Prescription Drug Marketing Act of 1987; Prescription Drug Amendments of 1992; Policies, Requirements, and Administrative Procedures

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Food and Drug Administration

21 CFR Parts 203 and 205

[Docket Nos. 92N-0297 and 88N-0258]

RIN 0910-AA08

Prescription Drug Marketing Act of 1987; Prescription Drug

Amendments of 1992; Policies, Requirements, and Administrative

Procedures

AGENCY: Food and Drug Administration, HHS.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Food and Drug Administration (FDA) is issuing a final

[[Page 67721]]

rule to set forth procedures and requirements implementing the

Prescription Drug Marketing Act of 1987 (PDMA), as modified by the

Prescription Drug Amendments of 1992 (PDA) and the FDA Modernization

Act of 1997 (the Modernization Act). The final rule sets forth

requirements for the reimportation and wholesale distribution of

prescription drugs; the sale, purchase, or trade of, or the offer to

sell, purchase, or trade, prescription drugs that were purchased by

hospitals or health care entities, or donated to charitable

organizations; and the distribution of prescription drug samples. FDA

is also amending certain sections of the regulations entitled

``Guidelines for State Licensing of Wholesale Prescription Drug

Distributors'' to make them consistent with this final regulation.

DATES: Submit written comments on the collection of information

provisions by February 1, 2000. This regulation is effective December

4, 2000.

ADDRESSES: Submit written comments on the collection of information to

the Dockets Management Branch (HFA-305), Food and Drug Administration,

5630 Fishers Lane, rm. 1061, Rockville, MD 20857. All comments should

be identified with the docket number found in brackets in the heading

of this document.

FOR FURTHER INFORMATION CONTACT:

For information on the PDMA and regulations: Lee D. Korb, Center

for Drug Evaluation and Research (HFD-7), Food and Drug Administration,

5600 Fishers Lane, Rockville, MD 20857, 301-594-2041, e-mail address

via Internet: ``[email protected]''.

For information on compliance with and enforcement of the

regulations: Margaret M. O'Rourke, Center for Drug Evaluation and

Research (HFD-330), Food and Drug Administration, 7500 Standish Pl.,

Rockville, MD 20855, 301-594-0101, e-mail address via Internet:

``[email protected]''.

For information on biologics: Steven F. Falter, Center for

Biologics Evaluation and Research (HFM-17), Food and Drug

Administration, 1401 Rockville Pike, Rockville, MD 20852, 301-827-6210,

e-mail address via Internet: ``[email protected]''.

SUPPLEMENTARY INFORMATION:

I. Background

PDMA (Public Law 100-293) was enacted on April 22, 1988, and was

modified by the PDA (Public Law 102-353, 106 Stat. 941) on August 26,

1992. PDMA, as modified by the PDA, amended sections 301, 303, 503, and

801 of the Federal Food, Drug, and Cosmetic Act (the act) (21 U.S.C.

331, 333, 353, 381) to establish restrictions and requirements relating

to various aspects of human prescription drug marketing and

distribution. Among other things, PDMA: (1) Banned the sale, purchase,

or trade of (or offer to sell, purchase, or trade) drug samples and

drug coupons; (2) restricted reimportation of prescription drugs to the

manufacturer of the drug product or for emergency medical care; (3)

established requirements for drug sample distribution and the storage

and handling of drug samples; (4) required wholesale distributors of

prescription drugs to be State licensed and required FDA to establish

minimum requirements for State licensing schemes; (5) established

requirements for wholesale distribution of prescription drugs by

unauthorized distributors; (6) prohibited, with certain exceptions, the

sale, purchase, or trade (or offer to sell, purchase, or trade) of

prescription drugs that were purchased by hospitals or health care

entities, or donated or supplied at a reduced price to charities; and

(7) established criminal and civil penalties for PDMA violations.

In the Federal Register of September 13, 1988 (53 FR 35325), FDA

published a proposed rule containing minimum requirements for State

licensing of wholesale drug distributors. The final rule on State

licensing requirements (part 205 (21 CFR part 205)) was published in

the Federal Register of September 14, 1990 (55 FR 38012) (hereinafter

referred to as the State licensing guideline final rule). The State

licensing regulations require that all wholesale distributors be State

licensed, establish minimum qualifications for licensees, and set forth

minimum requirements for the storage and handling of prescription drugs

and for the establishment and maintenance of records of drug

distribution by wholesale distributors.

In the Federal Register of March 14, 1994 (59 FR 11842), FDA issued

a proposed rule to set forth agency policies and requirements for those

sections of PDMA not related to State licensing of wholesale

distributors (hereinafter referred to as the March 1994 proposal). The

March 1994 proposal contained provisions on prescription drug

reimportation, wholesale distribution of prescription drugs by

unauthorized distributors, the resale of prescription drugs by

hospitals, health care entities, and charitable institutions, and

distribution of prescription drug samples. The March 1994 proposal

called for the submission of comments by May 30, 1994. At the request

of certain individuals, the comment period was extended, by notice in

the Federal Register of July 15, 1994 (59 FR 36107), to August 15,

1994. After careful consideration of the comments, the agency has

revised and finalized the March 1994 proposal. A discussion of

significant issues, the comments received on the proposal, and the

agency's responses to the comments follows.

II. Significant Issues and Revisions to the Proposal

A. Reimportation of Drugs Composed Wholly or Partly of Insulin

On November 21, 1997, the Modernization Act (Public Law 105-115)

was enacted. Section 125(a)(2)(D) of the Modernization Act amended

section 801(d)(1) of the act to prohibit the reimportation of a drug

composed wholly or partly of insulin, except by the manufacturer of the

drug or for emergency care. In accordance with the revised statutory

requirement, the agency has revised proposed Secs. 203.10 and 203.12

(21 CFR 203.10 and 203.12) in the final rule to include insulin-

containing drugs.

B. Blood and Blood Components Intended for Transfusion

In the State licensing guideline final rule, FDA excluded from the

definition of ``wholesale distribution'' the sale, purchase, or trade

of blood and blood components intended for transfusion (see

Sec. 205.3(f)(8)). Thus, persons engaged in the distribution of blood

or blood components intended for transfusion are not required to be

State licensed wholesale prescription drug distributors or to comply

with other part 205 requirements.

Concurrent with the State licensing guideline final rule, FDA

published a proposed rule entitled ``Applicability to Blood and Blood

Components Intended for Transfusion; Guidelines for State Licensing of

Wholesale Prescription Drug Distributors'' (55 FR 38027) (hereinafter

referred to as the September 1990 proposal). In that proposal, FDA: (1)

Tentatively concluded that PDMA does not apply to the distribution of

blood and blood components intended for transfusion, (2) set forth its

rationale for its tentative conclusion, and (3) solicited comments. The

agency stated that, if comments persuaded FDA that PDMA should be

interpreted as applying to the distribution of blood and blood

components intended for transfusion, FDA would amend the State

licensing guideline final rule.

[[Page 67722]]

Comments received on the proposal supported the exclusion, however,

and no action has been taken by the agency to amend part 205.

FDA again tentatively concluded in the March 1994 proposal (59 FR

11842 at 11844) that the restrictions in and the requirements of PDMA

do not apply to the distribution of blood and blood components intended

for transfusion. Proposed Secs. 203.1 and 203.3(v) (21 CFR 203.1 and

203.3(v)) specified that blood and blood components intended for

transfusion are outside the scope of PDMA, and do not constitute

``prescription drugs'' for the purposes of part 203 (21 CFR part 203).

In addition, proposed Sec. 203.22(g) specifically excluded the sale,

purchase, or trade of, or offer to sell, purchase, or trade blood or

blood components intended for transfusion from the sales restrictions

in proposed Sec. 203.20. No comments opposing the proposed sections

were received.

Based on the rationale set forth in the September 1990 proposal,

the agency has made a final determination that blood and blood

components intended for transfusion should be excluded from all of the

restrictions in and the requirements of PDMA. Accordingly, proposed

Secs. 203.1, 203.3(v), and 203.22(g) are being finalized, and the

September 1990 proposal (Docket No. 88N-0258)is not being adopted.

As discussed in section III.B of this document in conjunction with

comments received on the proposed rule, blood and blood components

intended for transfusion include whole blood, red blood cells, plasma,

fresh frozen plasma, cryoprecipitated AHF, and platelets. Blood

derivatives such as Factor IX, Factor IX Complex, and immune globulin,

as well as recombinant products regulated as biological products, are

not blood or blood components intended for transfusion and, therefore,

are subject to the requirements and restrictions of PDMA.

C. Medical Gases

In the March 1994 proposal (59 FR 11842 at 11844), the agency

clarified that oxygen, USP (United States Pharmacopeia), is a

prescription drug subject to section 503(b) of the act and, therefore,

within the scope of PDMA and the proposed regulations. Since the

publication of the March 1994 proposal, questions have been raised

about the applicability of PDMA to medical gases generally.

FDA advises that all medical gases (i.e., oxygen, USP; nitrogen, NF

(National Formulary); nitrous oxide, USP; carbon dioxide, USP; helium

USP; and medical air, USP) are prescription drugs within the scope of

PDMA and the State licensing guideline final rule. Therefore, under

Sec. 205.4, all persons engaged in the wholesale distribution of

medical gases must be State licensed. This includes all air separation

plants and units, suppliers, welding firms, durable medical equipment

suppliers, and home respiratory care companies that distribute medical

gases, except for those entities that exclusively distribute medical

gases to patients under a valid prescription (see Sec. 205.3(f)(6)). In

addition, distributors of medical gases are subject to all other

restrictions and requirements under PDMA and this final rule, including

the requirement under Sec. 203.50 to provide a drug origin statement

and the requirements for drug sample distribution. The agency notes,

however, that because most distributors of medical gases qualify as

manufacturers under Sec. 203.3(s), the requirement to provide a drug

origin statement will generally not apply to such distributors. In

addition, the agency is unaware of the practice of providing samples of

medical gases to licensed practitioners. Therefore, the drug sample

provisions of PDMA and this final rule should have no practical

applicability to the medical gas industry.

D. Revision to Proposed 203.3(e)

In proposed Sec. 203.3(e), the term ``bulk drug substance'' was

defined to mean:

Any drug or drug component furnished in other than finished

dosage form that is intended to furnish pharmacological activity or

other direct effect in the diagnosis, cure, mitigation, treatment,

or prevention of disease, or to affect the structure or function of

the body of humans.

In Sec. 207.3(a)(4) (21 CFR 207.3(a)(4), the term is defined to mean:

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,

but the term does not include intermediates used in the synthesis of

such substances.

Although the definitions are similar, the agency has decided that it is

appropriate to use identical definitions of bulk drug substance

throughout the regulations. Accordingly, the final rule adopts the

definition of bulk drug substance used in Sec. 207.3(a)(4).

E. Revisions to Proposed Sec. 203.31(d)

For drug samples delivered by representatives, PDMA provides that a

manufacturer or distributor is required to conduct a complete and

accurate inventory of all drug samples in the possession of

representatives at least annually (21 U.S.C. 353(d)(3)(C)). FDA

proposed in Sec. 203.31(d) to require that manufacturers and

distributors conduct a ``complete and accurate drug sample inventory''

at least annually of all drug samples in the possession or control of

each manufacturer's and distributor's representatives using ``generally

accepted inventory practices.'' In addition, FDA proposed to require

that the results of the inventory be ``recorded in an inventory record

and reconciliation report.''

Under proposed Sec. 203.31(d)(1), the inventory record would

identify all drug samples by the proprietary or established name,

dosage strength, and number of sample units in stock. Under proposed

Sec. 203.31(d)(2), the reconciliation report would contain a report of

the physical count of the most recently completed prior inventory, a

record of each drug sample received since the most recently completed

prior inventory, a record of each drug sample distributed since the

most recently completed prior inventory, and an explanation for any

significant loss. Under proposed Sec. 203.31(d)(3), the inventory would

be conducted, and the inventory and reconciliation reports would be

prepared by persons other than the representatives being inventoried or

supervisors or managers in their department, division, or branch, or in

their direct line of supervision or command.

The agency has revised proposed Sec. 203.31(d) in the final rule to

clarify certain requirements. The introductory paragraph of

Sec. 203.31(d) has been revised to specify that a ``physical

inventory'' of drug samples is required, rather than an inventory. The

term ``physical inventory'' has been added to more clearly distinguish

the inventory from the reconciliation process and to clarify that the

required inventory consists of a physical count of stock on hand. The

proposed requirement that the inventory be conducted ``using generally

accepted inventory practices'' has been deleted in the final rule

because the agency has determined that there are no generally

recognized standards for conducting a physical count. The final rule

has also been revised to clarify that the results of the physical count

must be recorded in the inventory record, not in the inventory record

and reconciliation report. The proposed requirements for the inventory

record remain unchanged.

In contrast to the relatively simple task of conducting a physical

count, the reconciliation process involves comparing the latest

inventory to the most recent prior inventory and taking into account

drug samples acquired and distributed in the interim, to determine

[[Page 67723]]

whether sample diversion by a representative has occurred. As discussed

by the agency in the March 1994 proposal, Congress' purpose in enacting

the inventory requirement was to facilitate detection of diversion

activity, and conducting a physical inventory without reconciling that

inventory with the most recent prior inventory would not achieve this

goal (59 FR 11842 at 11849). Thus, the introductory paragraph of

proposed Sec. 203.31(d) has been revised in the final rule to clarify

that, in addition to a physical inventory, manufacturers and

distributors are required to reconcile the results of the physical

inventory with the most recently completed prior physical inventory and

to document this process in a reconciliation report.

The agency has revised proposed Sec. 203.31(d)(2)(i) in the final

rule to require that the reconciliation report include the inventory

record for the most recently completed prior inventory. This is the

same as the requirement in proposed Sec. 203.31(d)(2)(i) for a ``report

of the physical count of the most recently completed prior inventory,''

but the terminology is clearer and consistent with the terminology used

in Sec. 203.31(d)(1).

Proposed Sec. 203.31(d)(2)(iii) has been revised in the final rule

to clarify the types of transactions that the agency considers to be

``distributions.'' This clarification is necessary because a

representative's stock of drug samples may be affected by various types

of dispositions other than distributions to health care practitioners

or their designees, and it is necessary that the reconciliation report

reflect these different types of dispositions so that an accurate

assessment of potential drug diversion activity can be made. Section

203.31(d)(2)(iv), which requires a record of drug sample thefts or

significant losses reported by the representative since the most

recently completed prior inventory, has been added for the same reason.

Section 203.31(d)(2)(v), which requires a summary record of the

information contained in Sec. 203.31(d)(2)(ii) through (d)(2)(iv), has

been added in the final rule. The summary record will permit

manufacturers and authorized distributors of record and the agency to

quickly review the information that is necessary to conduct a

reconciliation and thus will help to facilitate checking the accuracy

of reconciliations.

Finally, as discussed in section III.E of this document in

conjunction with the comments, proposed Sec. 203.31(d)(3) has been

substantially revised in the final rule to eliminate the proposed

requirement that the inventory and reconciliation functions be

conducted by persons other than the representative or supervisors or

managers in the representative's department, division, or branch, or in

the representative's direct line of supervision. Instead, manufacturers

and authorized distributors are required to take appropriate internal

control measures to guard against error and possible fraud in the

conduct of the physical inventory and reconciliation, and in the

preparation of the inventory record and reconciliation report.

F. Elimination of Sec. 203.31(f)

Proposed Sec. 203.31(f) has been removed from the final rule. The

proposed section contained the same requirement for a manufacturer or

authorized distributor to notify FDA of any conviction of its

representatives as proposed in Sec. 203.37(c) and finalized in the

rulemaking.

G.Revisions to Proposed Sec. 203.34

Proposed Sec. 203.34(b), (c), (d), and (g) have been revised and

renumbered in the final rule as Sec. 203.34(b)(1) through (b)(4).

Proposed Sec. 203.34(d) is being finalized as Sec. 203.34(b)(1) and has

been revised to clarify that a manufacturer or authorized distributor

must have written policies and procedures detailing its methodology for

reconciling sample requests and receipts and for determining if

patterns of nonresponse exist that may indicate sample diversion. In

addition, written policies and procedures must detail how a

manufacturer or authorized distributor will initiate investigations or

otherwise respond when patterns of nonreturns of sample receipts are

found. Proposed Sec. 203.34(c) is being finalized as Sec. 203.34(b)(2)

and has been revised to cover the preparation of the reconciliation

report as well as the conduct of the physical inventory. Proposed

Sec. 203.34(b) is being finalized as Sec. 203.34(b)(3) and has been

revised to require manufacturers and distributors to establish and

adhere to written policies describing their administrative systems for

conducting random and for-cause audits of sales representatives. The

necessity for such audits is discussed in conjunction with comments on

proposed Sec. 203.31(d).

H. Charitable Donations of Prescription Drug Samples

In the preamble to the March 1994 proposal (59 FR 11842 at 11853),

the agency addressed the practice whereby licensed practitioners donate

prescription drug samples to charitable institutions such as free

clinics, nursing homes, and other charitable health care entities for

dispensing to patients or for further distribution to other domestic or

overseas charities. The agency recognized the importance of this

practice to the operations of such institutions and to the goal of

providing adequate medical care to patients in need, but also expressed

concern that the practice may make enforcement of the sample

distribution provisions of PDMA difficult and provide an avenue for

drug diversion. The agency tentatively concluded that charitable

donations of drug samples is permissible under PDMA, provided that a

system of controls is in place to provide accountability and oversight

over such donations and to minimize the potential for drug diversion.

The agency proposed a system of drug sample donation controls in

Sec. 203.39.

Although no comments were submitted concerning the provisions in

Sec. 203.39, the agency has determined that some of the proposed

requirements are burdensome and unnecessary to ensure accountability

and oversight over donated drug samples. Accordingly, the agency has

revised the proposed requirements as follows.

Proposed Sec. 203.39(a)(1) and (a)(2), which required that

charitable institutions that receive drug sample donations be licensed

by the State, if required by State law, and enrolled with FDA, have

been eliminated. Regarding the elimination of proposed

Sec. 203.39(a)(1), the agency notes that charitable institutions are

still required to comply with applicable State law in their operations.

However, the agency believes that it is appropriate to defer licensure

or other State requirements to the States. Proposed Sec. 203.39(b)(1),

which required charitable institutions to provide documentation

demonstrating that their agents are authorized to solicit or receive

drug sample donations, and proposed Sec. 203.39(b)(2), which required

charitable institutions to maintain a list of agents authorized to

solicit or receive drug sample donations, have also been eliminated.

Proposed Sec. 203.39(b)(8), which required the donor of a drug

sample to prepare a donation record for drug samples delivered by mail

or common carrier, has been eliminated. Under Sec. 203.39(e) of the

final rule, the charitable institution to which a drug sample is

donated must prepare a donation record for the sample regardless of the

manner of delivery of the drug sample and must retain the record for at

least 3 years. Proposed Sec. 203.39(b)(9) has been revised to require

that the donation record contain

[[Page 67724]]

only the name, address, and telephone number of the donating licensed

practitioner or charitable institution; the manufacturer, brand name,

quantity, and lot or control number of the drug sample donated; and the

date of the donation.

Proposed Sec. 203.39(b)(11) has been revised to eliminate the

proposed requirement that the inventory of donated drug samples in the

possession of a charitable institution be conducted using independent

inventory personnel. Proposed Sec. 203.39(b)(12), which required that a

charitable institution provide written certification to the donating

party that it is in compliance with part 203, has been eliminated in

the final rule. Finally, proposed Sec. 203.39(c) has been eliminated,

but its requirements have been incorporated into the introductory

paragraph of Sec. 203.39 such that charitable institutions may donate

donated drug samples to other charitable institutions as long as

Sec. 203.39 is followed.

I. Charitable Donations of Prescription Drugs Generally

Since the publication of the March 1994 proposal, the agency has

received requests that raise questions about whether and how PDMA

should be applied to charitable donations of prescription drugs

generally, not just drug samples. Nonsample drug products may be

donated to charitable institutions from many different sources,

including manufacturers, wholesale distributors, retail pharmacies, for

profit and nonprofit hospitals and health care entities, other

charitable groups, and reverse distributors (i.e., wholesale

distributors that handle returns). In addition, FDA is aware that drug

salvagers may also be a source of donations.

The donation of nonsample drug products to charitable institutions

raises similar concerns about the quality of the drugs being donated

and potential drug diversion as the donation of drug samples. Moreover,

such donations constitute distribution of a prescription drug to other

than a consumer or patient and therefore could be considered

``wholesale distribution'' under section 503(e)(4)(B) of the act.

Although the agency is not establishing controls for nonsample

prescription drug donations at this time, the agency is carefully

considering the relevant issues and may in the future propose an

approach to drug donations that encompasses both prescription drug

samples and nonsample prescription drug products.

J. Creation and Maintenance of Required Forms, Reports, Records, and

Signatures

Proposed Sec. 203.60 set forth standards for the creation and

maintenance of sample request and receipt forms, reports, records, and

other documents required under PDMA and part 203. Proposed

Sec. 203.60(a) permitted any required document to be created either on

paper or on electronic media. Proposed Sec. 203.60(b) permitted any

required document created on paper to be maintained on paper or by

photographic or electronic imaging, provided the security and

authentication requirements in Sec. 203.60(d) were met. Proposed

Sec. 203.60(c) permitted required documents created electronically to

be stored using computer technologies, provided the requirements in

Sec. 203.60(d) were met. Proposed Sec. 203.60(d) provided that required

documents and signatures must be created, maintained, or transmitted in

a form providing reasonable assurance of being: (1) Resistant to

tampering, revision, modification, fraud, unauthorized use, or

alteration; (2) preserved in accessible and retrievable fashion; and

(3) visible or readily made visible for purposes of review by regulated

industry and FDA.

In addition to the requirements in proposed Sec. 203.60, proposed

Sec. 203.61 permitted signatures on required forms, reports, and

records to be made by means of a writing or marking instrument such as

a pen or indelible pencil. The section also permitted signatures to be

made by electronic stylus on an electronic pad or by other electronic

medium, provided the security requirements in Sec. 203.61(b) were met.

In the Federal Register of March 20, 1997 (62 FR 13430), the agency

issued final regulations on electronic records and electronic

signatures in part 11 (21 CFR part 11). Because of the issuance of

those regulations and the applicability of part 11 to part 203 document

and signature requirements, the March 1994 proposal has been

substantially revised. Under part 11, electronic records, electronic

signatures, and handwritten signatures executed to electronic records

that meet the requirements of that part may be used to meet

requirements to create and maintain records and signatures under the

act and agency regulations, unless specifically excepted by future

regulations. Therefore, sections of the March 1994 proposal setting

forth requirements relating to creation and maintenance of electronic

records, electronic signatures, and handwritten signatures, as those

terms are defined in part 11, have been revised or eliminated in the

final rule.

Proposed Sec. 203.60(a) has been deleted and replaced in the final

rule by revised Sec. 203.60(a)(1), (a)(2), and (a)(3). Revised

Sec. 203.60(a)(1) states that electronic records, electronic

signatures, and handwritten signatures executed to electronic records

may be used in lieu of paper records and handwritten signatures

executed on paper to meet any of the record and signature requirements

of PDMA or part 203, provided that the requirements of part 11 are met.

Although electronic signatures, electronic records, and handwritten

signatures executed on electronic records would be permitted to meet

PDMA and part 203 records and signature requirements under the

provisions of part 11 without further rulemaking in part 203 (see,

e.g., Sec. 11.1), this section has been included in the final rule for

added clarity. The final rule also defines the terms electronic record,

electronic signature, and handwritten signature in revised

Sec. 203.3(k), (l), and (p), respectively, to have the same meaning

that these terms have in Sec. 11.3(b)(6), (b)(7), and (b)(8).

Revised Sec. 203.60(a)(2) permits combinations of paper records and

electronic records, electronic records and handwritten signatures

executed on paper, and paper records and electronic signatures or

handwritten signatures executed to electronic records to be used to

meet PDMA record and signature requirements, provided that the

requirements of part 11 are met for the electronic component. In

addition, a reasonably secure link must exist between the paper-based

and electronic components to ensure that the combined records and

signatures are trustworthy and reliable and the signer cannot readily

repudiate the signed record as not genuine. A reasonably secure link

could consist of a physical link between the electronic and paper-based

records (i.e., where the paper-based record(s) and a computer disk

containing the electronic record(s) are sealed together in a container

and a chain of controlled custody for the sealed container is

established) or a technology-based link. The agency is planning to

issue in the future further guidance on technology-based links in

conjunction with its implementation of part 11.

Revised Sec. 203.60(a)(3) clarifies that the ``record and signature

requirements'' to which Sec. 203.60(a)(1) and (a)(2) refer include drug

sample request and receipt forms, reports, records, and any other types

of documents and their associated

[[Page 67725]]

signatures required by PDMA or part 203.

Because part 11 does not apply to the photographic imaging of paper

records, proposed Sec. 203.60(b) has been retained in the final rule.

The section has been revised, however, to clarify that electronic

scanning of paper records into a computer creates an electronic record

that is subject to the requirements of part 11. The security and

authentication requirements in proposed Sec. 203.60(d) have been

renumbered in the final rule as Sec. 203.60(c) and revised such that

the requirements in the section apply only to documents and signatures

that are created on paper and that are maintained by photographic

imaging or transmitted electronically. Minor revisions have also been

made to the security and authentication requirements in revised

Sec. 203.60(d)(3).

The requirements for maintenance of documents created by electronic

means in proposed Sec. 203.60(c) and the signature requirements in

proposed Sec. 203.61 have been superseded by part 11 requirements.

Therefore, these sections have been deleted in their entirety in the

final rule. Proposed Sec. 203.60(e) and (f) have been renumbered in the

final rule as Sec. 203.60(d) and (e).

K. Implementation of the Final Rule

The provisions in the final rule will become effective 1 year after

the date of publication of the final rule in the Federal Register. The

agency is providing this period to give industry sufficient time to

implement systems for prescription drug sample distribution and

wholesale distribution that are in compliance with the final rule.

III. Comments on the Proposed Rule

A. General Comments

FDA received 56 comments on the March 1994 proposal from

prescription drug manufacturers, industry organizations, professional

associations and organizations, law enforcement agencies, and others.

Although most of the comments addressed only specific provisions of the

rule, a few commented generally on the proposed rule, and those

comments were mixed. For example, one comment stated that it ``supports

the controls on prescription drug samples sought through the passage of

PDMA and feels that, in general, the proposed rule is a positive step

in combating the market in diverted prescription drugs and ensuring

consumers that drug products continue to remain safe and effective.''

Another comment, however, stated that ``finalization of the proposed

rule will create unnecessary additional administrative burdens for

companies and their sales representatives'' and ``would not improve

significantly the industry's ability to track sample distribution and

reduce the possibility of diversion of samples.''

A large number of comments addressed the provisions of the proposed

rule relating to sample distribution. In fact, comments were received

on almost all of the sections of the proposed rule dealing with sample

distribution. Most of these comments were critical of the manner in

which the agency proposed to implement the sample distribution

requirements contained in PDMA. In addition to comments on sample

distribution, comments were received on sections of the proposed rule

relating to reimportation of prescription drugs, resales of

prescription drugs purchased by health care entities, recordkeeping and

investigation requirements, and wholesale distribution.

Specific issues raised by the comments and the agency's responses

follow.

B. Definitions

Blood component. Proposed Sec. 203.3(d) defined ``blood component''

as ``that part of a single-donor unit of blood separated by physical or

mechanical means.''

1. One comment requested clarification on whether various plasma

products and derivatives, including antihemophilic factor, Factor IX,

Factor IX Complex, and immune globulin IV, are considered blood

components or drugs. The comment also asked for clarification of

whether the agency makes a distinction between human and recombinant

products in deciding whether to categorize a blood component

preparation as a blood component or drug.

The agency advises that blood components, as defined in

Sec. 203.3(d) of the final rule, include red blood cells, plasma, fresh

frozen plasma, cryoprecipitated AHF, and platelets. Antihemophilic

Factor, Factor IX Complex, and immune globulin products are derivatives

of blood, not blood components. Both blood components and blood

derivatives are regulated as biologics under the authority of the

Public Health Service Act (the PHS Act) and are also drugs under

section 201(g)(1) of the act (21 U.S.C. 321(g)(1)). Products

manufactured through recombinant technology that mimic blood

derivatives or other biological products are also regulated as

biologics under the PHS Act and are drugs under section 201(g)(1) of

the act. These products, like blood derivatives, are not blood

components.

Distribute. Proposed Sec. 203.3(h) defined ``distribute'' to mean

to sell, offer to sell, deliver, or offer to deliver a drug to a

recipient, except that the term ``distribute'' does not include the

providing of a drug sample to a patient by:

(1) A practitioner licensed to prescribe such drug,

(2) A health care professional acting at the direction and under

the supervision of such a practitioner, or

(3) The pharmacy of a hospital or of another health care entity

that is acting at the direction of such a practitioner and that

received such sample in accordance with the act and regulations.

On its own initiative, the agency is revising proposed

Sec. 203.3(h) in the final rule to specify that the term ``distribute''

does not include the delivery of drugs or offer to deliver drugs by a

common carrier in the usual course of its business as a common carrier.

This revision is necessary to permit common carriers that deliver drug

samples, or perform duties incidental to delivery (i.e., delivery

verification) for manufacturers or authorized distributors of record,

to do so without being required to be authorized distributors of

record.\1\ Such a requirement would be confusing and inconsistent with

language in section 503(d) of the act, which distinguishes between

sample distribution and delivery by mail or common carrier. However,

comarketers, fulfillment houses, and other entities that perform some

or all of the functions associated with sample distribution and

promotion that would otherwise be performed by the drug manufacturer

are not covered by this exception. Thus, entities that create and

maintain required forms, reports, and records; have their own sales

forces and representatives; solicit and fill requests for drug samples;

or conduct other such activities are engaged in drug sample

distribution and must be authorized distributors of record.

---------------------------------------------------------------------------

\1\ Under the proposed rule, delivery of drug samples would

constitute drug sample distribution. Under section 503(d) of the

act, only a manufacturer or authorized distributor of record may

distribute drug samples.

---------------------------------------------------------------------------

Health care entity. Proposed Sec. 203.3(n) defined ``health care

entity'' as ``any person that provides diagnostic, medical, surgical or

dental treatment, or chronic or rehabilitative care, but does not

include any retail pharmacy or any wholesale distributor. A person

cannot simultaneously be a `health care entity'

[[Page 67726]]

and a retail pharmacy or wholesale distributor.''

2. Several comments noted that, under the proposed definition of

health care entity, full-service blood centers that currently function

both as health care entities and distributors of blood plasma

derivatives would not be permitted to continue to operate in both of

these capacities. The comments expressed concern that the ability of

community health care entities to obtain plasma derivatives would be

detrimentally affected if community blood centers were prohibited from

distributing them.

