The Drug Quality and Security Act: Implications of the Proposed New Law for Compounding Pharmacies and the Pharmaceutical Supply Chain

Executive Summary

Legislation aimed at ensuring providers and patients have access to safe compounded drugs was passed by both the U.S. House of Representatives and the Senate and will now proceed to the President for signature. This legislation, a product of bipartisan efforts by leaders from the Senate and House committees overseeing health policy, was introduced in response to the deadly fungal meningitis outbreak that occurred last year that was allegedly caused by a compounding pharmacy. Given the increase in compounding activity in recent years in response to various drug shortages, this legislation will have far-reaching implications.

The Drug Quality and Security Act (“Act”) was passed by the House of Representatives on September 28, 2013 and by the Senate on November 18, 2013. Compounding pharmacies, and providers that rely on compounding pharmacies, will want to familiarize themselves with the Act’s requirements as it will surely impact their operations and compliance activities.

At a high level, the Act is designed to: (i) clarify the Food and Drug Administration’s (“FDA”) oversight responsibilities for both small- and large-volume compounders; and (ii) require higher quality standards for these same facilities, in particular for large-volume compounders. These goals are facilitated through a variety of mechanisms, including the removal of certain Federal Food, Drug and Cosmetic Act (“FDCA”) compounding provisions that some federal courts had deemed unenforceable (which created uncertainty surrounding the enforceability of federal compounding laws governing small-volume compounders). The mechanisms also include the implementation of many new provisions, some of which are highlighted below, together with the amendment of certain other FDCA provisions. Read together, these changes more clearly define the FDA’s compounding pharmacy oversight authority.

Discussion

The Act is broken into two parts, the Compounding Quality Act and the Drug Supply Chain Security Act and will be effective as soon as it is signed into law. Upon enactment, questions regarding the legality and enforceability of current compounding laws governing the FDA’s oversight of compounding facilities providing patient-specific services will be resolved.

New supply chain tracking provisions contained in the Drug Supply Chain Security Act, applicable to certain compounders described below, will become functionally effective on January 1, 2015. Many provisions of the law are to be implemented through future regulatory and subregulatory guidance from the Secretary of Health and Human Services (“Secretary”). Given that a number of outstanding questions remain regarding the Act’s implementation, compounders and the providers that rely on them will want to closely monitor ongoing regulatory developments.

The Compounding Quality Act. The Compounding Quality Act establishes the concept of an “Outsourcing Facility,” which will likely include facilities that provide higher-volume compounding services. Facilities that elect to register annually as Outsourcing Facilities, and that comply with the requirements of the Act, are exempted from the new “track and trace” provisions contained in the Drug Supply Chain Security Act. Outsourcing Facilities would also be exempt from the adequate directions for use provisions and new drug provisions under the FDCA with respect to drugs compounded at the facility by or under the direct supervision of a licensed pharmacist and in compliance with the standards applicable to Outsourcing Facilities under the Act. This new Outsourcing Facility status appears aimed primarily at large scale compounders who ship compounded drugs to multiple states.

Among other provisions, the Compounding Quality Act provides that:

Outsourcing Facilities will not need to obtain prescriptions for identified individual patients, distinguishing them from traditional compounders.
Outsourcing Facilities will need to file biannual reports regarding their compounding activities and will be subject to FDA standards similar to other traditionally FDA-regulated manufacturers, including adverse event reporting and risk-based inspection.
Outsourcing Facilities will be subject to an annual establishment fee and reinspection fee, if necessary.
Compounded drugs will be considered misbranded under the FDCA if the advertising or promotion of the drug is false or misleading.
Previously disputed prohibitions on advertising and promotion by compounding pharmacies, and the requirement that prescriptions filled by compounding pharmacies be unsolicited, have been rescinded.
The Secretary is to engage in two-way communications with state regulators and coordinate with states to ensure drug compounding occurs in a safe manner.
The Secretary must convene an advisory committee on compounding and publish and maintain a list of drugs presenting demonstrable difficulties for compounding.

The Drug Supply Chain Security Act. As indicated above, the majority of the Drug Supply Chain Security Act provisions will not become functionally applicable until January 1, 2015. The Drug Supply Chain Security Act is intended to create a national standard for drug supply chain security for non-Outsourcing Facilities by establishing requirements for tracing a product through the distribution system. It also establishes standards for federal licensure of wholesale distributors and third party logistics providers. State and local requirements related to the tracing of products through the distribution system or licensure of wholesale distributors and third party logistics providers are preempted.

In furtherance of the above, the Drug Supply Chain Security Act:

Implements a unit-level tracking system to monitor prescription drugs from manufacturing to dispensing in order to prevent counterfeit drugs from entering the supply chain;
Requires product identifiers to be affixed or imprinted on each package/case introduced into commerce, except for products that are already required to have a standardized numerical identifier;
Requires the Secretary to establish uniform standards for the exchange of transaction documentation, including transaction history, information and statements;
Requires that transaction information follow the drug at each transfer of ownership and that drug manufacturers, wholesale distributors, dispensers and repackagers provide this information upon request by the Secretary or other appropriate official in the event of a recalled, suspect or illegitimate product; and
Requires that manufacturers, wholesale distributors, dispensers or repackagers (i) ensure that each of its trading partners is authorized; (ii) implement systems to investigate suspect products and handle illegitimate products in accordance with the Act’s requirements; and (iii) verify returned products before further distribution.

Various exceptions, exemptions and waivers to the track and trace provisions of the Drug Supply Chain Security Act are to be further delineated and implemented through future regulatory guidance from the Secretary. These include exceptions related to specific drug and transaction types and also address economic hardship in certain circumstances.

Next Steps

The passage of the Act demonstrates the government’s clear focus on ensuring enhanced oversight of compounding pharmacies. Compounding pharmacies will want to consider the implementation implications the Act has for their operations and compliance activities. In particular, such pharmacies will want to consider if Outsourcing Facility status is the right choice for their organizations.

Meanwhile, providers that rely on compounding pharmacies will want to ensure that the compounding pharmacies they deal with are compliant with the requirements of the Act and understand their obligations under the track and trace provisions. Both pharmacies and providers will want to pay close attention in the near and intermediate term as these statutory provisions are codified in regulations and further subregulatory compliance guidance is published.

The President has been urged to sign the Act quickly, and we will send an alert once the Act has been signed into law. If you have questions regarding the above or would like additional information, please contact: