BILL ANALYSIS �
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THIRD READING
Bill No: AB 2605
Author: Bonilla (D)
Amended: 8/22/14 in Senate
Vote: 21
SENATE BUSINESS, PROF. & ECON. DEV. COMM. : 8-0, 6/23/14
AYES: Lieu, Wyland, Berryhill, Corbett, Galgiani, Hernandez,
Hill, Torres
NO VOTE RECORDED: Block
SENATE APPROPRIATIONS COMMITTEE : 7-0, 8/4/14
AYES: De Le�n, Walters, Gaines, Hill, Lara, Padilla, Steinberg
ASSEMBLY FLOOR : 74-1, 5/27/14 - See last page for vote
SUBJECT : Pharmacy: third-party logistics providers
SOURCE : Board of Pharmacy
DIGEST : This bill requires third-party logistic providers
(3PL) who provide storage, handling, or distribution services
related to pharmaceuticals, to be licensed by the Board of
Pharmacy (BOP).
Senate Floor Amendments of 8/22/14 make technical changes to
avoid unintentionally overriding existing law.
ANALYSIS : A recent federal law made a variety of changes to
the drug distribution system. One of the new provisions of
federal law preempts states from requiring 3PLs to be licensed
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as wholesalers.
Existing state law:
1.Establishes the practice of pharmacy and provides for the
licensing and regulation of pharmacies and pharmacists by BOP.
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.
3.Defines "third-party logistic provider" or "reverse
third-party logistics provider" 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.
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.
5.Requires, beginning April 1, 2014, a CURES fee of $6 be
assessed annually on specified licensees to pay the reasonable
costs associated with operating and maintaining CURES for the
purpose of regulating those licensees.
This bill requires 3PLs who perform specified activities related
to pharmaceuticals to be licensed by BOP. Specifically this
bill:
1.Expands the list of entities assessed an annual $6 fee to
support the CURES system to include 3PLs and nonresident 3PLs.
2.Defines the following terms:
A. "Designated representative-3PL" as an individual to whom
a license has been granted pursuant to Section 4053.1 of
the Business and Professions Code.
B. "Responsible manager" as a designated representative-3PL
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selected by a 3PL and approved by BOP as responsible for
ensuring compliance of the licensed place of business with
state and federal laws with respect to dangerous drugs and
dangerous devices received by, stored in, or shipped from
the licensed place of business of the 3PL.
C. "Reverse third-party logistics provider" as an entity
that processes or manages the disposition of an outdated or
non-saleable 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.
1.Repeals and recasts the definition of "third-party logistics
provider" 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.
2.Provides that a separate license is required for each place of
business owned or operated by a wholesaler or 3PL and that
each place of business may only be issued a single license by
BOP. Permits a wholesaler and 3PL under common ownership to
be licensed at the same place of business, as specified.
3.Provides that a separate license is required for each place of
business owned or operated by a nonresident wholesaler and a
nonresident 3PL and that each place of business may only be
issued a single license by BOP. Permits a nonresident
wholesaler and nonresident 3PL under common ownership to be
licensed at the same place of business, as specified.
4.Requires the designated representative-in-charge to maintain
an active license as a designated representative with BOP at
all time during which he/she is designated as the designated
representative-in-charge.
5.Provides that the responsible manager is responsible for
ensuring the compliance of the licensed place of business with
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state and federal laws and with the 3PL's customer
specifications, except where the customer's specifications
conflict with state or federal laws.
6.Authorizes BOP to issue a license to a qualified individual as
a designated representative-3PL to provide sufficient and
qualified supervision of a 3PL's place of business. Provides
that the designated representative-3PL 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 designated representative-3PL applicant to meet
the same requirements as those set forth for a designated
representative under existing law. Prohibits a 3PL from
operating without at least one designated representative-3PL
present at each of its licensed places of business.
8.Provides that a designated representative-3PL may take charge
of, and act as, the responsible manager of a 3PL upon
application by the 3PL and with BOP approval. Requires BOP
notification within 30 days in writing if a responsible
manager 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 BOP
within 72 hours.
10.Requires a 3PL to keep records of the manufacture and of
sale, acquisition, receipt, shipment, 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 $90,000.
12.Establishes fees for a 3PL and nonresident 3PL license, as
specified.
