a product. If something went wrong with a product (e.g., it was determined to be counterfeit), the FDA would be able to follow the chain of custody of the product back to its point of origin since each company would have records related to its receipt and movement.
  • To implement this process, the law contained extensive requirements for supply chain participants and regulated products. For example, entities involved in the transport or receipt of pharmaceutical products must register with the FDA on an annual basis.
  • DSCSA also required the agency to issue national licensure regulations. The law stated that the FDA “shall issue regulations regarding the standards for licensing” for third-party logistics providers (3PLs) and wholesale distributors by November of 2015. The statute defines 3PLs as “an entity that provides or coordinates warehousing, or other logistics services of a product in interstate commerce on behalf of a manufacturer, wholesale distributor, or dispenser of a product, but does not take ownership of the product, nor have responsibility to direct the sale or disposition of the product.” Wholesale distributors refer to any entity “engaged in wholesale distribution of prescription drugs,” including manufacturers, repackagers and many others.
  • Currently, these groups are licensed by States. According to the FDA, these groups should be licensed by each State from which they distribute products, as well as States which require licensure to shop a pharmaceutical product into the State. Under this system, different States have different requirements and definitions, which can make compliance and oversight more challenging.
  • While the FDA has yet to publish any regulation on licensing for these groups, they are subject to reporting requirements. The DSCSA requires wholesale distributors to report annually on their State licensure status, provide contact information for each facility and disclose any disciplinary actions taken. Similarly, 3PLs must report on State licensure, facility details and any applicable trade names used for business operations.
  • The FDA also published a guidance document in December 2014 outlining details on when and how reporting should take place.

The FDA has developed a proposed rule to address standards for licensure for these groups, and it just cleared the White House’s review process.

  • According to the White House’s Office of Information and Regulatory Affairs (OIRA), the review of the proposed rule is complete, meaning the FDA could publish the proposal shortly. OIRA received the Notice of Proposed Rulemaking, “National Standards for the Licensure of Wholesale Drug Distributors and Third-Party Logistics Providers,” on November 2nd. Typically the FDA publishes documents cleared by OIRA within a few weeks.
  • The rule aims to create more uniformity in licensing. OIRA writes that the rule will“establish standards for State licensing of prescription drug wholesale distributors and third-party logistics providers,” and “establish a Federal system for wholesale drug distributor and third-party logistics provider licensing for use in the absence of a State licensure program.” Ultimately, this would harmonize licensing standards for both groups by ensuring all State programs follow Federal guidelines or have a Federal program in their absence.
  • But it will still be some time before these processes are put in place. After the White House concludes its review, the FDA will commence the typical rulemaking process. While we know the rulemaking process can take significant time, these licensing standards also won’t immediately go into effect. Standards for wholesale distribution licensing won’t become effective until two years after the rule is finalized, and 3PL standards won’t take effect until one year after. In all likelihood, that means that any standards are unlikely to go into effect until at least 2025.
  • This is just one of many updates coming from the FDA related to DSCSA. In June the agency published four guidance documents related to DSCSA compliance. This included draft guidance on package-level drug distribution security and definitions, as well as final guidance on product identifiers and DSCSA implementation.
  • However, the FDA has been met with frequent pushback from industry related to DSCSA compliance matters. In response to the agency’s guidance on enhanced security at the package level both the Healthcare Distribution Alliance and the Pharmaceutical Distribution Security Alliance asked for a comment period extension, with HDA stating that “the EDDS Guidance, in particular, represents a significant departure from what the industry has been developing to meet the 2023 requirements.” The group said that, if finalized, the guidance could create challenges for all supply chain stakeholders – assuming the requirements could even be met at all.
  • Similarly, the agency has recently adjusted estimates of burden from some DSCSA reporting requirements. In September 2021 the FDA published a notice estimating the annual burden of reporting requirements related to the submission of notifications of illegitimate products or products with a high risk of illegitimacy. As AgencyIQ previously reported, after feedback from industry members that the FDA had significantly underappreciated the true burden of the notifications, the FDA revised (i.e., increased) its estimated annual reporting burden by more than 2,800%. As the FDA looks to publish yet another DSCSA update, the agency is likely to be met with plenty of additional industry comments.

To contact the author of this piece, please email Lily Rosenfield.
To contact the editor of this piece, please email Alec Gaffney.

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