# National Standards for the Licensure of Wholesale Drug Distributors and Third-Party Logistics Providers > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2022-01929 ## Record - **Collection:** Federal Register - **Document type:** Proposed Rule - **Published:** February 4, 2022 - **Citation:** 87 FR 6708 ## Text DEPARTMENT OF HEALTH AND HUMAN SERVICES Food and Drug Administration 21 CFR Parts 10, 12, 16, and 205 [Docket No. FDA-2020-N-1663] RIN 0910-AH11 National Standards for the Licensure of Wholesale Drug Distributors and Third-Party Logistics Providers AGENCY: Food and Drug Administration, Department of Health and Human Services (HHS). ACTION: Proposed rule. SUMMARY: The Food and Drug Administration (FDA, the Agency, or we) is proposing national standards for the licensing of prescription drug wholesale distributors (“wholesale distributors” or “wholesale drug distributors”) and third-party logistics providers (“3PLs”), as directed under the Drug Supply Chain Security Act (DSCSA) (Title II of the Drug Quality and Security Act). Pursuant to the Federal Food, Drug, and Cosmetic Act (FD&C Act), as amended by the DSCSA, the proposed rule would establish standards for all State and Federal licenses issued. DATES: Submit either electronic or written comments on the proposed rule by June 6, 2022. Submit comments on information collection issues under the Paperwork Reduction Act of 1995 by March 7, 2022. ADDRESSES: You may submit comments as follows. Please note that late, untimely filed comments will not be considered. The https://www.regulations.gov electronic filing system will accept comments until 11:59 p.m. Eastern Time on June 6, 2022. Electronic comments must be submitted on or before that date. Comments received by mail/hand delivery/courier (for written/paper submissions) will be considered timely if they are postmarked or the delivery service acceptance receipt is on or before that date. Electronic Submissions Submit electronic comments in the following way: • Federal eRulemaking Portal: https://www.regulations.gov. Follow the instructions for submitting comments. Comments submitted electronically, including attachments, to https://www.regulations.gov will be posted to the docket unchanged. Because your comment will be made public, you are solely responsible for ensuring that your comment does not include any confidential information that you or a third party may not wish to be posted, such as medical information, your or anyone else's Social Security number, or confidential business information, such as a manufacturing process. Please note that if you include your name, contact information, or other information that identifies you in the body of your comments, that information will be posted on https://www.regulations.gov. • If you want to submit a comment with confidential information that you do not wish to be made available to the public, submit the comment as a written/paper submission and in the manner detailed (see “Written/Paper Submissions” and “Instructions”). Written/Paper Submissions Submit written/paper submissions in the following ways: • Mail/Hand Delivery/Courier (for written/paper submissions): Dockets Management Staff (HFA-305), Food and Drug Administration, 5630 Fishers Lane, Rm. 1061, Rockville, MD 20852. • For written/paper comments submitted to the Dockets Management Staff, FDA will post your comment, as well as any attachments, except for information submitted, marked and identified, as confidential, if submitted as detailed in “Instructions.” Instructions: All submissions received must include the Docket No. FDA-2020-N-1663 for “National Standards for the Licensure of Wholesale Drug Distributors and Third-Party Logistics Providers.” Received comments, those filed in a timely manner (see ADDRESSES ), will be placed in the docket and, except for those submitted as “Confidential Submissions,” publicly viewable at https://www.regulations.gov or at the Dockets Management Staff between 9 a.m. and 4 p.m., Monday through Friday, 240-402-7500. • Confidential Submissions—To submit a comment with confidential information that you do not wish to be made publicly available, submit your comments only as a written/paper submission. You should submit two copies total. One copy will include the information you claim to be confidential with a heading or cover note that states “THIS DOCUMENT CONTAINS CONFIDENTIAL INFORMATION.” The Agency will review this copy, including the claimed confidential information, in its consideration of comments. The second copy, which will have the claimed confidential information redacted/blacked out, will be available for public viewing and posted on https://www.regulations.gov. Submit both copies to the Dockets Management Staff. If you do not wish your name and contact information to be made publicly available, you can provide this information on the cover sheet and not in the body of your comments and you must identify this information as “confidential.” Any information marked as “confidential” will not be disclosed except in accordance with 21 CFR 10.20 and other applicable disclosure law. For more information about FDA's posting of comments to public dockets, see 80 FR 56469, September 18, 2015, or access the information at: https://www.govinfo.gov/content/pkg/FR-2015-09-18/pdf/2015-23389.pdf. Docket: For access to the docket to read background documents or the electronic and written/paper comments received, go to https://www.regulations.gov and insert the docket number, found in brackets in the heading of this document, into the “Search” box and follow the prompts and/or go to the Dockets Management Staff, 5630 Fishers Lane, Rm. 1061, Rockville, MD 20852, 240-402-7500. Submit comments on information collection issues under the Paperwork Reduction Act of 1995 to the Office of Management and Budget (OMB) at https://www.reginfo.gov/public/do/PRAMain. Find this particular information collection by selecting “Currently under Review—Open for Public Comments” or by using the search function. The title of this proposed collection is “National Standards for the Licensure of Wholesale Drug Distributors and Third-Party Logistics Providers.” FOR FURTHER INFORMATION CONTACT: Aaron Weisbuch, Center for Drug Evaluation and Research, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 51, Rm. 4261, Silver Spring, MD 20993, 301-796-3130. With regard to the information collection: Domini Bean, Office of Operations, Food and Drug Administration, Three White Flint North, 10A-12M, 11601 Landsdown St., North Bethesda, MD 20852, 301-796-5733, PRAStaff@fda.hhs.gov. SUPPLEMENTARY INFORMATION: Table of Contents I. Executive Summary A. Purpose of the Proposed Rule B. Summary of the Major Provisions of the Proposed Rule C. Legal Authority D. Costs and Benefits II. Table of Abbreviations/Commonly Used Acronyms in This Document III. Background A. Introduction B. Need for the Regulation: The DSCSA and Establishment of National Standards for Licensure C. Changes From the Prescription Drug Marketing Act (PDMA) IV. Legal Authority V. Description of the Proposed Rule A. Scope/Applicability (Proposed §§ 205.1 and 205.2) B. Definitions (Proposed § 205.3) C. National Standards for Third-Party Logistics Providers D. Approved Organizations for Third-Party Logistics Providers E. National Standards for Wholesale Distributors F. Approved Organizations for Wholesale Distributors VI. Proposed Effective/Compliance Dates VII. Preliminary Economic Analysis of Impacts VIII. Analysis of Environmental Impact IX. Paperwork Reduction Act of 1995 X. Federalism A. Scope of Preemption B. Effective Date of Preemption XI. Consultation and Coordination With Indian Tribal Governments XII. References I. Executive Summary A. Purpose of the Proposed Rule The Drug Quality and Security Act (DQSA) was enacted on November 27, 2013. Title II of the DQSA, the Drug Supply Chain Security Act (DSCSA), includes provisions designed to strengthen the integrity of the pharmaceutical distribution supply chain. Among other measures, section 204 of the DSCSA amends section 503(e) of the FD&C Act (21 U.S.C. 353(e)), which requires licensure of prescription drug wholesale distributors (wholesale distributors or wholesale drug distributors or WDDs) and adds section 583 to the FD&C Act (21 U.S.C. 360eee-2), which requires FDA to establish by regulation national standards for the licensure of prescription drug wholesale distributors. Section 205 of the DSCSA adds section 584 to the FD&C Act (21 U.S.C. 360eee-3), which requires licensure of third-party logistics providers and requires FDA to establish, by regulation, national standards for the licensure of third-party logistics providers. This proposed regulation, when finalized, will establish the national standards for the licensure of wholesale drug distributors and 3PLs required under sections 583 and 584 of the FD&C Act, as amended by the DSCSA. As required by statute, the standards, terms and conditions for licensure established by this regulation will apply to both Federal and State licenses (503(e)(1)(B), 583(b), and 584(a)(1)(A) of the FD&C Act). As discussed in section X (Federalism), section 585(b)(1) of the FD&C Act (21 U.S.C. 360eee-4(b)(1)) preempts States and localities from establishing or continuing requirements for 3PL or WDD licensure that are different from the national standards and requirements applicable under sections 584 and 503(e) of the FD&C Act. However, the statutory provisions themselves do not establish these “standards and requirements”; instead, this regulation, once effective, will establish them. Accordingly, State and local licensure requirements will be preempted only once this regulation, when finalized, takes effect; until such time, current licensing of WDDs and 3PLs may continue. As discussed below, this determination will help avoid supply chain disruption, based on licensing uncertainties, during the period between DSCSA's enactment and the effective date of this regulation. Avoiding such interim period supply chain issues accords with Congress's overall intent to secure and strengthen the supply chain, as evidenced by other FD&C Act provisions added by DSCSA that recognize State licensure of WDDs and 3PLs prior to this regulation becoming effective. In addition, pursuant to section 585(c) of the FD&C Act (21 U.S.C. 360eee-4(c)), regulation of areas within the historical police powers of the States would be unaffected by this regulation, including prohibiting employees of WDDs and 3PLs from engaging in criminal activity related to prescription drugs, provided that the State requirements involved are not related to licensure of 3PLs or WDDs. The requirements for state licensing of wholesale distributors are currently established under 21 CFR part 205, and FDA is now proposing the withdrawal of that regulation and for part 205 to be replaced with this proposed rule. Where a state from which a drug is being distributed has not established a licensing program in accordance with the regulation, the DSCSA establishes FDA as the licensing authority for wholesale distributor and 3PL licenses (sections 503(e)(1)(A)(i)(II) and 584(a)(1)(B) of the FD&C Act). 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. When finalized, this proposed rule will also set forth the standards applicable to, and the requirements for approval of, third-party organizations involved in the licensure and inspection process (“approved organizations” or “AOs”). Sections 583(c) and 584(d)(2)(A) of the FD&C Act provide, respectively, that FDA may approve “third-party accreditation” or inspection services or programs to conduct inspections of facilities used by wholesale distributors seeking licensure and to review the qualifications of 3PLs for licensure. This proposed rule will also address the standards and requirements for approving such third-party accreditation or inspection services or programs. Overall, this proposed rule is designed to ensure that the supply chain remains secure and that those prescription drugs subject to the DSCSA that are moving through the supply chain are properly stored, handled, and transported. These measures are intended to help protect American consumers from drugs that may be counterfeit, stolen, contaminated, or otherwise harmful. For purposes of this proposed rule, FDA has defined “entity” or “entities” to mean a business organization, such as a corporation, company, association, firm, partnership, society, or joint stock company. Unless otherwise noted, the term “3PL” or “third-party logistics provider” in this proposed rule includes both the 3PL entity and the individual 3PL facilities requiring a license. B. Summary of the Major Provisions of the Proposed Rule FDA is proposing to replace the current part 205 with a new part 205 that will implement the licensure requirements of the DSCSA and govern licensure of 3PLs and wholesale distributors. When finalized, the new part 205 will replace the existing part 205 in its entirety. Subpart A will set forth the national licensing standards for State and Federal licenses issued to 3PLs pursuant to section 584 of the FD&C Act, and subpart C will set forth the national licensing standards for State and Federal licenses issued to wholesale distributors pursuant to sections 503(e) (as amended) and 583 of the FD&C Act. Subparts B and D will set forth the applicable standards and processes for approved organizations to perform licensure reviews and conduct inspections. 1. National Standards for the Licensure of Third-Party Logistics Providers The DSCSA identifies 3PLs as separate members of the drug supply chain—distinct from wholesale drug distributors—and specifically precludes States from regulating 3PLs as wholesale distributors (585(b)(2) of the FD&C Act). FDA is required by section 584 of the FD&C Act to establish national standards for the licensure of 3PLs, and the Agency is proposing those standards in subpart A of proposed part 205. When finalized, each facility of an entity meeting the definition of a 3PL in section 581(22) of the FD&C Act (21 U.S.C. 360eee(22)) will be required to be licensed by a State or Federal licensing authority in accordance with the standards articulated in subpart A of proposed part 205. 2. National Standards for the Licensure of Wholesale Drug Distributors Prior to DSCSA's enactment, wholesale distributors engaging in interstate commerce were required to be licensed by the State in which they were operating pursuant to section 503(e)(2) of the FD&C Act (as then in effect). This section established minimum standards, terms, and conditions for licensing of wholesale distributors pre-DSCSA. As required by sections 503(e)(1)(B) (as amended by the DSCSA) and 583 of the FD&C Act, FDA is proposing to establish national standards, terms, and conditions through this rulemaking for the licensure of wholesale distributors that, when final, will apply to all State licensing programs as well as to the new Federal licensing program to be operated by FDA. These new standards would replace the previous standards set forth in current part 205. 