13.Requires BOP, at such time as federal regulations are
promulgated to implement Section 584 of the federal Food,
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Drug, and Cosmetic Act (FD&C Act), to immediately identify any
standard, requirement, or regulation in California law
governing interstate commerce that is in conflict with federal
regulations and act to remove the conflict in the manner
permitted by law.
14.Provides that a 3PL using the services of a carrier, as
specified, shall have in place and comply with written
policies and procedures that provide for (a) verification that
the 3PL, or the owner of the dangerous drugs/devices stored at
the 3PL, has imposed obligations on the carrier that provide
for the security and integrity of any dangerous drugs/devices
delivered to the transferee at its premises, and (b)
confirmation, prior to shipping a dangerous drug/device, that
the intended recipient is legally authorized to receive the
dangerous drug/device.
15.Makes other clarifying, conforming and technical changes.
Background
Drug supply regulation . The FD&C Act was passed by Congress to
ensure public confidence in our drug distribution system and to
require that drugs are both safe and effective. The FD&C Act
requires the 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"
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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 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 level through the distribution system.
Subsequent BOP sponsored legislation, SB1476 (Figueroa, Chapter
658, Statutes of 2006) delayed the implementation date for the
e-pedigree component to January 1, 2009, and granted BOP the
authority to extend the deadline an additional two years to
allow the industry additional time to implement technologies
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necessary for e-pedigrees. In 2008, BOP 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 BOP 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% of a manufacturer's products by 2015 would have had
to have an e-pedigree; the remaining 50% of the manufacturer's
products would have had to have an e-pedigree by 2016;
wholesalers and re-packagers 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
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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.
Comments
According to the author's office, 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's office
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's office 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's
office, 3PLs are essentially unregulated until either California
or FDA develops a licensing scheme.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
According to the Senate Appropriations Committee:
One-time costs of approximately $100,000 to revise existing
regulations and make information technology upgrades to the
system used for licensing (BOP Contingent Fund).
No significant ongoing licensing or enforcement costs are
anticipated, as 3PLs are already licensed under existing state
law. This bill revises the licensing requirement to conform
to federal law but does not substantially change the
responsibilities of BOP.
SUPPORT : (Verified 8/6/14)
Board of Pharmacy (source)
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OPPOSITION : (Verified 8/8/14)
International Warehouse Logistics Association
UPS
ARGUMENTS IN SUPPORT : The Board of Pharmacy writes, "Until
recently [3PLs] were required to be licensed as drug wholesalers
by this board if they were handling prescription drugs and
prescription devices intended for California patients or
practitioners. (Those warehouses that do not handle
prescription drugs or devices do not require such a license.)
However, recently enacted federal law requires a separate
licensure program for 3PLs, and specifically directs that they
not be licensed as drug wholesalers. As such provisions in AB
2605 would establish requirements for these distributors of
prescription drugs and devices that are appropriate to entities
that distribute, store, select and ship medication. The federal
Food and Drug Administration will develop general requirements
for these businesses for those states that do not establish
their own regulatory provisions; however, the FDA has 15 more
months before they are required to develop the parameters."
ARGUMENTS IN OPPOSITION : UPS writes that this bill does not
acknowledge the unique role of 3PLs, imposes many requirements
that are not applicable to 3PLs, and contains 3PL licensure
provisions that are inconsistent with and pre-empted by the
Federal Drug Supply Chain Security Act.
ASSEMBLY FLOOR : 74-1, 5/27/14
AYES: Achadjian, Alejo, Allen, Ammiano, Bigelow, Bloom,
Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian
Calderon, Campos, Chau, Ch�vez, Chesbro, Conway, Cooley,
Dababneh, Dahle, Daly, Dickinson, Eggman, Fong, Frazier, Beth
Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon, Gorell, Gray,
Grove, Hagman, Hall, Harkey, Roger Hern�ndez, Holden, Jones,
Jones-Sawyer, Levine, Linder, Logue, Lowenthal, Maienschein,
Mansoor, Medina, Melendez, Mullin, Muratsuchi, Nazarian,
Nestande, Olsen, Pan, Perea, John A. P�rez, V. Manuel P�rez,
Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Skinner,
Stone, Ting, Wagner, Waldron, Weber, Wieckowski, Williams,
Yamada, Atkins
NOES: Fox
NO VOTE RECORDED: Donnelly, Patterson, Quirk-Silva, Wilk,
Vacancy
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MW:e 8/25/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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