DSCSA’s Wholesale Drug Distributor and Third-Party Logistics Provider Regulations and Preemption of State Laws: Now Dancing on the “Floor” and the “Ceiling”

June 30, 2022By Karla L. Palmer & John A. Gilbert

Oh what a feeling, we’ll be dancing on the ceiling as they say. One day. As the drug distribution industry is well aware, and as blogged about here, on February 4, 2022, FDA published its long-awaited proposed rule titled “National Standards for the Licensure of Wholesale Drug Distributors and Third-party Logistic Providers” (87 Fed. Reg. 6,708 (Feb. 2. 2022)). The FDA’s proposed licensing rule would implement a long-awaited provision of the 2013 Drug Supply Chain Security Act (“DSCSA”) that establishes the requirement for national license standards for WDDs and 3PLs. Section 583 of the FDCA (added by the DSCSA) requires that FDA “establish by regulation the standards for the licensing of persons under section 503(e)(1) … including the revocation, reissuance and renewal of such license.”  Similarly, FDCA Section 584 requires that FDA “issue regulations regarding the standards for licensing … including the revocation and reissuance of such licenses” to 3PLs.  We have all long grappled with the multitude of state licensing obligations.  That is why a key provision of the proposed rule, buried deep in the proposal’s voluminous text, detailing FDA’s revised “preemption” interpretation addressing licensing of WDDs and 3PLs is of so much interest – and potential consequence. These preemption provisions apply to state and local licensure standards, requirements, and regulations.

As a reminder, the preemption provisions in FDCA Section 585(b)(1) (passed as part of the 2013 DSCSA) read as follows:

(b) Wholesale Distributor and Third-Party Logistics Provider Standards.—

(1) In general.–Beginning on the date of enactment of the Drug Supply Chain Security Act, no State or political subdivision of a State may establish or continue any standards, requirements, or regulations with respect to wholesale prescription drug distributor or third-party logistics provider licensure that are inconsistent with, less stringent than, directly related to, or covered by the standards and requirements applicable under section 503(e) (as amended by such Act), in the case of a wholesale distributor, or section 584, in the case of a third-party logistics provider.

(2) State regulation of third-party logistics providers.–No State shall regulate third-party logistics providers as wholesale distributors.

Preemption of state laws governing not only the tracking and tracing of prescription drugs but also the licensing of WDDs and 3PLs, is a key component of the DSCSA.  Concerning the track and trace requirements, the DSCSA, as of the date of enactment (November 23, 2013) preempted states from establishing, or continuing in effect any requirements for the tracing of prescription drugs through the supply chain, that were inconsistent with, more stringent than, or in addition to any requirements established under the DSCSA.

The federal track and trace process started in early 2014, and industry is accustomed to passing “T3” as required by the DSCSA, as well as relieved that overly restrictive state drug pedigree laws are indeed preempted. FDA (albeit in a 2022 guidance document) made it clear that, concerning preemption of state drug pedigree requirements that went into effect starting in 2015: “Any requirements for tracing drugs through the pharmaceutical distribution supply chain that are inconsistent with, more stringent than, or in addition to any requirements applicable under section 503(e) of the FD&C Act are preempted.”

Now, with the WDD/3PL rule, the second DSCSA preemption piece finally comes into play. Once finalized and effective, states and local governments may not establish or continue licensure requirements for 3PLs or WDDs unless those state requirements are the same as federal requirements. Until the issuance of the proposed rule, industry had been confused by myriad different licensing standards for both WDD and 3PLs.  And, industry had grappled with whether FDA’s future licensing standards would serve as a regulatory “floor,” permitting more stringent state regulation, or a “ceiling,” defining the point at which any state law could not exceed its regulatory authority.  Moreover, a number of states in the interim passed new licensing requirements specifically for 3PLs given the DSCSA’s prohibition on states continuing to license 3PLs under existing WDD state licensing requirements.

FDA’s proposed regulation now plainly intends to establish a regulatory “floor” and a “ceiling,” which is a welcome change from the Agency’s prior preemption interpretation of this statutory section.  But how states will ultimately interpret the rule is anyone’s guess, given how states must significantly change both their regulatory and licensing fee schemes.  FDA does recognize that the prior “floor only” interpretation would have required WDDs and 3PLs to comply with a “patchwork of state and local licensure requirements which could undermine the goal of national uniformity and could create barriers to the statute’s implementation and administrability.” See 87 Fed. Reg. 6735.  In particular, FDA states that FDCA Section 585(b)(1) preempts states from establishing licensure standards that are “different” from the federal standard; thus, states and local governments may not establish or continue licensure requirements for 3PLs or WDDs unless those state requirements are the same as the federal requirements, and different requirements are preempted.

This is a welcome departure from FDA’s now withdrawn guidance issued in 2014, where FDA seemed to consider the federal standard a “floor” where states could impose different requirements that did not fall below the federal standard.  For the near term, however, industry will not be relieved from states’ multiple and wholly conflicting licensing requirements. Given the vested interest most states have in their current licensing requirements (and related fee collections), we would expect an extensive timeline would be needed to bring states into compliance with the federal requirements. State and local license requirements will be preempted only once the federal regulation takes effect.  Thus, until the effective date of the final rule, which is likely years away, (i.e., at least 2-3 years after the rule is finalized) the complicated current state and local license regimes continue.