The coronavirus disease (COVID-19) has altered business operations worldwide and brought the pharmaceutical and healthcare industries to the forefront of international focus. Consequently, questions have recently arisen with respect to leniency of state licensing requirements for distributing prescription drugs and medical devices. State licenses are generally required for any entity engaged in the sale or shipment of drugs at wholesale. However, states generally exclude distributions for emergency medical reasons from the definition of wholesale distribution. This includes a public health emergency declared under section 319 of the Public Health Service Act. As such, the declaration of same by the Surgeon General of the United States on January 31, 2020 triggers certain exemptions under both federal and state law.
The federal Drug Supply Chain Security Act (DSCSA) governs particular aspects of prescription drug distribution and has provisions for both the transfer of pedigree documentation as well as setting minimum licensing requirements for wholesale distributors. The pedigree requirements of the DSCSA and the passing of required information is triggered by a “transaction.” A transaction is defined as “the transfer of product between persons in which a change of ownership occurs.” 21 U.S.C. 360eee(24). A transaction triggers certain requirements for the seller to pass specific information to its trading partner, the purchaser. A central tenet of the DSCSA, and state law equivalents, is that manufacturers and wholesale distributors can transact business only with “authorized trading partners” with “authorized” meaning appropriately licensed under state law. 21 U.S.C. 360eee(2). At both the state and federal level, it is a violation to enter into a transaction for the purchase or sale of prescription drugs with an entity that is not appropriately licensed under state law. Although the DSCSA does not currently apply to medical devices, many states regulate prescription devices in the same manner as prescription drugs.
During this COVID-19 pandemic, companies may be asked to ship their products to makeshift hospitals or other temporary facilities that may not hold licenses as would a more traditional brick and mortar facility. Likewise, companies not generally in the business of selling such items may be in a position to provide valuable drugs or devices to help with the pandemic and would not have the necessary licenses around the country to do so. How can one comply with its obligations under state and federal law to hold a license and validate licensure of their customers so that product is only sold and shipped to “authorized” trading partners? As it can take eight to ten months for a company to obtain the necessary licenses, strict compliance may not be a viable option under the current public health emergency.
The DSCSA, also carves out certain exemptions for distributions of drugs for emergency medical reasons. The DSCSA definition of “transaction,” which triggers requirements for passing of pedigree and other information, provides several exemptions. Specifically, it exempts emergency shipments, stating:
(iii) the distribution of a product for emergency medical reasons including a public health emergency declaration pursuant to section 319 of the Public Health Service Act, except that a drug shortage not caused by a public health emergency shall not constitute an emergency medical reason. 21 U.S.C 360eee(24)(B)(iii).
As such, there is some relief and flexibility in regard to the movement of product to assist in alleviating this emergency. Likewise, the DSCSA defines a “wholesale distribution” as
“… the distribution of a drug subject to subsection (b) to a person other than a consumer or patient, or receipt of a drug subject to subsection (b) [drugs requiring a prescription, 21 U.S.C. 353(b)] by a person other than the consumer or patient.” 21 U.S.C. 353(e)(4)(C)
As with the definition of transaction, there are numerous exceptions as to what constitutes a wholesale distribution. As with a transaction, the definition of wholesale distribution also specifically excludes the distribution of a product for emergency medical reasons, duplicating the language from the transaction exception. The fact that the federal government exempts certain transactions, does not, however, mean that a particular state will also exempt that transaction from its licensing requirements.
What is missing from the various statutes and regulations is exactly how one should proceed in the face of such an emergency. The lack of specific instructions does not mean that anything goes in a medical emergency. There are several steps that a company should take if it is either forced to sell or ship without a license, or sell or ship to a facility that does not have a license. The first step would be to check the state board of pharmacy website in the applicable states. If a company is shipping or selling without a permit, it should check the state in which its facility is located in to see if there is any guidance posted. If not, then a company should reach out to the board of pharmacy in its resident state so that the board is aware of what is happening. Any communications to or from the board should, of course, be retained. If an appropriately licensed company is selling or shipping to a facility that is not, then there are a few steps that should be taken to document the emergency nature of the shipment.
The first question would be whether the product being sold or shipped is directly related to the emergency. If you are an unlicensed facility with the ability to acquire ventilators, which are directly related to the current emergency, the lack of an active license should not delay the distribution of that vital life-saving equipment. If, however, you are not licensed and have the ability to acquire cholesterol-reducing medication, that likely would not be a distribution for emergency medical reasons as it is not directly related and there are other available sources. If the purchaser is not a healthcare facility, but some other supplier, it could still be considered a distribution for emergency medical reasons; for instance, an unlicensed company being asked to sell emergency-related products to a particular wholesaler. Although the wholesaler would not be using those products directly, it may have better resources to move that product around and agreements in place with various state and federal agencies that give it the ability to get that product where it needs to go.
Moreover, if the distributing facility is licensed properly but the customer’s facility is not, then the second question becomes why is it not properly licensed. Perhaps it is a field hospital set up in a convention center. Such a facility would likely not have the licenses that a traditional facility would have, but it is certainly directly related to the emergency and any sale of drugs or medical devices would for emergency medical reasons. The particular product is less important in such a situation as a mobile facility would have need for a variety of medications, not just those associated with health emergencies.
Regardless of the situation, the justification for shipping or selling without a permit, or for shipping or selling to an entity not appropriately licensed to receive the product, should be documented. Having a memorandum or email to the file explaining the rationale as to why, for example, it was considered an exempt sale or shipment for emergency medical reasons can assist down the road if a company is later inspected or audited. Likewise, any communications to or from the state board of pharmacy explaining what you are doing and why should be documented properly.
As the current pandemic continues to bring new challenges to the supply chain, guiding principles should be public health interests. When confronted with protecting public health, or compelling blind compliance to regulations, most state regulators will work with companies in the interest of public health and safety.