The Wait is — Almost — Over: The Long-Anticipated Proposed Rule for Drug Wholesale Distributors and 3PLs is Out: Comments Due in 120 Days

February 4, 2022By Karla L. Palmer & Kalie E. Richardson

FDA has released its Proposed Rule of National Standards for Third-Party Logistics Providers (“3PLs”) and Prescription Drug Wholesale Distributors (“WDDs”).  The Drug Supply Chain Security Act (“DSCSA”), enacted back in November 2013, directed FDA to create national licensure standards for wholesale distributors and 3PLs within two years of its enactment (i.e., 2015).  So, FDA is more than a bit tardy, but this has obviously been a significant Agency undertaking, at least as measured by the need to grapple with 50 disparate states’ (and DC’s) requirements – and their various regulatory entities – as part of the process.  The rule, when finalized, will replace existing 21 C.F.R. Part 205 (Guidelines for State Licensing of Wholesale Prescription Drug Distributors).  The comment period for the Proposed Rule will remain open until June 4, 2022 (120 days after publication).  The Rule, if enacted in its current form, will have sweeping implications throughout the supply chain, but particularly for WDDs and 3PLs.  We anticipate this being our first of several blog posts on the Proposed Rule and its potential implications in the coming weeks.

As the title suggests, the Proposed Rule sets national licensing standards for both federal and state licensure for WDDs and 3PLs.  The preamble to the Proposed Rule cites heavily to a 2013 report prepared by the National Association of Board of Pharmacy (“NABP”) titled Wholesale Drug Distribution: Protecting the Integrity of the Nation’s Prescription Drug Supply as well as NABP’s Model State Pharmacy Act and Model Rules.  Currently, the licensure of both WDDs and 3PLs is left to the states, which has resulted in a patchwork of confusing and contradictory regulatory requirements across the country.  As a small example, almost all states license WDDs, but not all license 3PLs, and the DSCSA specifically prohibits states from requiring that 3PLs be licensed as WDDs, which affected several state laws in existence at the time of the DSCSA’s 2013 passage.  See 21 U.S.C. § 360eee-4(b)(2).  The inconsistencies across the states also currently mean that, for example, a 3PL based in Washington state would not need a license in its home state because Washington does not license 3PLs, but if the 3PL ships into California, then it would need to be licensed there as a non-resident 3PL.

The rule also intends to included certain conforming changes to other regulations such as formal evidentiary hearing requirements under 21 C.F.R. Part 12, because the proposed regulation as drafted permits wholesale distributors and 3PLs to request a formal evidentiary public hearing under Part 12 for review of decisions affecting the denial, suspension, or revocation of 3PL or wholesale distributor licenses issued by the Agency.

The 3PL and WDD  licensure rules will take effect in 2 and 1 years, respectively, after publication of the final rule.  State licensing requirements that currently apply to WDDs and 3PLs will only be preempted once the Proposed Rule is finalized and takes effect.  For the time being, WDDs and 3PLs with state licensing obligations should continue to renew their current licenses.  FDA notes, “When finalized, the national standards set forth in the proposed rule will provide greater assurance that these supply chain participants are sufficiently vetted and qualified to distribute products, further strengthening the supply chain and the safety of prescription drugs provided to American consumers.”

Interestingly, the Proposed Rule also addresses the so-called “5% rule,” an inconsistently defined regulatory scheme in most states providing that sales of drugs by retail pharmacies to other entities (as opposed to dispensing to patients) would not be considered “wholesale distribution,” so long as the total dollar volume of these sales does not exceed 5 percent of the total dollar volume of that retail pharmacy’s annual prescription sales.  The Proposed Rule thus intends to “codify” the 5% rule, but such sales would be limited to licensed practitioners for office use.

The Proposed Rule also sets forth standards applicable to, and the requirements for approval of, third-party organizations involved in the licensure and inspection process, which are referred to as “approved organizations.”  Many states already rely on accreditations from third parties such as the National Association of Board of Pharmacy (“NABP”) when licensing WDDs. We imagine that the “approved organization” standard under the final rule will be similar.  For example, at least 4 states (i.e., Indiana, Iowa, North Dakota, and Wyoming) require WDDs to hold NABP “Drug Distributor Accreditation” (formerly known as Verified-Accredited Wholesale Distributors or “VAWD”) before a state license will be issued; and many other states have long accepted VAWD accreditation as a critical part of their licensure vetting process.  We also note that NABP recently announced a new application process for its Drug Distributor Accreditation program.  This likely telegraphs to industry that a particular third party organization — NABP — will play an even more significant (and national) licensing role once the rule is finalized.

The Proposed Rule will not apply to drug manufacturers: FDA stated that it “considers the activities of a manufacturer, as defined at section 581(10) of the FD&C Act, when distributing its own drug, as excluded from the definition of wholesale distribution and not subject to the requirements that apply to wholesale distributors.”  Proposed Rule at 30.  This seems similar to DEA’s understanding of “coincident” activities of the registrant’s business that do not need a separate registration.  In addition, wholesale distributors and 3PLs that only handle medical devices will not be affected by the Rule because the distribution of medical devices is not considered “wholesale distribution” under the DSCSA.  21 U.S.C. § 353(b).

Look forward to future posts on this topic. If you have any thoughts or comments for future topics or posts on this issue, let us know!