3. Approval of Third Parties To Conduct Licensure Reviews and Inspections In accordance with section 584(d)(2)(A) of the FD&C Act, FDA is proposing to establish a process by which third-party organizations will be approved by FDA to review a 3PL's qualifications for licensure. In addition, in accordance with section 583(c) of the FD&C Act, FDA is proposing to establish a process by which third-party organizations will be approved by FDA to conduct inspections of wholesale distributors for the purpose of licensure. 4. Conforming Changes The regulation also proposes to amend 21 CFR 10.50(c) and 12.21(a)(2), which list statutory authorities that provide the opportunity for a formal evidentiary public hearing under 21 CFR part 12. Because the regulation proposes that wholesale distributors and 3PLs could 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 Secretary of Health and Human Services (Secretary), sections 503(e), 583, and 584 of the FD&C Act would be added to the list of statutory sections under which there is the opportunity for a hearing under §§ 10.50(c) and 12.21(a)(2), regarding such decisions. We are also proposing a conforming change to 21 CFR 16.1(b) to describe procedures for regulatory hearings that would add actions related to approved organizations under proposed §§ 205.19 and 205.33 respectively, including revocation or suspension of approval, to the list of actions for which a regulatory hearing under 21 CFR part 16 may be held. C. Legal Authority We are issuing this proposed rule under sections 301, 501, 502, 503(e), 582, 583, 584, 585, 701(a), and 704 of the FD&C Act (21 U.S.C. 331, 351, 352, 353(e), 360eee-1, 360eee-2, 360eee-3, 360eee-4, 371(a), and 374). D. Costs and Benefits In this rulemaking, we propose new national standards for the licensing of prescription drug wholesale distributors and third-party logistics providers as directed under the Drug Supply Chain Security Act, Title II of the Drug Quality and Security Act. If finalized, the rule would also establish a Federal licensing system for wholesale drug distributors and third-party logistics providers to use in the absence of a state licensure program that is consistent with the proposed national standards. The standards for prescription drug wholesale distribution in the proposed rule would result in benefits to consumers and benefits to distributors from reducing the diversion of prescription drugs. Other monetized benefits include cost savings from reducing the frequency and quantity of licensure applications and cost savings from reducing state licensing standards in some states. We estimate that the annualized benefits over 10 years would range from $1.25 million to $31.50 million at a 7 percent discount rate, with a primary estimate of $10.66 million. We estimate that the annualized benefits would range from $1.26 million to $32.18 million at a 3 percent discount rate, with a primary estimate of $10.89 million. We also expect that the proposed rule, if finalized, would impose costs on wholesale drug distributors, third-party logistics providers, states, approved organizations, and the Food and Drug Administration (FDA). Costs to wholesale drug distributors and third-party logistics providers include costs of learning about the rule, reporting to FDA, undergoing routine inspections, writing and revising standard operating procedures, and conducting background checks. Wholesale-drug distributors would also incur costs to furnish surety bonds to their state licensing authority to obtain or renew their licenses. Costs to states include the time spent reading and understanding the rule, passing or revising the laws and regulations governing their licensure programs, and inspecting WDD and 3PL facilities. Approved organizations would incur legal, application, and training costs, as well as costs to inspect WDD and 3PL facilities. FDA costs include the costs to establish and operate a reporting database and a licensure program for wholesale drug distributors and third-party logistics providers and the costs to establish and operate an approval program for approved organizations. We estimate that the annualized costs over 10 years would range from $13.21 million to $20.63 million at a 7 percent discount rate, with a primary estimate of $16.92 million. We estimate that the annualized costs over 10 years at a 3 percent discount rate would range from $12.83 million to $20.10 million, with a primary estimate of $16.47 million. II. Table of Abbreviations/Commonly Used Acronyms in This Document Abbreviation/ acronym What it means 3PL Third-Party Logistics Provider. AO Approved Organization. CFR Code of Federal Regulations. DSCSA Drug Supply Chain Security Act. DQSA Drug Quality and Security Act. FDA or the Agency U.S. Food and Drug Administration. FD&C Act Federal Food, Drug, and Cosmetic Act. III. Background A. Introduction The DSCSA (Title II of Pub. L. 113-54) was signed into law on November 27, 2013, to better protect the U.S. drug supply chain. FDA's implementation of the DSCSA includes many activities, including this proposed rule. Once final, this rule will establish national standards for licensure of wholesale distributors and 3PLs, as required by the DSCSA. For information on additional FDA activities related to the DSCSA, a web page describing FDA's implementation activities can be found at: https://www.fda.gov/Drugs/DrugSafety/DrugIntegrityandSupplyChainSecurity/DrugSupplyChainSecurityAct/default.htm. B. Need for the Regulation: The DSCSA and Establishment of National Standards for Licensure The U.S. drug supply chain remains one of the safest in the world. However, the increasingly globalized nature of the supply chain brings with it complexities that increase threats to the safety and security of the U.S. drug supply. A breach at any point in the supply chain carries potential for dangerous, and even deadly, outcomes for American consumers. In passing the DSCSA, Congress recognized the need for national standards for the storage, handling, and transport of prescription drugs and directed FDA, in sections 583(a) and 584(d) of the FD&C Act, to establish such standards by regulation for WDDs and 3PLs, respectively. These national standards will help diminish opportunities for dangerous and criminal conduct affecting the supply of prescription drugs in the United States. When final, every U.S. wholesale distributor and 3PL facility will be held to these standards through the statute's licensure requirements. Where a State does not have a licensing program in accordance with the regulation, FDA will be the licensing authority. This proposed rule, when finalized, will provide much needed certainty and clarity for wholesale distributors and 3PLs seeking licensure. In passing the DSCSA, Congress believed the existing system of different regulation regarding supply chain security by each state created a patchwork system of governance and that a uniform national standard would address this concern. See statements of Senator Mikulski (Ref 1), Congressmen Mathis (Ref 2) and Congressman Latta (Ref 3). Requirements for wholesale distributors currently vary significantly across State lines, and many wholesale distributors and 3PLs have facilities in multiple States. Specifically, State requirements and standards for licensure can vary on topics such as the length of time for which records must be maintained; qualifications of facility managers and designated representatives; facility requirements; licensure duration; renewal procedures; exemptions from the definition of wholesale distribution; and inspection and approval requirements by certain, specific organizations in order to receive licensure in certain States. This proposed rule, when finalized will be an important first step in harmonizing these requirements, thus allowing for greater compliance and management of licensure. Additionally, we note that commenters on FDA's draft guidance entitled “The Effect of Section 585 of the FD&C Act on Drug Product Tracing and Wholesale Drug Distributor and Third-Party Logistics Provider Licensing Standards and Requirements: Questions and Answers” (Ref 4) agreed that creation of a uniform national standard for licensure, through the issuance of these regulations, should be the goal of FDA (see, e.g., Ref 5). Commenters noted that the patchwork of licensing standards was precisely the regulatory burden that the DSCSA was intended to eliminate. (see, e.g., Ref 6) Comments added that tracking and complying with different standards in different States on a continuing basis would be very time consuming and add unnecessary costs to the distribution chain (see, e.g., Ref 7). We believe that the issuance of these regulations, when finalized, will provide far greater clarity to both States and regulated industry as to the requirements and expectations FDA has with respect to licensure. The publication of these regulations, when finalized, and the approach to preemption discussed in this document will reflect the national standard Congress intended, but will detail FDA's expectations with respect to licensure. This will allow for greater certainty in the logistics and distribution industry, and in the supply chain as a whole. Since the passage of DSCSA, States have implemented disparate policies with respect to licensure of 3PLs. Some States repealed or eliminated 3PL as a licensure category, others are waiting for FDA to publish its regulations before determining how to proceed, some are licensing 3PLs under some other form of licensure, and some do not regulate 3PLs at all (Ref 8). These regulations, when finalized, will provide certainty and clarity in the logistics industry. The Agency believes finalizing these proposed regulations is crucial to implementation of licensure of 3PLs as intended by DSCSA. Under section 582(a)(7) of the FD&C Act (21 U.S.C. 360eee-1(a)(7)), 3PLs are deemed licensed until the effective date of these regulations unless the Secretary has made a finding that the 3PL does not utilize good handling and distribution practices and publishes notice thereof. Until these regulations are issued, and the framework for licensure established, the Agency cannot institute the provisions and the goals of DSCSA—to further secure the supply chain by including 3PLs as an authorized member of the supply chain through the licensure provisions, which will ensure that they are appropriately credentialed, inspected, and therefore duly qualified to participate in the supply chain. Theft and diversion of prescription drugs continue to be major issues, contributing to drug shortages and creating significant financial losses, the effects of which cascade throughout the supply chain to consumers. FDA has observed that these instances often involve products distributed by unlicensed wholesale distributors. FDA standards, oversight, and regulations, including to implement the requirements of DSCSA, will lessen and hopefully eliminate product diversion in the legitimate supply chain. According to the National Association of Boards of Pharmacy (NABP)'s 2013 report entitled “Wholesale Drug Distribution: Protecting the Integrity of the Nation's Prescription Drug Supply,” drug diverters and bad actors seek out gaps in the distribution and regulatory structure, specifically seeking out States whose licensure framework is less stringent (Ref. 9). This proposed rule, when finalized, and the preemption of inconsistent State provisions will remedy this forum shopping for drug diverters who seek to take advantage of the lack of uniform framework. Additionally, NABP's 2013 report also contends that the so-called “five percent rule” is a policy that has been ripe for exploitation due to the policy being inconsistently legislated, interpreted, and enforced from State to State. This was a policy under which FDA had previously concluded that sales of prescription drugs by a retail pharmacy to licensed practitioners for office use would be considered to be minimal and not constitute wholesale distribution, if 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 (see further discussion in “Definitions” section below). However, this interpretation was not codified. 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 drug distribution. Rather than dispensing the drugs as mandated, these pharmacies retain them to resell to wholesalers at an amount exceeding the specified quantity of prescription medications as permitted in certain States (often times 5% of annual sales). Some have gone as far as to sell their entire inventory into the gray market” This proposed rule, when finalized, codifies the principle that the five percent rule only applies to pharmacy sales for office use. Sales above five percent for office use, or any sales to a wholesale distributor, require the pharmacy to become licensed and regulated as a wholesale distributor. This proposed rule will clarify this requirement and close a potential loophole that could lead to diversion of products and excessive sales from dispensers who are not licensed and registered as wholesale distributors when they are engaging in wholesale distribution. Unlicensed wholesale distribution has been a major source of diverted products both leaving and reentering the supply chain. Significant amounts of drug diversion involve wholesale distributors, either diverting the product themselves from the supply chain, or purchasing product that was diverted by another actor. The DSCSA, which requires uniform national standards for licensure of wholesale distributors, will cut down on these types of instances of diversion since supply chain trading partners are required to transact with only other trading partners who meet the strict requirements laid out in these regulations. There are many examples of diversion and criminal action by wholesale distributors under the current regulatory scheme, which these regulations, when finalized, will discourage, or possibly even prevent, in the future. As an example, from 2007-2014, individuals involved with the Minnesota Independent Cooperative bought prescription drugs from a network of illegal and unlicensed sources and sold approximately $393 million worth of diverted prescription drugs to wholesalers and retail pharmacies throughout the United States. These individuals falsified transactional documents, as well as licensure documents, to enter into fraudulent transactions with dispensers and other wholesalers. In a 2008 example detailed in the indictment, the unlicensed individuals involved allegedly bought a truckload of stolen asthma inhalers