III. Analysis of Public Comments
A. Comments From Those Opposed to The Pedigree/Wholesale Distribution Regulations
1. Secondary Distributors
2. Primary or Authorized Distributors
3. Individuals Who Purchase From Secondary Distributors
4. Competition in The Marketplace
5. Public Health
6. Criminal Activity
7. Recommended Solution
At the October 27, 2000, public hearing, various associations, industry groups, and individuals made presentations to an FDA panel (see Attachments A and B). The presenters that addressed prescription drug wholesale distribution issues included the American Pharmaceutical Association, the Pharmaceutical Distributors Association, Purity Wholesaler, Inc., the Food Marketing Institute, the American Veterinary Distributors Association, the Pharmaceutical Research and Manufacturers of America (PhRMA), Public Citizen Health Research Group (Public Citizen), R&S Sales, a wholesale distributor based in Kentucky, and a representative of the National Wholesale Druggists' Association. The presenters that addressed blood derivative issues included the American National Red Cross, America's Blood Centers, and the Blood Centers of America, Inc.
In addition to testimony at the public hearing, FDA received more than 60 written comments and other submissions in response to the May 3, 2000, and September 19, 2000, Federal Register notices pertaining to wholesale distribution (i.e., the definition of on-going relationship and the pedigree requirement) and blood derivative distribution issues (e.g., the definition of health care entity and the inclusion of blood derivative products). Comments on the wholesale distribution requirements were received from industry groups and associations, wholesale distributors that would be considered unauthorized distributors under the final rule for some or all of the products they sell, and individual physicians. The vast majority of comments received opposed the Agency's definition of on-going relationship and/or the pedigree requirement in the final rule.
The general perception, as expressed in the comments and the presentations made at the public hearing, is that a significant number of prescription drug wholesale distributors would be adversely affected economically, and might be put out of business, by the requirements in the final rule, because the requirements would prohibit them from distributing some or all of the drugs they currently are distributing.33
According to the information provided, there are five large, full-line wholesale distributors, who carry most, if not all types, of pharmaceutical products; purchase the majority, but not all, of their drugs from manufacturers; distribute nationwide to a variety of customers; and handle perhaps 90 percent or more of the $100 billion pharmaceutical product distribution in the United States.34 Although it was not stated explicitly in the testimony or comments, the Agency assumes that these large distributors would be authorized distributors of record under the final rule for most, or all, of the drugs they sell. The remaining 6 to 10 percent of drugs distributed in the United States that are not distributed by the five large distributors are distributed by 4,000 secondary distributors. These secondary distributors in many cases serve smaller areas than the big five distributors and, in some cases, distribute only a limited line of pharmaceuticals.
Although secondary distributors apparently purchase some of their inventory directly from manufacturers, much of their inventory is purchased from other wholesale distributors. The secondary wholesale distributors said they have tried and, for the most part, have been unable to obtain written agreements from manufacturers so they can be considered authorized distributors of record for manufacturers' products. For example, one distributor stated at the hearing that out of 59 manufacturers with whom it does business and contacted to obtain a written authorization agreement, 51 did not respond at all, 1 denied the request, and 7 provided the written agreement.35
In addition, the secondary distributors state that when they purchase drugs from other distributors, it is difficult to obtain pedigrees for them. This is due to the fact that the majority of drugs are distributed through one of the five large distributors, who most likely are authorized distributors of record and, therefore, are not required to provide pedigrees for the drugs they sell.
Secondary distributors assert that because they cannot obtain authorized distributor of record status for many of the drugs they sell or obtain a pedigree for drugs purchased from sources other than a manufacturer, a significant portion of their business would be eliminated by implementation of the final rule.
They testified that they have been operating under the 1988 guidance letter and believe that the Agency should maintain the status quo (see discussion of the 1988 guidance letter and the status quo in section II.C).
The five primary wholesale distributors most likely have on-going relationships with manufacturers and, therefore, would be considered authorized distributors within the meaning of the PDMA. None of the primary wholesaler distributors submitted individual comments to the docket or attended the October public hearing; however, their views were presented in statements submitted to the docket by the NWDA.
