Drug Distributor Consolidation May Call For Change In Oversight, HDMA Says

Consolidation of the drug distribution industry could warrant a move away from state-based regulation, Healthcare Distribution Management Association Senior VP-Government Affairs Scott Melville said June 15 at HDMA's Distribution Management Conference in Orlando, Fla.

"Today, after...years of consolidation, we have fewer distributors, we have larger distributors, [and] more distributors distribute from large centers across state lines. There is much more interstate commerce going on," Melville stated.

The current state-based regulation of drug distributors is rooted in the 1988 Prescription Drug Marketing Act, which "allowed minimum federal standards and allowed the states to go beyond federal standards and be responsible for the licensing of distributors," Melville said.

However, "1988 was a much different time than 2005. The distribution industry was much more diverse. There were many more regional, smaller distributors. There was greater state focus," he noted.

"It may be time to reconsider whether this is the right regulatory model. At HDMA we're pursuing a strategy at the state level to try to get consistency....Perhaps the time may come shortly to see if there is a federal approach to licensing in this industry."

One result of the state-by-state regulation of drug distribution is a "patchwork" of requirements for licensing and drug pedigrees to combat counterfeiting.

"What we're seeing emerging this year is truly a patchwork of licensure and pedigree requirements that vary considerably state by state," Melville said. "HDMA has consistently argued for uniform standards across the states."

The association has identified 10 states that have passed or are considering legislation on pharmaceutical product pedigrees.

Melville noted that many states have adopted components of HDMA's model legislation, which includes inspections, criminal and financial background checks and electronic product identification to reduce drug counterfeiting.

Florida was the first state to require paper pedigrees for a list of 30 pharmaceutical products under a 2003 law (¹ (Also see "Florida Pedigree Enforcement For 30 “Specified” Drugs Begins Sept. 1" - Pink Sheet, 30 Jun, 2003.), p. 27). Starting July 1, 2006, Florida will require paper pedigrees for all pharmaceuticals, including those purchased directly from the manufacturer, HDMA said.

The large wholesalers have opposed paper pedigrees, characterizing them as costly and ineffective in stopping drug counterfeiting because paper records can be forged (² (Also see "Anti-Counterfeiting Interim Step Should Be Paper Pedigree, PhRMA Says" - Pink Sheet, 20 Oct, 2003.), p. 21).

In response to a 2003 interim report by FDA's counterfeit drug task force, HDMA called for national uniformity in wholesaler licensure requirements and recommended that FDA move towards use of radio-frequency identification chips in product caseloads by 2005 and in individual selling units by 2007 (³ (Also see "FDA-Approved Drug Wholesaler Inspection Program Recommended By HDMA" - Pink Sheet, 1 Dec, 2003.), p. 24).

FDA has stayed a paper pedigree requirement, expecting industry-wide implementation of RFID track-and-trace technology by 2007 (⁴ (Also see "FDA Anticounterfeit Carrot & Stick: Radio Frequency I.D., No Paper Pedigree" - Pink Sheet, 23 Feb, 2004.), p. 14).

"States are being very vigilant in how they monitor and when [electronic track-and-trace] technology will be available. However, that doesn't stop them from requiring paper pedigree requirements now," HDMA State Government Affairs Director David Gonzales said.

"The transition to track-and-trace technology is paper pedigree. In Florida, and what we may see in some other states, is this paper pedigree requirement until we get to electronic track-and-trace. And it's anybody's guess as to how soon that may be."

According to HDMA, California was the first state to pass a law requiring pedigrees in electronic form only; the 2004 law is slated to take effect Jan. 1, 2007. Arizona's pedigree law, which takes effect in August, includes an e-pedigree option.

States also differ in requirements for third-party accreditation and enforcement of anti-counterfeiting measures.

"In most cases, I run into state boards of pharmacy or departments of health that don't have the resources to...conduct inspections or oversee the industry as is required or is expected by the legislature," Gonzales said.