One comment explained that plasma derivatives are unique

prescription drugs that are largely distributed outside the typical

drug distribution network. The comment stated that, historically, blood

centers and hospital blood banks have provided plasma processing and

distribution services for their local communities. Although the

processing has become more complex and is now done largely by for-

profit manufacturers, blood centers, hospital blood banks, and

transfusion services still act as final distributors of plasma

derivatives. The comment said that this arrangement enables the health

care providers who receive blood derivatives to use the ``expert

consultative services'' of these entities.

Several comments stated that the same reasons for excluding blood

and blood components intended for transfusion from PDMA's sales

restrictions are applicable to blood derivatives. The comments

contended that there is no indication in the legislative history that

the types of abuses that lead to the restrictions in section 503(c)(3)

of the act are present with blood derivatives or that Congress intended

the restrictions in section 503(c)(3) of the act to apply to blood

derivatives.

The comments suggested ways in which the proposed rule could be

amended to allow blood centers to continue to function as wholesale

distributors of plasma derivatives. Two comments suggested specifically

excluding blood banks, transfusion services, and hospital blood banks

from the prohibition against a health care entity simultaneously being

a wholesale distributor. Another comment recommended that FDA eliminate

entirely the prohibition against a health care entity simultaneously

being a wholesale distributor with a clarification in the preamble to

the final rule that health care entities engaging in ``sham''

operations to avoid resale prohibitions remain subject to enforcement

of resale prohibitions, even if licensed as a wholesaler. One comment

suggested expanding the definition of ``blood'' or ``blood components''

to include plasma derivatives.

The agency declines to revise the definition of health care entity

or otherwise revise the proposed rule to permit health care entities to

engage in the wholesale distribution of blood derivatives or other

prescription drug products. The statutory restrictions in section

503(c)(3)(A) of the act prohibit the sale, purchase, or trade of, or

offer to sell, purchase, or trade prescription drugs that are purchased

by a public or private hospital or health care entity or donated or

supplied at a reduced price to a charitable organization. Because blood

derivatives are prescription drugs that are neither blood nor blood

components, a hospital or health care entity that purchases these

products from a manufacturer or distributor, or a charitable

institution that receives these products through a donation or at a

reduced price, may not sell or trade these products except as permitted

under section 503(c)(3)(B) of the act and Sec. 203.22 of the agency's

regulations.\2\

---------------------------------------------------------------------------

\2\ For example, the proposed definition of health care entity

would not prevent a hospital, health care entity, or charity from

purchasing blood derivatives and administering them to patients

under a valid prescription.

---------------------------------------------------------------------------

The agency is unpersuaded by the comments that blood derivatives

should, as a matter of public health policy, be grouped with blood and

blood components intended for transfusion as products that Congress did

not intend to cover under PDMA generally, or under section 503(c)(3)(A)

of the act specifically. In the September 1990 proposal, the agency

stated that if PDMA and, in particular, PDMA's restrictions on the

resale of prescription drugs were considered applicable to blood and

blood components intended for transfusion, the result would be to

seriously impede the present blood distribution system and thereby

substantially interfere with, and reduce, the nation's blood supply.

Based largely on this ``untenable result,'' the agency stated its

belief that Congress did not intend to subject blood and blood

components to PDMA's provisions (55 FR 38027).

The comments contend that, as with whole blood and blood components

intended for transfusion, the supply of blood derivatives to the public

would be impeded if blood banks were not permitted to distribute these

products. However, unlike whole blood and blood components, blood

derivatives are manufactured in large quantities by manufacturers that

are independent of blood banks and blood centers, are packaged and

stored similarly to other pharmaceuticals, and have relatively normal

shelf lives. Moreover, blood derivatives need not be matched from a

donor to a donee as do whole blood and blood components intended for

transfusion. Thus, although in some instances blood derivatives are

distributed by blood centers and hospital blood banks, they also are

distributed by conventional drug wholesalers. There is no evidence

before the agency at this time that a substantial percentage of the

nation's supply of blood derivatives is currently distributed by blood

centers, hospital blood banks, or transfusion services, or that the

nation's supply of blood derivatives would be seriously impeded if

these entities were prohibited from distributing these products.

Moreover, the comments' assertion that blood derivatives, like

blood and blood components, are not subject to the abuses Congress set

out to remedy in PDMA is speculative and unsupported by facts. As

discussed previously, blood derivatives are distributed through a

normal wholesale distribution system, and they need not be matched to

specific patients. Thus, the possibility of diversion of these products

exists, and documented instances of diversion of these products have in

fact occurred. The fact that blood derivatives were not specifically

mentioned by Congress in the legislative history is in itself of little

significance.

FDA recognizes that, in addition to selling blood derivatives to

community hospitals, blood centers have traditionally provided advice

and guidance on how to use the derivatives. The final rule does not

prohibit the provision of information by a health care entity to

another health care entity, but rather prohibits the selling of

prescription drug products, including blood derivatives, that are

purchased by a hospital or health care entity. Thus, blood centers or

other entities that have traditionally provided information to

hospitals or other health care centers are not precluded from doing so

under PDMA or the final rule.

3. One comment stated that FDA's definition of health care entity

is ``without factual or legal foundation.''

Two comments stated that FDA's interpretation of section 503(c)(3)

of the act as prohibiting a health care entity from simultaneously

being a wholesale distributor is contrary to the plain language of the

statute and to legislative intent, and places inappropriate

restrictions on the legitimate operations of blood centers. These

comments interpreted the last sentence in section

[[Page 67727]]

503(c)(3)(A) of the act, which states in part that ``[f]or purposes of

this paragraph, the term `entity' does not include a wholesale

distributor of drugs or a retail pharmacy licensed under State law,''

as creating an exemption to the sales restrictions in that section for

health care entities that are State licensed as wholesale distributors.

The comments stated that FDA's proposed definition of ``health care

entity'' contradicts the clear wording of the statute. The comments

also stated that the proposed definition is inconsistent with

legislative intent to permit health care entities acting as legitimate

wholesalers to engage in wholesale distribution of prescription drugs.

The agency acknowledges that the first clause of the last sentence

in section 503(c)(3) of the act could be read to make the restrictions

in section 503(c)(3)(A) of the act inapplicable to hospitals or health

care entities State licensed as wholesale distributors. However, the

agency believes that the statutory language should be read to mean that

health care entities subject to the restrictions in section

503(c)(3)(A) of the act cannot simultaneously be wholesale distributors

or retail pharmacies. As noted by the agency in the proposed rule (59

FR 11842 at 11845), the former interpretation is inconsistent both with

general rules of statutory construction and with legislative intent. If

this interpretation were to be given effect, it would mean that a

health care entity could circumvent the sales restrictions by obtaining

a State wholesale distribution license. Such an interpretation would

deprive the sales restrictions of any force or effect. Moreover,

Congress expressly enumerated in section 503(c)(3)(B) of the act the

circumstances under which drugs purchased by a health care entity may

be sold. The agency believes that if Congress had intended to permit

sales of prescription drugs purchased by health care entities that are

State licensed wholesale distributors, it would have done so under

section 503(c)(3)(B) of the act.

Interpreting section 503(c)(3) of the act in the manner suggested

by the comments would also be inconsistent with legislative intent as

reflected in the congressional findings and legislative history. The

statutory restrictions in section 503(c)(3)(A) of the act reflect the

congressional finding in section 2(7) of PDMA that the resale of

prescription drugs by health care entities at below wholesale prices

had helped to fuel the diversion market and constituted an unfair form

of competition to legitimate wholesalers and retailers paying

prevailing market prices. These same concerns also were expressed by

Congress in the legislative history. (See H. Rept. 100-76, pp. 12-13.)

If health care entities were permitted to obtain State wholesale

distributor licenses and engage in wholesale distribution of

prescription drugs, as suggested by the comments, there would be no way

of ensuring that the types of abuses that Congress sought to prevent in

section 503(c)(3)(A) of the act would not occur. Neither the

requirements applicable to wholesale distributors in section 503(e) of

the act nor the State licensing guidelines in part 205 contain

requirements to deter a health care entity from reselling prescription

drugs, or require or authorize FDA to keep track of the circumstances

under which prescription drugs are bought and sold by wholesale

distributors. Thus, if health care entities were permitted to be State

licensed wholesale distributors, they could purchase drugs for their

own use and sell them on the secondary wholesale market with impunity

and without the knowledge of the agency or Congress. The agency does

not believe that Congress intended such a result.

Licensed practitioner. Proposed Sec. 203.3(o) defined ``licensed

practitioner'' as ``any person licensed by State law to prescribe

drugs.''

4. One comment recommended that ``or authorized'' be added after

``licensed'' in the definition to allow nonphysician practitioners

subject to State authorization schemes other than licensing to obtain

drug samples.

The agency has decided to follow the suggestion of the comment and

revise the definition of ``licensed practitioner'' in the final rule to

include practitioners authorized by State law to prescribe drugs.

Congress stated in the legislative history (S. Rept. 100-303, p. 5)

that ``Drug samples may only be distributed to practitioners licensed

or authorized by State law to prescribe such drugs.'' Moreover, the use

by Congress of the term ``licensed practitioner'' rather than

``physician'' in section 503(d)(2)(A) of the act shows congressional

intent to allow nonphysician practitioners to obtain drug samples.

Because a significant number of these practitioners are subject to

different State authorization schemes than licensing, the agency finds

that a strict interpretation of the word ``license'' would be

inconsistent with congressional intent.

5. One comment stated that, in some States, advanced practical

nurses are licensed to prescribe certain drugs, but are prohibited from

obtaining samples of the same drugs. The comment asserted that, under

the proposed definition of ``licensed practitioner,'' such nonphysician

practitioners would be permitted to obtain samples.

In developing the proposed definition of licensed practitioner, the

agency was not aware that some States may permit practitioners to

prescribe certain drugs, but prohibit them from obtaining samples of

those drugs. Because the agency does not wish to interfere with States'

authority to determine who may request and receive drug samples, the

agency clarifies that a practitioner who is prohibited by State law

from receiving samples of certain types of drugs is not permitted to do

so under PDMA even though he or she is licensed or authorized to

prescribe those drugs.

Ongoing relationship. Proposed Sec. 203.3(r) defined ``ongoing

relationship'' as an association that exists when a manufacturer and a

distributor enter into a written agreement under which the distributor

is authorized to sell the manufacturer's products for a period of time

or for a number of shipments, at least one sale is made under that

agreement, and the name of the authorized distributor of record is

entered on the manufacturer's list of authorized distributors of

record.

6. One comment objected to a requirement for a written agreement

between a manufacturer and a distributor. The comment stated that

written agreements are not customary in the industry and that such a

requirement would be burdensome because distributors distribute for

large numbers of vendors. The comment recommended that, for the

purposes of proving that an ongoing relationship exists, it should be

sufficient to show that sales are made on a continuing basis and that

the distributor's name appears on the manufacturer's list of authorized

distributors.

Another comment objected both to the requirement for a written

agreement and to the requirement that a distributor be on the

manufacturer's list of authorized distributors of record. The comment

stated that neither of these requirements was previously required by

the agency in compliance information provided to industry by the

agency. The comment stated that both requirements would make it more

difficult for distributors to become authorized distributors of record.

In addition, the comment stated that the requirements would give

prescription drug manufacturers the ability to deny authorized-

distributor-of-record status to distributors with whom they have

engaged in ongoing business relationships. The comment stated that by

giving drug manufacturers the power to decide to whom PDMA wholesale

distribution requirements apply without oversight or review, FDA would

be

[[Page 67728]]

delegating legislative power to the private sector in violation of

separation of powers principles in the U.S. Constitution. The comment

recommended that FDA adopt a definition of ongoing relationship that

mirrors a definition set forth by the agency in a 1988 compliance

letter.

PDMA defines the term ``authorized distributors of record'' as

those distributors with whom a manufacturer has established an ongoing

relationship to distribute the manufacturer's products. PDMA does not,

however, define what constitutes an ``ongoing relationship.'' In a 1988

letter issued by FDA (see Letter from Daniel L. Michels, Director,

Office of Compliance to Regulated Industry, Docket No. 88N-258L, August

1, 1988), the agency made its first attempt to interpret the term in

the context of PDMA. FDA stated that ``ongoing relationship'' may be

interpreted to mean a continuing business relationship in which it is

intended that the wholesale distributor engage in wholesale

distribution of a manufacturer's prescription drug product or products.

The agency stated that evidence of such intent could include, but would

not be limited to, the existence of a written franchise, license, or

other distribution agreement between the manufacturer and wholesale

distributor and the existence of ongoing sales by the manufacturer to

the distributor.

The agency continues to believe that the term ``ongoing

relationship'' in the context of wholesale distribution infers a

continuing business relationship between a distributor and a

manufacturer where the intent exists to engage in wholesale

distribution. Furthermore, the agency has determined that, to

facilitate compliance with and enforcement of the act, it is necessary

to have a formalized way of establishing that an ongoing relationship

exists. A written agreement in which the manufacturer authorizes the

distributor to distribute some or all of its products for a period of

time or for a number of shipments will provide a clear and verifiable

expression of the parties' intent to engage in a continuing business

relationship. The written agreement required by proposed Sec. 203.3(r)

(revised as Sec. 203.3(u)) need not rise to the level of a contract or

create legally enforceable obligations on the parties. Rather, the

agreement need only state that the distributor is authorized to

distribute a manufacturer's products for a period of time or for a

number of shipments and, if the distributor is not authorized to

distribute all of the manufacturer's products, identify those products

to which the authorization extends.\3\ This latter requirement,

although not included in the proposed rule, is consistent with the

requirement in proposed Sec. 203.50(c)(1) for manufacturers to maintain

a list of authorized distributors that specifies whether distributors

are authorized to distribute the manufacturer's full product line or

only particular products.

---------------------------------------------------------------------------

\3\ The written agreement required under Sec. 203.3(u) to

establish an ongoing relationship constitutes a ``required record''

under revised Sec. 203.60, and must be made available, upon request,

to FDA or other Federal, State, or local regulatory or law

enforcement officials for review and reproduction.

---------------------------------------------------------------------------

Given the relative ease with which the agreement required by

Sec. 20.3(u) can be created, the agency believes that it is highly

unlikely that a manufacturer would refuse to enter into a written

agreement with a distributor with whom it wishes to have a continuing

business relationship. Moreover, it is clearly not the agency's intent

in requiring a written agreement to confer additional discretion on

manufacturers, but rather to implement the requirement in the act for

an ongoing relationship in a manner in which it can be efficiently

enforced. This is consistent with the agency's authority under section

701(a) of the act (21 U.S.C. 371(a)) to issue regulations for the

efficient enforcement of the act. Accordingly, the agency declines to

revise the definition of ``ongoing relationship'' to eliminate the

requirement for a written agreement.

Finally, on its own initiative, the agency has revised the proposed

definition of ``ongoing relationship'' in the final rule to eliminate

the requirement that at least one sale be completed under the written

agreement and that a distributor be entered on the manufacturer's list

of authorized distributors of record. The proposed requirement for a

completed sale under the written agreement is unnecessary and, as

discussed below, inconsistent with the use of the definition in the

context of sample distribution. The proposed requirement that a

distributor be entered on the manufacturer's list of authorized

distributors of record is unnecessary in light of the requirement, in

section 503(e)(1)(B) of the act and revised Sec. 203.50(d) of the final

rule, that manufacturers keep an updated list of authorized

distributors of record at their corporate offices.

7. Another comment stated that sample fulfillment houses, mailing

services, comarketers, and similar entities clearly distribute samples

within the meaning of ``distribute'' in proposed Sec. 203.3(h), but

cannot satisfy the requirements for an ongoing relationship in proposed

Sec. 203.3(r) necessary to be considered authorized distributors of

record. The comment recommended that the proposed definition of ongoing

relationship be revised to permit these entities to be authorized

distributors of record.

The comment raises a valid point. The proposed definition of

ongoing relationship is inappropriate for sample distribution, and has

been revised in the final rule to specify that an ongoing relationship

exists when there is a written agreement between a manufacturer and

distributor to distribute, rather than to sell, the manufacturer's

products for a period of time or for a number of shipments.

Prescription drug. Proposed Sec. 203.3(v) defined ``prescription

drug'' as any drug required by Federal law to be dispensed only by a

prescription, including finished dosage forms, bulk drug substances,

and active ingredients subject to section 503(b) of the act.

On its own initiative, the agency has removed ``active

ingredients'' in the final rule. The term ``bulk drug substance,'' as

defined under Sec. 203.3(e), is synonymous with ``active ingredient.''

Wholesale distribution. Proposed Sec. 203.3(y) defined ``wholesale

distribution'' as ``distribution of prescription drugs to persons other

than a consumer or patient, but does not include: (1) Intracompany

sales * * *.''

8. One comment objected to the exemption of intracompany sales from

wholesale distribution, stating that it ``totally gets away from the

original intent of the PDMA.'' The comment said that this provision

leaves a gap where diversion can occur between wholesalers and retail

outlets owned by them.

The agency disagrees with the comment. Intracompany sales were

expressly excluded by Congress from the definition of wholesale

distribution in section 503(e)(4)(B) of the act. In addition, both the

House and Senate reports referred to the exclusion. (See H. Rept. 100-

76, S. Rept. 100-303.) The House report stated:

[i]t is the express intent of the Committee that the scope of

[this section] include distribution by chain drug warehouses,

wholesale drug warehouses, and all sellers of prescription drugs in

wholesale quantities to persons or firms other than the consumer or

patient. With respect to section 503(e)(1), intracompany sales,

i.e., the distribution between divisions and companies having the

same ownership, are excluded.

(H. Rept. 100-76, p. 17.)

Thus, as expressed in the language of the act and the legislative

history, Congress' intent was to exclude intracompany sales from the

requirements for wholesale distribution in section 503(e) of the act.

In addition,

[[Page 67729]]

the agency advises that Sec. 205.5 contemplates a licensing scheme for

business entities with subsidiaries, affiliates, and more than one

facility (see Sec. 205.5(b)), and provides that State licensing

authorities require each wholesale distributor to supply information on

all facilities used by the licensee for the storage, handling, and

distribution of prescription drugs (see Sec. 205.5(a)(3)).

C. Reimportation

Proposed Sec. 203.10 stated, in relevant part, that ``[n]o

prescription drug that was manufactured in a State and exported from

the United States may be reimported by anyone other than its

manufacturer.''

9. One comment requested that the proposed rule be revised to state

that a prescription drug may be reimported by any of a manufacturer's

subsidiary companies or contract manufacturers.

For the reasons discussed in the preamble to the proposed rule (59

FR 11842 at 11844), FDA is adopting the definition of manufacturer set

forth in Sec. 201.1 (21 CFR 201.1) of the agency's regulations for the

purposes of part 203. Accordingly, a manufacturer's subsidiary

companies or contract manufacturers may reimport a prescription drug

product only if they also qualify as a manufacturer of the drug product

under Sec. 201.1.

10. One comment recommended that language be added to the section

to include drugs that are sold by a manufacturer for exportation, but

never leave the United States. The comment stated that a large

proportion of the ``export'' drugs that are diverted never actually

leave the United States.

Because the drugs referred to by the comment are not exported, they

cannot be subject to the restriction on reimportation. However, the

domestic distribution of such drugs is covered by PDMA and other

applicable laws, which should help to reduce the potential for

diversion.

D. Sales Restrictions

Proposed Sec. 203.20 prohibited the sale, purchase, or trade of, or

offer to sell, purchase, or trade, any prescription drug that was

purchased by a public or private hospital or health care entity or

donated or supplied at a reduced price to a charitable institution.

1. Section 203.22(e)

Proposed Sec. 203.22(e) provided that Sec. 203.20 does not apply

to: ``The sale, purchase, or trade of a drug, an offer to sell,

purchase, or trade a drug, or the dispensing of a drug under a valid

prescription.''

11. A health care organization requested that FDA clarify whether,

under this section, its nonprofit affiliates may provide prescription

drugs obtained at a nominal cost to patients under a prescription,

where the amount charged for the drug varies depending on the patient's

ability to pay.

Section 203.20 does not prohibit a health care entity from

obtaining prescription drugs at reduced cost. Rather, it prohibits

reselling those drugs except in specified ways. Section 203.22(e)

allows the resale of drugs by a health care entity under a valid

prescription. The amount of profit derived from such a sale, or the

lack thereof, is not addressed by Sec. 203.22(e). Therefore, a health

care entity may, subject to other applicable laws, resell prescription

drugs to patients under a valid prescription at varying prices.

2. Section 203.22(f)

Proposed Sec. 203.22(f) provided that Sec. 203.20 does not apply

to:

The sale, purchase, or trade of a drug or the offer to sell,

purchase, or trade a drug by hospitals or health care entities owned

or operated by Federal, State, or local governmental units to other

hospitals or health care entities owned or operated by Federal,

State, or local governmental units.

12. One comment opposed this exclusion. The comment argued that

government employees are just as apt to engage in drug diversion

activities as are private sector employees. The comment stated that the

potential for drug diversion is even greater in the public sector

because Federal and State hospitals and health care entities often

receive more favorable pricing terms than private hospitals. The

comment also stated that the exclusion ``appears self serving'' and is

not supported by the legislative record.

FDA disagrees with this comment. As the agency explained in the

preamble to the proposed rule (59 FR 11842 at 11847), any profits from

legitimate sales of prescription drugs by government hospitals would

accrue to government treasuries. Thus, no financial incentive exists

for a government hospital or health care entity, or its representatives

acting in an official capacity, to engage in diversion. Given the lack

of financial incentive, the amount of profit that could be realized due

to the prices at which government hospitals may receive prescription

drugs is irrelevant. Moreover, although it is possible that individual

employees may steal drugs or obtain them by other criminal methods and

sell them, criminal conduct by individual employees was not intended by

Congress to be addressed by the sales restrictions. Rather, it was the

legal resale of drugs obtained by hospitals and health care entities,

and the potential profit accruing to those entities from such sales,

with which Congress was concerned in enacting the sales restrictions.

Finally, the agency disagrees that the exclusion is not supported

by the legislative record. As discussed previously and in the proposed

rule (59 FR 11842 at 11846 and 11847), the prohibition against sales by

hospitals or health care entities was prompted in part because of the

temptation for such entities to sell for profit drugs acquired at below

wholesale prices. Because no financial incentive exists for government

hospitals to profit from sales to other government hospitals, it is

unlikely that such sales would result in the kinds of abuses that PDMA

sales restrictions were designed to prevent.

In addition, Congress expressly created exclusions permitting,

among other things, sales between hospitals or health care entities

under common control and emergency sales by hospitals or health care

entities to retail pharmacies to allow for the provision of health care

to patients. (See H. Rept. 100-76, 13). As discussed in the preamble to

the proposal (58 FR 11842 at 11846 and 11847), permitting prescription

drug sales between government hospitals and health care entities will

help such entities to provide health care services in response to

various needs, including the provision of health care to people with

low incomes and the distribution of vaccines. Thus, the exception is

consistent both with Congress' general objectives in enacting the sales

restrictions and with the rationale supporting other exemptions

expressly created by Congress.

3. Sections 203.23 and 203.24

Proposed Secs. 203.23 and 203.24 set forth exemptions to the sales

prohibition contained in proposed Sec. 203.20. Proposed Sec. 203.23

provided an exemption for the revocation of a sale and purchase

transaction by a hospital, health care entity, or charitable

institution because of a mistake in ordering or delivery and the

reshipment of the prescription drug to a manufacturer or wholesale

distributor for a credit or refund. The section required that the drug

be shipped back to the manufacturer or distributor within 10 days and

that the reshipment be made under proper conditions for storage,

handling, and shipping. In addition, the section required that, if the

drug is reshipped to a wholesale distributor, the hospital, health care

entity, or charitable institution must provide written notice to the

[[Page 67730]]

manufacturer of the revocation and reshipment.

Proposed Sec. 203.24 provided an exemption for the return of a

prescription drug purchased by a hospital or health care entity, or

acquired at a reduced price by or donated to a charitable institution,

to the manufacturer or the wholesale distributor that sold, donated, or

supplied the prescription drug. The section required that, if the drug

is returned to a wholesale distributor, the hospital, health care

entity, charitable institution, or distributor must notify the

manufacturer that the drug has been returned. In addition, the

hospital, health care entity, or charitable institution must prepare a

credit memo for all returns. The returning entity must forward a copy

of the memo to the manufacturer and retain a copy for its records. The

section also required that returned drugs be kept under proper

conditions for storage, handling, and shipping. Finally, the section

required that the value of any credit, refund, or exchange not exceed

the purchase price or, if a donation, the fair market price of the

returned product.

13. One comment said that it generally supported the agency's

approach for allowing returns, but questioned the need for Sec. 203.23

and recommended that it be deleted in the final rule. According to the

comment, the agency's purpose for calling a return a revocation of

acceptance and reshipment was to address concerns that sales provisions

in the Uniform Commercial Code (UCC) could make a return a prohibited

resale under PDMA. The comment stated that by ``expanding on this

initial allowance of returned product and proposing Sec. 203.24, FDA

has shown that it has overcome UCC concerns and will not view a return

as a prohibited resale.''

The agency agrees for the most part with the comment. Because

proposed Secs. 203.23 and 203.24 permit transactions and impose

notification and documentation requirements that are similar, and

because the situations in which returns would be permitted under

Sec. 203.23 would also be permitted by Sec. 203.24, the agency has

decided to withdraw proposed Sec. 203.23 and redesignate proposed

Sec. 203.24 as new Sec. 203.23 in the final rule. This will simplify

the regulation and eliminate potential confusion about whether proposed

Sec. 203.23 or Sec. 203.24 applies to a particular return. Under the

revised regulation, all prescription drugs returned by a hospital,

health care entity, or charitable institution to its supplier will be

regarded as ``returns'' and will be subject to the same requirements

for providing notice to the manufacturer, documenting the return, and

maintaining proper storage, handling, and shipping conditions.

On its own initiative, the agency has decided not to include in

revised Sec. 203.23 the requirement in proposed Sec. 203.24(a) that a

hospital, health care entity, charitable institution, or distributor

notify the manufacturer that a prescription drug product has been

returned when the return is made to a wholesale distributor. Under

revised Sec. 203.23(a) and (b), the hospital, health care entity, or

charitable institution is already required to fill out a credit memo

documenting the return of a prescription drug and to forward a copy of

that memo to the manufacturer. The agency believes that the receipt of

the credit memo by the manufacturer should provide sufficient notice to

it of the source of a return, and the additional notice that would have

been required under proposed Sec. 203.24(a) is not necessary.

14. One comment stated that the concerns addressed by the

requirements for notification of the manufacturer and documentation of

returns in the proposal is legitimate, but that health care entities

should not be ``held responsible for helping to police the wholesale

drug industry.'' The comment said that wholesalers should be required

to develop mechanisms for documentation and recordkeeping that would

achieve the desired goals of the regulation.

The agency believes that the comment misconstrues the purpose of

the notice and documentation requirements. As the agency explained in

the proposal, the purpose of requiring that a credit memo be forwarded

to the manufacturer is to help ensure that any chargebacks or reduced

prices will be factored into a credit or refund provided by the

manufacturer to prevent windfall profits from the transaction (59 FR

11842 at 11847). There is a potential for such profits to be realized

not only by wholesale distributors, but by hospitals, health care

entities, and charities. Thus, the agency disagrees that the purpose of

providing notice is limited to policing the wholesale drug industry. In

addition, the agency believes that the returning hospital, health care

entity, or charity is in the best position to provide the information

required in the credit memo and, as the party that derives the benefit

from any special pricing provided by the manufacturer, should be

responsible for ensuring that returns are legitimate.

15. Another comment stated that the resale restrictions were not

intended by Congress to cover normal and legitimate returns of

prescription drugs and that FDA is therefore not required or authorized

by PDMA to place requirements on returns. The comment said that the

provision of notice to a manufacturer when drugs are returned to a

wholesale distributor would constitute an unreasonable administrative

burden on manufacturers who do not provide a refund or credit in such

circumstances.

As discussed in the proposal (59 FR 11842 at 11847), proposed

Secs. 203.23 and 203.24 were included to address the concern that,

subsequent to a completed sale, a return for cash, credit, or other

consideration could be viewed as a new and prohibited sales transaction

under section 503(c)(3)(A) of the act. Although the agency agrees that

Congress did not intend to prohibit legitimate returns of prescription

drugs, there is a potential for abuses to occur with returns. The

notice and documentation requirements in revised Sec. 203.23(a) and (b)

are necessary to help ensure that the returning entity or entities do

not profit unfairly by the return and that diversion of returned drugs

does not occur. Both of these goals are consistent with Congress'

intent in enacting the sales restrictions. (See sec. 2(7), PDMA, H.

Rept. 100-76, pp. 12-13.)

16. One comment stated that proposed Secs. 203.23 and 203.24 should

be clarified so that prescription drugs that are returned to the

manufacturer for destruction are exempt from the restrictions in

Sec. 203.20, and thus need not adhere to the requirements in proposed

Secs. 203.23 and 203.24.

The agency declines to provide the clarification sought by the

comment. Under Sec. 203.20, the sale, purchase, or trade of a

prescription drug purchased by a hospital or health care entity, or

donated or supplied at a reduced price to a charitable institution, is

prohibited unless the sale, purchase, or trade is exempt from

Sec. 203.20 under Sec. 203.22 or revised Sec. 203.23. When a

prescription drug that is purchased by a hospital, health care entity,

or charity is returned to the manufacturer for destruction and a credit

or refund is given for the return, the return constitutes a sale that

is prohibited by Sec. 203.20, unless the requirements of Sec. 203.23

are met. Similarly, the agency will consider the provision of

destruction services by a manufacturer or distributor at no or reduced

cost to the returning entity, relative to the fair market value for

such services, to constitute consideration supporting a sale. Thus,

returns of prescription drugs for destruction must meet the

requirements of Sec. 203.23, unless no credit or refund is given for

the return and the returning entity pays

[[Page 67731]]

the fair market value for the drugs' destruction.

The conclusion reached above is fully consistent with the policy

underlying the requirements in Sec. 203.23. First, drugs that are

returned for destruction have the same potential to be diverted as

drugs that are returned for redistribution. The threat to the public

health from diversion of such drugs could be particularly severe

because they are presumably unsuitable for use. Therefore, it is

essential that drugs returned for destruction be subject to

documentation requirements that provide accountability over the return.

Additionally, there may be situations in which a returned drug that is

designated for destruction by a hospital, health care entity, or

charity may be deemed suitable for sale by the distributor or

manufacturer. For example, a drug returned because its outer packaging

was damaged may, after examination or testing is conducted by the

manufacturer as required by Sec. 205.50(e), prove to be fit for use.

Thus, returned drugs must be maintained under proper conditions for

storage, handling, and shipping, and written documentation reflecting

the maintenance of proper conditions must be provided to help ensure

that, if the returned drug is redistributed, it is safe and effective.

17. One comment supported the requirements in proposed

Secs. 203.23(b) and 203.24(e) (new Sec. 203.23(c)) relating to

maintaining proper conditions for storage, handling, and shipping of

returned drugs and providing documentation of such conditions. The

comment said that wholesalers need the information to carry out their

obligations for handling returns under Sec. 205.50(e). The comment

recommended that documentation of proper return conditions should be

specifically nondelegable.

Section 203.23(c) requires that a drug returned to a manufacturer

be stored and handled appropriately, according to its labeled storage

requirements, both while it is in the possession of a hospital, health

care entity, or charity, and during its return (i.e., during

reshipment). Prior to reshipment, only the hospital, health care

entity, or charity in physical possession of the drug knows and can

document whether the drug has been stored and handled appropriately.

However, because a common carrier or other third party may be used to

reship the drug, this party may provide documentation that the drug was

stored and handled properly during reshipment. Thus, if a returning

hospital, health care entity, or charity uses a common carrier or other

third party to reship drugs, the third party or carrier may create the

required documentation, and provide the documentation to the

manufacturer or distributor on delivery.

The agency clarifies that, regardless of whether a common carrier

is used to reship the drug, the returning hospital, health care entity,

or charitable institution is responsible for complying with the

requirements of Sec. 203.23. Thus, if proper conditions were not

maintained during reshipment and/or if written documentation showing

that proper conditions were maintained during reshipment was not

provided to the manufacturer or wholesale distributor to which the

drugs are returned, the requirements of Sec. 203.23 would not be met

and the returning hospital, health care entity, or charitable

institution would be in violation of Sec. 203.20 of FDA regulations and

section 503(c)(3)(A) of the act.

18. Proposed Sec. 203.24(d) required that the value of any credit

or refund not exceed the purchase price or fair market price of the

returned product. One comment stated that the provision would be

burdensome on manufacturers that currently calculate credits or refunds

based on the purchase price of the drug as of the date of return. The

comment also stated that it would be virtually impossible, without the

implementation of a costly, sophisticated system by the manufacturer,

to attach a cost to a specific item when it is not known when the item

was acquired. The comment recommended that the provision be revised to

allow the value of the return to be based on the purchase price of the

drug as of the date of the return.

The agency's intent in proposing Sec. 203.24(d) was, as with the

notice provisions, to prevent hospitals, health care entities,

charities, or distributors from obtaining windfall profits from returns

at the expense of manufacturers. Thus, as proposed, the provision would

not make manufacturers responsible for ensuring that the amount of a

credit, refund, or exchange given for a drug does not exceed the

purchase price or, if a donation, the fair market value at the time the

donation was made. Instead, the section would make the returning

hospital, health care entity, or charitable institution responsible for

ensuring that it did not accept a credit, refund, or exchange that

exceeds the purchase price or fair market value at the time the drug

was purchased or donated. Nevertheless, FDA recognizes that in order to

comply with this provision, manufacturers would have to maintain

records of the price paid for a drug at the time it was purchased.

Because maintaining such records does not appear to constitute

customary industry practice and would impose additional costs and

burdens on manufacturers, the agency has revised Sec. 203.23 in the

final rule to eliminate the requirement that the value of any credit or

refund not exceed the purchase price or fair market price of the

returned product.

E. Samples

1. Sample Distribution by Mail or Common Carrier

Proposed Sec. 203.30(a)(2) required that the recipient of a drug

sample distributed by mail or common carrier execute ``a written

receipt, as set forth in paragraph (c) of this section, when the drug

sample is delivered.'' Proposed Sec. 203.30(c) set forth the required

contents of the receipt for samples distributed to licensed

practitioners, and to designated pharmacies of health care entities.

Proposed Sec. 203.30(c) provided:

* * * The receipt is to be on a form designated by the

manufacturer or distributor, and is required to contain the

following:

(1) If the drug sample is delivered to the licensed practitioner

who requested it, the receipt is required to contain the name,

address, professional title, and signature of the practitioner or

the practitioner's designee who acknowledges delivery of the drug

sample; the proprietary or established name and strength of the drug

sample, the quantity, and the lot or control number of the drug

sample delivered; and the date of the delivery.

(2) If the drug sample is delivered to the pharmacy of a

hospital or other health care entity at the request of a licensed

practitioner, the receipt is required to contain the name and

address of the requesting licensed practitioner, the name and

address of the hospital or health care entity pharmacy designated to

receive the drug sample; the name, address, professional title, and

signature of the person acknowledging delivery of the drug sample;

the proprietary or established name and strength of the drug sample,

the quantity, and the lot or control number of the drug sample

delivered; and the date of the delivery.

19. Several comments stated that not all of the information

required to appear on the sample receipt form under proposed

Sec. 203.30(c) is necessary to confirm delivery of a sample. One

comment stated that the act only requires information sufficient to

verify that the sample received matches the sample requested and sent.

Another comment asserted that FDA does not have the authority under

PDMA to specify the content of the receipt, and that the only

information required by PDMA is the signature of the licensed

practitioner and any information

[[Page 67732]]

necessary to determine the identity of the sample and the recipients.

The agency has determined that, with the exception of the proposed

requirement for the lot or control number of the sample (discussed

below in conjunction with comments on Secs. 203.30 and 203.31), the

information requirements in proposed Sec. 203.30(c) are necessary to

ensure that samples that are requested are received by the intended

recipient and that patterns of nondelivery of drug samples can be

identified. Both of these objectives are consistent with legislative

intent. (See H. Rept. 100-76 at 15.) The agency therefore declines to

eliminate or modify these requirements in the final rule.

The information required under proposed Sec. 203.30(c) mirrors most

of the information required to appear on the sample request form under

proposed Sec. 203.30(b). This information is the minimum information

necessary to identify the type and quantity of drug samples being

requested and distributed, the requesting practitioner, and, if

applicable, the designated hospital or health care entity to which the

drug samples are to be delivered. The only information required by

proposed Sec. 203.30 to appear on drug sample receipt forms that is not

required to appear on request forms is the name, address, professional

title, and signature of the person acknowledging delivery of the drug

sample. This information is necessary to establish accountability for

receipt of drug samples when samples are delivered to a practitioner's

office and the requesting practitioner does not physically receive the

drug sample and sign the sample receipt or when samples are delivered

to a hospital or health care entity at the request of a practitioner.

20. Several comments objected to the required information because

electronic delivery verification systems currently used by delivery

services and common carriers cannot accommodate the information.

According to the comments, current electronic delivery verification

systems are capable of recording some, but not all, of the required

information. The comments stated that to capture all of the required

information, a manufacturer or authorized distributor of record would

have to use a paper system independent of common carriers' delivery

verification, such as a business reply mail card. Several comments said

that paper systems involve more administrative costs and would result

in less compliance by practitioners than electronic delivery

verification. One comment stated that, using business reply mail cards,

it would take two to three followup letters to achieve compliance

within the 90 to 95 percent range. Another comment said that data may

be accessed faster and easier with electronic verification systems than

with business reply mail cards, since the data are stored

electronically rather than manually. Several comments recommended

revising the proposed rule to bring it into conformity with the

specific electronic delivery verification system used by the commenter.

Other comments recommended that the proposed rule be revised to state

that receipts used by common carriers as part of their normal course of

business are sufficient.

The agency recognizes that manufacturers and authorized

distributors of record may not be able to comply fully with the sample

receipt content requirements in proposed Sec. 203.30(c) using

commercial carriers' electronic delivery acknowledgment systems.

Electronic delivery acknowledgment systems do not appear to be designed

to meet the specific informational requirements for sample receipts

under Sec. 203.30(c) at the present time. Thus, the use of business

reply mail cards or other types of paper systems capable of recording

the required information may be necessary. These systems may not be as

convenient for health care practitioners receiving samples to use as

electronic delivery acknowledgment systems and will probably be more

expensive for manufacturers and authorized distributors of record.

However, these disadvantages are not in themselves sufficient reason to

eliminate the informational requirements in proposed Sec. 203.30(c),

where no satisfactory alternatives exist to ensure that congressional

objectives for establishing controls on sample distribution are met.

21. Two comments requested that FDA permit the use of combinations

of electronic and paper media to create the required receipt form.

Under the scenario presented by one of the comments, a receipt would be

signed by the practitioner or his designee at the time of delivery, but

it would not contain all of the required information. The information

not contained on the receipt would be maintained on a separate

electronic data base, which would be linked via a ``unique number'' to

the receipt. The other comment requested that the agency permit a

signature obtained through a carrier's normal delivery verification to

be ``added'' later to an electronic record containing all of the

required information.

As discussed previously, the agency has revised proposed

Sec. 203.60 to permit manufacturers and authorized distributors of

record to create and maintain drug sample receipts and other records

using combinations of paper-based and electronic media. Under

Sec. 203.60(a)(2), combinations of paper records and electronic records

may be used provided: (1) The requirements of part 11 are met for the

electronic record, and (2) a reasonably secure link between the paper

record and electronic record exists to ensure that the combined records

are trustworthy and reliable and to ensure that the signer cannot

readily repudiate the signed record as not genuine. Neither of the

scenarios presented by the comments would ensure that a reasonably

secure link exists between the paper-based and electronic records

because the individual signing the receipt at the time of the sample

delivery would not know the contents of the receipt and thus could not

attest that the contents of the receipt are correct. Moreover, under

these circumstances, the signer could readily repudiate the signed

record as not genuine. Thus, neither of the scenarios would meet the

requirements of Sec. 203.60(a)(2).

22. One comment requested clarification of whether the proposed

rule would supplant the March 2, 1993, guidance letter recommendations

on delivery confirmation of drug samples by common carriers.

Any policy stated in that document, including the policy on

delivery verification, is superseded by the policies set forth in the

final regulation.

2. Sample Distribution by a Representative or Detailer

a. Section 203.31(a)(1) and (a)(2). Proposed Sec. 203.31(a)(1)

required that before a manufacturer or authorized distributor of record

distributes a drug sample to a licensed practitioner, it must receive a

signed, written request form from the licensed practitioner. Proposed

Sec. 203.31(a)(2) required that the recipient sign a receipt form

containing the information required under proposed Sec. 203.31(c) when

the drug sample is delivered. Proposed Sec. 203.31(a)(3) required that

the receipt be returned to the manufacturer or distributor.

23. One comment requested that the proposed rule be revised to

clarify that a single form may be used to satisfy the requirements of a

request and receipt form.

FDA set forth its policy on the use of one form to satisfy the

request and receipt form requirements for samples delivered by a

representative in the preamble to the proposed rule (58 FR 11842 at

11849). The agency stated:

[[Page 67733]]

A sample request and receipt need not be on separate forms if

delivery is by a representative. A single form could be devised and

used containing all of the required information, which could be

fully completed and executed with a single signature, if the request

and delivery are simultaneous, or executed in part with a signature

for the request at the time of the request, and executed in part

with a second signature acknowledging receipt at the time of the

delivery.

The agency wishes to emphasize that, whether one form or separate forms

are used, only a licensed practitioner may request a sample and sign

the request form. A sample receipt, however, may be signed either by a

licensed practitioner or that practitioner's designee.

24. FDA received four comments that objected to any requirement for

a receipt for representative-delivered samples. The comments stated

that receipts for representative-delivered samples were not required by

PDMA and that this requirement goes beyond the scope of the act. Two

comments stated that most requests and deliveries take place on the

same representative visit. One comment recommended that the rule be

revised to cover only those situations where request and delivery of

samples do not occur on the same visit. Another comment said that

Congress required receipts for samples delivered by mail or common

carrier, but not representatives because there are more opportunities

for samples to be lost or diverted when the mail is used. The comment

recommended that the manufacturer could use the information on the

request form to do its own followups with licensed practitioners to see

whether samples had been delivered.

Although Congress did not expressly require a receipt for

representative-delivered samples in the act, FDA has concluded that

additional requirements, including receipts, are necessary to help

ensure effective enforcement, increased accountability and oversight of

sample distribution, and to provide adequate safeguards against drug

sample diversion. All of these goals are consistent with and further

the legislative intent in enacting PDMA. Although samples delivered by

a representative to a licensed practitioner may be requested and

delivered simultaneously, this is not always the case. For example, the

delivery of samples by a representative to a hospital or health care

entity pharmacy designated by a physician may not occur at the same

time a request for such samples is made. When the request for and

delivery of a sample by a representative do not occur simultaneously,

the potential for sample diversion and corresponding need for a sample

receipt are as great as when samples are delivered by mail or common

carrier. When the request for and delivery of a sample do occur

simultaneously, the sample request and receipt form may be merged into

one form with a single signature (see discussion above).

25. FDA received four comments related to the medium on which the

required information for representative-delivered sample receipts may

appear. Two comments assumed that proposed Sec. 203.31(a)(2) and (c)

required receipts to be in paper form and objected to that requirement.

Two comments asked for clarification on whether receipts do, in fact,

have to be in paper form or may be electronically created. All four

comments assumed that the proposed regulations required that a paper

receipt be left with the licensed practitioner even when receipts are

electronically created, and objected to this requirement. One comment

stated that neither PDMA guidelines nor the proposed regulations

require licensed practitioners to keep records of drug samples

received, thus a written receipt would serve no purpose.

It appears that the confusion over whether receipts must be written

on paper came from the preamble discussion of proposed Sec. 203.31 (59

FR 11842 at 11849). FDA stated that ``the agency has tentatively

concluded that the requirement for a written receipt should extend to

all drug sample deliveries, and that requirement is included in

proposed Secs. 203.30 and 203.31.'' Moreover, the word ``written'' does

appear in conjunction with receipts in Sec. 203.30, but not in

Sec. 203.31. As discussed in section II.J of this document, request and

receipt forms, reports, records, and other documents and signatures

required by PDMA and part 203 may be created on paper or on electronic

media, provided that records created on electronic media meet the

requirements of revised Sec. 203.60 and part 11. In addition, although

the final regulations require that a receipt be signed and returned to

the manufacturer when a sample is received, they do not require that a

receipt be left with the practitioner for his or her records or that

practitioners maintain records of samples received.

b. Section 203.31(c)(2). Proposed Sec. 203.31(c)(2) stated that if

the drug sample is received by the pharmacy of a hospital or other

health care entity at the request of a licensed practitioner, the

receipt is required to contain, among other things, the name and

address of the hospital or health care entity pharmacy designated to

receive the drug sample.

26. One comment objected to the requirement that the name and

address of the hospital or health care entity pharmacy designated to

receive the drug sample appear on the receipt. The comment stated that

this information is known by the requesting licensed practitioner.

The purpose of the receipt requirement is not to provide

information to the licensed practitioner that requests the drug sample,

but to provide manufacturers and authorized distributors with

documentation that samples that were requested were in fact properly

delivered. When a licensed practitioner requests that a drug sample be

delivered to a hospital or health care entity pharmacy, it is necessary

for the name of the hospital or health care entity pharmacy to appear

on the sample receipt so that the person receiving the sample at the

pharmacy can verify, through his or her signature on the sample

receipt, that the sample was delivered as requested.

c. Section 203.31(d)(1) and (d)(2). Proposed Sec. 203.31(d)

required that drug manufacturers and authorized distributors of record

conduct an inventory, using generally accepted inventory practices, of

drug samples in the possession or control of each of their

representatives. The inventory must be conducted at least annually, and

the results of the inventory are required to be recorded in an

inventory record and reconciliation report. The contents of the

inventory record and reconciliation report were set forth in proposed

Sec. 203.31(d)(1) and (d)(2). Proposed Sec. 203.31(d)(1) required the

identification of each drug sample in a representative's stock by the

proprietary or established name and dosage strength, and the number of

sample units. Proposed Sec. 203.31(d)(2) required:

(i) A report of the physical count of the most recently

completed prior inventory;

(ii) A record of each drug sample shipment received since the

most recently completed prior inventory, including the sender and

date of the shipment, and the proprietary or established name,

dosage strength, and number of sample units received;

(iii) A record of drug sample distributions since the most

recently completed inventory showing the name and address of each

recipient of each sample unit shipped, the date of the shipment, and

the proprietary or established name, dosage strength, lot or control

number, and number of sample units shipped; and

(iv) An explanation for any significant loss.