for $662,000 and sold them through the Minnesota Independent Collective to another wholesaler for about $1 million (Ref 10). These regulations, when finalized, and the DSCSA requirements that trading partners only transact with authorized, licensed trading partners, and verify suspect and illegitimate product, will make these schemes far more difficult to achieve. Had DSCSA been the prevailing regulatory scheme at the time, other wholesale distributors and dispensers would have been deterred from doing business with the Minnesota Independent Collective because they were not an authorized trading partner. In 2014, two individuals pleaded guilty to their involvement in a drug diversion and distribution scheme through an entity called Cumberland Distribution. Both defendants admitted that Cumberland Distribution purchased prescription drugs from individuals and entities that were not licensed to engage in the wholesale distribution of prescription drugs and were not authorized to distribute prescription drugs. Cumberland Distribution then distributed these products to dispensers. The prescription drugs were acquired through various networks of “diverters” who obtained prescription drugs from other unlawful sources. As a result, Cumberland Distribution could not lawfully resell the drugs. Pharmacies throughout the United States purchased these diverted prescription drugs from Cumberland Distribution under the guise that the products had been in the custody of licensed wholesale distributors or other authorized distributors since being sold by the original manufacturer (Ref 11). Under DSCSA, the licensure status of these purported wholesale distributors is easily searchable and verifiable, thus making diversion schemes, such as this, far more difficult to achieve. In addition to requiring FDA to establish national licensure standards, the DSCSA outlines critical steps for building an electronic, interoperable system to identify and trace certain prescription drugs as they are distributed in the United States (section 582(g) of the FD&C Act). This system will enhance FDA's ability to protect American consumers from exposure to drugs that may be unfit for distribution and will increase efficiency in the detection and removal of potentially dangerous drugs from the U.S. drug supply chain. The FD&C Act, as amended by DSCSA, requires FDA to establish national standards for the licensure of two critical members of the supply chain: wholesale drug distributors and 3PLs. It also requires that only those wholesale distributors and 3PL facilities licensed according to these national standards may engage in wholesale distribution or 3PL activities, respectively. Only licensed wholesale drug distributors and 3PLs whose facilities are so licensed will be considered “authorized trading partners” permitted under the FD&C Act, as amended by DSCSA, to engage in transactions related to the sale and distribution of certain prescription drugs with other members of the supply chain. To create the standards proposed in the regulations, FDA conducted a comprehensive review of existing State standards for licensure including storing, handling, and holding prescription drugs, as well as other nationally recognized standards and model rules for wholesale distribution and logistics, such as those created by the NABP (Ref 12), Healthcare Distribution Alliance (Ref 13), World Health Organization (Ref 14), and the Pharmaceutical Inspection Convention and Pharmaceutical Inspection Co-operation Scheme (jointly referred to as PIC/S) (Ref 15). The Agency believes that the proposed standards align with existing practices and will help ensure that 3PL and wholesale distribution activities are undertaken in a manner that minimizes diversion and threats to the regulated supply chain. C. Changes From the Prescription Drug Marketing Act (PDMA) Prior to the DSCSA's enactment, the last comprehensive legislative action related to prescription drug distribution was the Prescription Drug Marketing Act of 1987 (PDMA) (Pub. L. 100-293). Among other things, the PDMA required wholesale distributors to obtain licenses from States in which they were operating (sec. 6 of the PDMA; also see FDA's 2001 Report to Congress on the PDMA (Ref 16)). Under the PDMA, FDA promulgated regulations that established minimum standards, terms, and conditions for licensure of wholesale distributors. The PDMA provided neither a specific definition of 3PL-type entities nor specific oversight over them; without a distinct regulatory framework for 3PLs, some States chose to regulate and license 3PLs as wholesale distributors, with some others choosing to license 3PLs as separate entities. The DSCSA requires that all wholesale distributor and 3PL licenses meet the standards established by FDA (sections 503(e)(1)(B) and 584(a) of the FD&C Act), and that 3PLs not be licensed as wholesale distributors (section 585(b)(2) of the FD&C Act). If an entity owns a facility in which it is engaging in 3PL activities and wholesale distribution out of the same facility, the entity will be required to hold a 3PL license and a separate wholesale distributor license for the distinct functions they perform. IV. Legal Authority The Agency is proposing this rule under the authority to propose national standards for the licensing of wholesale distributors and 3PLs granted to it by various sections of the FD&C Act, including sections 301, 503(e), 582, 583, 584, 585, 701(a), and 704 (21 U.S.C. 331, 351, 352, 353(e), 360eee-1, 360eee-2, 360eee-3, 360eee-4, 371(a), and 374). Section 503(e) requires wholesale distributors to be licensed according to the standards, terms, and conditions established by the Secretary, and section 583 requires FDA to establish by regulation national standards for the licensure of prescription drug wholesale distributors. Section 584 requires 3PLs to be licensed according to standards established in regulations promulgated by FDA for the licensure of 3PLs. Section 301(t) prohibits the failure to comply with the requirements under sections 584 and 503(e). Section 301 also prohibits a number of actions concerning adulterated and misbranded drugs. Section 585 provides that states cannot implement licensing standards, requirements, or regulations that are inconsistent with, less stringent than, directly related to, or covered by the standards applicable under sections 503(e) and 584. Section 585 also precludes states from regulating 3PLs as wholesale distributors. To enforce these and other provisions of the FD&C Act, section 704 authorizes FDA to conduct inspections. Section 701(a) of the FD&C Act provides general authority to issue regulations for the efficient enforcement of the FD&C Act. By establishing national standards for the licensing of wholesale distributors and 3PLs, this rule, when finalized, is expected to aid in the efficient administration and enforcement of the FD&C Act, and in particular would help efficiently enforce the provisions relating to licensure of wholesale drug distributors and 3PLs. V. Description of the Proposed Rule The national standards for the licensure of 3PLs, required by section 584 of the FD&C Act, as amended by DSCSA, are set forth in subpart A of proposed part 205. The national standards for the licensure of wholesale distributors, required by sections 503(e) and 583 of the FD&C Act, as amended by DSCSA, are set forth in subpart C of proposed part 205. The process and standards for third-party accreditation programs to become approved by the Federal Government to evaluate the qualifications of 3PLs for licensure, as required by section 584(d) of the FD&C Act, are established in subpart B of proposed part 205. The process and standards for third-party accreditation and inspection services to become approved by the Federal Government to conduct inspections of wholesale distributors, as permitted by section 583(c) of the FD&C Act, are set forth in subpart D of proposed part 205. A. Scope/Applicability (Proposed §§ 205.1 and 205.2) In accordance with section 584 of the FD&C Act, FDA is proposing to establish the national standards for licensing by State and Federal licensing authorities set forth in subpart A of part 205 that would apply to 3PL facilities in any State (see proposed § 205.1). Furthermore, in accordance with section 503(e)(1) of the FD&C Act, FDA is proposing to establish the national standards for wholesale distributors set forth in subpart C of part 205 that would apply to wholesale distributors of prescription drugs in any State (see proposed § 205.1). The standards, terms, and conditions for licensure established under part 205, subparts A and C, once finalized, would apply to all State and Federal 3PL and wholesale distributor licenses. All 3PL facilities are required to obtain a 3PL license for each facility of such 3PL. The FD&C Act, as amended by DSCSA, prohibits States from regulating 3PLs as wholesale distributors. A 3PL that also engages in wholesale distribution in the same facility in which it engages in 3PL activities must obtain a separate wholesale distribution license (see proposed § 205.1). An entity is considered a wholesale distributor if the entity is engaged in the distribution of a drug subject to section 503(b) (relating to prescription drugs) of the FD&C Act (21 U.S.C. 353(b)), to a person other than a consumer or patient, with a few exclusions. Under section 201(g) of the FD&C Act (21 U.S.C. 321(g)), a drug includes a bulk drug substance, and under current FDA regulations, the term bulk drug substance means any substance that is represented for use in a drug and that, when used in the manufacturing, processing, or packaging of a drug, becomes an active ingredient or a finished dosage form of the drug. The term does not include intermediates used in the synthesis of such substances (21 CFR 203.3(e)). FDA believes that the distribution of bulk drug substances must have the same safeguards and provisions as the distribution of finished drug products. The same safeguards that prevent diversion and theft and secure the pharmaceutical distribution supply chain generally must include the transfer of bulk drug substances, as they are subject to the same concerns as the distribution of prescription drugs in finished dosage form. FDA is proposing to establish the process and standards that would apply to any third-party accreditation or inspection services seeking to obtain or maintain approval by FDA to evaluate qualifications of 3PLs for licensure or to conduct inspections of wholesale distributors (see proposed § 205.1). Once finalized, proposed subparts B and D of part 205 would establish the process and standards for third-party accreditation and inspection services to become approved by the Secretary to review the qualifications of 3PLs for licensure, as required by section 584(d) of the FD&C Act, and to conduct inspections of wholesale distributors, as permitted by section 583(c) of the FD&C Act (see proposed § 205.2) ( i.e., to become “approved organizations”). B. Definitions (Proposed § 205.3) By its terms, the definitions of terms in section 581 of the FD&C Act (21 U.S.C. 360eee) applies in subchapter H. However, because those terms are also used throughout section 503(e) of the FD&C Act (as amended by the DSCSA), FDA considers the definitions and interpretations contained in section 581 of the FD&C Act to apply to those terms when used in proposed part 205. Specifically, the definitions of the following terms contained in section 581 of the FD&C Act apply when used in proposed part 205: Affiliate, authorized, dispenser, illegitimate product, licensed, manufacturer, product, repackager, return, specific patient need, suspect product, third-party logistics provider, and wholesale distributor. In addition, FDA is proposing the definition of the following additional terms to help clarify the requirements. FDA believes that these proposed definitions align with existing law and regulations, as well as current industry practices. • 3PL Activities: Includes warehousing and “other logistics services” that are undertaken with respect to a product (as defined in proposed § 205.3(k)). • Change of Entity Ownership: Recognizing that businesses often undergo changes in corporate structure through mergers, acquisitions, and other transactions, FDA proposes that “change of entity ownership” be defined to help ensure consistency with regard to how such changes will affect licensure. The definition describes the events that would constitute a change in ownership with respect to a partnership, unincorporated sole proprietorship, corporation, or limited liability company. • Co-Licensed Partner: One of two or more entities that have entered into an agreement for the right to engage in the marketing of a prescription drug. The Agency believes this definition is in alignment with industry practice and existing laws. • Designated Representative: An individual who is designated as the representative of the facility manager and, as such, is identified by the licensee as responsible for managing the daily operation of the establishment in compliance with licensure requirements and has the authority to implement corrective action when necessary. This individual is also responsible for ensuring that personnel are appropriately qualified, assigned, and trained to accomplish their duties. The Agency believes this definition reflects current practices and understanding. • Entity or Entities: A business organization, such as a corporation, company, association, firm, partnership, society, sole proprietorship, or joint stock company. • Facility: A site at one general, permanent, physical location used to store or handle prescription drugs. For purposes of proposed part 205, a facility does not include a site, such as a corporate office or headquarters, where the sole activity conducted at the site is one of oversight, support, or business administrative function. • Key Personnel: Any individual who has responsibility for managing the operations of the wholesale distributor, including any principal, owner, director, officer of the wholesale distributor, designated representatives, and other individuals who are authorized to enter areas where prescription drugs are held and are likely to handle those prescription drugs as a part their responsibilities within the operation. ○ Section 583(b)(5) of the FD&C Act, as amended by DSCSA, requires that FDA establish standards for the “establishment and implementation of qualifications for key personnel” of wholesale distributors. These key personnel must be sufficiently qualified and screened to carry out the important responsibilities that come with positions within a wholesale distribution company. FDA believes individuals who hold these positions must be held to a high standard of qualification as they are