BILL ANALYSIS �
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|Hearing Date:June 23, 2014 |Bill No:AB |
| |2605 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Ted W. Lieu, Chair
Bill No: AB 2605Author:Bonilla
As Amended:June 17, 2014 Fiscal: Yes
SUBJECT: Pharmacy: third-party logistics providers.
SUMMARY: Requires third party logistic providers who provide storage,
handling, or distribution services, to be licensed by the California
Board of Pharmacy.
Existing law:
1)Establishes the practice of pharmacy and provides for the licensing
and regulation of pharmacies and pharmacists by the Board of
Pharmacy (Board). (Business and Professions Code (BPC) � 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 "third party logistic provider" (3PL) or "reverse third
party logistics provider" (reverse 3PL) to mean an entity licensed
as a wholesaler that contracts with a dangerous drug manufacturer 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
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requirements as specified. (BPC �� 4160 - 4169)
This bill:
1)Defines "facility manager" as an individual licensed by the Board
who oversees the operations of a 3PL with respect to dangerous drugs
and dangerous devices received by, stored in or shipped from the
licensed place of business of the 3PL.
2)Defines "facility manager in charge" as a facility manager licensed
by the Board designated by a 3PL and approved by the Board to
oversee a licensed place of business of the 3PL.
3)Provides that the facility manager in charge is responsible for
ensuring the compliance of the licensed place of business with state
and federal laws and with the 3PL customer specifications.
4)Repeals and recasts the definition of 3PL to mean an entity that
provides or coordinates warehousing or other logistics services of a
product in interstate commerce, on behalf of a manufacturer,
wholesaler or dispenser of a product but does not take ownership of
the products, nor have responsibility to direct the sale or
disposition of the product.
5)Defines "reverse 3PL" as an entity that processes or manages the
disposition of an outdated or nonsaleable dangerous drug or
dangerous device on behalf of a manufacturer, wholesaler or
dispenser of the dangerous drug or dangerous device but does not
take ownership of the dangerous drug or dangerous device nor have
the responsibility to direct its sale or disposition. Specifies
that provisions under Pharmacy Law that apply to a 3PL shall also
apply to a reverse 3PL.
6)Authorizes the Board to issue a license to a qualified individual as
a facility manager to provide sufficient and qualified supervision
of a 3PL's place of business. Provides that the facility manager
shall protect the public health and safety in the handling, storage,
warehousing, distribution and shipment of dangerous drugs and
dangerous devices in the 3PL's place of business.
7)Requires the facility manager applicant to meet the same
requirements as those set forth for a designated representative
under current law. Prohibits a 3PL from operating without at least
one facility manager present at each of its licensed places of
business.
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8)Provides that a facility manager may take charge of and act as the
facility manager in charge of a 3PL upon application by the 3PL and
with Board approval. Requires Board notification within 30 days in
writing if a facility manager in charge is no longer operating in
that capacity.
9)Provides that if a manufacturer, wholesaler, 3PL or pharmacy has
reasonable cause to believe that a dangerous drug or dangerous
device that has been sold or distributed in California that is in or
has been in its possession is counterfeit or the subject of a
fraudulent transaction, the manufacturer, wholesaler, 3PL or
pharmacy shall notify the Board within
72 hours.
10)Requires a 3PL to keep records of the manufacture, acquisition, or
disposition of dangerous drugs, and current inventory, as specified.
11)Requires a 3PL that is not government owned and operated to post a
surety bond of
$90 thousand.
12)Establishes fees for a 3PL and nonresident 3PL license, as
specified.
13)Makes other conforming and technical changes, as specified.
FISCAL EFFECT: This bill is keyed "fiscal"l by Legislative Counsel.
