BILL ANALYSIS Ó
AB 2605
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Date of Hearing: April 29, 2014
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Susan A. Bonilla, Chair
AB 2605 (Bonilla) - As Amended: April 23, 2014
SUBJECT : Pharmacy: third-party logistics providers.
SUMMARY : Creates a license for third party logistics providers
(3PL) and nonresident 3PL providers, subject to regulation by
the Board of Pharmacy (BOP). Specifically, this bill :
1)Establishes an annual license requirement for 3PLs based in
California and nonresident 3PL operating in California.
2)Requires a 3PL to have a designated representative who shall
be responsible for compliance with applicable state and
federal laws.
3)Requires a 3PL to keep records of the manufacture,
acquisition, or disposition of dangerous drugs, and current
inventory, as specified.
4)Requires a 3PL to post a surety bond, as specified.
5)Establishes fees for a 3PL and nonresident 3PL license, as
specified.
6)Makes other conforming and technical changes, as specified.
EXISTING STATE LAW :
1)Establishes BOP to administer and enforce the provisions of
the Pharmacy Law. (Business and Professions Code (BPC)
Sections 4000 et seq.)
2)Defines "wholesaler" to mean a person who acts as a wholesale
merchant, broker, jobber, customs broker, reverse distributor,
agent, or a nonresident wholesaler who sells for resale, or
negotiates for distribution, or takes possession of, any
dangerous drug or device. (BPC 4043)
3)Defines "3PL" or "reverse 3PL" to mean an entity licensed as a
wholesaler that contracts with a dangerous drug manufacturer
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to provide or coordinate warehousing, distribution, or other
similar services on behalf of a manufacturer, but for which
there is no change of ownership in the dangerous drugs. (BPC
4045)
4)Requires wholesalers and nonresident wholesalers to have a
designated representative in charge, maintain a surety bond,
and adhere to certain distribution, administrative, and
storage requirements, as specified. (BPC 4160 - 4169)
EXISTING FEDERAL LAW :
1)Defines a 3PL 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 does it have responsibility to
direct the sale or disposition of the product. (21 United
States Code (USC) Section 581).
2)Prohibits a state from establishing or continuing any
standards, requirements, or regulations with respect to
wholesale prescription drug distributor or 3PL licensure that
are inconsistent with, less stringent than, directly related
to, or covered by the federal standards. Prohibits States
from regulating 3PLs as wholesale distributors. (21 USC
585(b))
FISCAL EFFECT : Unknown
COMMENTS :
1)Purpose of this bill . This bill will establish a 3PL and
nonresident 3PL license that requires the licensees to adhere
to specific state regulatory requirements, including
recordkeeping, security, and storage standards established by
BOP if they operate in California. This bill is sponsored by
BOP.
2)Author's statement . According to the author's office, "This
bill is important to protect the integrity of California's
drug supply chain. The [federal] Drug Quality and Security
Act caused a hole in the regulation of 3PLs when it preempted
portions of California's e-pedigree law, and this bill will
ensure a key piece of the supply chain continues to be
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overseen by California's Board of Pharmacy."
3)3PLs . The recently passed federal Drug Supply Chain Security
Act defines a 3PL 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 disperser of a product, but does not take
ownership of the product, nor have responsibility to direct
the sale or disposition of the product." Major companies,
such as UPS, DHL, and others provide these services.
The duties of a 3PL can vary from contract to contract, but
the comment element is that a 3PL never holds title to the
product it is contracted to manage.
4)California's e-Pedigree law . California previously regulated
3PLs as wholesalers under its now-preempted e-pedigree
program.
E-pedigree was California's statutory program to prevent
counterfeit medicine from entering the legitimate supply
chain. E-pedigree was created by SB 1307 (Figueroa), Chapter
857, Statutes of 2004, and began implementation the following
year, with full operability anticipated by 2015.
The "pedigree" was a chain of custody record in electronic
form containing information regarding each transaction
resulting in a change of ownership of a prescription drug.
The goal of the program was for any owner or possessor of a
prescription drug located at a licensed wholesaler,
repackager, reverse distributor, or pharmacy in California to
be able to show the lineage of the drug from the manufacturer
through the drug distribution channel. The e-pedigree was
required to contain specific information required by the
statute, and had to be made and passed through an electronic
track and trace system based on unique identification numbers
affixed at the point of manufacture.
California did not distinguish 3PLs from wholesalers in the
original e-pedigree law and 3PLs were required to obtain
wholesalers licenses beginning in 2006. Subsequent
legislation defined 3PL, but retained their obligation to be
licensed as wholesalers while exempting them from certain
wholesaler requirements. This program was effectively
pre-empted by federal law in 2013.
