Game changer for the pharmaceutical supply chain

The FDA seeks to reduce the diversion of pharmaceuticals through sales by unlicensed distributors and tighten the supply chain by controlling trading partners.

On February 4, 2022, the FDA released a long-awaited proposed rule1 which will essentially change the regulatory landscape of wholesale drug distributors (WDD), third party logistics providers (3PL)2 as well as the sale of products from pharmacy to pharmacy and from pharmacy to wholesaler. The aim is to reduce the diversion of pharmaceuticals through sales by unlicensed distributors and tighten the supply chain by controlling business partners.

Forum shopping by hijackers for states with less stringent licensing and regulatory requirements will be prevented by a uniform regulatory framework. The main provisions of the proposal can be found in Table 1.

In accordance with the Medicines Quality and Safety Act 20133 mandate, the FDA has now developed national standards and a federal licensing system for WDDs and 3PLs, which would eventually replace the state regulatory patchwork that currently exists.4 The FDA is also proposing to replace the current 21 CFR Part 205, which provides guidelines for state licensing of WDDs.

State licensing programs that meet federal licensing standards would be allowed to remain, although it is assumed that they would eventually be phased out by individual states. For states that choose not to license, in the absence of a state licensing program, the national program would apply.5

States with requirements that differ from those at the national level (for example, for “designated representatives”, the Florida exam, the California self-assessment or the New Mexico training program)6 will be preempted. Federal Licensing Standards7 will reduce both administrative burdens and costs for those entities that are currently subject to various state licensing requirements, as well as “shipping” licensing requirements.8

WDDs and 3PLs would be required to report to the FDA (database already established), undergo routine inspections every 3 years or more often, write and review standard operating procedures required for maintenance of equipment, personnel, transport and authorized business partners,9.10 and conducting criminal background checks on all designated representatives and facility managers.

The FDA may assess certain approved organizations, if any, and designate them to perform licensing and inspections on its behalf.

For 3PLs, the proposed rule establishes many new requirements as listed in Table 2.

Implications for pharmacy

For retail pharmacies, the proposed rule has several provisions. Stricter state requirements, such as Oklahoma’s rule that a wholesaler cannot be physically located in a pharmacy, would be preempted.

The proposed rule will codify the 5% rule, which currently states that sales of prescription drugs by a retail pharmacy to licensed practitioners for office purposes are considered minimal and do not constitute wholesale distribution if the total volume of such sales does not exceed 5% of the total dollar volume of annual prescription sales of that retail pharmacy.11

Sales above 5% for office use, or any sales to a wholesale distributor, require the pharmacy to be licensed and regulated as a wholesale distributor. This will eliminate the diversion caused by pharmacies purchasing products from an unlicensed wholesaler or another pharmacy and selling their inventory to wholesalers.

Transfers or sales between pharmacies or from pharmacies to practitioners for a specific patient are already not considered wholesale use.12 Currently, some states allow pharmacies to distribute 5% to other entities, such as a pharmacy-to-pharmacy or contract pharmacy research organization, that are not intended for a specific patient. The FDA has indicated in the proposed rule that this is not permitted under the statutory language of the FDC Act.13 and invites comments on this.

According to the National Association of Boards of Pharmacy’s (NABP) 2013 report “Wholesale Drug Distribution: Protecting the Integrity of the Nation’s Prescription Drug Supply”, drug hijackers look for gaps in the distribution chain, specifically looking for States with a less stringent authorization framework. This proposed rule, once finalized, and the pre-emption of inconsistent state provisions will remedy this forum shopping for hijackers seeking to take advantage of the lack of a uniform framework.

Additionally, the 2013 NABP report also argues that the so-called 5% rule is a policy that has been ripe for exploitation due to the fact that the policy is inconsistently legislated, interpreted and applied from state to state. the other.

The interpretation of the 5% rule has not been codified and the NABP observed that “pharmacies acting as wholesalers have been found to take advantage of the parameters set by some states [regarding minimal quantities] when it comes to dispensing drugs. Rather than dispensing the drugs as prescribed, these pharmacies hold them to resell to wholesalers at an amount exceeding the specified amount of prescription drugs allowed in some states (often 5% of annual sales). Some have gone so far as to sell their entire inventory on the gray market.

This proposed rule, when finalized, codifies the principle that the 5% rule only applies to pharmacy sales for office use. Stakeholders are currently analyzing the proposed standards as they prepare to deal directly with the FDA rather than states. The deadline to provide comments on the proposed rule is June 6, 2022.

About the Author

Martha M. Rumore, PharmD, RPh, MS, LLM, Esq is a senior attorney at Frier Levitt, LLC, where she advises clients in the area of ​​food, pharmaceutical device law and intellectual property. She also teaches food and pharmaceutical cosmetics law at the Maurice A. Deane Law School at Hofstra University in New York.


  1. 87 FR 6449, February 4, 2022. – distributors-and-third parties.
  2. 3PLs provide warehousing and logistics services without taking ownership of the products they store.
  3. PL 113-54.
  4. A “designated representative” is defined as a representative responsible for managing the day-to-day operations of a WDD or 3PL facility.
  5. Currently, every state has a WDD licensing program and 31 states have 3PL licensing programs.
  6. The Prescription Drug Marketing Act of 1987 required WDDs to obtain state licenses.
  7. Two-year renewal for WDDs and 3 years for 3PLs.
  8. It is for this reason that WDDs often hold licenses in many, if not all, states.
  9. SOPs for Authorized Business Partners are a “best practice” but are not mandatory for 3PLs.
  10. Authorized trading partners are those who hold a license. The term as used by the FDA does not refer to “authorized distributors” as exists in some of the manufacturer’s restricted distribution channels.
  11. 64 FR 67720, December 3, 1999.
  12. Section 503(e)(4) of the FD&C Act.
  13. Identifier.

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