entrusted with important aspects of protecting the pharmaceutical distribution supply chain. • Minimal Quantities: An annual dollar volume of prescription drugs sold by a retail pharmacy to licensed practitioners for office use that does not exceed 5 percent of the total dollar volume of that retail pharmacy's annual prescription sales. ○ Section 503(e)(4) of the FD&C Act excludes a number of activities from the definition of wholesale distribution. One excluded category, listed at section 503(e)(4)(E) of the FD&C Act, is “the distribution of minimal quantities of a drug by a licensed retail pharmacy to a licensed practitioner for office use.” FDA has previously considered what constitutes minimal quantities in determining when the practices of a retail pharmacy become wholesale drug distribution and thereby subject to licensure (see 64 FR 67720, December 3, 1999). For example, in preamble discussions around codifying provisions related to wholesale distribution, FDA proposed a minimal quantities limit, considered comments, and ultimately concluded that sales of prescription drugs by a retail pharmacy to licensed practitioners for office use would be considered to be minimal and not wholesale distribution, if 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 Agency continues to maintain its position that a 5-percent limit to what constitutes minimal quantities is sufficient “to meet the needs of licensed practitioners who may not purchase enough prescription drugs to go through a wholesale distributor and thus may not otherwise be able to easily obtain drugs for office use” (64 FR 67720 at 67748). We believe this standard is still relevant and is the industry standard. We note that in January 2013, the NABP passed a resolution that supports limiting the five percent rule to allow for transfer “between pharmacies, or from pharmacy to or from pharmacies to practitioners, only for the purpose of dispensing or administration, but not for resale; and to prohibit the transfer, distribution, or sale of prescription drugs from pharmacies to wholesalers for resale” (Ref 17). The transfer or sale from dispenser to dispenser for a specific patient need is already considered to not be wholesale distribution under the FD&C Act (see section 503(e)(4)). This NABP resolution accords with FDA's proposed definition of minimal quantities. We request comment on the codification of this 5 percent limit for office use and of the definition of minimal quantities. ○ Accordingly, a licensed retail pharmacy that distributes more than 5 percent of its annual sales to licensed practitioners is engaging in wholesale distribution, subject to all the requirements for wholesale distributors, unless its activities are otherwise excluded from the definition of wholesale distribution. The exemption for distributing minimal quantities of drugs by retail pharmacies to licensed practitioners for office use was “not created to confer a special benefit on retail pharmacies, but to meet the legitimate need of licensed practitioners” (64 FR 67720 at 67748). For purposes of section 503(e)(4)(E) of the FD&C Act, FDA is proposing to codify its position on “minimal quantities” in the proposed § 205.3(h) to mean the “total annual dollar amount sold to licensed practitioners for office use does not exceed 5 percent of the total dollar volume of that retail pharmacy's annual prescription drug sales.” ○ The Agency also notes that this exclusion only applies to sales of prescription drugs from licensed pharmacies to licensed practitioners for office use. FDA understands that some States and other entities have expanded the applicability of this exclusion from the definition of wholesale distribution to allow for distribution from pharmacies to other entities outside of licensed practitioners for office use, but FDA notes that this practice is not allowed under current Federal law. The statutory language at section 503(e)(4)(E) of the FD&C Act specifically limits the exclusion to the distribution of minimal quantities of a drug between a licensed retail pharmacy and a licensed practitioner for office use. Unless a specific sale or transfer of a drug from one dispenser to another dispenser is outside of the definition of wholesale distribution because it is to a consumer or patient ( e.g., to fulfill a “specific patient need,” as defined at section 581(19) of the FD&C Act), a pharmacy that sells or trades prescription drugs to other pharmacies or other entities falls within the definition of wholesale distribution. Such activity is considered wholesale distribution under section 503(e)(4) of the FD&C Act, subject to all the requirements of wholesale distributors. • Other Logistics Services: Services provided by entities that accept or transfer direct possession of products from that entity's facility within the United States and its territories on behalf of a trading partner ( e.g., manufacturer, wholesale distributor, dispenser), but that do not take ownership of the product or have the responsibility to direct a product's sale or disposition. It also includes services undertaken with respect to a product for a repackager that is acting on behalf of a manufacturer, wholesale distributor, or dispenser. ○ Under the DSCSA, the definition of 3PL includes entities that conduct “other logistics services” on behalf of a manufacturer, wholesale distributor, or dispenser of a product. The Agency recognizes that 3PLs may perform 3PL activities for repackagers and proposes to include in the definition of “other logistics services” those services undertaken with respect to a product for a repackager acting on behalf of a manufacturer, wholesale distributor, or dispenser. ○ Under this proposed definition, a common carrier that only transports a product, but does not take ownership of the product, is not conducting “other logistic services.” Similarly, an entity that directs the sale or disposition of the product but does not take possession (such as a broker) would not be conducting “other logistics services” and does not meet the definition of a 3PL, but may be engaged in activities that meet the definition of a manufacturer or wholesale distributor. • Other Than a Consumer or Patient: A person receiving the drug who is not (i) the individual identified as the recipient of the prescription drug, (ii) a dispenser fulfilling a specific patient need, or (iii) the clinical investigator, as defined in 21 CFR 312.3(b) (or any successor regulation). ○ FDA considers certain types of prescription drug distribution as outside the scope of “wholesale distribution” under section 503(e)(4) of the FD&C Act because they constitute “the distribution of a drug” to a “consumer or patient,” which is excluded from the definition of wholesale distribution. The first of these is the distribution to, or receipt by, the patient, who, for purposes of DSCSA, FDA considers to be the individual intended to take or be administered the prescription drug. This would typically be the individual whose name appears on the prescription. ○ FDA also considers the transfer or sale of a drug from one dispenser to another to fulfill a “specific patient need” to be outside the scope of wholesale distribution. Specific patient need is defined at section 581(19) of the FD&C Act as “the transfer of a product from one pharmacy to another to fill a prescription for an identified patient.” FDA would note, however, that a dispenser who transfers or sells a drug to a trading partner other than another dispenser, or to another dispenser where there is no specific patient need evidenced by a prescription, is distributing a drug to someone other than a consumer or patient, which, if not otherwise excluded under section 503(e)(4) of the FD&C Act, would be engaging in wholesale drug distribution requiring a wholesale distributor license. ○ Finally, FDA considers the sale or transfer of a drug for investigational or research purposes to an investigator, as defined in 21 CFR 312.3 (or any successor regulation), under an investigational new drug application (IND) submitted to FDA to be outside the scope of wholesale distribution because the drug is used for in vitro, clinical, or other research purposes under an IND. ○ For these reasons, FDA is proposing to exclude these types of transactions from the scope of wholesale distribution. • Product: A prescription drug in a finished dosage form that is ready for administration to a patient without substantial further manufacturing ( e.g., capsules, tablets, lyophilized products before reconstitution). ○ The definition of “product” proposed here is broader and more inclusive than that used for purposes of product tracing detailed in section 582 of the FD&C Act as defined in section 581(13). As used in section 584 of the FD&C Act for purposes of licensure of a 3PL, the term “product” excludes active pharmaceutical ingredients intended for incorporation into a finished drug product but have yet to undergo substantial further manufacturing to become the finished dosage form for administration. Of note, for purposes of section 582 of the FD&C Act (21 U.S.C. 360eee-1), the definition for “product” excludes certain types of prescription drugs in finished dosage form (section 581(13) of the FD&C Act). • Significant Disciplinary Action: Any action by a State or Federal licensing authority that would limit or prevent a 3PL from conducting 3PL activities, or would limit or prevent a wholesale distributor from distributing or facilitating the distribution of prescription drugs. This includes suspension or revocation of a 3PL or wholesale distributor license, State controlled substances license, or Drug Enforcement Administration (DEA) registration, and potentially includes other disciplinary actions such as a consent decree or final ruling of a State licensure board, depending on the impact on the 3PL's or wholesale distributor's legal ability to perform licensed activities. • Unfit for Distribution: A prescription drug that has been identified as a drug whose sale would violate the FD&C Act. This definition includes prescription drugs identified as suspect or illegitimate (582(c)(4) of the FD&C Act); adulterated, including drugs rendered nonsaleable because conditions (such as return, recall, damage, or expiry) cast doubt on the drug's safety, identity, strength, quality, or purity (section 501 of the FD&C Act); or misbranded (section 502 of the FD&C Act (21 U.S.C. 352)). ○ FDA believes that prescription drugs unfit for distribution must be segregated from those that are fit for distribution to protect patients from receiving potentially defective or harmful prescription drugs and prevent the distribution of drugs that are unfit for distribution. ○ A wholesale distributor or 3PL could potentially identify a prescription drug as unfit for distribution through their own examination of incoming and outgoing shipments of prescription drugs as outlined by proposed 21 CFR 205.12(c)(1) for 3PLs and 205.26(c)(4) for wholesale distributors, through inventory review under proposed 21 CFR 205.12(c)(4)(i) for 3PLs and 205.26(c)(5)(i)(B) for wholesale distributors, through other internal means designed to detect product that is unfit for distribution, or be notified of a prescription drug's status as unfit for distribution by a trading partner or others. • Wholesale distribution: ○ Section 503(e)(4) of the FD&C Act defines wholesale distribution as “the distribution of a drug subject to [section 503(b) of the FD&C Act] to a person other than a consumer or patient, or receipt of a drug subject to [section 503(b) of the FD&C Act] by a person other than the consumer or patient.” The definition then goes on to list 19 activities that are not considered wholesale distribution. Of these, FDA is providing clarification about several that may be causing some confusion for industry and the States. ○ Section 503(e)(4)(C) of the FD&C Act states that the distribution of a drug or an offer to distribute a drug for emergency medical reasons, including a public health emergency declaration pursuant to section 319 of the Public Health Service Act, does not constitute wholesale distribution. In addition to distribution of a drug during a declared public health emergency pursuant to section 319 of the Public Health Service Act, FDA considers the following circumstances to constitute emergency medical reasons and therefore be excluded from the definition of wholesale distribution: (1) The distribution of a drug to a first responder or other authorized individual administering prescription drugs to acutely ill or injured persons in an emergency situation and outside a healthcare facility, and (2) a long-term care facility receiving an emergency kit containing drugs for use in emergency situations to treat acutely ill or injured persons during hours of the day when necessary drugs cannot be obtained from a dispenser. Pursuant to 503(e)(4)(C) of the FD&C Act, this exclusion from the definition of wholesale distribution does not include distributing a drug during a shortage unless such shortage was caused by a public health emergency. ○ The exclusion at section 503(e)(4)(E) of the FD&C Act for the distribution of minimal quantities of prescription drugs by a licensed retail pharmacy to a licensed practitioner for office use is discussed in the description of the term “minimal quantities.” ○ Section 503(e)(4)(H) of the FD&C Act excludes “the distribution of a drug by the manufacturer of such drug” from wholesale distribution. Therefore, FDA 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. FDA believes this is supported by the term “wholesale distributor,” which is defined at section 581(29) of the FD&C Act, in relevant part, as “a person (other than a manufacturer, a manufacturer's co-licensed partner . . .) engaged in wholesale distribution.” The Agency notes, however, that if Manufacturer A purchases and distributes Manufacturer B's drug, for which Manufacturer A has no affiliation and is not a co-licensed partner, Manufacturer A is engaged in wholesale distribution, subject to all the requirements for wholesale distributors. C. National Standards for Third-Party Logistics Providers 1. 