As discussed in section II.E of this document, the agency has on

its own initiative revised proposed Sec. 203.31(d) to more clearly

distinguish between the

[[Page 67734]]

inventory and reconciliation functions and to clarify certain required

elements of the reconciliation report.

27. Two comments requested clarification of the meaning of the

phrase ``generally accepted inventory practices.'' Both comments cited

the statement in the preamble of the proposed rule (59 FR 11842 at

11849) that ``it is FDA's preliminary view that such an inventory must

go beyond a mere physical count, and that meaningful information and

data can only be provided if the inventory is conducted utilizing

generally accepted inventory practices * * *.'' The comments said that

if generally accepted inventory practice refers to more than a physical

count, FDA must clarify what is required.

As discussed in section II.E of this document, the final rule has

been revised to eliminate the use of the phrase ``generally accepted

inventory practices'' in conjunction with the inventory requirement.

28. Several comments objected to the requirements in proposed

Sec. 203.31(d)(2)(ii) and (d)(2)(iii) because the required information

duplicates information contained in sample request forms and corporate

distribution records that are already on file. Two comments stated that

the reconciliation report should contain a reconciliation of opening

and closing inventories against sample allocations received and sample

distributions, but not a statement of all individual allocations and

distributions. Another comment questioned whether the inclusion of the

information required under these sections in a single report is

productive or merely an additional clerical burden.

The first comment correctly points out that the information

required to be contained in the reconciliation report under revised

Sec. 203.31(d)(2)(ii) and (d)(2)(iii) will come from various sources,

including drug sample request and receipt forms, distribution records

required to be created and maintained under the current good

manufacturing practice (CGMP) regulations (see, e.g., 21 CFR 211.196),

and other records maintained by the representative or the firm.

Nevertheless, the agency believes that the assimilation of information

from these multiple records into a single report that concisely

identifies and characterizes each type of transaction conducted with

drug samples will aid industry in detecting discrepancies in inventory

that may be indicative of drug sample diversion activity. In addition,

it will permit FDA and other Federal and State government agencies

responsible for enforcing PDMA to effectively oversee a company's

conduct in performing its reconciliation and in initiating

investigations of potential drug sample record falsifications and

significant losses and thefts of drug samples under Sec. 203.37.

29. One comment sought clarification on whether the reconciliation

report may consist of several documents that, when taken together,

contain all required information.

The reconciliation report for an individual sales representative

may consist of several paper documents and/or electronic records.

However, all documents or records are to be collected and maintained as

a single reconciliation ``report.''

30. Another comment stated that ``PDMA does not require

manufacturers to annually compile a report for each sales

representative that summarizes in one place all aspects of each sample

delivery in minute detail.''

Although PDMA does not explicitly require the information under

Sec. 203.31(d)(2), it does establish an extensive scheme for monitoring

drug sample distributions by a representative that includes

requirements for drug sample request forms, an annual inventory, and

reporting of significant losses and known thefts of drug samples. As

discussed previously, the agency believes that the requirements

contained in Sec. 203.31(d)(2)(ii) and (d)(2)(iii), including the

requirement for identifying individual transactions conducted with drug

samples in revised Sec. 203.31(d)(2)(iii), are necessary to bring

potential drug sample diversion activities to the attention of

manufacturers and authorized distributors. This objective is consistent

with legislative intent in PDMA.

31. Two comments recommended that manufacturers should be permitted

to use bar coding that represents the proprietary or established name

and dosage strength on the inventory record and reconciliation report

instead of actual words. One of the comments said that such coding is

``easily translated'' into the required information.

The agency advises that it does not object to the use of bar coding

that represents required information in the inventory record or

reconciliation report provided that the information in such a form can

be used by the firm to conduct the reconciliation process and to detect

discrepancies in inventory and potential drug diversion. In addition,

the bar coding must be capable of being translated into words and the

record or report must be capable of being produced in its entirety upon

request by FDA or other Federal, State, or local law enforcement

authorities.

32. Two comments objected to the requirement in proposed

Sec. 203.31(d)(2)(iii) to list the lot or control number in the

reconciliation report. One of these comments stated that this

requirement would not assist in diversion detection because the batches

are so large that significant numbers of representatives in varying

geographical areas will receive the same batch. The comment also stated

that ``existing PDMA records'' make it possible to determine every

physician called on by representatives who could have received the lot

in question. The other comment stated that the requirement would ``have

little or no effect in assuring a meaningful inventory,'' but would

increase difficulty of conducting inventory and preparing the report.

The requirement in proposed Sec. 203.31(d)(2)(iii) was intended to

ensure that a manufacturer or authorized distributor maintains a record

enabling it to track the distribution of sample units by lot or control

number from a representative to a licensed practitioner. Although the

agency agrees that such information would not necessarily enable

manufacturers or distributors to pinpoint the representative

responsible for distributing a sample unit that has been diverted, it

would promote precision in tracking samples and facilitate the location

of samples in the event of a recall or other public health emergency.

Nevertheless, as discussed below, the agency has determined that

manufacturers and authorized distributors of record should be free to

choose the types of records used to track the distribution of drug

sample lots to licensed practitioners. Therefore, the proposed

requirement for inclusion of lot or control numbers in the

reconciliation report has been eliminated in the final rule.

d. Section 203.31(d)(3). Proposed Sec. 203.31(d)(3) stated: ``The

inventory and reconciliation reports shall be conducted and prepared by

persons other than the representatives being inventoried or superiors

or managers in their department, division, or branch, or in their

direct line of supervision or command.''

33. Three comments stated that the proposed requirement represents

a misinterpretation of PDMA and its legislative history regarding

section 303(b)(4)(B)(ii) of the act. The comments stated that this

section allows a manufacturer the option of performing an independent

audit to protect itself from civil liability for the acts of its

representatives, but that FDA has misconstrued the section to mean that

[[Page 67735]]

PDMA requires a yearly, independent audit of every representative.

The comments apparently misunderstand the terms ``inventory'' and

``audit.'' An inventory is an itemized list or catalog of goods or

property, usually taken annually. An audit is a formal, periodic

examination and checking of accounts or records to verify their

correctness. (Webster's New World Dictionary, 2d College Ed.) The

comments correctly assert that section 303(b)(4)(B)(ii) of the act does

not require an annual audit of all representatives. However, proposed

Sec. 203.31(d)(3) did not establish an audit requirement, but rather

set forth requirements concerning which personnel are to conduct the

inventory and reconciliation and prepare the inventory record and

reconciliation report. The proposed requirement was therefore intended

to implement the requirement in section 503(d)(3)(C) of the act for an

annual inventory of drug samples in the possession of a representative,

rather than section 303(b)(4)(B)(ii) of the act.

34. Several comments said that the proposed requirement is too

costly, and the ends can be achieved through more cost-effective means.

Several comments stated that since inventory must be completed onsite,

it would be too costly to require personnel other than supervisors or

managers within the geographic area of the representative to perform

it. On the other hand, the comments said, reconciliation can be

performed at a central location, thus it is more susceptible to

completion by independent personnel.

Two comments distinguished inventory from reconciliation by stating

that the former is relatively simple and can be performed by sales

management, while the latter is more complex and should be done by a

person independent of sales and marketing. In contrast, another comment

recommended allowing representatives to perform the reconciliation, but

not the inventory function.

One comment recommended allowing anyone but the representative to

perform the inventory or prepare the reconciliation report. Several

comments recommended allowing a sales representative's direct

supervisor or manager to perform the inventory function because that

person is in the best position to assess the performance and

cooperation of a representative and to initiate corrective actions. One

comment recommended allowing anyone other than a representative or his

direct supervisor to perform the inventory. Other comments recommended

allowing a representative's district manager to perform the inventory

function.

The objective of the proposed requirement was to guard against

errors and possible fraud in the conduct of the physical inventory and

reconciliation, and in the preparation of the inventory record and

reconciliation report, by the representative or other interested

parties. Although the agency continues to believe that this is a

legitimate and important objective, the agency agrees that it can be

achieved through less burdensome means than by requiring the inventory

and reconciliation to be conducted by persons other than the

representatives, their superiors or managers, or others in their direct

line of supervision or command. Accordingly, the agency has revised the

proposed requirement to permit manufacturers and distributors to take

``appropriate internal control measures'' to guard against error and

possible fraud in the conduct of the physical inventory and

reconciliation, and in the preparation of the inventory record and

reconciliation report.

Under the revised requirement, representatives and their

supervisory personnel may conduct the inventory and reconciliation

functions and prepare inventory records and reconciliation reports.

However, the agency expects that appropriate internal control measures

will be taken that include implementation of a security and audit

system that is controlled by independent personnel, i.e., personnel

other than the representatives, their superiors or managers, or others

in their direct line of supervision or command. Under revised

Sec. 203.34(b), such a security and audit system must follow a plan

that ensures that random audits are conducted on representatives by

personnel independent of the sales force. In addition, the plan must

ensure that for-cause audits are initiated in response to reports,

incidents, or findings identified by the firm as indicating possible

drug sample diversion or falsification of sample distribution records.

If necessary, the agency will issue additional guidance on audit plans

and procedures under revised Sec. 203.34(b).

e. Section 203.31(d)(4). Proposed Sec. 203.31(d)(4) stated: ``A

manufacturer or authorized distributor of record shall carefully

evaluate any apparent discrepancy or significant loss in its inventory

and reconciliation, and shall fully investigate any such discrepancy or

significant loss that cannot be justified.''

35. Two comments stated that the word ``apparent'' should be

changed to ``significant''. One comment stated that since manufacturers

are permitted, under Sec. 203.37, to determine what constitutes a

``significant loss,'' they should also be allowed to determine which

discrepancies merit investigation. Another comment recommended revising

``apparent discrepancy'' to read ``potentially significant

discrepancy.''

The agency is not requiring manufacturers and distributors to

conduct an investigation every time there is an apparent discrepancy in

a representative's inventory, but rather that they evaluate all

apparent discrepancies. It is only when an apparent discrepancy cannot

be justified that an investigation is required. Investigations under

these circumstances are reasonable and consistent with the requirement

in revised Sec. 203.37(a) to investigate when there is a reason to

believe that any person has falsified drug sample records or is

diverting drug samples. Accordingly, the agency declines to amend the

requirement.

3. Issues Related to Sample Distribution by Mail or Common Carrier or

by a Representative or Detailer

a. Sections 203.30(a)(1) and 203.31(a)(1). Proposed

Secs. 203.30(a)(1) and 203.31(a)(1) required that a licensed

practitioner execute and submit a written request to the manufacturer

or authorized distributor of record to obtain drug samples.

36. One comment stated that a request form ``creates additional

paperwork and expense without apparent benefit beyond that obtained by

signing a receipt form at the time of delivery of the samples.''

In sections 503(d)(2)(A)(i) and (d)(3)(A)(i) of the act, Congress

specifically required that a drug sample be distributed only in

response to a written request by a licensed practitioner to ensure

accountability in the sample distribution process. Sections 203.30 and

203.31 reflect those statutory provisions.

37. Another comment sought clarification on whether the term

``written request'' includes preprinted forms.

Preprinted drug sample request forms are permissible. However, they

must contain all information required by PDMA and the final

regulations, and must be signed by a licensed practitioner.

b. Sections 203.30(a)(3) and 203.31(a)(3). Proposed

Sec. 203.30(a)(3) required that the recipient of a drug sample

delivered by mail or common carrier return the receipt to the

manufacturer or distributor from which the drug sample was received.

Proposed

[[Page 67736]]

Sec. 203.31(a)(3) required that the receipt for samples distributed by

means other than mail or common carrier be returned to the manufacturer

or distributor.

38. Two comments requested clarification on whether, if a licensed

practitioner fails to return a receipt, he or she is barred from

receiving further samples from a manufacturer. Both comments argued

that the intent of Congress in enacting PDMA was to detect patterns of

nonreturns of receipts. The comments recommended that licensed

practitioners should not be barred for isolated failures to return

receipts, but rather, where a pattern of nonreturns exists,

manufacturers should be required to investigate to see if the samples

actually arrived.

The question of whether a licensed practitioner should be barred

from receiving further drug samples for failing to return drug sample

receipts was not addressed in the proposed rule, and was not addressed

directly by Congress. In the legislative history of PDMA (see H. Rept.

100-76, p. 15), Congress stated: ``Whether the distributions are made

by carrier return receipt or business reply cards, manufacturers or

distributors would not be expected to equate each and every delivery

and receipt; however, an adequate monitoring system would necessarily

need to detect instances where non-return patterns exist.'' Thus, there

is evidence that Congress was not primarily concerned with isolated

failures to return drug sample receipts, but with patterns of

nonreturns. Moreover, the overall structure of PDMA is not intended to

penalize practitioners or prevent them from receiving samples, but

rather to ensure that samples are properly distributed to licensed

practitioners. Therefore, the agency believes that Congress did not

intend for licensed practitioners to be barred from receiving samples

for isolated failures to return sample receipts or for isolated

instances where receipts are not received for reasons beyond the

practitioner's control. However, upon detecting a pattern of nonreturns

by a practitioner, a manufacturer or authorized distributor should not

distribute further samples until the matter is thoroughly investigated.

Such an investigation may, depending on the circumstances, be required

under Sec. 203.37, since a pattern of nonreturns may indicate that a

representative is falsifying drug sample requests, that other drug

diversion activity is occurring, or that a significant loss or theft of

drug samples has occurred.

c. Sections 203.30(b)(1)(ii) and 203.31(b)(1)(ii). Proposed

Sec. 203.30(b)(1) and (b)(1)(ii) stated: ``A written request for a drug

sample to be delivered by mail or common carrier to a licensed

practitioner is required to contain the following: * * * The

practitioner's State license number or Drug Enforcement Administration

identification number.'' Proposed Sec. 203.31(b)(1) and (b)(1)(ii) set

out the same requirement for requests for drug samples delivered by

means other than mail or common carrier.

39. FDA received 15 comments on these requirements. Many of the

comments supported the overall goal of these sections, i.e., to ensure

that persons requesting drug samples are licensed practitioners.

However, several comments stated that State license numbers are not

always assigned to practitioners who are otherwise authorized by State

law to prescribe drugs. The comments requested clarification as to what

verification is appropriate for practitioners subject to different

authorization mechanisms than physicians.

As was discussed in response to the comments on the definition of

licensed practitioner, the agency has determined that practitioners

authorized by State law to prescribe drugs may request and receive drug

samples. Practitioners who are authorized by a State to prescribe drugs

and have no State license number may use any number assigned to them by

the State that represents that they are authorized to prescribe drugs.

The agency is not aware of any State that does not assign some type of

number to practitioners that it authorizes to prescribe drugs. However,

if such a case arises, the agency will consider how to provide

verification at that time.

40. Several comments cited potential problems with the use of DEA

numbers for verification. Several comments said that not all licensed

practitioners, but only those who prescribe controlled substances, are

issued Drug Enforcement Administration (DEA) numbers. Other comments

stated that, although DEA numbers can be accessed through a central

data base, this practice is discouraged by DEA unless a controlled

substance is involved. One comment stated that DEA numbers are often

improperly accessed and illegally used to divert drugs and recommended

that only State license numbers be used.

