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WHOLESALERS MAY RESELL RETURNED MISSHIPMENTS OF HOSPITAL DRUGS IF HOSPITAL RETURNS THEM WITHIN 10 DAYS OF RECEIPT AND NOTIFIES MFR. -- FDS's UPDATE

Executive Summary

Wholesalers would be permitted to resell drugs returned by hospitals if the returns are made due to a misshipment and the hospital notifies the manufacturer of the mistake, under FDA's Nov. 3 update of its interim interpretation of the Prescription Drug Marketing Act. "A return to a wholesale distributor of a prescription drug received by a hospital, health care entity, or charitable institution because of a mistake or error in ordering or delivery may be interpreted as falling outside the scope of ]the law's ban on hospital drug[ sale or trade, and may be returned to stock by the wholesale distributor" under two conditions, the update states: "(a) The return is made under proper storage and shipping techniques to the wholesale distributor within 10 working days of delivery, and (b) the person returning the product provides written notice to the manufacturer that the prescription product (identified by product name, lot number, the quantity returned, and the date of the return) has been returned to the wholesaler (identified by name and address) and that notice includes a description of the mistake or error leading to the return and its apparent cause." FDA noted that its Aug. 1 informational letter allowed hospital returns only if they were made directly to the manufacturer or, if made to the wholesaler, the wholesaler destroyed the returned goods. Under no terms of the Aug. 1 document could the wholesaler redistribute the product. The agency said it "received several comments" on its earlier interpretation that contended such a policy "causes undue hardship when errors are made in placing or processing orders for prescription drugs." Problems arising from mistaken orders or shipments "should be rectified by permitting hospitals, health care entities, or charitable institutions to return mistakenly ordered or delivered prescription drugs to the wholesale distributor within a reasonable time, without requiring that the returned drugs be destroyed or forwarded to the manufacturer," the document states. As long as "proper storage and shipping techniques have been used," FDA said it "is aware of no public health reason for requiring mistakenly ordered or delivered prescription drugs to be returned to the manufacturer or destroyed." The FDA Compliance Office's Regulatory Affairs Division Director Albert Rothschild said the agency has an "internal" target of January or February for publishing final regulations on the drug diversion law. Rothschild noted that FDA issued its proposals before the act's Oct. 22 publication deadline for final rules. American Society of Hospital Pharmacists Legislative and Regulatory Division Director Gerald Hogan contended that "some returns, if not all, could be regarded ]under the Uniform Commercial Code[ as falling outside the scope of the act," and that Congress during two years of hearings and markups never mentioned evidence of diversion of goods returned by hospitals. Hogan also asked why FDA proposed that hospitals should notify manufacturers of a return and bear the "further paperwork and notification" requirement. Rothschild explained that the Nov. 3 letter requires the hospital to notify the manufacturer of the return because "the hospital is more neutral and has nothing to gain or lose" in notifying the manufacturer. On the other hand, because the wholesaler conceivably could pocket the manufacturer's chargeback for the returned goods and then resell them to a retail customer, "the distributor has something to gain if the message does not get to the manufacturer." Senior Regulatory Counsel Richard Arkin of the Compliance Office's Regulatory Affairs Division pointed out that FDA is "still exploring the issue" of permitting hospital returns made not as a result of error but "when the hospital has had a change of mind." There are cases, Arkin explained, of hospitals that "ordered and accepted delivery of a drug, and there clearly has been no error, but" later chose, "for one reason or another, to return this drug." How to handle such a returned shipment that is "still within ]expiration[ date and is not adulterated and has not been recalled . . . is perhaps the hardest nut to crack," Arkin said. Sentara Leigh Hospital (Norfolk, Va.) Pharmacy Department Director Roney Rogers, stating that "hospitals are not crooks," maintained: "There are legitimate reasons that hospitals have drugs that we would like to return" even if they are not misshipped, misordered, expired, or damaged in transit. For example, Rogers said, drugs should be returnable when they are removed from hospital formularies, when physician prescribing patterns change suddenly, and when a large quantity is purchased for a chronic patient who suffers an adverse reaction or dies. FDA's Arkin argued that the act clearly prohibits hospital sales of drugs and that a return of goods for credit is a sale under the law. "Congress could have made things much easier for FDA" by defining legitimate returns and excluding them from the act's prohibition, Arkin said, but it did not. Nonetheless, the Aug. 1 and Nov. 3 letters demonstrate that "the agency has been trying to find appropriate rationales to make legitimate returns available." Arkin added that "some of us at FDA would like to broaden that, to make returns available in other circumstances"; however, "the agency has to be able to come up with a rationale that is consistent with the law." Rogers asserted that the hospital return issue has caused "utter confusion and chaos." Virtually "everybody in the distribution chain ]had[ their own interpretation" as to whether a hospital return could be accepted between the July 21 effective date of the law and FDA's interim interpretation of Aug. 1, he said. The policy depended on the individual wholesaler and manufacturer with whom the hospital did business, Rogers continued. Many suppliers told hospitals that returns would not be accepted at all; others said they would accept returns but only within post-delivery periods that ranged from 24 hours to seven days and generally only for products ordered in error, misshipped, damaged in shipment, or expired. "A single return point for all pharmaceuticals, regardless of the reason, provided they are legitimate, is without question a viable, value-added service provided by wholesalers to hospitals and should be a link in the distribution channel that is maintained," Rogers declared. Bergen Brunswig Corporate Counsel Milan Sawdei maintained that "FDA needs to hear our views as to what constitutes a legitimate return." Sawdei agreed that wholesalers have taken different approaches to hospital returns since the act became effective. Several wholesalers have continued "the same return policies" they practiced before, others are accepting "no returns under any circumstances," and others "are adopting a wait-and-see attitude" in anticipation of a final regulation, he said. Sawdei noted that Bergen Brunswig is "temporarily" not accepting returns unless the customer notifies the wholesaler within seven days of delivery and the reason for the return is an error. He added that the company may take "the opportunity to extend that seven days to 10 days" as provided in the FDA letter.
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