3PL Licensure 3PL facilities are required to be licensed in order to conduct activities in any State (section 584 of the FD&C Act). As such, the proposed regulation provides that a 3PL facility may not conduct 3PL activities unless it is licensed by the State from which it conducts 3PL activities, or by FDA if the State from which 3PL activities are conducted has not established a licensure program in accordance with the regulations, as set forth in section 584(a) of the FD&C Act (see proposed § 205.4(a)). In addition, the requirement in 584(a) of the FD&C Act that each facility of the 3PL must be licensed, such that a 3PL with multiple facilities in a single State will have multiple licenses from that State, is set forth in proposed § 205.4(b). Under FDA's proposed regulation, if a 3PL owns or leases a facility serving as a warehouse for products, the State in which the facility is located will be considered the State from which the 3PL “conducts activities” and will be the State from which the 3PL must obtain a license for that facility under proposed § 205.4(a)(1). FDA understands there has been some confusion about whether an entity hired or contracted by another trading partner to provide labor, logistic, or administrative services for that trading partner in that trading partner's facility would be considered a 3PL. This could occur, for example, where a wholesale distributor hires a contractor to provide such support services from within the wholesale distributor's facility exclusively for that wholesale distributor. In this scenario, the contractor's activities from within the wholesale distributor's licensed facility would be captured by the wholesale distributor's license and obligations for compliance, and the facility would not be considered a 3PL or required to have a 3PL license. However, an entity that operates a facility in which it engages in wholesale distribution and performs 3PL activities on behalf of other trading partners for products it does not own or direct the sale or disposition of is required to obtain both a wholesale distributor and 3PL license for that facility. Additionally, pursuant to section 584(a)(2) of the FD&C Act, if a product is distributed in interstate commerce, the 3PL must be licensed by the State into which the product is distributed if that State requires such license; however, section 584(a)(2) of the FD&C Act also provides that if the 3PL is licensed by FDA, as described in section 584(a)(1)(B), the 3PL is not required to obtain a license from the State into which the product is distributed (see proposed § 205.4(a)(3)). Finally, to ensure that a facility and those responsible for its operations meet the licensing standards, FDA proposes to require that 3PL licenses be facility- and owner-specific and not transferable to another establishment or owner (see proposed § 205.4(c)). 3PL licenses must be held at the licensed facility and must be made available to State, Federal, or other licensing authorities upon request (see proposed § 205.4(d)). Section 584 states that the national licensing standards for 3PLs established by regulation take effect 1 year after the date such final regulation is published (section 584(d)(1) and (3) of the FD&C Act). National licensing standards for wholesale distributors established by regulation take effect 2 years after the date such final regulation is published (section 583(a) and (e)(3) of the FD&C Act). For several reasons, including those discussed below, FDA does not intend to enforce the licensing requirements for 3PLs until 2 years after the final regulation is published. FDA recognizes that 1 year may be insufficient time for States to implement 3PL licensure programs, should they decide to implement such a program, and for 3PLs to apply for licensure under these programs. Setting up a state licensure program may require additional time. This is especially true in States that will require State legislative action to implement a licensure program, with some State legislatures only meeting biennially. Considering these factors, FDA does not intend to enforce these requirements with respect to the national standards for licensure until 2 years after the regulation is finalized. This will help ensure there is time for States to establish or modify their licensure programs in accordance with the new standards and time for 3PLs to apply and obtain a new license. For 1 year after the effective date of the final regulation, FDA also does not intend to enforce the requirements of section 582(b)(3), (c)(3), (d)(3), and (e)(3) of the FD&C Act with respect to a manufacturer, wholesale distributor, dispenser, or repackager who has as a trading partner a 3PL that is not licensed, unless the 3PL is not licensed because the Secretary or a state licensing body has made a finding that the 3PL does not utilize good handling and distribution practices and has published notice thereof. 2. General Application Requirements for Licensure The general requirements that must be met for a State or Federal licensing authority to issue a license to a 3PL facility are proposed in § 205.5. As proposed, § 205.5(a) includes requirements applicable to the individual who submits the application and states that the applicant must submit all required information and pay any applicable licensing fee to be issued a license. The information that would be required as part of a 3PL's application for licensure of a facility is set forth in proposed § 205.5(b). FDA believes this information is necessary for the licensing authority to assess whether the 3PL is in good standing and has the infrastructure and capabilities to fulfill its duties and obligations under these national standards for 3PL licensure. This includes disclosing whether the 3PL facility manager or designated representative has ever been convicted of a felony relating to prescription drug distribution (see proposed § 205.5(b)(7)). FDA believes that this information is crucial to protect the integrity of the prescription drug supply chain by ensuring that those responsible for the daily operations of a 3PL facility do not have a history of violating the FD&C Act. In addition, in its application for licensure renewal, under proposed § 205.7, a 3PL would be required to certify that the 3PL facility has continually met the requirements of § 205.5 and will inform the licensing authority of certain changes to information if such changes have not already been submitted to the licensing authority (see proposed § 205.5(c)). 3. The Federal Licensure Process Section 584(a)(1)(B) of the FD&C Act gives FDA the authority to license 3PLs directly if the State from which a 3PL conducts 3PL activities has not established a licensure requirement in accordance with the regulations. The process that FDA will use for issuing licenses to 3PLs is detailed in proposed § 205.6. While § 205.6 is only applicable to 3PLs obtaining a license from FDA, FDA suggests that States implement similar procedures. FDA intends to help stakeholders understand who the appropriate licensing authority is in the 3PL's State. The FDA licensure process begins when a 3PL seeking licensure for a facility submits an application to FDA for review and consideration (see proposed § 205.6(a)). The DSCSA permits FDA to approve third-party organizations, referred to as approved organizations or AOs, to evaluate a 3PL's qualifications for licensure (section 584(d)(2)(A)-(B) and 584(e) of the FD&C Act). If FDA has approved one or more organizations to review a 3PL's qualifications for licensure, a 3PL should note the AO it prefers on its application. FDA generally intends to review a 3PL's qualifications for licensure only if the review cannot be completed by an FDA-approved AO. The licensure review consists of a review of all documents submitted in support of the application and an inspection of the facility pursuant to proposed § 205.16. FDA intends for the licensure application process to be electronic (see proposed § 205.6(a)) and to leverage existing technologies to streamline the licensure process. While the DSCSA permits AOs to review a 3PL's qualifications for licensure and to recommend to FDA whether a 3PL should be licensed, the responsibility for determining whether a 3PL meets all applicable requirements and to issue the license remains with FDA (see proposed § 205.6(b)). So as not to delay the licensure process, when reviewing an application, FDA intends to work with 3PLs to correct minor errors made on the application and communicate with the 3PL about additional information the Agency may need (see proposed § 205.6(c)). When FDA determines that a 3PL facility meets the applicable requirements and that none of the prohibited factors listed in proposed § 205.9(a)(1) are present, FDA will send the applicant an approval letter and a licensing certificate, effective on the date it is issued (see proposed § 205.6(d)). FDA recognizes that a 3PL may have concerns about what happens to the status of its license if the AO that reviewed its qualifications for licensure has disciplinary sanctions taken against it that affect its approval status or if it is otherwise no longer considered an approved AO. While a 3PL facility should not be penalized for the actions of the AO that reviews its qualifications for licensure, FDA must ensure that the AO's review and findings provide a reliable basis for licensing decisions. As such, FDA is proposing that the approval status of the AO that performed the licensure review for a 3PL facility will not automatically affect the licensure of a licensed 3PL facility that is otherwise in good standing (see proposed § 205.6(e)). Rather, in the event that an AO has disciplinary sanctions taken against it, ends its business, or is otherwise no longer considered an approved AO, the license of any 3PL facility reviewed by that AO will be subject to appropriate action in accordance with § 205.9 and other applicable statutes or regulations. FDA may verify the 3PL's compliance status and review the facts in that situation to determine the potential effect, if any, on the licensure of 3PL facilities reviewed by that AO. FDA intends to publish additional guidance regarding the process and procedures related to obtaining and maintaining a 3PL license issued by FDA. 4. Changes to Information, Location, or Ownership of a Licensed 3PL For the licensing authority to effectively carry out its responsibilities, a 3PL must keep its license information current and report any changes in information, including those that may significantly affect operations such as changes in location or ownership, to the licensing authority. Presently, the reporting requirements for these types of changes vary by State. FDA is proposing in § 205.7 that changes to certain information, including, for example, any changes in information submitted as part of an application for licensure, be submitted electronically to the licensing authority within 30 calendar days of the change (see proposed § 205.7(a)). Additionally, because a license is facility- and-owner specific (see proposed § 205.4(c)), the Agency is proposing that changes in the location or the ownership of a facility will require a new license (see proposed § 205.7(b) and (c)). 5. Expiration and Renewal of Licenses The DSCSA requires that the regulations establishing national standards for 3PLs provide that a 3PL license expires 3 years after the date of issuance, with the option for renewal for additional 3-year periods (section 584(d)(2)(H) of the FD&C Act). FDA is proposing to implement this requirement under proposed § 205.8 by saying that all 3PL licenses, whether newly issued or renewed by the licensing authority, expire 3 years from the date of issuance or renewal. FDA also proposes that 3PLs may not submit renewal applications more than 90 days prior to the license's date of expiration to ensure that licenses are renewed based on current information. While we do not anticipate lengthy administrative delays by the licensing authority, if a 3PL files an application for a license renewal within the appropriate time period and there is an administrative delay reviewing the license application that causes the 3PL license to lapse, the 3PL will not be penalized for that administrative delay. In this scenario, the 3PL's license will be considered valid during the period of the administrative delay (see proposed § 205.8). The Agency understands that at the time a final rule covering these proposed national standards goes into effect, there are likely to be 3PLs with existing licenses under State law. Nevertheless, 3PLs with existing State licenses must obtain new licenses in accordance with section 584(a) of the FD&C Act. These national licensing standards serve an important function of ensuring consistency across the domestic market. However, as described above, FDA does not intend to enforce the requirements with respect to the national standards for licensure of 3PLs until 2 years after the regulation is finalized. FDA's proposed requirements are further detailed in proposed § 205.16, which discusses the required inspections prior to licensure. 6. Licensure Denial, Suspension, Reinstatement, and Revocation—Notice and Opportunity To Request a Hearing The standards for licensure denial are set forth in proposed § 205.9. Proposed § 205.9(a)(1) enumerates 9 circumstances under which the licensing authority would be required to deny a 3PL's request for licensure or license renewal. FDA believes that this list will help 3PLs focus on good storage practices outlined by FDA that are necessary to protect the integrity of the products in the pharmaceutical distribution supply chain. To avoid denial or delays of their applications, 3PLs should ensure that they address the reasons for denial of a license outlined in proposed § 205.9(a)(1) when they file for licensure. Proposed § 205.9(a)(2) details the process afforded to 3PLs whose applications for licensure have been denied. FDA is proposing to provide applicants with the opportunity to provide additional information for reconsideration of the denial. If the licensing authority denies a 3PL's request for licensure after reconsideration, the 3PL will receive a notice of opportunity to request a hearing under existing FDA hearing procedures. FDA requests comment regarding the reconsideration and appeal process outlined in this regulation for 3PLs whose applications for licensure have been denied. The proposed standards for suspending a 3PL license are set forth in § 205.9(b) and (c) and are based on the severity of risk posed to the public health. Under most circumstances, we anticipate that a 3PL would have the opportunity for a hearing before licensure suspension. However, under certain circumstances that involve repeated conduct detrimental to the public health or refusal to correct significant issues that could lead to the dissemination of illegitimate product, the Agency may suspend a license immediately while giving the 3PL an opportunity to request a hearing. Under proposed § 205.9(b), a 3PL's license may also be suspended after the 3PL receives a notice of opportunity to request a hearing. A suspended 3PL must cease all 3PL activities until their license is re-instated. This provision applies when the licensing authority has a reasonable belief that the 3PL is not in compliance with licensure requirements. FDA is proposing for § 205.9(b) to require the licensing authority to notify the 3PL in writing of the