The NWDA stated that the typical authorized distributor center carries approximately 14,000 different prescription drug products and that each of these 14,000 products includes an average of three different manufacturer lot numbers at any given time. The NWDA stated further that a distribution center processes an average of 14,600 order lines per day. Thus, the burdens and resulting costs associated with requiring records of distribution of individual products by lot number, source, date, or other particulars required under the pedigree requirement would be extremely high.36 The NWDA estimated that tracking distribution of drug products by lot number would cost approximately $1 million per year per distribution center, which, for NWDA member distribution centers alone, would total $200 million per year. The NWDA stated that it would "vigorously oppose" any effort to impose additional requirements on authorized distributors.37
Because no individual comments were received from the primary distributors and they did not attend the Agency's public hearing, the Agency solicited comments from the primary distributors on five specific questions (see Attachment F). The comments submitted by the primary distributors are generally consistent with those submitted by the secondary distributors. Like the secondary wholesalers, primary wholesalers cite the low profit margin associated with their business as a reason why they purchase drugs from secondary wholesalers, and they say they cannot afford the costs associated with passing on the pedigree.
In addition to the potential economic harm to secondary distributors that implementation of the final rule could have, comments and hearing testimony from some individuals who purchase drugs from secondary distributors, such as retail grocery stores, pharmacies, and physicians, indicated it would be more difficult and expensive to obtain prescription drugs if secondary distributors could not continue distributing to them.38 For example, the representative for the American Pharmaceutical Association, a group that represents pharmacists, stated that pharmacists frequently use more than one distributor to meet their supply needs and that secondary wholesale distributors are used extensively by pharmacies, particularly to obtain unusual products or to purchase drugs when a pharmacy is in a remote area not served by one of the larger distributors.39 The representative said that although pharmacies do purchase directly from manufacturers and authorized distributors, secondary distributors are often used as backups to ensure access to a full range of products when they are needed.
It was argued that implementation of the wholesale distribution requirements in the final rule would generally decrease competition in the marketplace and result in higher prescription drug prices for retailers and, ultimately, consumers.40 As the secondary distributors explained to the Agency, the secondary wholesale market operates on an arbitrage system whereby secondary distributors, by purchasing and selling drugs at discounts offered by manufacturers and other distributors, help to keep drug prices lower overall for consumers than they would otherwise be without the presence of secondary distributors.41 Under this system, secondary distributors apparently purchase from and sell drugs to large distributors (i.e., authorized distributors of record). For example, a secondary distributor might purchase a large volume of a discounted drug from a manufacturer prior to the end of the manufacturer's sales quarter and sell it at a later date to a large distributor below the cost the distributor could otherwise obtain it from the manufacturer, from whom it would normally buy. The authorized distributor could then sell the same drug to another secondary distributor or retail outlet.
Some testimony and comments argued that the final rule would not significantly help to enhance the public health. The comments and testimony stated that existing requirements for State licensing of wholesale distributors in 21 CFR part 205 of the Agency's regulations provide adequate record keeping for the purposes of conducting recalls and ensuring that diverters of prescription drugs can be readily identified by the Agency.42 With respect to recalls, several presenters at the hearing stated that recalls are generally broadly broadcast by manufacturers, not only to distributors, but also to retail pharmacies and health care professionals.43
Several presenters also stated that, even where no pedigree exists for a drug, sales records required to be maintained under 21 CFR part 205 could be used to trace the distribution history of a drug for recall purposes.44
In response to the Agency's posthearing questions, which were sent through the NWDA to the major primary distributors, the primary distributors supported maintaining the pedigree requirement as implemented under the status quo (industry's interpretation of the Agency's 1988 guidance letter, see discussion in section II.C) because it helps authorized distributors make better purchasing decisions, helps provide a safe and efficient drug distribution system, and helps the primary distributors document where a product originated.
When asked whether the pedigree requirement helps deter criminal activity, several presenters stated that sales records without a pedigree are sufficient to identify individuals in the distribution chain of a drug who may be responsible for counterfeiting or other diversion activities.45 Several presenters, including representatives of pharmacies, noted that established relationships exist between retailers and distributors of prescription drugs and that it is these relationships that provide the primary assurance of drug quality when a drug is purchased.46 The speakers did not believe that a pedigree accompanying the drug would provide significant additional assurance of drug quality.
Most of the comments and testimony supported maintaining the status quo --that is, the way the wholesale industry has been operating in the 12 years since PDMA was passed. However, the status quo (industry's interpretation of the Agency's 1988 guidance letter, see discussion in section II.C) is inconsistent with the PDMA and the regulations. Industry's interpretation allows a broader definition of who is considered an authorized distributor than is contained in either the 1988 guidance letter or the final regulations and assumes that a pedigree need only show prior sales since the drug was last handled by an authorized distributor.