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5)Drug Quality and Security Act . The federal Drug Quality and
Security Act was signed into law by President Obama on
November 27, 2013. This bill was prompted by the fungal
meningitis outbreak in 2012 linked to unsanitary conditions at
a Massachusetts compounding pharmacy, as well as concerns
regarding increases in counterfeit, falsified, substandard and
dangerous prescription medications. The Act contained two
parts - the Compounding Quality Act and the Drug Supply Chain
Security Act (Act).
The Compounding Quality Act created a voluntary compliance
regime where compounding pharmacies that voluntarily register
as "outsourcing facilities" will be subject to oversight by
the FDA in much of the same way that traditional
pharmaceutical manufacturers are monitored.
The Act built upon California's e-pedigree efforts to create a
national electronic track and trace system for prescription
drugs. It is designed to be phased in over ten years and will
do the following:
a) Enable verification of the legitimacy of the drug
product identifier down to the package level;
b) Enhance detection and notification of illegitimate
products in the drug supply chain; and,
c) Facilitate more efficient recalls of drug products.
Among other requirements, FDA will require separate wholesaler
and 3PL licensing.
6)Federal preemption . The Act will replace the patchwork system
adopted by individual states and create a unified national
program. In doing this, the Act explicitly preempted any
state's requirements for tracing products through the
distribution system that are inconsistent with, more stringent
than, or in addition to any of the requirements under the Act.
Thus, California's e-pedigree system is currently invalid by
operation of law.
However, the Act did allow for States to continue licensing
programs for wholesale distributors and third party logistics
providers, although the Act states explicitly that "No State
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shall regulate 3PLs as wholesale distributors."
This bill creates a separate licensing system for 3PLs to be
in conformance with the Act. While the Act does provide for a
federal licensing system for 3PLs beginning in late 2015,
until that time, 3PLs will be unregulated unless the FDA makes
a specific finding that a 3PL does not utilize good handling
and distribution practices. This bill will provide for
ongoing licensing of 3PLs according to California law to
maintain the integrity of the drug supply system.
7)Author's amendments . According to the author's office, the
following amendments reflect changes resulting from ongoing
conversations with stakeholders.
A change is needed to reflect the fact that 3PLs currently use
a Facility Manager instead of a Designated Representative.
Their duties are similar, and further changes are anticipated
as the discussion of their roles and responsibilities develop.
The following would provide a definition:
Page 3, line 16, before "SEC.2" add "(c) "Facility Manager"
means the person designated by a third-party logistics
provider to oversee the licensed facility and, in
conjunction with that third-party logistics provider's
Quality Assurance department is responsible for ensuring
the facility's compliance with state and federal laws and
the third-party logistics provider's customer
specifications."
The following change will align California's definition with
the federal Act's definition of a 3PL:
Page 4, line 8, after "an," insert "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."
Delete page 4, lines 9-12.
A nonsubstantive technical correction is also needed:
Page 15, line 6, 17, 22, and 31, replace references to
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"third party logistics provider" with "nonresident third
party logistics provider."
8)Arguments in support . The California Board of Pharmacy writes,
"This bill would establish regulatory and licensure
requirements for [3PLs], which are businesses that ship,
store, select, and distribute prescription medication and
devices to patients and providers. As such, these businesses
provide vital services necessary to ensure the integrity of
the pharmaceutical supply chain. It is of upmost importance
to the public health that they be regulated as are all other
members of the supply chain."
9)Previous legislation . SB 1307 (Figueroa), Chapter 857,
Statutes of 2004, prohibited a wholesaler or pharmacy from
selling, trading, or transferring a prescription drug at
wholesale without providing a pedigree, as of January 1, 2007.
SB 1307 also prohibited a wholesaler or pharmacy from
acquiring a dangerous drug without receiving a pedigree as of
January 1, 2007.
SB 1307 (Ridley-Thomas), Chapter 713, Statutes of 2008,
established a graduated implementation schedule for compliance
with the electronic drug pedigree law beginning on January 1,
2015, and ending on July 1, 2017, as specified.
SB 294 (Emmerson) Chapter 565, Statutes of 2013, expands the
types of sterile compounded drugs for which a license is
required, deletes the licensing exemption for certain types of
pharmacies, and requires inspection of nonresident sterile
compounding pharmacies by the BOP.
REGISTERED SUPPORT / OPPOSITION :
Support
California Board of Pharmacy (sponsor)
Opposition
None on file
Analysis Prepared by : Sarah Huchel / B.,P. & C.P. / (916)
319-3301
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