intent to suspend its license. A 3PL will have 30 days from the date listed on the notice of intent to suspend a license to provide additional information to the licensing authority so it may reconsider its decision. If reconsideration is not sought or is denied, the licensing authority will inform the 3PL in writing of its formal intent to proceed with license suspension. The notice will contain a statement informing the 3PL that it can request a hearing on the question of whether there are sufficient grounds for suspension. The 3PL will have 10 days from the date on the notice to inform the licensing authority of its intent to request a hearing; otherwise the opportunity for a hearing will be waived and the license suspended. FDA believes this process will afford 3PLs a sufficient opportunity to present information and attempt to remedy noncompliance issues which may threaten the safety of products in the supply chain. FDA requests comment regarding this reconsideration and appeal process. Proposed § 205.9(c) allows for license suspension prior to opportunity for hearing and effective immediately if the 3PL's noncompliance poses an imminent threat to public safety. For example, if a 3PL is warehousing or shipping illegitimate product, and once made aware, corrective actions to protect the public health from the threat of these products are not taken, the 3PL's license could be suspended immediately. Another example could be a scenario where the conditions under which drugs are held or warehoused cause the product to be illegitimate and the 3PL refuses to correct the conditions or continues to ship these illegitimate products. Under the proposed regulation, in such a situation, the licensing authority will inform the 3PL in writing that its license is suspended. The notice will also contain a statement informing the 3PL that it may request a hearing and that a hearing, if granted, will be afforded within 10 days upon the receipt of the 3PL's request for hearing. The 3PL has 10 days from the date on the notice of suspension to request a hearing; otherwise its opportunity for a hearing will be waived. FDA believes that this limits the amount of time a 3PL license would be suspended while providing a reasonable amount of time both for the 3PL to review the notice of suspension and collect the necessary information to demonstrate that its license should not be suspended, and for FDA to consider a request for a hearing and to schedule and prepare for a hearing, if the hearing request is granted. FDA believes immediate suspension of a 3PL license is crucial in cases where continued operation of the 3PL presents an imminent threat to public safety and the pharmaceutical supply chain. Under proposed § 205.9(d), a 3PL's suspended license may be reinstated if the 3PL can demonstrate to the licensing authority that it is in compliance with regulation requirements. Under the proposed rule, the process outlined at 21 CFR 10.75 is the default for appeals regarding a denied application for a 3PL license, and the hearing process outlined at 21 CFR part 16 is the default for appeals regarding a suspended or revoked 3PL license. However, the 3PL may request any of the procedures in 21 CFR parts 10 through 16. FDA believes that this proposed approach is consistent with current practice and suggests that States develop comparable processes. The standards for revoking a 3PL license are set forth in proposed § 205.9(e). The licensing authority will revoke a license if it finds that a 3PL whose license has been suspended is unable or refuses to comply with the licensing requirements. The requirements governing the revocation of a 3PL license are set forth in proposed § 205.9(e)(2) through (5) and mirror those outlined in § 205.9(b)(2) through (7) for licensure suspension, with one exception: When the licensing authority informs the 3PL of its intent to revoke a license, the 3PL is given no opportunity for reconsideration since it already had an opportunity to rectify deficiencies while its license was suspended. In addition, where a 3PL fails to timely renew its application, the license will be considered expired and a 3PL will need to submit an application for new licensure because the licensing authority may be unable to confirm that the 3PL continues to meet all necessary licensure requirements (see proposed § 205.9(f)). FDA is also proposing to terminate a 3PL's license upon request from the 3PL when the request includes a notice of the 3PL's intent to discontinue its activities and a waiver of an opportunity for a hearing. The 3PL will be required to apply for a new license should it decide to resume 3PL activities (see proposed § 205.9(g)). 7. Good Storage Practices for 3PL Facilities The DSCSA charges FDA with creating national standards for the licensure of 3PL facilities, including the requirement that 3PLs comply with storage practices as determined by the Secretary (see section 584(d)(2)(C) of the FD&C Act). Those requirements are detailed in proposed § 205.10. FDA considers the requirement that “each facility of such [3PL]” be licensed “in accordance with the regulations” (section 584(a) of the FD&C Act) to mean that 3PLs without a facility are not required to be licensed. Section 584 of the FD&C Act provides that FDA will establish licensure standards that include requirements relating to storage of product. These standards address issues regarding access and maintenance that presuppose the existence of a physical facility where product is maintained. As such, the requirements apply to each 3PL facility that is owned, rented, or leased by the 3PL. If the 3PL shares the same name and location as another trading partner (for example, a wholesale distributor), each entity must be separately licensed and must have separate systems and processes in place for their separate functions (see proposed § 205.10(b)). The requirements for 3PL facilities regarding how products will be stored and adequate security maintained are set forth in proposed § 205.10(c). This provision includes requirements for storage of nonsaleable products within the 3PL facility. If the facility is in possession of a suspect product, the facility must have clearly defined areas in which to quarantine the suspect product until the product is dispositioned (section 584(d)(2)(C)(i) of the FD&C Act). FDA is also proposing to require that 3PLs keep illegitimate product and other products unfit for distribution in a clearly defined and designated area, separate from saleable products, until dispositioned so the illegitimate or otherwise unfit product is not inadvertently combined with saleable products (see proposed § 205.10(c)(2)). An illegitimate product poses as great a risk to public health, if not a greater risk, as a suspect product because a product is illegitimate when there is credible evidence shows that the product is counterfeit, diverted, stolen, intentionally adulterated such that the product would result in serious adverse health consequences or death to humans, is the subject of a fraudulent transaction, or appears otherwise unfit for distribution such that the product would be reasonably likely to result in serious adverse health consequences or death to humans (section 581(8) of the FD&C Act). As such, it is counter to public health to store products that are unfit for distribution alongside saleable product. Furthermore, it would be illogical to move suspect product that has been determined to be illegitimate out of quarantine and into another area to be potentially stored with saleable product. 8. Personnel Requirements Necessary for Good Storage Practices Ensuring that 3PL personnel are appropriately qualified is integral to establishing good storage practices (section 584(d)(2)(C) of the FD&C Act). For this reason, proposed § 205.10(b)(3) requires that a 3PL facility must be designed in such a manner that only personnel who possess appropriate and verifiable experience and training will have access to areas in which products are held. While not proposed to be required in part 205, FDA believes that a best practice in order to maintain the security of prescription drug products, would be for a 3PL to screen personnel who work in areas of its facility where prescription drug products are held for records of Federal or State criminal convictions relating to the possession, control, or distribution of prescription drugs. While also not proposed to be required in part 205, FDA believes it would be a best practice for a firm to request that employees state that they are not engaged in and will not engage in the illegal use of controlled substances while serving in their capacity within the 3PL. FDA also proposes requiring that 3PLs maintain and make available to the licensing authority certain information about their facilities' managers and designated representatives (see proposed § 205.11). Furthermore, FDA is establishing specific employee qualifications with respect to facility managers or designated representatives that are necessary to effect good storage practices (see proposed § 205.11(b)). Specifically, FDA is proposing to require that a facility manager or designated representative of the facility manager serve in either capacity for only one facility at any one time (see proposed § 205.11(b)(2)). FDA believes that a facility manager or designated representative of the facility manager must be accountable for all operations of a 3PL facility. That facility manager or designated representative must be present within the facility, and must be familiar with the day-to-day operations of that facility. FDA believes that the best way to ensure the accountability and familiarity required for compliance is for a designated representative or facility manager to serve only one facility at a time. This is to ensure that the facility manager or designated representative is actively engaged in managing the daily operations of the facility and that they remain aware of any non-compliance issues that may arise. To ensure the qualified designated representative can fulfill their obligations to manage and carry out daily operations, FDA proposes to require that a 3PL provide its designated representative with adequate authority and the necessary resources (see proposed § 205.11(c) and (d)). FDA believes that establishing these requirements will help ensure that the products handled by a 3PL are properly safeguarded to protect the supply chain and the public health. Section 584(d)(2)(E) and (F) of the FD&C Act requires mandatory background checks for facility managers or the designated representatives of facility managers to ensure that neither the 3PL's facility manager nor the designated representative has engaged in the prohibited behaviors outlined in proposed § 205.11(e). Additionally, FDA is outlining other activities which may lead to the denial of licensure in proposed § 205.11(f). They are not bars to licensure, but they are factors that may be considered by licensure authorities when reviewing an application for licensure to determine whether the 3PL has storage practices sufficient to maintain adequate security over the facility. FDA requests comment on this section of the regulation and the scenarios outlined therein. Requiring that individuals with significant authority over 3PL activities be subject to a criminal background check adds an additional layer of safety and security to the supply chain (see proposed § 205.11(g)). Theft of product by personnel who have direct access to areas where products are stored is a known problem across the healthcare industry; the background checks required by section 584(d)(2)(F) of the FD&C Act that FDA is proposing here are necessary precautions to prevent the potential theft, loss, or abuse of prescription drugs. FDA suggests an additional best practice for a 3PL to utilize when staffing their operation. This best practice, related to staff who work within a 3PL, is designed to ensure security within a 3PL. FDA recommends to 3PLs that the individuals who work within their operation and have access to prescription drugs should not have a record of criminal activity involving violations of the FD&C Act or other laws involving prescription drugs. When screening personnel who work in areas of a 3PL facility where products are held, including the facility manager or designated representative, FDA recommends that a 3PL consider whether such personnel have (1) engaged in a pattern of violating the requirements of section 584 of the FD&C Act that present a threat of serious adverse health consequences or death to humans; (2) been found to have committed or facilitated commission of any prohibited acts under the FD&C Act or violated or facilitated any violations of any of the regulations in this part or analogous provisions of the State licensing authority, as applicable; (3) been convicted of any violation of Federal, State, or local laws relating to drug samples, wholesale or retail drug distribution, distribution of controlled substances, or third-party logistics services; or (4) been convicted of any felony under Federal, State, or local laws involving or related to prescription drugs. FDA believes that 3PLs should consider an applicant's history of violations of the FD&C Act, or other laws involving prescription drugs, when making staffing decisions. 