The comments and testimony that supported the final rule as written came from manufacturers and a public interest group. They stated that the requirements in the regulations are consistent with Congress' objectives in enacting the PDMA and would be helpful in supporting those objectives. The representative from PhRMA stated at the hearing that without a legally required document ensuring traceability back to the manufacturer, one has no guarantee that the pharmaceutical products being sold are not counterfeit or that they were stored under appropriate conditions throughout their shipment chain. The representative also stated that using a small number of sales, rather than a written authorization agreement, to confer authorized distributor of record status on a distributor does not meet the definition of an on-going relationship under the statute and argued that the final rule should be implemented as published.
The representative from Public Citizen stated that Congress erred in not requiring a universal pedigree, because the pedigree as conceived would provide the opportunity for unscrupulous distributors to launder counterfeit or substandard drugs through authorized distributors. The representative argued that logistical problems in tracking the pedigree of drugs is not a legitimate reason for not requiring all distributors to maintain a pedigree. He recommended that the Act be amended to also apply the pedigree requirement to authorized distributors.
The Agency received comments on blood-related issues from Congress, various national, regional, and local blood centers, blood center associations, and individuals. Presenters that addressed issues related to blood derivative product distribution at the October 27, 2000, hearing included the American National Red Cross (Red Cross), America's Blood Centers, and Blood Centers of America.
According to the testimony, more than 15 percent of all U.S. blood derivative products are distributed by community and Red Cross blood centers, with the Red Cross alone accounting for 10 percent. In the case of the Red Cross, the products distributed are prepared by contract manufacturers for Red Cross from plasma collected by Red Cross and distributed under the Red Cross label.
In addition to their role collecting blood and plasma and distributing blood derivative products, blood centers also provide certain health care services to the hospitals and health care entities they serve. These services include therapeutic phlebotomy, plasma exchange, and stem cell and cord blood collection and processing. In addition, blood centers work directly with physicians at hospitals and health care entities to provide medical expertise on the appropriate use of blood derivative products they are involved in distributing. It was argued that continued provision of these services is important to the public health, because it provides patients access to a higher level of medical expertise than would be possible to obtain or practical to maintain at individual community hospitals. It was argued that the value of the specialized medical expertise that exists in blood centers is critical to community health care and does not exist in the majority of local hospitals.
America's Blood Centers stated that the provision of medical expertise by blood centers is subsidized by the small margins that blood centers earn on sales of blood derivative products. Comments and testimony stated that there is no evidence that the current system of blood derivative product distribution results in any distribution of counterfeit, expired, adulterated, misbranded, or otherwise unsuitable blood derivative products to consumers. Finally, it was argued that manufacturers of blood derivative products are not granting centers special pricing that would not be available to other distributors and that blood centers are not unfairly competing with other distributors of these products.
According to the comments and testimony, implementation of the final rule as published would be detrimental to the public health because it would disrupt distribution of blood derivative products and interfere with longstanding relationships between blood centers and health care entities. The final rule would hinder centers' ability to provide blood derivative products and medical services associated with those products to hospitals, hemophilia treatment centers, and other providers.
The Red Cross stated that 85 percent of their anti-hemophilic factor is supplied directly to health care entities. They stated that implementation of the final rule would deny hemophilia patients access to this product because many treatment centers are smaller entities that are not supported by large distributors. Additionally, the Red Cross stated that 15 percent of their IVIG (intravenous immunoglobulin) products and 10 percent of their albumin product are provided directly to health care providers and account for 26,000 to 69,000 infusions annually.
It was argued that distribution of blood derivative products to hospitals and health care entities by blood centers is cost efficient because it relieves these entities of the burden of carrying inventory of specialized products that may only be needed on an infrequent basis. Also, it was stated that small or medium-size hospitals may have trouble negotiating with larger distributors and, even if needed blood derivative products could be obtained from larger distributors, they would be more expensive.
It also was argued that blood centers, as neutral, not for profit entities, are able to distribute products in short supply equitably throughout the communities they serve, avoiding problems with hoarding of products and price gouging during times of shortages. The recent shortages of immunoglobulin and alpha-1 antitrypsin were cited as examples.
36Apparently, only 10 percent of distributors can track products by lot number (ERG rept., p. 1-29). In answers to questions posed by the Agency after the hearing, primary distributors said that the costs of implementing a system to maintain a pedigree would be significant.