On November 27, 2013, President Obama signed into law H.R. 3204, the “Drug Quality and Security Act” (the “Act”), bipartisan drug distribution security legislation. Among other things, the sweeping measure: clarifies current federal law and regulatory oversight regarding pharmacy compounding; establishes a uniform, national drug tracking and tracing framework; mandates national licensure standards for wholesale distributors and third-party logistics providers; and preempts state product tracing requirements. The following is an overview of the Act and highlights of initial FDA implementation guidance.

Clarification of federal law and regulatory oversight regarding pharmacy compounding

The Act clarifies current federal law and regulatory oversight by distinguishing between traditional compounders and outsourcing facilities. It also requires enhanced communication between FDA and state regulators about compounding entities.

An outsourcing facility is a facility that compounds sterile drugs by or under the direct supervision of a licensed pharmacist, is registered with FDA as an outsourcing facility, and complies with all standards governing such facilities. Outsourcing facilities will need to comply with certain adverse event reporting requirements and report biannually (June/December) to FDA the drugs compounded during the previous 6-month period. FDA will subject outsourcing facilities to risk-based inspections. The benefit to registering as an outsourcing facility is that drugs compounded in such facilities will be exempt from new drug requirements, labeling requirements, and track and trace requirements. However, new labeling standards will apply to drugs compounded in outsourcing facilities. For instance, the label for a drug compounded in an outsourcing facility will need to contain the statements: “This is a compounded drug” (or a reasonable comparable alternative statement that prominently identifies the drug as a compounded drug) and “Not for resale.” The statement “Office Use Only” will be required on the labels of drugs that are dispensed or distributed other than pursuant to a prescription for an individual identified patient.

The Act requires enhanced communication between FDA and state regulators about compounding facilities. Specifically, state boards of pharmacy must submit information to FDA describing any “actions taken against compounding pharmacies” for issues pertaining to compounding, including, for example, “the issuance of a warning letter, or the issuance of sanctions or penalties, by a state for violating the state’s pharmacy regulations pertaining to compounding.” State boards of pharmacy must also submit any information “expressing concerns” that a compounding pharmacy “may be” acting contrary to federal pharmacy compounding laws. The federal government must consult with the National Association of Boards of Pharmacy before implementing these mandatory reporting standards, and then must “immediately” notify “state boards of pharmacy” when it receives one of these mandatory reports or when it determines that a pharmacy is acting contrary to federal pharmacy compounding laws.

FDA recently issued numerous statements and draft guidance documents about how it interprets and intends to implement these and other requirements of the Act.

Uniform, national drug tracking and tracing framework

The Act establishes a uniform, national drug tracking and tracing framework to track prescription drugs from the manufacturer to the pharmacy. It does this by requiring manufacturers to serialize prescription drugs at the unit level. The Act then establishes unit-level product tracing requirements for “downstream” pharmaceutical supply chain members (drug manufacturers, repackagers, wholesale distributors, and dispensers).

National licensure standards for wholesale distributors  Beginning January 1, 2015, the Act requires any person who owns or operates an establishment that engages in wholesale distribution to report the following information to the Secretary on an annual basis: (1) each state by which the person is licensed and the appropriate identification number of each such license; (2) the name, address, and contact information of each facility at which, and all trade names under which, the person conducts business. Wholesale distributors must also report to the Secretary “within a reasonable period of time and in a reasonable manner” (as determined by the Secretary) any “significant disciplinary actions, such as the revocation or suspension of a wholesale distributor license,” taken by a state or the federal government.

For the purpose of ensuring uniformity with respect to wholesale distribution standards, the Act requires the Secretary to establish additional wholesale distribution standards governing: (1) the storage and handling of prescription drugs, including facility requirements; (2) the establishment and maintenance of records of the distribution of such drugs; (3) the furnishing of a bond or other equivalent means of security; (4) mandatory background checks and fingerprinting of facility managers or designated representatives; (5) the establishment and implementation of qualifications for key personnel; (6) the mandatory physical inspection of any facility to be used in wholesale distribution; and (7) the prohibition of certain persons from receiving or maintaining licensure for wholesale distribution (e.g., persons convicted of a felony for conduct relating to wholesale distribution). In addition, if a state chooses not to establish a licensing program for a wholesale distributor, the federal government must license the distributor and collect reasonable fees to cover the costs of administering a federal licensing program for entities in such states.

National licensure standards for third-party logistics providers

Beginning one year after the date of enactment of the Act, a facility of a third-party logistics provider must report to the federal government on an annual basis: (1) the state by which the facility is licensed and the appropriate identification number of such license; and (2) the name and address of the facility and all trade names under which such facility conducts business. If a state chooses not to establish a licensing program for a third-party logistics provider, the federal government must license the provider and collect reasonable fees to cover the costs of administering a federal licensing program for entities in such states. The Act also allows for a third-party accreditation program to be developed to license providers and requires the federal government to issue regulations regarding the standards for licensing third-party logistics providers. Third-party logistics providers will be subject to periodic inspection by their licensing authority and must provide the applicable licensing authority, upon a request by such authority, a list of all product manufacturers, wholesale distributors, and dispensers for whom the third-party logistics provider provides services.

Preemption of state product tracing requirements

The product tracing requirements set forth in the Act preempt state product tracing requirements, including paper or electronic pedigree systems. Preemption resolves a long-standing problem facing the drug distributor industry: the increasingly complex, and often conflicting, state pedigree requirements, many of which are not fully established or have staggered implementation deadlines.