9. Required Written Policies and Procedures Section 584(d)(2)(C)(iii) of the FD&C Act enumerates certain types of written policies and procedures that FDA regulations must require, and tasks FDA with defining the content with more specificity. Those written policies and procedures are set out in proposed § 205.12. All 3PLs would be expected to establish, maintain, and follow the written policies and procedures set forth in these proposed subsections for each 3PL facility, to the extent that the requirements of those sections are relevant to the scope of their specific 3PL activities. Under the proposed regulation, all written policies and procedures will be made available to the licensing authority upon request, and the licensing authority will be permitted to have access to and copy records of the 3PL to ensure that the 3PL facility is following its written policies and procedures (see proposed § 205.12(a)). Written policies and procedures include those that are stored and maintained electronically. FDA is implementing the statutory requirements listed in section 584(d)(2)(C)(iii) of the FD&C Act through proposed § 205.12(c)(1) through (6). Under these requirements, 3PLs must maintain written policies and procedures to address a product's receipt, security, storage, inventory, shipment, and distribution. Proposed § 205.12(c)(1) through (6) details the specific elements that such written policies and procedures must contain. Such elements are necessary to maintain supply chain integrity and align with current industry practices to protect the integrity of the drugs that are distributed through the supply chain. To ensure good storage practices, FDA is also proposing to require that 3PLs establish written policies and procedures for handling not only expired product as required in section 584(d)(2)(C)(iii)(VI) of the FD&C Act, but also products that are unfit for distribution (see proposed § 205.12(f)). Furthermore, any drug unfit for distribution should be segregated and returned or destroyed to prevent its distribution to the patient (see proposed § 205.12(f)(1)). These requirements will ensure that drugs, the distribution of which would violate the FD&C Act and which may not be fit for consumption by American consumers for a variety of reasons, are not distributed into the supply chain. FDA believes that these proposed standards align with current industry practices. Similarly, to further ensure the safety and efficacy of drug products, FDA is proposing that 3PLs maintain written policies and procedures related to the storage, inventory, and disposition of both suspect and illegitimate products. In the case of a suspect product, the written policies and procedures must include the procedure for quarantine or destruction of the product if directed to do so by the product's manufacturer, wholesale distributor, dispenser, or an authorized government agency. In the instance of an illegitimate product, written policies and procedures must be in place to ensure that illegitimate product is appropriately dispositioned as directed by the respective manufacturer, wholesale distributor, dispenser, or authorized government agency. This may include segregation in a clearly defined, designated area from which the product may be dispositioned. FDA believes that these proposed standards align with current industry practices and will give 3PLs a clear roadmap for dealing with potentially difficult situations involving suspect and illegitimate product. Finally, FDA views it as a best practice for a 3PL to establish written policies and procedures to ensure that it only engages in 3PL activities on behalf of authorized trading partners with respect to a product. DSCSA requires that all other entities that accept or transfer direct possession or ownership in the supply chain are only permitted to do business with other authorized trading partners (section 582 of the FD&C Act). FDA believes that, to further ensure supply chain security and integrity, it is important that 3PLs also only do business with other authorized trading partners. 3PLs that engage in transactions with non-authorized trading partners may expose the supply chain to potentially harmful or substandard product. FDA notes that 3PLs are included in the wholesale distributor and third-party logistics provider reporting public database (available at https://www.fda.gov/Drugs/DrugSafety/DrugIntegrityandSupplyChainSecurity/DrugSupplyChainSecurityAct/ucm423749.htm ) which allows manufacturers, wholesale distributors, repackagers, and dispensers to determine if the 3PL is authorized. Similarly, 3PLs should include using the publicly available information regarding other trading partners in their written policies and procedures to ensure they are doing business with only authorized trading partners. 10. Recordkeeping and List of Trading Partners The maintenance, availability, and accuracy of the records made available for inspection under section 584(d)(2)(D) of the FD&C Act is critical to demonstrate that 3PLs are acting in compliance with relevant laws and regulations and to ensure their records can be relied upon to identify any potential risk to the public health. As such, FDA is proposing to require that all records be securely stored, with procedures in place to restrict access and protect record integrity, and that any alterations made to records be signed and dated while preserving the original information contained in the record (see proposed § 205.13(a)). These records can be stored and maintained electronically. These records maintenance requirements will allow for greater confidence in both the information that is preserved at the facility and the information potentially disseminated to other trading partners. FDA is proposing that all records must be retained for a minimum of 3 years, except for records related to suspect and illegitimate products, product quality complaints, and destroyed, returned, and recalled products, which each must be retained for a minimum of 6 years (see proposed § 205.13(b)). Such record retention is necessary not only to ensure 3PLs are complying with the FD&C Act, but also to ensure that there is consistency and continuity in the access to the information across the records required pursuant to sections 582, 583, and 584 of the FD&C Act. The DSCSA requires that, upon the licensing authority's request, 3PLs provide the licensing authority with a list of the trading partners (manufacturers, wholesale distributors, and dispensers) for which the 3PL conducts 3PL activities (section 584(d)(2)(G) of the FD&C Act). This requirement would be codified in proposed § 205.14 and would also include repackagers for which the 3PL provides services when those repackagers are acting on behalf of a manufacturer, wholesale distributor, or dispenser of a product, as explained in the definition of other logistics services at § 205.3(i). 11. Annual and Other Reporting to FDA Under DSCSA, 3PLs must report certain information to FDA to be considered an authorized trading partner (sections 581(2)(C) and 584(b) of the FD&C Act). The annual reporting requirements for 3PLs went into effect on November 27, 2014. Proposed § 205.15 clarifies the statutorily prescribed annual reporting requirements and proposes the collection of additional information to provide complete and useful information about 3PLs that can be used by FDA, States, and trading partners. The DSCSA requires 3PLs to report to FDA for each facility: (1) The State by which the facility is licensed; (2) the facility's license number; (3) the facility's name and address; and (4) all trade names under which the facility conducts business (section 584(b) of the FD&C Act). If a facility conducts more than one type of activity, such as 3PL activities and wholesale distribution activities, the facility must be licensed as both a wholesale distributor and a 3PL and must report to FDA separately as a wholesale distributor and a 3PL (section 503(e)(2) of the FD&C Act). FDA is proposing to require that 3PLs use an electronic system provided by FDA for reporting (see proposed § 205.15(a)). This electronic system will increase efficiency by providing uniformity in the content and format of reports, thereby making the information easier to process. FDA is proposing that the annual reporting schedule require all 3PLs to report each calendar year between January 1st and March 31st, although an entity may update information at any time (see proposed § 205.15(b)). For example, if a 3PL chooses to update a license on December 15, 2019, that 3PL will still have to report during the January 1, 2020 through March 31, 2020 annual reporting period. The specific information that 3PLs must electronically report to FDA is set forth in proposed § 205.15(c). The DSCSA requires that 3PLs report the name and address of each facility (section 584(b)(2) of the FD&C Act). In fulfilling this requirement, the 3PL must provide the address that is associated with the State or Federal license. Licensed entities are also required to report to FDA the State by which they are licensed and the license number (section 584(b)(1) of the FD&C Act). In addition, FDA is proposing to require that the reported company name be identical to the official company name appearing on the license (see proposed § 205.15(c)(2)). Maintaining an account in FDA's electronic system for each 3PL facility license during the reporting period is integral to FDA's ability to provide oversight, as each facility of a 3PL must be licensed in order for the 3PL to conduct 3PL activities. In addition to the requirements specified in the statute, FDA is proposing to require an additional data element that FDA views as important to the Agency, the States, and trading partners. This additional information will inform other trading partners that the 3PL is in fact an authorized trading partner with whom they can do business. To this end, FDA is proposing to require that 3PLs provide the date each State license expires. This information is essential for determining that licensure status for each 3PL facility is current. Also, in addition to the physical address, which is required to be reported by statute, FDA believes that it would be a best practice for 3PLs to submit a unique facility identifier (UFI) that corresponds with the facility name and facility address. The UFI for a 3PL facility is useful to FDA when identifying and confirming certain business information. To be most helpful to FDA and other trading partners, a 3PL should obtain a separate UFI for each physical address that the 3PL is reporting since each 3PL facility must meet the 3PL requirements, and licensure is facility specific. FDA also believes that it would be a best practice for 3PLs to submit the contact information of an individual who will interact with FDA, including that individual's name, telephone number, and email address. FDA recommends as a best practice that the 3PL designate a contact person who is familiar with the daily operations of the 3PL facility, such as the designated representative, to ensure efficient processing of inquiries and minimize the impact inquiries may have on the daily operations of the facility. It is important for other trading partners and FDA to know whether a 3PL has had a license revoked or suspended or whether a 3PL has had any other significant disciplinary actions taken against them that limits the ability of a facility to conduct drug-related business. As such, 3PLs must report significant disciplinary actions to FDA. This will involve providing a DEA registration number or State controlled substance license number when there is a significant disciplinary action issued by the DEA or the State controlled substance licensing authority that would limit the ability of the 3PL facility to conduct 3PL activities related to the distribution of controlled drug substances that meet the definition of product, as defined at § 205.3(k). In such a situation, information about the DEA registration or State controlled substance license is important because the disciplinary action would likely be associated with that specific license or registration. A significant disciplinary action is defined in the proposed regulation as an action that limits the ability of a facility to conduct 3PL activities related to the distribution of prescription drug products. FDA proposes that, within 30 calendar days after a significant disciplinary action is imposed or taken by a State or Federal government, 3PLs must report the type of disciplinary action, the date the action was taken, and the State where the disciplinary action occurred, as well as submit any documents associated with the disciplinary action, including a final ruling by the relevant State or Federal agency or board or a consent decree. Finally, FDA is proposing to require a 3PL to report to FDA within 30 calendar days of ceasing warehousing or other logistics services that it is going out of business or voluntarily withdrawing a 3PL license from a State. FDA believes reporting this information is essential for the information in the public database to be complete, accurate, and useful for FDA, the States, and trading partners. To ensure efficient enforcement of FD&C Act requirements and to make public the voluntary information provided by each 3PL facility, FDA proposes adding 3PL licensure to the public database to make information about 3PLs available on FDA's website. Having the license status of 3PLs in one publicly available database will help FDA, trading partners, and other stakeholders determine whether 3PLs are properly licensed and authorized. 12. Inspection Provisions Section 584(d)(2)(D) of the FD&C Act requires that the regulations provide for periodic inspections of 3PL facilities to ensure compliance with the national standards and directs FDA to determine the intervals at which periodic inspections of a 3PL will be conducted by the licensing authority to ensure a facility's compliance with the law and this regulation. To this end, FDA is proposing to require that a physical inspection of a 3PL facility be conducted prior to issuance of the initial license and routinely once every 3 years thereafter (see proposed § 205.16(a) and (b)). The regulation proposes allowing the licensing authority, or an AO, as determined by the licensing authority, to conduct physical inspections (see proposed § 205.16(a)). As used in part 205, subparts A and B, licensing authority means the State licensing authority or FDA. When developing the timeframes for inspections, FDA sought to balance the risk to the supply chain while considering FDA's and State agencies' resource constraints. FDA is proposing to require that the physical inspection of a 3PL facility warehouse space include the paper and electronically stored records detailing the processes related to all 3PL activities (see proposed § 205.16(c)). FDA has authority to require that an inspection of a 3PL warehouse include the 3PL's records, files, and processes related to product warehousing. Section 704(a)(1) of the FD&C Act (21 U.S.C. 374(a)(1)) states that “in the case of any . . . warehouse . . . in which prescription drugs . . . are held, inspection shall extend to all things therein (including records, files, papers, processes, controls, and facilities).” This authority directly applies to FDA's ability to inspect a 3PL's facility warehouse space for relevant records and files to ensure compliance with the FD&C Act. FDA also proposes to require that 3PLs permit inspections at reasonable times and that the licensing authority conduct its inspection in a reasonable manner (see proposed § 205.16(c) and (d)). D. Approved Organizations for 3PLs 1. Approval and Utilization of Outside Organizations in the Licensure Process The DSCSA requires that regulations codified by FDA establish a process by which a third-party organization approved by FDA shall, upon a 3PL's request, “issue a license” to each 3PL facility that meets the requirements for licensure (section 584(d)(2)(A) of the FD&C Act). However, in situations where a State has not established a licensure program in accordance with the regulations, the DSCSA charges FDA with issuing 3PL licenses, provided the applicable requirements for licensure are met (section 584(a)(1)(B) of the FD&C