The agency has consulted with the DEA on the appropriate use of DEA

numbers for identification purposes. DEA policy is that registration

numbers assigned by DEA to licensed practitioners are to be used only

to obtain scheduled drug products, not for general identification

purposes. Accordingly, the agency has modified the requirement in the

final rule to specify that State license or authorization numbers are

to be used on sample request forms generally, and DEA numbers are to be

used only when a sample of a scheduled drug product is requested.

41. Several comments asked for clarification on whether a

manufacturer or authorized distributor would be required under this

section to verify the State licensing or DEA number on the request

form. One comment stated that the provision of a State license or DEA

number, without verification, would not confirm that a practitioner is

in fact licensed. Other comments opposed a requirement that the

manufacturer or authorized distributor verify the State licensing or

DEA number. One comment recommended that the presence of the number on

a sample request form be deemed acceptable on its face. Two comments

recommended that instead of requiring the manufacturer to verify

whether the requesting person is a licensed practitioner, the person

requesting samples could be required to attest to being a licensed

practitioner on the sample request form, i.e., with the inclusion of a

preprinted line next to where his or her signature would go. Three

comments recommended that an internal number established by the

manufacturer after checking a requesting practitioner's credentials be

considered acceptable.

FDA has determined that verification by a manufacturer or

authorized distributor of the State license or authorization number, or

the DEA number as appropriate, is necessary and has codified the

requirement in Secs. 203.30(a)(2) and 203.31(a)(2) of the final rule.

The agency does not believe that allowing a manufacturer to deem

acceptable the number on a request form without verifying its

authenticity would offer any assurance that a person requesting samples

is in fact licensed or authorized to prescribe drugs. Similarly, an

attesting signature on a request form offers little more assurance that

a person is in fact licensed or authorized than an unverified license

or authorization number. The agency does believe there is merit in the

suggestion that, once a practitioner's number is verified by a

manufacturer or distributor with a State licensing board or the DEA, an

internal number or other tracking system may be devised such that the

number does not have to be reverified every time a sample is requested

by the same practitioner. However, any list of verified State license

or authorization numbers maintained by an authorized

[[Page 67737]]

distributor or manufacturer must be updated at least annually to

reflect changes in license or DEA status.

42. Several comments stated that it would be difficult for

manufacturers to verify State license numbers because there is no

national data base that contains all State licensing numbers, State

licensing boards do not possess mechanisms to provide wide-scale

verification services, and methods of verification vary from State to

State.

As discussed in section IV.B of this document, the agency believes

that cost-efficient systems for verifying State licensing numbers will

be made available to manufacturers and authorized distributors of

record in the near future. Until that time, State licensing boards do

possess sufficient mechanisms to provide verification that individuals

are licensed by them. The agency recognizes that there may be some

difficulty associated with verifying State license or authorization

numbers. However, State licensing numbers are the only reliable way of

proving that a practitioner is actually licensed by a State to

prescribe drugs.

43. One comment recommended that FDA require States to adopt

uniform methods of assigning licensing numbers.

The power to set prescribing requirements and methods is one that

has traditionally been vested in the States. The agency does not wish

to interfere with this power by requiring that States adopt uniform

methods of assigning State licensing numbers.

44. Several comments recommended that FDA add the American Medical

Association's Medical Education (ME) number to the list of permissible

verification numbers. The comments stated that the advantages of this

number are that it is centrally accessible, it is not subject to change

as State license numbers may be, and it includes at least some

nonphysician practitioners. Two comments also recommended that use of

the Association of Physician's Assistants file number be permissible.

The agency has concluded that where a practitioner has a State

license number, that number must be used for verification purposes. As

discussed above, nonphysician practitioners who are licensed, or who

are not licensed but are authorized by State law to prescribe drugs,

may use any number assigned to them by the State that represents that

they are authorized to prescribe drugs. The agency does not believe

that other types of identification, including numbers assigned to

health professionals in connection with membership in professional

associations, are reliable means of proving that a practitioner is

licensed or authorized to prescribe drugs.

d. Sections 203.30(b)(1)(iii) and 203.31(b)(1)(iii). Proposed

Secs. 203.30(b)(1)(iii) and 203.31(b)(1)(iii) required that the

proprietary or established name and strength of the drug sample

requested appear on the sample request form.

45. Two comments requested that the proposed sections be revised to

allow bar coding on the request form that represents the name and

strength of the drug sample. Both comments indicated that the bar

coding would be translated into words on the form so that the doctor

would know what he or she was requesting.

The agency has no objections to allowing bar coding representing

information on preprinted sample request forms where that information

is also translated into words on the form. However, the bar coding must

not cover up or otherwise detract from the ability of practitioners to

read the words on the form.

e. Sections 203.30(b)(1)(v) and 203.31(b)(1)(v). Proposed

Secs. 203.30(b)(1) and 203.31(b)(1) set forth the requirements for

contents of written request forms for delivery of samples by mail or

common carrier and by representative, respectively. Proposed

Secs. 203.30(b)(1)(v) and 203.31(b)(1)(v), which are identical,

required that the request form contain ``the name of the manufacturer

and the authorized distributor of record, if the drug sample is

requested from an authorized distributor of record.''

46. FDA received four comments on these sections. One comment

objected to the requirement in Sec. 203.31(b)(1)(v) that the names both

of the manufacturer and of the distributor be included on the request

form. The comment stated that this requirement is redundant since the

manufacturer and authorized distributor of record are responsible for

knowing each other, and if a diverted sample is found, the manufacturer

will be able to trace the sample to the authorized distributor. Three

comments objected to the requirement in both Secs. 203.30(b)(1)(v) and

203.31(b)(1)(v). These comments stated that requiring the names both of

the manufacturer and of the authorized distributor of record causes

additional recordkeeping burdens, serves no useful purpose, and is

contrary to the explicit language of section 503(d)(3)(A) of the act.

A distributor may distribute drug samples under section 503 of the

act only if it is an authorized distributor of record for the

manufacturer of the drug. Thus, the ability of a distributor to

distribute samples is directly related to its relationship with the

manufacturer. The agency believes that it is reasonable to require that

a sample request form for an authorized distributor of record include

the name of the manufacturer that authorizes the distributor to

distribute samples. The requirement will help ensure that the parties

involved in and responsible for sample distribution can be readily

identified by FDA and other government agencies. This purpose is

consistent with legislative intent to ensure that distributors of drug

samples are authorized distributors of record, and the agency therefore

adopts the requirement in the final rule.

f. Sections 203.30(c)(1) and (c)(2) and 203.31(c)(1) and (c)(2).

Proposed Secs. 203.30(c) and 203.31(c) set forth the requirement that

drug sample receipts contain, among other things, the lot or control

number of the drug sample delivered.

47. FDA received several comments that objected to the sample lot

or control number requirements and recommended that they be eliminated.

Two of these comments objected to the requirement for representative

delivered samples only, while the remaining comments objected to the

requirement for both samples delivered by mail or common carrier and by

representative. Several comments argued that, under existing CGMP

requirements, the requirement is not necessary because distribution of

sample lots is tracked by the manufacturer to the representative, who

keeps a record of the practitioners visited and the samples that are

distributed. Two comments stated that recording lot numbers on sample

receipts is an inefficient way of tracking sample lots to the

practitioner level, and that the method of tracking should be left to

manufacturers as long as they can provide accurate and timely lot

specific records. Other comments argued that lots should only have to

be tracked down to the representative level.

The agency believes that the tracking of sample distributions by

lot to the level of the licensed practitioner is essential both to

maintaining accountability and oversight over sample distribution and

to facilitating recalls and, therefore, declines to eliminate the

proposed requirements on the ground that samples need only be tracked

to the representative level. The agency agrees, however, that recording

lot numbers on drug sample receipts and other drug sample distribution

records required under part 203 may not be the most efficient method of

tracking sample lots and that manufacturers and authorized distributors

should be free to use other types of records to accomplish

[[Page 67738]]

this purpose. Accordingly, the agency has eliminated the requirement to

include lot or control numbers on drug sample receipts in revised

Secs. 203.30(c)(1) and (c)(2) and 203.31(c)(1) and (c)(2) and on

reconciliation reports in revised Sec. 203.31(d)(2)(iii). Moreover, the

requirement under proposed Sec. 203.38(b) to include lot or control

numbers on all drug sample distribution records has been substantially

revised. Under revised Sec. 203.38(b), manufacturers and authorized

distributors of record are required to maintain drug sample

distribution records containing lot or control numbers that are

sufficient to permit tracking of drug sample units to the point of the

licensed practitioner. Sample distribution records containing lot or

control numbers must be maintained by manufacturers or authorized

distributors whether the samples are distributed by the mail or through

representatives.

4. Drug Sample Forms

Proposed Sec. 203.33 stated:

A sample request or receipt form may be delivered by mail,

common carrier, or private courier or may be transmitted

photographically or electronically (i.e., by telephoto, wirephoto,

radiophoto, facsimile transmission (FAX), xerography, or electronic

data transfer) or by any other system, provided that the method for

transmission meets the security requirements set forth in

Sec. 203.60(d).

Due to the publication of part 11, which supersedes portions of

proposed Sec. 203.60, the security requirements that apply to paper

documents transmitted photographically, electronically, or by any other

system have been modified and appear under Sec. 203.60(c) in the final

rule. Section 203.33 has been revised to refer to this section.

5. Policies and Procedures

Proposed Sec. 203.34 stated:

Each manufacturer or authorized distributor of record that

distributes drug samples shall establish, maintain, and adhere to

written policies and procedures describing its administrative

systems for the following:

(a) Distributing drug samples by mail or common carrier,

including methodology for reconciliation of requests and receipts;

(b) Distributing drug samples by means other than mail or common

carrier including the methodology for their independent sample

distribution security and audit system;

(c) Conducting its inventory of drug samples under

Sec. 203.31(d), including an inventory schedule;

(d) Auditing and detecting falsified or incomplete drug sample

records;

(e) Identifying any significant loss of drug samples and

notifying FDA of the loss;

(f) Monitoring any loss or theft of drug samples; and

(g) Storing drug samples by representatives.

As discussed in section II.G of this document, the requirements in

proposed Sec. 203.34 have been renumbered and revised in the final

rule. Comments on the proposal are addressed in light of the revisions.

48. One comment stated that PDMA only requires manufacturers to

develop adequate audit and security systems to detect and investigate

losses and thefts, not to create and adhere to extensive written

policies documenting all aspects of the drug sampling process. The

comment stated that a manufacturer should not be subject to liability

for failing to have a written corporate-wide policy on the subject

matter covered by the proposed rule.

The agency believes that the creation of internal policies by a

manufacturer or authorized distributor of record to achieve the

statutory objectives is important to the attainment of those

objectives. PDMA sets forth requirements that manufacturers and

authorized distributors of record report significant losses and thefts

of samples, that manufacturers' and authorized distributors'

representatives be inventoried at least annually, and that drug samples

be subject to proper storage conditions. In addition, PDMA's

legislative history indicates that Congress intended that manufacturers

and authorized distributors have audit and security systems in place to

detect losses and thefts, as well as falsified or incomplete drug

sample records. (H. Rept. 100-76, p. 20, S. Rept. 100-202, p. 9.)

Accordingly, the agency believes that it is authorized to implement

specific requirements regarding procedures and systems to accomplish

these legislative objectives. However, the agency believes that

industry should have the flexibility to develop its own procedures and

systems, as long as such procedures and systems are documented and

followed.

49. One comment stated that, under PDMA, a manufacturer is already

liable for failing to identify and report losses, thefts, or

falsification of records, whether it has written policies or not. Thus,

according to the comment, written procedures are not necessary to

ensure that significant losses of samples are detected.

Section 301(t) of the act subjects manufacturers and authorized

distributors to civil and criminal penalties for failure to report

significant losses and thefts as required under section 503(d)(3)(D) of

the act. While the agency recognizes that this provision provides

incentive for a manufacturer or authorized distributor to identify and

investigate potential cases of diversion, it does not ensure that

effective written procedures and administrative systems are in place to

do so.

50. Another comment requested that the requirement in proposed

Sec. 203.34(c) for an inventory schedule be flexible so that a

procedure committing to conduct a field force inventory at least yearly

would be sufficient.

Administrative procedures adopted by manufacturers and authorized

distributors of record must be adequate to ensure compliance with PDMA

and agency requirements. With respect to the requirement in revised

Sec. 203.34(b)(2) for written policies and procedures describing

administrative systems for conducting the annual physical inventory,

the administrative procedures must ensure that all representatives are

inventoried at least once a year in accordance with the requirements of

Sec. 203.31(d) and section 503(d)(3)(C) of the act.

6. Use of Third Parties

a. Section 203.36(a). Proposed Sec. 203.36(a) stated:

Any manufacturer or authorized distributor of record that uses a

fulfillment house, shipping or mailing service, or other third

party, or engages in a comarketing agreement with another

manufacturer or distributor to distribute drug samples or to meet

any of the requirements of PDMA, PDA, or this part, remains

responsible for creating and maintaining all requests, receipts,

forms, reports, and records required under PDMA, PDA, and this part.

51. One comment supported the section as written. Several comments

requested clarification on whether the manufacturer or authorized

distributor must itself create and maintain forms and records or ensure

proper compliance by the third party. Several comments objected to the

former interpretation on the ground that it would require so much

involvement by the manufacturer or authorized distributor in the day-

to-day operations of the third party that it would effectively preclude

companies from using third parties.

The agency clarifies that a manufacturer or authorized distributor

of record that uses a third party to distribute drug samples or meet

any requirements of PDMA or the final rule may have the third party

create and maintain required requests, receipts, forms, reports, and

records. For example, a shipping company that delivers samples would be

permitted to use its own delivery verification receipts and to maintain

those receipts for the manufacturer or authorized distributor. However,

the manufacturer or authorized distributor is responsible

[[Page 67739]]

for ensuring that the third party complies with all requirements under

PDMA and the final rule. In the previous example, if all of the

information required in Sec. 203.30 is not contained on the shipping

company's receipt, the manufacturer or authorized distributor is

responsible for compliance, and thus liable for noncompliance, with

Sec. 203.30.

Additionally, the agency is aware that some drug manufacturers

contract with an ``outside'' promotional sales force rather than

maintaining an ``in-house'' one. These representatives, known in the

industry as ``contract representatives,'' qualify as third parties

under this section. Since contract representatives may be paid

according to the number of samples distributed, firms using their

services should be particularly vigilant concerning the possibilities

for sample diversion and sample request and receipt form falsification.

52. One comment requested clarification as to whether, if a

manufacturer enters into a comarketing agreement with another

manufacturer for the distribution of samples by its representatives,

the comarketer would thereby become an authorized distributor of record

and would thus be responsible for creating and maintaining its own

reports, forms, and records. Another comment contended that comarketers

could qualify as manufacturers or authorized distributors of record and

recommended that the final rule be revised to make comarketers who are

themselves manufacturers or authorized distributors responsible as such

for compliance with PDMA.

As the agency explained under the comments on the definition of

``ongoing relationship,'' a comarketer, sample fulfillment house, or

other entity that performs sample distribution functions other than

delivery or functions that are incidental to delivery is engaged in

``distribution'' of drug samples and must, under section 503(d) of the

act, be an authorized distributor of record. Authorized distributors of

record are responsible for complying with all requirements for sample

distribution under PDMA and the final rule, including creating and

maintaining all required requests, receipts, forms, reports, and

records. Thus, if a manufacturer or authorized distributor contracts

with a third party which itself becomes an authorized distributor of

record, the manufacturer or authorized distributor and the third party

are both responsible for compliance with PDMA requirements.

b. Section 203.36(b). Proposed Sec. 203.36(b) stated that a

manufacturer or authorized distributor of record that contracts with a

third party to maintain some or all of its records shall produce

required documents within 48 hours of a request by an authorized

representative.

