BILL ANALYSIS                                                                                                                                                                                                    Ó



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        ASSEMBLY THIRD READING
        AB 2605 (Bonilla)
        As Amended  May 5, 2014
        Majority vote 

         BUSINESS & PROFESSIONS      11-0APPROPRIATIONS      17-0        
         
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        |Ayes:|Bonilla, Bocanegra,       |Ayes:|Gatto, Bigelow,           |
        |     |Campos, Dickinson,        |     |Bocanegra, Bradford, Ian  |
        |     |Eggman, Gordon, Holden,   |     |Calderon, Campos,         |
        |     |Maienschein, Mullin,      |     |Donnelly, Eggman, Gomez,  |
        |     |Skinner, Ting             |     |Holden, Jones, Linder,    |
        |     |                          |     |Pan, Quirk,               |
        |     |                          |     |Ridley-Thomas, Wagner,    |
        |     |                          |     |Weber                     |
         ----------------------------------------------------------------- 

        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 facility manager who shall be responsible  
          for compliance with applicable state and federal laws, and the  
          3PL's customer specifications. 

        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.

         FISCAL EFFECT  :   According to the Assembly Appropriations Committee:

        1)One-time costs of $20,000 to add a new license type to the  
          Department of Consumer Affairs' licensing and enforcement system  








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          information technology system.

        2)Minor revenue loss to the Controlled Substance Utilization Review  
          and Evaluation System (CURES) Fund.  Currently, wholesalers are  
          assessed a $6 per year fee on each license or at renewal.  The new  
          3PL licensees, who were previously licensed as wholesalers, would  
          not be subject to this fee. 

        3)Oversight workload should remain at a similar level; the bill  
          simply designates approximately 450 currently regulated entities  
          as 3PL providers, but does not add new regulatory duties.  In  
          spite of the language changes related to fees, fees will remain at  
          current levels, as most fees are already set at statutory  
          maximums.

         


        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)3PLs.  The recently passed federal Drug Supply Chain Security Act  
          (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.     

        3)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,  








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          with full operability anticipated by 2015.  

          California did not distinguish 3PLs from wholesalers in the  
          original e-pedigree law and 3PLs were required to obtain  
          wholesalers licenses beginning in 2006.  E-pedigree was pre-empted  
          by federal law in 2013.       

        4)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 federal Drug Quality and Security  
          Act contained two parts - the Compounding Quality Act and the Act.  


        5)Federal preemption.  The Act will replace the patchwork system  
          adopted by individual states and create a unified national drug  
          track and trace 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 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.      
           
        Analysis Prepared by  :    Sarah Huchel / B.,P. & C.P. / (916)  
        319-3301 
                                                                  FN: 0003601









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