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INSIGHT: The Drug Supply Chain Security Act and Preemption of State Laws

Aug. 2, 2019, 8:00 AM

In the less than six years since the federal Drug Supply Chain Security Act was enacted, the issue of the scope of the act’s preemption of state laws has arisen multiple times in various contexts.

Industry, the states, and the federal government are still trying to figure out the DSCSA preemption issue, and therefore, those who are regulated by the act should continue to pay close attention.

Congress enacted the DSCSA in 2013. The act was crafted in response to the danger to patient safety of counterfeit drugs entering the U.S. prescription drug supply chain. Congress designed the law to require drug supply chain stakeholders to trace prescription drugs, in a secure manner, from the manufacturer down to the dispenser of the drug.

When fully implemented, the law will require drug supply chain stakeholders to securely exchange transactional data regarding prescription drugs through an electronic interoperable data exchange.

The law also imposes requirements on stakeholders to investigate suspect prescription drugs within the supply chain and remove illegitimate prescription drugs from the system. Finally, the DSCSA establishes national licensure and licensing standards for drug wholesalers and third-party logistics providers.

Two Preemption Provisions

The DSCSA contains two preemption provisions, one provision regarding tracking and tracing prescription drugs and one provision regarding wholesaler and third-party logistics provider (3PL) licensure and standards. The DSCSA as a preemptive law has arisen in state efforts to continue to regulate drug track and trace, state efforts to license wholesalers and 3PLs, state and federal efforts to legalize foreign drug importation, and federal regulation of the disposal of pharmaceutical hazardous waste.

There are many open questions as to the scope of DSCSA preemption for wholesaler and 3PL licensure. Moreover, despite the more stringent preemptive scope of the DSCSA track and trace provisions, the issue was and still is debated with regard to at least drug importation and hazardous waste pharmaceuticals.

The two DSCSA preemption provisions are not necessarily equal in scope. The track and trace preemption is broadly preemptive of state drug tracing requirements, while scope of the wholesaler and 3PL licensure and standards preemption is more ambiguous and probably more narrow in scope.

In fact, in October 2014 draft guidance, the FDA interpreted the former provision to totally preempt state requirements for tracing drugs, while interpreting the latter provision to represent more of a federal preemptive floor approach. In other words, States regulating wholesalers and 3PL’s should not adopt licensing standards that are less stringent than those that FDA ultimately adopts.

Despite reasonable clarity as to track and trace preemption, following passage of the DSCSA, stakeholders continued to see state legislative and regulatory initiatives directly attempting to regulate the tracking and tracing of prescription drugs. In fact, Florida did not conform its track and trace statutes to the DSCSA until 2016. Even more recently, in 2019, a Virginia Senate bill sought to conduct a pilot program for tracking opioid drugs. These ongoing state efforts illustrate that supply chain industries must remain vigilant in monitoring state legislative and regulatory developments in the track and trace space.

States Openly Regulating Licensure

Turning to the DSCSA licensure preemption provision, states unsurprisingly continue to openly regulate in this space. First, there is no doubt that States have some authority to do so under the DSCSA. Second, the FDA has yet to publish the national wholesaler and 3PL licensing standards required by the DSCSA, which are now about four years late. Third, the wholesaler and 3PL licensure preemption provision is more ambiguous in scope compared to the track and trace preemption provision.

In fact, in a February 2018 speech by then-FDA Commissioner Scott Gottlieb, the commissioner recognized stakeholder confusion regarding the scope of licensure preemption and announced that FDA would update its preemption interpretation under the 2014 draft guidance. To date, the FDA has taken no action in this regard, so industry may continue to expect to see state regulatory efforts in this space that require close scrutiny until the FDA takes more definitive action.

Beyond direct state efforts to regulate in the DSCSA space, the DSCSA preemption issue has also arisen with regard to legislative efforts to legalize foreign drug importation. In the last two years, Vermont, Florida, and Colorado all passed drug importation bills. Moreover, this past year, at least 16 states and Congress considered drug importation legislation, as well.

Many, if not all of these drug importation bills attempt to comply with the dictates of the DSCSA or integrate the DSCSA into the drug importation program being considered, but questions remain as to whether such bills can survive DSCSA preemption.

Drug Importation Issues

There are several DSCSA preemption issues for consideration in the context of drug importation proposals. Outstanding issues include whether drug importation programs can ensure that foreign trading partners are authorized trading partners under the DSCSA, that foreign drugs are licensed by the FDA, that foreign drugs contain National Drug Codes and unique serial numbers as required by the DSCSA, and that all trading partners within the drug importation program are able to exchange full and complete transaction information and transaction statements.

It is questionable whether foreign trading partners in drug importation programs and the drugs being imported into the U.S. can meet the specific requirements of the DSCSA as to these various statutory mandates. Therefore, while drug importation proposals may be popular, they may not be viable under the DSCSA and stakeholders must remain aware of this concern.

Along with foreign drug importation, the issue of DSCSA preemption has also arisen in connection with recent federal EPA regulatory action governing disposal of hazardous waste pharmaceuticals. While this is not a state preemption issue, the regulatory scope of the DSCSA must be considered when other federal regulatory efforts appear to regulate the same space, as is the case with proposed federal drug importation legislation and the EPA hazardous waste pharmaceuticals regulation.

In February 2019, the EPA published its long awaited final rule on Management Standards for Hazardous Waste Pharmaceuticals, which established cost-efficient and streamlined standards for how health care facilities handle and dispose of hazardous waste pharmaceuticals. Commenters to the proposed rule argued that the DSCSA preempted the EPA’s efforts to regulate documentation on the disposition of hazardous waste pharmaceuticals and that nonsaleable pharmaceutical products regulated under the EPA rule are regulated exclusively by the FDA as drug products under the DSCSA.

In the final rule, the EPA rejected commenters’ DSCSA preemption arguments, but did leave open the possibility, albeit unlikely in the EPA’s view, that future FDA regulations on 3PL licensure might require the EPA to revisit its preemption analysis.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Christopher R. Smith is a senior counsel in the Health Care & Life Sciences and Litigation & Business Disputes practices in the Washington, D.C., office of Epstein Becker Green. His practice focuses on pharmacy law, drug distribution, and reimbursement issues.

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