53. Several comments stated that 48 hours is not enough time to

produce required documents. Three comments recommended that the section

be revised to allow 5 working days for production of records. One

comment stated that a manufacturer should be excused from penalty when

requested information in the storage of a third party is not produced

within 48 hours by reason of ``unanticipated events beyond the

reasonable control of either the drug manufacturer or the contractor

(i.e., a force majeure defense).'' The comment stated that, at a

minimum, the section should be amended to provide 48 business hours to

comply.

In response to the comments, the agency has revised proposed

Sec. 203.36(b) to require the production of records maintained by a

third party within 2 business days of a request, rather than 48 hours.

The agency believes that this period should be sufficient given the

fact that most records are maintained electronically and can be quickly

and easily retrieved and transmitted to the location where they are

requested.

7. Investigation and Notification Requirements

a. Section 203.37(a)(1) and (a)(2). Proposed Sec. 203.37(a)(1)

stated:

A manufacturer or authorized distributor of record that has

reason to believe that any person has falsified drug sample

requests, receipts, or records shall conduct a full and complete

investigation, and shall notify FDA, by telephone or in writing,

within 5 working days of becoming aware of a falsification and

within 5 working days of the completion of an investigation.

Proposed Sec. 203.37(a)(2) stated: ``A manufacturer or authorized

distributor of record shall provide FDA with a complete written report,

including the reason for and the results of the investigation, not

later than 30 days after the date of the initial notification.''

The agency, on its own initiative, has reformatted proposed

Sec. 203.37(a)(1) and (a)(2) into Sec. 203.37(a)(1), with three

subsections. The agency believes that the new format is clearer and

easier to understand.

54. FDA received 10 comments on these sections addressing the

following issues: (1) The circumstances under which a manufacturer or

authorized distributor should be required to investigate, (2) the time

period to complete investigation, (3) when and under what circumstances

a manufacturer should be required to give notice to FDA, and (4) the

form of the notice and reporting requirements.

Two comments addressed the level of suspicion of falsification that

is necessary to trigger the investigation requirement. One comment said

that the ``reason to believe'' language that appears in

Sec. 203.37(a)(1) creates a standard that is ``vague and difficult to

interpret.'' Another comment stated that ``reason to believe needs to

be defined so that a manufacturer will not be second guessed.'' Another

comment stated that the proposed rule does not define what constitutes

``falsification,'' and that variances in a representative's reported

numbers do not usually give rise to a ``reason to believe'' that a

falsification has occurred, requiring investigation and notice, but

rather that a representative has poor work habits. The comment stated

that requiring investigation of every variance would be

``unrealistic.''

Instances of potential falsifications are most likely to come to

the attention of manufacturers or authorized distributors through

discrepancies that are uncovered during the required annual inventory

and reconciliation. However, it is possible that other events or

occurrences, some foreseeable and some not, may bring potential

falsifications to the attention of a manufacturer or distributor. The

agency has determined that the reason to believe standard, while not

capable of precise definition, is flexible enough to cover the

multiplicity of situations in which potential falsification is brought

to light. Moreover, the standard is one that can be applied by

manufacturers and authorized distributors using common sense and good

judgment. While the agency does not expect manufacturers and authorized

distributors to investigate every slight discrepancy, the agency would

require investigation under this standard where a pattern of

discrepancies exists or where other reliable information indicates that

records have been falsified.

55. Another comment said that the circumstance that triggers the

investigation requirement should be diversion, not falsification. That

comment also stated that the investigation requirement should apply

only to a manufacturer's or authorized distributor's employees'

misconduct, not to any person.

The drug sample recordkeeping requirements were instituted to help

ensure that drug diversion schemes could be detected. The agency

believes that patterns of falsification of drug sample requests,

receipts, or records,

[[Page 67740]]

while not conclusive, are highly probative that drug sample diversion

is taking place. Thus, the agency declines to follow the recommendation

that knowledge of diversion precede investigation.

The agency recognizes, however, that circumstances other than

record falsification may be indicative that drug sample diversion is

occurring. Accordingly, the agency has revised proposed Sec. 203.37(a)

to require notification, investigation, and reporting where a

manufacturer or authorized distributor of record has reason to believe

that any person is diverting prescription drug samples.

Finally, the agency believes that the manufacturer or authorized

distributor of record is in the best position to detect potential

diversion not only by its own employees, but by other persons, such as

contract representatives. Accordingly, the agency has determined that

manufacturers and authorized distributors must investigate when they

have reason to believe that any person has falsified drug sample

records or has diverted drug samples.

56. Two comments stated that PDMA statutory requirements did not

make falsification of drug sample records reportable to FDA.

Although PDMA did not expressly make falsification of drug sample

records reportable to FDA, the agency has determined that such notice

is necessary and furthers the legislative intent in PDMA. Persons who

falsify drug sample requests, receipts, or records may be criminally

prosecuted under sections 301 and 303 of the act, and under Title 18 of

the United States Code. Because FDA is responsible for enforcing PDMA,

it is necessary that the agency have all pertinent information

regarding such potentially criminal conduct. Moreover, Congress did

explicitly make significant losses and known thefts reportable to FDA,

presumably because such losses and thefts indicate possible sample

diversion activity. (See S. Rept. 100-303, p. 6, H. Rept. 100-76, p.

16.) As discussed previously, the agency believes that falsifications

of drug sample records are highly probative that drug diversion is

taking place. Thus, the agency has determined that it is consistent

with congressional intent that the agency be made aware of such

falsifications, as well as other activity that is indicative of drug

sample diversion, to enable FDA to monitor compliance with PDMA.

57. One comment noted that statements made in the preamble to the

proposal (59 FR 11842 at 11851) conflicted with proposed

Sec. 203.37(a)(1). The comment stated that the proposal's preamble

indicated that notice would be required to be provided to FDA when an

investigation is initiated. However, proposed Sec. 203.37(a)(1) does

not require notice until ``within 5 working days of becoming aware of a

falsification.'' According to the comment, the notice discussed in the

preamble may precede the notice required under the proposed regulation.

The agency acknowledges that the notice discussed in the preamble

of the proposal (59 FR 11842 at 11851) is different than the notice

that would be required under the proposed regulation. The agency has

revised proposed Sec. 203.37(a)(1) and (a)(2) to require that a

manufacturer or authorized distributor of record that has reason to

believe that any person has falsified drug sample requests, receipts,

or records, or is diverting drug samples must notify FDA within 5

working days, immediately initiate an investigation, and submit a

written report to FDA within 30 days after the date of the initial

notification. Thus, the requirement in proposed Sec. 203.37(a)(1) that

a manufacturer or distributor notify FDA within 5 working days of

becoming aware of a falsification and within 5 working days of the

completion of an investigation has been eliminated. The agency believes

that the provision of a single notice to FDA near the time when an

investigation is initiated is sufficient.

58. One comment said that firms should be required to provide

notice to FDA only in ``situations where substantial evidence of

apparent attempts to conceal diversion of samples exists.'' Another

comment stated that notice should not be required until a ``strong

probability'' of falsification is indicated by an investigation.

Several comments stated that, except for a final written report

submitted at the completion of an investigation revealing that

falsification has in fact occurred, no notice should be required. One

of these comments stated that it would be ``improper and unfair'' to

implicate employees in falsification before all of the facts are known

and an informed judgment can be made with respect to responsibility.

One comment recommended that a written report should be made available,

but not automatically submitted, to FDA.

The agency believes that the manufacturer or authorized

distributor, through its own investigation, is in the best position to

determine whether falsification has occurred. However, for enforcement

purposes, it is necessary that FDA be notified when there is reason to

believe that there has been a falsification to ensure that an

investigation is actually undertaken. Moreover, the provision of notice

to FDA at the initiation of an investigation will establish a point

from which to judge whether the investigation is completed in a timely

manner. Thus, the agency disagrees with the recommendation that notice

should not be provided to FDA until an investigation is completed and a

strong probability of records falsification exists or until records

falsification is confirmed. In addition, submission of a final written

report to FDA stating the reasons for and the results of an

investigation is necessary, even where falsification has not been

found, to permit FDA to determine whether the circumstances were

adequately investigated and explained.

59. One comment stated that reports of some complex cases could

require more than 30 days to complete and requested that the proposed

rule be revised to allow for 30 days, except in ``unusual

circumstances.'' Another comment recommended allowing completion of the

investigation within a ``reasonable time,'' while another recommended

that there should be no time restriction for the submission of a final

report.

The final rule as revised gives manufacturers 30 days to complete

an investigation of possible falsification and to submit a written

report. The agency believes that this amount of time is more than

adequate in all but the most complex cases. In such cases, a

preliminary report may be submitted describing the investigative

measures taken, a summary of the findings of the investigation up to

that time, the nature of the ongoing investigation, and the reasons the

investigation was not completed within the required time.

b. Section 203.37(b)(1) and (b)(2). Proposed Sec. 203.37(b)(1)

stated:

A manufacturer or authorized distributor of record that

distributes drug samples or a charitable institution that receives

donated drug samples from a licensed practitioner shall notify FDA,

by telephone or in writing, within 5 working days of becoming aware

of any significant loss or known theft of drug samples and within 5

working days of the completion of an investigation into a report of

a significant loss or known theft.

Proposed Sec. 203.37(b)(2) stated: ``A manufacturer or authorized

distributor of record shall provide FDA with a complete written report

not later than 30 days after the date of the initial notification.''

On its own initiative, the agency has reformatted and revised these

sections into a single section, Sec. 203.37(b)(1), with three

subsections. The revised section eliminates the requirement in proposed

Sec. 203.37(b)(1) for notice to be given to

[[Page 67741]]

the agency within 5 days of the completion of an investigation of

significant loss or known theft, but otherwise retains and clarifies

the requirements in proposed Sec. 203.37(b)(1) and (b)(2).

60. Two comments recommended revision of proposed Sec. 203.37(b)(1)

to extend the time a manufacturer or authorized distributor has to

notify FDA after becoming aware of a significant loss or theft, with no

notification required if subsequent investigation reveals no loss or

theft. One of the comments said that it would not be possible to

differentiate insignificant accounting mistakes and actual losses

within 5 days of learning of an inventory discrepancy and that the

requirement would cause too many false alarms.

Unlike falsifications of drug sample records, the agency requires

notice of significant losses and known thefts only when a manufacturer

or authorized distributor ``becomes aware'' of such losses or thefts.

Thus, the level of certainty under which notice and investigation are

required is higher for losses and thefts than it is for falsifications.

Consequently, a manufacturer or authorized distributor should have

already differentiated insignificant accounting mistakes and actual

losses before notice is given to FDA. Thus, the agency believes that 5

working days from the time that a manufacturer or authorized

distributor becomes aware of losses or thefts is sufficient to provide

notice to FDA of losses or thefts.

61. Two comments recommended allowing 45 days after becoming aware

of significant losses during shipment before notice is required,

because such apparent losses of drug samples often show up during that

time period.

The agency declines to follow the recommendation of the comments.

Potential significant losses that occur during shipping must be

investigated and reported like other significant losses. When samples

thought to be lost or stolen during shipping are later found, a

followup report should be made to the agency describing the

circumstances of the recovery and the quantity of samples that were

recovered.

62. In the preamble to the proposed rule (59 FR 11842 at 11851),

the agency stated: ``The reporting of any significant loss of drug

samples is critical to the success of diversion control. * * * FDA

intends this requirement to mean that the agency is to be advised of

actual, physical losses, but not insignificant accounting mistakes.''

FDA stated that it was aware of the difficulty of establishing a

threshold for significant loss and solicited comment on how to

distinguish between significant losses and minor accounting or

inventory errors. The agency did not propose to establish a tolerance

level for sample losses below which no report is required, and stated

that each manufacturer or distributor is required to establish its own

threshold for determining when inventory not accounted for is

significant.

One comment stated that losses may occur in several ways, including

losses of shipments in transit, loss by representatives, and

unexplained inventory discrepancies. The comment stated that, for

shipping losses, it may be appropriate for companies to set a dollar

amount above which a single loss is considered significant. This amount

would vary by company and would be dependent on the size of the

company, number of representatives, and size and value of its total

inventory. The comment stated that shipping losses should also be

viewed cumulatively over a ``fixed, rolling period of time'' to

determine if there is a pattern of losses that might indicate

diversion. Regarding unexplained inventory shortages, the comment

stated that each company should be required to establish its own

threshold for determining when inventory not accounted for is

significant. Inventory discrepancies that can be shown to be caused by

math or accounting errors or mistakes that can be reconciled should not

be reported. The comment stated that there are three significant loss

scenarios that may indicate possible diversion: (1) A single loss that

exceeds a company's predefined threshold; (2) the number of loss events

over a fixed, rolling period exceeds the company's threshold; or (3)

the volume of losses over a fixed, rolling period exceeds the company's

threshold.

One comment stated that loss of a certain quantity of one drug

sample with a high potential for diversion may be significant, while

the loss of the same quantity of another sample with a low potential

for diversion may not be significant. Therefore, the comment asserted,

no universally applicable threshold can be established and a case-by-

case analysis must be employed.

One comment requested that FDA clarify that not all physical losses

are significant.

The agency agrees with the first comment that different methods for

determining whether a loss is significant may be used depending on the

type of loss involved. For single loss events (i.e., ``physical''

losses) including losses by representatives (except for losses reported

as thefts, which must all be reported and investigated) and losses of

drug samples in transit, establishing a predefined threshold based on a

set dollar amount or other criteria, such as a fixed number of sample

units, may be appropriate. The size of the manufacturer or authorized

distributor of record, the number of representatives, and size and

value of a firm's total inventory, as well as a firm's past experience

with sample losses, are relevant factors in determining the level of

the threshold. However, the agency also agrees with the second comment

that firms should remain responsive to the individual circumstances

surrounding a single loss event, such as the loss of a drug with a

particularly high potential for diversion, to determine whether a loss

is significant even though the size of the loss does not meet the

firm's predefined threshold.

Regarding potentially significant losses that are revealed through

unexplained inventory shortages, the agency stated in the preamble to

the proposed rule that it does not seek to receive reports concerning

minor mathematical errors that are caught and corrected in the normal

course of business. The agency stated that firms are required to

establish their own threshold for distinguishing between insignificant

accounting mistakes and significant losses in inventory shortages based

on the firm's past experience in sample distribution and inventory and

the level of accuracy of its internal audit and security system. The

agency also stated that some manufacturers or distributors might be

able to set a ``historically validated statistical baseline'' for

minimal amounts of inventory shrinkage caused by routine accounting

errors, mistakes, or losses, and a statistical baseline for the

frequency of occurrences (59 FR 11842 at 11851). The views expressed by

the second comment regarding discerning significant losses from

inventory shortages thus appear to be consistent with those previously

set forth by the agency.

63. One comment supported permitting manufacturers and distributors

to establish their own thresholds for determining when inventory not

accounted for is significant, but said that it was concerned about

being second-guessed by the agency in determining what constitutes a

significant loss. The comment recommended that FDA clarify within

proposed Sec. 203.37 that it would not challenge a manufacturer for

following its own definition of significant loss.

The agency declines to revise the proposal to state that

This text is long and has been trimmed here. Open the source document for the complete record.