According to the Assembly Committee on Appropriations analysis dated
May 14, 2014, this bill will result in one-time costs of $20,000 to
add a new license type to the DCA licensing and enforcement system
information technology system (BreEZe). The analysis also cites minor
revenue loss to the Controlled Substance Utilization Review and
Evaluation System (CURES) Fund since currently, wholesalers are
assessed a $6 per year fee on each license or at renewal and the new
3PL licensees, who were previously licensed as wholesalers, would not
be subject to this fee. According to the analysis, oversight workload
for the Board should remain at a similar level, as the bill does not
add new regulatory duties.
COMMENTS:
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1. Purpose. This bill is sponsored by the Board of Pharmacy .
According to the Author , California has regulated 3PLs as drug
wholesalers for years, but recent federal legislation, the Drug
Quality and Security Act (DQSA), preempts California law and
requires that if California wants to license 3PLs, they must be
licensed as a distinct entity. The Author notes that DQSA permits
states or the FDA to license 3PLs. However, regulations
implementing a federal licensing program are not anticipated until
late 2015, and will likely be completed later than that. The
Author notes that until then, 3PLs which are not state licensed are
"deemed" federally licensed unless FDA finds that a specific 3PL
provider is practicing unsafely. This means that there are no
safety, storage, handling, or recordkeeping standards for 3PLs to
adhere to until FDA develops regulations. According to the Author,
3PLs are essentially unregulated until either California or FDA
develops a licensing scheme.
2. Drug Supply Regulation. The Food, Drug and Cosmetic Act (FDCA) was
passed by Congress to ensure public confidence in our drug
distribution system and to require that drugs are both safe and
effective. The FDCA requires FDA to regulate drug manufacturers
and to approve drugs for sale but also requires state governments
to regulate the drug distribution system by licensing and
regulating drug wholesalers. In the simplest situation, a
manufacturer sells drugs directly to one of the major wholesalers
who then sell the drugs to a hospital or pharmacy. However, this
simple distribution pattern is not the only distribution route
taken through the supply chain. Typically, there is more than one
wholesaler who receives the drugs before they reach the pharmacy.
These transactions include transfers between separate facilities
owned by major wholesalers and transfers between the major
wholesalers and the large drug store chains that have their own
wholesale facilities in the company distribution system. Common
carriers may transport the drugs between licensed entities and in
some cases will store, select and then ship products to pharmacies
at the direction of manufacturers.
The distribution system is further complicated by the practice of
"repackaging." Unlike European countries and Canada, most drugs in
the United States are not packaged in a "unit of use" size by the
drug manufacturers. Instead, many drugs are sold by the
manufacturers in large bulk containers and then are repackaged by
additional companies into smaller containers for resale to the
pharmacy. And the distribution system is complicated yet again by
the existence of a "secondary" wholesale market. "Secondary"
wholesalers are smaller companies (often regional down to small
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family owned companies) that focus their business on selling drugs
to other wholesalers and serving smaller niche clients that are not
routinely served by the major wholesalers (individual
practitioners, small clinics, rural locations, etc.).
Drugs routinely move between both primary and secondary wholesalers
and from pharmacies to secondary wholesalers as well. These
intermediate steps pose the greatest opportunities for compromising
the integrity of the drug distribution system. The primary threat
to system integrity is the introduction of counterfeit products.
Counterfeit drugs are most likely to be introduced into a
distribution system that involves multiple wholesalers because
drugs are largely untraceable unless they are only handled by a
major wholesaler who purchases directly from the manufacturer.
Without being able to trace a drug back, there is no assurance to
the consumer that the drug has been stored and handled
appropriately to preserve its potency and safety.
In response to a growing threat to the pharmaceutical supply chain
from counterfeit, misbranded, adulterated or diverted drugs,
California enacted SB 1307 (Figueroa, Chapter 857, Statutes of
2004) which made comprehensive changes to the drug distribution
system to protect the integrity of the pharmaceutical supply chain.