Act). Accordingly, FDA interprets the language of 584(d)(2)(A) of the FD&C Act to mean that a third-party organization approved by FDA—an AO—will conduct a review of the 3PL's qualifications for licensure and issue a report to FDA regarding whether the 3PL “demonstrates that all applicable requirements for licensure . . . are met,” which FDA can rely on when issuing a license per section 584(e) of the FD&C Act. The DSCSA allows States and FDA to approve organizations for purposes of licensure review and periodic inspection. Proposed §§ 205.17, 205.18, and 205.19 contain the process that FDA will use to approve organizations and the qualifications to become an AO. FDA suggests that States that choose to rely on AOs for licensure reviews have in place the same or similar processes for approved organizations to conduct licensure reviews and for decisions affecting the approval status of those organizations. The scope of work AOs would be tasked with performing and the standards an AO must meet to become approved are detailed in subpart B of proposed part 205. The proposed rules also set forth the process by which FDA will approve organizations to review the qualifications of 3PL facilities for licensure, which we refer to as a “licensure review.” A licensure review consists of performing a review of all documents submitted to the licensing authority in support of an application for 3PL licensure and conducting an inspection of the facility as directed by the licensing authority. If a review of documentation supports licensure of the 3PL facility, the facility will then be inspected by an AO, as directed by FDA. FDA is proposing that the AO's licensure review be completed within 90 days upon receiving notice from the Agency to conduct the licensure review. FDA believes that this 90-day timeframe is sufficient for an AO to perform the work with which they are tasked while also ensuring that there are no undue delays in the licensure process. Upon completion of the licensure review, the AO would then provide FDA with a licensure review report within 7 days (see proposed § 205.17(b)), with a copy sent to the 3PL facility. As proposed, using the report submitted by the AO, FDA would make the final determination as to whether a 3PL facility should be issued a license. The process that AOs should follow when conducting routine inspections of 3PL facilities mirrors the process for licensure review and is detailed in proposed § 205.17(c). It is important that FDA can verify an AO's continued compliance with the approval requirements. Therefore, to keep its approval, FDA is proposing to require that an AO maintain certain records for a period of at least 5 years and these records must be readily available to FDA upon request. Unless specified by statute, we believe it is reasonable for the required length of maintenance of records to align with the length of the entity's licensure term. In addition, to ensure public safety, FDA is proposing to require that AOs report potential violations at 3PL facilities to FDA within 24 hours of discovery (see proposed § 205.17(f)). The general qualifications for approval of AOs are set out in proposed § 205.18. To become and remain approved, FDA is proposing to require that an organization, and those employed by the organization, abide by certain requirements that are intended to secure against conflicts of interest, promote professional business practices, and protect non-public information (see proposed § 205.18(a)). FDA is proposing to allow AOs to hire outside contractors to conduct licensure reviews or licensure review-related activities. Under FDA's proposed regulation, AOs who decide to use outside contractors must ensure that the contractors not only effectively carry out the licensure review or licensure review-related activities in a manner consistent with this proposed regulation to ensure public health, but the AO must also ensure that the contractors properly protect all non-public information. For an AO to maintain approval, FDA proposes to require that the AO ensures contractors abide by all applicable confidentiality agreements, that the AOs have policies and procedures in place to ensure the contractors abide by these proposed standards, and that the contractors have the necessary training and expertise to carry out licensure reviews (see proposed § 205.18(b)(1)). Also, before a contractor hired by an AO may perform a licensure review of a 3PL facility, the 3PL must have entered into an agreement with the AO giving the AO permission to share with contractors the 3PL's confidential commercial information (see proposed § 205.18(b)(2)). If such consent is not provided by the 3PL facility, the AO must perform the licensure review itself. FDA believes that this approach is reasonable given that it is the AO's decision to work with contractors and, under this proposed regulation, the ultimate responsibility for the licensure review rests with the AO. In addition, so FDA may keep track of which organization is responsible for each licensure review, FDA proposes that AOs must submit to FDA a list of the contractors used by the organization each year and the AO must certify that such contractors comply with the applicable requirements (see proposed § 205.18(b)(3)). Finally, to ensure that the standards set forth in this regulation are followed and that lines of responsibility are clear, FDA proposes to require that the AOs remain responsible for all the work performed by outside contractors (see proposed § 205.18(b)). FDA proposes to prohibit contractors from subcontracting licensure review or licensure review-related activities (see proposed § 205.18(b)(1)(ii)). Limiting the ability of contractors to further delegate their responsibility ensures that FDA will have accurate information about who is conducting licensure reviews, that those responsible for the licensure reviews have the necessary qualifications, and that their conduct is governed by this proposed regulation. The proposed process that FDA will use to approve organizations, including the application process, as well as the process for suspending or revoking an organization's approval, are set forth in proposed § 205.19. To ensure compliance with DSCSA, FDA is proposing that organizations seeking approval by FDA must first electronically submit to FDA an application demonstrating the organization's ability to assess compliance with all 3PL requirements detailed in proposed § 205.19 (see proposed § 205.19(a) and (b)). Organizations must also provide training that their employees must pass before they may conduct licensure reviews (see proposed § 205.19(c)). To verify information contained in the application and further ensure compliance with the proposed regulation, FDA proposes that, before an AO may conduct its first licensing review, it must be audited by FDA (see proposed § 205.19(d)). A new approval will be valid for 5 years (see proposed § 205.19(e)). If an organization's request for approval is denied, the organization may issue a request for reconsideration under 21 CFR 10.75 (see proposed § 205.19(f)). In addition, to ensure compliance and protect public health, FDA proposes that an AO may have its approval suspended if it does not maintain the standards outlined in this part (see proposed § 205.19(g)). A suspended AO must cease all 3PL licensure review including any pending inspections of 3PL facilities. A suspended AO must notify any 3PLs under a pending licensure review by the AO, of the AO's suspension within 7 calendar days (see proposed § 205.19(g)(5)). While most suspensions will happen only after notice and opportunity to request a hearing, under the proposed regulations, FDA reserves the ability to suspend approval prior to a hearing if there is a reasonable probability that the organization's noncompliance will cause imminent and serious adverse health consequences or death to humans (see proposed § 205.19(h)). Furthermore, FDA proposes that a suspended approval can be reinstated if the issue is resolved within 1 year from the date of suspension (see proposed § 205.19(i)), though it may be revoked if the organization fails to rectify the situation that resulted in the suspension (see proposed § 205.19(j)). FDA believes that 1 year provides the AO enough time to remedy most situations. An AO's approval may also be reinstated on a conditional basis. If the AO is conditionally reinstated, they will enter a three-year probationary period, during which if any material deficiencies arise, their license will be subject to immediate revocation (see proposed § 205.19(i)(2)). FDA also proposes to permit an AO to voluntarily withdraw its approval, but it must inform FDA of any facilities with pending reviews (see proposed § 205.19(l)). To further ensure that pending licensure reviews are not overlooked, under FDA's proposed regulation, an AO whose approval has been suspended, revoked, or voluntarily withdrawn has the responsibility to report this information to those 3PL facilities with pending licensure reviews (see proposed § 205.19(m)); this will stop the clock on the 90-day licensure review while the 3PL applies for licensure review from another AO or FDA. Also, to ensure that the AOs continue to meet the standards put forth in this subpart, and part 205 generally, under the proposed regulations, an AO must inform FDA of any changes to information that was submitted as part of its application for approval (see proposed § 205.19(n)(1)). Since the approval of an organization is nontransferable, changes in ownership also require an AO to submit a new application to FDA (see proposed § 205.19(n)(2)). Finally, as an additional assurance that an AO continues to comply with the provisions of this part, FDA proposes to require that AO's remain subject to periodic audits by FDA (see proposed § 205.19(o)). E. National Standards for Wholesale Distributors 1. Requirement That Wholesale Distributors Be Licensed To implement section 503(e)(1) of the FD&C Act, FDA is proposing to codify at § 205.20(a) the requirement that a wholesale distributor be licensed by the State from which the drug is distributed, or by FDA if the State from which the drug is distributed has not established a licensure requirement in accordance with the standards proposed herein, as well as by the State into which the drug is distributed if that State requires such a license. This requirement is consistent with how States currently license wholesale distributors. FDA anticipates that, for the purposes of annual reporting, a wholesale distributor who maintains multiple licenses to engage in wholesale distribution, will be able to report their required information aggregately for all their licenses (section 503(e)(2) of the FD&C Act). FDA believes this approach will increase efficiency for both wholesale distributors and the Agency, ensure that licenses for wholesale distribution facilities will be granted to qualified firms, and ensure records related to their facilities will be maintained in an organized fashion. In addition, FDA proposes to set the licensure term for wholesale distributors at 2 years (see proposed § 205.20(b)). FDA considered current State requirements, as well as the potential impacts on State and Agency resources, to determine the term for licensure. Ultimately, the Agency believes that 2 years aligns with current practices, does not place an undue burden on State or FDA resources, and provides adequate protection to American consumers because it ensures that renewals will be based on current information and operations. 2. Surety Bonds Wholesale distributors are required to obtain a surety bond to be licensed and engage in wholesale distribution (section 583(b)(3) of the FD&C Act). FDA is proposing to establish the terms of this requirement in proposed § 205.21. To receive or renew a license, a surety bond of $100,000, or $25,000 if applicable (for wholesale distributors with annual gross receipts of $10,000,000 or less), must be in place at the time the wholesale distributor's application for licensure or licensure renewal is submitted to the licensing authority (see proposed § 205.21(b)). The surety bond is intended to ensure compliance with DSCSA and that any administrative penalties levied by the licensing authorities are paid. DSCSA also permits the furnishing of “other equivalent means of security acceptable to the State” in lieu of a bond (section 583(b)(3)(A)(i) of the FD&C Act). It would be up to the State licensing authority to determine what, if anything, would constitute an equivalent means of security to a surety bond. Where FDA is the licensor, the wholesale distributor would need to furnish a surety bond to satisfy the bond requirement as other equivalent means of security appear to be specifically reserved for the States. While a bond is required before a wholesale distributor may acquire the necessary license, section 583(b)(3)(B) of the FD&C Act provides a set of circumstances under which the surety bond requirement will be waived. FDA is proposing to codify at § 205.21(b)(3) the DSCSA requirement that if a wholesale distributor can prove it has the necessary bond for the State where the facility is located ( e.g., by providing a copy of the existing security bond agreement), the requirement for an additional surety bond for another State is waived. In this situation, the wholesale distributor does not have to acquire an additional bond to satisfy the non-resident licensure requirements of the State into which the wholesale distributor plans to distribute. However, it remains unclear if and how this waiver should apply when an equivalent means of security to the surety bond are used. FDA requests comment specifically related to the waiver to the surety bond requirement and whether that waiver should apply to scenarios where some other equivalent means of security is used in lieu of a surety bond. The terms that a surety bond must include are outlined in proposed § 205.21(c). FDA proposes to require not only that the terms cover the liability requirements related to administrative penalties, but also that the bond remain in full force for 1 year after the license expires and that the surety company guarantee payment within 30 days of receiving notice from the licensing authority. FDA also proposes permitting licensing authorities to make claims against the surety bond for 1 year after the wholesale distributor's license expires or within 60 days after an administrative or legal proceeding has concluded, whichever is longer. These timeframes seek to ensure that the rights of the different parties involved in a potential claim will be adequately protected. This is particularly important with respect to the waiver because it a [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2022-01929. Public record. Not legal advice.