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

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URL: https://www.frixlaw.com/law-library/documents/fr%3A99-30954

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** December 3, 1999
- **Citation:** 64 FR 67720

## Text

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
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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A99-30954. Public record. Not legal advice.