That legislation enacted the nation's strongest pharmaceutical
consumer protection measure and included provisions pertaining to
the licensure and qualifications of wholesalers, restrictions on
furnishing and the requirement, beginning January 1, 2007, of an
electronic pedigree (e-pedigree) to accompany and validate drug
distributions for the purpose of tracking each prescription drug at
the saleable unit (item) level through the distribution system.
Subsequent Board sponsored legislation, SB1476 (Figueroa, Chapter
658, Statutes of 2006) delayed the implementation date for the
e-pedigree component to January 1, 2009 and granted the Board the
authority to extend the deadline an additional two years to allow
the industry additional time to implement technologies necessary
for electronic pedigrees. In 2008, the Board sponsored SB 1307
(Ridley-Thomas, Chapter 713, Statutes of 2008), which amended the
law to resolve implementation issues, specifically staggering and
extending the implementation dates for
e-pedigree compliance, establishing grandfathering of existing
stock in the supply chain, allowing the Board to establish criteria
for inference, and preempting California's requirements in the
event federal legislation is enacted in this area. Per SB 1307,
California's e-pedigree requirements for prescription drugs would
have taken effect on a staggered basis from January 1, 2015 through
July 1, 2017: 50 percent of a manufacturer's products by 2015 would
have had to have an e-pedigree; the remaining 50 percent of the
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manufacturer's products would have had to have an e-pedigree by
2016; wholesalers and repackagers would have had to accept and
forward products with the e-pedigree by July 1, 2016 and; pharmacy
and pharmacy warehouses would have had to accept and pass
e-pedigrees by July 1, 2017.
In 2013, Congress passed and President Obama signed H.R. 3034, the
DQSA. Among other provisions, the bill created a national set of
standards to track pharmaceuticals through the distribution chain,
aimed at curbing illegal importation and patient harm caused by
counterfeit drugs and devices. The new law requires the FDA to
implement an electronic system to trace pharmaceuticals throughout
the supply chain at the unit level and, as a result, preempts
California's E-pedigree law established in 2005. DQSA also 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. DQSA authorizes states to continue
licensing programs for wholesale distributors and 3PLs, although it
explicitly states that "No State shall regulate 3PLs as wholesale
distributors."
This bill creates a separate licensing system for 3PLs to be in
conformance with DQSA. While DQSA 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.
3. Related Legislation This Year. SB 600 (Lieu) of 2014 conforms to
DQSA by repealing California's E-pedigree law, strengthening
definitions for misbranded drugs and devices under California's
Sherman, Food, Drug and Cosmetics Act and ensuring appropriate
penalties for purchasing a foreign dangerous drug or medical
device, illegitimate product, or suspect product. ( Status : This
measure is pending a hearing in Assembly Business, Professions and
Consumer Protection Committee.)
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4. Prior Related Legislation. SB 294 (Emmerson, Chapter 565, Statutes
of 2013), expanded the types of sterile compounded drugs for which
a license is required and requires inspection of nonresident
sterile compounding pharmacies by the Board.
SB 1307 (Ridley-Thomas, Chapter 713, Statutes of 2008) extended the
implementation dates for e-pedigree compliance, establishing
grandfathering of existing stock in the supply chain, allowing the
Board to establish criteria for inference, and preempted
California's requirements in the event federal legislation is
enacted in this area.
SB 1476 (Figueroa, Chapter 658, Statutes of 2006) delayed the
implementation date for the e-pedigree component to January 1, 2009
and granted the Board the authority to extend the deadline an
additional two years to allow the industry additional time to
implement technologies necessary for electronic pedigrees.
SB 1307 (Figueroa, Chapter 857, Statutes of 2004) required,
beginning January 1, 2007, an electronic pedigree to accompany and
validate drug distributions for the purpose of tracking each
prescription drug at the saleable unit level through the
distribution system.
SUPPORT AND OPPOSITION:
Support:
Board of Pharmacy
Opposition:
None on file as of June 18, 2014.
Consultant:Sarah Mason